Untitled Texas Attorney General Opinion

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
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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
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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 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.)
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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 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 .
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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 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
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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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