The opinion
Honorable W. S. Heatly Opinion No. M- 340
Chairman, Appropriations Committee
Texas House of Representatives Re: Whether the facts sub-
State Capitol Building mitted constitute con-
Austin, Texas 78711 flict of Interest by
members of Boards of
Trustees of community
centers who are Interested
In entities furnishing
supplies or services
Dear Mr. Heatly: to such centers.
Your request for an opinion reads as follows:
"Section 3.01 (a), chapter 67, Acts 59th
Legislature, Regular Session, 1965, authorized
the establishment of community centers in this
State as follows:
'One or more cities, counties, hospital
districts, school districts, rehabilitation
districts, state-supported institutions of
higher education, and state-supported medical
schools, or any combination of these, may co-
operate, negotiate, and contract with each
other through their governing bodies to es-
tablish and operate a community center.'
"Sections 3.02 and 3.03 of the same Act
prescribe the procedures by which boards of
trustees for community centers established
under the Act may be appointed.
"Section 3.12 of the Act authorizes the
board of trustees of a community center to make
rules to regulate the mental health and mental
retardation services provided by the community
centers and authorlzes such boards of trustees
to contract with local agencies and with quall-
Tied persons and organizations to provide a
portion of these services.
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/
"A recent lnvestigatlon of several com-
munity centers which have received grant-ln-
aid from the Texas Department of Mental Health
and Mental Retardation as authorized by Section
b.01 through Section 4.05 of the Act In question
!ndlcates the possibility of a conflict of ln-
terest with some members of these boards because
of their connection with local agencies or organlza-
tlons which have contracted to provide a portion
of the community center's program of services.
"Wherefore, your advice and opinion is respect-
fully requested as to the existence of a conflict
of Interest as that term is construed and applied
under the law of this State to the following sltua-
t ions:
"1. A duly appointed member of the board of
trustees of a community center is a member of the
board of directors and a stockholder of a private
corporation which has contracted to provide a
portion of the services of the community center
and to be paid therefor by the center.
A duly appointed member of a board of
"2.
trustees of a community center is an employee of
a private hospital which has contracted to pro-
vide a portion of the services of the community
center and to be paid therefor by the center.
“3. A duly appointed member of the board of
trustees of a community center is a physician to
whom such center refers patients for treatment.
The physician Is paid by the center for services
rendered.
"In addltlon to the above, your advice and
opinion Is respectfully requested as to whether
a conflict of Interests exists as that term Is
construed and applied under the laws of this State
to the following situations:
A duly appointed member of a board of
"1.
trustees of a community center Is a vice president
of a local bank In which the community center's funds
are deposited.
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"2 . A duly appointed member of a board of
trustees of a community center is an employee
of a facility under the control and management
of the Texas Department of Mental Health and
Mental Retardation which Department has,,made
a grant-In-aid to the community center,
In Meyers v. Walker, 276 S.W. 305 (Tex.Clv.APP. 1925)
the court stated:
.If a public official directly or
lndlrectiy has a pecuniary interest in a con-
tract, no matter how honest he may be, and al-
though he may not be Influenced by the Interest,
such a contract so made is violative of the spirit
and letter of our law, and 1s against public
policy.
"Authorities: Texas Anchor Fence Co. v. City
of San Antonio, 30 Tex.Civ.App. 561, 71 S.W. 01;
Knlppa v. Stewart Iron Works (Tex.Clv.App.) 62 S.W.
322; 19 R.C.L. 8 196, pp. 739, 897; Ferle v. City
of Lansing, 189 Mlch. 501, 155 N.W. 591, L.R.A.
1917C, 1096; Robinson v. Patterson, 71 Mich. 141,
39 N.W. 24; Meguire v. Corwlne, 101 U.S. 108, 25
L.Ed. 899; Rlgby v. State, 27 Tex.App. 55, 10 S.W.
760; Brown v. Bank, 137 Ind. 655, 37 N.E. 158, 24
L.R.A. 206; 28 Cyc. 650; Graves & Houtchens v.
Diamond Hill Independent School District (Tex.
Clv.App.) 243 S.W. 638.
"or. Story on Contractsp g 546, says the
,expression 'public policy' has never been defined
by the courts but has been left loose and free
of definition in the same manner as fraud. This
rule may, however, be safely laid down, that
whenever any contract conflicts with the morals
of the time and contravenes any established ln-
terest of socltty, It is void as being against
public policy.
This same rule Is annou;lcedin City Of
Edlnburg v. Ellis, 59 S,W.2d 99 (Tex.Comm.App.
1933). Likewise the rule Is stated in Dillon
on Municipal Corporations, 5th Edition, Vol. 2,
pages 1140, 1143 to 1145# and 1146 to 1147, as
follows:
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Hon. W. S. Heatly, page 4 (M-340)
"It Is a well-established and salutary
d@ctrine that he who is intrusted with the
business of others cannot be allowed to make
such business an object of pecuniary profit
to himself. This rule does not depend on
reasoning technical in its character, and is
not local in Its application. It is based
upon principles of reason, of morality, and of
public policy. It has its foundation in the
very constitution of our nature, for it has
authoritatively been declared that a man cannot
serve two masters, and is recognized and en-
forced wherever a well-regulated system of jurls-
prudence prevails. . . .
"At common law and generally under statutory
enactment, It Is now established beyond question
that a contract made by an officer of a municipality
with himself, or In which he is Interested, Is con-
trary to public policy and tainted with Illegality;
and this rule applies whether such officer acts
alone on behalf of the munlclpallty, or as a member
of a board or council. Neither the fact that a
majority of the votes of a council or board in
favor of the contract are cast by disinterested
officers, nor the fact that the officer interested
did not'participate in the proceedings, necessarily
relieves the contract from its vice. The fact
that the Interest of the offending officer in the
Invalid contract Is indirect and Is very small Is
immaterial. . , .
In Attorney General Opinion No. NW-1362 (1962), the
above principles were recognized and applied in ruling that a
member of a district school board, a consignee of a gasoline
contract let by the board, had a conflicting interest which
rendered the contract void and against public policy.
Applying the foregoing principles of law to the facts
stated In your request; it Is our opinion that a member of the
Board of Trustees of a community center and who Is also a member
of a Board of Directors and a stockholder of a private corporation,
would have a conflicting Interest In a contract with such private
corporation for services rendered to the community center and
paid therefor by the center. Such Interest is contrary to public
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.
Hon. W. S. Heacly, page 5 (M-340)
policy of this state.
Likewise, a physician to whom patients of a center
are referred for treatment and who Is paid by the center for
the professional services rendered to the patient has an ln-
terest in the contract between the center and the physician and
such contract would be contrary to public policy.
On the other hand, mere salaried employees of various
facilities would have no interest In a contract between the
facility and the center in the absence of evidence that their.
compensation was dependent In any way upon the making of the
contract; and such contracts would not be contrary to public
policy. 63 C.J.S. 558, Mun.Corps., Sec. 991b, and cases cited;
and see City of Coral Cables v. Weschler, 164 s0.2d 260, 263
(Fla. 1964).
The public policy of this state with regard to the
selection and qualification of depositories for the deposit of
public funds of all agencies and political subdivisions of the
state Is defined by the legislature In Article 2529c, Vernon's
Civil Statutes. Section 2 thereof provides:
"The fact that an employee or officer of
a state agency or political subdlvlslon, who
fs not charged with the duty of selecting the
depository thereof, is an officer, director or
stockholder of a bank shall not disqualify said
bank from serving as the depository of said state
agency or subdivision.
"A bank shall not be disqualified from bld-
ding and becoming the depository for any agency
or political subdivision of the state by reason
of having one or more officers, directors or
stockholders of said bank who Individually or
collectively own or have a beneflclal Interest
In not more than 10 oercent of the bank's out-
standing capital stock> and at the same time
serves as a member of the board, commission,
or other body charged by law with the duty of
selecting the depository of such state agency
or political subdlvlslon;
that said bank vote
must ,,~~~s"",h~;ev~
be selec.~e&~&%.tory
by a maJorlty -,_- e oas,
commission, or other body of such agency or
political subdivision a%E%?rn~-%??r~~
--- who
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Hon. W. S. Ileatiy,pa&e 6 (M-340)
Is an officer, director or stockholder of the
bank shall vote or participate in the proceedings.
common-law rules In conflict with the terms 8nb
provisions of this Act are hereby modified as herein
provided, but this Act shall never be deemed to
alter, change, amend or supersede the provisions
of any home-rule city charter which Is in donfllct
herewith." (Rmphasls added.)
Therefore, It Is not against public policy of this
state for a member of a Board of Trustees of a community center
to be an officer in a bank in which the center's funds are de-
posited, provided of course that such board member does not
participate In the selection of said depository by the Board
of Trustees, as provided In Article 252%. In accord, Attorney
General's Opinion No. M-331 (1969), in which It was held that
an Independent school dlstrlct may borrow money from Its school
depository if a member of its school board Is an officer, stock-
holder, director or employee in the depository bank, provided
the school district has adopted Article 2832~ and complied with
the requirements set out in Section 4 thereof.
SUMMARY
It Is contrary to public policy of this
State for a member of a Board of Trustees of a
community center to be a member of a Board of
Trustees and 8 stockholder of corporations con-
tracting with the community center, However,
mere employees of the Facilities do not have
such a conflict of interest In a contract be-
tween the faclllty 8nd the center. It is con-
trary to public policy for a physician, a member
of a Board of Trustees of a community center to
receive compensation for patient referral from
the center. It Is not contrary to public policy
of this State for a board member to be an officer
of a bank In which funds of the center are de-
posited If the board member does not participate
in the selection of said depository bank.
very truly,
/'
. . .
APPROVED:
SPIK'ICXCOMMITT'EE
Kerns Taylor, Chairman
George Kelton, Vice-Chairman
Ray W. Mouer
Fielding Early
hen Hirrison
John 3anks
\N.V. GEPPERT
Staff Legal Assistant
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