        TEE,~-~-ORNEY            GENERAL
                    OFTEXAS




Honorable Raymond W. Vowel1
Executive Director
Board for Texas State Hospitals
      and Special Schools
Austin, Texas
                              Opinion NO. W-689
                              Re: Questions relating to
                                  contract between State
                                  Board of Control and
                                  City of Big Spring for
                                  supplying water to Big
Dear Mr. Vowell:                  Spring State Hospital.
         In your letter of March 5, 1959, you have stated the
following:
              "Acts 1937, 45th Legislature, page 793
        chapter 388, codified as Article 3185a, V.C.S.,
        provided for the establishment of a State mental
        hospital West of the one hundredth meridian. At
        the time of the passage of said Act, the Board
        of Control was charged with the responsibility
        for the operation of State Hospitals and chose
        the City of Big Spring as the location. It would
        appear that in the selection of this site, the
        Board of Control was at least partly influenced
        by the donation of the hospital site by the City
        of Big Spring and the granting by the City of
        certain favorable utility contracts.
              "On October 22, 1937, the City of Big
        Spring, by its mayor, and the Board of Control,
        by its Chairman, contracted whereby the City
        would supply water to the hospital at a rate of
        .lO$ per 1,000 gallons. The contract further
        provided that the 'contract with reference to
        furnishing of water to said hospital is and con-
        stltutes a material consideration influencing
        the Board of Control to locate said hospital at
        said site, and this agreement with reference to
        the furnishing of water by the City to said
Honorable Raymond W. Vowell, page 2   (w-689)


         hospital shall continue in full .
                                         force
                                           . and- effect
         and is not subject to being revokea as long as
         the State of Texas shall in good faith maintain
         and operate said hospital on said site.'
               "Quite recently the City of Big Spring has
         called to our attention the fact that they are
         furnishing water to us at a price much less than
         their cost and in connection therewith have re-
         quested this Hoard to re-negotiate a contract on
         terms more favorable to the City. In presenting
         their case they have prepared a brochure contain-
         ing several exhibits which we enclose herewith
         for your information. Being aware of the consti-
         tutional and statutory limitations of the powers
         of this Board, we request your opinion concern-
         ing this matter."
        You have asked the following two questions:
               "1 . Is the contract by the City of Big
         Spring and the Hoard of Control valid?
              "2. If your answer to the above is in
        the affirmative, then does this Hoard have the
        legal authority to re-negotiate another contract
        on terms more favorable to the City of Big Spring
        and at the same time terminate the existing con-
        tract?"
         It should first be noted that a city has dual func-
tions, one of which is governmental or legislative, and the
other orovrietarv business or corworate. The rule was set
out in-the case styled City of Crbsbyton v. Texas New Mexico
Utilities Co., 157 S.W.2d 418 (err.ref.). In this case also
the question arose as to whether a city could contract for an
indefinite time. It was said:
              "A city's functions, enjoined on it by law
        are 'governmental' in nature and can neither be
        ceded nor exercised in such manner as to bind
        city's future course or prevent modificatlon or
        change of its policy, if its governing body
        thereafter so wishes.
              "A city's functions, such as the exercise
        of police power, by which it promotes or pro-
        tects general welfare, comfort and convenience of
        people maintains supervision and control over its
Honorable Raymond W. Vowell, page 3   (w-689 1


        own property, or enacts legislation under
        which peace and good order of society is regu-
        lated, are 'governmental functions', over which
        city's governing body must retain exclusive con-
        trol.
               "A city's governmental functions cannot
         be delegated nor bartered away, and anv effort
         to do so or any contract having effect-of pass-
         ing them to others or tying city's hands so that
         it is impotent to change its policy respecting
         them, is unconstitutional and void.
               "A city may exercise its proprietary or
         business functions, as by entering into contract
         for private interests of its inhabitants or it-
         self, in same way and to same extent as individuals
         or private corporations." (Emphasis ours).
         The present contract between the City of Big Spring
and the State Board of Control does not interfere in any way
with the City's power to contract for the supply of water to
the City or to regulate rates as evidenced by the fact that the
City has changed its source of water supply and has adjusted
its water rates since entering into this contract with the
State Board of Control. This is a contract entered into by
the City of Big Spring in its proprietary capacity, and as
the case cited above points out, the City can contract validly
in that capacity as any individual can.
         It should also be noted that this is an express con-
tract wherein in Section 4 it recites:
                    . this contract with reference to
         furnishing of water to said hospital is and
         constitutes a material consideration influenc-
         ing the Board of Control to locate said hospital
         at said site, and this agreement with reference
         to the furnishing of water by the City to said
         hospital shall continue in full force and effect
         and is not subject to being revoked as long as
         the State of Texas shall in good faith maintain
         and operate said hospital on said site."
         In the case styled Fooshee & Hungerford v. City of
Victoria, 54 S.W.2d 220 (error dism.), where the Plaintiff
contracted with the city for engineering services (a proprie-
tary function of the city), it was held:
Honorable Raymond W. Vowell, page 4   (W-689)


                "However, inadvisable and shortsighted it
         may have been on the part of a city administra-
         tion to have made the contract with appellants,
               it  has no more power to arbitrarily cancel
         and repudiate the contract than any citizen would
         have. . . . There is nothing to indicate that
         fraud or deception was used to procure the con-
         tract or that by inefficiency or any valid reason
         appellants should not be permitted to do the work
         named in the contract."
         In Panhandle Const. Co. v. City of Spearman, 89
S.W.2d 1053, it was stated:
                      a city may be estopped to denv
         the validity of a contract which it had auth-
         ority to make, . . . If the city accepts per-
         formance from the other party and enjoys the
         benefits accruing to it therefrom, it is bound
         to perform the obligations imposed upon it by
         the contract, . . ,
         The difference between the rate paid by the Big Spring
State Hospital and other users of water service in Big Spring
is not a violation of the common law rule which requires "the
rates charged for such services shall be equal and uniform," for
the following reasons:
         The law against unreasonable discrimination in rates
rests on public policy. It is forbidden because it is against
the interest of the public, which requires that all shall be
treated alike under like circumstances. Discrimination, how-
ever, in favor of the public, is not opposed to public policy
because it benefits the public generally by relieving them of
part of their burden.
         The Big Spring State Hospital pays no taxes, carries
on no competitive business, makes no money, serves the public
only. In the case of this contract between the City of Big
Spring State Hospital and the State of Texas, whatever advantage
the State has over general customers serves to benefit the latter
in the aggregate. There is no discrimination which is inimical
to the public good and, there would be no violation of public
policy even if the water were furnished free. New York Telephone
co. v. Seigel Cooper Co., 202 N.Y. 502, 96 N.E. 109; Frets v.
City of Edmond, bb Okla. 1169, 168 Pac. 800, (1917); Preston v.
Board of Water Comm                                , 117 Mich.
589, 76 N.W. 92; Ci                                 Telephone Co.,
141 Wise. 363, 122 N.W. 1023; State ex rel. Mt. Sinai Hospital
of Cleveland v. Hickey, 137 Ohio 474, 30 N.E.2d 802.
Honorable Raymond W. Vowell, page 5 (W-689)


         In Twitchell v. City of Spokane, 55 Wash. 86, 104 Pac.
150, it is said:
                      Water was furnished by the City
        to itseif'and also to several charitable insti-
        tutions free of charge. . . .
              I,
               . . . It is claimed that the rate
        charged amounts to an excessive tax on the
        community. But water rates are not taxes.
        The consumer pays for a commodity which is
        furnished for his comfort and use.    .
        The right of the city to furnish water for
        municipal and charitable purposes free can
        hardly be doubted. Sewickly Waterworks v.
        Sewickley, 159 Pa. 194, 28 Atl. 169; Detroit
        Water Commissioners v. Detroit Citizens'
        Street Ry. Co., 131 Mich. 1, 90 N.W. 657,
        91 N.W. 171. . . .’
         Since the administration of a city public waterworks
system of necessity requires that some discretion be exercised
by the Water Hoard in setting the water rates, so long as the
rates charged are reasonable, equal and uniform, the consumer
has no grounds to complain of the rate charged as being too
high or that a lower rate is possible, or that he is being
forced to pay for free water to the city or public institu-
tions. Preston v. Board of Water Commissioners of City of
Detroit, supra.
         Our answer to your first question, therefore, is that
the contract dated October 22, 1937, between the City of Big
Spring, Texas, and the Hoard of Control of the State of Texas,
which agrees to furnish water to the Big Spring State Hospital
at the rate of Ten Cents (104) per one thousand (1,000) gallons
of water, is a valid and subsisting contract. It is our con-
sidered opinion that the City of Big Spring was acting within
its authority at the time the agreement was made. The contract
was valid and is a continuing contract, and so long as the State
of Texas owns and operates the Big Spring State Hospital at its
present location, the City of Big Spring is legally bound to
furnish water for the hospital at the rate of Ten Cents (lO#)
per one thousand (1,000) gallons of water.
         Your second question is whether "this Board" has the
legal authority to re-negotiate another contract on terms more
favorable to the City of Big Spring, and at the same time
terminate the existing contract.
Honorable Raymond W. Vowell, page 6   (WW-689)


         We would point out that Section 2 of House Bill
No. 1, Acts of the 51st Legislature, Regular Session, 1949,
Cha ter 316, Page 588, codified as Section 2 of Article
317f:
    b of Vernon's Civil Statutes provides:
               (1
                . . . the control and management of,
         and all rights, privileges, powers, and
         duties incident thereto including building,
         design and construction of the Texas State
         Hospitals and Special Schools which are now
         vested in and exercised by the State Board
         of Control shall be transferred to, vested
         in, and exercised by the Board for Texas
         State Hospitals . . .'
Therefore, the subject matter involved in this question
would be subject to your jurisdiction.
         It is our opinion, however, that this is a valid
and subsisting contract and the Board has no right to and
cannot terminate said contract or re-negotiate said contract
so long as the State of Texas in good faith maintains and
operates the Big Spring State Hospital at the City of Big
Spring, Texas.


                            SUMMARY

                 The contract of October 22, 1937,
                 between the City of Big Spring,
                 Texas, and the Board of Control
                 of the State of Texas, relating
                 to furnishing water to the Big
                 Spring State Hospital, is a valid
                 and subsisting contract; and SO
                 long as the State of Texas in
                 good faith maintains and operates
                 the State Hospital at the City
                 of Big Spring, Texas, the State
                 of Texas cannot validly re-negotiate
                 the contract and agree to pay, for
                 the first three hundred thousand
                 (300,000) gallons of water per day
Honorable Raymond W. Vowell, page 7     (w-689)


                 supplied to said hospital, more
                 than the rate of Ten Cents (104)
                 per one thousand (1,000) gallons
                 of such water delivered to said
                 hospital.
                                 Very truly yours,
                                WILL WILSON
                                Attorney General of Texas




GCR:rm:zt                             Assistant


APPROVED:
OPINION COMMITTEE
Geo. P. Blackburn, Chairman
Grundy Williams
Paul W. Floyd, Jr.
L. P. Lollar
REVIEWED FOR THE ATTORNEY GENERAL
BY: Leonard Passmore
