                       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

                                           -3143-



                                                                                   .   .
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.



                                    -3144-
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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