Ron. J. W. Edgar Opinidn NO. M- 1236 

Commiaaioner of Education 

Texas Education Agency Re: Whether the interest 

201 East 11th Street of trustees of an 

Austin, Texas .78701 independent school 

district in certain 

contracts with the 

district renders said 

Dear Dr. Edgar.: contracta.void 

Your recent letter requesting the opinion of this 

office concerning the referenced matter poaea the following 

questions: 

"1 . School district trustee A (of the district) 

currently is an administrative employee (not an 

officer) of X-oil company. Like other such employees, 

he purchases from his salary stock in the company. 

As compared to total shares outstanding, his stock 

ownership is inapprectiable. 

"Y-company is a franchise distributor. of gasoline and lubrication products purchased from X-oil 

company. Assuming, where applicable, compliance 

with Sections 21.901(a) and (d), Texas Education 

Code (1971) V.T.C.S.-- 

“Query 1:’ Legally, may a school district purchase from Y-company gasoline and/or lubr$cat+on 

products; viz., from a local diatkibutor for X-oil 

company in which a trustee of the diatrict'owna 

shares of stock? 

“2 . Another trustee, B, is a stockholder in 

W-company. Presently he owns 100 shares of a total 

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. - 

‘non. ‘J. w,. Edycw,. I’aqc 2, (M-1Lj6) 

3.000 outstanding. When a contemplated reorganization is completed, he will own 620 shares out 

of 6,480. 

"Query 2: Legally, may the school ~diatricc 

purchase products and/or services from W-company-- 

in which trustee'B is a stockholder? 

"3 . The same school district owns 12 acres 

of land which, when bought,.waa acquired for school 

construction purposes. Now. the land because of 

commercial development in the area is not regarded 

to be serviceable as a school site. Recently, 

W-company -{in which,truatee B holds stock) offered 

to buy the land. An option to purchase the tract 

.waa approved by the school board.. 

"Assuming compliance with Arti,cle 542lc-12; 

V.T.C.S., and Section, 23.30, Texas-Education Code 

(1971)-V.T.C.S., 

"Query' 3! Legally, may the achbol district 

board sell and convey the land to W-company--be it 

determined the successful bidder--, where trustee 

B is a ~atockholder in W-company?" 

We believe your three queations pose, in essence, but 

one issue to be resolved: May the board of trustee3 of an 

independent school district legally contract with a, company In 

which one of itatrusteea is a stockholder? 

For purposes of this Opinion, we assume, as stated in 

your l.etter, that Sections 21.901 and 23:30, Texas Education 

Code, and/or Article 5421c-12, where' applicable, have been 

complied with. 

While Texas has a penal statute (Article 373, Vernon's 

Penal Code) and a civil sta!ute (Article 2340, Vernon's Civil 

Statutes) prohibiting contractual conflicts of interest between 

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city and county officials and the entities such officials 

repreaent, there is no statutory prohibition in the Texas 

tducation Code applicable to contractual conflicts of 

interest of school board trustees. However, conflicts of 

interest of school board trustees have long been held violative of the common law of this State, and.contracts involving 

such conflict have'been held void and ,against public policy. 

47 Tex.Jur.2d 160, Public Officers, Sec. 121; Edinburq. v. 

Ellis, 50 S.W.Zd 99 (Tex.Comm.App. 1933); Cornutt v. Clay 

County!, 75 S.W.2d 299 (Tex.Civ.App. 1934, no writ); Bexar 

County v. Wentworth, 37B.S.W.2d 126 (Tex.Civ.App. 19Grror 

ref., n.r.e.1.; and Delta Electric Const. Co. v. Citv of San 

Antonio, 473 S.W.2d 602 (Tex.Civ.App. 1969, error ref., n-r-e.). 

gas long ago sta.ted in the leading case of Meyers v. 

Walker, 276 S.W. 305 (Tex.Civ.App. 1925; no writ), 

II . .'. If a public official directly - or 

indirectly has a pecuniary interest in a contract, no matter howhonest he may be, and although he may not be infiuenced by the .interest, 

such a contract so made is violative of the spirit. 

and'letter,of our law,,and is against public 

policy."' 276 S,W. at 307 (emphaeisadded.) 

Moreover, 

"It iS the general.rule that municipal contract: 

in.which officers or employees of the city have a 

personal pecuniary interest are void-~.. . . The foregoing rule rests upon sound public policy. Its object 

is to insure to the city strict fidelity upon the 

part of those who represent it and man~agc its affairs. 

The rule nrohibitinq public officer6 from beinq intcrested in public contracts should be scrupulously 

=nforced." Edinburq v. Ellis, OP. cit:supra., at 100. 

(PITIphaSi6 added.) 

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an. J. W. Edyar, p&qe 4, (M-1236) 

Furthermore, this office ha6 many times held void 

contract6 entered into by school board trustees, or other 

public officers, where such'.officere, either directly or 

indirectly, have a pecuniary interest in the contracts. 

Attorney General's Opinion6 Nos. G-878 (1939), G-1014 (1939). 

O-1589 (1939), G-2306 (1940)., G-2758 (1940), G-4000 (1941). 

O-4590 (1942), .C-6280 (1944); C-6876 (1946), WW-1362 (1962), 

M-340 (1969), and M-751 (1970). inter alia; contra, V-663 

(1948): Cf. Attorney General's Opinions Nos. M-625 (1970). 

and M-987 (1971). 

Where the pecuniary interest of a public officer in 

6 transaction.is remote, as where the officer owns but a miniscule percentage of stock 'in a corporation, or where he is but 

a mere employee, rather than an officer or director, of such 

corporation, his interest is not one of such a degree that will 

render invalid the.transaction in which his interest is involved. 

State v. Robinson,, 2 N.W.Zd 183 (N.D.Sup. 1942); State v. MCAlliSter, 365 S.W.2d 696 (Tex.Civ.App. 1963, no writ): Callowav v. 

Borouoh of Wildwood‘Crest,. 176 A.2d 41 (N.J.App.,Div. 1961); 

Voelcket v. Schnell, 166 N.Y.S.;420 (N.Y.App.Div:l917): and 10 

McQuillin on Municipal Corporations 473 (3rd Ed. 1966). 

The foregbing statement of the law is in consonance 

with the reasoning of Attorney General'6 Opinion No. M-625 

(1970). construing Section'18 of Article III of the Constitution 

of Texas, which provides 

I, 

. ..‘,. nor shall any member of the Legislature be 

interested, either directly or indirectly, in any 

contract with the State . . . authorized by any .law 

passed during the term for which~ he was elected." 

That Opinion stated as follows: 

"The general rule would prohibit a.corporation 

in which a legislator is,a stockholder from ,contracting with the State. . i . 

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; . 

‘mn,‘J. W. hgar, paqi 5, (M-1236) 

"In our 'opinion, however, it is neceisary in 

each case presented to ‘examine a number~of relevant 

factors in order to determine whether the legislator 

actually. owns dn, interest of the kind within ,the 

prohibition of the Constitution. It is essential 

to determine,whether the legislator is an officer 

or director of the corporation, whether he is influential in the management of the corporatiosthrough 

any o~ther cirtiumstance,, whether he owns in his own 

name’or beneficially a substantial interest in a 

closely held corporation,, or whether his interest 

is, in fact a minor interest ina corporati,on with 

many shares widely distributed so that his' ownership entitles him to no substantial share in the 

,management or earnings of. the corporation. 

” 

.~. i . 

"To construe.the coristitutional- provision so 

strictly that it would apply where a legislator 

owned;an insubstantial interest in a.large corporation with many shares widely distributed, and 

where he had no control or meaniligful influence 

in 'the mandgement of the corporation .would probably 

bring into question many State and county Contracts 

entered into in good faith with suppliers of goods 

.and services essen~tial to.the operation of the State 

and county' qovernments." 

Our answer to your first question is that the school 

district may lawfully purchase from company Y. .Trustee A is 

not employed by company Y at all. His only connection seems 

to be with company X, who sells to company Y. Trustee A is zot 

an off,ic.er of X company, and his shareholdings ih that company 

are inappreciable in relation to‘the number of. shares outstandinq. Under the facts companies X and Y are separate legal 

entities. Commonwealth of Massachusetts v. Davis, 14O.Tex. 

398, 168 S.W.Zd 216 (1943); State v. Humble Oil & Refininq Co.,, 

263 S-w. 319, 325 (Tex.Civ.App. 1924 error ref.). These facts 

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. . 

non’.‘J. w. uiyrrr.~ f&J“ 6, (M-1ZW 

and authorities are distinguished from those in Attorney General 

Opinion No. WW-1362 (1962) relating to a consignee. 

In reply to.your second question, it is our opinion 

that the district may not purchase products or services from 

'W company. Trustee B's interest there after the reorganization will be nearly 10%: in legal contemplation, a substantial 

interest in the company. 

In reply to your third question, our opinion is that 

the board of trustees.may notcomplete the sale of the land to 

W company, because pf the conflict of interest between trustee 

B and W company, in which trustee, B is,a rtockh,older., The 

prior opinion of this office, No. O-878 (1939). held that a 

: similar type of proposed,trhnsaction was illegal even though 

a trustee of a stihool,district took no part in letting the 

contract, which,was let on competitive bid. 

------- SUMHA,RY' 

Where a school trustee owns an inappreciable 

part of the shares of X company, and X company 

supplies Y company, the school district may lawfully contract with~Y companyWhere a. school tr,ustee owns, or’ fol~lowing a 

reorganization will own, nearly 10% of the shares 

of W company, the,'school district may not 1,awfuliy 

purchase supplies or services from W.'&ompany. 

Where a school district owns land it may,not 

sell the land to a company in which a-school trustee 

is interested. 

Y tpy' I 

RD C. MARTIN 

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Prepared~ by Austin C. Bray, Jr. 

Assistant Attorney General 

APPROVED: 

OPINION COMMIWEE 

Kerns Taylor, -airman 

W. B. Allen, Co-Chairman 

John Reeves 

Jack Goodman 

Rex White 

Houghton Brownlee 

SAMJRL D. .HCDARIEL 

Staff Legal Assistant 

ALFRED WAIXER 

Executive Assistant 

NOLA WHITE 

First Assistant 

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