1-1 By: West S.B. No. 558
1-2 (In the Senate - Filed February 14, 1995; February 15, 1995,
1-3 read first time and referred to Committee on Economic Development;
1-4 April 28, 1995, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 7, Nays 0; April 28, 1995,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 558 By: Ellis
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to construction contract provisions, construction trust
1-11 funds, and the creation of and management policies applicable to a
1-12 construction account created to hold funds associated with a
1-13 construction contract; providing penalties.
1-14 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-15 SECTION 1. Section 162.001, Property Code, is amended by
1-16 adding Subsection (c) to read as follows:
1-17 (c) If a contractor and property owner have entered into a
1-18 written construction contract for the improvement of specific real
1-19 property in this state before the commencement of construction of
1-20 the improvement and the contract provides for the payment by the
1-21 owner of the costs of construction and a reasonable fee specified
1-22 in the contract payable to the contractor, the fee paid to the
1-23 contractor is not considered trust funds.
1-24 SECTION 2. Section 162.003, Property Code, is amended to
1-25 read as follows:
1-26 Sec. 162.003. Beneficiaries of Trust Funds. An artisan
1-27 <artist>, laborer, mechanic, contractor, subcontractor, or
1-28 materialman who labors or who furnishes labor or material for the
1-29 construction or repair of an improvement on specific real property
1-30 in this state is a beneficiary of any trust funds paid or received
1-31 in connection with the improvement.
1-32 SECTION 3. Section 162.005, Property Code, is amended to
1-33 read as follows:
1-34 Sec. 162.005. Definitions. In this chapter:
1-35 (1) A trustee acts with "intent to defraud" when the
1-36 trustee:
1-37 (A) <he> retains, uses, disburses, or diverts
1-38 trust funds with the intent to deprive the beneficiaries of the
1-39 trust funds;
1-40 (B) retains, uses, disburses, or diverts trust
1-41 funds and fails to establish or maintain a construction account as
1-42 required by Section 162.007 or fails to establish or maintain an
1-43 account record for the construction account as required by Section
1-44 162.008; or
1-45 (C) uses, disburses, or diverts trust funds that
1-46 were paid to the trustee in reliance on an affidavit furnished by
1-47 the trustee under Section 53.085 if the affidavit contains false
1-48 information relating to the trustee's payment of current or past
1-49 due obligations.
1-50 (2) "Current or past due obligations" are those
1-51 obligations incurred or owed by the trustee for labor or materials
1-52 furnished in the direct prosecution of the work under the
1-53 construction contract prior to the receipt of the trust funds and
1-54 which are due and payable by the trustee no later than 30 days
1-55 following receipt of the trust funds.
1-56 (3) "Direct cost" means a cost included under a
1-57 construction contract that is specific to the construction of the
1-58 improvement that is the subject of the contract.
1-59 (4) "Indirect cost" means a cost included under a
1-60 construction contract that is not specific to the construction of
1-61 the improvement that is the subject of the contract.
1-62 (5) "Financial institution" means a bank, trust
1-63 company, insurance company, credit union, savings and loan
1-64 association, investment trust, investment company, or any other
1-65 organization held out to the public as a place for deposit of funds
1-66 or medium of savings or collective investment.
1-67 (6) "Construction account" means a separate account in
1-68 a financial institution into which only funds from construction
2-1 payments made by the property owner and funds deposited by the
2-2 contractor that are necessary to pay charges imposed on the account
2-3 by the financial institution may be maintained.
2-4 (7) "Draw schedule" means a listing of the amount of
2-5 funds and the times in the construction process at which those
2-6 funds are advanced from the property owner to the contractor.
2-7 SECTION 4. Subchapter A, Chapter 162, Property Code, is
2-8 amended by adding Sections 162.006, 162.007, and 162.008 to read as
2-9 follows:
2-10 Sec. 162.006. DRAW SCHEDULE REQUIRED. A contractor who
2-11 agrees to construct improvements to a residential homestead shall
2-12 furnish a written draw schedule to the property owner before the
2-13 commencement of construction.
2-14 Sec. 162.007. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN
2-15 CIRCUMSTANCES. (a) A contractor who agrees with a property owner
2-16 to construct improvements to a residential homestead for an amount
2-17 exceeding $5,000 shall deposit the trust funds received from the
2-18 owner in a construction account in a financial institution.
2-19 (b) The periodic statement received from the financial
2-20 institution must refer to the account as a "construction account"
2-21 to satisfy the requirements of this section.
2-22 Sec. 162.008. MANAGEMENT OF CONSTRUCTION ACCOUNTS. (a) A
2-23 contractor required to maintain a construction account under this
2-24 subchapter shall maintain an account record for the construction
2-25 account that provides information relating to:
2-26 (1) the source and character of all funds in the
2-27 account and the date the funds were deposited;
2-28 (2) the date and amount of each disbursement from the
2-29 account and the person to whom the funds were disbursed; and
2-30 (3) the current balance of the account.
2-31 (b) The contractor shall maintain an account record for each
2-32 construction project that specifies the direct costs and indirect
2-33 costs charged to the owner.
2-34 (c) The contractor shall retain all invoices and other
2-35 supporting documentation received relating to funds that were
2-36 disbursed from the construction account.
2-37 (d) The contractor shall ensure that all deposit and
2-38 disbursement documentation includes the construction account number
2-39 or information that provides a direct connection between the
2-40 documentation and the account.
2-41 (e) The contractor may not destroy information required to
2-42 be maintained under this section before the first anniversary of
2-43 the date the improvement that is the subject of the contract is
2-44 completed.
2-45 SECTION 5. Section 162.032, Property Code, is amended by
2-46 adding Subsections (c) and (d) to read as follows:
2-47 (c) A trustee who fails to establish or maintain a
2-48 construction account in violation of Section 162.007 or fails to
2-49 establish or maintain an account record for the construction
2-50 account in violation of Section 162.008 commits a Class A
2-51 misdemeanor.
2-52 (d) A contractor who fails to furnish a draw schedule in
2-53 violation of Section 162.006 commits a Class C misdemeanor.
2-54 SECTION 6. (a) This Act takes effect September 1, 1995.
2-55 The changes in law made by this Act apply only to a construction
2-56 contract entered into on or after September 1, 1995, and funds
2-57 received under a construction contract entered into on or after
2-58 September 1, 1995.
2-59 (b) A construction contract entered into before September 1,
2-60 1995, or funds received under a construction contract entered into
2-61 before September 1, 1995, are governed by the law as it existed
2-62 immediately before September 1, 1995, and that law is continued in
2-63 effect for that purpose.
2-64 SECTION 7. The importance of this legislation and the
2-65 crowded condition of the calendars in both houses create an
2-66 emergency and an imperative public necessity that the
2-67 constitutional rule requiring bills to be read on three several
2-68 days in each house be suspended, and this rule is hereby suspended.
2-69 * * * * *