5106 

Honorable W. W. Kilgore Opinion No. WW-1101 

County Attorney 

Victoria County Re: Whether the county may 

Victoria, Texas legally enter Into a 

contract pertaining to 

the furnishing of hospital services for the 

employees of a county 

3ear Mr. Kilgore: hospital. 

Your request for an oplnion concerns a contract 

entered into between Group Hospital Service, Inc., and 

Citizens Memorial Hospital, a county hospital, wherein 

Group Hospital Service, Inc., agrees to reimburse the hospital for hospital services furnished to the employees of 

the hospital up to the amount of dues paid by the employees 

covered. The contract further provides that if the amount 

of services furnished by the hospital are less than the 

amount of the dues paid by the employees that the difference will be paid to the hospital while on the other hand 

if the amount of services exceed those dues, the hospital, 

and hence the county, will pay to Group Hospital Service, 

Inc., the amount of the excess. You question the power of 

the county through the Board of Managers of said hospital 

to enter into this contract and, specifically, the liability 

of the county to pay a $7,008.28 assessment for the year 

1960, which represents the excess of benefits afforded 'over 

dues paid for that particular year. 

Three issues are presented: 

1) Whether the contract is a lending of the county's credit or a 

grant of public money in violation of Section 52 of Article 

III of the Texas Constitution.* 

2) Whether the effect of ~the contract 

Is to make the county a "stockholder" 
;! 

i . 

Honorable W. W. Kilgore, Page 2 (WW-1101) 

in a corporation in violation of 

this same Section 52.' 

3) Assuming the contract does not 

violate Section 52," is the 

hospital's Board of Managers 

authorized to enter Into such 

a contract. 

The first auestion is answered in the nenatlve 

on the basis of Byrd-v. City of Dallas, 118 Tex. 28, 6 

S.W.2d 718 (1938). which unheld the valldltv of an act . -- ,- 

permitting cities to make payments into a pension fund 

for the benefit of its employees if such payments were 

part of the compensation of the employees for services 

rendered. This same reasoning has been held applicable 

to legislation permitting counties to pay hospitalization insurance for their employees In a prior opinion by 

this office (WW-731, 1959). We can see no consequential 

difference between t~he payments by the county here lnvolved and those in the B&case, supra, or in W-731, 

so far as the ccnstitutional issue is involved. We have 

assumed in our answer that the obligation undertaken by 

the county through the Board constitutes part of the compensation of such employees rather than a gratuity. 

The answer to the second questiondepends upon 

the applicability of the case of Lewis v. Independent 

School District of City of Austin, 139 Tex. 83, 161 S.W. 

2d ri50 (19421, in which the Supreme Court held that a 

school district could not purchase insurance from a mutual 

insurance company because it thereby In effect became a 

stockholder in such company, the Court saying: 

"This Court has held that Section 52 of Article 3 of the Constitution prohibits cities from becoming members of a mutual Insurance 

* "The Legislature shall have no power to authorize any 

county, city, town or other political corporation or 

subdivision of the State to lend Its credit or to 

grant public money or thi~ng of value in aid of, or to 

any individuals, association or corporation whatsoever, 

or to become a st.ockt;older in such corporation, . . .'I 

Section 52, Article III, Texas Constitution. 
Honorable W. W. Kilgore, Page 3 (WW-1101) 

association whose subscribers are 

stockholders in such company. city 

of Tyler v. Texas Employers' Ins. 

AssIn., Tex.Com.App., 288 s.w. 409; 

Id., Tex.Com.App., 294 S.W. 195; 

Southern Casualty Co. v. Morgan, Tex. 

Com.App., 12 S.W.2d 200; McCaleb v. 

Continental Casualty Co., 132 Tex. 

65, 116 S.W.2d 679. (Emphasis added) 

II 

. . . The language used in the 

Constitution is clear and unambiguous. 

It specifically prohibits the School 

District from becoming a stockholder 

in a corporation, association, or company. . . .'I 

In our opinion, Chapter 20 of the Texas Insurance 

Code, under which Group Hospital Service, Inc., was organized, does not require that corporations operating thereunder 

be mutual in nature, or more to the point, that Its policyholders or the persons buying its service must necessarily 

participate in the affairs of the company to the same or 

similar extent as policyholders In a mutual company or as 

stockholders In a capital stock company. 

In point.of fact, the actual corporate plan of 

Group Hospital Service, Inc., is not mutual in nature. It 

is a non-profit corporation whose by-laws provide for the 

control of its affairs by the device of a self-perpetuating 

E!oard of Directors. There Is no provision, either in the 

By-Laws, or In the contract sold, by which any so-called 

member has any vote or any voice In directing the policies 

or conducting the business of the corporation, nor do they 

contribute to the "capital" of said corporation. It should 

also be noted that Article 20.09 of the Code specifically 

provides that corporations of this type shall not be construed as being engaged In the business of insurance. Hence, 

we conclude that the contract does not violate the provision 

of Section 52 of Article III of the Constitution, prohibiting a county from becoming a stockholder In a corporation. 

In answer to the third. question, It is Our opinion 

that the Board of Managers is authorized to enter into a contract as is here in question, and, consequently, the county 

has the obligation to pay the $7,008.28 now assessed against 

it under the terms of such contract. 
Honorable W. W. Kilgore, Page 4 (WW-1101) 

Citizens Memorial Hospital of Vlctorla County is 

a county hospital and Its operations are under the control 

of the County Commissioners of Victoria County and a Board 

of Hospital Managers and they operate under the provisions. 

of Chapter 5 of Title 71 of Vernon's Civil Statutes, said 

chapter being entitled "County Hospitals." 

It Is stated in 15 Tex.Jur.2d 277, Counties, Sec. 

48, in regard to the delegation of authority by the commlssloners court to its agents, in part, as follows: 

11 

. . . By statute the commlssioners' court is empowered to 

appoint agents for the accomplishment of purposes authorized by law. 

And the contracts or acts of such 

agents, when duly executed or done 

for or on behalf of the county, and 

within the scope of their authority, 

are declared to be valid and effectual to bind the county." 

Article 4478, Vernon's Civil Statutes, provides 

in part as follows: 

llThe commissioners court of any 

county shall have power to establish 

a county hospital . . . and shall 

have the following powers: 

I, 

. . . 

“5. To appoint a board of managers for said hospital. 

Article 4480, Vernon's Civil Statutes, provides 

in part as follows: 

The board shall have the 

general'mkagement and control of the 

said hospital, grounds, buildings, 

officers and employees thereof; of 

the inmates therein,, and of all matters relating to the government, dlscipline, contracts and fiscal concerns 

thereof; " . . . 
5105 

Honorable W. W. Kilgore, Page 5 (WW-1101) 

Also Article 4484, Vernon's Civil Statutes, provides in part as follows: 

"The board of managers shall keep 

in a book provided for that purpose a 

proper record of its proceedings, which 

shall be open at all times to the inspection of its members, to the members 

of the commissioners court and to any 

citizen of the county. The board shall 

certify all bills and accounts, including salaries and wages, and transmit 

them to the commissioners court, who 

shall provide for their payment in the 

same manner as other charges againstthe 

county are paid." (Emphasis added) 

This office has held in Attorney General's Opinion 

x-2213 (1950): 

"When an obligation Is incurred by 

the Superintendent of such hospital, 

such obligations must be approved by the 

Board of Managers. The Board of Managers 

thereafter must submit these bills and 

obligations to the County Commissionerst 

Court. The payment of these obligations 

and bills Incurred by the hospital should 

then be made by the county in the same 

manner as other obligations of the county 

are paid. The expenditures for and on 

behalf of the hospital must not exceed 

that amount provided for the hospital by 

the Commissioners' Court.' 

It is therefore our opinion that the contract entered into by the Citizens Memorial Hospital was originally 

approved by the Board of Managers for said Hospital under 

the authority given to them by Article 4480 of Vernon's Civil 

Statutes and other authorities cited above. In our opinion 

Article 4480, Vernon's Civil Statutes, is sufficiently broad 

to authorize the contract as herein described; and such contract would not constitute a lending of credit or donation of 

public funds but rather compensation for future Services to 

be rendered by the employees of the. county hospital; hence, 

the contract would not come within the purview of Section 52, 

Article III, Texas Constitution. This contract has been in 

existence for many years. So long as the Board of Managers 

of the Citizens Memorial Hospital approves such claims, as is 
Honorable W. W. Kilgore, Page 6 (WW-1101) 

provided for by the contract under consideration such contract is a valid and legal contract and the payments under. 

the terms of the contract are to be made in the same manner 

as other obligations of the County are paid. 

SUMMARY 

Counties may pay out premiums for insurance plans sold by corporations organized 

under Chapter 20 of the Texas Insurance 

Code without violating the provisions of 

Section 52 of Article III of the Constitution, either as to the lending of its 

credit or granting of public money or as 

to the provision prohibiting becoming a 

stockholder in a corporation; and, the 

Board of Managers of Citizens Memorial 

Hospital, a. county hospital for Victoria 

County, had authority to enter into a 

contract with Group Hospital Service, Inc., 

for the purpose of furnishing medical and 

hospital services for its employees. 

Yours very truly, 

WILL WILSON 

Attorney General of Texas 

I. Raymond Williams, Jr. 

Assistant 

1RWjr:mm 

APPROVED: 

OPINION COMMITTEE 

W. V. Geppert, Chairman 

Fred Werkenthln 

Marietta Payne 

Houghton Brownlee, Jr. 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: Morgan Nesbitt