By West S.B. No. 241
75R3050 PAM-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to construction contract provisions, construction trust
1-3 funds, and the creation of and management policies applicable to a
1-4 construction account created to hold funds associated with a
1-5 construction contract; providing criminal penalties.
1-6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-7 SECTION 1. Section 162.001, Property Code, is amended by
1-8 adding Subsection (c) to read as follows:
1-9 (c) If a contractor and property owner have entered into a
1-10 written construction contract for the improvement of specific real
1-11 property in this state before the commencement of construction of
1-12 the improvement and the contract provides for the payment by the
1-13 owner of the costs of construction and a reasonable fee specified
1-14 in the contract payable to the contractor, the fee paid to the
1-15 contractor is not considered trust funds.
1-16 SECTION 2. Section 162.003, Property Code, is amended to
1-17 read as follows:
1-18 Sec. 162.003. BENEFICIARIES OF TRUST FUNDS. An artisan
1-19 [artist], laborer, mechanic, contractor, subcontractor, or
1-20 materialman who labors or who furnishes labor or material for the
1-21 construction or repair of an improvement on specific real property
1-22 in this state is a beneficiary of any trust funds paid or received
1-23 in connection with the improvement.
1-24 SECTION 3. Section 162.005, Property Code, is amended to
2-1 read as follows:
2-2 Sec. 162.005. DEFINITIONS. In this chapter:
2-3 (1) A trustee acts with "intent to defraud" when the
2-4 trustee:
2-5 (A) [he] retains, uses, disburses, or diverts
2-6 trust funds with the intent to deprive the beneficiaries of the
2-7 trust funds;
2-8 (B) retains, uses, disburses, or diverts trust
2-9 funds and fails to establish or maintain a construction account as
2-10 required by Section 162.006 or fails to establish or maintain an
2-11 account record for the construction account as required by Section
2-12 162.007; or
2-13 (C) uses, disburses, or diverts trust funds that
2-14 were paid to the trustee in reliance on an affidavit furnished by
2-15 the trustee under Section 53.085 if the affidavit contains false
2-16 information relating to the trustee's payment of current or past
2-17 due obligations.
2-18 (2) "Current or past due obligations" are those
2-19 obligations incurred or owed by the trustee for labor or materials
2-20 furnished in the direct prosecution of the work under the
2-21 construction contract prior to the receipt of the trust funds and
2-22 which are due and payable by the trustee no later than 30 days
2-23 following receipt of the trust funds.
2-24 (3) "Direct cost" means a cost included under a
2-25 construction contract that is specific to the construction of the
2-26 improvement that is the subject of the contract.
2-27 (4) "Indirect cost" means a cost included under a
3-1 construction contract that is not specific to the construction of
3-2 the improvement that is the subject of the contract.
3-3 (5) "Financial institution" means a bank, trust
3-4 company, insurance company, credit union, savings and loan
3-5 association, investment trust, investment company, or any other
3-6 organization held out to the public as a place for deposit of funds
3-7 or medium of savings or collective investment.
3-8 (6) "Construction account" means an account in a
3-9 financial institution into which only trust funds and funds
3-10 deposited by the contractor that are necessary to pay charges
3-11 imposed on the account by the financial institution may be
3-12 maintained.
3-13 SECTION 4. Subchapter A, Chapter 162, Property Code, is
3-14 amended by adding Sections 162.006 and 162.007 to read as follows:
3-15 Sec. 162.006. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN
3-16 CIRCUMSTANCES. (a) A contractor who agrees with a property owner
3-17 to construct improvements to a residential homestead for an amount
3-18 exceeding $5,000 shall deposit the trust funds received from the
3-19 owner in a construction account in a financial institution.
3-20 (b) The periodic statement received from the financial
3-21 institution must refer to the account as a "construction account"
3-22 to satisfy the requirements of this section.
3-23 Sec. 162.007. MANAGEMENT OF CONSTRUCTION ACCOUNTS. (a) A
3-24 contractor required to maintain a construction account under this
3-25 subchapter shall maintain an account record for the construction
3-26 account that provides information relating to:
3-27 (1) the source and amount of the funds in the account
4-1 and the date the funds were deposited;
4-2 (2) the date and amount of each disbursement from the
4-3 account and the person to whom the funds were disbursed; and
4-4 (3) the current balance of the account.
4-5 (b) The contractor shall maintain an account record for each
4-6 construction project that specifies the direct costs and indirect
4-7 costs charged to the owner.
4-8 (c) The contractor shall retain all invoices and other
4-9 supporting documentation received relating to funds that were
4-10 disbursed from the construction account.
4-11 (d) The contractor shall ensure that all deposit and
4-12 disbursement documentation includes the construction account number
4-13 or information that provides a direct connection between the
4-14 documentation and the account.
4-15 (e) The contractor may not destroy information required to
4-16 be maintained under this section before the first anniversary of
4-17 the date the improvement that is the subject of the contract is
4-18 completed.
4-19 SECTION 5. Section 162.032, Property Code, is amended by
4-20 adding Subsection (c) to read as follows:
4-21 (c) A trustee who fails to establish or maintain a
4-22 construction account in violation of Section 162.006 or fails to
4-23 establish or maintain an account record for the construction
4-24 account in violation of Section 162.007 commits a Class A
4-25 misdemeanor.
4-26 SECTION 6. (a) This Act takes effect September 1, 1997.
4-27 The changes in law made by this Act apply only to a construction
5-1 contract entered into on or after September 1, 1997, and funds
5-2 received under a construction contract entered into on or after
5-3 September 1, 1997.
5-4 (b) A construction contract entered into before September 1,
5-5 1997, or funds received under a construction contract entered into
5-6 before September 1, 1997, are governed by the law as it existed
5-7 immediately before September 1, 1997, and that law is continued in
5-8 effect for that purpose.
5-9 SECTION 7. The importance of this legislation and the
5-10 crowded condition of the calendars in both houses create an
5-11 emergency and an imperative public necessity that the
5-12 constitutional rule requiring bills to be read on three several
5-13 days in each house be suspended, and this rule is hereby suspended.