TFIE ATTORNEY GJCNBZRA~ 

OF TEXAS 

aouF#%.arrr. 

A- Q-AL 

July 25, 1975 

The Honorable Oscar B. McInni6 

Criminal Dirtrict Attorney 

Hidalgo County 

Edinburg, Texas 

Dear Mr. McInnis: 

Opinion No. H- 649 

Re: Whether a city may 

borrow money from 

a bank of which the 

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. provides 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 relationrhip 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V.T.C.S., effectively repealed article 988 insofar as it might prohibit 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 hereinafter 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 subdivlrion; 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 provistons 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 foregoing 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 “commonlaw 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 subdiviEiOn6 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 additional 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