Untitled Texas Attorney General Opinion ( 1942 )

Hon. John H. Bickett, Jr. Opinion No, O-4997
Chairman, Board of Regents Re: Authority of the Board of Re-
University of Texas gents of the University of Texas
Telephone Building to organize the corporation known
Dallas, Texas as the Texas Research Corporation
and to appropriate funds of the
University in the furtherance: of
Dear Sir: its objects.
Your letter addressed to Honorable Gerald C. Xann,
Attorney General of Texas, dated February 23, 19Li3.requesting
the opinion of this department on the above subject, has been
received from which letter we quote:
“The Board of Regents of The University of
Texas respectfully presents, and requests your
opinion upon, the following questions, to-wit:
“1 . Did The Board of Hegents of the Univsr-
sity of Texas have the authority to organize the
corporation k.mwn as Texas Research Corporation,
the charter of which was filed by the Secretary
of State, of the State of Texas, Karch 1, 134W
“2 . Does The Board of Regents of The Uhiver-
sity of Texas have the authority to appropriate
and to pay over to Texas Research Corporation pub-
lic funds belonging to The University of Texas to
be used by the corporation for costs and expenses
incident. .to obtaining and acquir,lng patents and
copyrights?
"3. Does Texas Research Corporation, orgau-
ised under Article 1302, Section 3, Revised Civil
Statutes of Texas, as a corporation for educational
purposes, have the power to purchase, acquire, and
own patents or copyrights, to manufacture and sell
products under patents owned by it, and to license
manufacturers or others under patents owned by it,
and to exercise the incidental powers of such cor-
porations as are authorized by Article 1302 Sec-
tion 101 Revised Civil Statutes of Texas (Acts
1937, 45&h Legislature, p. 654, ch. 323, Section I)? i
.- .-
Hon. John H. Bickett, Jr. - Page 2
“4. Is Texas Research Corporation subject
to taxes, Including federal income tax?
“Copies of the charter and the by-laws of
Texas Research Corporation sre hereto attached.
“The University has for many years conducted
and will continue to conduct scientific research
In many fields through the usual administrative
and faculty organleatlons under the supervision
of The Board of Regents.
“The corporation was, In fact, organized for
the principal purpose of acquiring end owning the
patents that might be obtained by members of the
faculty of the Unlverslty, covering the discoveries
or inventions made by them in the course of their
scientific research work in the laboratories of the
University.
“A few patents obtained by members of the fa-
culty have been assigned by them to the corporation
under agreements providing for psrtlclpation by the
patentee In future royaltles.
(‘The Board of Regents of the University of
Texas appropriated $20 000 of University funds to
Texas Research Corporation upon the forming of the
corporation.
f’If ‘;he corporation continues to exist, addi-
tlonal ap roprlatlons of the funds of the University
wll.lf dou! tless, be made to it f?om time to time.
“The co oration has made and, if it continues
to exist, wll‘p from time to time make contracts
with natural persons and other corporations looking
to the us& and development of the atents and the
granting licenses thereunder. SueR activities may
involve many of the problems of business and indus-
try end may lead to litigation by or against the
corporation! The corporation, of course, can sue
and be suedr The University could not be sued wlth-
out the consent of the state.
“The views of those favoring the organization
of the corporatloa and its continued existence are:
that The Board of Regents may resort to any appro-
priate business method or instrumentality; that a
Hon. John H. Bickett, Jr. - Page 3
corporation is a customary instrumentelity for
acquiring, owning, and utilizing patents and
copyrights; that a corporation organized for re-
search purposes under one section of the statute
may have the power to acquire, own, and use pa-
tents as an incident to its declared purpoaes
w.ithout violating the rule of law that a corpora-
tion may not be organized for separate purposes
permitted by a different section of the statute;
and that there Is no proNbit.lon by constitution
or statute in Texas against the organizing of
such a state or government owned corporation.
“Serious doubt is entertained by some of the
present members of The Board of Regents as to
whether, in view of their duties as prescribed by
the constitution and the statute, they can lawfully
create a private corporation and delegate the per-
formance of their duties to the corporation and its
agents.
“Similar doubt exists as to the authority to
transfer money and other assets of the University
to the corporation.
t’Apprehenslon is also, felt by some that, If
the course Indicated by this corporation Is sus-
tained and continued other activities and proper-
ties of the University may from time to time be
transferred Prom the University to other corpora-
tions.
‘Those who entertain such objections, doubts,
and fears, have In mind the foll~lngr the pre-
scribed constitutional and statutory duties of the
regents as individual officers of the state; the ab-
sence of any affirmative constitutional or statutory
authorization for the creation of a private corpora-
tion as an agency of the state government; the ab-
sence of any such precedent in the governmental af-
fairs of this state; the statutory requirement that
state funds must be deposited with the state treas-
urer; and the prohibition of Article III, Section
!jl of the Constitution of Texas, that: ‘The Legls-
la4ure shall have no power to make any grant or au-
thorize the making of any grant of public moneys to
any individual, association or individuals, munlci-
pal or other corporations whatsoever.’
.I
Hon. John Ii. Bickett, Jr. - Page 4
“For your information, some of the different
points of view, heretofore expressed, are herewith
presented to you for whatever they may be worth
by the following letters1 (1) from I*. Scott &aines
to Dr. J. \i. Calhoun, President of The University of
Texas, Xay 27, 1939; (2) from Xr. Ira P. Hildebrand,
of the law faculty of the University to Dr. Homer ?.
Rainey, President of The University of Texas, Septem-
ber 1, 1939; (3) from John H. Bickett, Jr., to Hr.
D. F. Strickland, October 15, 1942.”
The copies of the letters accompanying your request
as well as the copy of the Charter of the Texas Research Corpor-
ation have been valuable to us in preparing the answer of this
department to the questions propounded, for which we thank you.
The University of Texas authorized and established by
the Constitution and Statutes of this State is an agency of the
State existing in virtue of biennial appropriations made by the
Legislature.
The University is governed by a Board of Regents ap-
pointed by the Governor and confirmed by the Senate who are State
officials exercising only such ‘authority and performing only such
duties as prescribed by the statutes of this State.
Article 2584, Vernon’s Revised Texas Civil Statutes,
pertaining to the government of the University reads:
“The government of the University of Texas shall
be vested in a Board of Regents composed of nine per-
sons. They shall elect a chairman from their number
who shall serve at the pleasure of the Board. The
%$ Treasurer shall be the treasurer of the Univer-
The board shall have the right to make and use
a cohon seal and may alter the same at pleasure.”
_,_J_ Article
.-*Ib.,,.Ag
YuA
2585, .Vernonts Revised Texas Civil Statutes,
to she -dut$es of the Board. sf, Regents of the Unlver-
sity, reads:~ _,
“They shall establish the departments of a flrst-
class university, determine the offices and professor-
ships, appoint a president, who shall, If they think
it advisable, also discharge the duties of a professor,
appoint the professors and ‘other ,offlcers, fix their
respective salaries; and they shall enact such by-laws,
rules and regulations as may be necessary for the suc-
cessful management and government of the University;
Hon. John H. Bickett, Jr. - Page 5
they shall have power to regulate the course of
instruction and prescribe, by and with the advice
of the professors, the books and authorities used
l.n the several departments, and to confer such de-
grees and to grant such diplomas as are usually
conferred and granted by universltles.1l
We have not found any authority in this state that
would authorize the Board of Regents of the University of Texas
In their official capacity to organize and establish the cor-
poration in question and transfer to such corporation for the
furtherance of Its object and purpose a part of the funds appro-
priated to the University of Texas by the Legislature for its
maintenance and support, and we think no such authority exists.
i;;;efore, we answer your questions NOS. 1 and 2 in the nega-
.
The purposes for which a corporation may be formed In
this State are set out In A rticle 1302, Revised Civil Statutes.
Section 3 of said article reads:
“The support of any literary and scientific
undertaking, the maintenance of a library, or Rro-
motion of painting, mu&o and other fine arts.
Article 1302, Sec. 101 Revised Civil Statutes of
Texas (Acts 45th Leg., p* 654, ch. 323, Sec. 1) reads:
%orporatlons may be created for the purpose
of purchasing and owning patents wlth all rights ln-
cldental thereto, and to manufacture products and
processes thereunder and to market sell, distribute
such products, and license dealers i o use such pro-
cesaes in prescribed territories on a royalty baals.t8
It is our opinion that a corporation that is organized
for the purposes authorlzed by Section 2 or for the purposes
authorized by Section 3 .of said Article 1302, R.C.S., would not
be authorized to exercise the powers conferred by Section 101
of said article. Tex.Jur., Vol. 10, p. 625; Johnson V. Townsend,
124 S.W. 417. tie, therefore answer your question No. 3 in the
negative.
We think that in view of what has been said that it 1s
unnecessary to answer your fourth question. However we will add
that it is our opinion that a corporation organized #or ‘scientif-
ic, literary or educational purposes would not be subject to
taxation so long as it is operated exclusively for those purposes,
or either of them, and not for profit, but should Its net earnings,
- .
.
Hon. John Ii. Blckett, Jr. - Page 6
If any, or any part thereof inure to the benefit of gyotgt;-
vlduel, 3.t would be subject to federal. Income tax.
words, an exempt corporation must keep its activities within
the scope of the exemption or it will be subject to the tax.
Santee Club v. White, 87 Fed. (2) 5.
Yours very truly
ATTORNEY
GENERAL
OFTEXAS
By /s/ E. P. Price
E. P. Price, Assistant
APPROVED MAR12, 19b3
/s/ Grover Sellers
FIRST ASSISTANTATTORNEY
GENERAL
APPROVEVt
OPINIONCOMMITTEE
BY: GWB,CHAIRMAN
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