The Attorney General of Texas 

tune 10, 1982 

MARK WHITE 

Attorney General 

Supreme Court Building 

P. 0. BOX 12548 

Austin. TX. 78711- 2548 

51214752501 

Telex 9101874.1367 

Telecopier 512/475-0266 

1607 Main St.. Suile 1400 

Dallas. TX. 75201-4703 

2141742-8944 

4824 Alberta Ave.. Suite 160 

E, Paso. TX. 799052793 

91515333464 

1220 Dallas Ave., Suite 202 

HOUS,O~, TX. 770026986 

7131650-0666 

606 Broadway. Suite 312 

Lubbock. TX. 794013479 

8061747-5236 

4309 N. Tenth. Suite B 

McAllen. TX. 78501-1665 

5124682.4547 

200 Main Plaza. Suite 400 

San Antonio,. TX. 762052797 

512/225.4191 

An Equal OpportunityI 

Affirmative Action Employer 

Honorable Reynaldo S. Cantu. Jr. 

Criminal,Dlstrict Attorney 

Cameron County 

Hall of Justice 

974 E. Harrison Street 

Brownsville, Texas 78520 

Opinion No. kB+477 

Re: Whether a city official 

may participate in Federal 

Urban Development Action 

Grant in private capacity as 

merchant 

Dear Hr. Cantu: 

You have asked the attorney general whether a conflict of 

interest arises as a result of the following situation. The city of 

San Benito has applied for an Urban Development Action Grant 

[hereinafter DDAG] pursuant to 42 U.S.C. sections 5318-5320 and 24 

C.F.R. sections 570.450 - 570.464. The federal money would be used to 

subsidize interest on loans between banks and .participatlng businesses 

and to pay for street improvement in full. The mayor and two city 

commissioners own businesses eligible to participate in the grant. 

The Secretary of the Department of Housing and Urban Development 

has the authority to waive any conflict of interest which is not a 

violation of state or local law or charter provision. However, before 

he will issue a written waiver, the Secretary has requested that the 

city obtain an Attorney General Opinion as to whether a conflict 

exists that violates state or local laws. Thus we address only Texas 

requirements relating to conflicts of interest. 

You have informed us that San Benito is a "home rule" city and 

have sent a copy of article 3, section 4 of the city charter, which 

states: 

No officer, agent or employee of the City of San 

Benito or appointee of the City Commission or 

a,ppointee of any officer of said City. shall be 

pecuniarily interested, directly or indirectly In 

any contract let by the City Commission or for and 

in behalf of said City. Nor shall any officer, 

agent or employee of said City be pecuniarily 

interested directly or indirectly in any public 

work or Improvement let, supervised or commenced 

p. 1679 
Honorable Reynaldo S. Cantu, Jr. - Page 2 (m-4.77) 

by said City or which shall be paid for wholly ot 

in part by said City.... 

You have also stated that a committee consisting of members of 

the Board of City Development (a branch of the San Benito Chamber of 

Commerce) was appointed by the president of the Chamber of Commerce to 

oversee the distribution of the interest subsidy. 'The portlon of the 

grant used for city improvement will be overseen by the city. San 

Benito is not required to provide any matching funds. 

You have also informed us that an engineer was hired to study the. 

c&y and to independently determine which area of the city would 

qualify ,for and benefit from a grant, following the standards set 

forth in 42 U.S.C. sections 5318(b)(l) and (2). The final 

determination of the area to be improved was made by the Secretary.' 

All businesses in the designated area'were eligible for interest 

subsidies from the Department of Housing and Urban Development 

[hereinafter HUD] by request, and upon meeting requirements as 

"participating businesses." 

There are two contracts which must be ekamined for conflicts: 

one between the city and HUD; the other, representative of several, 

between the city and participating businesses. 

The city [Recipient] warranted, in its contract with the 

Secretary, that no member, officer, or employee would have any 

interest, direct or indirect, in any contract. 

Section 5.01(8) of the contract states: 

NO member, officer, or employee of the 

Recipient, or its designees, or agents; no 

consultant, no member of the governing body of the 

Recipient or the locality in which the program is 

situated, and no other public official of the 

Recipient or such locality or localities, who 

exercises or has exercised any functions or 

resnonsibilities with resnect to the Proiect 

during his or her tenure, shall have any inter&t, 

direct or indirect,. in any contract or 

subcontract, or the proceeds thereof, for work to 

be performed in connection with the Project or in 

any activity, or benefit therefrom, which is part 

of this Project. 

(However. upon written request of the 

Recipient, the Secretary may agree in writing to 

waive a conflict otherwise prohibited by this 

provision whenever there has been full public 

,p. 1680 '.?:: 
Honorable Reynaldo S. Cantu. Jr. - Page 3 (~~~477) 

disclosure of the conflict of interest, and the 

Secretary determines that undue hardship will 

result either to the Recipient or the person 

affected by applying the prohibition and that the 

granting of a waiver is in the public interest. 

No such request for a waiver shall be made by 

Recipient which would, in any way. permit a 

violation of State or local law or any charter 

provision of the Recipient.) (Emphasis added). 

This contract wa,s signed in November 1980. The mayor. upon city 

cowmission approval, signed on behalf of the city. At the time the 

contract was signed, the mayor and one cowmissioner owned 

participating businesses. A second commissioner elected to become a 

participating business at a later date. A conflict of interest 

existed at this point under Texas common law and article 3, section 4 

of the San Benito City Charter. 

The common law rule, followed in Texas and codified as article 3. 

section 4 of the-San Benito City Charter, is that municipal officers 

and agents cannot be pecuniarily "interested in" contracts of any 

character with the municipality. Such an interest voids the contract. 

See, e.g., Delta Electric Construction Company, Inc. v. City of San 

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

n.r.e.); City of Edinburg v. Ellis, 59 S.W.2d 99 (Tex. Coma'n App. 

1933); 10 E. McQuillin, The Law of Municipal Corporations 029.97 (3rd 

ed. 1978); 63 C.J.S. Municipal Corporations $0988 et seq.; 40 Tex. 

Jur. 2d Municipal Corporations 1430; Attorney General Opinions MW-342 

(1981); MW-155, MW-124 (1980); H-1309 (1978); H-916 (1976); H-695, 

H-624 (1975); H-354 (1974); M-34!, (1969). 

The rule was discussed in Meyers v. Walker, 276 S.W. 305. 307 

(Tex. Civ. App. - Eastland 1925, no writ): 

If a public official directly or indirectly has a 

pecuniary interest in a contract, no matter how 

honest he may be. and although he may not be 

influenced by the interest, such a contract so 

made is violative of the spirit and letter of our 

law, and is against public policy. 

See also Penal Code 039.01. The benefit to be received by each 

official is the payment of interest on each official's loan; it is 

thus direct, personal, and pecuniary. 

Although city officials attempted to deal with this conflict by 

appointing a committee to oversee the interest subsidy payments, the 

contract is between the city and HDD. Section 4.01 of the contract 

states: 

p. 1681 
Honorable Reynaldo S. Cantu. Jr. - Page 4 (Mw-477) 

By its execution of this Grant Agreement, the 

Recipient represents and warrants that it has the 

legal.capacity to assume the responsibilities for 

compliance with all applicable Federal rules and 

agrees and undertakes to assume and carry out all 

such responsibilities in accordance with all the 

requirements which are or may be established 

pursuant thereto. 

In addition. the contract commits the city to keep and maintain books, 

records and otherdocuments for grant funds, and to keep them open for 

inspection by the Secretary. Sec. 6.01(a), (b). Even though the city 

tried to delegate the responsibility for distribution and accounting 

to another group, the city has contractually obligated itself to be 

responsible. Attorney General Opinions H-1212 (1978); M-887 (1971). 

Pursuant to section 10.01 of the contract and 24 C.F.R. section 

570.458(c)(7). the city agreed that it would present evidence of 

legally binding commitments between the participating businesses and 

itself. A legally binding commitment is a legally enforceable written 

obligation by a participating party to complete ~a specified activity 

approved as part of the action grant. Sec. 570.451(k). The agreement 

is between the city and the participating party. Sec. 570.458(c)(7). 

Each official had a pecuniary interest in agreements signed by the 

mayor .(on behalf of the city) and individual officials as 

participeting businesses. 

The legally binding 'commitment itself contains a conflict of 

interest section in which the partitiipating business must warrant: 

that it is not a member, officer, or employee of 

the Recipient, or its designees. or agents, a 

consultant, member of Recinient's noverninn body. 

or the governing body of the localiiy in which the 

Program is situated, and that it has not and will 

not exercise any functions or responsibilities 

with respect to the project during his or her 

tenure, shall have no interest, direct or 

indirect, in any contract or subcontract, or in 

the proceeds thereof, for work to be performed in 

connection with the Project or in any activity, or 

benefit therefrom, which is part of this Project. 

In the event Participating Business, is in 

conflict with any of the provisions contained in 

the paragraph above, he or she has or will, before 

accepting any funds resulting from the Grant, 

obtain a waiver from the Secretary as to any such 

conflict. (Emphasis added). 

p. 1682 
Honorable Reynaldo S. Cantu. Jr. - Page 5 &J-477) 

This section would be violated in at least four of the contracts 

between the city and the participating businesses. In addition, this 

office has stated that dual agency creates a conflict similar to that 

of officials with pecuniary interests. Attorney General Opinion 

H-1309 (1978) states: 

Closely related to the policy against public 

contracts in which one of the contracting 

officials has a pecuniary interest is the policy 

ageinst~ dual agency. An agent may not represent 

the opposing party in a transaction without the 

full knowledge and consent of his principle. 

(Citations omitted). Although this rule has 

developed in the context of private transactions, 

we believe it is relevant to the conduct of 

persons acting as agents of the state. Like the 

policy against conflict of interest in public 

contracts, it guards against competing interests 

of a public official which would 'prevent him from 

exercising absolute loyalty and undivided 

allegiance to the best interest' of the 

governmental entity he serves.... In view of the 

courts' concern about the disinterestedness of 

public officials as expressed in cases like Meyers 

v. Walker, supra. we believe they would be 

reluctant to find the state's consent to its 

agent's representation of the opposite party in a 

transaction. 

We believe that the issue of dual agency creates a conflict of 

interest in the second set of contracts, at least so far as the 

interested officials are concerned. 

It has been pointed out that exceptions to the void contract rule 

have been created in .other jurisdictions. InBlankenship V. City of 

Richmond, 49 S.E.2d 321 (Va. 1948). a court decided that there was no 

conflict of interest where the officers voted on a legislative matter 

rather than a judicial one. In Downs v. Mayor and Common Council of 

the City of South Amboy, 185 A. 15 (N.J. 1936). a.court decided that 

an ordinance which forbids 'an interest in municipal~improvements made 

at municipal expense does not extend to improvements paid by another. 

Finally, in Preston v. Gillam. 184 A.2d 462 (N.H. .1962), the court 

found no conflict of interest where the interest is remote from or 

identical with the public interest. However, the courts of Texas have, 

recognized only one exception to the void contract rule: the interest 

of. a city official charged with making or ratifying assessment for 

improvements arising from ownership of property does not create a 

disqualification. Seymour v. Securit 

(Tex. Civ. App. 

y Trust Cimpany. 55 S.W.2d 853 

- Galveston 1932, writ dism'd); Farley v. Uvalde 

p. 1683 
. 

Honorable Reynaldo S. Cantu. Jr. - Page 6 (Mu-4771 

Paving Company, 74 S.W.2d 288 (Tex. Civ. App. - El Paso 1934. no 

writ). The contracts presented here do not fall into the above 

exception. 

SUMMARY 

Pursuant to article 3, section 4 of the San 

Benito City Charter, a conflict of interest exists 

when city officials contract for an Urban 

Development Action Grant and are among the 

merchants who would benefit from the grant by 

receiving an interest subsidy. 

MARK WHITE 

Attorney General of Texas 

JOHN W. FAINTER. JR. 

First Assistant Attorney General 

RICHAND E. GRAY III 

Executive Assistant Attorney General 

Prepared by Patricia Hinojosa 

Assistant Attorney %eneral 

APPROVED: 

OPINION COMMITTEE 

Susan L. Garrison, Chairman 

Jon Bible 

Roxanne Caperton 

Rick Gilpin 

Patricia Hinojosa 

Jim Moellinger 

p. 1684