author: RUDDY, Judge.

text:
    Marie F. LEITH, Plaintiff, Appellant, v. MERCANTILE TRUST COMPANY NATIONAL ASSOCIATION, Defendant, Respondent.
    No. 32743.
    St. Louis Court of Appeals. Missouri.
    Nov. 21, 1967.
    Motion for Rehearing or for Transfer to Supreme Court Denied Dec. 27, 1967.

      Lewis, Rice, Tucker, Allen & Chubb, R. Walston Chubb, John L. Davidson, Jr., St. Louis, for plaintiff-appellant.
    Thompson, Mitchell, Douglas & Neill, Richard W. Metz, W. Stanley Walch, David F. Ulmer, St. Louis, for defendant-respondent.
   RUDDY, Judge.

This is an action by plaintiff, Marie F. Leith, who was an appointee and sole dis-tributee of a trust estate, for damages in the sum of $10,539.56- against the Mercantile Trust Company National Association, hereinafter referred to as Mercantile, for an alleged breach of trust in the premature and unauthorized liquidation of a trust estate in which it was Trustee. The decree and judgment of the trial court was in favor of defendant, Mercantile, and plaintiff appealed.

The facts. Plaintiff’s grandmother, Mary E. Holzhausen, a resident of St. Louis County, Missouri, died April 30, 1917 leaving a Will, wherein, she bequeathed one-fourth of the residue of her estate to the Mississippi Valley Trust Company, as Trustee, in trust for her daughter, Clara H. Rosenthal, of Paris, France, for her natural life and directed that the trustee shall from time to time pay to her daughter all of the net income of the trust estate. Her Will then provided that “On her death (daughter, Clara Rosenthal) said trust shall end, and thereupon the trustee shall convey, transfer and deliver the then income and principal of the trust estate as my daughter Clara may by last Will direct, and in event of default of such direction by Will, then to her descendants, if any; otherwise to my then heirs at law under the laws of Missouri. * * * ” The defendant, Mercantile, through a consolidation proceeding succeeded the Mississippi Valley Trust Company as Trustee of the trust estate created under the Will of Mary E. Holz-hausen. As noted, the aforesaid Will provided that the daughter of the testatrix have a power of appointment over the accrued income and principal of the trust estate. In default of the exercise of such power the trust estate was to be distributed to the descendants of Clara Rosenthal, if any, otherwise, to the testatrix’s heirs at law.

Clara Rosenthal, daughter of the aforementioned testatrix, was the aunt of plaintiff. She died on March 31, 1962, in France. She executed a Will on October 27, 1961, wherein, she declared she was “an American citizen, now residing in France,” in which Will she exercised the power of appointment in the following language: “I bequeath all of my said property, including any over which I may have any power of appointment, to my devoted niece, MARIE FERNOW LEITH.”

The remains of Clara Rosenthal were brought back to St. Louis for burial; however, the probate of her Will and the administration of her estate took place in the State of Florida, where plaintiff was at the time of the death of her aunt, Clara Rosen-thal. The plaintiff was appointed Executrix without bond in a Florida Administration of Clara Rosenthal’s Estate.

At the time of the death of Clara Rosen-thal the corpus of the trust estate created under the Will of Mary E. Holzhausen was invested entirely in units of a Common Trust Fund maintained by Mercantile, the Trustee, under a published Plan of Common Trust Fund of Mercantile Trust Company. This Common Trust Fund was established pursuant to Section 363.225 RSMo 1959, V.A.M.S., which reads as follows:

“Any state or national bank or trust company qualified to act as fiduciary in this state may establish common trust funds for the purpose of furnishing investments to itself as fiduciary, or of itself and others, as co-fiduciaries; and may, as such fiduciary or co-fiduciary, invest funds which it lawfully holds for investment in interests in such common trust funds, if such investment is not prohibited by the instrument, judgment, decree, or order creating such fiduciary relationship, and if, in the case of co-fiduciaries, the bank or trust company procures the consent of its co-fiduciaries to such investment.”

The number of units in the Holzhausen trust held by Mercantile was 4,133.

In the Plan of the Common Trust Fund no moneys were to be invested in this Fund other than from funds of a trust of which the Mercantile Trust Company was the trustee or a co-trustee. The Common Trust Fund was exclusively for the collective investment and reinvestment of moneys of trusts in which Mercantile was either sole trustee or a co-trustee. No one else could invest funds in the Common Trust Fund and, therefore, no one else could hold participating units of beneficial interest in the Common Trust Fund maintained by Mercantile as Trustee. As a result the units were nontransferable. The Common Trust Fund included the assets of many trust estates in which the Mercantile was trustee or cotrustee. Its Plan provided: “* * * No sharing trust shall be deemed to have individual ownership of any assets in the common fund, but shall be deemed to have a proportionate undivided beneficial interest in the common fund.” Under the Plan the Common Fund was to be administered in conformity with the laws of the State of Missouri and of the United States and specifically included: “ * * * the rules and regulations prevailing from time to time of the Board of Governors of the Federal Reserve System pertaining to the Collective investment of trust funds by National Banks, * * *.” A determination of the value of the Common Fund and its assets was made as of the close of business on the last business day of each of the months of February, May, August and November of each year. The value on any valuation date of each unit into which the Common Fund was divided was determined by dividing the then value of the Common Fund by the number of units into which the Common Fund was then divided.

Especially pertinent to the issues raised in this appeal by plaintiff are the provisions of the Plan pertaining to the method of withdrawal of the units of beneficial interest from the Common Fund. The Plan provided that no beneficial shares shall be withdrawn from the Common Fund except as of a valuation date, (which was made on quarterly dates only) and on the basis of such valuation. In connection with such withdrawal the Plan provided as follows: “ * * * Such payment shall be made in the discretion of the Trustee in cash, or rat-ably in kind, or partly in cash and partly ratably in kind, provided that all such payments or transfers as of any one date shall be made on the same basis. * * * ” However, with regard to this provision, Charles N. Welsch, Jr., a trust officer of Mercantile, testified that with over a million units outstanding in the Common Trust Fund “ * * * it would be practically impossible to make a distribution in kind, to any withdrawing party.”

As pointed out heretofore, Clara Rosen-thal died March 31, 1962. On April 23, 1962 James Nemec, a Florida attorney, wrote Mercantile advising it that he represented plaintiff and that Clara Rosenthal had died. He said he was preparing to probate the Will of Clara Rosenthal in Florida and inquired about the terms of the Will of Mary E. Holzhausen “and in what form are the assets of the trust.” He then said: “ * * * It is possible that Mrs. Leith may elect to retain her interests in the Trust in St. Louis and have the same transferred to her name.” Plaintiff testified she received a copy of this letter from her attorney.

On April 26, 1962, Welsch wrote to Nemec acknowledging receipt of the aforesaid letter. In his letter, Welsch described the terms of the Holzhausen Will and said:

"At the date of the last review about a year ago the account had a value of $94,918.00, the trust consisting of 4,133 units of beneficial interest in our Common Trust Fund. These units will be withdrawn at the next valuation date of the Fund on May 31st. The value of the account is probably somewhat higher than the above figure at the present time since the value of the Common Trust Fund units has risen from a value of $22.95 per unit in May of last year to a valuation of $24.15 in February of 1962. * * * ” (Emphasis ours)

Welsch then told Nemec that a Missouri Inheritance Tax Waiver, a certified copy of Mrs. Rosenthal’s will, and the order admitting it to Probate, together with a certified copy of her death certificate would be needed before “ * * * delivery of the assets to the appointee or to Mrs. Rosenthal’s descendants in default of appointment.” Welsch said that if Mrs. Ro-senthal did not exercise her general power of appointment an affidavit from some person identifying the descendants of Mrs. Rosenthal would be required. In this letter Welsch said he was “somewhat disturbed by Section 732.33” of the Florida Probate Laws which he said seemed to indicate that under certain circumstances a later will could be enforced at any time before three years from the date of discharge of the Executrix. He asked Mr. Nemec for his comments on the effect of this section of the Florida laws. It will be noted that Welsch said nothing in his letter to Nemec about the right of plaintiff to elect to retain her interests in the Trust and have the same transferred to her name. Plaintiff testified that her attorney sent her a copy of this letter from Welsch and said she noted the sentence that stated the units will be withdrawn at the next valuation date of the Fund, May 31st. On May 31, 1962, Welsch wrote Nemec inquiring about the status of the administration of the Estate, pointing out that “* * * the distribution of our Trust depends on the contents of Mrs. Rosenthal’s Will or proof that she left no Will. * * * ”

The Mercantile, immediately after being notified of the death of Clara Rosenthal in Nemec’s letter of April 23, 1962, took steps to terminate the Trust and Welsch, in his capacity as Trust Officer, requested the Investment Department to withdraw the Holzhausen Common Trust Fund units from the Common Trust Fund on the valuation date next following, namely, May 31, 1962. The units were withdrawn on May 31, 1962 and the proceeds therefrom were invested in short term treasury bills. At the time the units of the Common Trust Fund were withdrawn Mercantile had not received a copy of the Will of Clara Rosenthal. When the units were withdrawn no determination had been made by the Trustee when the distribution could be made or to whom it could be made. On June 1, 1962, Nemec forwarded to the Mercantile a copy of the Will of Clara Rosenthal. In his letter Nemec stated that “the probate of this estate will be slow.” On September 24, 1962 Nemec wrote the Mercantile that plaintiff “has now qualified as Executrix” and enclosed certified copies of Letters Testamentary. In this letter Nemec asked Mercantile “to transfer the Trust to Mrs. Leith.” Thereafter, Welsch wrote to Nemec telling him “As I mentioned in my April 26 letter, we will not distribute our trust until the time has elapsed for the contesting of Mrs. Rosen-thal’s Will or the appearance of another Will has been foreclosed.” He advised Nemec that the assets of the Trust are now invested in U. S. Treasury Bills and will be kept so invested until the time for distribution. He again asked Nemec for his comments on the Florida Probate Law as previously requested. On October 18, 1962 Welsch again advised Nemec that “All units were surrendered 6/30/62 * * *. Proceeds invested in Treasury Bills.”

At the time of the withdrawal of the units from the Common Trust Fund Welsch had not seen a copy of the Will of Clara Rosenthal and, therefore, did not know if she had exercised her power of appointment. While he had heard of Mrs. Leith (plaintiff) in connection with the Mercantile’s administration of the Holzhausen Trust, he did not know her relationship to Clara Rosenthal; he did not know whether Clara Rosenthal had any descendants and, if so, who they were; he did not know who the heirs at law were, if any, of Mary E. Holzhausen.

It was stipulated by the parties that it was the duty of the Trustee (Mercantile) to determine the identity of the proper and lawful distributees of the Fund entrusted to it. It was the practice of Mercantile, as Trustee, to withhold distribution of the Trust Estate where it was distributable to an appointee under a testamentary power of appointment until such time as the Will purporting to exercise the power of appointment may no longer be contested. Welsch testified that this was done in order to be sure the Will under which the Trustee would.make the distribution was the last Will and Testament of the person on whom the power of appointment had been conferred. He further testified that if there were Federal or State taxes involved the Trustee would determine what taxes it might be called upon to pay and reserve a sufficient amount to pay these taxes and distribute the balance of the assets when it determined that the time for filing a Will contest had elapsed.

Welsch further testified that he checked the Florida Statutes to determine how long the Trustee would have to wait before distribution and that in the course of his check he found one of the Statutes ambiguous, “ * * * at least it didn’t definitely state what that time would be, * Because of this ambiguity he asked Nemec for his comments as previously pointed out. At the time he read the Florida Statutes he had no idea how long it would take to distribute the property. His reading of the Statutes seemed to indicate that under certain circumstances a later Will could be enforced at any time before three years from the date of discharge of the Executrix. It was his opinion at the time of his research that it could go as long as three years. He said that it was finally determined by counsel of Mercantile that it was necessary to wait for distribution of the Trust property until the Executrix in Florida was discharged. However, when the units were withdrawn on May 31, 1962 from the Common Trust Fund no determination had been made then when distribution could be made. On December 12, 1962 Welsch, in a letter to Nemec, advised Nemec that the Trustee would not be in a position to distribute the assets of the Trust until the discharge of the Executrix. He asked Nemec for any comments he may have on the position taken by the attorneys for Mercantile with reference to the time of distribution.

On April IS, 1963 Nemec wrote to Welsch complaining about a number of things, among which was a complaint about the date of withdrawal of the units from the Common Trust Fund. In this regard Nemec said:

“Now with regard to the value of the Trust, this value will be placed as of date of death, to wit, March 31, 1962, and not as of any other date.
“The value of the Trust Certificates is as of March 31, 1962, and appear to be $24.1509.
“At the time the bank selected to sell the units it appeared that a loss was incurred. This loss would be no fault of the Executrix, in that she did not authorize the sale of these units at the time they were sold. The time of sale apparently was at the selection of the bank.
“The bank apparently sold the Certificates in the Trust Fund and then reinvested in Treasury Bills. There would be no reason for doing this in view of the fact that the evaluation of the Estate was optional by the Executrix either as of date of death or one year later, for tax purposes.
“The mechanics of the bank sale of the units at the end of each so-called quarter is of no moment to the Estate as the value would be fixed at the date of death, which would be as above quoted.”

Counsel for Mercantile, in response to the aforesaid letter, advised Nemec on May 2, 1963 that the units in the Trust Fund were not transferable and could only be redeemed at quarterly payment dates. Counsel then told Nemec:

“Since the death of Mrs. Rosenthal was the event terminating the trust, the trust company believed that the trust estate should be withdrawn from the trust fund so as to be in liquid form and transferable when the assets became distributable. Therefore, the units in the Common Trust Fund were redeemed on the next redemption date which was May 31, 1962. As you will remember, there was a large drop in the market on May 30, 1962, which resulted in the value of the units in the Common Trust Fund at the time they were redeemed being $2.14 per unit lower than the value immediately preceding Mrs. Rosenthal’s death.”

Welsch, in his testimony said that it was the feeling of the Trustee that the Trust having terminated, the Trust Funds could no longer be held in the Common Trust Fund account and for this reason the units were withdrawn at the first opportunity which was May 31, 1962. When asked if he regarded the Trust Company no longer Trustee after the termination of the Trust, he said that the Trust Company was still Trustee to wind up the Trust, “ * * * to take the necessary steps to wind it up. We still have powers, if necessary, to wind up the trust; however, we feel that we should begin to wind it up and take the necessary steps as soon as possible.” At this juncture we point out that the Will of Mary E. Holzhausen gave the Trustee the power “ * * * at its discretion from time to time and without order of court, to sell and transfer any securities held by said trustee.”

On May 31, 1962, the market value of each unit of the Common Trust Fund was $22.0166. It was stipulated that according to the Commercial & Financial Chronicle the Dow Jones averages for 65 stocks on March 29, 1962 was $242.76 and thereafter dropped to a low on May 28, 1962 of $198.01 and on May 31, 1962 was $211.30. Welsch in his testimony acknowledged that this was a publication that would be relied oti in the security business for the purpose of market index on the Dow Jones average.

Mr. Welsch in his testimony gave the per unit value of the beneficial interests in the Common Trust Fund on the following dates: February 28, 1962-$24.1509; May 31, 1962-$22.0166; August 31, 1962-$21.-5881; November 30, 1962-$22.5086; February 28, 1963-$22.9949; May 31,1963-$24.-0381; August 31, 1963-$24.5667. Welsch testified that between April 26, 1962, the date he wrote to Nemec advising him that the unit valuation in February of 1962 was $24.15, and May 31, 1962, when the units were withdrawn from the Common Trust Fund, he had not checked the fluctuation in value of the Common Trust Fund units and said no check into the value of the units was made until the valuation date, May 31, 1962. He stated that the value was not checked in his department.

At no time prior to May 31, 1962, the date of the withdrawal of the units, did Mercantile send to plaintiff or to her attorney a copy of said Plan of the Common Trust Fund; or, was such a copy requested by the plaintiff or her attorney. Mr. Welsch testified that the Mercantile very rarely sends a copy of the Plan to anyone. Plaintiff testified she had no knowledge of the Plan of the Common Trust Fund and had never been informed about it. Welsch testified that neither plaintiff nor her attorney were advised prior to the letter of May 2, 1963 from counsel for Mercantile to Nemec that the Common Trust Fund units were not transferable. He also testified that he did not advise plaintiff or Nemec of the provision of the Plan providing for ratable distribution in kind and of the impracticability of the withdrawal in kind.

On August 8, 1963, Nemec notified Mercantile that the Executrix had been discharged and that her discharge took place July 23, 1963. On August 27, 1963 Mercantile tendered a check in the amount of $90,271.84 in full payment to plaintiff on the termination of the Trust. This check was apparently refused by the plaintiff and on November 29, 1963 a partial distribution was made, reserving to plaintiff the right to bring this action. The distribution accounted for 4,133 units of the Common Trust Fund at $22.0166 per unit or a total sum of $90,994.61 for all of said units.

On May 31, 1962 the Common Trust Fund held assets of over $33,000,000 divided into 1,537,866 units, which were held by 965 participating trust estates in which Mercantile was either sole trustee or a co-trustee. The assets of the Fund consisted of preferred and common stock of many corporations, corporate and governmental bonds and cash. Such a Fund offers a wide diversification in investments, which is denied small individual trust estates and offers greater efficiency and economy in operation. An additional advantage is exemption from the imposition of federal income tax (26 U.S.C.A. § 584) which can be obtained only by compliance with Regulations of the Federal Reserve System, which provided in part that no bank administering a Common Trust Fund shall issue any document evidencing a direct or indirect interest in such Common Trust Fund in any form which purports to be negotiable or assignable. The Regulations further provided that the assets in a Common Trust Fund shall be considered as assets held by the bank as fiduciary.

Plaintiff in her first point relied on contends that she, as sole distributee or appointee of the trust estate, had the right upon termination of the life estate, to demand and receive distribution in kind and that this right of virtual ownership included the right to control the time of liquidation of the trust estate. In this connection she further contends that she had this right notwithstanding any express or implied power or direction conferred upon the Trustee to sell during the period of winding up after the end of the trust. We cannot understand plaintiff’s contention that she had the right to demand and receive distribution in kind, when in her brief, she says, “ * * * we are inclined to agree that it was impracticable to use the provision of the Plan which permitted ratable division and distribution of underlying securities in kind. * * * ” We agree with this inclination and observation of plaintiff that it was impracticable to make distribution in kind. While it is true that the Plan of the Common Trust Fund permitted the Trustee to withdraw the units in exchange for underlying securities held in the Fund, it seems obvious to any reasonable person that such a withdrawal would have been impracticable in view of the numerous underlying assets held in the Fund and the large number of participating individual trust estates. Further, whether the withdrawal of the units should be paid in cash or ratably in kind or partly in cash and partly ratably in kind was left to the discretion of the Trustee and we find no evidence of abuse of its discretion in this regard. In fact plaintiff tacitly agrees that there could be no abuse of discretion when she virtually admits that it was impracticable to make the distribution of underlying securities in kind.

If plaintiff, in her contention that she has the right to receive distribution in kind, means the units in the Common Trust Fund held by the Mercantile, the answer to this is obvious. Under the law only a bank acting as fiduciary or co-fiduciary is eligible to invest the trust funds in a Common Trust Fund maintained by the bank. Obviously, as we pointed out, if no one other than the bank can hold these units under the law they cannot be assigned or transferred to the plaintiff. Further, such a transfer or assignment is prohibited by Regulation F, promulgated by the Board of Governors of the Federal Reserve System.

As said in 90 C.J.S. Trusts § 329, p. 555, “ * * * A Trustee investing in such a trust (Common Trust Fund) is not purchasing a fractional share of the trust fund’s investment, hut is investing in the fund as an entity.” We point out that the right of Mercantile as Trustee to invest the principal of the instant trust estate in the Common Trust Fund is not challenged by plaintiff. In Scott on Trusts, Vol. III, § 347, pp. 2530 and 2531 it is said: “ * * * Where the time for the termination of the trust has arrived and it becomes the duty of the trustee to transfer the trust estate to the person or persons entitled thereto, the question arises whether it is his duty to transfer the property in kind or to sell it and pay over the proceeds. The answer to this question may depend upon a number of factors. Among these factors are * * whether a division in kind is practicable; j|c ‡ ⅜ Jt

Plaintiff in her other contention raised in her first point claims she had the right of virtual ownership of the trust’s assets upon the termination of the Trust Estate, which she says took place immediately after the death of Clara Rosenthal and, therefore, she had the right to control the time when liquidation should take place. We assume that plaintiff means that she had the right to control the time when the units would be withdrawn from the Common Trust Fund by virtue of her alleged right of ownership of the units. The obvious answer to this is, she could not under the law own units in the Common Trust Fund. Our statute, Section 363.225 RSMo 1~39, V.A.M.S. only permits a bank or trust company acting as a fiduciary or co-fiduciary to invest in the fund, therefore, inferentially, the statute prohibits anyone else from holding investments or units representing investments in the fund. Further, Regulation F of the Board of Governors of the Federal Reserve System prohibited assignment of the units. There are other reasons why plaintiff cannot claim virtual ownership of the Trust’s assets, especially as of the date of withdrawal of the units from the Common Trust Fund, namely, May 31, 1962. On that date Mercantile could not be charged with certain knowledge of the identity of the ultimate taker or takers of the Trust Fund. The only certain knowledge it had was that Clara Rosenthal had died and that Nemec was preparing to probate her Will. Nemec, in his letter of April 23, 1962, said nothing about the terms of the Will of Clara Rosenthal; whether she had exercised her power of appointment given under the Holzhausen Will was not said. As a matter of fact Nemec’s letter did not indicate he knew Clara Rosenthal had a power of appointment, for he inquired about the terms of the Holzhausen Will and the form of the assets of the Trust Estate. It is true that he said he represented plaintiff but he did not say in what capacity. He could have represented her in her capacity as Executrix under the Will of Clara Rosenthal; or as named remain-derman of the Trust Estate under the Will of Mary E. Holzhausen; or as one of many appointees under the Will of Clara Rosenthal; or as a taker or one of many takers under the Will of Mary E. Holzhausen, if Clara Rosenthal failed to exercise her power of appointment. It must be remembered Nemec did not know the terms of the Holzhausen Will. If he knew — why ask Mercantile?

In view of the above mentioned uncertainties and possibilities and others referred to hereafter, plaintiff cannot claim virtual ownership over the Trust assets on or prior to the date of the withdrawal of the units from the Common Trust Fund on May 31, 1962. She had no right of control as of or prior to that date. If we would assume, that Mercantile had been fully informed prior to May 31, 1962 of the terms of Clara Rosenthal’s Will, and, therefore, that plaintiff was named as the sole appointee of the Trust Estate, nevertheless, plaintiff could not claim virtual ownership at that early date for many reasons. (1) Clara Rosenthal’s Will had not been probated and was not probated until September 24, 1962; (2) a later Will might have been found appointing someone other than plaintiff; (3) Clara Rosenthal’s Will or its probate may have been attacked for a number of reasons (a) improper execution, (b) lack of testamentary capacity to make a Will, (c) lack of jurisdiction in the Florida Court, (Clara Rosenthal resided and died in France), (d) may have been procured through fraud or undue influence ; (4) the power of appointment may have been improperly executed.

Of course, all of the aforesaid possible exigencies did not occur but this result could not have been previsioned by Mercantile on May 31, 1962. We agree with Mercantile in a statement in its brief that had any of these possibilities occurred and had Mercantile followed plaintiff’s instruction respecting the withdrawal or non-withdrawal of the Common Trust Fund units and had a loss resulted, Mercantile might have been liable to the ultimate taker in default or appointee other than plaintiff. It was the duty of Mercantile as Trustee to ascertain with certainty the identity and extent of pecuniary interest of the taker or takers of the Trust Fund, whether under a valid exercise of the power of appointment or as a result of default in the exercise thereof. As in this case, this may not be established with sufficient certainty for some time subsequent to the termination of the trust. State ex rel. St. Louis Union Trust Co. v. Sartorius, 350 Mo. 46, 164 S.W.2d 356, Breen v. Breen, 411 Ill. 206, 103 N.E.2d 625, Restatement of the Law, Trusts 2d, § 344, Comment a and § 345, Comment j. Plaintiff’s right to the trust property had to await a determination of the proper exercise by Clara Rosenthal of the power of appointment. It could be exercised only in a valid Will. Pitman v. Pitman, 314 Mass. 465, 50 N.E.2d 69, 150 A.L.R. 509; 41 Am.Jur., Powers, §§ 35, 36, 37 and 39. The burden of proving a valid exercise of a power of appointment rests on plaintiff. 72 C.J.S. Powers § 43a, p. 455. This could not be determined until the Will of Clara Rosenthal had run the gauntlet of time permitting contest of the Will. This was conceded in plaintiff’s brief when she said: “The principal delay occurred in probating and establishing the Will of Clara Rosen-thal in Florida to the point beyond the possibility of contest. Such validation of the Rosenthal Will was properly required by the Trustee at the outset, for its protection, if and when it distributed the estate to the plaintiff as appointee named in the Rosenthal Will. * * * ” Plaintiff was not the virtual owner of the trust assets with the right to control the time of liquidation. This was true on May 31,1962.

Mercantile continued as Trustee after the death of Clara Rosenthal. Although the time for the termination of the trust estate had arrived Mercantile continued to be Trustee until it distributed the trust property. During the period of winding up the trust it was under a duty to take such steps as were necessary toward distribution and to exercise reasonable care and skill in the preservation of the trust property until it had made distribution. It had such powers and duties as were appropriate for the winding up of the trust. Breen v. Breen, supra, Restatement of the Law, Trusts 2d, § 344, Comments a, b, c, and h, Scott on Trusts, Vol. Ill, § 344.

Next, plaintiff seems to contend that Mercantile should not have withdrawn the units after it was notified in Nemec’s letter of April 23, 1962, that it was “possible” that plaintiff may retain “her interests in the Trust” and have the same transferred to her name. What we have said shows that the units could not be transferred to her, nor was it practicable to transfer the underlying assets. This contention is based on plaintiff’s claimed right of virtual ownership and, therefore, the right to decide when the trust’s assets should be liquidated. We have shown that plaintiff had no such claim as of April 23, 1962 and, therefore, had no legal right to demand distribution in kind or control the date of withdrawal of the units. Furthermore, if we assume plaintiff had the right to elect to take in kind she did not manifest her intention to so elect in a sufficient manner when she merely said “it is possible” that she may so elect. Kaufmann v. Kaufmann, 226 Mo. App. 172, 43 S.W.2d 879, 1. c. 881. There is still another reason why this contention has no validity. On April 26, 1962, Mr. Welsch, trust officer for Mercantile notified plaintiff, through her attorney, that the units would be withdrawn at the next valuation date of the Fund on May 31, 1962. Plaintiff testified that her attorney sent her a copy of the letter from Welsch and that she noted the sentence that stated the units would be withdrawn on May 31, 1962. No protest was made concerning the proposed action to withdraw these units on May 31, 1962 in Nemec’s letter to Welsch of June 1, 1962. Nemec merely asked the Mercantile to transfer “the trust to Mrs. Leith.” The first apparent complaint made by Nemec about the withdrawal date of the units came almost one year later, in his letter of April 15, 1963 to Welsch, wherein he complained about the date of the withdrawal of the units from the Common Trust Fund. We find no validity in this contention of plaintiff.

In the same area plaintiff contends that the statement contained in Welsch’s letter of April 26, 1962 that the units “will be withdrawn at the next valuation date of the Fund on May 31” was not an understandable notice that the entire trust estate was to be reduced to cash and the investment in effect sold. She contends the term “withdrawn” was a technical term not in general use as to indicating sale of securities and says the language used in its ordinary meaning does not convey notice of the intended liquidation and that she did not understand it to mean the immediate cashing in of the entire trust estate held for distribution. She says there is evidence in the record that the statement was not understood by her attorney, Mr. Nemec. We fail to find such evidence in the record. We do find that plaintiff attempted to testify about her experience with Common Trust Funds and knowledge of ordinary Mutual Funds. The court excluded her offer of testimony about her lack of understanding of the technical wording in defendant’s disclosure about the trust property and because of this exclusion she claims the trial court erred. We do not think so. All correspondence was carried on between plaintiff’s attorney and Mr. Welsch. We agree with Mercantile’s statement in its brief that attorneys ought to be presumed to be of ordinary competence. The uniform Common Trust Fund Act was in force in twenty-eight states as early as 1957 including Florida (Section 660.11-14, Florida Statutes Annotated which became effective on May 19, 1941). We see no need to devote much attention to this complaint of plaintiff because we find no evidence that Nemec misunderstood Mercantile’s statement as to its intentions to withdraw the units. Further, as an attorney he is presumed to understand. The knowledge of plaintiff’s attorney is knowledge of or is imputed to, plaintiff. Lisanby v. Illinois Cent. R. Co., 209 Ky. 325, 272 S.W. 753; 7 C.J.S. Attorney and Client § 69, p. 853. Mercantile’s dealings were with plaintiff’s attorney and Mercantile had the right to rely on plaintiff’s attorney explaining to her the meaning of the statement contained in the letter of Mr. Welsch. We think there was sufficient disclosure of what Mercantile intended to do in connection with the units it held as Trustee in the Common Trust Fund.

Plaintiff asserts many other complaints. However, a sufficient answer to these complaints will be found in our discussion of her contention that Mercantile failed to exercise any discretion whatever in the selection of the time for the withdrawal of the units when it followed an “ * * * arbitrary policy of liquidation at the first opportunity following the end of the trust period.” She contends that when Mercantile concluded that it could not assign the units to her that its “ * * * remedy was always to liquidate at once at the earliest opportunity, regardless of the time which was certain to elapse for deliberation, investigation and consultation.” She contends that the time available would be possibly three years, and eventually turned out to be a year and a half and during this time the liquidation could have been made at any quarterly period. Again, she says it was her choice, to be exercised as the virtual owner of the trust assets and not the choice of the Trustee. She says that Mercantile exercised no discretion but followed a fixed policy of immediate liquidation without deliberation and points out that a Trustee must exercise discretion. In further support she says that Mercantile was a professional trustee handling investments of many millions of dollars and had available the Commercial and Financial Chronicle containing indexes of the market developments during the relevant period and, therefore, knew the market for Common Stocks was subject to fluctuation. She concludes with the charge that there was no consideration of the importance of the time chosen for liquidation of the trust estate and that, therefore, Mercantile failed to exercise discretion.

What we have said heretofore disposes of plaintiff’s contention that she was the virtual owner and, therefore, had the right to choose the time for withdrawal of the units. It is true that a Trustee is under a duty to exercise a reasonable discretion. In considering whether a Trustee reasonably exercised its discretion, we must look to the facts and circumstances surrounding the Trustee at the time it acted, without the aid of the retrospective view we now have. We need not repeat the uncertainties we have shown that were facing Mercantile, as to the ultimate taker of the trust fund and when it would be necessary to make distribution, when Mercantile was notified of the death of Clara Rosenthal. It was also faced with the knowledge that it could not transfer and convey the units to the ultimate taker and that it was impracticable to make a distribution in kind of the underlying securities in the Common Trust Fund.

In Scott on Trusts, 2nd Ed., Vol. III, § 344, pp. 2517 and 2518, it is said, in part, as follows:

“When the time for termination of the trust has arrived, the duties and powers of the trustee do not immediately cease, but until the trust is actually wound up, he has such duties and powers as are appropriate for the winding up of the trust. The trust ordinarily does not automatically terminate merely because the time for distribution has arrived; it is terminated only when the trustee has finally accounted and conveyed the trust property to the persons entitled to it on the termination of the trust.
“Even though the time for the termination of the trust has not arrived, the fact that it is approaching has a bearing on the duties and powers of the trustee. * * * As has been stated, the trustee in making investments should not ordinarily invest in property which cannot readily be reduced to cash at the time of the termination of the trust. * * * In other words, in the exercise of the duties and powers prior to the time for the termination of the trust, he must take into consideration the nearness of the approach of the time for termination.”

When the time for the termination of the trust has arrived the Trustee ordinarily loses the power of further investment. It becomes the duty of the Trustee in the winding up process to convert the assets of the trust fund in such a manner as to make them readily available for distribution and in this connection it is reasonable for the Trustee to make short-term investments in order to keep the trust property productive. This, the instant Trustee did when' it invested the proceeds from the withdrawal of the units from the Common Trust Fund in short-term Treasury Bills.

We do not agree with plaintiff’s contention that Mercantile followed an arbitrary policy of liquidation at the first opportunity following the end of the trust period. Plaintiff points out that the available time was possibly three years and eventually turned out to be a year and a half during which time she contends the Trustee could have made the liquidation at any quarterly period. It must be remembered, as we have pointed out, that at the time the Trustee withdrew the units from the Common Trust Fund it had not received a copy of the Will of Clara Rosenthal; therefore, did not know the ultimate distributee and of more importance Mercantile had not made and could not make a determination at that time when the distribution should be made. Whether it had to make distribution within a short period of time or over the one and a half year period that was ultimately the time was not known at the time it withdrew the units from the Fund. We do not agree that Mercantile exercised no discretion. For it to have delayed the withdrawal of the units to some date in the future on which the market value of the underlying securities would have been at a higher level than it was on the date of withdrawal would have been speculative and had the market value of the underlying securities continued to decline, as it did for some period (until August 31, 1962) subsequent to the withdrawal date, and had it not recovered in value Mercantile may have' been liable to the distributee for unwarranted delay in preparing the trust estate for distribution. See Restatement of the Law, Trusts 2d, § 345, Comment f. The Trustee is not required to forecast unexpected rises or falls in the stock market but is only required to act with prudence. Bogert, Trusts and Trustees, 2d Ed., § 745, p. 608. The Trustee is not required to be infallible in its judgment or to be able to prophesy the future and the reasonableness of its judgment can not be measured in the light of events subsequent to the exercise of its judgment. Boland v. Mercantile-Commerce Bank and Trust Co., 349 Mo. 731, 163 S.W.2d 597, 601. No evidence has been adduced which would indicate that the Trustee did not act with prudence in selecting the time of withdrawal of the units from the Common Trust Fund. In addition and of primary importance, plaintiff is precluded from now complaining about an alleged premature withdrawal of the units because of her failure to protest or oppose said withdrawal when she was notified in Mercantile’s letter of April 26, 1962 of its contemplated action, which notice was given approximately thirty-five days before the withdrawal. Plaintiff had time to make known her dissent. Her silence amounted to acquiescence. Her first complaint was not made until April 15, 1963. Her complaint now is based on what has happened since May 31, 1962 and not on. what could then have been foreseen.

We have carefully examined the record in this case and plaintiff’s contentions lodged in her brief, together with the authorities cited in support of the contentions and we are of the opinion, in view of the facts and circumstances related heretofore, that the judgment exercised by Mercantile was reasonable and not imprudent. The findings, judgment and decree of the trial court are affirmed.

ANDERSON, P. J., and THEODORE McMILLIAN, Special Judge, concur.


source: Caselaw Access Project

author: SAM D. JOHNSON, Justice.

license: Public Domain

text:
    UNITED STATES FIRE INSURANCE COMPANY, Appellant, v. Leonard H. FLETCHER, Appellee.
    No. 36.
    Court of Civil Appeals of Texas. Houston (14th Dist.).
    Dec. 13, 1967.
    Rehearing Denied Jan. 17, 1968.
    Robert E. Delany, Max H. Jennings, Clawson, Jennings & Clawson, Houston, for appellant.
    James B. Sales, Wayne Fisher, Fisher, Roch, Sales & Blackstock, Houston, for appellee.
   SAM D. JOHNSON, Justice.

This action was brought by plaintiff, Leonard H. Fletcher, against the United States Fire Insurance Company as the workmen’s compensation carrier for the Gordon Construction Company. In the alternative, plaintiff brought this action against his employer, D. B. Gordon Construction Company, alleging specific acts of negligence. On the trial of the case to a jury, a judgment was entered based on the findings of the jury that the plaintiff, Fletcher, was totally and permanently disabled and should recover against the United States Fire Insurance Company under the Workmen’s Compensation Act, and that there was no negligence on the part of the plaintiff’s employer, Gordon Construction Company.

This appeal, by the insurance company only, has as its basis the ruling of the trial court that, as a matter of law, an attempted cancellation of the workmen’s compensation insurance policy by the appellant insurance company a few days before appel-lee’s accidental injury, was ineffectual. If the policy of workmen’s compensation insurance had been effectively canceled before the date of the accidental injury, there can be no recovery from this appellant insurance company.

Plaintiff’s employer, D. B. Gordon, sought and obtained workmen’s compensation insurance coverage from the United States Fire Insurance Company by virtue of a policy covering the period from February 1, 1963 to February 1, 1964. The policy reflected D. B. Gordon’s address as 4402 Mt. Hood, Houston, Harris County, Texas. His correct address, however, was 4402 Mt. Wood.

Subsequently, the insurance company determined that certain requested payroll reports from Mr. Gordon were overdue and for this reason a decision was made to cancel the policy. The cancellation provision of the policy provided, “This policy may be canceled by the company by mailing to the insured at the address shown in this policy written notice stating when not less than ten days thereafter such cancellation shall be effective. The mailing of notice as aforesaid shall be sufficient proof of notice.”

The insurance company’s first notice of cancellation was prepared and mailed to Mr. Gordon on October 25, 1963. It was improperly addressed to 4402 Mt. Road, and as a result, was returned to the sender. On its return, a second notice of cancellation was prepared and mailed to Mr. Gordon on October 30, 1963. It was addressed to 4402 Mt. Hood, the address, though incorrect, that was shown on the policy. This second notice recited that the effective date of cancellation was to be November 8, 1963. This notice was also returned to the insurance company marked, “No such street number within delivery limits of Houston, Texas. Do not reuse this envelope. Clerk No. 2.” It is conceded that the employer, D. B. Gordon, never actually received any notice of cancellation.

The second notice is the only notice under which the insurance company claims cancellation of the policy. As it was prepared and mailed on October 30 and stated that the cancellation was to be effective on November 8, it provided for only nine days notice from the certificate of mailing, rather than the ten days provided for in the policy.

Subsequently, on November 21, 1963, the employee-plaintiff, Leonard H. Fletcher, received the accidental injury here complained of while working for his employer, D. B. Gordon. The employee, Fletcher, of course, had no knowledge of any of the foregoing facts relating to his employer’s insurance coverage, the attempted cancellation, or any matters of this nature.

A secondary relationship also existed between the employer, D. B. Gordon, and the United States Fire Insurance Company. At or about the same time the workmen’s compensation insurance policy was issued, Mr. Gordon also obtained a policy of automobile liability insurance from the same company, appellant here, the United States Fire Insurance Company. This policy also incorrectly reflected Mr. Gordon’s address as 4402 Mt. Hood. On November 4, 1963, about the same time of the attempted cancellation of the workmen’s compensation insurance policy, notification of the cancellation of the liability policy was mailed to Gordon at his correct address, 4402 Mt. Wood.

Appellant insurance company contends that the cancellation clause contained in the policy of workmen’s compensation insurance sets forth the sole requirements for cancellation, therefore the mailing of the notice of cancellation to the address shown in the policy is all that is required. Support for this contention is claimed because the policy containing the incorrect mailing address had been in the possession of D. B. Gordon substantially all of the period of time since its issuance and that it was his duty to examine the insurance policy and, if there was an error, to make it known to the insurance company. The insurance company further contends that, though the cancellation provided for only nine days’ notice, or within less time than that provided in the policy, it was nevertheless sufficient to cancel the policy at the end of the time limit set out in the policy. Frontier-Pontiac, Inc. v. Dubuque Fire & Marine Ins. Co., Tex.Civ.App., 166 S.W.2d 746, (no writ history); California-Western States Life Ins. Co. v. Williams, Tex.Civ.App., 120 S.W.2d 844 (writ dismd.); 32 Tex.Jur.2d 177, 178, Sec. 92; 96 A.L.R.2d, pp. 295-298. If this contention is accepted, the cancellation here would have become effective approximately eleven days prior to the date of plaintiff’s accidental injury, which was on November 21, 1963.

We are in accord with the insurance company’s contention that the policy of insurance contains and describes the method of cancellation and that it was here followed. The second notice of cancellation was mailed to the name and address of the insured precisely as they were set forth in the policy. Where notice of cancellation has been so mailed, cancellation is effective even though the policy holder never receives notice of such cancellation. Insurance Co. of Texas v. Parmelee, Tex. Civ.App., 274 S.W.2d 944 (no writ history) ; United States Insurance Co. v. Brown, Tex.Civ.App., 285 S.W.2d 843 (no writ history); California-Western States Life Ins. Co. v. Williams, Tex.Civ.App., 120 S.W.2d 844 (writ dismd.); Texas Cas. Ins. Co. v. McDonald, Tex.Civ.App., 269 S.W.2d 456 (no writ history); Willis v. Allstate Ins. Co., Tex.Civ.App., 392 S.W.2d 799 (writ ref., n.r.e.); Duff v. Secured Fire & Marine Ins. Co., Tex.Civ.App., 227 S.W.2d 257 (no writ history). It is clear from the foregoing authorities that “mailing” is not synonymous with “receipt” or “delivery.” We feel that no reliance can be made on the fact that the company might have determined a correct address of the insured even in its own records or communications if they are not a part of or attributable to the particular policy in question. The insurance company is entitled to rely on the specific provisions of the cancellation section of the policy.

Applying the same reasoning, we believe that the facts in this case require the conclusion that the attempted cancellation was ineffectual, because the minimum ten-day policy required notice was not contained in the attempted cancellation communication and that for this reason the notice of cancellation did not comply with the policy requirements.

We are aware of the rule of general application that a notice of cancellation effective immediately, or within less time than that provided in the policy, is nevertheless sufficient to cancel a policy of insurance at the end of the time limit set out in the policy. Frontier-Pontiac, Inc. v. Dubuque Fire & Marine Ins. Co., supra; California-Western States Life Ins. Co. v. Williams, supra; 32 Tex.Jur.2d, pp. 177-178, Sec. 92. We are not aware, however, of the application of this rule by Texas courts in cases involving policies of workmen’s compensation insurance. Indeed, “Where workmen’s compensation coverage is involved * * * some courts have applied a different rule.”

In Hauter v. Coeur D’Alene Antimony Mining Co., 39 Idaho 621, 228 P. 259, the plaintiff’s husband was fatally injured in an accident which occurred on November 17, 1918, while working for the mining company. Prior to that time, on August 8, 1918, the insurer sent notice of cancellation to plaintiff’s employer declaring that the policy of workmen’s compensation insurance that had been previously issued was canceled effective August 30, 1918, for non-payment of premiums. There, the policy in question prescribed that cancellation could be effected by the insurer furnishing the insured not less than thirty days written notice of cancellation. The insurer urged that the cancellation was effective thirty days after service of the notice, although the notice was not sufficient to cancel on the date specified, which amounted to only twelve days’ notice. Concluding that the notice was insufficient and that the policy was in force and in effect three months after the attempted cancellation, the Idaho Supreme Court stated: “We think that the attempt to cancel the policy, not having been made in accordance with the conditions and requirements specified in the instrument itself, was ineffectual, and such policy was in force at the time of the happening of the injury complained of. * * * Respondent concedes that the notice was not sufficient to cancel the policy on the date fixed in the notice, but contends that such cancellation would become effective after the expiration of 30 days from the service of the notice, and cites authorities involving fire insurance policies containing somewhat similar provisions, wherein it is held that although the time given in the notice was not that specified in the policy, still the notice would be held sufficient after the expiration of the time fixed by that instrument. No case is called to our attention involving the cancellation of a policy of this kind given under the provisions of the Workmen’s Compensation Act. In view of the fact that such contracts are issued not only for the benefit of the assured, but for the benefit of its employees, who necessarily have no control over the contract, we are of the opinion that such contract should be canceled only by a strict compliance with the conditions of the contract itself.” (Citing cases.)

On motion for rehearing, the court added: “Respondents insist that a more strict compliance with the terms of the agreement relating to cancellation should not be exacted than in other classes of insurance; that even though the policy may be taken out primarily for the benefit of the insured’s employees and they may have a vital interest in it; they cannot prevent its cancellation where the insurer elects to cancel the same. But we adhere to the view that the employees of the insured who have suffered injuries, or their dependents when death has ensued, may recover against the insurer unless the policy has been canceled in accordance with the conditions in the policy. The insurer fixes those terms, and it is a well-settled rule of construction that the words of a contract will be construed most strongly against the party who uses them.” See also Kulikowich v. P & J Coal Co. (1946) 58 Pa.Dist. & Co. 433.

In addition to the well reasoned authority cited here, we believe there are other sound reasons for a requirement of strict compliance. The policy itself provides that it “may be canceled by the company by mailing to the insured * * * written notice stating when, not less than ten days thereafter such cancellation shall be effective.” This provision clearly provides that the notice shall state when it is to be effective, but with the express limitation that such date shall be not less than ten days thereafter. By the terms of the policy itself, the insurance company is free to select any date at or beyond the tenth day. These same policy terms, however, expressly exclude the selection of a date within the prohibited period. Strict compliance with the mailing provision of the cancellation’s section of the policy inures to the company’s benefit. If additional benefits are to be claimed by the insurance company, they must come as a result of similar strict compliance with other policy provisions. We think this is particularly true where, as here, it was known by the insurance company that the cancellation notice was not received by the insured.

Such a rule of strict compliance with the cancellation provision is altogether appropriate for policies of workmen’s compensation insurance. It places no added burden on the insurance company, it need only comply — strictly—with its own policy. Added significance must attach to the rights of unknowing third parties, the employees that are covered, that are at stake with policies of workmen’s compensation insurance. Workmen’s compensation statutes are designed for the protection of an important segment of our society and formulated to obtain strict compliance on the part of employers. That same strict compliance should extend to the various policy provisions and should include both the employer and the insurance company.

We have carefully examined the remaining points of error in support of appellant’s contention that the appellee sustained no total and permanent incapacity as a result of the accidental injury. These points of error are overruled.

The judgment of the trial court is affirmed.


author: DENTON, Chief Justice.

text:
    Jack Y. GARRARD, Appellant, v. TEXAS EMPLOYERS INSURANCE ASSOCIATION, Appellee.
    No. 7746.
    Court of Civil Appeals of Texas. Amarillo.
    Dec. 18, 1967.
    Warren Burnett, Odessa, for appellant.
    Underwood, Wilson, Sutton, Heare & Berry and Harlow Sprouse, Amarillo, for appellee.
   DENTON, Chief Justice.

This is a workmen’s compensation case. The jury found Garrard was totally and permanently disabled and that another employee of the same class as the plaintiff had worked at least 210 days of the year immediately preceding plaintiff’s injuries in the same or similar employment in the same or neighboring place, and found the average weekly wage rate earned by such employee was such as to entitle Garrard to the maximum compensation rate. The trial court sustained appellee’s motion for judgment non obstante veredicto, and held there was no evidence to support the wage rate fixed by the jury and rendered judgment for the plaintiff for 401 weeks of compensation benefits at the statutory minimum of $9.00 per week.

Appellee pleaded it had paid Garrard the sum of $385.00 as compensation for the alleged injury and alleged such payment discharged it from any liability and in the alternative, sought credit for this amount. During the trial the parties entered into the following stipulation:

“It is stipulated by and between the parties, plaintiff and defendant, that the defendant has paid to the plaintiff prior to this date the sum of eleven weeks compensation at the rate of $35.00 a week and that such may be taken as a fact in the record without offering any evidence herein and credit any recovery by the plaintiff.”

Appellant asserts that appellee has judicially admitted Garrard’s right to recover maximum wage rate benefits by an inconsistent position by entering into the stipulation before the court. It is well settled that the amount paid by the insurer is not conclusive upon the insuror nor does it constitute a judicial admission. Southern Underwriters v. Schoolcraft, 138 Tex. 323, 158 S.W.2d 991. Hartford Accident & Indemnity Co. v. Hale (Tex.Sup.Ct.) 400 S.W.2d 310. Travelers Insurance Co. v. Sides (Tex.Civ.App.) 403 S.W.2d 519 (Ref. N.R.E.). We therefore conclude the pleadings and stipulation do not constitute a judicial admission as to Garrard’s wage rate.

Appellant next takes the position the trial court erred in holding there was no evidence to support the finding of the jury fixing the wage rate. The wage rate was submitted under Subsection (2) of Article 8309, Section 1, Vernon’s Ann.Civ.St., that is, the average weekly wage rate of another employee who had done similar work in the same or neighboring place. It was uncontroverted Garrard had not worked substantially the whole of the year at his employment immediately prior to his injury. Witness Burch was the only witness offered to prove the wage rate under Subdivision (2). He testified in part:

“Q. All right. Now, were you working as a boilermaker in this area say the year before April 29, 1965? So this would make it that 365 days between the 29th of April of 1964.
“A. What is that date again?
“Q. 29th of April of 1964 and 29th of April of 1965.
“A. I was here most of the time.
“Q. Were you working as a boilermaker ?
“A. Yes.
“Q. How much money would you make in a year as a boilermaker?
“A. Oh, I would say I would average around $7,500.00.
“Q. All right. Now, in that year that I asked you about, did you work as much as 210 days as a boilermaker?
“A. I average that every year.
“Q. Or more?
“A. Well, I don’t know. I would average that much, because I go out more. I’m talking about average. What I mean by that is, you see, sometimes we work overtime, and we work long hours. I’m basing it on an average.
“Q. All right. Now, what were they paying an hour in that year around this part of the country?
“A. I believe it was $4.40 or $4.50. I’m not positive one way or the other.
******
“Q. Well, all right. And that included quite a lot of overtime, did it not, during that year?
“A. Well, I don’t remember. I don’t recall. We worked some overtime, and I didn’t work in this locality all of the time. I was in North Dakota and Minnesota some of that year.
“Q. Oh. Some of that year you weren’t in this vicinity?
“A. Not all of the time. I was in this — I would say 60% of my work was in this vicinity.
******
“Q. All right. And you actually don’t know whether, so far as different days are concerned, you worked as much as 210 days out of that year in this locality, or not, do you?
“A. No. I don’t think I did in this locality that particular year.”

The burden of proof is upon the plaintiff claiming compensation to offer legal and competent evidence to establish an average weekly wage under one of the three Subsections under Article 8309, Section 1. Texas Employers Insurance Association v. Roberts, 135 Tex. 123, 139 S.W.2d 80. Young v. Universal Underwriters Insurance Co. (Tex.Civ.App.) 352 S.W.2d 784 (Ref. N.R.E.). Appellant has not discharged this burden. By Burch’s own testimony, he had not worked 210 days immediately prior to the date of Garrard’s injuries in the same or similar employment in the same or neighboring place. By his own admission, he worked in North Dakota and Minnesota part of that preceding year and he worked approximately 60% of the time in the Hutchinson County area, where Garrard was employed at the time he was injured. There was no other evidence presented which tended to establish Garrard’s wage rate under Subsection 2 nor were special issues submitted or requested to establish the wage rate under the “just and fair” subsection. There was, therefore, no competent evidence from which the jury could have found a wage rate. Griffin v. Superior Insurance Co., 161 Tex. 195, 338 S.W.2d 415. Sonnier v. Texas Employers Insurance Association (Tex.Civ.App.), 417 S.W.2d 433 (N.W.H.). We conclude the trial court was correct in entering judgment in favor of appellant for compensation at the minimum rate under the statute of $9.00 per week for a period of 401 weeks. Federal Underwriters Exchange v. Cost, 132 Tex. 299, 123 S.W.2d 332.

In view of our holding, it is unnecessary to discuss or pass on appellant’s motion to strike appellee’s cross-assignments or to discuss the cross-assignments.

The judgment of the trial court is affirmed.


author: TUNKS, Chief Justice.

text:
    FRIENDSWOOD INDEPENDENT SCHOOL DISTRICT, Appellant, v. NATIONAL SURETY CORPORATION, Appellee.
    No. 40.
    Court of Civil Appeals of Texas. Houston (14th Dist.).
    Dec. 20, 1967.
    Rehearing Denied Jan. 17, 1968.

      Grant Cook, John R. Cochran, Reynolds, White, Allen & Cook, Houston, for appellant.
    W. St. John Garwood, Jr., Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, for appellee.
   TUNKS, Chief Justice.

In the latter part of 1961, the voters of Friendswood Independent School District, at an election called for that purpose, authorized the District to issue $375,000.00 in bonds to be used for construction purposes. On March 10, 1962, the School District entered into a contract with I. W. Powers for the construction of its facilities. On March 13, 1962, National Surety Corporation executed and delivered to the School District a labor and material payment bond in which it guaranteed the payment to all claimants for labor and materials furnished in the construction of the facilities. It also executed and delivered its performance bond in which it guaranteed the completion of the construction in the event of the failure of Powers to do so.

The total contract price to be paid Powers for such construction was $309,033.02. The contract provided that progress payments were to be made to Powers in monthly installments, each payment representing 90% of the work done by him during the next preceding month. That is, the District was to retain 10% of the contract price until the completion of the construction.

When Powers made application to National Surety Corporation for the bonds to be issued by them, he, Powers, assigned to it his interest in the retainages to be held by the School District as security for their obligations under the bonds.

On April 8, 1963, Powers had substantially completed all of the construction called for under the contract except for an item designated therein as “Alternate No. 8.” That item provided for the conversion of an existing cafeteria into a girls’ dressing room at a cost of $5,200.00. On that date (April 8, 1963), the members of the school board, the school superintendent, the contractor, the architect and the mechanical engineer for the job conducted a tour of the building for the purpose of making an inspection. On that occasion, it was determined that it would be impossible for the contractor to then proceed with the performance called for in Alternate No. 8 for the reason that the school was in session and the cafeteria was being used. It was therefore decided by the school board and the school superintendent, on oral recommendation of the architect, that the School District should go ahead and accept that portion of the contract which had been completed and defer the conversion of the cafeteria until a later date. That evening, the board, at an official meeting, voted to accept the new building retaining from the contract price the cost of remodeling the old cafeteria ($5,200.00), plus $500.00 to take care of the minor items on a so-called “punch list.” On April 11, 1963, the District executed its check to Powers in the amount of $29,988.10, which sum represented all that remained payable to Powers under the terms of the contract, except the $5,200.00 for remodeling the cafeteria and $500.00 withheld to take care of the “punch list.” That check was delivered to Powers forthwith.

It was stipulated by the School District and the bonding company that certain companies and persons furnished labor and materials to Powers in the prosecution of the construction contract, which were not paid in full for the amounts properly due them by Powers and that the bonding company was thereby required to pay claims in the amount of $18,184.72 and incurred necessary expenses of $52.70. The jury found, on sufficient evidence, that just before it made the $29,988.00 payment to Powers, the School District knew that Powers owed bills for labor and materials that had been furnished to the project. By this suit, National Surety Corporation, as plaintiff in the trial court, sought to recover from the School District those sums which it had been required to pay for labor and materials furnished in the construction of the school building. The School District, as defendant in the trial court, denied any liability for those payments and by cross-action, sought to recover from the surety company, on the performance bond, the costs which it had incurred in completing the remodeling of the cafeteria called for as Alternate No. 8 in the contract, over and above the $5,200.00 which it had retained for that purpose. The jury found that such cost had been $11,-086.00. The surety company, as cross-defendant, contended that it had been relieved of its liability on its performance bond by the School District’s alleged breach of its contract. The trial court rendered judgment for the surety company against the School District and Powers, jointly and severally, for the amount paid by it to laborers and materialmen and its necessary expenses, and denied the School District any recovery on its cross-action. The School District has appealed.

The School District recovered judgment over against Powers for the amount of those payments and expenses and also judgment for its cost in remodeling the cafeteria, less the $5,200.00 retained. Powers has not appealed.

The surety company as plaintiff in the trial court contended, and here contends, that the School District’s payment to the contractor of the retainages withheld under the circumstances herein above set forth, was payment not authorized by the contract for two reasons. First, the contract required that the retainage be held for a period of 30 days after completion of the contract, and, secondly, the contract required that upon completion and before payment of the retainages, the contractor furnish evidence that all labor and material-men had been paid. As noted above, the payment of the retainages to the contractor was made immediately after the School District had accepted the building and before complete performance. The contractor did not furnish evidence that all laborers and materialmen had been paid.

The School District contends that the payment made by it was authorized by a provision in the contract to the effect that payment might me made by it upon accepting the partially completed contract when its architect certified to it that the failure of the contractor to fully perform was not due to any fault on the part of the contractor. The School District also notes that its payment of the retainages to the contractor was on recommendation of its architect and contends that under such circumstances, it was authorized by the contract to so release the retainages.

The provisions of the contract which are controlling of the issue here involved, are as follows:

“Article 5. Acceptance and Final Payment
Final payment shall be due thirty (30) day after substantial completion of the work provided the work be then fully completed and the contract fully performed.
Upon receipt of written notice that the work is ready for final inspection and acceptance, the Architect shall promptly make such inspection, and when he finds the work acceptable under the Contract and the Contract fully performed he shall promptly issue a final certificate, over his own signature, stating that the work provided for in this Contract has been completed and is accepted by him under the terms and conditions thereof, and that the entire balance found to be due the Contractor, and noted in said final certificate, is due and payable.
Before issuance of final certificate the Contractor shall submit evidence satisfactory to the Architect that all payrolls, material bills,, and other indebtedness connected with the work have been paid.
If after the work has been substantially completed, full completion thereof is materially delayed through no fault of the Contractor, and the Architect so cer-ifies, the Owner shall, upon certificate of the Architect, and without terminating the Contract, make payment of the balance due for that portion of the work fully completed and accepted. Such payment shall be made under the terms and conditions governing final payment, except that it shall not constitute a waiver of claims.”

If payment by the School District to Powers on April 11, 1963 of most of the retainages required to be withheld under the contract was not authorized by the contract, the. surety company had a valid claim against the school district for the money it had been required to pay for labor and materials. Aetna Casualty & Surety Co. v. Robertson Lumber Co., Tex. Civ.App., 3 S.W.2d 895.

Furthermore, if the payment to the contractor on April 11, 1963, was not authorized by the contract, the security company was released from its performance bond. Fidelity & Deposit Co. v. Kelsay Lumber Co., 33 S.W.2d 731 (Com.App.).

The appellant, School District, in its brief, concedes the validity of the two above stated conclusions.

The appellant, contends, however, that the June 11, 1963 payment was authorized by the last paragraph of Article 5 of the contract. We do not agree with appellant’s contention in this respect. The last sentence of the paragraph required that the payment under the contingency therein set forth be made under the terms and conditions governing final payment. The terms and conditions as to final payment require that the payment be withheld for thirty days. This was not done. Also, the terms and conditions of final payment as set out in Article 5 include a requirement that the contractor “submit evidence satisfactory to the Architect” that labor and material bills have been paid. This,, too, was not done. Thus, even if the School District was, under the terms of the last paragraph of Article 5, authorized to make final payment before the completion of the contract, the payment at the time and under the circumstances under which it was made was in violation of the terms of the contract.

Further, we do not believe that the procedure necessary to make applicable the provisions of the last paragraph of Article 5 were complied with in that the architect never furnished the School District with any written statement attesting that the failure of Powers to complete the contract was through no fault of his own. No issue as to whether or not the architect had so certified to the School District, was submitted to the jury. Each of the parties here takes the position that the other had the burden of proof on that issue and the duty of getting a jury finding in support of his position, and that, no issue having been submitted, the contention in that respect of the defaulting party was waived. We do not think it necessary to determine who had the burden of proof because we are of the opinion that the evidence shows as a matter of law, that no written document so certifying the absence of fault on the part of Powers was ever given to the School District by the architect. The oral statement of the architect was not enough. The contract requires a “certificate.” The vord “certificate” denotes a written instrument, Webster’s Third New International Dictionary, defines the word “certificate” as follows:

“A document containing a certified and usually official statement; a signed written or printed testimony to the truth of something (as a personal claim) ; * *.”

See also Volume 6A, Words & Phrases, pp. 53 and 54, and 14 C.J.S. p. 111.

In fact, at one place in Article 5 of the contract where the architect’s certificate is referred to, it is required that it be “over his own signature.”

We therefore hold that the School District’s payment to Powers on June 11, 1963 of a substantial portion of the re-tainages was not authorized by the contract and that such payment relieved the bonding company of its obligation under its performance bond and that because of such unauthorized payment, the bonding company acquired a valid claim against the School District for the amount that it was required to pay to laborers and material men under its payment bond. The trial court’s judgment in denying the School District any recovery on its cross-action is affirmed.

This holding, however does not mean that the bonding company was entitled to recover a judgment from the School District for the amount of its payments under its bond to laborers and material men for the reasons hereinafter set forth.

The evidence showed conclusively that at the time of the making of the construction contract in question, the School District had available and not otherwise appropriated sufficient money from the sale of its bonds with which to pay the contract price:

On May 10, 1963, the bonding company, by telegram, notified the School District that it had information that Powers had received excessive payments; that it was assignee of the payments due Powers under the contract, and that if any unauthorized payments were made to Powers by the School District, it, the bonding company, would hold the District liable for any loss it, the bonding company, sustained as a result thereof. The jury found that at the time the School District received this telegram, sufficient unencumbered and unappropriated funds remained from the bond issue to pay the labor and material bills and expenses that plaintiff was later compelled to pay.

Mr. Dennis Grizzel, the District’s superintendent of schools, testified that at the time the $29,000.00 payment to Powers was made, the District had left out of its bond issue “$6,700.00 and some other money.” He testified that as of August 31, 1963, the District had $15,000.00 left out of the proceeds of the sale of its bonds. He further testified, however, that as of August 13, 1963, that $15,000.00 was appropriated by the District for the remodeling of the cafeteria and that the $15,000.00 was used for that purpose. There was no other testimony as to any other available funds which the District had. There was no testimony that the District had any available funds at the time of the judgment.

We hold that the plaintiff’s failure to prove that at the time of the judgment the School District had remaining funds for the current year of the claim with which to pay its claim precludes any recovery of judgment by plaintiff against the School District.

Article 2749, Vernon’s Ann.Tex.Civ.St, provides that the trustees of a school district “in making contracts with teachers, shall not create a deficiency debt against the district.” In Collier v. Peacock, 93 Tex. 355, 54 S.W. 1025, decided in 1900, it was held that because of that statute, (then Article 3959) a teacher did not have a valid enforceable claim against a school district for the payment of the salary provided for in his contract when the school district, at the time of making the contract, did not have sufficient money available with which to pay all of his salary. There, the Supreme Court in commenting on the language of the article which is now Article 2749, said:

“This article required the trustees for the school districts to determine the number of free schools to be taught in that district, the points at which they were to be located, and to prescribe the terms of such schools; also, to make contracts with teachers for the schools that might be authorized. But the trustees were not authorized to contract any debt which would cause a deficiency in the school fund of the district. In other words, they could not contract debts in the employment of teachers to an amount greater than the school fund apportioned to that district for that scholastic year. This limitation upon the power of the trustees in making the contract with the teachers necessarily limits the payment of the debts that might be contracted to the amount of the fund which belonged to the district for that year, and any debt contracted greater than that would be a violation of the law, and constitute no claim against the district. The sum appropriated being known, and the number of schools determined, the length of the term to be taught would fix with certainty the price to be paid to the teacher, and no one need be misled about it. The trustees were authorized to expend the sum set apart to the district, but not empowered to contract a debt against the funds of future years.”

It is to be noted that the language of Article 2749 relates to contracts with teachers and that in the case of Collier v. Peacock, supra, the court was concerned with such a contract. However, in Stephenson v. Union Seating Co., Tex.Civ.App., 62 S.W. 128, err. ref., decided in 1901, it was held that the policy of that statute as expressed by the Supreme Court in Collier v. Peacock, was not limited to suits on teachers’ contracts. There, the plaintiff was the holder of warrants issued in payment for furniture furnished to certain school districts. At the date of their issuance (1896), the law permitted deficit financing for the acquisition of furniture by school districts provided that not more than 25% per year of the funds apportioned, and to be apportioned for a period of five years to such districts, could be set aside for such deficit financing. The plaintiff held validly issued warrants payable in 1896, 1897, 1898 and 1899. During the years in which the warrants were payable, there were funds available for paying them. The holder of the warrants failed to enforce them during the years in which they were payable. In 1900, the holder of the warrants filed suit seeking a writ of mandamus to compel the school district officials to set aside funds out of the then current year with which to pay his warrants. All of the funds for the years during which warrants were payable, by then had been lawfully appropriated and spent for other school purposes. In denying recovery to the holder of the warrants, the court said: “In Collier v. Peacock, 93 Tex. 255, 54 S.W. 1025, it is held that a warrant for a teacher’s salary in excess of the sum apportioned to the district for the year cannot be made a charge upon the fund of a subsequent year. Article 3959 (now Article 2749) was construed as a limitation upon the power of the trustees to contract any debt which would cause a deficiency in the school fund of the district. While the article applies alone to contracts for teachers’ salaries, we think the construction placed upon it by the supreme court applies with equal force to the articles controlling the purchase of school furniture.”

Templeman Common School District No. 1 of Brazos County v. Boyd B. Head Co., Tex.Civ.App., 101 S.W.2d 352, was another case in which the plaintiff sued on warrants issued in payment for school equipment. The evidence showed that the school district did not have available funds with which to pay the indebtedness at the time the debt was incurred and it did not thereafter acquire such funds during the scholastic year. The court held that the policy of the law as expressed in Collier v. Peacock (supra) and Stephenson v. Union Seating Co. (supra), was applicable to contracts by school districts for the purchase of equipment.

Aldine Independent School District v. Standley (Tex.Sup.Ct.), 154 Tex. 547, 280 S.W.2d 578, is an authority which we consider controlling of the issue here involved. There, the School District had employed Standley under a contract for one year, to act as its tax assessor and collector at a salary of $425.00 per month. At the end of the fifth month he was discharged and another person employed to perform his duties as assessor-collector of taxes. After exhausing his administrative remedies, he filed suit on his contract for the remainder of the salary due him. The court first held that he was not a “public officer” so that he could be removed by the Board of Trustees of the District. The court then denied him any recovery on his contract of employment saying:

“Again, this Court in the case of Campbell v. Jones [Tex., 264 S.W.2d 425], supra, 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. The case of Stephenson v. Union Seating Co., 1901, 26 Tex.Civ.App. 16, 62 S.W. 128, 129, wr. den., involved payment for certain school furniture.” (Emphasis added.)

At another point in its opinion, the court said:

“This record showing that there were no available funds out of which plaintiff could be paid his asserted claim, the claim is void and no recovery can be had thereon.”

The case of Reid v. McKinney Independent School District, Tex.Civ.App., 322 S.W. 2d 647, writ ref., n.r.e., involved a suit by a contractor against a school district based upon an alleged breach of a construction contract. The contractor’s performance of the contract was terminated by the school district before the completion of the construction. The contractor alleged that the termination was without justification. In his suit against the school district, the contract- or sought to recover for lost anticipated profits under the contract and for certain additional work alleged by him to have been performed at the request of the school district. It was found that the termination of the contract was with justification. The school district admitted that it owed the contractor $3,608.27 for work done under the contract.

It was several months after the termination of the contract that the school district first had notice that the contractor was asserting a claim against it for lost profits and for alleged additional work done at the request of the school district. In the meantime, the school district had either expended or legally obligated itself to expend, all of the proceeds from the bonds except for a few hundred dollars. The trial court held that there were no funds on hand or' available to the school district at the time the district first had notice or had knowledge of the contractor’s claims against it, or at the time any demand was made by Reid for the payment of such claims or at the time the suit was filed and tried, and for that reason the contractor was not entitled to any recovery against the district. This holding of the trial court was affirmed by the appellate court. The appellate court cited as authority for its holding Collier v. Peacock, supra; Stephenson v. Union Seating Co., supra; Aldine Independent School District v. Standley, supra, and other authorities.

The appellee here challenges the construction of Article 2749, then Article 3959, as made by the Court of Civil Appeals in Stephenson v. Union Seating Co., supra. The appellee insists that the statute by its own language limits its reference to contracts for the payment of teachers. Were this question presented as an original matter, that argument would be most persuasive to us. However, the construction of the court in Stephenson has remained unchallenged for more than 65 years. The Legislature has met on many occasions since the date of that opinion. The civil statutes of this State have been recodified on two occasions since that date without any substantial change in the language of that statute. Under those circumstances, the judicial construction of the statute is presumed to have been adopted by the Legislature. Cobb & Gregory v. Dies, Tex.Civ. App., 203 S.W. 438, err. ref.; National Life Co. v. Stegall, 140 Tex. 554, 169 S.W.2d 155; Federal Crude Oil Co. v. Yount-Lee Oil Co., 122 Tex. 21, 52 S.W.2d 56.

Appellee points out that in Collier v. Peacock, supra, the school district at the time of the making of the contract in question, did not have on hand sufficient funds which were legally usable in discharging the claim, and insists that such should be the test as to the validity of the claim. Insofar as the original validity of the claim may be concerned, that contention is perhaps a valid one. However, the further contention that a contract, valid at the time of its making, can support a judgment rendered at a later date when the funds originally on hand for the payment of the contract have been exhausted, is directly contrary to the holding of the Supreme Court in Campbell v. Jones, 153 Tex. 101, 264 S.W.2d 425. (A reference to the opinion of the Court of Civil Appeals in that case appearing at 257 S.W.2d 871 is of assistance in clarifying the facts involved.) In that case, a school district entered into a contract with Mrs. Jones, under the terms of which Mrs. Jones was employed as a teacher for the 1949-1950 school year. The contract was valid at the date of its execution.

Later, the members of the board of trustees, relying on an attorney’s advice, erroneously decided that the contract was not valid. On August 31, 1949, they notified Mrs. Jones that the contract was can-celled. Mrs. Jones protested and appealed to the State Superintendent of Public Instruction who, on November 10, 1949, ruled that her contract was valid. The Board appealed to the State Board of Education which also, on November 13, 1950, held the contract to be valid and ordered the district to pay the stipulated difference between the salary called for in her contract and what she had actually earned on another job. The district then appealed to the District Court of Travis County. Mrs. Jones intervened in that suit. That court, on January 22, 1952, sustained the holding of the State Board as to the validity of the contract. It was stipulated that the district had sufficient funds available for use during the 1949-1950 school year at the time of making the contract, at the time of Mrs. Jones’ demand and notice of appeal to the State Superintendent and at the time he ruled the contract valid. But such funds available for use during the 1949-1950 school year had all been spent by the date of the judgment of the District Court — January 22, 1952. That judgment became final. Mrs. Jones then filed suit for recovery of her damages against the individual members of the School Board. She was successful in the District Court and the Court of Appeals affirmed. The Supreme Court, however, reversed and rendered judgment for the defendant’s holding that they had acted in good faith. In outlining the facts of the case before it, the Supreme Court, 264 S.W.2d at p. 426, said:

“Respondent intervened, and on January 22, 1952, judgment was rendered affirming the action of the Board. That judgment accomplished nothing in practical effect, for the reason that the funds for the school year 1949-1950 had been exhausted for operating the schools for that year and funds appropriated for operating the school on subsequent years could not be used to pay obligations accruing during a previous year. City State Bank in Wellington v. Wellington Independent School District, 142 Tex. 344, 178 S.W.2d 114.”

We think that holding compels a conclusion to the effect that no judgment can be had against a school district unless funds which were available at the time the claim arose, still remain in the hands of the school district, unappropriated to other legal purposes, at the time judgment is rendered. For the claim to be valid at the time it arises, funds legally applicable to the payment of that claim must then be on hand. Even if a claim is valid and meets that condition, no court can render judgment on the claim unless at the time of the rendition of the judgment, those legally usable funds for the current year of the claim are still on hand. Aldine Independent School District v. Standley, supra. Since the evidence in this case conclusively shows that all funds available to Friendswood Independent School District during the year when this plaintiff’s claim arose have been lawfully expended, it must necessarily follow that the plaintiff here is not entitled to any judgment against that District.

The appellee here argues that such holding as we make would permit a school district to avoid liability on valid claims against it, and thereby result in inequities to claimants. In City State Bank v. Wellington Independent School District (Tex.Sup.Ct), 178 S.W.2d 114, the bank for the altruistic purpose of permitting a school district which was without funds to continue operation had recognized and paid warrants for its teachers’ salaries. During a following year, the bank sought to require the school district to appropriate other funds to the payment of its loss. The court said:

“Since there is not even a suggestion that the bank profited in any way from the transactions detailed or that it was inspired by any selfish motive or had any purpose other than that stated, the bank’s argument is very appealing to us as it doubtless was to the courts below. However, there are other and more compelling considerations which must determine this lawsuit.”

The bank was denied recovery. That is to say, where there is a conflict between the maintenance of the policy of the law as stated in the cases above cited and an equitable claim against the school district, the courts resolve that conflict in favor of the policy of the law. Furthermore, as indicated by the holdings of Campbell v. Jones, supra, and Stephenson v. Union Seating Co., supra, there are devices by which a claimant may protect itself. If it anticipates that the funds available for the payment of his claim will be appropriated to other uses, it may seek to enjoin such disposition of the funds. If the members of the school board willfully and maliciously misappropriate school funds with resulting loss to the holder of a valid claim, they, the members of the school board, may become personally liable. See also Borger Independent School District v. Dixon, Tex.Civ.App., 52 S.W.2d 505, err. ref.

That portion of the trial court’s judgment awarding National Surety Corporation a recovery of damages from Friendswood Independent School District is reversed and judgment is here rendered that the surety corporation take nothing from the School District.

The contractor, I. W. Powers, has not appealed from the judgment in favor of the School District and against him. Part of that judgment against him is by way of indemnity to the School District for its liability to the surety corporation. We have now reversed and rendered the surety corporation’s judgment against the School District. Under those circumstances, substantial justice requires that we reform the School District’s judgment against I. W. Powers even though he has not appealed. Burton v. Roberson (Com.App.), 139 Tex. 562, 164 S.W.2d 524, 143 A.L.R. 1; American Indemnity Co. v. Martin, 126 Tex. 73, 84 S.W.2d 697; Curtis v. Carey, Tex.Civ.App., 393 S.W.2d 185, n.w.h.

The trial court’s judgment in favor of Friendswood Independent School District against I. W. Powers is reformed by reducing it in amount to the extent that the School District is relieved of its liability to the surety corporation.

The trial court’s judgment is in all other respects affirmed.