Mr. Kenneth B. Ashworth opinion No. ~~-583 

Commissioner 

Coordinating Board Re: Whether a member of the board 

Texas College and University of trustees of a community college 

System district must abstain from voting 

P. 0. Box 12788 on particular matters under article 

Austin, Texas 78711 988b, V.T.C.S., where he is an 

officer in a bank affected by 

the vote and holds a substantial 

interest therein 

Dear Mr. Ashworth: 

On behalf of a commun:Lty college, you request ati opinion on the 

following question: 

Must a member tmf the board of trustees of a 

commniity college district abstain from voting on 

financial matten affecting fund balances in the 

district depository bank if the member is an 

officer in the bank, and holds a substantial 

interest in the bank as defined by article 988b? 

A brief submitted on behalf of the trustee in question states 

that he is a trust officer of the bank which serves as the depository 

bank for the community college. A letter from the community college 

states that the bank was chosen as its depository before the trustee 

in question was elected to the board. 

Article 98813, V.T.C.S., applies to conflicts of interest 

involving local public officials. It applies to a member of the 

governing body of "any district (including a school district) . . . 

who exercises responsibilLties beyond those that are advisory in 

nature" and who has a substantial interest in a business entity that 

would be affected by an action of the governing body. V.T.C.S. art. 

988b, §l(l). The trustees of a community college exercise responsibilities that are not mere:Ly advisory in nature. See, e.g., Educ. 

Code 5130.084; Letter Advisory No. 149 (1977) (trustees of community 

college district are officers). 

The trustee's salary from the bank exceeds ten percent of his 

gross income. Therefore, he has a substantial interest in the bank 

p. 2606 
Mr. Kenneth 8. Ashworth - Page 2 (JM-583) 

for purposes of article 98Eb. V.T.C.S. art. 988b, 62(a)(2). Article 

988b. V.T.C.S., provides in part: 

Sec. 3. (a) Ewept as provided by section 5 of 

this Act, a local public official commits an 

offense if he knaa:Lngly:. 

(1) patticipat~a in a vote or decision on a 

matter involving a business entity in which the 

local public off:%ial has a substantial interest 

if it is reasonably foreseeable that an action on 

the matter would &nfer an economic benefit to the 

business entity IGvolved; 

. . . . 

(b) An offense under this section is a Class A 

misdemeanor. 

Sec. 4. If a local public official or a person 

related to that official in the first or second 

degree by either affinity or consanguinity has a 

substantial 1nte:rest in a business entity that 

would be peculiarly affected by any official 

action taken by the governing body, the local 

public official, before a vote or decision on the 

matter, shall file an affidavit stating the nature 

and extent of thr, interest ahd shall abstain from 

further participi~t:ion in the matter. The affidavit must be filed with the official recordkeeper 

of the governmental entity. 

Sec. 5. [Exwption for business that is only 

business within the jurisdiction which supplies 

the product or s?:tvice and that is sole bidder.] 

(Emphasis added). 

V.T.C.S. art. 988b. 

The community college district board of trustees is concerned 

that the trustee in que~,tion may be required by article 988b, 

V.T.C.S., to abstain from participation in any vote which would result 

in an expenditure and thereby decrease the funds on deposit in the 

depository bank. The bank would be affected by such action, since a 

reduction of the amount on deposit could decrease the interest income 

earned by the bank on the deposit. See Attorney General Opinion 

JM-178 (1984). However, t:x letter frmThe community college board 

of trustees points out that section 23.75 of the Education Code, and 

not article 988b. V.T.C.S., may control the trustee's powers and 

duties toward the depository bank. 

? 

? 

p. 2607 
Mr. Kenneth H. Ashworth - Pn8e 3 (JM-583) 

Section 23.75 of the Education Code is a provision of the School 

Depository Act. Educ. Code 1823.71-23.80. This office has determined 

that the School Depository Act applies to community colleges as well 

as to independent school districts. Attorney General Opinions JM-13 

(1983); MU-272 (1980). Section 23.75 of the Education Code states as 

follows: 

In the event L. member of the board of trustees 

of a school district ~1s a stockholder, officer, 

director, or employee of a bank, said bank shall 

not be disqualified from bidding and becoming the 

school depository Iof said school district provided 

said bank is selected by a majority vote of the 

board of trustees of said school district or a 

majority vote of a quotum when only a quorum 

eligible to vote is present. Common law rules in 

conflict with the terms and provisions of this Act 

are hereby modii?.ed as herein provided. If a 

member of the boaG:d of trustees of a school district is a stocz;holder, officer, director, or 

employee of a b&k that has bid to become a 

depository for s;zd school district, said member 

of said.board of-trustees shall not vote on the 

awarding of a.dep&itory contract to said bank and 

said school depolz.tory contract shall be awarded 

by a majority vote of said trustees as above 

provided .who are not either a stockholder, 

officer, director, or employee of a bank receiving 

a school district: depository contract. (Emphasis 

added). 

Educ. Code 523.75. This p:rt~vision was enacted as part of the School 

Depository Act of 1967. Acts 1967, 60th Leg., ch. 456, $4, at 1040. 

Prior to 1967 this cffice on several occasions construed the 

predecessor to the School Jepository Act. Acts 1905, 29th Leg., ch. 

124, 5165, at 263; repealedib Acts 1979, 66th Leg., ch. 829, at 2167. 

The opinions of this office determined that a stockholder, officer, 

director, or managing emplo:yee of a corporation serving as a school 

district depository could not serve as trustee of that school 

district. See, e.g., Attor,r.ey General Opinions WW-161 (1957); O-7514 

(1946); O-5158 (1943); O-Xi56 (1940); Attorney General Opinion (To 

Hon. S.M.N. Marrs, September 16, 1929), 1928-30 Texas Attorney General 

Biennial Report 126. Most #of these opinions quoted the reasoning of 

an opinion of September 16, 1929 which concluded that a stockholder or 

director of the depository corporation would not be eligible to serve 

as trustee of the school district contracting with the depository. 

The opinion stated as follaws: 

[T]he two positi,ons present such a conflict of 

interests as to prevent the holding of the two 

p. 2608 
Mr. Kenneth Il. Ashworth - Pa:ge 4 (JM-583) 

relationshins at one and the same time. The 

trustees of an ind,ependent school district have= 

part of their dr'iy the task of seeing that the 

treasurer or depczitory properly manages the fund 

and moneys of tlz: school district. It is also 

incumbent upon the trustees to see that the school 

funds are properly protected by bonds and that the 

solvency of the bonds and also the solvency of the 

institution shou:?l be watched after to the end 

that the moneys nz~y always be properly protected. 

Innumerable instazces could be recounted where the 

pecuniary intereses of a stockholder in a corporation would sway the trustee to an act of favoritism, at least th;; an unbiased and non-interested 

trustee would resolve against such depository or 

treasurer; without attempting to enumerate these 

various objections we conclude that upon the 

grounds of public policy the two positions are 

incompatible. . . . (Emphasis added). 

Attorney General Opinion ('Co Hon. S.M.N. Marrs, September 16, 1929),, 

1928-30 Texas Attorney General Biennial Report 126. 

.The enactment of section 23.75 of the Education Code modified the 

common law rule expressed in the September 16, 1929 opinion. The 

common law prohibition against such a contract applied not only to 

contract formation but to actions taken by the trustees that had a 

bearing on the contract. See Attorney General Opinions O-7514 (1946); --- 

O-2656 (1940); Attorney General Opinion (To Hon. S.M.N. Marrs, 

September 16, 1929), -,. In our opinion, section 23.75 must be 

read to permit actions whLch the trustees must necessarily perform 

under an existing depository contract. Otherwise, the common law 

rule would prohibit the entire board from acting in any matter 

involving the depository contract if one board member were pecuniarily 

interested in it. See Delt:a Electric Construction Co. v. City of San --- 

Antonio, 437 S.W.2d 602 (Tex. Civ. App. - San Antonio 1969, writ ref'd 

n.r.e.); Attorney General Opinion JM-424 (1986). 

The detailed provisions of the School Depository Act limit, 

moreover, the board's discretion, thereby providing some protection 

from the favoritism against which the common law rule was directed. 

Section 23.77 of the EducatLon Code sets out the depository's duties 

in detail and expressly reserves the district's right to invest funds 

as permitted by sections :20.42 and 23.80 of the Education Code. 

Section 23.79 of the Education Code provides that 

[tlhe bank or bauks selected as school depository 

or depositories ,Ln accordance with the terms and 

provisions of this Act, and the school district 

shall make and enter into a depository contract or 

contracts, bond or bonds, or such other necessary 

p. 2609 
Mr. Kenneth H. Ashworth - Page 5 (JM-583) 

instruments settiniz forth the duties. resuonsibilities, and agree&&s pertaining to-said-depository, in a form ard with the content prescribed by 

the State Board of Education, attaching to the 

contract and int~~rporating in the contract by 

reference the bid of -the depository. . . . 

(Emphasis added). 

Educ. Code 523.79(a). 

Section 23.75 of the Education Code in effect allows an 

individual to be a school 'trustee despite his role as stockholder, 

officer, director, or employee of the school's depository bank. We do 

not believe the legislaturl! intended to restrict.that board member's 

participation in the business of the board to the extent that he would 

virtually be a non-voting trustee. In our opinion, since section 

23.75 requires the trustee to recuse himself only from the decision to 

enter into the contract, t: impliedly authorizes a board member with 

an interest in the d'eposj,tory to vote on expenditures that would 

decrease the amount of funds on deposit. 

The depository bank js required by law to pay the checks and 

drafts written by the schocl board on its funds. Educ. Code 5923.77, 

23.79. Such a provision is (central to the depository contract, and is 

set out in some detail in the contract and statute. A prospective 

bidder should be fully aware of the school board's right to withdraw 

funds. We. believe that thr, interested trustee may participate in the 

routine exercise of the board's right to withdraw funds as established 

by the contract and the statute. 

The School Depository Act is a special statute which governs a 

particular kind of contract entered into by independent school 

districts and community college districts. Section 23.75 modifies the 

common law rule applicable to a specific conflict of interest that 

might arise in the context of school depository contracts. As a 

specific statute, it was ne>t repealed by. article 988b. V.T.C.S. The 

latter statute is a general provision, which applies to conflict of 

interest situations involving local officers as a class. The specific 

statute more clearly evi,dences the legislative intent, and is 

considered to be an exception to the more recently enacted general 

statute. Townsend v. Terra:Ll, 16 S.W.2d 1063 (Tex. 1929); American 

Canal Co. v. Dow Chemically, 380 S.W.2d 662 (Tex. Civ. App. - 

Houston 1964, writ dism'd); Hallum v. Texas Liquor Co:trol Board, 166 

S.W.2d 175 (Tex. Civ. App. - Dallas 1942, writ ref d). Therefore, 

article 988b, V.T.C.S., dolts not govern the trustee's conduct in the 

present case. 

Briefs submitted in ,connection with your request refer to 

Attorney General Opinion N-331 (1969). This opinion construed the 

predecessor statute to sect,ion 23.75 of the Education Code, which was 

essentially the same as the present provision. See Acts 1967, 60th - 

p. 2610 
Mr. Kenneth H. Ashworth - P;lge 6 (JM-583) 

Leg., ch. 456, 94, at 1040, 1041 (formerly codified as V.T.C.S. art. 

2832~. §4(b)(1925)) (recodiE:ied 1969). Attorney General Opinion M-331 

concluded that the predecessor to section 23.75 of the Education Code 

allowed a school district to borrow money from the depository bank 

even though a school board member was also an officer or stockholder 

in that bank. Relying on znalogies between a contract of deposit and 

a contract of loan expressed in an attorney general opinion and 

judicial authorities, Attorloy General Opinion M-331 concluded that 

the legislature intended to remove the common law 

prohibitions which, in the past, had prevented a 

school board from borrowing from and/or choosing 

as a depository, a bank in which one of its 

members also serves as a director or stockholder 

provided that the school district had adopted 

article 2832~ ar,d had complied with section 4 

thereof. 

Attorney General Opinion M-331 (1969) at 4. 

The reasoning and conclusion of Attorney General Opinion M-331 

was criticized in Attorney General Opinion H-649 (1975). which 

determined that a city was prohibited from borrowing money from a bank 

of which the mayor was director. Article 2529c. V.T.C.S., allowed 

state agencies and politicz.1 subdivisions to choose a depository even 

though a member of its goyreming body was an officer, director, or 

stockholder of the deposi:ory corporation. Despite the similarity 

between article 2529c. V.T.C.S., and section 23.75 of the Education 

Code, Attorney General Opinion H-649 declined to follow Attorney 

General Opinion M-331, stating as follows: 

Although Attor,ney General Opinion M-331 found 

little difference between depositing public funds 

in a depository bsnk 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 pr,,tect the governmental body's 

deposits. See Kducation Code, 523.71 et seq. 

These restr1ctior.s and requirements do not apply 

to other transactions such as the tw YOU 

describe. Compare, Attorney General Opinion V-640 

(1948). 

[W]e do not believe the Legislature intended that 

article 2529c should have a wider application than 

its language plainly indicates. We think a narrow 

exception to the clld and well established commonlaw rule against self-dealing was intended and 

that intent is reflected in the language of the 

statute where it provides that 'common-law rules 

p. 2611 
Mr. Kenneth H. Ashworth - P,Ige 7 (JM-583) 

in conflict ar,z hereby modified as herein 

provided.' 

Attorney General Opinion H-549 (1975) at 3-4. 

We agree with the criticisms of Attorney General Opinion M-331 

which are expressed in Attorney General Opinion H-649. We do not 

believe section 23.75 of the Education Code removes common law 

prohibitions against loan transactions between the school district and 

its depository where the s,me individual is a trustee of the school 

district that borrows the money and a stockholder, officer, director, 

or employee of the depository bank which lends the money. Attorney 

General Opinion M-331 incorrectly construes section 23.75 of the 

Education Code and we hereby overrule it. 

In view of our answer to. your first question; we need not answer 

your second question. 

SUMMARY 

Section 23.75 of the Education Code. constitutes an implied exception to the provisions of 

article 988b, V.T.C.S. Under section 23.75 of the 

Education Code, II trustee of a community college 

district who is also a stockholder, officer, 

director, or employee of the district's depository 

bank may vote on matters which would result in an 

expenditure and thereby decrease the funds on 

deposit in the depository bank. Attorney General 

Opinion M-331 (196'9) is overruled. 

JIM MATTOX 

Attorney General of Texas 

JACK HIGHTOWER 

First Assistant Attorney General 

MARY KELLER 

Executive Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Susan L. Garrison 

Assistant Attorney General 

p. 2612