                  OFFICE OF THE ATTORNEY GENERAL            OF TEXAS
                                   AUSTI
2. I     GROVERSELLERS                   Yl
         ATTORNEY
              GENERAL



       Honwable Weaver Ii. Baker. Cbaiman
       State Board of Control    -
       Austin, Texas
       Dear Sir:                      Opinlen Be. O-7005
                                      Rer   Authority    of Beard




       islature  will have
       and Insurance Corpo                                    such surety bonds
       on the members of t                               yeas haa been received
       and given careful   st                           ortlens  of your letter:



                                                 agreed te execute the
                                                the State Board of




                                 ontract has been fully performed on
                                 partles therete and beth parties
                                to abide by the terms of the aaid
             contract.
:Hon.,Weaver   H. Bsker, psge 3                                     23
                                                         ,



          Paragraphs tuo 8nd three of the aontraat you have
with CentrsrtSurety 8nd Insurenae Corporstlon 8re quoted belovt
              "The Party of the Second Part hereby aantrsats
        and agrees to execute the surety bonds on the member8
        of t.heState Board of Control, the Searetary to the
        Stste  B0s.H of Cbntrol, 8nd the Superfntendents8nd
        Storekeeper-aoaountantsof the vsrious ~eemosyn8ry
        Institutions of,the State of Texas, under the super-
        vision of the Boaed ,ofControl, 8s required by statute
        as 8nd vhen their present bonds axpire, or nev onea
        8re requfred, fey 8 period of two ye8rs be-g
        Septehber 25, 1944. It is agreed and understood that
        should surety bonds be required 8y lev of other employees
        of the State Board of Control or the various Eleemosynary
        inatitutZonsduring the time aovered by this aontraat,
        the Party of the Second Part sgrees to execute them..
        This is ln acaordanae with the speaifiaationsand bid
        proposal 8s submitted by the Pwty OS the Seoond,Part
        8nd opened by the Party of the First Part on September
        25, 1944, 8nd said speoifiaationaand bid proposal 8re
        hereby made 8 part of this contract for all purposes.
             "In 8aaord8nae vith the provisions of the bid
        submitted by the Party of the Seaond Pert, the Party
        of the First PsFt hereby contracts snd 8gFeea to pay
        to the Party of the Ssaond Part Two ($2.00) Dollars
        per thous8nd per 8nnum for the Vsrious fidelity bonds
        to be executed by the Party of the Second Part. In
a       aase the Legislature should provide that premiums may
        be paid for two years In advance, the Party of the
        Seaond P8rt agrees that the premium sh8ll be Three
        and Sevqnty Xundredtha ($3.70)Dollars per thousand
        for m'two year peplod. The Party af the Second
        Part agreea to submit to the proper institution, or
        the Board of Control as the aase m8y be, 8 statement
        for the premium of each bond, executed In trlpllaate
        8nd aaaomparnledby 8n affidavit as required by lav...?

          It will be noted thst the effeative period of the aontraat
is from September 25, 1944, to September 25, 1946. There sppears to
be no question as to the vslldity of this aontraat 'atthe time it
Hon. Weaver Ii.Baker, page 4                                      20




was signed September 1944, The question, then, is, wh8t eifeat
Senate Bill 233 has, 1-Pany, upon the valldltp or legality of
the aontraot.
          It Is ow? opfnion thst the effeot of son8te Bill 233
is to make llleg$the exeaution of bonds thereunder at the
rates therein stipulated after the effeative date o? the nevly
established rates by the Ismmsnae Board. After suah date, bonds
may be made at the new rates for the reason hereinefter rtated.
          The aonalualon ia predicated upon the rule that vhore
a aontraat la exeauted whlah la valid at the time of it8 exeau-
tion but by reason of s8ubsoQuent ah8nge in the law - whether
by statute or valid 8dBbbItratlvo  Order8 making the further
subjeat matter Of the aontraot illegal, It operates 8s a dis-
ahargo of the aontraat 60 weautc;d.
            Corpus Jurls Seaundum, Vol.   17, p. 964, Sea. 467,
dealerear
          "Performenaeof a aontraat a8nnot be aompolled
     vhere it vould involve a violation of law. Hence 8
     aontraat is dlwah8rgo& vhero after it has been en-
     tered Into, the perfornmnae is made unl8vful."
          The text is supported by numerous a8868 Including
Federal deal&ions and others from the highest oourta o” the States
of Arlgensas,Callfornl8, De18var0, ffeorgia,Illinois, Indiana
M8ryland, Miselealppi,Aev limpshire, Hew York, Texas, West
Virginia, 8nd WisaonsIn, In the pocket prt   supplefaent,there
BFQ Inaluded other a8888 from the State6 of PeIIASylV8d8, Rhode
Island and Wyoming.
          Bule VS. Porter, 22% 3. U. 999, the Texas aaae
cited by the text quotes Ruling CSse Law aa followst
          “One of the aondltlons implied In 8 aontraat is
     that the promiser shall not be aonrpelledto perform
     lfop~errmanae la rendered imgosslble by an sat of
            . The inferenae is that the perties did not
     aontomplate that dmages should be peid for non-
     performenae In the event that performance Yaa aubse-
     quently ppohlbited b law. The deaislons of praa-
                         eions me to the effect that
     tiacallysll jurl.adla
     where a contract, legal ln ita inception, becones
     ,
         HOPI.Weaver H. Bsker, page 5                                   21



              illegal by subsequent statutory enaotment, the
              aontrsot 1s wholly termlnsted 8% soon 8% the
              statute takes effeat, even though the time specl-
              fled for Its performance hes not yet fully expired,
              and no action aan be maintained by either party for
              failure to peqform the obllgetlons of the contract
              after the liiegailty has sttached."
                   In Lcui%vllle and Reehville Railroad Company vu).
         ROttiey, (n. 3. )55 MU. Ed. 297, It 1s said;
                   "This lmpossibllltyof enforcementexists
              vhether the agreement 1% illegai ln its lnoeptlon,
              or whether being oaild vhen made, the lllegallty
              has been arested by a subsequent statute."
                   The language ~8s 8 quotation from Pommeroy on con-
         traats. The 3hpreme Court further approving Pommeroy quoted
         one of hi% supporting critatione , Chief Justlae Lord Ellenborough,
         who a8idt "That no contr8ct can properly be oarrled into effect
         which ~88 orlg!naily made contrsry to the provisions of law, or
         vhlah, being made conalstentlyvith the rules Qf law at the time,
         ha% become illegal ln virtue of some subsequent law, Bpe proposi-
         tions which 8dmlt of no doubt." Justiao Harlan then further
         quoted Judge Cooley upon the aonstltutlonalprovision prohibiting
         ieglslatlon lmpalring the oblfgstlonso? aontrsats, as follow%:
                   "But the aat to reguiste oommerae is 8
              general iaw, and aontraots are 8ivays liable to
              be more or less affected by general 18~9, even
              when ln no way referred to . . . But this lnol-
              dentai effect of the general lav is not under-
              stood to make It a 18~ impairing the obligation
              of oontraots. It is 8 necessary effeot of 8ng
              oonslderable ohange ln the publie iawa. If the
              Legislature had no power to alter It% police law%
              when the oontraats would be effeated then the moat
              important and valusble reforms might be prealuded
              by the simple devise of entering Into oontraots
              for the purpoee, Ho doctrine to that effeat would
              be even plausible, muoh leas sound and tenable."
                  In BrowntBr;sia;;;Merchsnts Bank (H. Y.) 213 Rew York
         Supplement, 146, 1 1
                   "Contraotsmade with reference to a subject
              within the restricted pover OS 8 government oontaln




A,
    Honi Weaver H. Baker, page 6




        the implied OOndltlOAthat a ohange in 18v may
        be made end the obligationsof the parties varied
        or avoided. Fltts v. Andrevs,192 App.‘Div.160,
        182 R. Y. 9. 464; Town of North Hempstead vs.
        Publio Serviq? Corp., 231 n, Y. 44   450, 1 2 R. B,
        l&4* Legal Tender C88e6, 12 Wall, J'
                                           57, 551 ?20 L,Rd.
        287). ‘The obligation of the law qwlifier, and
        In case of aonfliat, ovdrridos, the obligation of
        the oontraot.~ Postal.Tel. Cable Co. v. Assoalated
        Press, 228 R. Y, 370,-375, 127 f. B. 256. ‘Contrsate
        must be undsrstood as made In referonae to the poa-
        8181s exerolso o? the rightful authority of the
        government.~ Louisville6 R. R. Co, Y. Rottley, 219
        u. 3. 467, 482, 31 8. Ot, 265, 270, 55 L. Ed. 297,
        34 L. R. A, (R. 3.) 671. The rights of the p8rties
        relitlve to the certificateto 8% signed, being
        subject to government restrlation, aould not be re-
        moved from suah restrlationby 8 contraat aontrsry
        to the law. Rudson County Water Co. v. MaCarter,
        209 U. 3. 349, 357, 2% S.Ct. 529, 52 L. Bd. 828,
        14 Ann. Cas 560~ People ox rel. City of Ecu York
        v. Nixon, 229 8. Y. 356, 359, 12% N. E. 245. When
        the new 18~ beceme operative, the parties were re-
        lieved from performanoe In that nuinner,for, vithout
        fsult on the psrt of either, both were disabledfY?om
        performing. Adler v. tiles, 69 Miss. Rep. 601, 126
        N. Y, 9. 13 ; People v. dlobe Mutual Life Ins. Co,
        91 R. Y. 1754."
              This dealsion vaa 8ffirmed by the Court of Appeals,
    the highest jurlsdiationin Rev York. We have found no aase
    holding.%0 the aontrary. It is proper, however, under the,
    authorities, to sever the llleg8l portion of the contra& where
    the nature of the contract makes such matter severable 8nd to
    enforce the contra& aa to that portion r%m8ining ilegalafter
i   such severance.
t
              We understand the aorporation 1% 8gre%881% to this
    being done and is ullllng to write fidelity bonds under the
,   .   .
            ____-   ..-----   -.   se.-.,   r--   ,




            contract for the remainder of lta term at the Board*8 pre-
            scribed rate8 (wry naturally since the rescrlbed mlnirmull
            rates are higher than the oontraot rate8P edd we think it
            i.swithin your authority to permit It to do so for the re-
            mainder of the lll;yz~
                                of your oontraot.
