The Attorney General of Texas 

May 20, 1982 

MARKWHITE 

Attorney General 

Supreme Court Suildin9 

P. 0. BOX 12548 

Austin. TX. 78711.2548 

51214752501 

Telex 91m74.1367 

Telecopier 512/47502S9 

1807 Main St., Suite 1400 

Dallas, TX. 752014709 

214&‘42-S944 

4824 Alberta Ave.. Suite 160 

El Paso. TX. 799052793 

915r533-3484 

122G Dallas Ave.. Suite 202 

fiouston. TX. 77002699S 

71- 

806 Broadway. Suite 312 

Lubbock, TX. 79401-2479 

9W747-5238 

43G9 N. Tenlh. Suite 6 

McAllm. TX 795WlS95 

512fss24547 

2aa MaIn Plaza. twte 400 

San Anfonlo. TX. 78205-2791 

512/225%4191 

A” Equal Opportunity/ 

Afftmutfve Action Employer 

Mr. Al Hurley 

President 

North Texas State University 

P. 0. Box 13426 

Denton, Texas 76203 

Opinion No., m-475 

Re: Authority of state 

universities to execute 

contractual indemnity agreements, and related questions 

Dear Mr. Huriey: 

You have asked about the authority of the state to indemnify 

others contractually. If such authority exists, you ask what acts can 

be covered by the indemnity agreement. If .it does not exist, you ask 

whether a contract containing such a” agreement would be 

voidable. 

The following clause is one, you advise,’ that commonly 

in contracts proffered by the university: 

University shall indemnify and hold harmless 

contractor from and ags’inst .any and all claims; 

actions, or damages including .attoceys fees 

caused by or arising out of the performance, 

failure to perform or breach of’ any of the 

university’s obligations~under this lease. 

void or 

is found 

,Some indemnity agreements require: the indemaitor to hold the 

indemnitee harmless from liability arising by reason of the 

indemnitee’s own acts. or arising from the acts of third parties. See 

14. Tex. Jur.yI Contribution and Indemnification 024, at 675. ‘But 

x V.T.C.S. arts. 249d. 2212b. The clause set out above Is notof 

that type. h-ever. It purports to indemnify- only ,against harm 

arlsing from acts of the university itself. 

To the extent that such a clause merely reinforces obligations 

the university has legally undertaken eisewhere, and does not expand 

or increases the school’s liability or the scope of its liability, it 

is harmless surplusage. But to the extent that It purports to create 

liability or potential liability on the part of the university beyond 

its statutory or constitutional powers to incur liability, it is 

invalid. The governing bodies of state universities are creatures of 

statute and may ~o”stitutio”ally exercise only powers properly 

P. 1669 
. . d - 

Mr. Al Hurley - Page 2 (NW-475) 

delegated to them by the legislature. See Foley V. Benedict, 55 - 

S.W.2d SO5 (Tex. 1932). 

A contractually imposed obligatfon of indemnity creates a "debt" 

in the constitutional sense unless at the time of the agreement it is 

within the lawful and reasonable contemplation of the parties that it 

will be satisfied out of current revenues or some currently available 

fund. Tex. Const. art. III, §49. art. XI, §§5, 7; T A N.O.R.R. 

Comlanv v. Galveston County, 169 S.W.2d 713~ (Tex. 1943). See also 

Brown v. Jeffe&o n County, 406 S.W.2d 185 (Tex. 1966)~. Cf. city of 

Big Spring v. Boa rd of Control, 404 S.W.2d 810 (Tex. 1966)duration 

and extent of liabil ity controlled by agency); Harris County V. 

Dowlearn, 489 S.W.2d ,140 (Tex. Civ. App. - Houston [14th Dist.] 1973, 

writ ref'd n.r.e.) (orohibition not annlicable . . to non-contractual 

obligations). settidr; 49, article III of the Texas Constitution 

commands that "no debt shall be created by or on behalf of the 

State...." The only exceptions are for supplying casual deficiencies 

of revenue, repelling invasion, suppressing insurrection, defending 

the 'state in war, or paying "existing debt." The term "existing debt" 

apparently refers to the debt existing ~ln 1876 when the provision was 

adopted. Further, the provision places a $2OO,COO limit on "debt 

created to supply deficiencies in the revenue." 

There are no saving provisions fin the article III, section 49 

constitutional prohibition against state debt such as there are in the 

article XI, sections 5 and 7 provisions dealing with debts of cities 

and counties. The latter..section provides: 

[N]o debt for any purpose shall .ever .be incurred 

in any manner by .any city or .county unless 

provision is made, at the time of creating the 

same, for levying ,and collecting a sufficient tax 

to pay the interest thereon and provide at least 

two percent (2%) as a sinking fund...; 

The Texas Supreme Court has held that this provision does not prevent 

a county from agreeing to assume. indebtedness in the form of a "hold 

harmless'! agreement so long, as provision is made. for levying and 

collecting' the. tax required. Brown v. Jefferson Counte, gupra. See 

also County of Ector v. City of Odessa, 492 S.W.2d 360 (Tex. Civ. AK 

-E1Paso 1973. no writ). 

In light of .~the restrictive constitutional'prohibition against 

state debt, especially when coupled with the "cash basis" requirements 

of article III. section 49a of the constitution, a state agency will 

ordinarily be unable to execute an enforceable indemnity agreement in 

favor of another party. Persons contracting with agents~of the state 

are bound at their peril to ascertain the limitations of the agent's 

authority and cannot recover to the extent the agent exceeds it. 

p. 1670 
Mr. Al Hurley - Page 3 @f~-475) 

Sta~te V. Ragland Clinic-Hospital, 159 S.W.2d 105 (Tex. 1942). Nor 

will statutory "control and management" authority In the agent suffice 

if there is no constitutional warrant for it. T & N.O.R.R. Company v. 

Galveston' County, supra. See Kearse v. Kearse, 276 S.W. 690 (Tex. 

1925). Constitutional limitations must be read into a statute so as 

"to restrict literalism to proper bounds." Kearse V. Kearse, supra; 

- cf. Educ. Code 9105.41 (management and control of N.T.S.U.). 

A relatively recent Texas Supreme Court case might at first 

appear to undermine the holding of State v. Ragland Clinic-Hospital. 

supra. and then efficacy of the section 49, article III Idebt" 

prohibition, but not if seen in proper perspective. In State v. City 

National Bank of Austin, 603 S.W.2d 764 (Tex. 1980), the ,court held a 

state agency liable for the "holdover occupancy" of office building 

space wafter the expiration of a four year lease containing a 

"holdover" clause. The state contended, as briefs on file with the 

court reveal, that the "holdover" arrangement was a new one negotiated 

with the lessor after the original lease expired, and.that the agency 

was prohibited from contracting with respect to it by both the 

"prekexisting law" provision of the constitution (article.111. section 

44) and a' statute. But the state did not claim that, the original 

lease had been invalids for lack of authority'in~ the agency -to .incur 

debt on behalf of the state. 

contract 

Since the validity of the original lease 

- which contained' a "holdover" clause -- was.uncontested, 

the court said (after noting the state's contentions applicable only 

to an alleged "subsequent" agreement): "In view of our holding that 

the State is liable.because of the written agreement, we find it 

unnecessary to discuss these points." Similarly, -the prohibition of 

section 49, article III was not put at issues in either Board of 

Regents of the University. of Texas v. S. 8 Gi. Construction Company, 

529 S.W.2d 90. (Tex. .Civ. App. - Austin 1975, writ ref'd n.r.e.), or 

University of Texas System V. Robert E. McKee,.Inc.. 521 S.W.2d 944 

(Tex. Civ. App. - Eastland 1975, writ ref'd n.r.e.). 

We think it continues ~to be the law in this state that the State 

of Texas.,cannot be held liable for a contractual obligation concluded 

by an agent of the state in excess of his authority, and that no state 

agent can be given authority to Incur or create a debt on behalf of 

the state in contravention of.the constitution. See City of Wichita 

Palls V. Kemp Public Library Board of Trustees, 593 S.W.2d 834 (Tex. 

Civ. App. - Fort Worth 1980, writ ref'd n.r.e.). In holding that 

Jefferson County had complied with the constitutional requirement that 

provision be made for .levying and collecting the required tax, the 

supreme court In Brown v. Jefferson County.-supr'a. did not declare 

that the county was unconditionally bound to perform the indemnity 

agreement as agreed. It said: 

The 'hold and save' agreement herein .involved... 

may be one which may be funded and paid off 

p. 1671 
. . . 

Mr. Al Rurley - Page 4 (MW-475) 

without violating any constitutional debt limit or 

taxing restrictions applicable to counties. If 

such obligation may be so discharged, the CounF 

has bound itself to do so.... Necessarily, the 

agreement to levy a 'sufficient tax' fromyear to 

year is subject to constitutionally imposed 

restrictions.... 406 S.W.Zd 189, 190. (Emphasis 

added). 

- See Galveston, H & S.A.Ry. Company v. Uvalde County. 167 S.W.2d 305 

(Tex. Civ. App. - San Antonio 1942, writ ref'd w.o.m.); Attorney 

General Opinion..WW-423 (1958). See also Attorney General Opinion 

C-385 (1965). 

We advise, therefore, that only those obligations which the state 

agency or university has the constitutional and statutory power to 

discharge may be the subject of a valid indemnity agreement by it in 

favor of others. An indemnity agreement negotiated by a state 

instrumentality in violation of law is unenforceable and void, 

although an invalid indemnity clause in an.otherwise enforceable 

coutract'will not ordinarily invalidate the remainder of the contract. 

See Williams v. Williams, 569 S.W.2d 867 (Tex. 1978); Paschal1 v. Gulf 

c.& S.F.Ry. Company, 100 S.W.2d~183 (Tex. Civ. Appt - Dallas 1936). 

modified and aff.'d sub nom. Campbell v. Pas&all, 121 S.W.2d 593 (Tex. 

1938). See generally Susman, Contracting With the State Fiscal and 

~Constitutional Limitations, 44 Tex. L.Rev. 106 (1966). .~ 

SUhMARY 

'Only those obligations which the state agency 

or university has the constitutional and statutory 

authority to discharge may be the subject of a 

valid indemnity agreement by it in favor of 

others. An indemnity agreement negotiated by a 

state instrumentality in violation of law is 

unenforceable and VOi& although- an invalid 

indemnity clause in an otherwise enforceable 

contract will not ordinarily invalidate the 

remainder of ~the contract. 

JOEN W. FAINTER, JR. 

First Assistant Attorney General 

p. 1672 
. m 

Mr. Al Hurley - Page 5 (nw-475) 

RICHARD E. GRAY III 

Executive Assistant Attorney General 

Prepared by Bruce Youngblood 

Assistant Attorney General 

APPROVED: 

?PINION COMMITTEE 

Susan L. Garrison, Chairman 

Virglna Daugherty 

Rick Gilpin 

Patricia Hinojosa 

Jim Moellinger 

Bruce Youngblood 

p. 1673