National Surety Corp. v. Friendswood Ind. School Dist.

• Decision Date: 30 October 1968
• Docket Number: No. B--776,B--776
• Citation: 433 S.W.2d 690
• Parties: NATIONAL SURETY CORPORATION, Petitioner, v. FRIENDSWOOD INDEPENDENT SCHOOL DISTRICT, Respondent.
• Court: Texas Supreme Court

Page 690

433 S.W.2d 690

NATIONAL SURETY CORPORATION, Petitioner, v. FRIENDSWOOD INDEPENDENT SCHOOL DISTRICT, Respondent.

No. B--776.

Supreme Court of Texas.

Oct. 30, 1968.

Fulbright, Crooker, Freeman, Bates & Jaworski, W. St. John Garwood, Jr., Houston, for petitioner.

Reynolds, White, Allen & Cook, Grant Cook, Houston, for respondent.

The opinion of the Court delivered July 17, 1968, is withdrawn and the following is substituted therefor:

STEAKLEY, Justice.

The Friendswood Independent School District, Respondent here and defendant below, contracted with I. W. Powers on March 10, 1962, for the construction of certain school facilities for a contract price of $309,033.02, funded by an authorized bond issue of $375,000. On March 13, 1962, National Surety Corporation, Petitioner here and plaintiff below, executed and delivered to the District a labor and material payment bond and a performance bond. The construction contract provided for the retention by the District of ten per cent of the contract price until completion. Powers assigned his interest in the retainages to Petitioner as security for its bond obligations. Powers had substantially completed the construction on April 8, 1963, except for the conversion of an existing cafeteria into a girls dressing room at a cost of $5,200. On such date the Board of the District voted to accept the building but to retain from the amount then due Powers the cost of remodeling the cafeteria. On April 11, 1963, the District delivered its check to Powers in the amount of $29,988.10, representing the sum remaining payable to him, less $5,200 for remodeling the cafeteria and an additional $500 for other purposes. Petitioner was thereafter required to pay claims for labor and materials in the amount of.$18,184.72 and incurred expenses of $52.70. On August 13, 1963, this suit was instituted against the District to recover these sums. The District filed a cross action against Petitioner and Powers and sought to recover from Petitioner its costs in remodeling the cafeteria in excess of the retained $5,200. By trial amendment, Petitioner alleged that 'At all material times * * * sufficient funds had been properly raised and appropriated by said defendant and remained available to pay the claims upon which plaintiff sues.'

After a jury trial, the trial court under date of March 14, 1967, rendered judgment for Petitioner against the District and Powers, jointly and severally, for the amount of the claims for labor and materials, together with its necessary expenses. The District was given judgment against Powers but was denied recovery on its cross action against Petitioner. Powers did not take an appeal. The Court of Civil Appeals on appeal by the District held that Petitioner acquired a valid claim against the District for the sum it was required to pay the labor and material claimants and affirmed the judgment of the trial court denying the District any recovery on its cross action. These holdings are not before us for review. The Court of Civil Appeals further held, however, that notwithstanding the validity of its claim, Petitioner was precluded from recovery of judgment against the District because of its failure to prove That at the time of the judgment the School District had remaining and unappropriated funds for the current year of the claim with which to pay Petitioner. Tex.Civ.App., 423 S.W.2d 95, 101. We granted writ of error to review this holding and have concluded that the Court of Civil Appeals was in error.

It is not questioned in the posture of the case as it reaches us that at the time the District entered into the construction contract with Powers it had available and not otherwise appropriated sufficient money from the sale of its bonds with which to pay the contract price; and that Petitioner acquired a valid claim against the District for the sums it was required to pay laborers and materialmen under its payment bond. It is also undisputed that on May 10, 1963, Petitioner notified the District by telegram that Powers had received excessive payments; that Petitioner was assignee of the payments due Powers under the contract; and that Petitioner would hold the District liable for any loss it sustained if any unauthorized payments were made to Powers. And, further, that at the time of this notice, sufficient unencumbered and unappropriated funds remained from the bond issue to pay the labor and material claims and expenses which Petitioner was subsequently required to pay and for which it sued the District.

The trustees of a common school district are 'a body politic and corporate in law * * *; and as such may contract and be contracted with, sue and be sued * * *,' Article 2748, Vernon's Ann.Tex.Civ.Statutes. 'Clearly, if they may contract, and may be sued upon their contracts, judgments for money may be rendered against them.' Harkness v. Hutcherson, 90 Tex. 383, 38 S.W. 1120 (1897). With reference to the management and control of the public schools by the trustees, together with their power to approve claims against school funds of the district, Article 2749 provides 'that the trustees, in making contracts with teachers, shall not create a deficiency debt against the district.' The effect given this statutory prohibition was stated in Aldine Independent School District v. Standley, 154 Tex. 547, 280 S.W.2d 578 (1955), as follows:

'Again, this Court in the case of Campbell v. Jones, supra, (264 S.W.2d 425) as late as 1954, recognized the well established rule that valid claims against a school district Cannot be paid by the district Unless funds for the current year of the claim are available to pay said claim at the time of demand or judgment upon such claim.

'Most of the above cases deal with liability of a school district upon teachers' employment contracts; however, this rule has been extended to apply to other contracts by the board of trustees.' (italics added)

It is clear from the opinion in Standley that the decision was based on prior decisions denying the validity of claims against school districts in circumstances where the obligation of the contract called for expenditures in excess of available funds for the year in question, and hence created a deficiency debt. The discussion of the particular point under review in Standley was introduced by the statement:

'It has been held for many years that the trustees of a school district cannot make a contract for the employment of teachers to an amount greater than the school funds belonging to the district for that year; and that any debt contracted greater than that would be a violation of law, and constitutes no claim against the district.'

The supporting decisions, excerpts from which are qhoted, were likewise predicated upon situations calling...