Untitled Texas Attorney General Opinion ( 2005 )

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT
February 2,2005
The Honorable Craig D. Caldwell Opinion No. GA-0302
Cherokee County Attorney
Post Office Box 320 Re: Whether Texas or New Jersey law applies to
Rusk, Texas 75785 the payment of late fees on a contract between a
Texas county and an out-of-state vendor
(RQ-0266-GA)
Dear Mr. Caldwell:
You have submitted a copy of a contract between the Community Supervision and
Corrections Department of Cherokee County (the “County”) and Citicorp Vendor Finance, Inc. (the
“Vendor”) and ask, based on “the fact situation and the written contract signed by the County,”
whether “the Prompt Payment Act of Texas govem[s] when the County can be charged late fees”
or whether “the County [is] bound by New Jersey law as it relates to the payment of late fees.“’ The
Texas provision about which you inquire states:
(a) Except as provided by Subsection (b), a payment by a
governmental entity under a contract executed on or after September
1, 1987, is overdue on the 3 1st day after the later of:
(1) the date the governmental entity receives
the goods under the contract;
(2) the date the performance of the service
under the contract is completed; or
(3) the date the governmental entity receives
an invoice for the goods or service.
TEX.GOV’T CODE ANN. 5 2251.021(a) (Vernon Supp. 2004-05). You inform us that the Vendor has
charged the County late payment fees for payments the County submitted within the time allotted
‘Letter from Honorable Craig D. Caldwell, Cherokee County Attorney, to Nancy Fuller, Opinion Chair, Texas
Attorney General (Aug. 20, 2004) (on file with Opinion Committee, also avnilable af hnp://www.oag.state.tx.us)
[hereinafter August Request Letter].
The Honorable Craig D. Caldwell - Page 2 (GA-0302)
under section 2251.021(a) of the Government Code. * You further apprise us that the County
Auditor, on informing the Vendor about the time period in section 2251.021(a), was told that,
pursuant to the contract, New Jersey law and not section 2251.021(a) applies. See March Request
Letter, supra note 2, at 3. Paragraph 14 of the contract is a choice of law provision:
14. Governing law: Consent to Jurisdiction: Waivers: This lease
shall be governed by and construed according to New Jersey Laws.
You agree to be subject to suit in the New Jersey state and federal
courts, consenting to such jurisdiction, provided nothing in this
section shall be construed to limit the jurisdictions in which suit may
be filed by any party. You waive trial by jury in any action. You
hereby waive any and all rights and remedies granted by section 2A-
508 through 2A-522 of the Uniform Commercial Code.
Id. at Exhibit 1. In essence, this provision or term in the contract purports to import New Jersey law
as the controlling law of the contract. You do not provide us with information on any specific New
Jersey law that conflicts with section 2251.021(a), but we assume from your question that the
applicable New Jersey law contradicts the provisions of section 225 1.021(a). We note at the outset
that this oflice does not review or construe contracts. See Tex. Att’y Gen. Op. Nos. JC-0032 (1999)
at 4, DM-383 (1996) at 2, DM-192 (1992) at 10, JM-697 (1987) at 6. Therefore, we answer your
question generally and do not express any opinion with respect to the specific contract. However,
we think your question can be resolved by answering the legal issue of whether a political
subdivision, such as a county, is authorized to include in a contract a term that effectively negates
the provisions of chapter 225 1.
As the governing body of a county, .the commissioners court is a “creature of the
Constitution.” Comm i-s Court Y.Agan, 940 S.W.2d 77,79 (Tex. 1997) (citing TEX. CONST. art. V,
5 8) (commissioners court is governing bodyofa county); El Paso County v. Elam, 106 S.W.2d 393,
395 (Tex. Civ. App.-El Paso 1937, no writ) (commissioners court is creature ofconstitution). It may
therefore exercise only those powers that are expressly conferred by the constitution and laws ofthis
state or that are necessarily implied from such express powers. See City of San Antonio v. City of
Boerne, 111 S.W.3d 22, 28 (Tex. 2003) (citing Canales v. Laughlin, 214 S.W.2d 451, 453 (Tex.
1948)); see also Tex. Att’y Gen. Op. Nos. GA-0235 (2004) at 1, JC-0439 (2001) at 2. Similarly, it
is well settled that the authority of a commissioners court to contract for a county is limited to that
conferred either expressly or by necessary implication by the constitution and laws of this state. See
Jack v. State, 694 S.W.2d 391,397 (Tex. App.-San Antonio 1985, writ ref d n.r.e.); Galveston. H.
& S.A. Ry. Co. v. Uvalde County, 167 S.W.2d 305,306 (Tex. Civ. App.-San Antonio 1942, writ
refd w.o.m.); see also Tex. Att’y Gen. Op. No. JM-516 (1986) at 1 (citing Canales, 214 S.W.2d at
453). For example, in Texas & New Orleans Railroad Company v. Galveston County, the court
struck down part of a contract between a county and three railway companies in which the county
agreed to indemnify the companies for future liability that might arise from the use of a jointly
‘Letter from L. H. Crockett, Cherokee County Auditor, to Nancy Fuller, Opinion Chair, Texas Attorney General
(Mar. 22,2004) (on tile with opinion Committee) [hereinafter March Request Letter].
The Honorable Craig D. Caldwell - Page 3 (GA-0302)
constructedcausewayanddrawbridge. See T. dtN.0.R.R. Co. v. Galveston County, 169 S.W.2d713,
715 (Tex. 1943). The holding was based on the court’s observation that the parties could not have
determined, at the time they made the contract, the extent of any future liability, and therefore could
not have anticipated that the debt would be satisfied out of then-current revenues. See id. Because
the county had not provided for “levying and collecting a sufficient tax to pay the interest thereon
and provide at least two percent (2%) as a sinking fund” to pay the debt, the indemnity provision was
invalid. Zd.
We believe that where a county has express authority to enter into a contract, it impliedly has
authority to negotiate the terms ofthe contract. See Guynes Y. Galveston County, 861 S.W.2d 861,
864 (Tex. 1993) (stating that a county with authority to hire legal counsel could set terms of
a contract with outside counsel in the exercise of its implied authority); Tex. Att’y Gen. Op. NO.
JM-748 (1987) at 1 (stating that terms of authorized contracts between counties and incorporated
volunteer tire departments were determined by negotiation between the volunteer tire department
and the county). However, the inclusion of certain terms in a contract may be outside the scope of
that implied authority. “A county may contract only in the manner and for the purposes provided
by statute, and is not bound by a contract beyond the scope of its powers or foreign to its purposes,
or which is outside the authority of the officers making it.” Galveston, H. & S.A. Ry. Co., 167
S.W.2d at 307. Texas law admonishes parties that contract with counties to understand the limits
of the county’s authority. Parties that contract with counties are charged with knowledge of the law
and contracts entered into in excess ofthe governmental unit’s authority are made at the parties’ risk.
See id.; see also City of Bonham v. Southwest Sanitation, Inc., 871 S.W.2d 765, 767 (Tex.
App.-Texarkana 1994, writ denied).
We have found no Texas statute that prohibits a county from consenting to a choice of law
provision that imports the law of another state into a contract, At the same time, we have found no
Texas statute expressly permitting such a provision. However, the legislative development of
chapter 225 1 (payment for goods and services) provides evidence that the legislature intended the
chapter to control over any conflicting contract. From its inception in 1985 until 1995, chapter 2251
contained an exception that explicitly stated the chapter was not applicable to “payments made by
a governmental entity or a vendor in the event the terms of a contract specify other times and
methods of payment.” Act of April 22, 1985, 69th Leg., R.S., ch. 82, 5 7(a)(l), 1985 Tex. Gen.
Laws 497, 499. Construed according to its plain language, see Fitzgerald v. Advanced Spine
Fixation Sys., Inc., 996 S.W.2d 864,865-66 (Tex. 1999) (court construes a statute by looking to the
plain meaning of the statute’s language), this exception required payment by political subdivisions
to vendors be made according to the time limits and other parameters of chapter 2251 unless a
contract between the governmental entity and the vendor provided otherwise. See Tex. Att’y Gen.
Op. No. DM-88 (1992) at 1 (stating that chapter 2251’s uncoditied predecessor provided it did not
apply when the terms of a contract specify other terms and methods of payment). In 1995, the Texas
Legislature deleted this exception from chapter 2251. See Act of April 25, 1995, 74th Leg., R.S.,
ch. 76,s 5.41(a), 1995 Tex. Gen. Laws 458,497-98. Giving effect to the removal ofthis provision,
see 2A Norman J. Singer, SUTHERLAND STATUTORY CONSTRUCTION 5 47.25 (6th ed. 2000) (stating
that there is generally an inference that adeletion from a statute is intentional), it follows that chapter
225 1 no longer permits terms in a contract to alter or override the payment scheme set forth in the
chapter. Pursuant to the change in the language of chapter 225 1, we believe that a contractual choice
The Honorable Craig D. Caldwell - Page 4 (GA-0302)
of law provision importing into a contract the law of another state that alters or overrides the
payment scheme in section 225 1.021 (a) is not permitted? Accordingly, such a term is not within the
implied authority of a county to negotiate terms of a contract.
You direct our attention to Fristoe v. Blum, 45 SW. 998 (Tex. 1898), and suggest that it
leads to the conclusion that New Jersey law, as provided in the contract, controls. See August
Request Letter, supra note 1, at 1. Your argument appears to construe Fristoe as removing from a
political subdivision its governmental nature when the political subdivision enters into a contract.
Id. at 2 (“If the county has no special status as a governmental entity when it entered the contract
with Vendor. .“). Such an argument extends Fristoe too far. In Fristoe, the Texas Supreme Court
recognized a distinction between the state as a sovereign and the state as a contracting party!
Fristoe, 45 S.W. at 999-1000; Indus. Constr. Mgmt. v. DeSoto Indep. Sch. Disk, 785 S.W.2d 160,
163 (Tex. App.-Dallas 1989, no writ) (following rule in Fristoe that sovereign immunity does not
apply to contracts made by state). See generally Ten. Dep’t of Health v. Tex. Health Enters., 871
S.W.2d 498,506 (Tex. App.-Dallas 1993, writ denied) (holding that state lays aside its sovereign
attributes when it contracts with a private citizen); Ferris v. Tex. Bd. of Chiropractic Exam ‘rs, 808
S.W.2d 514,518 (Tex. App.-Austin 1991, writ denied) (restatingrule that sovereignimmunitydoes
not bar citizen’s rights to enforce contractual obligations against state). Fristoe holds that a state
cannot use its sovereign immunity to avoid its contractual obligations. It does not remove apolitical
subdivision’s governmental nature, nor does it put a political subdivision on equal footing with an
individual who has almost complete heedom of contract. Unlike an individual, a county may
contract only as provided by statute. Galveston, H. & S.A. Ry. Co., 167 S.W.2d at 307. Fristoe is
inapposite here where the question relates to the more fundamental issue of whether the state’s
political subdivisions, particularly counties, have the authority to make contracts with terms that are
outside the scope of their contracting authority.
Without speaking to any fact issues involved in your inquiry, we conclude that where a
county is authorized to enter into a contract and negotiate the terms of the contract, it is not
authorized to include in the contract a term, such as a choice of law provision, that overrides or
negates the provisions of chapter 225 1.
‘We believe such a construction also comports with a more recent change to the statute. In 2003, the legislature
added a non-waiver section to chapter 2251, see Act ofMay 28,2003, 78th Leg., R.S., ch. 286, 5 2,2003 Tex. Gen.
Laws 1252,1253, whichprovidesthata“personmaynot waiveanyright orremedygrantedbythis chapter. Apurported
waiverofanyright orremedygmntedbythis chapter isvoid.” TEX.GOV’TCODEANN.$2251.004 (Vernon Supp. 2004-
05). An attempted waiver ofthe provisions ofchapter 225 1 that was overt and affirmatively stated an intent ofthe parties
to waive the chapter would be void pursuant to section 225 1.004. Likewise, a provision in a contract that has the effect
of waiving the provisions of chapter 2251 must similarly be void under section 2251.004.
We do not read the addition of the non-waiver section in 2003 to mean that prior to 2003, the requirements of
chapter 225lcould be waived. Pursuant to OUTdiscussion, supra p. 3, we believe that since the change in 1999, the
requirements of chapter 225 lcould not be altered by the terms of a contract. We construe the more recent non-waiver
section merely as further indication that the legislature intended the provisions of chapter 2251 to control government
contracts.
“Butsee Fed. Sign v. Tex.S. Univ.,95 1 S.W.2d 401,408 (Tex. 1997) (holding that state waives immunity from
liability, but not suit, when it enters into a contract); see also TEX. GOV’TCODEANN. $ 2260.006 (Vernon 2000).
The Honorable Craig D. Caldwell - Page 5 (GA-0302)
SUMMARY
A county that is expressly authorized to enter into a contract
impliedly has authority to negotiate the terms of the contract. The
scope of that implied authority does not include a choice of law
provision that imports the law of another state that effectively
overrides or negates the provisions of chapter 2251 of the Texas
Government Code.
BARRY R. MCBEE
First Assistant Attorney General
DON R. WILLETT
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Charlotte M. Harper
Assistant Attorney General, Opinion Committee