Delta Elec. Const. Co. v. City of San Antonio

• Decision Date: 29 January 1969
• Docket Number: No. 14753,14753
• Citation: 437 S.W.2d 602
• Parties: DELTA ELECTRIC CONSTRUCTION COMPANY, Inc., Appellant, v. CITY OF SAN ANTONIO, Appellee. . San Antonio
• Court: Texas Court of Appeals

Page 602

437 S.W.2d 602

DELTA ELECTRIC CONSTRUCTION COMPANY, Inc., Appellant, v. CITY OF SAN ANTONIO, Appellee.

No. 14753.

Court of Civil Appeals of Texas San Antonio.

Jan. 29, 1969.

Rehearing Denied Feb. 26, 1969.

George W. Krog, San Antonio, for appellant.

Howard C. Walker, Sawtelle, Goode, Troilo, Davidson & Leighton, John W. Davidson, San Antonio, for appellee.

KLINGEMAN, Justice.

Appeal by Delta Electric Construction Company, Inc., hereinafter called 'Delta,' from a declaratory judgment rendered in the District Court in which the Court determined and declared that a contract for the erection of certain improvements to the water works system of the City of San Antonio, hereinafter called 'City,' between Delta and the Water Works Board of Trustees of San Antonio, herein called 'Water Board,' dated May 14, 1968, was null and void. The trial court made findings of fact and conclusions of law, but since the evidence consists of stipulations and exhibits, such findings will not be detailed herein but will be discussed under the appropriate points.

On May 26, 1925, City of San Antonio purchased the water works system from private ownership through issuance of $7,000,000 water revenue bonds to the seller, which were secured by a first mortgage deed of trust of the City to St. Louis Union Trust Company, which instrument, among other things, vested the possession, management and control of the water works system in the Water Works Board of Trustees as long as the bonds remained outstanding and unpaid, pursuant to the provisions of Art. 1109a, Vernon's Ann.Civ.St. Thereafter, in 1957 the City issued $2,178,000 in water revenue refunding bonds, by ordinance which vested the control, management and operation of its water works system in the Water Board during such time as the refunding bonds, or any additional bonds issued thereunder, were outstanding and unpaid.

Delta is a Texas corporation of which Rex E. Shullanberger is president and the owner of one-third of the shares of stock of such corporation. On August 26, 1965, the City Council of the City of San Antonio appointed Rex E. Shullanberger to be a member of the Electrical Examining and Supervising Board of the City of San Antonio, hereinafter called the 'Electrical Board,' to fill an unexpired term due to end July 31, 1966. Shullanberger took the prescribed oath and served in this position until October 5, 1967, when he was reappointed to said Board by ordinance of the City of San Antonio to serve until July 31, 1969. On May 14, 1968, Delta was awarded a contract to construct the improvements involved. On such date Shullanberger was a member of the Electrical Board. Such contract was awarded under sealed bids in compliance with the Water Board's procedure in connection therewith and Delta was the lowest bidder for such work. It was stipulated by the parties that Shullanberger as a member of the Electrical Board did not in any manner influence the advertising, pre-bid procedure, approval, or award by the Water Board of its contract with Delta. The Water Board, its members, and management were unaware of Shullanberger's membership on the Electrical Board until advised by a third party of this fact, approximately one month after the contract was awarded. The City and the Water Board thereafter advised Delta that performance of such contract was suspended pending a judicial determination as to whether a conflict of interest existed which would make the contract arrangement either void or voidable, and if voidable the contract was cancelled.

The City in its action for declaratory judgment asserted that Shullanberger is an officer of the City; that Delta in contracting with the Water Board contracted at law with the City; that Delta was prohibited by law from contracting with the Water Board and the City, because Shullanberger is an officer and part owner thereof; that a conflict of interests exists; that the contract in question was void as a matter of law or, alternatively, if not void, had been legally voided. These contentions are supported by the trial court's findings of fact and conclusions of law.

Delta asserts three basic contentions on this appeal: (1) the contract was not made with the City; (2) Delta's president was not an officer or employee of the City of San Antonio; (3) no conflict of interests existed under the applicable conflicts of interest statutes or charter provisions.

Delta in support of its contention that the contract is not a contract with the City, asserts that the City was not a party to such contract, that the City is not obligated under such contract, that it was not approved by ordinance of the City, as required under certain charter provisions, that the Water Works Board has full management and control of the water works system, and that the Water Works Board is such a legal entity as can sue and be sued.

The status of the Water Board has been the subject of two previous lawsuits in this Court. Sifford v. Water Works Board of Trustees, Tex.Civ.App., 70 S.W.2d 476 (1934, writ ref'd), involved in suit against the Water Works Board of Trustees by Sifford for personal injuries suffered by him. The trial court sustained a general demurrer to Sifford's petition on the grounds that such suit could not be maintained against the Water Works Board of Trustees as such. This Court affirmed the trial court's decision and discussed in some detail the 1925 First Deed of Trust Mortgage hereinbefore referred to. The Court in its opinion stated: 'The property is owned by the city, and the department of water is as much under the control and management of the city, through its trustees, as is the department of taxation, streets, police, and fire, except in some particulars stated in the deed of trust. It has been definitely settled by the decisions of different states of the Union that departments of the city created and acting in a similar way to that of the water board of the city of San Antonio could not be held liable for debt or tort, but that the city, if any one, was the party liable under such claims.'

Thereafter, this Court had before it San Antonio Independent School Dist. v. Water Works Board of Trustees, Tex.Civ.App., 120 S.W .2d 861 (1938, writ ref'd), a suit to determine whether the water works system was subject to taxation by the San Antonio Independent School District or was tax exempt. The Court held the water works exempt from taxation, and that the Water Works Board of Trustees created by the City of San Antonio in the trust agreement of 1925 was an agent of the City, whose possession and holding of property constituted a possession and holding by the City. A somewhat analogous case was Guadalupe-Blanco River Authority v. Tuttle, 171 S .W.2d 520 (Tex.Civ.App.--San Antonio 1943, writ ref'd w.o.m.), but which involved the Board of Trustees of the San Antonio Electric and Gas System. The Court in its opinion discussed the Sifford case and noted that it had examined the record in the Sifford case and that from such examination it found that the powers of the Water Board were conferred by the same process as those by which the Board of Trustees of San Antonio Electric and Gas System were conferred and that the powers were substantially the same. This Court held that the Board of Trustees appointed by City ordinance to control and operate the utilities system purchased by the City, until revenue bonds issued for purchase thereof should be paid, was merely the agent of City and that as such the Board could not maintain a suit challenging the validity of a contract by which City leased part of the utility property to the conservation and declamation district with option to purchase. Justice Norvell in a concurring opinion said: 'In the legal sense, the appellees are not trustees at all. As a board they constitute a department and agency of the City to take charge of and operate for the City its gas and electric system. Sifford v. Waterworks Board of Trustees, Tex.Civ.App., 70 S.W.2d 476.'

There are other factors which point out that the Water Board is an agency of the City: (a) Members of the Water Board are appointed by the City Council; (b) § 27(a) of the 1957 ordinance provides for participation of the City Manager in meetings of the City; (c) § 27(b) provides that the Water Board of Trustees shall be the City's agent to collect sanitation charges levied by the City when requested to do so; (d) § 27(c) provides that the Board when expending funds for improvements must follow the provisions of the City Charter and the laws of Texas relating to 'notice to bidders, advertisement thereof, requirements as to the taking of sealed bids based upon specifications for such improvements or purchase, the furnishing of surety bonds by contractors and the manner of letting contracts * * *.' (e) § 28 of such ordinance provides that 'The City acting through the Board of Trustees, shall keep full and proper books of records and account * * *.' (f) § 29 provides, 'The City covenants and agrees that at all times it will insure and keep insured through the Board of Trustees all property subject to the lien hereof * * *.'

We hold that the Water Board is an agency and department of the City and therefore the contract in question was a contract with the City.

Delta's contentions that its president was not an officer or employee of the City, and that no conflict of interest existed under the conflict of interest statutes of this State and conflict of interest provision of the City Charter, will be discussed together. In support of its contention that its president was not an officer or employee of the City at the time of the execution of the contract, Delta asserts that members of the Electrical Board are not subject to the City's classified civil service, and that under § 69 of the City Charter all appointive officers and employees of the City are subject to civil service except certain groups which include '(b) Persons who are...