December 9, 1952’ 

Hon. Larry 0. Cox Opinion No. V-1535-A 

Executive Director 

Board for Texas State Hos- Re: The legality of expending 

pita18 & Special Schools funds appropriated for 

Austin,Texas the year ending August 31, 

1952, to complete a construction project which 

was begun prior to that 

date but upon which the 

original contractor has 

defaulted subsequent to 

Dear Sir: that date. 

Your request concerning the legality of expending 

funds appropriated for the year ending August 31; 1952, to 

complete a construction project presents the following facts, 

On September 11, 1951, the Lauier Plumbing Company and the 

Board for Texas State Hospitals and Special Schools entered 

into a contract for the replacement of an underground steam 

distribution system and installation of water heating equipment at the Austin State School. Under the terns of the contract the Board agreed to pay the contractor the sum of $141,- 

OOC.00 for services to be performed by it payable out of funds 

appropriated for the year ending August 31, 1952. The contract provided that this sum was to be paid to the contractor 

"upon monthly certificates of the Architect, and/or the Rngineer as follows: In the sum of (90$) per cent of the work 

performed and materials in place or on the site, suitably 

stored and protected; the remainder upon final completion and 

acceptance of the work to which this contract refers." 

On October 1, 1952, the contractor was found to be in 

default and under the terns of the contract his employment was 

terminated. At that time the contractor had been paid a total 

of $115,624.80, representing 90 per cent of the work performed 

and materials furnished. Under the terns of the contract, the 

Board is retaining the sum of $E?,847.20, representing the other 

loper centof the value of the work and materials. In addition 

to this amount, there remains $l.2,528.OO out of the $141,000.00 

originally encumbered by the contract. Claims for liens on 

moneys due the contractor have been filed with the Board for the 

sum of $l2,6&.94 in accordance with Article 5472a, V.C.S., these 

claims having been filed subsequent to the date of the last installment payment which was made to the contractor. Article 
Hon. Larry 0. Cox, page 2 (V-1535-A) 

5472a provides: 

"That any person, firm or corporation, or 

trust estate, furnishing any material, apparatus, 

fixtures, machinery or labor to any contractor 

for any public improvements in this State, shall 

have a lien on the moneys, or bonds, or warrants, 

due or to become due to such contractor for such 

improvements; provided, such person, firm, corporation, or stock association, shall, before any 

payment is made to such contractor, notify in 

writing the officials of the State, county, town 

or municipality whose duty it is to pay such contractor of his claim." 

Based on the foregoing facts, you ask: 

"Please advise whether: 

.!'l. Warrants can be issued out of last year's 

appropriation, set aside to this project, to someone 

other than C. M. Lanier, to complete this project? 

“2. Inasmuch as, under the contract,~the defaulting contractor is due no money on this contract, 

until completion, are we legally bound to hold the retained percentage, or may we expend all or part .of 

this retained percentage, in case it is necessary to 

complete the contract?" 

,An approprtition for one year.may legally be encumbered 

by contract during the year even though the project for which it 

is spent will not be completed'and paid for until the succeeding 

fiscal year. Att'y Ceh. Op. v-1363 (1951). 

Under the facts submitted, the sum of $14l,OOO.OOC 

out of the funds appropriated for the fiscal year ending August 

31, 1952, were encumbered on September 11, 1951. Since the 

sum of $115,624.&1 has been paid, there remains the sum of $25,- 

375.20 still encumbered by the contract. 

Article V of the contract under consideration provides: 

"Should the Contractor at any time refuse or neglect' to supply a sufficiency of properly skilled workmen or of materials of the proper quality, or fail in 

any respect to prosecute the work with promptness and 

diligence, or fail in the performance of any of the 

agreements, herein contained, such~refusal, neglect or 
- . 

Hon. Larry 0. Cox, page 3 (V-1535A) 

failure bejug certified by the Architect, and/or 

Engineer, the,Chmer shall be at liberty after 

three days written notice to the Contractor'to: ~ 

provide any such labor 'or materials~,~:s,nd to de- : 

duct the cost thereof from any money then due. 

or thereafter to become due:to the Contractor 

under this contract., and if the Architect, and/ 

or Engineer shall certify that- such refusal, neglector failure'i,s sufficient ground for such 

action, the Owner shall also be at liberty to 

terminate the employment of.the Contractor for 

the said work and to enter upon the premises and 

take possession, for the purpose 'of completing 

the work included under this contract, of'all 

materials, tools; and-appliances-thereon,. ahd'to 

employ any other',person or persons to finish the ;~. 

.~-work, and to provide'the ~materials therefor; aud 

in case of such discontinuance of the employme& 

- of the Contractor he shall not be entitled Tao receive any further payment under this contract until the said work'be wholly finished, at:which 

time, if the unpaid balance of the amount.to be 

paid under this contra& shall exceed the expense 

incurred by the Owner in finishing the work;. such " 

excess shall be paid by the Ownez,to the Contractor;. 

but if such expense shall exceed,such unpaid balance, 

the Contractor shall pay the difference to.the Ownerr 

The expense incurred.by the Owner as-herein provide.d, 

either for furnishing materials-or for finishing then 

work, and any damage incurred through such default 

shall be audited and certified by the,Architect, and/ 

or Engineer, whose certificate shall be conclusive 

upon the parties." 

Since the contract authorizes the Board to employ 

others to finish the work in case of termination of the employment of the original contractor upon his default, warrants may 

be issued to anyone employed by the Board inaccordancewith 

the terms of the contract. The funds were encumbered for the 

purpose of performing the contract, not for the purpose of paying any one specific contractor. Therefore, in answer to 

your first question, it is our opinion that warrants may~,be 

issued against the remaining $25,375.20 to someone other than 

C. M. Ianier. 

Your second question is controlled by the holding in 

-City of Dallas v. Conley, Lott, Nichols Machinery Co., 172 S.W.2d 

969 (Tex.Civ.App. 1943, error ref.). In that case the court held 

that the city could use whatever portion of the unexpended balance 
Hon. Larry 0. Cox, page 4 (V-1535A) 

of the original contract price, including the 10 per cent retainage, as was necessary to ,complete the contract, even though 

claims against the defaulting contractor had been filed under 

Article 5472a. Accordiugly, you are advised that you my expend all or any part of the remainiug$25,375.20, in case it is 

necessary to complete the contract. 

Opinion V-1535, dated November 10, 1952, is hereby 

withdrawn,snd this opinion is substituted therefor in its entirety. 

Money encumbered by a construction contract entered 

into during the last fiscal year may be expended during 

the present fiscal year to complete the contract, and 

warrants may be issued to someone other thsn the original 

contractor for the completion of the work, after termination of the employment of the original contractor upon 

his default. 

Where,install&xit payments of 90 per cent of the cost 

of labor and materials furnished had been made to the contractor, as provided for in the contract, and the contract 

further provided thatupon default by the contractor the 

owner (Board for Texas State Hospitals and Special Schools) 

could terminate the employment and employ others to complete 

the work and that the contractor should not be entitled to 

any further payment until the work was finished, at which 

time he would be entitled only to the difference between the 

unpaid balance under the contract and the expense incurred 

in finishing the work, the Board could use whatever portion 

of the unexpended balance of the contract price, including 

the 10 per cent retainage on cost of labor and materials 

furnished, as was necessary to complete the contract, even 

though claims against the defaulting contractor had been 

filed with the Board in accordance with Article 54/2a, V.C.S. 

City of Dallas v. Conleyi Lott, Nichols Machinery Co.; 172 

S.W.2d 9% (Tex.Civ.App. 1943, error ref.). 

LWPROVED: Yours very truly, 

E. Jacobson PRICE DANIEL 

Executive Assistant Attorney General 

Price Daniel 

Attorney General 

MKW:CBM:mds 

Assistant 

%?k%! :;hxFirst Assistant