OFFICE OF THE ATTORNEY GENERAL OF TEXAS 

2. I AUSTI 

GROVER SELLERS Yl 

ATTORNEY GNERAL 

Honwable Weaver Ii. Baker. Cbaiman 

State Board of Control - 

Austin, Texas 

Dear Sir: Opinlen Be. O-7005 

Rer Authority of Beard 

islature will have 

and Insurance Corpo 

on the members of t 

and given careful st 

such surety bonds 

yeas haa been received 

ortlens of your letter: 

agreed te execute the 

the State Board of 

contract. 

ontract has been fully performed on 

partles therete and beth parties 

to abide by the terms of the aaid 

:Hon.,Weaver H. Bsker, psge 3 23 

, 

Paragraphs tuo 8nd three of the aontraat you have 

with Centrsrt Surety 8nd Insurenae Corporstlon 8re quoted belovt 

"The Party of the Second Part hereby aantrsats 

and agrees to execute the surety bonds on the member8 

of t.he State Board of Control, the Searetary to the 

Stste B0s.H of Cbntrol, 8nd the Superfntendents 8nd 

Storekeeper-aoaountants of the vsrious ~eemosyn8ry 

Institutions of,the State of Texas, under the supervision of the Boaed ,of Control, 8s required by statute 

as 8nd vhen their present bonds axpire, or nev onea 

8re requfred, fey 8 period of two ye8rs be-g 

Septehber 25, 1944. It is agreed and understood that 

should surety bonds be required 8y lev of other employees 

of the State Board of Control or the various Eleemosynary 

inatitutZons during the time aovered by this aontraat, 

the Party of the Second Part sgrees to execute them.. 

This is ln acaordanae with the speaifiaations and bid 

proposal 8s submitted by the Pwty OS the Seoond, Part 

8nd opened by the Party of the First Part on September 

25, 1944, 8nd said speoifiaationa and bid proposal 8re 

hereby made 8 part of this contract for all purposes. 

"In 8aaord8nae vith the provisions of the bid 

submitted by the Party of the Seaond Pert, the Party 

of the First PsFt hereby contracts snd 8gFeea to pay 

to the Party of the Ssaond Part Two ($2.00) Dollars 

per thous8nd per 8nnum for the Vsrious fidelity bonds 

to be executed by the Party of the Second Part. In 

a aase the Legislature should provide that premiums may 

be paid for two years In advance, the Party of the 

Seaond P8rt agrees that the premium sh8ll be Three 

and Sevqnty Xundredtha ($3.70) Dollars per thousand 

for m'two year peplod. The Party af the Second 

Part agreea to submit to the proper institution, or 

the Board of Control as the aase m8y be, 8 statement 

for the premium of each bond, executed In trlpllaate 

8nd aaaomparnled by 8n affidavit as required by lav...? 

It will be noted thst the effeative period of the aontraat 

is from September 25, 1944, to September 25, 1946. There sppears to 

be no question as to the vslldity of this aontraat 'at the time it 
Hon. Weaver Ii. Baker, page 4 20 

was signed September 1944, The question, then, is, wh8t eifeat 

Senate Bill 233 has, 1-P any, upon the valldltp or legality of 

the aontraot. 

It Is ow? opfnion thst the effeot of son8te Bill 233 

is to make llleg$the exeaution of bonds thereunder at the 

rates therein stipulated after the effeative date o? the nevly 

established rates by the Ismmsnae Board. After suah date, bonds 

may be made at the new rates for the reason hereinefter rtated. 

The aonalualon ia predicated upon the rule that vhore 

a aontraat la exeauted whlah la valid at the time of it8 exeaution but by reason of s8ubsoQuent ah8nge in the law - whether 

by statute or valid 8dBbbItratlvo Order8 making the further 

subjeat matter Of the aontraot illegal, It operates 8s a disahargo of the aontraat 60 weautc;d. 

Corpus Jurls Seaundum, Vol. 17, p. 964, Sea. 467, 

dealerear 

"Performenae of a aontraat a8nnot be aompolled 

vhere it vould involve a violation of law. Hence 8 

aontraat is dlwah8rgo& vhero after it has been entered Into, the perfornmnae is made unl8vful." 

The text is supported by numerous a8868 Including 

Federal deal&ions and others from the highest oourta o” the States 

of Arlgensas, Callfornl8, De18var0, ffeorgia, Illinois, Indiana 

M8ryland, Miselealppi, Aev limpshire, Hew York, Texas, West 

Virginia, 8nd WisaonsIn, In the pocket prt supplefaent, there 

BFQ Inaluded other a8888 from the State6 of PeIIASylV8d8, Rhode 

Island and Wyoming. 

Bule VS. Porter, 22% 3. U. 999, the Texas aaae 

cited by the text quotes Ruling CSse Law aa followst 

“One of the aondltlons implied In 8 aontraat is 

that the promiser shall not be aonrpelled to perform 

lfop~errmanae la rendered imgosslble by an sat of 

. The inferenae is that the perties did not 

aontomplate that dmages should be peid for nonperformenae In the event that performance Yaa aubsequently ppohlbited b law. The deaislons of praatiacally sll jurl.adla e ions me to the effect that 

where a contract, legal ln ita inception, becones 
, 

A, 

HOPI. Weaver H. Bsker, page 5 21 

illegal by subsequent statutory enaotment, the 

aontrsot 1s wholly termlnsted 8% soon 8% the 

statute takes effeat, even though the time speclfled for Its performance hes not yet fully expired, 

and no action aan be maintained by either party for 

failure to peqform the obllgetlons of the contract 

after the liiegailty has sttached." 

In Lcui%vllle and Reehville Railroad Company vu). 

ROttiey, (n. 3. )55 MU. Ed. 297, It 1s said; 

"This lmpossiblllty of enforcement exists 

vhether the agreement 1% illegai ln its lnoeptlon, 

or whether being oaild vhen made, the lllegallty 

has been arested by a subsequent statute." 

traats. 

The language ~8s 8 quotation from Pommeroy on conThe 3hpreme Court further approving Pommeroy quoted 

one of hi% supporting critatione , Chief Justlae Lord Ellenborough, 

who a8idt "That no contr8ct can properly be oarrled into effect 

which ~88 orlg!naily made contrsry to the provisions of law, or 

vhlah, being made conalstently vith the rules Qf law at the time, 

ha% become illegal ln virtue of some subsequent law, Bpe propositions which 8dmlt of no doubt." Justiao Harlan then further 

quoted Judge Cooley upon the aonstltutlonal provision prohibiting 

ieglslatlon lmpalring the oblfgstlons o? aontrsats, as follow%: 

"But the aat to reguiste oommerae is 8 

general iaw, and aontraots are 8ivays liable to 

be more or less affected by general 18~9, even 

when ln no way referred to . . . But this lnoldentai effect of the general lav is not understood to make It a 18~ impairing the obligation 

of oontraots. It is 8 necessary effeot of 8ng 

oonslderable ohange ln the publie iawa. If the 

Legislature had no power to alter It% police law% 

when the oontraats would be effeated then the moat 

important and valusble reforms might be prealuded 

by the simple devise of entering Into oontraots 

for the purpoee, Ho doctrine to that effeat would 

be even plausible, muoh leas sound and tenable." 

In BrowntBr;sia;;; Merchsnts Bank (H. Y.) 213 Rew York 

Supplement, 146, 1 1 

"Contraots made with reference to a subject 

within the restricted pover OS 8 government oontaln 
Honi Weaver H. Baker, page 6 

the implied OOndltlOA that a ohange in 18v may 

be made end the obligations of the parties varied 

or avoided. Fltts v. Andrevs, 192 App.‘Div. 160, 

182 R. Y. 9. 464; Town of North Hempstead vs. 

Publio Serviq? Corp., 231 n, Y. 44 450, 1 2 R. B, 

l&4* Legal Tender C88e6, 12 Wall, J' 57, 551 ? 20 L,Rd. 

287). ‘The obligation of the law qwlifier, and 

In case of aonfliat, ovdrridos, the obligation of 

the oontraot.~ Postal. Tel. Cable Co. v. Assoalated 

Press, 228 R. Y, 370,- 375, 127 f. B. 256. ‘Contrsate 

must be undsrstood as made In referonae to the poa8181s exerolso o? the rightful authority of the 

government.~ Louisville 6 R. R. Co, Y. Rottley, 219 

u. 3. 467, 482, 31 8. Ot, 265, 270, 55 L. Ed. 297, 

34 L. R. A, (R. 3.) 671. The rights of the p8rties 

relitlve to the certificate to 8% signed, being 

subject to government restrlation, aould not be removed from suah restrlation by 8 contraat aontrsry 

to the law. Rudson County Water Co. v. MaCarter, 

209 U. 3. 349, 357, 2% S.Ct. 529, 52 L. Bd. 828, 

14 Ann. Cas 560~ People ox rel. City of Ecu York 

v. Nixon, 229 8. Y. 356, 359, 12% N. E. 245. When 

the new 18~ beceme operative, the parties were relieved from performanoe In that nuinner, for, vithout 

fsult on the psrt of either, both were disabled fY?om 

performing. Adler v. tiles, 69 Miss. Rep. 601, 126 

N. Y, 9. 13 

54 

; 

." 

People v. dlobe Mutual Life Ins. Co, 

91 R. Y. 17 

This dealsion vaa 8ffirmed by the Court of Appeals, 

the highest jurlsdiation in Rev York. We have found no aase 

holding.%0 the aontrary. It is proper, however, under the, 

authorities, to sever the llleg8l portion of the contra& where 

the nature of the contract makes such matter severable 8nd to 

i enforce the contra& aa to that portion r%m8ining ilegal after 

such severance. 

t 

We understand the aorporation 1% 8gre%881% to this 

being done and is ullllng to write fidelity bonds under the 
, . . 

____- ..----- -. se.-., r-- , 

contract for the remainder of lta term at the Board*8 prescribed rate8 (wry naturally since the rescrlbed mlnirmull 

rates are higher than the oontraot rate8 P edd we think it 

i.s within your authority to permit It to do so for the remainder of the lll;yz~ of your oontraot.