78R3631 ATP-F
By: Chisum H.B. No. 541
A BILL TO BE ENTITLED
AN ACT
relating to contingent payment clauses in certain construction
contracts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter D, Chapter 35, Business & Commerce
Code, is amended by adding Section 35.521 to read as follows:
Sec. 35.521. AGREEMENT FOR PAYMENT OF CONSTRUCTION
SUBCONTRACTOR. (a) In this section:
(1) "Contingent payment clause" means a provision in a
contract for construction management or design services or for the
construction of improvements to real property that provides that
the contingent payor's receipt of payment from another is a
condition precedent to the obligation of the contingent payor to
make payment to the contingent payee for work performed or
materials furnished.
(2) "Contingent payor" means a party to a contract
with a contingent payment clause that conditions payment by the
party on the receipt of payment from another person.
(3) "Contingent payee" means a party to a contract
with a contingent payment clause whose receipt of payment is
conditioned on the contingent payor's receipt of payment from
another person.
(4) "Improvement" includes new construction,
remodeling, or repair.
(b) A contingent payor or its surety may not enforce a
contingent payment clause to the extent that the nonpayment by the
contingent payor is the result of the fault of the contingent payor
or a contractor or subcontractor of the contingent payor other than
the contingent payee.
(c) A contingent payor or its surety may not enforce a
contingent payment clause as to work performed or materials
delivered after the fifth day after the date on which the contingent
payor receives written notice from the contingent payee objecting
to the further enforceability of the contingent payment clause as
provided by this section. The written notice is effective only if
it is sent after the 30th day after the accrual of an unpaid
indebtedness, other than retainage, owed to the contingent payee
for work performed or materials furnished under the contract
between the contingent payor and contingent payee.
(d) For purposes of Subsection (c), an unpaid indebtedness
to a contingent payee accrues only if a written request, in any
form, for payment of the unpaid indebtedness is submitted by the
contingent payee. The unpaid indebtedness accrues on:
(1) the last day of the month in which the work for
which payment is sought was performed or the materials for which
payment is sought were furnished, if the written request for
payment was submitted in that month; or
(2) the date on which the written request for payment
is submitted, if that date is after the end of the month in which the
work was performed or materials were furnished.
(e) On receipt of payment by the contingent payee of the
unpaid indebtedness giving rise to the written notice, the
contingent payment clause is reinstated as to work performed or
materials furnished after the receipt of the payment, subject to
the provisions of this section.
(f) A contingent payor or its surety may not enforce a
contingent payment clause if, under Section 53.026, Property Code,
the contingent payee is considered to be in direct contractual
relationship with the person from whom the contingent payor is to
receive payment.
(g) A contingent payment clause may not be used as a basis
for invalidation of the enforceability or perfection of a
mechanic's lien under Chapter 53, Property Code.
(h) A contingent payor or its surety may not enforce a
contingent payment clause if the enforcement would be
unconscionable. The party asserting that a contingent payment
clause is unconscionable has the burden of pleading and proving
that the clause is unconscionable. In determining whether the
enforcement of the clause is unconscionable, all circumstances may
be considered, including:
(1) whether the person attempting to enforce the
clause has made reasonable efforts to collect the amount owed to the
contingent payor in light of the likelihood of collection weighed
against the time, expense, and uncertainty of collection;
(2) the extent to which the contingent payor has
sufficient resources available to pursue collection, and whether
the contingent payee was requested and agreed to share in the
expense of collection;
(3) the extent to which the contingent payor has made
reasonable and prompt efforts to allow the contingent payee to
pursue meaningful collection opportunities in situations in which
the contingent payor is unable or unwilling to bring legal action
for the collection of the amount owed to the contingent payor; and
(4) whether the contingent payor exercised diligence
in ascertaining the financial viability of the person owing payment
to the contingent payor or the existence of adequate financial
arrangements to pay for the improvements, before entering into the
contract in which the contingent payment clause has been asserted,
and the extent to which the contingent payor communicated the
nature of that diligence and any financial risks to the contingent
payee.
(i) A contingent payor, who has not filed suit or initiated
other formal legal action for collection of the amount owed to the
contingent payor, has made reasonable efforts to collect the amount
owed, as required by Subsection (h)(1), if a reasonable business
person would consider the action futile or cost prohibitive.
(j) The assertion of a contingent payment clause is an
affirmative defense to a civil action for payment under a contract.
The party asserting the defense must plead and prove that the
contract contains a contingent payment clause that is enforceable
under this section.
(k) This section does not affect a provision that affects
only the timing of a payment in a contract for construction
management or design services or for the construction of
improvements to real property if the payment is to be made within a
time period that is reasonable.
(l) A person may not waive this section by contract or other
means. A purported waiver of this section is void.
SECTION 2. (a) Section 35.521, Business & Commerce Code, as
added by this Act, applies only to a contingent payment clause under
which payment is contingent on the receipt of payment under a
contract or other agreement entered into on or after September 1,
2003.
(b) This Act takes effect September 1, 2003.