TFIE ATTORNEY GJCNBZRA~
OF TEXAS
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A- Q-AL
July 25, 1975
The Honorable Oscar B. McInni6 Opinion No. H- 649
Criminal Dirtrict Attorney
Hidalgo County Re: Whether a city may
Edinburg, Texas borrow money from
a bank of which the
Dear Mr. McInnis: mayor ia a director.
You have requerted our opinion regarding whether a My may borrow
money from a bank of which the mayor is a director.
Article 988, V. T. C.S., a part of our rtatutory law since 1875. pro-
vides in pertinent part:
. . . No member of the city council, or any other
officer of the corporation, shall be directly or
indirectly intererted in any work, bueinees, or
contract, the expenre, price or consideration of
which to paid from the city trearury, or by an
araerament levied by an ordinance or resolution
of the city council . . .
In Attorney General Opinion H-638 (1975) we were asked if a city
official could remain, pecuniarily interested in a contract made with the
city before he wae elected to his public position. After reviewing the
conrtruction put on article 988 by the court in City of Edinburg v. Ellis.
59 S. W. 2d 99 (Tex. Comm. 1933), we determined that the continued rela-
tionrhip wao not permtesible. We noted that a rule of liberal construction
will be applied to article 988 in o>der to effect its purpore, and that a
public offtcial must avoid a position where hia private pecuniary interest
might cot&t with his public duty. See Attorney General Opinions M-714
(1970), V-640 (1948). z. Attorney General Opinionlr H-624 (1975),
C-438 (1965); WW-1241 (1962); Attorney General Letter Adiveory No. 111
(1975). Alro Bee rection 39.01, Texar Penal Code.
p. 2851
The Honorable Oscar B. McInnis. page 2 (H-649)
The broad language of article 988, V. T. C. S., would compel a
negative answer to your question.
It has been suggested however, that the enactment of article 2529c,
V.T.C.S., effectively repealed article 988 insofar as it might prohibit
transactions between banks and cities whose officials sit on the bank’s
board of directors or own a small percentage of stock in the bank. That
1967 statute reads:
Section 1. The selection and qualification oJ
depositories for the deposit of public funds of all
agencies and political subdivisions of the state shall
be.in accord with the laws now in effect and herein-
after enacted Pertaining thereto.
Sec. 2. The fact that an employee or officer of a
state agency or political subdivisibn, who is 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 a~
the depositoryof said state agency or subdivision.
A bank shall not be disqualified from bidding 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
beneficial interest in not more than 10 percent of the
bank’s outstanding 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 sub-
divlrion; provided, however, that aaid bank must be
selected as the depository by a majority vote of the
members of the board, commission, or other body
of such agency or political subdivision and no member
thereof who ir an offtcer, director or stockholder of
the bank shall vote or participate in the proceedings.
Common-law rules tn conflict with the terms and pro-
vistons of this Act are hereby modified as herein pro-
-but this Act shall never be deemed to alter, change,
amend or supersede the provisions of any home-rule city
charter which is in conflict herewith.
p. 2852
The Honorable Oscar B. McInnis, page 3 (H-649)
An act applicable to “all agencies and political subdivisions of the
state” obviously includes cities, and the final sentence of the statute
specifically refers to “any home-rule city charter. I’ However, Attorney
General Opinion M-331 (1969) held that an independent school district
which had adopted the School Depository Act’could borrow money from
its school depoaitory even though a member of the school board was alro
an officer or stockholder in the depository bank. This result was said
to flow from the enactment of a statute,( V. T. C. S., art. 2832~; now
Education Code, 5 23.75) similar to article 2529~ which allows school
boards to select banks for depositories under certain circumstances
even though members of the school board might have interests in the
banks selected.
Attorney General Opinion M-331 suggested, “[i]t would be inconristent
and ‘illogical to conclude that the Legislature intended that a school
district could choose as a depository a bank in which a member of the
school board was a director or stockholder, but could not borrow money
frbm this same bank.”
But, Attorney General Opinion O-6280 (1944) advised that a school
board was not authorized to borrow money from a bank where a member
of the rchool board was also a director of the bank. It was said:
It is as old as the Common Law that a public
official may not in his official capacity make a
contract in which he is pecuniarily interested.
Williston on Contracts, Vol. 6, Sec. 1738. Not
only did Texas adopt the Common Law as the
rule of decision as early as 1840, but the fore-
going principle hae been consistently affirmed
wherever the question has arisen.
Although Attorney General Opinion M-331 found little difference between
depositing public funds in a depository bank and borrowing funds from that
depository, there are numerous statutory requirements regarding the
qualifications and selection of a depository and the security which must be
provided to protect the governmental body’s deposits. See Education Code,
fi 23.71 et seq. These restrictions and requirements donot apply to other
transactions such as the type you describe. Compare Attorney Genexa 1
Opinion V-640 (1948).
p. 2853
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The Honorable Oscar B. ‘McInnis, page 4 (H-649)
Given the statutory prohibition against self-dealing contained in
article 988, V. T. C. S., the difference between the nature of the
transactions involved in your question and those contemplated by
article 2529~. V. T. C. S., and the reasoning of Attorney General
Opinion O-6280 (1944), we do not believe the Legislature intended that
article 2529~ should have a wider application than its language plainly
indicates. We think a narrow exception to the old and well established
common-law rule against self-dealing was intended and that intent is
reflected in the language of the statute where it provides that “common-
law rules in conflict are hereby modified as herein provided. ” Article
988, V. T. C. S., was not discussed in Attorney General Opinion
M-331, which apparently took stock only of common law ortgin of the
rule. Repeals by implication are not favor~ed and statutes in pazi
materia will be harmonized, if possible. 53 Tex. Jur. 2d, Statutes,
0 $111, 186.
Article 2529~. V. T. C.,S. was enacted by Acts 1967, 60th Leg.,
ch. 179, p. 370. That act did not contain a repealer clause and expreraly
“modified” only common law rules in conflict. Its title reads:
An Act relating to the selection and qualification
of deposttories of all agencies and political sub-
diviEiOn6 of the state; and declaring an emergency.
We believe the title correctly reflects the limited purpose and scope
of the Act. If the Legislature believes that a further exccrption to
article 988 should be provided to cover the case which pu present, it
has the power to do so. Since in our view it has not provided that addi-
tional exception, we answer your question in the negative.
SUMMARY
A ctty may not borrow money from a bank
of which the mayor 1s a director.
- Very truly your6,
Attorney General of Texas
p. 2854
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1
The Honorable Oscar B. McInnis, page 5 (H-649)
APPROVED:
DAVID M. KENDALL, Firet Assistant
C. ROBERT HEATH, Chairman
Opinion Committee
p. 2855