## 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 ofwhich the mayor ia a director. You have requerted our opinion regarding whether a My may borrow money from a bank ofwhich the mayor is a director. Article 988, V. T. C.S., apart of **our** rtatutory law since 1875. provides in

### pertinent part:

. . . No member ofthe city council, or any other officer ofthe 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 ofthe 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 onarticle 988 by the court in City of Edinburg v. Ellis. 59S.W. 2d 99 

### (Tex. Comm. 1933), we determined thatthe continued relationrhip wao notpermtesible. We noted that a rule ofliberal 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 OpinionlrH-624 (1975), C-438 (1965); WW-1241 (1962); Attorney General Letter Adiveory No. 111 (1975). Alro Bee rection 39.01, Texar Penal Code.

p. 2851The Honorable Oscar B. McInnis. page 2 (H-649)

The broad language ofarticle 988, V. T. C. S., would compel **a** negative answer toyour question. Ithas been suggested however, thatthe enactment of article 2529c, V.T.C.S., effectively repealed article 988 insofar as it might prohibit transactions between banks and cities whose officials sit onthe bank’s board of directors or owna small percentage of stock in the bank. **That** 1967 statute reads:

Section 1. The selection and qualification oJ depositories for the deposit ofpublic funds ofall agencies and political subdivisions of the state shall be.in accord with the laws nowin effect andhereinafter enacted Pertaining thereto. Sec. 2. The fact thatan 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 notdisqualify said bankfrom serving a~ the depositoryof said state agency or subdivision. A bank shall notbe disqualified from bidding and becoming the depository for any agency or political subdivision ofthe state by reason of having one or more officers, directors or stockholders of said bankwho individually or collectively own or have a beneficial interest in notmore than 10percent ofthe bank’s outstanding capital stock, and at the same time serves as amember ofthe 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 bankmust be selected as the depository by amajority vote ofthe members ofthe 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 inthe proceedings. Common-law rules tn conflict with the terms andprovistons ofthis Act are hereby modified as herein pro- -but this Act shall never be deemed toalter, change, amend or supersede theprovisions ofany home-rule city charter which is in conflict herewith. p. 2852The Honorable Oscar B. McInnis, page 3 (H-649)

An act applicable to “all agencies andpolitical subdivisions ofthe state” obviously includes cities, and the final sentence ofthe 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 thoughamember **of** the school board was alro an officer or stockholder in the depository bank. This result was said to flow from the enactment ofa statute,( V. T. C.S., art. 2832~; now Education Code, 523.75) similar toarticle 2529~ which allows school boards to select banks for depositories under certain circumstances even thoughmembers ofthe school board might have interests in the banks selected. Attorney General Opinion M-331 suggested, “[i]t would be inconristent and ‘illogical to conclude thatthe Legislature intended that a school district could choose as a depository abank inwhich a member ofthe school board was a director or stockholder, butcould notborrow money **frbm** this same bank.” But, Attorney General Opinion O-6280 (1944) advised thata school board was notauthorized to borrow money from a bankwhere amember ofthe rchool board was also a director of the bank. Itwas said:

Itis as old as the Common Law that a public official may notin his official capacity make a contract inwhich 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, butthe foregoing principle hae been consistently affirmed wherever the question has arisen. Although Attorney General Opinion M-331 foundlittle difference between depositing public funds in a depository bank andborrowing funds from that depository, there are numerous statutory requirements regarding the qualifications and selection ofa depository andthe 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** Genexa1 Opinion V-640 (1948).

p. 2853. -

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 ofthe transactions involved inyour question andthose contemplated by article 2529~. V. T. C.S., and the reasoning ofAttorney General Opinion O-6280 (1944), we do notbelieve the Legislature intended that article 2529~ should have a wider application thanits language plainly indicates. We thinka narrow exception tothe old andwell established common-law rule against self-dealing was intended andthat intent is reflected in the language ofthe 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 ofthe rule. Repeals by implication are notfavor~edand statutes inpazi materia will be harmonized, if possible. 53 Tex. Jur. 2d, Statutes, 0$111, 186. Article 2529~. V. T. C.,S. was enacted byActs 1967, 60th Leg., ch. 179, p. 370. That act did notcontain 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 andpolitical subdiviEiOn6 of the state; and declaring an emergency. We believe the title correctly reflects the limited purpose and scope of theAct. Ifthe Legislature believes that a further exccrptionto 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 notprovided that additional exception, we answer your question in the negative. SUMMARY
A ctty may notborrow money from a bank ofwhich the mayor 1s a director.

- Very truly your6,

Attorney General of Texas

p. 2854. -

. _ 1

The Honorable Oscar B. McInnis, page 5 (H-649)

APPROVED:

DAVID M. KENDALL, Firet Assistant

C. ROBERT HEATH, Chairman Opinion Committee

p. 2855