Does Tennessee's 'sole supplier' exception let a county official contract with the county when his business is merely doing business in the county, and must an official who violates the conflict statute give back all the money he was paid?

Plain-English summary

Tennessee's conflict-of-interest statute for public contracts, Tenn. Code Ann. § 12-4-101, bars a county official from being "directly interested" in a contract the official's body lets out or supervises. There is a carve-out: if the official's business is the "sole supplier of goods or services in a municipality or county," the official is treated as only "indirectly interested" and may participate, provided the interest is publicly acknowledged.

A state senator asked two questions about this. First, does "sole supplier . . . in a municipality or county" mean the only such business located in the county, or the only such business doing business in the county? Second, if an official does end up contracting with the county in violation of § 12-4-101, must the official refund all the money received, or does quantum meruit (a contract-law doctrine that pays the fair value of services rendered) salvage at least some recovery?

The AG's answers:

• Sole supplier exception is narrow. "In" the county means located in the county. The legislature wrote "in," not "doing business in," and Tennessee courts presume the legislature picks its words carefully. A vendor located across the county line that happens to deliver to county customers does not block another in-county vendor from being the "sole supplier."
• No quantum meruit relief. Under Tenn. Code Ann. § 12-4-102, an official who violates the conflict statute "shall forfeit all pay and compensation" tied to the contract, be removed from office, and is barred from holding the same kind of position for ten years. The Tennessee Supreme Court read "forfeit" to include the obligation to repay money already received, regardless of whether the goods or services were delivered or whether the official acted in good faith. Madison County v. Alexander; Hope v. Hamilton County; Savage v. Mynatt. A narrow emergency exception exists in dicta in Crass v. Walls but is rarely available.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The conflict-of-interest statute distinguishes "directly interested" and "indirectly interested." Direct interest is prohibited; indirect interest is allowed if publicly acknowledged.

Tenn. Code Ann. § 12-4-101(a)(1) defines "directly interested" as a contract "with the official personally" or with a business in which the official is sole proprietor, partner, or controlling-interest holder. The same subsection makes it "unlawful" for any officer whose duty includes voting on, awarding, or supervising a contract to be directly interested in that contract.

Tenn. Code Ann. § 12-4-101(b) then carves out a narrow path:

"Indirectly interested" means any contract in which the officer is interested but not directly so, but includes contracts where the officer is directly interested but is the sole supplier of goods or services in a municipality or county.

So the operative phrase is "sole supplier of goods or services in a municipality or county." The senator's first question asked whether "in" means physically located inside, or merely doing business inside.

Question 1: meaning of "in." The AG applied the plain-meaning rule, citing the standard Tennessee statutory-construction authorities: Gragg v. Gragg; Moser v. Department of Transp.; Carson Creek Vacation Resorts. The legislature wrote "in," not "doing business in," and courts presume that word choice is deliberate. Lee v. Franklin Special Sch. Dist. Bd. of Educ., 237 S.W.3d 322, 332 (Tenn. Ct. App. 2007). The AG also looked to out-of-state authority on the spatial meaning of "in" (Anderson v. Spencer, 162 Colo. 328 (1967); Counts v. Medley, 163 Mo. App. 546 (1912)) to confirm that "in" connotes "inside of" or "within the bounds or limits of." Result: the sole-supplier exception requires the official's business to be located in the county, not merely operating within it from outside.

Question 2: pretermitted by the answer to Question 1.

Question 3: refund obligation when § 12-4-101 is violated. The forfeiture statute, § 12-4-102, imposes three consequences: forfeiture of all pay and compensation, dismissal from the position, and a ten-year disqualification from holding the same kind of position. The Tennessee Supreme Court's Savage v. Mynatt, 156 Tenn. 119 (1927), construed "forfeit" to embrace both refusal of payment and compelled repayment of money already paid out: "The word 'forfeit' is inclusive of both remedies." 156 Tenn. at 123.

A long line of authority bars quantum meruit recovery in this setting:

• Madison County v. Alexander, 116 Tenn. 685, 94 S.W. 604 (1906) (official could not recover for merchandise sold to county in violation of statute)
• Hope v. Hamilton County, 101 Tenn. 325, 47 S.W. 487 (1898) (County Court member could not recover for services to county under contract)
• Crass v. Walls, 36 Tenn. App. 546, 259 S.W.2d 670 (1953) (town recovered half the money paid to a partnership under contract because the mayor was one of the partners)
• Hammon v. Miller, 13 Tenn. App. 458 (1931) (town recovered all compensation paid to mayor under a contract to rent the mayor's company's equipment)

Good faith does not save the official (State v. Perkinson, 159 Tenn. 442 (1929)), and the fact that the goods or services were necessary or cheaply furnished is irrelevant (Madison County; Hope). The Tennessee Supreme Court explained the policy in Madison County: "The underlying principle is that no man shall be allowed to make a contract with the county, whose duty it is to pay for such a contract. In other words, he cannot make a contract to pay himself out of the public treasury for any purpose."

A footnote in Crass v. Walls identified an "emergency" exception in dicta: where there is an immediate necessity for the contract and proof that no one else could have supplied it, the rule may not bar recovery. The AG noted this but said applying it would depend on the specific facts. As a practical matter, the burden of proof is on the official, and the exception "does not extend to ordinary emergencies."

The penalty stack (forfeiture, removal, ten-year bar) is severe by design. The opinion does not endorse it as wise policy; it simply reports it. The Tennessee Supreme Court has called it "drastic and far-reaching" but legitimate as a deterrent against self-dealing.

Common questions

Q: I run the only hardware store in the county, and I'm also a county commissioner. Can I sell to the county?
A: Maybe, if you are the only hardware store physically located in the county. You must publicly acknowledge your interest. If a hardware store sits just across the county line and delivers, that does not necessarily disqualify you, since the test under this opinion is the location of the suppliers, not who reaches into the county. But the exception is narrow and case-specific. Get advice from your county attorney before transacting.

Q: What does "publicly acknowledge" the indirect interest require?
A: § 12-4-101(b) requires the official to disclose the indirect interest "in the official's minutes of the meeting at which the contract is awarded." The opinion did not interpret this requirement in detail, but the safe practice is a written, on-the-record disclosure that is part of the body's official minutes.

Q: What about a one-time emergency purchase, like a generator after a disaster?
A: Crass v. Walls suggested an emergency exception in dicta, but the AG noted that proving the exception requires more than ordinary urgency. The official would have to prove there was no other source and the necessity was not caused by the official's own fault.

Q: Do these rules apply to municipal officials as well?
A: Yes. Section 12-4-101 covers municipal corporations, counties, the state, development districts, utility districts, human resource agencies, and other political subdivisions. The opinion's specific holding was about county officials, but the statute's reach is broader.

Q: If the contract is voided, who pays for the goods that were already used?
A: The cases say nobody pays. The official may not recover under the contract or in quantum meruit, and may be required to refund what they were already paid, even if the goods are sitting in county warehouses being used. The harshness is intentional.

Citations and references

Statutes (as cited in the opinion):

• Tenn. Code Ann. § 12-4-101(a)(1) (directly interested)
• Tenn. Code Ann. § 12-4-101(b) (indirectly interested; sole supplier)
• Tenn. Code Ann. § 12-4-102 (penalties)

Cases:

• Gragg v. Gragg, 12 S.W.3d 412 (Tenn. 2000)
• Moser v. Department of Transp., 982 S.W.2d 864 (Tenn. Ct. App. 1998)
• Carson Creek Vacation Resorts, Inc. v. State, 865 S.W.2d 1 (Tenn. 1993)
• Lee v. Franklin Special Sch. Dist. Bd. of Educ., 237 S.W.3d 322 (Tenn. Ct. App. 2007)
• Anderson v. Spencer, 162 Colo. 328, 426 P.2d 970 (1967)
• Counts v. Medley, 163 Mo. App. 546, 146 S.W. 465 (1912)
• Fayette Cnty. Bd. of Educ. v. Tompkins, 212 Ky. 751, 280 S.W. 114 (1926)
• Savage v. Mynatt, 156 Tenn. 119 (1927)
• Madison County v. Alexander, 116 Tenn. 685, 94 S.W. 604 (1906)
• Hope v. Hamilton County, 101 Tenn. 325, 47 S.W. 487 (1898)
• Crass v. Walls, 36 Tenn. App. 546, 259 S.W.2d 670 (1953)
• Hammon v. Miller, 13 Tenn. App. 458 (1931)
• State v. Perkinson, 159 Tenn. 442 (1929)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2016/op16-019.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
May 18, 2016
Opinion No. 16-19
Conflict of Interest - Contracts: "Sole Supplier" Exception and Penalty for Unlawful Interest

Question 1
Does the "sole supplier" exception in Tennessee Code Annotated § 12-4-101(b) apply only
when a county official is the sole supplier located in the county or may the exception apply when
a county official is the sole supplier doing business in the county?

Opinion 1
The "sole supplier" exception in Tennessee Code Annotated § 12-4-101(b) applies only
when a county official is the sole supplier located in the county.

Question 2
If the answer to question 1 is that a supplier doing business in the county prohibits a
business located in the county from being a sole supplier, can there ever be a sole supplier in a
county?

Opinion 2
This question is pretermitted by the response to question 1.

Question 3
If a county official contracts with the county in violation of Tennessee Code Annotated
§ 12-4-101, does the county official have to refund all of the funds paid to him by the county for
the goods or services rendered by the official or does the doctrine of quantum meruit apply?

Opinion 3
Under the general rule established by Tennessee courts, the doctrine of quantum meruit
does not apply if an official contracts with the county in violation of Tennessee Code Annotated
§ 12-4-101.

ANALYSIS

Tennessee Code Annotated § 12-4-101 generally governs conflicts of interest with respect
to county officials. A conflict arises for a county official under this statute when the official has a
pecuniary interest in a county contract, and the official is "directly interested" or "indirectly
interested" in the contract. See Tenn. Code Ann. § 12-4-101.

Subsection (a)(1) forbids an official from being "directly interested" in a contract that the
official has a duty to award or supervise:

It is unlawful for any officer, committee member, director, or other person whose
duty it is to vote for, let out, overlook, or in any manner to superintend any work or
any contract in which any municipal corporation, county, state, development
district, utility district, human resource agency, or other political subdivision
created by statute shall or may be interested, to be directly interested in any such
contract. "Directly interested" means any contract with the official personally or
with any business in which the official is the sole proprietor, a partner, or the person
having the controlling interest. "Controlling interest" includes the individual with
the ownership or control of the largest number of outstanding shares owned by any
single individual or corporation.

Tenn. Code Ann. § 12-4-101(a)(1).

Subsection (b), though, permits the official to be "indirectly interested" in the contract if
the official publically acknowledges that interest. "Indirectly interested" is defined as "any
contract in which the officer is interested but not directly so, but includes contracts where the
officer is directly interested but is the sole supplier of goods or services in a municipality or
county." Tenn. Code Ann. § 12-4-101(b).

1. You ask whether this "sole supplier" exception applies only when a county official is
   the sole supplier located in the county or whether the exception may apply when a county official
   is the sole supplier doing business in the county. For the reasons that follow, we are of the opinion
   that this statutory exception applies only when the county official is the sole supplier located in
   the county.

The primary rule of statutory construction is that the intention of the General Assembly
must prevail. See Gragg v. Gragg, 12 S.W.3d 412, 415 (Tenn. 2000); Moser v. Department of
Transp., 982 S.W.2d 864, 867 (Tenn. Ct. App. 1998). When the language of a statute is
unambiguous, legislative intent is to be ascertained from the plain and ordinary meaning of the
statutory language. Carson Creek Vacation Resorts, Inc. v. State, 865 S.W.2d 1, 2 (Tenn. 1993).

The statutory exception applies "if the officer is the sole supplier of goods or services in a
municipality or county." Tenn. Code Ann. § 12-4-101(b) (emphasis added). The General
Assembly used the word "in," not the phrase "doing business in." It is not the function of courts
to alter or amend that language or to make it mean something other than what it says. Courts
assume that the General Assembly selected its words deliberately. Lee v. Franklin Special Sch.
Dist. Bd. of Educ., 237 S.W.3d 322, 332 (Tenn. Ct. App. 2007). Had the General Assembly
intended the "sole supplier" exception to include sole suppliers merely doing business in a city or
county, it could have done so by explicit language.

The word "in" connotes a spatial concept: "'In' means 'inside of,' 'within the bounds or
limits of.'" Anderson v. Spencer, 162 Colo. 328, 334, 426 P.2d 970, 973 (1967). Accordingly,
when the word "in" is employed in a statute with respect to a local governmental entity, such as a
county, inclusive space is intended. Counts v. Medley, 163 Mo. App. 546, 146 S.W. 465, 466
(1912). Cf. Fayette Cnty. Bd. of Educ. v. Tompkins, 212 Ky. 751, 280 S.W. 114, 116 (1926).

2. In light of our response to the first question, the second question is pretermitted.

3. Lastly you ask whether a county official who contracts with the county in violation of
   Tennessee Code Annotated § 12-4-101 must refund all of the funds paid to him by the county for
   the goods or services rendered by the official or whether the doctrine of quantum meruit applies.

Under Tennessee Code Annotated § 12-4-102, a county official who enters into a contract
in violation of Tennessee Code Annotated § 12-4-101 "shall forfeit all pay and compensation"
associated with the contract, be dismissed from office, and be barred from holding a similar
position for ten years. With respect to the provision that the official "shall forfeit all pay and
compensation," the Tennessee Supreme Court has stated:

It was the evident intent of the lawmakers to meet a serious menace to public funds
by drastic and far-reaching provisions. The language "shall forfeit all pay and
compensation therefor," would appear to embrace, not only a refusal of payment
but the right to compel repayment when made in the teeth of the statute. The word
"forfeit" is inclusive of both remedies.

Savage, 156 Tenn. at 123, 299 S.W. at 1044.

Accordingly, an official who has violated Tennessee Code Annotated § 12-4-101 may not
recover payment under the contract and is liable to pay back any compensation the official received
under the contract. See Savage; Madison County v. Alexander, 116 Tenn. 685 (1906); Hope v.
Hamilton County, 101 Tenn. 325 (1898); Crass, 36 Tenn. App. at 551-53; Hammon v. Miller, 13
Tenn. App. 458 (1931).

Moreover, an official's good faith is no defense. See State v. Perkinson, 159 Tenn. 442
(1929); Madison Cnty., 116 Tenn. at 688; Crass, 36 Tenn. App. at 551. Similarly, the fact that
valuable services may have been rendered to the governmental unit is irrelevant. The Tennessee
Supreme Court has reasoned that "[t]he underlying principle is that no man shall be allowed to
make a contract with the county, whose duty it is to pay for such a contract. . . . That such a rule
may operate harshly is no argument against it." Madison Cnty., 116 Tenn. at 688.

Therefore, an official who violates Tennessee Code Annotated § 12-4-101 may not be paid
for goods or services on a quantum meruit basis. In Crass, the court noted in dicta a possible
emergency exception "as where there is an immediate necessity for the contract and it is shown
that there was no one other than the city officer with whom it could have been made." Crass, 36
Tenn. App. at 554. Application of that exception would depend on the particular facts.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:
The Honorable Dolores Gresham
State Senator
308 War Memorial Building
Nashville, Tennessee 37243