Court Opinion

ID: 4133433
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:38:02.489083+00
Date Added: 2024-06-11T14:34:21.622786
License: Public Domain

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 gaso-
       line 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 pur-
       chase 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

                              -6053-
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    ‘non. ‘J.   w,. Edycw,. I’aqc 2,     (M-1Lj6)

            3.000 outstanding. When a contemplated reorgan-
            ization 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 -{inwhich,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

                                       -6054-
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 viola-
tive 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 official directly -or
     indirectly has a pecuniary interest in a con-
     tract, no matter howhonest he may be, and al-
     though 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 fore-
     going 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 intcr-
     ested in public contracts should be scrupulously
     =nforced." Edinburq v. Ellis, OP. cit:supra., at 100.
     (PITIphaSi6  added.)

                            -6055-
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                remote,
    transaction.is       as where the officer owns but a minis-
cule 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. MCAlliS-
ter, 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

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

        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 ,con-
        tracting with the State. . i .

                                             -6056-
;    .
    ‘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 influ-
               ential 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,onwith
              many shares widely distributed so that his'owner-
               ship 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 corpor-
              ation 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~tialto.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
                of X company, and his shareholdings ih that company
     an off,ic.er
     are inappreciable in relation to‘the number of.shares outstand-
     inq. 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 reorganiza-
         tion 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,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 law-
                    fully 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,'schooldistrict 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

                                                   -6050-
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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