Opinion 92-54


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.


CONFLICTS OF INTEREST -- Banking Transactions (designation of bank as depository when town supervisor is officer and stockholder) -- Purchase of bonds and notes when town supervisor is officer and stockholder)

GENERAL MUNICIPAL LAW, §§801, 802(1)(g), (h), 802(2)(a); LOCAL FINANCE LAW, §60.10: A prospective appointee to fill a vacancy in the office of town supervisor who is an officer and stockholder of a bank would have a prohibited interest in the designation of the bank as a town depository, the renewal of town obligations presently held by the bank, and the future sale of obligations by the town to the bank, unless one or more of the exceptions in General Municipal Law, §802 is applicable.


You ask whether a prospective appointee to fill a vacancy in the office of town supervisor would have a prohibited conflict of interest under General Municipal Law, article 18 (§800 et seq.), if a bank in which the appointee is an officer and stockholder is a depository of town funds and an occasional purchaser of bonds and notes issued by the town. You state that the individual in question owns less than five percent of the bank's outstanding stock; that the individual's remuneration will not be directly affected by the bank's dealings with the town; and that the individual's duties at the bank do not directly involve the municipal finance functions of the bank or the town's deposits or investments. You have also advised us that there are several other banks located in the town that can be designated a depository of town funds.

This Office has previously concluded that when a town supervisor is a director and stockholder of a bank designated as a depository of town funds, the supervisor's interest in the bank is prohibited by General Municipal Law, §801, unless one or more of the exceptions in General Municipal Law, §802 is applicable (1989 Opns St Comp No. 89-4, p 10). We reached this conclusion because the designation of a bank as a depository is a "contract" for purposes of article 18 (see General Municipal Law, §800[2]). As a director and stockholder of the bank, the supervisor is deemed to have an "interest" in the bank's contracts with the town (see General Municipal Law, §800[2],[3][c],[d]). The interest is prohibited because the supervisor is the "treasurer" of the town (see General Municipal Law, §800[6]).

In this instance, the designation of the bank as a depository, the bank's present holdings of obligations issued by the town, and any future sale of such obligations by the town to the bank, are all "contracts" (see General Municipal Law, §800[2]; 1991 Opns St Comp No. 91-8, p 18). Should the individual in question be appointed supervisor, he or she would be deemed to have an interest in these contracts by virtue of being both an officer and stockholder of the bank (see General Municipal Law, §800[3][c],[d]). Because the supervisor is the treasurer of the town and, as a member of the town board, has one or more of the powers and duties enumerated in General Municipal Law, §801 (see General Municipal Law, §800[6]; Local Finance Law, §§2.00[4][c],[5][c], 50.00, 56.00[a]), the interests in the designation of the bank as a depository and in any future sales of obligations by the town to the bank would be prohibited by section §801, unless any of the exceptions in General Municipal Law, §802 are applicable. The interest in the bank's present holdings may also be prohibited (see Local Finance Law, §§2.00[4][c], [5][c], 51.00[10], 53.00; but see also Opn No. 91-8, supra; 32 Opns St Comp, 1976, p 80), unless any exceptions apply.

There are several provisions of General Municipal Law, §802 which are relevant here. Section 802(1)(h) provides an exception from the prohibitions of section 801 for contracts entered into prior to the election or appointment of a municipal officer or employee. Section 802(1)(h), however, does not provide an exception for renewals of such contracts. Therefore, should the individual in question be appointed supervisor, he or she would not have a prohibited interest with respect to the current designation of the bank as a depository, at least as long as the terms and conditions thereof remain unchanged, or in any obligations presently held by the town.

With respect to subsequent designations, renewals of obligations presently held by the town, and future sales of obligations by the town to the bank, section 802(2)(a) provides that the provisions of section 801 are inapplicable to contracts between a municipality and corporation in which a municipal officer or employee has an interest by reason of stockholdings, when less than five percent of the outstanding stock in the corporation is owned or controlled directly or indirectly by the officer or employee. In addition, section 802(1)(b) provides an exception for contracts between a municipality and a private entity when a prohibited interest would result solely from the status of a municipal officer or employee as an officer or employee of the private entity (see People v Speach, 49 AD2d 210, 374 NYS2d 210), but only if the remuneration from such private employment will not be directly affected as a result of the contract and the duties of the private employment do not directly involve the procurement, preparation or performance of any part of the contract.

In this instance, since the individual in question owns less than five percent of the bank's outstanding stock, he or she would not have a prohibited interest, by virtue of being a stockholder of the bank, in any subsequent designation of the bank as depository, or in any renewals or future sales of obligations by the town. Since you state that the individual's private remuneration and duties would not be directly affected by, or involve the town's dealings with the bank, the individual also would not have a prohibited interest in these contracts by virtue of his or her status as an officer of the bank.

Even if the exceptions discussed above were not applicable, the individual's bank could continue to purchase town bonds and notes at private sale as provided in section 60.10 (see General Municipal Law, §802[1][g]). Section 60.10(a) authorizes a municipality to sell notes at private sale to a bank or trust company in which a municipal officer or employee has an interest which would otherwise be prohibited by section 801, if at least two other banks are unwilling or unable to purchase the notes at the same or a lower rate of interest, and the sale would not cause the bank or trust company to exceed the limitations set forth in that section on purchases of notes at private sale during the current fiscal year and aggregate holdings of notes purchased at private sale. Section 60.10(b) also authorizes a municipality to sell bonds at private sale if the sale would not cause the bank or trust company to exceed the limitation in that section on aggregate holdings of bonds purchased at private sale.

General Municipal Law, §803 generally requires that when a municipal officer or employee has an interest in a contract that is not prohibited by section 801, the nature and extent of the interest must be disclosed in writing and included in the official record of the governing board's proceedings. In this instance, if this individual were to be appointed supervisor, he or she would be required to disclose the interests in the bank's current and any subsequent designation as a depository. Disclosure would also be required with respect to the bank's current holdings of obligations issued by the town and future sales of bonds or notes to the bank (see also Local Finance Law, §60.10[a],[b]).

We also note that General Municipal Law, §806(1) requires the town to have a code of ethics setting forth for the guidance of its officers and employees the standards of conduct reasonably expected of them. The code of ethics must contain standards of conduct relating to, inter alia, private employment in conflict with official duties, and may be more restrictive than the provisions of section 801 (id.). Therefore, the town's code of ethics should be examined to determine whether it contains any pertinent provisions.

Finally, we note that the courts of this State have held public officials to a high standard of conduct and, on occasion, have negated certain actions which, although not violating the literal provisions of General Municipal Law, article 18 or a municipal code of ethics, violate the spirit and intent of these enactments, are inconsistent with public policy, or suggest self-interest, partiality or economic impropriety (see, e.g. Zagoreos v Conklin, 109 AD2d 281, 491 NYS2d 358; Matter of Tuxedo Conservation and Taxpayers Ass'n v Town Board of the Town of Tuxedo, 69 AD2d 320, 418 NYS2d 638; Conrad v Hinman, 122 Misc 2d 531, 471 NYS2d 521; see also, Cahn v Planning Board of the Town of Gardiner, 157 AD2d 252, 557 NYS2d 488). Therefore, even if the appointment of this individual as town supervisor would not result in a violation of article 18 or the town's code of ethics, we believe that the individual should not participate in the discussion or vote on matters affecting the town's relationship with the bank.

February 14, 1992
Norris L. Webster, Esq., Town Attorney
Town of Ridgeway