**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** referencedmatter poaea the following questions:"1. School district trusteeA (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 inwhich 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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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 fromW-company-- in which trustee'B is a stockholder? "3. The same schooldistrict 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 compliancewith Arti,cle542lc-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 toW-company--be it determined the successfulbidder--, where trustee B is a~atockholderinW-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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repreaent, there is no statutoryprohibition in the Texas tducation Code applicable to contractualconflicts of interest of school board trustees. However, conflicts of interest of school board trusteeshave long been held violative of the common law of this State, and.contracts involving such conflict have'been held void and ,againstpublic 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.tedin the leading case of Meyers v. Walker, 276 S.W. 305 (Tex.Civ.App.1925;no writ),

II

. .'. If a public officialdirectly or - indirectlyhas a pecuniary interest in a contract, no matter howhonest he may be, and although **he** may not be infiuencedby the .interest, such a contract so made isviolativeof the spirit. and'letter,of our law,,and is againstpublic policy."' 276 S,W. at 307 (emphaeisadded.) Moreover, "It **iS** the general.rule that municipal contract: in.which officers or employeesof the city have a personal pecuniary interest are void-~..
. .The foregoing rule rests upon soundpublicpolicy. Its object is to insure to the city strict fidelity upon the part of thosewho represent it and man~agcits affairs. The rule nrohibitinq public officer6 from beinq intcrested in public contracts shouldbe scrupulously =nforced." Edinburq v. Ellis,OP. cit:supra., at 100. **(PITIphaSi6** added.)

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**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 thepecuniary interest of a public officer in 6 transaction.is **remote,** as **where** the officer owns but a miniscule percentage of stock 'ina 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,.176A.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 (3rdEd. 1966).

The foregbing statement of the law is in consonance with the reasoning of Attorney General'6 OpinionNo. 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 . . . authorizedby any .law passed during the **term** forwhich~he was elected." That Opinion stated as follows: "Thegeneral 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~ofrelevant 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 inhis 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**  shareswidely distributed so that his'ownership entitles **him** to no substantial share in the **,management or**  **earnings** of.the corporation.

”
.~. i

. "Toconstrue.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 meaniligfulinfluence in 'the**mandgement** of the corporation .wouldprobably bring into question many **State** and county Contracts entered into in good faith with suppliers of goods .andservices essen~tialto.the operation of the State and county'qovernments." Our answer to your first question is that the school district may lawfullypurchase from company Y. .TrusteeA 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 errorref.). These facts

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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, becausepf the conflict of interest between trustee B and W company, inwhich trustee, B is,a rtockh,older.,The prior opinion of this office, No. O-878 (1939).held that a :similar type of proposed,trhnsactionwas illegal even though a trustee of a stihool,districttook 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 company**Where a.**  school **tr,ustee owns,**  or’ fol~lowinga 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 AustinC. Bray,Jr. Assistant 

### Attorney**General** 

### APPROVED: OPINIONCOMMIWEE KernsTaylor,-airman **W.** 

### B. Allen,Co-Chairman JohnReeves JackGoodman RexWhite HoughtonBrownlee SAMJRLD. .HCDARIEL **Staff** Legal **Assistant**
**ALFRED WAIXER**  

### ExecutiveAssistant NOLAWHITE First 

### Assistant

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