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                             THE      ATJTORNEY    GPCNEPQAE
                                          OF TEXAS




                                                  March     3, 1975


               Tbe Honorable Carlos       F. Truan                Opinion No.   H-   543
               Chairman, Committee        on Human
                 Reaourcer                                        Re: Constitutionality   of certain
               House of Representatives                           portions of article   3183c, V. T.
               P. 0. Box 2910                                     c. s.
               Austin,  Texas  78767

               Dear Representative    Truan:

                         You have asked our opinion regarding the constitutionality     of those
               provisions    of article 3183c, V. T. C. S. which permit the superintendents
               of State institutions    in the Texas Department  of Mental Health and Mental
               Retardation to deposit the interest or increment accruing on the invested
               funds of inmates in a “benefit fund” from which the superintendent        may
               expend the moneys for the education or entertainment        of the inmates at
               the institution,   ‘or for the actual expense of maintaining the fund at the
               institution.

                         According   to the Commissioner     of the Department,    inmates upon
               admission     “are encouraged   to relinquish   excess funds and keep only small
               amounts in their possession      for personal needs. ” Such funds, as well as
               any received after admission       are, according    to statute, deposited in the
               institution’s   Trust Fund account and credited to the respective        inmates.
               The interest earned on these invested funds is placsd in the institution’s
               Benefit Fund, and it is this accrued interest which is the subject of
               inquiry here.

                        The statute specifies  that moneys in the Benefit Fund should be
               utilized for the entertainment   and education of the inmates of an institution.
               The Commissioner      believes that “few of the patients and students have
               actual knowledge of the use to which interest earned on their funds is
               applied, ” and he states that the inmates in no way give their consent to
               the use of these funds.




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        The Honorable     Carlos   F.   Truan     page 2        (H- 543)




                 The Standard Operating         Procedures      Manual     of the Department
        (March   1, 1972) requires that:

                         . . . [e]ach expenditure must stand on its own as
                         being of general benefit to the population of the
                         institution.   This does not mean or imply that
                         every patient or resident must benefit from each
                         expenditure from the Benefit Fund.         The guiding
                         principle in expenditures     of these funds is that
                         no partiality or preferential     treatment is shown
                         individuals or selected groups of residents       or
                         patients.    Expenditures  from Benefit Funds must
                         be properly documented to show the exact purpose
                         and, if practical,   to show the names of the patients
                         or residents   benefiting from the expenditure.

                 If an inmate’s    relinquishment     of his “excess   funds” represents     a
        valid contract,     then the statutory   effect of that agreement     --the subsequent
        transfer of the accrued interest on those funds into the institution’s           Benefit
        Fund--     must be deemed constitutional         and valid, regardless     of how the
        interest is ultimately     expended.     The constitutionality    of article 3183~
        thus dependes upon a factual determination           of the validity of a particular
        inmate’s    initial agreement    to release his excess funds, and any funds
        received thereafter,      into the institution’s    Trust Fund account.

                There are three possible grounds on which an inmate might seek to
        avoid the contract whereby the consents to place his funds in the institution’s
        Trust Fund account:   mental incapacity, undue influence, and mistake of
        law.

                It is a fundamental principle of contract law that each party to a
        contract must be legally competent and able to bind himself       under an
        agreement.     Phelps  & Johnson  v. Zuschlag,  34  Tex. 371  (1871). A person’s
        mere presence,     however,  in a mental mstitution is not determinative    of
        the question of mental capacity to contract.     Article 5547-8363 V. T. C. S.,
        provides that:




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          The Honorable    Carlo8   F.   Truan   page 3      (H-543)




                           The judicial determination   that a person is mentally
                           ill or the admission  or commitment     of a person to
                           a mental hospital,   without a finding that he is mentally
                           incompetent,   does not constitute a determination     or
                           adjudication  of the mental competency     of the person
                           and does not abridge his rights as a citizen or affect
                           his property rights or legal capacity.

          Likewise,   mere mental weakness is not in itself sufficient to render a
          person incompetent for purposes     of contract.   Gray v. Allen,   243 S. W.
          684 (Tex. Civ. App. --San Antonio 1922, writ dism’d);       Beville v. Jones,
          11 S. W. 1128 (Tex. Sup. 1889).    Indeed, the law will presume that each
          party to a contract possesses   sufficient mental capacity,   and the burden
          of proof with respect to overcoming     this presumption  rests with the party
          who asserts   the contrary.   Swink v. City of Dallas,   36 S. W. 2d 222 (Tex.
          Comm.    App.   1931).

                   A person’s   mental capacity to contract is dependent upon whether
          he knows and understands       the nature and consequences      of his act in
          negotiating the contract,     and the resolution  of this inquiry is a factual
          determination.     Fox v. Lewis,     344 S. W. 2d 731 (Tex. Civ. App. --Austin
          1961, writ ref’d, n. r. e. ).    The mental incapacity    sufficient to void a
          contract must exist at the time the contract was entered.           Cole v. Waite,
          242 S. W. 2d 936 (Tex. Civ. App. --Amarillo         1951)aff’d , 246 S. W. 2d
          849 (Tex. Sup. 1952).

                   A second possible basis for avoiding the contract is the institution’s
          exercise   of undue influence over the contracting      inmate.   Undue influence
          is separate and distinct from mental incapacity,         and presupposes   mental
          capacity to contract.     Shelton v. Shelton,    281 S. W. 331 (Tex. Civ. App.
          --Austin   1926, no writ).    The presence    of undue influence may be demonstrated
          by the feeble-mindedness      and susceptibility   to influence of the party
          challenging   the contract.    McKay v. McKay,       189 S. W. 520 (Tex. Civ. App.
          --Amarillo    1916, writ ref’d).   The combined elements of mental weakness,
          undue influence,  and overreaching   have been held sufficient to set aside
          a conveyance.    Meyer v. Swift,   11 S. W. 378 (Tex. Sup. 1889). Further-
          more,   when one party to a contract stands in a fiduciary or confidential




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         The Honorable    Carlo8 F.   Truan    page 4     (H- 543)




         relationship   to the other, the agreement   will be carefully scrutinized
         by the courts,    and the burden will be on the party in whan confidence
         has been reposed to show that the contract is just and reasonable,        that it
         is supported by adequate consideration,     and that it was freely entered into
         by the other party.     Coon v. Ewing, 275 S. W. 481 (Tex. Civ. App. --Beau-
         mont 1925,writ dism’d);     Wells v. Houston, 57 S. W. 584 (Tex. Civ. App.
         1900,no writ).

                  An inmate aggrieved   by the operation of article 3183~ might also
         contend that, at the time he transferred    his funds into the institution’s
         Trust Fund account,    he was ignorant of the statute’s existence and effect.
         It is of course true that all persons of sould mind are presumed to know
         the law, Worthen v. Peoples Loan and Homestead         Co.,  150 S. W. 2d 830
         (Tex. Civ. App. --Galveston     1941,no writ), and that a mistake by a party
         to a contract as to its legal effect is generally no ground for equitable
         relief.   Moore v. Studebaker Bros. Mfg. Co.,       136 S. W. 570 (Tex. Civ.
         App. 1911, no writ); Kelley v. Ward, 58 S. W. 207 (Tex. Civ. App. 1903).
         aff’d , 60 S. W. 311 (Tex. Sup. 1901).

                  But where the mistake was accompanied           by circumstances    tending
         to show misrepresentation,        imposition,    undue confidence,   undue influence,
         mental incompetence,       or surprise,    relief has sometimes     been granted.
         Means v. Limpia Royalties,         115 S. W. 2d 468 (Tex. Civ. App. --Ft.      Worth
         1938, writ dism’d);     Lange v. Bins, 281 S. W. 626 (Tex. Civ. App. --San
         Antonio 1926,no writ) ; Leslie v. City of Galveston,        226 S. W. 438 (Tex. Civ.
         APP. --Galveston      1920,no writ); Moreland v. Atchison,       19 Tex. 303 (1857).
         Especially   in situations where the mistake is brought about by one possessed
         of superior knowledge,       in whom trust has been reposed,       a court of equity
         may intervene.      Altgelt v. Gerbic,     149 S. W. 233 (Tex. Civ. App. --San
         Antonio 1912, writ ref’d).     Other courts have granted equitable relief where
         one party takes advantage of the other’s ignorance of his legal position and
         rights.    Commercial     Bank & Trust Co. v. Buntain,        278 S. W. 503 (Tex.
         Civ. App. --Amarillo         1925, no writ); Ward v. Baker, 135 S. W. 620 (Tex.
         Civ. App. 1911, writ dism’d).

                An inmate’s  relinquishment of his funds to the institution’s        Trust
         Fund account, and the subsequent transfer of the accrued interest          thereon




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         The Honorable   Carlo8   F.   Truan    Rage 5     (H-543)




         into the Benefit Fund, is thus a contract which is voidable on any of
         these three grounds,    but it is not void as a matter of law.     Gaston v.
         Copeland, 335 S. W. 2d 406 (Tex. Civ. App. --Amarillo         1960, writ
         ref’d.  n. r. e.). Absent a particular    inmate’s successful   legal challenge,
         the contract must be deemed valid, and the relevant portions of the truet
         fund programwhich      stand or fall in each particular   cane upon the validity
         of the initial agreement,   must be upheld as constitutional.

                                           SUMMARY

                             Tmss provisions      of article 3183c, V. T. C. S., which
                         authorize the superintendent       of a state institution in the
                         Texas Department       of Mental Health and Mental Retarda-
                         tion to “deposit any funds of inmates in his possession          in
                         any bank . . . [to] deposit the interest or increment
                         accruing on such funds in a . . . ‘benefit fund, ’ of which
                         he will be the trustee . . . [and to] expend the moneys in
                         any such fund for the education or entertainment          of the
                         inmates of the institution,      or for the actual expense of
                         maintaining    the fund at the institution!’ are constitutional
                         on their face, but may be voidable by aparticular           inmate’s
                         showing that the initial relinquishment       of his funds into
                         the institution’s   Trust Fund account was not a valid
                         contract.

                                                             Very    truly yours,




                                                             Attorney    General    of Texas




                   , KENDALL,      First   Assistant



         C. ROBERT HEATH,         Chairman
         Opinion Committee




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