                         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 con-
                                      struction 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 equip-
ment at the Austin State School.   Under the terns of the con-
tract the Board agreed to pay the contractor the sum of $141,-
OOC.00 for services to be performed by it payable out of funds
appropriated for the year ending August 31, 1952.   The con-
tract provided that this sum was to be paid to the contractor
"upon monthly certificates of the Architect, and/or the Rngi-
neer as follows:   In the sum of (90$) 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.OOout 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 in-
stallment 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, cor-
    poration, 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 con-
    tractor 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 de-
     faulting contractor is due no money on this contract,
     until completion, are we legally bound to hold the re-
     tained 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 neg-
     lect' to supply a sufficiency of properly skilled work-
     men 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, neg-
             lector failure'i,ssufficient 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',personor persons to finish the ;~.
           .~-work,and to provide'the ~materialstherefor; aud
             in case of such discontinuance of the employme&
          - of the Contractor he shall not be entitled Taore-
             ceive any further payment under this contract un-
             til 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 employ-
        ment 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 pay-
        ing 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 re-
tainage, as was necessary to ,completethe contract, even though
claims against the defaulting contractor had been filed under
Article 5472a. Accordiugly, you are advised that you my ex-
pend 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 termina-
     tion 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 con-
     tractor, 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
                                             Assistant

MKW:CBM:mds                                %?k%!      :;hx-
                                             First Assistant
