Court Opinion

ID: 4129543
Source: CourtListenerOpinion
Date Created: 2017-02-18 00:53:22.589141+00
Date Added: 2024-06-11T14:27:29.273805
License: Public Domain

OFFICE
         OFTHEATTORNEY
                    GENERAL.
                          STATE
                              OFTEXAS
    JOHN    CORNYN

                                          November 3,1999

The Honorable Irma Range1                            Opinion No. JC-0138
Chair, Committee on Higher Education
Texas House of Representatives                       Re: Whether a public junior college may give
P.O. Box 2910                                        funds to a charitable and educational nonprofit
Austin, Texas 78768-2910                             corporation  (RQ-0047-K)

Dear Representative    Rangel:

          You have asked this office whether funds donated by a private donor to a junior college for
the restricted purpose ofproviding scholarships to needy students at the college may, as you describe
it, be transferred to a nonprofit foundation “created exclusively for charitable and educational
purposes in providing support for the specific College seeking to transfer the funds.” Letter from
Honorable Irma Rangel, State Representative, to Honorable John Comyn, Attorney General, at 1
(Mar. 23, 1999) (on tile with Opinion Committee) [hereinafter “Request Letter”]. Because such
funds were not given as an unrestricted gift but rather are funds impressed with a charitable trust,
and hence are not general assets of the junior college, we believe that the trustee of the college may
petition a court of competent jurisdiction under section 112.054 of the Property Code for a
modification of that trust by which their duties as trustees of these funds would be taken over by the
nonprofit corporation, subject to the continuing restriction that the funds may only be used for their
original purpose as scholarship funds, if in the opinion of the trustees the administrative           costs
associated with their retaining control of the funds would “substantially impair the accomplishment
of the purposes of the trust.” TEX. PROP. CODE ANN. § 112.054(a)(2) (Vernon 1995). Because the
 nature and purpose of the funds would not be altered by such a modification, in our view the
 arrangement would not fall afoul of the prohibitions against gifts or grants of public funds to private
 entities found in article III, sections 5 1 and 52 of the Texas Constitution. Statutory authorization for
 such a procedure as we have outlined is to be found in section 11.156 of the Education Code, which
 vests such gifts in “the board of trustees . as trustees for those to be benefitted by the donation,”
 TEX. EDUC. CODE ANN. $ 11.156(a) (Vernon 1996), as well as in section 112.054 of the Property
 Code.

        As you explain the matter to us, a benefactor of a public junior college has given funds “to
the College for the restricted purpose of providing scholarship money for needy students at the
College.” Request Letter at 1. A private nonprofit corporation has, since the donor began giving
such funds, been established “exclusively for charitable and educational purposes in providing
support” to the junior college. Id. The regents and administration of the college, as well as the
original donor of the funds, “desire to consolidate the scholarship monies provided by the private
The Honorable Irma Range1 - Page 2                (JC-0138)

donor within a single fund under the control of the Foundation, rather than have these scholarship
monies split between separate funds controlled by the Foundation and by the College.” Id. at 2.

         The attorney for the junior college has expressed certain concerns regarding the legality of
such a consolidation, on the assumption that “the scholarship monies gifted to the College are now
technically assets of the College.” Id. The attorney is concerned with the question of whether such
consolidation may violate the constitutional provisions regarding the gift of public funds to private
entities, and whether it “may involve an improper circumvention oflaws governing decision-making
and accessibility of information regarding funds of a public junior college.” Id. In light of the
college’s attorney’s questions about the proposed consolidation, you ask whether “such a transfer
of scholarship monies” is legally permissible, and whether it would be so “without the consent of
the original donor.” Id.

         As to the question of the original donor’s consent, we note as a preliminary matter that the
hmds about which you ask appear to be prior charitable gifts of the donor, rather than a revocable
trust. The donation of such funds to a charitable organization is “deemed a gifl to the charitable
purpose and objects of the corporation. . . Because a charitable corporation is organized for the
benefit ofthe public, and not for private profit or its own benefit, the public has a beneficial interest
in all the property of a public benefit, non-profit corporation. Such a corporation has legal title to
the property but may use it only in furtherance of its charitable purposes.” Blocker v. State, 718
S.W,2d409,415      (Tex. App.-Houston [lst Dist.] 1986, writref dn.r.e.). Accordingly, legal title has
passed horn the donor to the trustees of the junior college. Section 11.156 of the Education Code,
which governs junior college districts, is to the same effect. It reads in relevant part:

                (4      A conveyance, devise, or bequest of property for the benefit
                        of the public schools . . . vests the property in. the board of
                        trustees of the . . . district . . as trustees fir those to be
                        benefited by the donation.

                        The fbnds or other property donated or the income from the
                        property may be spent by the trustees:

                        (1)      for any purpose designated by the donor that
                                 is in keeping with the lawful purposes of the
                                 schools for the benefit of which the donation
                                 wasmade....

TEX. EDUC. CODE ANN. 4 11.156 (Vernon 1996).

          In this instance, you inform us, the consolidation of the funds would be subject to the
restriction originally placed upon them by the donor. Accordingly, because the funds will be used
for the designated purpose and for the benefit of those for whom it was created, the trustees, who
The Honorable   Irma Range1 - Page 3              (X-0138)

hold the legal title to the fund, need not seek or obtain the consent of the original donor to petition
to substitute trustees.

         Because the donated funds are impressed with a charitable trust, they are not general assets
of the college so as to implicate the constitutional prohibition against giving public money to private
parties. Restricted funds such as these are impressed with a charitable trust; the college’s legal title
to them is subject to an inalienable beneficial interest. See Salisbuly v. Ameritrust Texas (In re
Bishop College), 151 B.R. 394, 399 (Bankr. N.D. Tex. 1993) (“It is a basic tenet of the law of
charitable trusts that beneficial charitable interests are inalienable.“).

         In the Bishop College case, a college in Dallas went bankrupt in the late 1980s. The Chapter
7 trustee ofthe bankruptcy estate asserted that two testamentary trusts that had been set up to benefit
the college were property of the bankruptcy estate subject to turnover for the purpose of satisfying
the estate’s creditors. See Bishop College, 151 B.R. at 395-96. This office, intervening in the
proceeding “as is required in all disputes involving charitable trusts,” argued that “the assets of the
Trusts, both corpus and accrued income, are not property of the estate.” Id. at 397. The court
agreed, noting the “high regard” in which Texas courts hold charitable trusts, id. at 400, and
concluded that the trusts were subject to reformation under the equitable doctrine of cy pres, which
permits such reformation of charitable trusts when the particular intentions of the settlor “‘cannot
be carried out, or become impractical or illegal.“’ Id. at 401 (quoting Blocker, 718 S.W.2d at 411
n.1).

         The teaching of the Bishop College case, in our view, is that charitable gifts are not simply
the property of the entity or person to whom they are given in trust. Rather, what is salient about
such gifts is their charitable nature. Such funds do not belong to the trustees, though the trustees
may hold the legal power of their disposition. They may be disposed of only “in furtherance of.
charitable purposes.” Blocker, 718 S.W.2d at 415.

         Because these charitable gifts are trust assets, they are subject to reformation by a court of
competent jurisdiction pursuant to section 112.054 of the Property Code. In such a proceeding, “the
attorney general is a proper party and may intervene.” TEX. PROP. CODE ANN. $123.002 (Vernon
1995). In this instance, should the trustees ofthis college believe that, absent consolidation ofthese
funds, the accomplishment of the purpose ofthe trust would be “substantially impair[ed],” they may
petition the court to order that they should be replaced as trustees of the scholarship funds in
question here-that      is to say, of the funds already given by the donor subject to the restriction that
they be used for scholarships - by the trustees of the foundation.           Id. $ 112.054. In such a
substitution of trustees, the college will be giving up nothing save the duty of trusteeship over these
particular funds, and hence no gilt ofpublic moneys within the contemplation of article III, sections
51 and 52 is involved.

        We caution that our conclusion here is limited to the facts before us, in which the college
seeks consolidation of funds impressed with a charitable trust to which it holds legal title with other
such charitable trust funds held by a nonprofit foundation. We do not intend to suggest that the
The Honorable   Irma Range1 - Page 4               (X-0138)

college could give or grant monies from its general operating funds to such a foundation, or that
such a grant would be permissible under article III, section 51 or 52. Nor do we intend to suggest
that the board oftrustees’ handling of these funds in its capacity as trustee is not subject to any other
constitutional or statutory provisions governing uses of funds.

         As to the attorney’s other concerns with respect to “an improper circumvention of laws
governing decision-making and accessibility,“see Request Letter at 2, in our view if such a purpose
were manifest, the court in the exercise of its equitable powers could refuse the petition to substitute
trustees under section 112.054. Whether there might be such a purpose in any particular case would
be a question of fact upon which we cannot opine in the opinion process, and you do not suggest that
there is such a purpose in the instant case.

         While your letter references the Public Funds Investment Act, chapter 2256 of the
Government Code, it appears inapposite here, because the proposed transaction involving these
funds is not in the nature of an investment. On the other hand, the Open Meetings Act, chapter 55 1
of the Government Code, is of concern, because it applies to the board oftmstees of a junior college
district. See Tex. Att’y Gen. Op. No. JM-340 (1985) at 3 (trustees of junior college district are
trustees of school district for Open Meetings Act purposes). Accordingly, final decisions of the
trustees made about public business, in this instance the disposition or transfer of trust assets, must
be made in accordance with the strictures of the Open Meetings Act.

         We note further that the board of trustees of a junior college district is subject to the Public
Information Act, chapter 552 ofthe Government Code, and must comply with that Act in responding
to requests for information about the funds and any board actions regarding them. See generally
Tex. Att’y Gen. Op. No. JM-575 (1986) at l-2 (concluding that records of state colleges and
universities concerning gifts, grants, and public funds are public records subject to statutory
predecessor of Public Information Act); see also Tex. Att’y Gen. ORD-485 (1987) (applying
statutory predecessor of Public Information Act to junior college records).

         In summary, then, funds donated to a junior college for the restricted purpose of providing
scholarships to needy students of the college are impressed with an inalienable charitable trust, and
as such are not general assets of the junior college. Accordingly, should the trustees of the junior
college as trustee ofthese funds view the administrative costs associated with their retaining control
of the funds as substantially impairing the accomplishment of the trust purpose, the trustees may
petition a court of competent jurisdiction to modify the trust under section 112.054 of the Property
Code, substituting as trustees over the funds the trustees ofanonprofit corporation created to provide
support to the college in question, subject to the continuing restriction that the funds may only be
used for their original purpose as scholarship funds. Because of the trust impressed upon these
funds, the constitutional restrictions on the donation of public money or credit to a private entity
would not be implicated by such a consolidation.       However, any grant of general college funds by
the college’s trustees to the foundation would implicate such constitutional questions.           Laws
concerning public decision-making and accessibility of information concerning public funds, such
as the Open Meetings and Public Information Acts, do not forbid such a transaction.
The Honorable   Irma Range1 - Page 5              (JC-0138)

                                         SUMMARY

                         Funds donated to ajunior college for the restricted purpose of
                providing scholarships to needy students ofthe college are impressed
                with an inalienable charitable trust, and as such are not general assets
                of the junior college. Accordingly, should the trustees of the junior
                college as trustee of these funds view the administrative costs
                associated with their retaining control of the funds as substantially
                impairing the accomplishment of the trust purpose, the trustees may
                petition a court of competent jurisdiction to modify the trust under
                section 112.054 ofthe Property Code, substituting as trustees over the
                funds the trustees of a nonprofit corporation created to provide
                support to the college in question, subject to the continuing restriction
                that the funds may only be used for their original purpose as
                scholarship funds. Because of the trust impressed upon these funds,
                the constitutional restrictions on the donation of public money or
                credit to a private entity would not be implicated by such a
                 consolidation.     However, any grant of general college funds by the
                 college’s    trustees to the foundation        would implicate       such
                 constitutional questions. Laws concerning public decision-making
                 and accessibility of information concerning public funds, such as the
                 Open Meetings and Public Information Acts, do not forbid such a
                 transaction.

                                                 Yo    s very truly,

                                                4&C
                                                 JOH\N    CORNYN
                                                                       ov

                                                 Attorney General of Texas

 ANDY TAYLOR
 First Assistant Attorney General

 CLARK RENT ERVIN
 Deputy Attorney General - General Counsel

 ELIZABETH ROBINSON
 Chair, Opinion Committee

 James E. Tourtelott
 Assistant Attorney General - Opinion Committee