.



### THEATTORNEY GENERAL OF 1‘ExAs
AUST~NII.'~%XAS January 14, 

### 1964

Honorable J. N. Nutt Opinion No. 

### c-206 Commissioner of Insurance Austin, Texas 78701 Re: Termination agreementswith SouthwesternBell Telephone Dear Mr. Nutt: Company.

Your request for an opinion reads as follows:
"I enclose copies of the following:



## “(1)

“(2)



### "(3)

"(4)

'Your - Contracts executedby Southwestern

Bell Telephone Company and State Board of Insurance on February 12, 

### 1962.
Statement of termination charges presented by SouthwesternBell Telephone Company as of November 

### 27,1963. Our letter of December 11, 

### 1963, addressed to Mr. William J. Burke, Executive Director,Board of Control.
Mr. Burke's letter of December 18, 

### 1963,from Board of Control to State Board of Insurance. office is already familiar with the

. ~ .. . _ _ -. . Gentrex contractwnicn was maae oy ana oesween the State of Texas and SouthwesternBell Telephone Company. In the light of the facts revealed by the attached papers,we request your opinion as to whether the Commissionerof Insurance should certify the claimed termination charges to the Comptroller of PublicAccounts for payment. 'Themarginal notationswhich we have lined out were not a part of the contractsand should be ignored.

-997-Hon. J. N. Nutt, page 2 

### (c-206 )

"This opinionrequest has been approved by the State Board of Insurance." Various termination agreements are submittedwith your request. The termination agreementwith the Board of Control reads as follows:

"Asprovided by the General Exchange Tariffs of the SouthwesternBell Telephone Company, this agreement is supplemental to the regular contract for telephone service between the undersigned parties and is effective for 60 months starting from the date of Installation of the following equipment, facilities or service: 740-E Dial PBX System. Located at Austin, Texas.
"In the event that the contract for the use of the equipment, facilities or service described above Is terminatedby the customer within theminimum serviceperiod of 60 months, the undersigned customer, or its assigns, agrees to pay to the telephone company termination charges equal to $5700.00 reduced by l/60 for eachmonth service is retained, with proportionate reductions for fractional portions of a month. 'Wherethe use of a portion of the equlpment, facilities OP service subject to termination chargesunder this agreement is terminated within theminimum serviceperiod, terminatian charges apply, equal to the original net cost of thatportion of the equipment or facilities the use of which Is terminated, reduced by l/60 for eachmonth service is retained,with proportionatereductions for fractionalportions of a month. "If, at the customer'srequest, engineering,manufacturing or Installationwork once begun is stopped and the installation is not completed, the customer agrees to pay the net costs Incurred in lieu of the above termination charge.

-998-Hon. J. N. Nutt, page 

### 3 (c-206 )

"Thedestruction or partial destruction of the customer'spremises by fire, flood, storm, or other acts of God shallnot be considered as a terminationunder this agreement, if following such destruction or partial destruction of the customer'spermises, the service coveredby this agreement is reestablishedwithin thirty (30)days either at the same or another location. Such interruption of continuous service shallnot be considered as a break in the effectiveperiod of this contract. Any such interruption ofmore than thirty (30)days but not more than one (1)year shall cause an extension of this agreement equal to the duration of the interruption. Any such interruptionbeyond one (1)year shall terminate this agreementbut the payment of termination charges as abovementioned shall be paid by the customer as of the date of lnterruptlon. "Thisagreement shallnot be construed as creating any debt by or on behalf of the State and/or the State Board of Control, and all obligations of the State are subject to the availabi$lty of appropriationsby the Legislature. The terminationagreementwith the State Board of Insurance is identicalwith the terminationagreementwith the Board of Control,with the following exceptions: the amount and time and date of execution are different; and the last paragraph contained in the terminationagreement above quoted Is not contained in the terminationagreement with the Board of Insurance.

The termination agreementwith the Board of Control was submitted to this office for approval at the time of executionb$ the Board of Control. In view of the provisions of Section 9 of Article III of the Constitutionof Texas prohibiting the creation of a debt by or on behalf of the State, and Section 

### 6 of ArticleVIII of the Constitutionof Texas, prohibiting any appropriation of money for a longerperiod than two years, this office felt that the last paragraph of the termination agreement quoted above was essential to the validity of the contract.

-999-Hon. J. N. Nutt, page 4 

### (c-206 )

Section 49 of provides: Article III of the Constitution of Texas

"Nodebt shallbe createdby or on behalf of the State, except
. . .' (Exceptionsnot applicable). The leading cases pertinent to your in Charles Scrlbner's Sons v. Marrs, 114 Tex. 11, r iry are 2 2 S.W. 722 1924) kort Worth Cavalry Club v. Sheppard, 125 Tex. 339, 

### 3 S.Wi2d bbO (1935) I Ch 1 .2%+-l the courtwas*con%?ie~n~s Scribner's Sons v. Marrs', 3 e purchase of certainbooks for a period of five years. The obligation of the contractwas not to buy a fixednumber or amount of books but only somany as needed by the schools of the State. The court held, therefore, that since the contract did notmake a charge on the future revenues of the State, no debt was creatednor was Section 

### 6 of ArticleVIII of the Constitution of Texas violated.

The case of Fort Worth Cavalry Club, supra, Involved a lease contract for a oeriod of five 'Years. The courtheld that the contractwas void since the adjutant general had the impliedpower tomake a contract only within the amounts of the appropriationand the period of the appropriation.

In Attorney General's Opinion C-134, involvinga proposed lease contract, it was held:

'Therefore,if the proposed contract is payable out of future revenues of the State rather than current appropriations,the same is invalid. In the event there are sufficientmonies appropriatedby the Legislature for the payment of the entire lease term contemplatedby the contract, a contract leasing land by these agencies for a longer term than two years would be valid, if paid out of current revenues." In view of the foregoing,you are advised that the terminationagreementbetween SouthwesternBell Telephone Company and the State Board of Insurance is invalid, since the terms of the agreement attempted to create an obligation of the State beyond currentappropriation (current appropriation to the State Board of Insurance,at the time of execution of the agreement on July 11, 1962, expiredAugust 31, 1963) and therefore the same constituted the creation of a

-lOOO-Hon. J. N. Nutt, 

### page 5 

### (C-206 

### )

debt, in violation of Section 49 of Article III of the Constitutionof Texas.

The termination agreementbetween the StateBoard of Control and the SouthwesternBell Telephone Companymade all obligations of the State subject to the availabilityof appropriationsby the Legislature, and no such approprlations have beenmade. Therefore, no obligation to pay the submitted claim by SouthwesternBell Telephone Companywas createdby the agreement.

The claims for termination charges of Southwestern Bell Telephone Companywhich are involved in 

### yourrequest are invalid for the reason that the removal of existing equlpment was not caused by any termination of agreements on behalf of the State,but rather was the consequence of a mutual agreement between SouthwesternBell Telephone Company and various agencies of the State for the installationof the Centrex System. You are therefore advised that it is our opinion that claims for termination chargesby SouthwesternBell Telephone Company are not valid. SUMMARY Claims designatedby SouthwesternBell Telephone Company as termination charges for the removal of existing equipment at the time the Centrex System was installed in various State offices are notvalid for the following reasons: (1)removal of the existing equipment was the result of a mutual agreement between agencies of the State and Southwestern Bell Telephone Company, rather than a termlnation of any agreementby any agency of the State; (2) various terminationagreements were payable out of future revenues of the State and, therefore,were an attempt to create a debt in violation of Section 49 of Article III of the Constitution of Texas; (3) other agreements specificallyprovided that any obligationwas subject to the availability of appropriationsmade by the Legislature, and no appropriationwas made for this purpose; k~mination charge no appropriation is available to pay any

.

-lOOl-Hon. J. N. Nutt, page 6 (c- 206 )

Yours very truly, WAGGONER CARR Attorney General

JR:ms:mkh APPROVED: OPINION COMMITTEE
W. V. Geppert, Chairman
J. C. Davis George Gray H. 'GradyChandler Howard Fender APPROVED FOR THE ATTORNEY GENERAL BY: Stanton Stone John Reeves

-1002-