Untitled Texas Attorney General Opinion ( 1970 )

THE ATFORNEY GENERAL
OF??EXAS
AU~-MN.TEXA~ 78711.
Cxa*WPoRD c. MARTlN
June 29, 1970
Hon. George Ii. McNlel Opinion No. M- 656
State Auditor
Sam Houston State Office Re: Several questions relating
Building to Special 0ptioW:Purchase
Austin, Texas Agreement covering certain
data processing equipment
between the Texas State
Department of Agriculture
and International Business
Dear Mr. McNlel: Machines Corporation.
You have requested our opinion as to the legality of
certain terms of a proposed agreement between the Texas State
Department of Agriculture and International Business Machines
Corporation. Your specific questions are as follows:
"1. Paragraph 4, Page 4. Under the Con-
stitution and Statutes of the State of Texas,
may an Installment plan extend from the fiscal
year of 1969-1970 through land Including the
1974-1975 fiscal year?
"2. Paragraph 2, Page 4. May the State,
In addition to the Total Sales Price, pay a
Special Option Purchase Fee for the privilege
of making periodic payments that are less the
normal rental charges for such equipment?
"3. Paragraph 5> Page 4. In the light
of Paragraph 3, Qeneral Section, Page 5, re-
lating to ad valorem taxes, does title to the
equipment pass to the State prior to completion
of all periodic payments?
"4. Paragraph 5, Page 4. Is the clause
'In the event that partial or total loss of the
machines is incurred, the net total of periodic
payments will be Immediately due and payable',
in conflict with any creation of debt provisions
of the State of Texas?"
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Hon. Qeorge W. McNlel, Page 2 (M-656)
Section 49 of Article III of the Constitution of Texas
provides:
“No debt shall be created by or on be-
half of the State, except D . .’ (Exception
not applicable.)
In view of the provisions of Section 49 of Article III,
DrODOSed contracts Dayable out of future revenues are Invalid.
?haEles Scrlbner’s sons v. Marrs, 114 Tex. 11, 262 S.W. ?22 (1924);
port Worth Cavalry Club V. Sheppard, 125 Tex. 339, 83 S.W.2d 660
935 I Ii bll tl th rare current with revenues are
not debts wio%``~h~ rne%nplf S&tlon 49 of Article III. Charles
Scrlbner’s Sons v. Marrs, su ra; City of Big Spring v, Board of
Control, 404 S W 2d m (T&p >gbb) Therefore a contract that
-not obligit; the State beyo;d the ~vallablllty of the funds
appropriated by the Legislature will not create a debt In vlolatlon
of Section 49 of Article III of the Constitution of Texas. Charles
Scrlbner’s Sons v. Marrs, supra; City of Big . Board of
Control, supra; Att General ‘8 Opinions M > W-424
DYM J, and V -1363 ‘T:;:l) .
The proposed contract submitted with your request contains
provisions stating that:
“Notwithstanding the foregoing, if the
legislative body appropriating funds for the
Purchaser does not allocate funds for such
Periodic Payment for any future Fiscal Period,
the.Purchaser will not be obligated to pay the
Net Total of Periodic Payments remaining un-
paid ;eyond the then current, Fiscal Period.
e s D
In view of the above quoted provisions the State Is not
obligated by the contract to expend any moneys beyond current
revenues, and therefore such contract does not create a debt In
violation of Section 49 of Article III of the Constitution of Texas.
In Clty of Big Spring v. Board of Control, 404 S.W.2d 810
: (_Tex.Sup. 196b), an attack was made on the valldlty of a contract
for a supply of water to the State because the term of the contract
was beyond current appropriations. In regectlng this contention the
Supreme Court stated:
“The contention that the purchase contract
was Invalid because there then existed no legls-
latlve appropriation to pay for the water to be
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: .
Hon. George W. McNfel, page 3 (M-656)
furnished In the future fs answered by thfs Court's
opfnfon fn Charles Scrfbner's Sons v. Marrs, 114
Tex. 11, 262 S,W. 722 (1924). In that case an
attack was made on an order of the State Textbook
Commission purchasing certain textbooks for the
public schools of Texas from Scribner's Sons,
Among other objections ft was urged that the
contract to buy textbooks for a five-year period
was.invalid because It was for longer than the
two-year perfod of legislative approprlations'and
created a debt which could not be paid for out of
reserves for the biennium in whfch created. This
Court safd:
"'This contract obligates the state to ln-
trod&e Into and u8e relator's books In the public
free schools for a period of five years. It ob-
ligates relator to furnish, offer, and sell these
books to the state each year for ffve years> upon
the requisition of the school authorftles each
year for such books as may be needed. Payment
for them 1s to be made out of the current fund
each year as they are purchased, The obligation
~of the contract 1s not to buy a fixed number or
amount of books9 but only so many as are needed
by the schools of the state, Llabflity Is fixed' " *
only for such amounts as are requisitioned by the
trustees of the schools. The number of books pur-
chased for any year and the amount of money ap-
plied thereto is wholly withfn the control of the
school authorftfes.
"sThe contract 9s for uniform text-books for
a period of five years, No quantity 1s stipulated
and no promfse to pays only an agreement to use
ths books fn the schools., The statute and the
contract provfde that no debt is created, The
obligation to pay arises only upon the purchase
and delivery of books for the year ,when heeded,
and according to the purchase. The books so
furnished and so purchased during any year do not
make a charge on the ,future resources of the
state, but are paid for each year as the pur-
chases are made.'
"This court quoted from the case, of City
of Tyler v, L, L, Jester & Co., 97 Tex. 344, 78
S.W. 1058 (1904), fn which a long-term water
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. .
Hon. Qeorge W. McNlel, page 4 (M-656)
purchase contract was attacked: ‘The making of
a contract for water for a number of yearg,to be
delivered In the future did not create a debt
against the city, but the liability of the city
arose,;pon the use by It of the water during each
year.
The Court then concluded:
“The contract of the Board of Control with
the City of Big Spring 1s a valid contrazt and
Is not subject to the attack made on It.
Under the contract Involved In City of Big Spring v.
Board of Control, supra, the city agreed ito furnish water at a
fithe
xe State of Texas shall in ood faith
maintain and operate said hospital on said site.” Referring to
Big Spring State Hospital.)
In view of the foregoing your questions are answered
as follows:
An installment plan may ,extend from the f,iscal
year 1969-&o through and Including 1974-1975, provided no
obllgatfon exists to expend moneys beyond current revenues.
2. The State may, in addition to the’Tota1 Sales
Price, pay a Special Option Purchase Fee for the privilege of
making periodic payments that are less the normal rental charges
for such equipment.
3. The contract specifically provides:
“Title to the machines and any replacements
and additions shall remain In IBM and assigns
untll,,the Total Option Sale Price 1s fully paid.
. . .
Therefore, title to the equipment does not pass to the
State until the Total Option Sale Price Is fully paid.
4. Since all moneys that become due and payable will
be payable from current revenues available at the time such ob-
ligation is due, no debt Is created. Charles Scrlbner’s Sons v.
Marrs, supra; City of Big Spring v. Board of Control, supra.
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Hon. George W. McNiel, page 5 (M-656)
SUMMARY
A proposed Specfal Option Purchase Agree-
ment between the Texas State Department of Ag-
riculture and International Business Machines
Corporation does not create a debt in violation
of Section 49 of Article III of the Constitution
of Texas for the reason that there is no obliga-
tion to expend moneys beyond revenues available
at the tfme the oblfgatlon 1s due and payable.
General of Texas
Prepared by John Reeves
Assistant Attorney General
APPROVED:
OPINION COMMITPEE
Kerns Taylor, Chairman
W. E. Allen, Co-Chairman
Milton Richardson
Jack 5oodman
Ivan Williams
Gordon Cass
MEADEF. GRIFFIN
Staff Legal Assistant
ALFREDWALEER
Executive, Assistant
NOLAWHITE
First Assistant
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