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# THE ATJTORNEY GPCNEPQAE OF TEXAS

March 3, 1975
Tbe Honorable Carlos F. Truan 

### Chairman, Committee on Human Opinion No. H- 543
**Reaourcer** House of Representatives P. 0. Box 2910 Austin, Texas 78767 Re: Constitutionality of certain portions ofarticle 3183c, V. T. c. s.

Dear Representative Truan:

You have asked **our** opinion regarding the constitutionality ofthose provisions ofarticle 3183c, V. T. C.S. which permit the superintendents ofState institutions in the Texas Department of Mental Health and Mental Retardation to deposit the interest or increment accruing on the invested funds ofinmates in a “benefit fund” from which the superintendent may expend the moneys for the education or entertainment of the inmates at the institution, ‘or for the actual expense ofmaintaining the fund at the institution.

According to the Commissioner of the Department, inmates upon admission “are encouraged to relinquish excess funds and keep only small amounts in their possession for personal needs. ” Such funds, as well as any received after admission are, according to statute, deposited in the institution’s Trust Fund account and credited to the respective inmates. The interest earned on these invested funds is placsdin the institution’s Benefit Fund, and it is this accrued interest which is the subject of inquiry here.

The statute specifies that moneys in the Benefit Fund should be utilized for the entertainment and education ofthe inmates ofan institution. The Commissioner believes that “few ofthe patients and students have actual knowledge of the use to which interest earned on their funds is applied, ” and he states that the inmates in no way give their consent to the use ofthese funds.

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The Honorable Carlos F. Truan page 2 (H- 543)

The Standard Operating Procedures Manual of the Department (March 1, 1972) requires that:

. . . [e]ach expenditure must stand on its own as being ofgeneral benefit to the population of the institution. This does not mean or imply that every patient or resident must benefit from each expenditure from the Benefit Fund. The guiding principle in expenditures of these funds is that no partiality or preferential treatment is shown individuals or selected groups of residents or patients. Expenditures from Benefit Funds must be properly documented to show the exact purpose and, if practical, to show the names of the patients or residents benefiting from the expenditure. Ifan inmate’s relinquishment ofhis “excess funds” represents a valid contract, then the **statutory** effect ofthat agreement --the subsequent transfer ofthe accrued interest on those funds into the institution’s Benefit Fund-- must be deemed constitutional and valid, regardless ofhow the interest is ultimately expended. The constitutionality of article 3183~ thus dependes upon a factual determination ofthe validity ofa particular inmate’s initial agreement to release his excess funds, and any funds received thereafter, into the institution’s Trust Fund account.

There are three possible grounds onwhich an inmate might seek to avoid the contract whereby the consents to place his funds in the institution’s Trust Fund account: mental incapacity, undue influence, and mistake of law. Itis a fundamental principle of contract law that each party to a contract must be legally competent and able to bind himself under an agreement. Phelps &Johnson v. Zuschlag, 34 Tex. 371 (1871). A person’s mere presence, however, ina mental mstitution is not determinative of the question of mental capacity to contract. Article 5547-8363 V. T. C.S., provides that:

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The Honorable Carlo8 F. Truan page 3 (H-543)

The judicial determination that a person is mentally ill or the admission or commitment of aperson to a mental hospital, without afinding that he is mentally incompetent, does not constitute a determination or adjudication of the mental competency ofthe person and does not abridge his rights as a citizen or affect his property rights or legal capacity. Likewise, mere mental weakness is not initself sufficient to render a person incompetent for purposes of contract. Gray v. Allen, 243 S.W. 684 (Tex. Civ. App. --San Antonio 1922, writ dism’d); Beville v. Jones, 11S.W. 1128 (Tex. Sup. 1889). Indeed, the law will presume that each party to a contract possesses sufficient mental capacity, and the burden of proof with respect to overcoming this presumption rests with the party who asserts the contrary. Swink v. City of Dallas, 36S.W. 2d 222 (Tex. Comm. App. 1931).

A person’s mental capacity to contract is dependent upon whether he knows and understands the nature and consequences ofhis act in negotiating the contract, and the resolution of this inquiry is afactual determination. Fox v. Lewis, 344 S.W. 2d 731 (Tex. Civ. App. --Austin 1961, writ ref’d, n.r. e.). The mental incapacity sufficient to void a contract must exist at the time the contract was entered. Cole v. Waite, 242 S.W. 2d 936 (Tex. Civ. App. --Amarillo 1951)aff’d , 246 S.W. 2d 849 (Tex. Sup. 1952).

A second possible basis for avoiding the contract is the institution’s exercise ofundue influence over the contracting inmate. Undue influence is separate and distinct from mental incapacity, and presupposes mental capacity to contract. Shelton v. Shelton, 281 S.W. 331 (Tex. Civ. App. --Austin 1926, no writ). The presence ofundue influence may be demonstrated by the feeble-mindedness and susceptibility to influence ofthe party challenging the contract. McKay v. McKay, 189 S.W. 520 (Tex. Civ. App. --Amarillo 1916, writ ref’d). The combined elements of mental weakness, undue influence, and overreaching have been held sufficient to set aside a conveyance. Meyer v. Swift, 11S.W. 378 (Tex. Sup. 1889). Furthermore, when one party to a contract stands in a fiduciary or confidential

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The Honorable 

### Carlo8 F. Truan page 4 (H- 543)

relationship to the other, the agreement will be carefully scrutinized by the courts, and the burden will be onthe party in whan confidence has been reposed to show that the contract is just and reasonable, that it is supported by adequate consideration, and that it was freely entered into by the other party. Coon v. Ewing, 275 S.W. 481 (Tex. Civ. App. --Beaumont 1925,writ dism’d); Wells v. Houston, 57 S.W. 584 (Tex. Civ. App. 1900,no writ).

An inmate aggrieved by the operation ofarticle 3183~ might also contend that, at the time he transferred his funds into the institution’s Trust Fund account, he was ignorant ofthe statute’s existence and effect. Itis of course true that all persons of sould mind are presumed to know the law, Worthen v. Peoples Loan and Homestead Co., 150 S.W. 2d 830 (Tex. Civ. App. --Galveston 1941,no writ), and that a mistake by a party to a contract as to its legal effect is generally no ground for equitable relief. Moore v. Studebaker Bros. Mfg. Co., 136 S.W. 570 (Tex. Civ. App. 1911, no writ); Kelley v. Ward, 58S.W. 207 (Tex. Civ. App. 1903). aff’d , 60 S.W. 311 (Tex. Sup. 1901).

But where the mistake was accompanied by circumstances tending to show misrepresentation, imposition, undue confidence, undue influence, mental incompetence, or surprise, relief has sometimes been granted. Means v. Limpia Royalties, 115S.W. 2d468 (Tex. Civ. App. --Ft. Worth 1938, writ dism’d); Lange v. Bins, 281S.W. 626 (Tex. Civ. App. --San Antonio 1926,no writ) ; Leslie v. City ofGalveston, 226 S.W. 438 (Tex. Civ. APP. --Galveston 1920,no writ); Moreland v. Atchison, 19Tex. 303 (1857). Especially in situations where the mistake is brought about by one possessed of superior knowledge, in whom trust has been reposed, a court of equity may intervene. Altgelt v. Gerbic, 149S.W. 233 (Tex. Civ. App. --San Antonio 1912,writ ref’d). Other courts have granted equitable relief where one party takes advantage of the other’s ignorance ofhis legal position and rights. Commercial Bank & Trust Co. v. Buntain, 278 S.W. 503 (Tex. Civ. App. --Amarillo 1925, no writ); Ward v. Baker, 135 S.W. 620 (Tex. Civ. App. 1911, writ dism’d).

An inmate’s relinquishment ofhis funds to the institution’s Trust Fund account, and the subsequent transfer ofthe accrued interest thereon

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The Honorable Carlo8 F. Truan Rage 5 (H-543)

into the Benefit Fund, is thus a contract which is voidable on any of these three grounds, but it is not void as a matter of law. Gaston v. Copeland, 335 S.W. 2d 406 (Tex. Civ. App. --Amarillo 1960, writ ref’d. n.r. e.). Absent aparticular inmate’s successful legal challenge, the contract must be deemed valid, and the relevant portions of the truet fund programwhich stand or fall in each particular cane upon the validity of the initial agreement, must be upheld as constitutional. SUMMARY Tmss provisions ofarticle 3183c, V. T. C. S., which authorize the superintendent ofa state institution in the Texas Department ofMental Health and Mental Retardation to “deposit any funds ofinmates in his possession in any bank

. . .[to] deposit the interest or increment accruing on such funds in a . . . ‘benefit fund, ’ ofwhich he will be the trustee
. . . [and to] expend the moneys in any such fund for the education or entertainment ofthe inmates of the institution, or for the actual expense of maintaining the fund at the institution!’ are constitutional on their face, but may be voidable by aparticular inmate’s showing that the initial relinquishment ofhis funds into the institution’s Trust Fund account was not a valid contract. Very truly yours,

Attorney General of Texas

, KENDALL, First Assistant

C. ROBERT HEATH, Chairman Opinion Committee

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