                                                               5106




Honorable W. W. Kilgore    Opinion No. WW-1101
County Attorney
Victoria County            Re:   Whether the county may
Victoria, Texas                  legally enter Into a
                                 contract pertaining to
                                 the furnishing of hos-
                                 pital services for the
                                 employees of a county
3ear Mr. Kilgore:                hospital.
           Your request for an oplnion concerns a contract
entered into between Group Hospital Service, Inc., and
Citizens Memorial Hospital, a county hospital, wherein
Group Hospital Service, Inc., agrees to reimburse the hos-
pital for hospital services furnished to the employees of
the hospital up to the amount of dues paid by the employees
covered. The contract further provides that if the amount
of services furnished by the hospital are less than the
amount of the dues paid by the employees that the differ-
ence will be paid to the hospital while on the other hand
if the amount of services exceed those dues, the hospital,
and hence the county, will pay to Group Hospital Service,
Inc., the amount of the excess. You question the power of
the county through the Board of Managers of said hospital
to enter into this contract and, specifically, the liability
of the county to pay a $7,008.28 assessment for the year
1960, which represents the excess of benefits afforded 'over
dues paid for that particular year.
          Three issues are presented:
          1)   Whether the contract is a lend-
               ing of the county's credit or a
               grant of public money in viola-
               tion of Section 52 of Article
               III of the Texas Constitution.*
          2)   Whether the effect of ~the contract
               Is to make the county a "stockholder"
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         Honorable W. W. Kilgore, Page 2 (WW-1101)


                        in a corporation in violation of
                        this same Section 52.'
                   3)   Assuming the contract does not
                        violate Section 52," is the
                        hospital's Board of Managers
                        authorized to enter Into such
                        a contract.
                   The first auestion is answered in the nenatlve
         on the basis of Byrd-v. City of Dallas, 118 Tex. 28, 6
         S.W.2d 718 (1938).
                    . -- ,- which unheld the valldltv of an act
         permitting cities to make payments into a pension fund
         for the benefit of its employees if such payments were
         part of the compensation of the employees for services
         rendered. This same reasoning has been held applicable
         to legislation permitting counties to pay hospitaliza-
         tion insurance for their employees In a prior opinion by
         this office (WW-731, 1959). We can see no consequential
         difference between t~hepayments by the county here ln-
         volved and those in the B&case,    supra, or in W-731,
         so far as the ccnstitutional issue is involved. We have
         assumed in our answer that the obligation undertaken by
         the county through the Board constitutes part of the com-
         pensation of such employees rather than a gratuity.
                    The answer to the second questiondepends upon
         the applicability of the case of Lewis v. Independent
         School District of City of Austin, 139 Tex. 83, 161 S.W.
         2d ri50 (19421, in which the Supreme Court held that a
         school district could not purchase insurance from a mutual
         insurance company because it thereby In effect became a
         stockholder in such company, the Court saying:
                        "This Court has held that Sec-
                   tion 52 of Article 3 of the Consti-
                   tution prohibits cities from becom-
                   ing members of a mutual Insurance

         * "The Legislature shall have no power to authorize any
            county, city, town or other political corporation or
            subdivision of the State to lend Its credit or to
            grant public money or thi~ngof value in aid of, or to
            any individuals, association or corporation whatsoever,
            or to become a st.ockt;older
                                       in such corporation, . . .'I
            Section 52, Article III, Texas Constitution.
Honorable W. W. Kilgore, Page 3 (WW-1101)


         association whose subscribers are
         stockholders in such company. city
         of Tyler v. Texas Employers' Ins.
         AssIn., Tex.Com.App., 288 s.w. 409;
         Id., Tex.Com.App., 294 S.W. 195;
         Southern Casualty Co. v. Morgan, Tex.
         Com.App., 12 S.W.2d 200; McCaleb v.
         Continental Casualty Co., 132 Tex.
         65, 116 S.W.2d 679. (Emphasis added)
              II
               . . . The language used in the
         Constitution is clear and unambiguous.
         It specifically prohibits the School
         District from becoming a stockholder
         in a corporation, association, or com-
         pany. . . .'I
          In our opinion, Chapter 20 of the Texas Insurance
Code, under which Group Hospital Service, Inc., was organiz-
ed, does not require that corporations operating thereunder
be mutual in nature, or more to the point, that Its policy-
holders or the persons buying its service must necessarily
participate in the affairs of the company to the same or
similar extent as policyholders In a mutual company or as
stockholders In a capital stock company.
          In point.of fact, the actual corporate plan of
Group Hospital Service, Inc., is not mutual in nature. It
is a non-profit corporation whose by-laws provide for the
control of its affairs by the device of a self-perpetuating
E!oardof Directors. There Is no provision, either in the
By-Laws, or In the contract sold, by which any so-called
member has any vote or any voice In directing the policies
or conducting the business of the corporation, nor do they
contribute to the "capital" of said corporation. It should
also be noted that Article 20.09 of the Code specifically
provides that corporations of this type shall not be con-
strued as being engaged In the business of insurance. Hence,
we conclude that the contract does not violate the provision
of Section 52 of Article III of the Constitution, prohibit-
ing a county from becoming a stockholder In a corporation.
          In answer to the third.question, It is Our opinion
that the Board of Managers is authorized to enter into a con-
tract as is here in question, and, consequently, the county
has the obligation to pay the $7,008.28 now assessed against
it under the terms of such contract.
Honorable W. W. Kilgore, Page 4 (WW-1101)


          Citizens Memorial Hospital of Vlctorla County is
a county hospital and Its operations are under the control
of the County Commissioners of Victoria County and a Board
of Hospital Managers and they operate under the provisions.
of Chapter 5 of Title 71 of Vernon's Civil Statutes, said
chapter being entitled "County Hospitals."
          It Is stated in 15 Tex.Jur.2d 277, Counties, Sec.
48, in regard to the delegation of authority by the commls-
sloners court to its agents, in part, as follows:
              11
               . . . By statute the commls-
          sioners' court is empowered to
          appoint agents for the accomplish-
          ment of purposes authorized by law.
          And the contracts or acts of such
          agents, when duly executed or done
          for or on behalf of the county, and
          within the scope of their authority,
          are declared to be valid and effectu-
          al to bind the county."
          Article 4478,   Vernon's Civil Statutes, provides
in part as follows:
              llThecommissioners court of any
          county shall have power to establish
          a county hospital . . . and shall
          have the following powers:
              I,
               . . .
              “5.  To appoint a board of mana-
          gers for said hospital.
          Article 4480, Vernon's Civil Statutes, provides
in part as follows:
                      The board shall have the
          general'mkagement and control of the
          said hospital, grounds, buildings,
          officers and employees thereof; of
          the inmates therein,,and of all mat-
          ters relating to the government, dls-
          cipline, contracts and fiscal concerns
          thereof; ". . .
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Honorable W. W. Kilgore, Page 5 (WW-1101)


          Also Article 4484, Vernon's Civil Statutes, pro-
vides in part as follows:
                "The board of managers shall keep
            in a book provided for that purpose a
            proper record of its proceedings, which
            shall be open at all times to the in-
            spection of its members, to the members
            of the commissioners court and to any
            citizen of the county. The board shall
            certify all bills and accounts, includ-
            ing salaries and wages, and transmit
            them to the commissioners court, who
            shall provide for their payment in the
            same manner as other charges againstthe
            county are paid." (Emphasis added)
            This office has held in Attorney General's Opinion
x-2213   (1950):

                "When an obligation Is incurred by
            the Superintendent of such hospital,
            such obligations must be approved by the
            Board of Managers. The Board of Managers
            thereafter must submit these bills and
            obligations to the County Commissionerst
            Court. The payment of these obligations
            and bills Incurred by the hospital should
            then be made by the county in the same
            manner as other obligations of the county
            are paid. The expenditures for and on
            behalf of the hospital must not exceed
            that amount provided for the hospital by
            the Commissioners' Court.'
          It is therefore our opinion that the contract en-
tered into by the Citizens Memorial Hospital was originally
approved by the Board of Managers for said Hospital under
the authority given to them by Article 4480 of Vernon's Civil
Statutes and other authorities cited above. In our opinion
Article 4480, Vernon's Civil Statutes, is sufficiently broad
to authorize the contract as herein described; and such con-
tract would not constitute a lending of credit or donation of
public funds but rather compensation for future Services  to
be rendered by the employees of the.county hospital; hence,
the contract would not come within the purview of Section 52,
Article III, Texas Constitution. This contract has been in
existence for many years. So long as the Board of Managers
of the Citizens Memorial Hospital approves such claims, as is
Honorable W. W. Kilgore, Page 6 (WW-1101)


provided for by the contract under consideration such con-
tract is a valid and legal contract and the payments under.
the terms of the contract are to be made in the same manner
as other obligations of the County are paid.
                         SUMMARY
            Counties may pay out premiums for insur-
            ance plans sold by corporations organized
            under Chapter 20 of the Texas Insurance
            Code without violating the provisions of
            Section 52 of Article III of the Constitu-
            tion, either as to the lending of its
            credit or granting of public money or as
            to the provision prohibiting becoming a
            stockholder in a corporation; and, the
            Board of Managers of Citizens Memorial
            Hospital, a.county hospital for Victoria
            County, had authority to enter into a
            contract with Group Hospital Service, Inc.,
            for the purpose of furnishing medical and
            hospital services for its employees.
                               Yours very truly,
                               WILL WILSON
                               Attorney General of Texas



                                    I. Raymond Williams, Jr.
                                    Assistant
1RWjr:mm
APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
Fred Werkenthln
Marietta Payne
Houghton Brownlee, Jr.
REVIEWED FOR THE ATTORNEY GENERAL
BY:   Morgan Nesbitt
