October 28, 1987 

Mr. Robert J. Provan Opinion.No. JM-817 

General Counsel 

Stephen F. Austin Re: Whether a state univerState University sity may contract with a 

P. 0. Box 6214 corporation in which the 

Nacogdoches, Texas 75962 spouse of a regent owns a 

substantial interest 

Dear Mr. Provan: 

You state that Stephen F. Austin State University has 

purchased the products of a close corporation. A person 

recently appointed to the Board of Regents owns a .2% 

interest of the firm's equity without a voting interest. 

Her husband owns over 6% of the firm's equity and controls 

over 12% of its voting interest. He is an employee of the 

firm and serves as chairman of the board of directors, but 

does not hold an elected office in the firs. You moreover 

inform us that the new regent's spouse acquired his 

interest in the corporation prior to the marriage and that 

he asserts that his ownership interest is his separate 

property. 

You finally inform us that: 

[T]he purchases by SFA 'of the firm's 

products in the past have not been of the 

kind that required the action or approval of 

the Board of Regents. None of the purchases 

were submitted to the Board of Regents in 

the past. So far as can be determined at 

this time, none of the prospective purchases 

of the firm's products during the new 

regent's term will require the action or 

approval of the Board of Regents. 

you ask whether an unlawful conflict of interest 

exists if the university purchases the products of the 

close corporation under the facts 

have outlined. 

and circumstances you 

p. 3875 
Mr. Robert J. Provan - Page 2 (JM-817) 

State universities are subject to the common law rule 

which prohibits a public officer from having a direct or 

indirect financial interest in a contract entered into by 

the governmental body of which he is a member. See 

Attorney General Opinion Nos. JM-671 (1987); H-1309 

(1978); see also Attorney General Opinion MW-179 (1980). 

Even very small pecuniary interests have been held to 

constitute a prohibited financial interest in a public 

contract. In Attorney General Opinion H-624 (1975) this 

office determined that the commissioners court could not 

purchase supplies from a farmer's cooperative in which a 

commissioner owned a few shares, an almost negligible 

interest. Thus, the individual regent's -2% interest 

constitutes a pecuniary interest in the firm which would 

bar the Board of Regents from contracting with the firm. 

Under Texas community property law, one spouse has a 

community property interest in the other spouse's earnings 

from employment and in the income of the other spouse's 

separate property. Family Code !j5.01(b): Hardee v. 

Vincent, 147 S.W.Zd 1072 (Tex. 1941, opinion adopted) 

(where original investment in business was from wife's ' 

separateaeitate, profits were community property): Matter 

of Marri u of York, 613 S.W.Zd 764 (Tex. Civ. App. - 

Amarillo 1981, no writ) (profits derived from business are 

community property, even though capital is separate 

property): Maben v. Maben, 574 S.W.Zd 229 (Tex: Civ. App. 

- Fort Worth 1978, no writ) (husband's salary is community 

property). 

Section 5.22 of the Texas Family Code provides that 

during marriage, each spouse has separate management, 

control, and disposition. of certain community property 

including personal earnings and revenue from separate 

property. Family Code 55.22(a). However, each spouse 

still has an interest in the community property subject to 

the separate management of the other spouse. a Family 

Code 55.61 (all community property is subject to tortious 

liability of either spouse incurred during marriage): 

Short v. U.S., 395 F.Supp. 1151 (E.D. Tex. 1975) (income 

tax liability). &g Estate of Wvlv v. Commissioner of 

mernal Revenue, 610 F.2d 1282 (5th Cir. 1980) (spouse's 

interest in "sole management" community property is only 

an "abstract" ownership). In our opinion, the regent has 

a personal pecuniary interest in her husband's salary from 

the close corporation and in the income of his ownership 

interest. 

p. 3876 
i 

Mr. Robert J. Provan - Page 3 (JM-817) 

Attorney General Opinion JM-126 (1984) concluded that 

an individual's community property interest in one half,of 

her husband's salary as an employee of a health care 

facility did not constitute a 'substantial pecuniary 

interest in a facility" that would disqualify her from 

serving on the Texas Health Facilities Commission. See 

Acts 1975, 64th beg., ch. 323, 82.02 (expired Sept. 1, 

1985 per Texas Sunset Act, Acts 1977, 65th Leg., ch. 735, 

92.114) (formerly V.T.C.S. art. 4418h, 52.02). The 

evaluation of the community property interest in Attorney 

General Opinion JM-126 does not control the case you 

inquire about. Attorney General Opinion JM-126 considered 

whether a board member's community property interest in 

her husband#s salary constituted a "substantial pecuniary 

interest" under section 2.02 of article 4418h, V.T.C.S. 

The husband was on a fixed salary, had no direct share in 

the health facility's profits or losses, and had no 

respons$bility for expansion or financial management of 

the firm. Based on the given facts, Attorney General 

Opinion JM-126 concluded that the commission member did 

not have a "substantial pecuniary interest in a facility" 

as defined by statute. 

The present case involves a strict common law rule, 

which reaches indirect as well as direct pecuniary 

interests, and which is not limited to substantial 

interests. Under the common law standard, the board 

member's community property interest in her husband's 

salary and other income from the firm constitutes a 

personal pecuniary interest which prevents the Board. of 

Regents from contracting to purchase its goods. 

The fact that the Board of Regents does not approve 

purchases of the firm's products does not remove them 

sufficiently from the contracting process to eliminate the 

conflict of interest. The board is responsible for the 

general control and management of the university and for 

purchasing. Educ. Code 595.21 (powers of Board of 

Regents, State Senior Colleges): see Educ. Code 5101.41 

(granting Board of Regents of Stephen F. Austin University 

same powers and duties of management and control over 

university as are conferred on Board of Regents, State 

Senior Colleges, with respect to its component 

institutions). 

A subordinate officer or employee has authority to 

contract for the university only because the board has 

adopted a rule, regulation or order delegating such power. 

Educ. Code %95.21(b). Cf. better Advisory No. 148 (1977) 

p. 3877 
Mr. Robert J. Provan - Page 4 (JM-817) 

(employment of regent's niece by state university would 

violate nepotism statute even though board of regents has 

delegated employment power). The board may resume 

exercising that authority itself by repealing the rule, 

regulation, or order delegating it. The employee who 

approves the contract is accountable to the board for his 

decisions about the contract and for his job performance 

generally. If a dispute with the contractor arises, the 

board will very likely participate in resolving it. Thus, 

the board cannot divest itself of responsibility for the 

contract with the firm, even though subordinate officers 

or employees may purchase its products without regental 

approval. See aenerally V.T.C.S. art. 6252-913. 

SUMMARY 

Stephen F. Austin State University is 

barred by common law conflict of interest 

provisions from purchasing the products of a 

firm in which a regent.has an interest, even 

though the board of regents has delegated 

purchasing decisions to subordinate officers 

and employees. 

Very truly y s, 

L-/!kh 

. 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEARLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Susan L. Garrison 

Assistant Attorney General 

p. 3878