1-1 By: West S.B. No. 241
1-2 (In the Senate - Filed January 17, 1997; January 21, 1997,
1-3 read first time and referred to Committee on Jurisprudence;
1-4 February 25, 1997, reported favorably by the following vote: Yeas
1-5 6, Nays 0; February 25, 1997, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to construction contract provisions, construction trust
1-9 funds, and the creation of and management policies applicable to a
1-10 construction account created to hold funds associated with a
1-11 construction contract; providing criminal penalties.
1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Section 162.001, Property Code, is amended by
1-14 adding Subsection (c) to read as follows:
1-15 (c) If a contractor and property owner have entered into a
1-16 written construction contract for the improvement of specific real
1-17 property in this state before the commencement of construction of
1-18 the improvement and the contract provides for the payment by the
1-19 owner of the costs of construction and a reasonable fee specified
1-20 in the contract payable to the contractor, the fee paid to the
1-21 contractor is not considered trust funds.
1-22 SECTION 2. Section 162.003, Property Code, is amended to
1-23 read as follows:
1-24 Sec. 162.003. BENEFICIARIES OF TRUST FUNDS. An artisan
1-25 [artist], laborer, mechanic, contractor, subcontractor, or
1-26 materialman who labors or who furnishes labor or material for the
1-27 construction or repair of an improvement on specific real property
1-28 in this state is a beneficiary of any trust funds paid or received
1-29 in connection with the improvement.
1-30 SECTION 3. Section 162.005, Property Code, is amended to
1-31 read as follows:
1-32 Sec. 162.005. DEFINITIONS. In this chapter:
1-33 (1) A trustee acts with "intent to defraud" when the
1-34 trustee:
1-35 (A) [he] retains, uses, disburses, or diverts
1-36 trust funds with the intent to deprive the beneficiaries of the
1-37 trust funds;
1-38 (B) retains, uses, disburses, or diverts trust
1-39 funds and fails to establish or maintain a construction account as
1-40 required by Section 162.006 or fails to establish or maintain an
1-41 account record for the construction account as required by Section
1-42 162.007; or
1-43 (C) uses, disburses, or diverts trust funds that
1-44 were paid to the trustee in reliance on an affidavit furnished by
1-45 the trustee under Section 53.085 if the affidavit contains false
1-46 information relating to the trustee's payment of current or past
1-47 due obligations.
1-48 (2) "Current or past due obligations" are those
1-49 obligations incurred or owed by the trustee for labor or materials
1-50 furnished in the direct prosecution of the work under the
1-51 construction contract prior to the receipt of the trust funds and
1-52 which are due and payable by the trustee no later than 30 days
1-53 following receipt of the trust funds.
1-54 (3) "Direct cost" means a cost included under a
1-55 construction contract that is specific to the construction of the
1-56 improvement that is the subject of the contract.
1-57 (4) "Indirect cost" means a cost included under a
1-58 construction contract that is not specific to the construction of
1-59 the improvement that is the subject of the contract.
1-60 (5) "Financial institution" means a bank, trust
1-61 company, insurance company, credit union, savings and loan
1-62 association, investment trust, investment company, or any other
1-63 organization held out to the public as a place for deposit of funds
1-64 or medium of savings or collective investment.
2-1 (6) "Construction account" means an account in a
2-2 financial institution into which only trust funds and funds
2-3 deposited by the contractor that are necessary to pay charges
2-4 imposed on the account by the financial institution may be
2-5 maintained.
2-6 SECTION 4. Subchapter A, Chapter 162, Property Code, is
2-7 amended by adding Sections 162.006 and 162.007 to read as follows:
2-8 Sec. 162.006. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN
2-9 CIRCUMSTANCES. (a) A contractor who agrees with a property owner
2-10 to construct improvements to a residential homestead for an amount
2-11 exceeding $5,000 shall deposit the trust funds received from the
2-12 owner in a construction account in a financial institution.
2-13 (b) The periodic statement received from the financial
2-14 institution must refer to the account as a "construction account"
2-15 to satisfy the requirements of this section.
2-16 Sec. 162.007. MANAGEMENT OF CONSTRUCTION ACCOUNTS. (a) A
2-17 contractor required to maintain a construction account under this
2-18 subchapter shall maintain an account record for the construction
2-19 account that provides information relating to:
2-20 (1) the source and amount of the funds in the account
2-21 and the date the funds were deposited;
2-22 (2) the date and amount of each disbursement from the
2-23 account and the person to whom the funds were disbursed; and
2-24 (3) the current balance of the account.
2-25 (b) The contractor shall maintain an account record for each
2-26 construction project that specifies the direct costs and indirect
2-27 costs charged to the owner.
2-28 (c) The contractor shall retain all invoices and other
2-29 supporting documentation received relating to funds that were
2-30 disbursed from the construction account.
2-31 (d) The contractor shall ensure that all deposit and
2-32 disbursement documentation includes the construction account number
2-33 or information that provides a direct connection between the
2-34 documentation and the account.
2-35 (e) The contractor may not destroy information required to
2-36 be maintained under this section before the first anniversary of
2-37 the date the improvement that is the subject of the contract is
2-38 completed.
2-39 SECTION 5. Section 162.032, Property Code, is amended by
2-40 adding Subsection (c) to read as follows:
2-41 (c) A trustee who fails to establish or maintain a
2-42 construction account in violation of Section 162.006 or fails to
2-43 establish or maintain an account record for the construction
2-44 account in violation of Section 162.007 commits a Class A
2-45 misdemeanor.
2-46 SECTION 6. (a) This Act takes effect September 1, 1997.
2-47 The changes in law made by this Act apply only to a construction
2-48 contract entered into on or after September 1, 1997, and funds
2-49 received under a construction contract entered into on or after
2-50 September 1, 1997.
2-51 (b) A construction contract entered into before September 1,
2-52 1997, or funds received under a construction contract entered into
2-53 before September 1, 1997, are governed by the law as it existed
2-54 immediately before September 1, 1997, and that law is continued in
2-55 effect for that purpose.
2-56 SECTION 7. The importance of this legislation and the
2-57 crowded condition of the calendars in both houses create an
2-58 emergency and an imperative public necessity that the
2-59 constitutional rule requiring bills to be read on three several
2-60 days in each house be suspended, and this rule is hereby suspended.
2-61 * * * * *