Is a Texas city liable for breach of a verbal contract? The Corpus Christi Court of Appeals in City of Pharr v. Garcia recently answered the question, no. How did this happen and what is the significance to construction contractors in Texas?

In Garcia, Pajaro Promotions sued the City of Pharr alleging that the City failed to pay expenses and a 20% promotor’s fee associated with a Toby Keith concert at the City’s convention center. The City argued that Pajaro’s claims were barred due to sovereign immunity. When the trial court denied the City’s plea to the jurisdiction, the City filed an interlocutory appeal.

Whether the City has sovereign immunity rested on whether the Toby Keith concert was a “proprietary” or “governmental” function of the City. Citing decades of Texas case law, the Court of Appeals defined “proprietary” functions as discretionary and not performed under authority of for the benefit of the sovereign. Such functions might include operation and maintenance of a public utility or operation of city-owned amusements. In contrast, it defined “governmental” functions as those performed solely for the public benefit, such as police protection and fire control.

Was the Toby Keith concert a proprietary or governmental function? Pajaro argued that the concert was an “amusement” for the inhabitants of the City, allowing Pajaro to sue the City for breach of contract. The City argued that operation of the civic center where the concert was held is a governmental function for which it has immunity. The Court agreed with the City, finding that “all actions” related to a governmental functions—such as the Toby Keith concert at the convention center—are considered governmental functions.

However, Pajaro was not done. It argued (belatedly, as it turns out) that the City’s immunity was waived by statute, Chapter 271 of the Texas Local Government Code. Under Section 271.151 of the statute, a city’s sovereign immunity is waived if the contract is in writing, states the essential terms of the agreements, and provides for goods or services to the city and is executed on behalf of the city.

The Court of Appeals noted that Pajaro’s claims for compensation were premised on a verbal contract, not a written one. As Chapter 271 only applies to written contracts executed by the City, the City had not waived its sovereign immunity and Pajaro’s claims were barred.

How does a Toby Keith concert apply to construction contracts in the state of Texas? Under Chapter 271 of the Texas Local Government Code as well as Chapter 114 of the Texas Civil Practice and Remedies Code, the Texas Legislature has waived sovereign immunity for municipalities, school districts and the State when they enter into certain types of contracts. Section 114 specifically addresses design and construction contracts with the State. But, both statutes only apply to written contracts executed on behalf of the sovereign. As relied upon by the Garcia Court, verbal contracts or even potentially verbal modifications to written contracts are insufficient to pierce immunity and may leave the contractor without legal recourse.

The attorneys in our Austin and Dallas office have a great depth of experience litigating against and prosecuting on behalf of governmental entities. Please contact us with any questions you may have at info@gstexlaw.com.

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