TKPE A~IY~ORNEY GENERAL 

OFTEXAS 

January 9, 1969 

Honorable J. W. Edgar Opinion No. M-331 

Commissioner of Education 

Texas Education Agency Re: Whether an independent school 

201 East 11th Street district may borrow money 

Austin, Texas from its school depository 

if a member of its school 

board is also an officer or 

stockholder in the depository 

Dear Dr. Edgar: bank. 

You have requested an opinion concerning whether or 

not an independent school district may borrow money from its 

school depository if a member of the school board is also an 

officer or stockholder in the depository bank. 

To answer this question, it will be necessary to examine the pertinent parts of Article 2827c, Vernon's Civil 

Statutes, and Article 2832~~ Vernon's Civil Statutes, and Attorney General's Opinion No. O-6280. 

Article 2827c, Section 1, Vernon's Civil Statutes, 

which gives independent and consolidated school districts the 

authority to borrow money, reads as follows: 

"Sec. 1. Indeljendent or consolidated 

school districts are hereby authorized to 

borrow money for the purpose of paying malntenance expenses and to evidence such loans 

with negotiable notes; provided that at no 

time shall said loans exceeds seventy-five 

per cent (75%) of the previous years' In+ 

come. Such notes shall be payable only 

from current maintenance taxes levied at 

or before the time of making such loans 

and from delinquent maintenance taxes. The 

term 'maintenance expenses' or 'maintenance 

expenditures' as used in this Act means any 

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” 

Dr. J. W. Edgar, page 2 

lawful expenditure 

other than payment,, 

interest on bonds. 

(M-331) 

of the school district 

of principal of and 

Article 2832c, Vernon's Civil Statutes, known as the 

School Depository Act of 1967, effective Aug. 28, 1967, establishes the rules, regulations , and procedures that a school 

board and bank must follow In the selection of a depository bank. 

The pertinent parts of Article 2832~ are as follows: 

"Sec. 2. Any independent school district 

of more than 150 scholastics of this state may 

elect by a majority vote of its Board of Trustees 

to adopt the terms and provisions of The School 

Depository Act of 1967. After the adoption of 

said Act by said Board of Trustees, the school 

depository or depositories for said school dlstrict shall be selected in accordance with the 

terms and provisions of this Act. 

'Sec. 4 (a). A school depository under 

the terms and provisions of this Act shall be 

a bank, if any, located within the territory 

of the school district selecting said depository, and, if none, a bank within the territory of an adjoining school district. 

'Sec. 4 (b). In the event a member of 

the Board of Trustees of school district is 

a stockholder, officer, director or employee 

of a bank located in said school district, 

or a bank located in an adjoining school 

district as referred to in (a) above, said 

bank shall not be disqualified from bimg 

and becoming the school depository Of 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 quorum when only a quorum eligible to vote 

is present. Common law rules in conflict 

with the terms and provisions of this Act 

are hereby modified as herein provided. If 

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. . 

Dr. J. W.Bdgar, Page 3 (M-331) 

a member of the Board of Trustees of school 

district Is a stockholder, officer, director 

or employee of a bank that ha8 bid to become 

the depoeitory for said echo01 dletrict, said 

member of aald Board of Truetees 8hall notte 

on theavarding of the depository contract to 

said Bank and said school depository contract 

shall be awarded by a majority vote of said 

Board of Trustee8 as above provided who are 

not either a stockholder, officer, director 

or employee of the benk recei!ln said school 

district depository contract. 

supplied.) 

7 Emphasis 

As stated in Section 4(b), common law rules In conflict with the terms and provisions of the Act are modified 

to the extent stated in the statute. Therefore, a school 

district which adopts the terms and provisions of this Act is 

not prohibited from awarding a depository contract to a bank 

when a member of the school board is an officer, stockholder, 

director or employee of eald bank, provided the provision8 of 

Section 4 are complied with. You have advised UB that the 

school district In question has adopted the School Depository 

Act of 1967. 

We now reach the u!timate question before us. In. 

order to an8wer your question, it will be necessary to determine 

whether Opinion No. 0-6280 is still binding in light of Article 

2832~. The question In Attorney General's Opinion No. 0-6280 

was "whether or not a school board is authorized and empowered 

to borrow money from a bank where a me!ber of such school board 

is also a director of such a bank. . . In answering the question in the negative, the Attorney General based hi8 opinion 

on public policy and the common law stated, "It is as old a8 

the common law that a public official may not in his official 

t capacity make a contract in which he Is pecuniarily Interested." 

In further support of the opinion, It was stated in the laet 

paragraph on page 2 as follows: 

"The same vice that enters into a contract 

of deposit by a public board or officer with a 

bank or institution in which he has a pecuniary 

interest Inheres in a contract of loan. A deposit Is in essence a loan by the depositor to 

the depositee bank. The 8um deposited becomes 

the property of the bank a+d the bank a debtor 

to the depositor therefor. 

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,I.~ 
Dr. J. W. Edgar, page 4 (M-331) 

In the case of Commercial Guaranty State Bank, et 

al. v. City of Longview, et al., 11 S W 2d 217 

m reversed on other grounds, Fostdr: et al. 

(Tex.Ci ~.APP. 

v. city of 

Longview, et al., 26 S.W.2d 1059 pex.Comm.App., 19301, the 

VOW% 881d: 

"A general deposit of money in a bank 

creates the relation of debtor and creditor 

between the bank Andy the depositor, not materlallv different from that which arises between"a borrower and a lender of money. The 

beneficial results to the bank are the saii 

and the obligation to repay the money is 

equally binding whether the transaction be 

a loan or a deposit." (hnpha8i8 8Upplied.) 

In addition to the foregoing,,,it was further held in 

Cassidy Commission Company v. Security State Bank, 333 S.W.W 

454 (Tex.Civ.App. lgb0, no writ), that a depositor is a creditor 

of the bank in-which his funds are deposited. In light of these 

authorities presumptively In the minds of the legislature, It Is 

evident 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~ and 

had complied with Section 4 thereof. 

You are, therefore, advised that it is our opinion 

that an lndepend~ent school district may borrow money from its 

school depository if it adopts Article 2832~ and complies with 

Its procedures and safeguards when securing and voting on the 

loan contract. To hold otherwise would be in conflict with 

the intent of the Legislature as evidenced in Article 2832~. 

It would be Inconsistent 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 from 

this same bank. 

SUMMARY 

An independent school district may borrow 

money from its school depository if a member of 

Its school board is an officer, stockholder, dlrector or employee in the d~epository bank, provided the school d,istrict has adopted Article 

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. . 

Dr. J. W. Edgar, page 5 (M-331) 

2832~ and complied with the requirements set 

out in Section 4 thereof. 

RDC.MARTIN 

Attt%?ney General of Texas 

Prepared by Charles Parrett 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Kerns Taylor, Chairman 

George Kelton, Vice-Chairman 

Roy W. Mouer 

Fielding Early 

Pat Bailey 

Fisher A. Tyler 

HAWTHORNE PHILLIPS 

EXeCUtiVe A88i8tad 

I 1630-