TKPE A~IY~ORNEY GENERAL OFTEXAS

January 9, 1969

Honorable J. W. Edgar OpinionNo. 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 schooldepository 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 concerningwhether or not an independent school districtmay borrow money from its schooldepository if a member of the schoolboard is also an officer or stockholderin the depositorybank.

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 OpinionNo. O-6280.

Article 2827c, Section 1,Vernon's Civil Statutes, which gives independentand consolidated schooldistricts the authority to borrow money, reads as follows:

"Sec. 1. Indeljendent or consolidated schooldistricts are hereby authorized to borrow money for the purpose of payingmalntenance expenses and to evidence such loans with negotiable notes; provided that at no time shall said loans exceedsseventy-five per cent (75%) of the previous years' In+ come. Such notes shallbe payable only from currentmaintenance taxes levied at or before the time of making such loans and from delinquentmaintenance taxes. The term 'maintenanceexpenses' 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 schooldistrict of principal of and

Article 2832c, Vernon's Civil Statutes,known as the School DepositoryAct of 1967, effectiveAug. 28, 1967, establishes the rules, regulations,and procedures that a school board and bank must follow In the selection of a depositorybank.

The pertinent parts of Article 2832~ are as follows:
"Sec. 2. Any independent schooldistrict ofmore than 150 scholasticsof this statemay 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 schooldlstrict shallbe selected in accordancewith the terms and provisions of this Act.

'Sec.4 (a). A schooldepositoryunder the terms and provisions of this Act shallbe a bank, if any, locatedwithin the territory of the schooldistrict selecting saiddepository, and, if none, a bank within the territory of an adjoining schooldistrict.
'Sec. 4 (b). In the event a member of the Board of Trustees of schooldistrict is a stockholder,officer,director or employee of a bank located in said schooldistrict, or a bank located in an adjoining school district as referred to in (a)above, said bank shallnot be disqualified from bimg and becoming the schooldepository Of said school district provided saidbank is selected by a majority vote of the Board of Trustees of said schooldistrict or a majority vote of a quorumwhen 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 echo01dletrict, said member of aald Board of Truetees 8hall notte on theavarding of the depository contract to said Bank and said schooldepository 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 districtwhich adopts the terms and provisions of this Act is not prohibited from awarding a depository contract to a bank when a member of the schoolboard is an officer, stockholder, director or employee of ealdbank, provided the provision8 of Section 4 are compliedwith. You have advisedUB that the school district In questionhas adopted the School Depository Act of 1967.

We now reach the u!timate questionbefore us. In. order to an8wer your question, it will be necessary to determine whether OpinionNo. 0-6280 is stillbinding in light of Article 2832~. The question In Attorney General's OpinionNo. 0-6280 was "whetheror not a schoolboard is authorized and empowered to borrow money from a bank where a me!ber of such schoolboard is also a director of such a bank.

. . In answering the question in the negative, the Attorney Generalbased hi8 opinion on public policy and the common law stated, "It is as old a8 the common law that a public officialmay not in his official t capacitymake 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 officerwith 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. -1628- ,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 W2d 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 Andythe 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 themoney is equally binding whether the transactionbe a loan or a deposit." (hnpha8i8 8Upplied.)
In addition to the foregoing,,,it was furtherheld 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-whichhis 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 prohibitionswhich, in the past, had prevented a schoolboard from borrowing from and/or choosingas a depository, a bank In which one of itsmembers also serves as a director or stockholder, provided that the schooldistrict had adopted Article 2832~ and had compliedwith Section 4 thereof.

You are, therefore, advised that it is our opinion that an lndepend~ent schooldistrictmay borrowmoney from its schooldepository if it adopts Article 2832~ and complieswith Its procedures and safeguardswhen securingand voting on the loan contract. To hold otherwisewould be in conflictwith the intent of the Legislature as evidenced in Article 2832~. It would be Inconsistentand illogical to conclude that the Legislature intended that a schooldistrict could choose as a depository a bank in which a member of the schoolboard was a director or stockholder,but could not borrowmoney from this samebank.
SUMMARY

An independent schooldistrictmay borrow money from its schooldepository if a member of Its schoolboard is an officer, stockholder,dlrector or employee in the d~epository bank, provided the schoold,istrict has adoptedArticle -1629-. .

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

2832~ and compliedwith the requirements set out in Section 4 thereof.

RDC.MARTIN Attt%?ney

General of Texas Preparedby Charles Parrett AssistantAttorney General
APPROVED: OPINION COMMITTEE
Kerns Taylor, Chairman George Kelton,Vice-Chairman Roy W. Mouer Fielding Early Pat Bailey Fisher A. Tyler HAWTHORNEPHILLIPS EXeCUtiVe A88i8tad

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