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,




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        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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