December 9, 1952’

Hon. Larry 0. Cox OpinionNo. 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 contractorhas defaulted subsequentto Dear Sir: that date.

Your request concerning the legality of expending funds appropriated for the year ending August 31; 1952, to completea constructionproject 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 systemand 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 $141,- OOC.00 for servicesto be performed by it payable out of funds appropriated for the year ending August 31, 1952. The contract provided that this sumwas to be paid to the contractor "uponmonthly certificatesof the Architect, and/or the Rngineer as follows: In the sum of (90$)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 contractorwas found to be in default and under the terns of the contract his employmentwas terminated. At that time the contractorhad 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 encumberedby the contract. Claims for liens on moneys due the contractorhave been filed with the Board for the
sum of $l2,6&.94 in accordancewith Article 5472a,V.C.S., these claims having been filed subsequentto the date of the last installmentpayment which was made to the contractor. ArticleHon. Larry 0. Cox, page 2 (V-1535-A)

5472a provides:

"That any person, firm or corporation,or trust estate, furnishingany material, apparatus, fixtures,machinery or labor to any contractor for any public improvementsin 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, suchperson, 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 municipalitywhose duty it is to pay such contractor of his claim."

Based on the foregoing facts, you ask:

"Pleaseadvise 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. Inasmuchas, under the contract,~thedefaulting contractor is due no money on this contract, until completion,are we legallybound to hold the retained percentage, or may we expend all or part .of this retainedpercentage, in case it is necessary to complete the contract?"

,Anapproprtitionfor one year.may legallybe encumbered by contract during the year even though the project for which it is spentwill not be completed'andpaid 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 encumberedby the contract.

Article V of the contractunder considerationprovides:

"Should the Contractor at any time refuse or neglect' to supply a sufficiencyof properly skilledworkmen 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 certifiedby the Architect, and/or Engineer, the,Chmer shallbe at liberty after three days written notice to the Contractor'to:~ provide any such labor 'ormaterials~,~: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 sufficientground for such action, the Owner shall also be at liberty to terminate the employment of.the Contractor for the saidwork and to enter upon the premises and take possession, for the purpose 'ofcompleting 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~materialstherefor;aud in case of such discontinuanceof the employme&

- of the Contractor he shall not be entitled Taoreceive any further payment under this contract until the saidwork'be wholly finished, at:which time, if the unpaid balance of the amount.to be paid under this contra& shall exceed the expense incurredby the Owner in finishing the work;.such " excess shall be paid by the Ownez,to the Contractor;. but if such expense shall exceed,suchunpaid balance, the Contractor shallpay the differenceto.the Ownerr The expense incurred.bythe Owner as-hereinprovide.d, either for furnishingmaterials-or for finishing then work, and any damage incurredthrough such default shall be audited and certifiedby the,Architect, and/
or Engineer, whose certificate shallbe conclusive upon the parties."
Since the contractauthorizes the Board to employ others to finish the work in case of termination of the employment of the original contractorupon his default,warrants may be issued to anyone employedby 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 controlledby the holding in -Cityof 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 whateverportion of the unexpended balanceHon. Larry 0. Cox, page 4 (V-1535A)

of the original contractprice, includingthe 10 per cent retainage, as was necessary to ,complete the contract,even though claimsagainst the defaulting contractorhad 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 completethe contract.

OpinionV-1535, datedNovember 10, 1952, is hereby withdrawn,sndthis opinion is substitutedtherefor in its entirety.

Money encumberedby a constructioncontractentered into during the last fiscal year may be expended during the present fiscal year to completethe contract,and warrantsmay be issued to someone other thsn the original contractor for the completion of the work, after termination of the employment of the original contractorupon his default.
Where,install&xitpayments of 90 per cent of the cost of labor and materials furnishedhad been made to the contractor, as provided for in the contract,and the contract furtherprovided thatupon defaultby the contractorthe
owner (Board for Texas State Hospitals and Special Schools) could terminate the employment and employ others to complete the work and that the contractor shouldnot be entitled to any furtherpayment until the work was finished,at which time he would be entitled only to the differencebetween the unpaid balance under the contractand the expense incurred in finishing the work, the Board could use whateverportion of the unexpendedbalance of the contractprice, including the 10 per cent retainage on cost of labor and materials furnished,as was necessary to completethe contract,even though claims against the defaultingcontractorhad been filedwith the Board in accordancewith 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 ExecutiveAssistant Attorney General

Price Daniel Attorney General

MKW:CBM:mds Assistant

%?k%! :;hxFirstAssistant