OFFICE OF THE ATTORNEY GENERAL . STATE OF TEXAS 

JOHN CORNYN 

October 22,200l 

Dr. Ann Stuart, Chancellor 

Texas Woman’s University 

P.O. Box 425497 

Denton, Texas 76204-5497 

Opinion No. JC-0426 

Re: Whether a state university may contract with 

a bank that employs a member of the board of 

regents as an officer (RQ-0387-JC) 

Dear Dr. Stuart: 

A new regent at Texas Woman’s University is an employee and officer of a bank with which 

the university has a continuing banking relationship. * The regent is not a stockholder, has no 

ownership interest in the bank, and does not participate in managing the university account with the 

bank.* You ask whether the regent has a pecuniary interest in that bank and whether the university 

may continue to contract with the bank if contracts are awarded upon the basis of sealed bids and 

the regent refrains from voting on matters relating to such contract after fully disclosing his interest. 

Under the common-law conflict of interest rule, an employee or officer of a bank has a pecuniary 

interest in the bank. When a regent of Texas Woman’s University has such interest in a bank, the 

university board of regents may not enter into a contract with the bank. 

The board of regents of Texas Woman’s University “has the power incident to its position 

and to the same extent, as far as applicable, as is conferred on the board of regents of The University 

of Texas System.” TEX. EDUC. CODE ANN. $ 107.41 (Vernon 1991); see id. 0 107.44 (authority of 

board to adopt rules). Accordingly, the board of Texas Woman’s University may exercise, with 

respect to that institution, the contracting powers conferred upon the board of regents of the 

University of Texas System. The board of the University of Texas System has broad power to 

govern, operate, support, and maintain each of the institutions included in the system. See id. 8 

65.3 1 (a); see also id. 8 65.34 (Vernon 1991& Supp. 2001) (contracts must be approved by the board 

of the University of Texas or otherwise entered into in accordance with rules of the board). Thus, 

the board of regents of Texas Woman’s University exercises the university’s authority to contract 

with banks. 

‘Brief fiomMr. John Lawhon, General Counsel, Texas Woman’s University, to Honorable John Comyn, Texas 

Attorney General (Mar. 22,200l) (on file with Opinion Committee). 
Dr. Ann Stewart - Page 2 (JC-0426) 

A strict common-law conflict of interest rule applies to contracts entered into by the 

governing bodies of state agencies, including the governing boards of state universities. See Tex. 

Att’y Gen. Op. Nos. DM- 18 (199 1) (member of Board of Examiners in the Fitting and Dispensing 

of Hearing Aids); JM-671 (1987) (regent of Texas A & M University); MW-179 (1980) (member 

of Board of Health); Tex. Att’y Gen. LO-97-052 (board member of Texas Agricultural Finance 

Authority). The court in Meyers v. Walker, 276 S.W. 305 (Tex. Civ. App.-Eastland 1925, no writ) 

stated this rule as follows: 

If a public official directly or indirectly has a pecuniary interest in a 

contract, no matter how honest he may be, and although he may not 

be influenced by the interest, such a contract so made is violative of 

the spirit and letter of our law, and is against public policy. 

Id. at 307. 

The enactment of section 572.058 of the Government Code did not repeal the common-law 

rule. See Tex. Att’y Gen. Op. No. JM-671 (1987) at 6 (discussing predecessor of section 572.058, 

Government Code). This statutes provides that a member of a state agency board “who has a 

personal or private interest in a measure, proposal, or decision pending before the board” shall 

disclose that interest and refrain from voting on the matter. TEX. GOV’T CODE ANN. fj 572.058(a) 

(Vernon 1994). Neither the language nor the legislative history of this provision indicates that it was 

intended to apply to contracts. Id. If the new regent has a pecuniary interest in the bank, the 

common-law conflict of interest rule would bar the board of regents of Texas Woman’s University 

from contracting with it. 

In Attorney General Opinion H-91 6, this office determined that a school trustee who was 

employed by a paper company in a managerial capacity had a pecuniary interest in the company’s 

contracts, because of his interest in the financial success of the company. Tex. Att’y Gen. Op. No. 

H-9 16 (1976) at 2; see also Tex. Att’y Gen. LO-93-01 2 (state university may not contract with a law 

firm in which a regent is a partner); Tex. Att’y Gen. Op. No. DM- 18 (199 1) (employee of a hearing 

aid company has a financial interest in company for purposes of statute regulating the fitting and 

dispensing of hearing aids). As an officer and employee of the bank, the new regent of Texas 

Woman’s University would have a pecuniary interest in the bank, and the common-law conflict of 

interest rule would prevent the board of regents from entering into a contract with it. 

We note that section 5 1.923 of the Education Code modifies the common-law conflict of 

interest rule for certain contracts between a university and a corporation in which a regent is 

economically interested. An institution of higher education may contract with a corporation even 

though one or more members of the governing board holds stock in it or serves as a director, as long 

as no board member has a beneficial interest in more than five percent of the corporation’s 

outstanding capital stock. TEX. EDUC. CODE ANN. Q 5 1.923(c) (Vernon 1996). In addition, the 

contract must be “an affiliation, licensing, or sponsored research agreement” or must be awarded by 

competitive bidding or competitive sealed proposals, and the board member having an interest in the 
Dr. Ann Stewart - Page 3 (JC-0426) 

contract or transaction must disclose that interest in a public meeting and refrain from voting on the 

contract or transaction. Id. 6 5 1.923(c), (d). An affirmative majority of the board members voting 

on the contract or transaction must approve it. Id. 5 5 1.923(d). 

Section 5 1.923, however, does not expressly change the common-law rule when a regent is 

an officer or employee of the corporation. It might be argued that section 51.923 impliedly 

authorizes contracts in which the regent is interested as an officer or employee, on the ground that 

these positions involve lesser pecuniary interests in the bank than the positions of director or 

shareholder. However, we must read this statute according to its clear terms and may not read 

language into it, unless this is necessary to effect a clear legislative intent. See RepubZicBankDaZZas, 

iV. A. v. Interkal, Inc., 691 S.W.2d 605,607 (Tex. 1985) (statute must be construed according to its 

plain language); Bouldin v. Bexar County Sher$‘s Civil Serv. Comm ‘n, 12 S.W.3d 527, 529 (Tex. 

App.-San Antonio 1999, no pet.) (additional words may not be inserted into a statute unless it is 

necessary to effect a clear legislative intent). 

As introduced, the bill that became section 5 1.923 of the Education Code provided that an 

institution of higher education or a university system was not prohibited from contracting with a 

business entity because a member of the governing board was “a stockholder, officer, director, or 

employee” of the business entity. Tex. S.B. 1569, 71st Leg., R.S. (1989). The bill included this 

language at its first public hearing before the Senate Committee on Education, at which it was 

referred to a subcommittee. Hearings on Tex. S.B. 1569 Before the Senate Committee on Education, 

71 st Leg., R.S. (Apr. 19,1989) (audio tape available from Senate Staff Services Office). The Senate 

Committee on Education ultimately approved a committee substitute from which the terms “officer” 

and “employee” were deleted. Hearings on Tex. S.B. 1569 Before the Senate Committee on 

Education, 71st. Leg., R.S. (Apr. 19 & May 3, 1989) (audio tapes available from Senate Staff 

Services Office). Given the deletion of these terms, we will not assume that section 5 1.923 of the 

Education Code impliedly applies to an “officer” or “employee.” Accordingly, when a regent of 

Texas Woman’s University is an employee and officer of a bank, the university board of regents may 

not enter into a contract with that bank. 
Dr. Ann Stewart - Page 4 (JC-0426) 

SUMMARY 

Under the common-law conflict of interest rule, an employee 

or officer of a bank has a pecuniary interest in the bank. When a 

regent of Texas Woman’s University is an officer and employee of a 

bank, the university board of regents may not enter into a contract 

with that bank. 

Section 51.923 of the Texas Education Code authorizes a 

university to enter into certain contracts with a corporation in which 

one or more members of the governing board has a pecuniary interest 

as a stockholder or a director, as long as no board member has a 

beneficial interest in more than five percent of the corporation’s 

outstanding capital stock. This Education Code provision does not, 

however, modify the common-law conflict of interest rule if the 

regent is an employee or officer of a business entity. Accordingly, 

section 5 1.923 of the Education Code does not authorize the board of 

regents of Texas Woman’s University to contract with a bank where 

a regent serves as an officer and employee. 

Attorney General of Texas 

HOWARD G. BALDWIN, JR. 

First Assistant Attorney General 

NANCY FULLER 

Deputy Attorney General - General Counsel 

SUSAN D. GUSKY 

Chair, Opinion Committee 

Susan L. Garrison 

Assistant Attorney General, Opinion Committee