Untitled Texas Attorney General Opinion

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 ex-
amine the pertinent parts of Article 2827c, Vernon's Civil
Statutes, and Article 2832`` Vernon's Civil Statutes, and At-
torney 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. Indeljendentor consolidated
school districts are hereby authorized to
borrow money for the purpose of paying maln-
tenance 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 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 (M-331)
lawful expenditure of the school district
of principal of and
other than payment,,
interest on bonds.
Article 2832c, Vernon's Civil Statutes, known as the
School Depository Act of 1967, effective Aug. 28, 1967, es-
tablishes 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 dls-
trict 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 deposi-
tory, and, if none, a bank within the terri-
tory 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. 7Emphasis
supplied.)
As stated in Section 4(b), common law rules In con-
flict 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 ques-
tion 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 de-
posit 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 (Tex.Ci~.APP.
m reversed on other grounds, Fostdr: et al. 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 mate-
rlallv different from that which arises be-
tween"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,,,itwas 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~entschool 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, dl-
rector or employee in the d~epositorybank, pro-
vided the school d,istricthas 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%?neyGeneral 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
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