. 

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 agreements with 

Southwestern Bell 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 executed by Southwestern 

Bell Telephone Company and State 

Board of Insurance on February 12, 

1962. 

Statement of termination charges 

presented by Southwestern Bell 

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 contract wnicn was maae oy ana oesween 

the State of Texas and Southwestern Bell Telephone Company. In the light of the facts revealed by the attached papers, we request your 

opinion as to whether the Commissioner of Insurance should certify the claimed termination 

charges to the Comptroller of Public Accounts for 

payment. 

'The marginal notations which we have lined 

out were not a part of the contracts and should 

be ignored. 

-997- 
Hon. J. N. Nutt, page 2 (c-206 ) 

"This opinion request has been approved 

by the State Board of Insurance." 

Various termination agreements are submitted with 

your request. The termination agreement with the Board of 

Control reads as follows: 

"As provided by the General Exchange 

Tariffs of the Southwestern Bell 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 terminated by the customer 

within the minimum service period 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 each month service is retained, 

with proportionate reductions for fractional 

portions of a month. 

'Where the use of a portion of the equlpment, facilities OP service subject to termination charges under this agreement is terminated within the minimum service period, terminatian charges apply, equal to the original 

net cost of that portion of the equipment or 

facilities the use of which Is terminated, 

reduced by l/60 for each month service is retained, with proportionate reductions for 

fractional portions of a month. 

"If, at the customer's request, engineering, manufacturing or Installation work 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 ) 

"The destruction or partial destruction 

of the customer's premises by fire, flood, 

storm, or other acts of God shall not be considered as a termination under this agreement, 

if following such destruction or partial destruction of the customer's permises, the 

service covered by this agreement is reestablished within thirty (30) days either 

at the same or another location. Such interruption of continuous service shall not be 

considered as a break in the effective period 

of this contract. Any such interruption of more 

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 interruption beyond one (1) year shall 

terminate this agreement but the payment of 

termination charges as above mentioned shall 

be paid by the customer as of the date of lnterruptlon. 

"This agreement shall not 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 appropriations by the 

Legislature. 

The termination agreement with the State Board of 

Insurance is identical with the termination agreement with 

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 termination agreement 

above quoted Is not contained in the termination agreement 

with the Board of Insurance. 

The termination agreement with the Board of Control 

was submitted to this office for approval at the time of 

execution b 

$ 

the Board of Control. In view of the provisions 

of Section 9 of Article III of the Constitution of Texas prohibiting the creation of a debt by or on behalf of the State, 

and Section 6 of Article VIII of the Constitution of Texas, 

prohibiting any appropriation of money for a longer period 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 

"No debt shall be created by or on 

behalf of the State, except . . .' (Exceptions not 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 court was*con%?ie~n~s 

Scribner's Sons v. Marrs', 

3 

e purchase of certain books for a period of five years. 

The obligation of the contract was not to buy a fixed number 

or amount of books but only so many as needed by the schools 

of the State. The court held, therefore, that since the contract did not make a charge on the future revenues of the 

State, no debt was created nor was Section 6 of Article VIII 

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 court held 

that the contract was void since the adjutant general had the 

implied power to make a contract only within the amounts of 

the appropriation and the period of the appropriation. 

In Attorney General's Opinion C-134, involving a 

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 sufficient monies appropriated by the Legislature 

for the payment of the entire lease term contemplated by 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 

termination agreement between Southwestern Bell 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 current appropriation (current 

appropriation to the State Board of Insurance, at the time of 

execution of the agreement on July 11, 1962, expired August 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 

Constitution of Texas. 

The termination agreement between the State Board 

of Control and the Southwestern Bell Telephone Company made 

all obligations of the State subject to the availability of 

appropriations by the Legislature, and no such approprlations have been made. Therefore, no obligation to pay the 

submitted claim by Southwestern Bell Telephone Company was 

created by the agreement. 

The claims for termination charges of Southwestern 

Bell Telephone Company which are involved in your request 

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 Southwestern Bell Telephone Company and various 

agencies of the State for the installation of the Centrex System. You are therefore advised that it is our opinion that 

claims for termination charges by Southwestern Bell Telephone 

Company are not valid. 

SUMMARY 

Claims designated by Southwestern Bell 

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 agreement by any agency of the 

State; (2) various termination agreements 

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 specifically provided that 

any obligation was subject to the availability 

of appropriations made by the Legislature, and 

no appropriation was 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. 'Grady Chandler 

Howard Fender 

APPROVED FOR THE ATTORNEY GENERAL 

BY: Stanton Stone 

John Reeves 

-1002-