           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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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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