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Senate Bill 324 |
Senate Author: Deuell et al. |
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Effective: 9-1-07 |
House Sponsor: Chisum |
Senate Bill 324 amends the Business & Commerce Code to specify the circumstances in which contingent payment clauses in construction contracts are not enforceable under Texas law. The bill prohibits a contingent payor from enforcing a contingent payment clause in these cases: (1) the obligor's nonpayment is the result of the payor's failure to meet its contractual obligations, unless nonpayment is the result of a contingent payee's default on its contractual requirements; (2) as to work performed or materials delivered, after the payor receives written notice from the payee objecting to the payment clause's enforceability; or (3) the payor is in a sham relationship with the obligor. The bill sets forth a time frame and manner for delivery of the objection notice, a time frame in which a written notice becomes effective, and conditions under which a notice does not prevent enforcement of payment. The bill prohibits a payment clause from being used as a basis for invalidation of the enforceability or perfection of a mechanic's lien. The bill sets forth provisions where the enforcement of a contingent payment clause is not unconscionable. The bill provides that a payor has exercised diligence under a construction contract for a private project or for certain public projects if the payee receives from the payor certain information in writing. The bill requires a primary obligor to furnish certain identifying and financial information to the payor not later than the 30th day after the date the obligor receives a written request for such information. The bill exempts certain contracts from the application of this law.