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Texas Construction Litigation
Manual
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901 MAIN STREET SUITE 5200 DALLAS, TEXAS 75202
TEL. 214.749.6000 FAX 214.749.6100
Table of Contents
I. BREACH OF CONTRACT .........................................................................I-1
A. Elements of a Claim..............................................................................................I-1
1 Proving the Existence of a Valid, Enforceable Contract. .........................I-1
2 Standing ....................................................................................................I-4
3 Plaintiff Performed, Tendered Performance, or Was Excused from
Performance ..............................................................................................I-9
4 Defendant’s Breach.................................................................................I-14
5 Defendant’s Breach Injures Plaintiff ......................................................I-15
B. Remedies for Breach of Contract........................................................................I-15
1 Actual Damages ......................................................................................I-16
2 Liquidated Damages ...............................................................................I-23
3 Equitable Remedies ................................................................................I-25
4 Interest, Court Costs, and Attorneys’ Fees .............................................I-27
C. Statute of Limitations and Statue of Repose.......................................................I-28
1 Limitations ..............................................................................................I-28
2 Statute of Repose ....................................................................................I-29
D. Available Defenses .............................................................................................I-29
1 Failure to Mitigate Damages...................................................................I-29
2 Modification............................................................................................I-30
3 Liquidated Damages ...............................................................................I-30
4 Statute of Frauds .....................................................................................I-30
5 Third Party Beneficiaries ........................................................................I-31
JURY QUESTIONS .............................................................................................I-34
II. NEGLIGENCE ........................................................................................... II-1
A. Elements.............................................................................................................. II-1
B. Con-tort Analysis and the Economic Loss Rule ................................................. II-1
C. Owners and Contractors Liability for Injuries: Duties Owed to Invitees,
Licensees, and Trespassers ................................................................................. II-4
D. General Contractor’s Duties to Subcontractors’ Employees .............................. II-7
1 Negligent Activity or Instrumentality..................................................... II-9
2 Premises Defect .................................................................................... II-26
3 Violation of OSHA Regulations ........................................................... II-34
4 Safety Requirements and the “Narrow Duty”: Hoechst-Celanese Corp. v.
Mendez .................................................................................................. II-37
5 Subsequent Case Interpretation of Mendez .......................................... II-40
6 Lee Lewis Const., Inc., v. Harrison ...................................................... II-45
7 Dow Chemical Co. v. Bright................................................................. II-50
8 Texas Civil Practice and Remedies Code Chapter 95 .......................... II-52
E. Damages Recoverable....................................................................................... II-56
1 Personal Injury ...................................................................................... II-56
2 Wrongful Death and Survival ............................................................... II-56
3 Exemplary Damages ............................................................................. II-57
4 Tort Reform and Exemplary Damages ................................................. II-57
5 Property Damage .................................................................................. II-59
F. Statute of Limitations and Statutes of Repose .................................................. II-61
1 Accrual in Personal Injury Actions....................................................... II-61
2 Accrual in Wrongful Death Actions ..................................................... II-62
3 Accrual in Property Damage Actions ................................................... II-62
4 Statute of Repose .................................................................................. II-62
G. Available Defenses ........................................................................................... II-64
JURY QUESTIONS ........................................................................................... II-65
III. ECONOMIC LOSS RULE/CON-TORT ANALYSIS ............................. III-1
A. Jim Walter Homes, Inc. v. Reed ........................................................................ III-1
B. Southwestern Bell Telephone Company v. Delanney ....................................... III-2
C. Formosa Plastics Corp. USA v. Presidio Engineers .......................................... III-3
IV. INDEMNITY/ADDITIONAL INSUREDS.............................................. IV-1
A. Indemnity Agreements and Fair Notice Requirements......................................IV-1
1 Indemnity in General .............................................................................IV-1
2 Fair Notice Requirements ......................................................................IV-2
3 Actual Knowledge Mitigates Fair Notice ..............................................IV-3
4 Express Negligence Rule .......................................................................IV-4
5 Conspicuousness Requirement ............................................................IV-20
6 Indemnification for the Acts of the Indemnitor ...................................IV-25
B. Prohibition of Certain Indemnification Agreements Related to Architects and
Engineers..........................................................................................................IV-26
C. Insurance and “Additional Insured” Endorsements.........................................IV-28
1 Types of Insurance Available to Contractors.......................................IV-28
2 Indemnification’s Effect on CGL Coverage ........................................IV-33
3 Indemnitee as an Additional Insured ...................................................IV-39
D. Conclusion .......................................................................................................IV-45
V. CONTRIBUTION AND RESPONSIBLE THIRD PARTIES .................. V-1
A. Tort cases ............................................................................................................ V-1
1 Common Law Definition ........................................................................ V-1
2 The Source of Contribution Rights ......................................................... V-2
3 Recognizing and Asserting Contribution Rights .................................... V-4
4 Application............................................................................................ V-10
5 Questions............................................................................................... V-14
B. Responsible Third Parties ................................................................................. V-18
1 Definition of “Responsible Third Party” .............................................. V-18
2 Joinder Limitations ............................................................................... V-20
3 Effect of joinder of responsible third party........................................... V-24
4 Questions and Answers......................................................................... V-25
C. Contribution in non-tort cases........................................................................... V-36
1 Co-obligors on the same contract ......................................................... V-36
2 Quasi-contribution ................................................................................ V-37
JURY QUESTIONS ........................................................................................... V-39
VI. DTPA/FRAUD/MISREPRESENTATION............................................... VI-1
A. Deceptive Trade Practices Act...........................................................................VI-1
1 Elements.................................................................................................VI-2
2 Damages Recoverable............................................................................VI-5
3 Statute of Limitations and Statutes of Repose .......................................VI-7
4 Available Defenses ................................................................................VI-9
B. Fraud ................................................................................................................VI-13
1 Application...........................................................................................VI-13
2 Elements...............................................................................................VI-14
3 Damages Recoverable..........................................................................VI-16
4 Statute of Limitations...........................................................................VI-18
5 Statutes of Repose................................................................................VI-19
C. Negligent Misrepresentation............................................................................VI-20
1 Application...........................................................................................VI-20
2 Elements...............................................................................................VI-21
3 Damages Recoverable..........................................................................VI-22
4 Statute of Limitations and Statutes of Repose .....................................VI-22
5 Defenses...............................................................................................VI-25
JURY QUESTIONS .......................................................................................... VI-28
VII. RESIDENTIAL CONSTRUCTION LIABILITY ACT ..........................VII-1
A. Legislative History and Intent.......................................................................... VII-1
B. Scope of the RCLA.......................................................................................... VII-1
1 Actionable Construction Defects ......................................................... VII-2
2 Notice of Claim and Contractor’s Response........................................ VII-3
C. Mediation ......................................................................................................... VII-6
D. Disclosure Statement ....................................................................................... VII-7
E. Checklist of Important RCLA Principles......................................................... VII-7
F. Case Law Applying the RCLA ........................................................................ VII-9
1 Trimble v. Itz ....................................................................................... VII-9
2 Bruce v. Jim Walters Homes, Inc. ..................................................... VII-10
3 O’Donnell v. Roger Bullivant of Texas, Inc...................................... VII-11
4 In Re Kimball Homes Texas, Inc....................................................... VII-13
5 Perry Homes, Joint Venure v. Aziz Alwattari. .................................. VII-15
JURY QUESTIONS .........................................................................................VII-18
VIII. ARCHITECT/ENGINEER LIABILITY................................................ VIII-1
A. Theories of Liability ....................................................................................... VIII-1
1 Breach of Contract .............................................................................. VIII-1
2 Negligence .......................................................................................... VIII-2
3 Negligent Misrepresentation............................................................... VIII-5
4 Breach of Implied Warranty ............................................................... VIII-6
5 Deceptive Trade Practices................................................................... VIII-7
B. Statute of Repose ............................................................................................ VIII-7
IX. PAYMENT ENTITLEMENT ON CONSTRUCTION PROJECTS ........ IX-1
A. TEXAS PROPERTY CODES Chapter 53 And Mechanic’s Liens............................IX-1
1 Introduction............................................................................................IX-1
2 Procedures for Perfecting a Mechanic’s Lien........................................IX-2
3 Retainage Requirement..........................................................................IX-7
4 Discharging a Lien.................................................................................IX-8
5 Damages Recoverable..........................................................................IX-13
B. Public Construction Works and Bonds ............................................................IX-13
1 The Miller Act And Federal Construction Projects .............................IX-14
2 Texas Public Works Projects ...............................................................IX-17
X. QUICK REFERENCE GUIDE TO PERFECTING MECHANIC’S LIENS
.................................................................................................................... X-1
XI. PROTOCOL FOR HANDLING CONSTRUCTION CASES.................. XI-1
XII. STATUTORY PROVISIONS..................................................................XII-1
I. BREACH OF CONTRACT
A. Elements of a Claim
The elements of an action for breach of contract include:
(1) There is a valid, enforceable contract;
(2) The plaintiff has standing to sue for breach of the contract;
(3) The plaintiff performed, tendered performance, or was excused
from performing its contractual obligations;
(4) The defendant breached the contract; and
(5) The defendant’s breach caused the Plaintiff injury.1
1 Proving the Existence of a Valid, Enforceable Contract.
To prove the existence of a valid, enforceable contract, a party must establish the
following elements:
(1) an offer;
(2) an acceptance
(3) mutual assent;
(4) execution and delivery of the contract with the intent that it be
mutual and binding; and
(5) consideration (mutuality of obligations) supporting the contract.2
The typical construction scenario involving formation of contracts occurs
in purchase order agreements when the seller’s purchase order form contains
boilerplate terms and conditions and the purchaser’s acceptance form contains
differing boilerplate terms. The controlling terms and conditions will be
determined by the rules of contract construction in determining when a valid,
enforceable agreement was formed.
1
See Wright v. Christian & Smith, 950 S.W.2d 411, 412 (Tex. App.— Houston [1st Dist.] 1997,
no writ); Argee Corp. v. Solis, 932 S.W.2d 39, 51 (Tex. App.— Beaumont 1995), rev’d on other
grounds, 951 S.W.2d 384 (Tex. 1997).
2
Texas Gas Util. Co. v. Barrett, 460 S.W.2d 409, 412 (Tex. 1970)(element 5); Buxani v.
Nussbaum, 940 S.W.2d 350, 352 (Tex. App.—San Antonio 1997, no writ)(elements 1 – 4).
I-1
a. The Offer
To prove a valid offer, a party must show (1) the offeror intended to make an
offer; (2) the terms of the offer were clear and definite; and (3) the offeror communicated
the essential terms of the offer to the offeree orally or in writing.3
b. The Acceptance
Once a valid offer exists, the offeree may accept or reject it. To prove valid
acceptance, a party must show (1) the acceptance was made before the offer lapsed or
was revoked by the offeror;4 (2) the manner in which the acceptance was made strictly
complied wit the terms of the offer or was implicitly authorized under the circumstances;5
(3) the acceptance was communicated to the offeree or the offeree’s agent;6 and, (4) the
form of the acceptance was clear and definite and identical with the offer.7
c. Mutual Assent
To form a binding contract, the parties must have mutual assent, or a “meeting of
the minds,” on the essential terms of the contract, which may be express or implied. In
an express contract, mutual assent is expressly stated.8 In an implied-in-fact contract,
mutual assent is inferred from the circumstances, such as industry standards, the conduct
3
Engelman Irr. Dist. v. Shields Bros, Inc., 960 S.W2d 343, 352 (Tex. App.—Corpus Christi
1997,)
4
Ducc Reality Co. v. Cox, 356 S.W.2d 807, 809 (Tex. Civ. App.—Waco 1962, no writ);
5
Texas Pipe Line Co. v. Miller, 84 S.W2d 550, 551 (Tex. Civ. App.—Eastland 1935, no writ);
6
Dempsey v. King, 662 S.W.2d 725, 726-727 (Tex. App.—Austin 1983, writ dism’d);
7
Engelman Irr. Dist. v. Shields Bros, Inc., 960 S.W2d 343, 352 (Tex. App.—Corpus Christi
1997,)
8
Bank of El Paso v. T.O. Stanley Boot Co., 809 S.W2d 279, 284 (Tex. App.—El Paso 1991)
rev’d in part on other grounds, 847 S.W.2d 218 (Tex 1992).
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of the parties, their earlier course of dealing, and the surrounding circumstances at the
time of contracting.9
d. Execution and Delivery
A binding contract is formed when the contract is delivered to the appropriate
party.10 Delivery occurs when the party parts with possession or custody of an
instrument with the intent that it becomes operative.11 However, delivery is not required
if the contract does not require it or if the parties show a contrary intent by their
conduct.12 For example, often a subcontractor will not execute a subcontract before
performing work on a project for a general contractor. Upon completion of some or all
the work, the subcontractor raises a fee dispute. It is not a valid defense on the
contractor’s part that the contractor never received an executed version of the subcontract
from the subcontractor if the general contractor allowed the subcontractor to perform
work on the project and accepted the work as it progressed.
e. Consideration/Mutuality of Obligation
Consideration is the bargained-for exchange of promises and consists of either a
benefit to the party who made a promise or a loss or detriment to the person who receives
a promise, such as forbearance from filing a lawsuit, payment of cash, assumption of
outstanding indebtedness, partial payment of a debt before the debt is due, or assumption
9
Haws & Garrett General Contractors v. Gorbett Bros. Welding Co., 480 S.W.2d 607, 609 (Tex.
1972)(holding that mutual assent may be inferred from course of dealing).
10
Baccus v. Plains Cotton Coop., 515 S.W.2d 401, 402 (Tex. Civ. App.—Amarillo 1974, no writ).
11
Garcia v. Villarreal, 478 S.W2d 830, 832 (Tex. Civ. App,.—Corpus Christi 1971, no writ).
12
Awad Tex. Enters. v. Homart Dev. Co, 589 S.W.2d 817, 819-29 (Tex. Civ. App.—Dallas 1979,
no writ).
I-3
of liabilities.13 The consideration must be sufficient.14 For example, past consideration
such as past performance will not support the existence of a contract.15 A promise to
fulfill a preexisting duty is also not valid considerations for a contract.16
If consideration is expressly stated in the contract, it is presumed to be adequate.17
A party can rebut the presumption by showing unconscionability, bad faith, duress, or
fraud or by offering competent evidence that the contract was not supported by
consideration or that the stated consideration was grossly inadequate.18
2 Standing
To prove an action for breach of contract, the Plaintiff must establish standing to
sue by showing it is:
(1) in privity with the Defendant;
(2) a third-party beneficiary to the contract;19 or
(3) an agent entitled to sue on its principal’s contract.20
a. Privity
Privity is established by showing the Defendant was a party to an enforceable
contract with either the Plaintiff or a party who assigned its cause of action to the
13
Roark v. Stallworth Oil & Gas, 813 S.W.2d 492, 496 (Tex. 1991).
14
Gulf Liquid Fertilizer Co. v. Titus, 354 S.W.2d 378, 385 (Tex. 1962).
15
Mason v. Babin, 474 S.W.2d 809, 812 (Tex. Civ. App.—Waco 1971, writ ref’d n.r.e.).
16
Frame v. Frame, 36 S.W.2d 152, 154 (Tex. 1931).
17
Birdwell v. Birdwell, 819 S.W.2d 223, 228 (Tex. App.—Fort Worth 1991, writ denied).
18
Id. At 227-28.
19
Mandell v. Hamman Oil & Ref. Co., 822 S.W.2d 153, 161 (Tex. App.—Houston [1st Dist.]
1991, writ denied).
20
Perry v. Breland, 16 S.W.3d 182, 187 (Tex. App.—Eastland 2000, pet. denied).
I-4
Plaintiff.21 For example, in construction contracts involving disputes between
subcontractors and owners, the general contractor may sue the owner for breach of
contract on behalf of a subcontractor if a “pass-through” agreement or liquidation
agreement exists between the general and sub.22
i. Liquidation Agreements
For subcontractors who are pursuing a claim for extras against an owner, a recent
Texas Supreme Court case may prove useful. In a landmark decision the Texas Supreme
Court held that pass-through claims are valid if they meet certain requirements.23 This is
the first time the high court has considered whether a pass-through claim is valid, which
is surprising considering the industry’s longstanding use of these agreements.
Pass-through claims allow subcontractors to recover from an owner when the
owner’s breach has caused damages that exceed the subcontract price. By doing so, pass-
through claims place the ultimate responsibility for an owner’s breach on the owner. A
pass-through claim is a claim (1) by a party who has suffered damages, such as a
contractor; (2) against a responsible party with whom it has no contract, such as the
owner; and (3) presented through an intervening party who has a contract with both, such
as a general contractor.
Federal courts have been allowing pass-through claims for more than fifty years
under the rationale that the contractor is the only party legally bound to perform the
contract for the owner, and so whether or not the contractor actually performs the work or
21
Conquest Drilling Fluids v. Tri-Flo Int’l, 137 S.W.3d 299, 308 (Tex. App.—Beaumont 2004, no
pet.).
22
Interstate Contracting Corp. v City of Dallas, 135 S.W.3d 605, 607 (Tex. 2004).
23
Interstate Contracting Corp. v. City of Dallas, 135 S.W.3d 605 (Tex. 2004).
I-5
has a subcontractor do it, the contractor should have the right to seek extra costs and
services wrongfully demanded by the owner. Otherwise, the owner could receive a
windfall because the subcontractor has no direct contract with the owner and cannot
therefore bring a breach of contract action against the owner. Only nineteen states have
considered the issue. Of these nineteen states, Connecticut is the only one that does not
recognize their validity.
The court in Interstate Contracting relied on three policy reasons for allowing
pass-through claims. First, the use of pass-through agreements is already common in
Texas’ construction industry and by recognizing them as valid, the court aligned Texas
with federal procedure and the law of the majority of states that have considered the
issue. Second, pass-through claims protect subcontractors against an owner’s breach of
contract without undue prejudice to the owner. Third, pass-through claims promote
judicial economy by eliminating repeat litigation and encouraging settlement of claims.
A pass-through claim, also called a liquidation agreement, may be included in the
subcontract or it may be created in a separate agreement. It is not necessary that the
parties enter a binding settlement agreement. Any type of claims-presentment agreement
meeting the following requirements is sufficient: (1) the contractor must acknowledge its
liability to the subcontractor, remaining liable to the subcontractor for damages incurred
by the subcontractor; (2) the general contractor’s liability is liquidated to the extent of its
recovery against the owner; and (3) the general contractor agrees to pass its recovery to
the subcontractor. Therefore, under a liquidation agreement, the subcontractor releases
all claims it may have against the contractor in exchange for the contractor’s promise to
pursue those claims against the owner and give any recovery to the subcontractor. It is
I-6
very important that any pass-through arrangement between the subcontractor and the
general contractor require that the contractor be liable to the subcontractor if the
contractor refuses to present the pass-through claim. Otherwise, the court considers the
agreement a release and will dismiss the pass-through claim in favor of the owner.
The court’s decision in Interstate Contracting is limited to apply only to
construction contracts between owners, contractors, and subcontractors. The court
pointed out that its recognition of pass-through claims does not affect the procedures for
perfecting statutory mechanic’s and material man’s liens in private contracts or for
asserting claims on payment bonds in public contracts.
Lest contractors think they have become mere pawns of the subcontractors by the
court’s holding, allowing the use of pass-through claims does not take any power away
from the general contractor if the general contractor disputes the subcontractor’s claim.
If such a dispute exists, the contractor is entitled to (1) refuse to enter into a pass-through
agreement with the subcontractor; or (2) refuse to pursue the subcontractor’s claims
against the owner.
Interstate Contracting Corporation v. City of Dallas is an important decision for
the construction industry. The holding should strengthen business ties between
contractors and subcontractors by providing an alternative means of recovery for claims
that arise solely through a subcontractor’s work.
I-7
b. Third-Party Beneficiary
A third party is a beneficiary to a contract if (1) the contracting parties intended to
secure a benefit to the third party, and (2) the contracting parties entered into the contract
directly for the third party’s benefit.24
A third-party beneficiary contract cannot be created by implication.25 Parties are
presumed to contract only for their own benefit.26 The agreement must fully and clearly
express intent to confer a direct benefit to the third party.27 To determine the parties’
intent regarding a third-party beneficiary, courts must examine the entire agreement when
interpreting a contract and give effect to all the contract’s provisions so that none are
rendered meaningless.28
In construction contracts, a subcontractor is usually in privity only with the
general contractor.29 A property owner is not a third-party beneficiary of a contract
between a general contractor and a subcontractor, even though the owner will benefit
from the contract, unless the contract clearly provides for the owner to be a third-party
beneficiary.30
24
Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002); MCI Telecomms. Corp v. Texas Util. Elec.
Co., 995 S.W.2d 647 651 (Tex. 1999); Raymond v. Rahme, 78 S.W.3d 552, 561 (Tex. App.—
Austin 2002, no pet.)(property owner is not third-party beneficiary of contract between general
contractor and subcontractor simply because the owner will benefit from the contract).
25
Stine, 80 S.W.3d at 589; MCI, 995 S.W.2d at 651.
26
Melvin Green, Inc. v. Questor Drilling Corp., 946 S.W.2d 907, 911 (Tex. App.—Amarillo 1997,
no writ).
27
Stine, 80 S.W.3d at 589; MCI, 995 S.W.2d at 651.
28
Stine, 80 S.W.3d at 589; MCI, 995 S.W.2d at 651 - 52.
29
City of La Porte v. Taylor, 836 S.W.2d 829, 831 (Tex. App.—Houston [1st Dist.] 1992, no
writ); City of Corpus Christi v. Heldenfels Bros., Inc., 802 S.W.2d 35, 38 (Tex. App.—Corpus
Christi 1990), aff’d, 832 S.W.2d 39 (Tex. 1992).
30
Rahme, 78 S.W.3d at, 561.
I-8
The American Institute of Architects addresses this issue in its form contracts by
including a provision in the AIA A201 1997 General Terms and Conditions of the
Contract for Construction (General Conditions), which specifically addresses the intent of
the contracting parties as not entering the agreement for the benefit of others. The
General Conditions specifically state that the agreement is not made for the benefit of any
third parties.
c. Agent
Generally, an agent has no standing to sue for a breach of its principal’s
contract.31 An agent is entitled to sue when (1) the agent contracts in its own name; (2)
the principal is undisclosed; (3) the agent is authorized to act as owner of the property; or
(4) the agent has an interest in the subject matter of the contract.32
3 Plaintiff Performed, Tendered Performance, or Was Excused
from Performance
The third element in a breach of contract claim requires Plaintiff prove it
performed, tendered performance, or was excused from performing its contractual
obligations.33
31
Tinsley v. Dowell, 26 S.W.946, 948 (Tex. 1894).
32
Perry v. Breland, 16 S.W.3d 182, 187 (Tex. App.—Eastland 2000, pet. denied).
33
Southwell v. University of the Incarnate Word, 974 S.W.2d 351, 354 - 55 (Tex. App.—San
Antonio 1998, pet. denied).
I-9
a. Contract Performance
A Plaintiff must establish that it fully or substantially performed its contractual
obligations.34 The existence of a satisfaction clause may affect the determination of full
or substantial performance.
i. Full Performance
“Full performance” means all contractual duties have been fulfilled and nothing is
left to be done.35 A plaintiff that has fully performed its contractual duties is entitled to
recover the full contract price.36
ii. Substantial Performance
“Substantial performance” means all the essential elements of a contract were
performed and is the legal equivalent of full performance.37 The doctrine of substantial
performance excuses contractual deviations or deficiencies that do not severely impair
the purpose of the contract.38 The doctrine of substantial performance allows a contractor
who substantially performs a construction contract to sue on the contract rather than
being limited to a cause of action for quantum meruit.39 A contractor that has
substantially performed a contract may recover the full contract price less deductions and
expenses necessary to remedy defects, deviations, and omissions caused by the
34
Weitzul Construction, Inc. v. Outdoor Environs, 849 S.W.2d 359, 363 (Tex. App.—Dallas
1993, writ denied).
35
Garcia v. Kastner Farms, Inc., 789 S.W.2d 656, 660 (Tex. App.—Corpus Christi 1990, no writ).
36
Vance v. My Apt. Steak House, Inc., 677 S.W2d 480, 481 (Tex. 1984).
37
Anderson v. Vinson Expl, Inc., 832 S.W.2d 657, 666 (Tex. App.—E Paso 1992, writ dism’d).
38
Burtch v. Burtch, 972 S.W.2d 882, 889 (Tex. App.—Austin 1998, no pet.).
39
Vance, 677 S.W2d at 482.
I-10
incomplete performance.40 The doctrine is also available for repair contracts, such as
repair of a crane.41
To establish that “substantial performance” has occurred, a party must satisfy the
essential elements of the contract; and, any defect in performance must not destroy the
purpose of the contract.42
iii. Satisfaction Clause
A Satisfaction Clause is a contractual clause requiring performance, at least in
part, be to the satisfaction of one of the contracting parties.43 For a Satisfaction Clause to
be upheld, the party making the determination of satisfaction must exercise good faith in
its determination.44 Satisfaction is based on an objective standard, in other words,
whether the performance would satisfy a reasonably person.45 For example, in the
construction contract context, the objective standard is satisfied when the construction or
repairs are substantially completed.46
40
Id. at 481.
41
Cranetex v. Precision Crane & Rigging, 760 S.W.2d 298, 302 (Tex. App.—Texarkana 1988,
writ denied).
42
Uhlir v. Golden Triangle Dev. Corp., 763 S.W.2d 512, 514 (Tex. App.—Fort Worth 1988, writ
denied).
43
Black Lake Pipe Line Co. v Union Construction Co., 538 S.W.2d 80, 88 (Tex. 1976).
44
Id.
45
Id.
46
Cranetex, 760 S.W.2d at 302.
I-11
b. Performance Tendered
A Plaintiff “tenders” performance if it is ready and willing to perform its
dependent promise, has the resent ability to perform the promise, and notifies the other
party of its readiness to perform.47
c. Performance Excused
Excuses which will allow a nonperforming Plaintiff to recover on its contract
include (1) material breach by Defendant; (2) Defendant’s repudiation of a dependant
promise; (3) Defendant prevents performance; or (4) Defendant’s waiver of a duty of
performance through its words, acts, or conduct that shows a clear intent to give up a
right of performance. For a breach to be material enough to suspend Plaintiff’s duty to
perform, it must deprive Plaintiff of the benefit that could have been reasonably
anticipated from full performance of the contract. For example, in a construction contract
or contract for architectural or engineering services, an owner’s failure to pay may be a
material breach.48 An example of a Defendant preventing performance in the
construction context is when an owner refuses to permit a contractor to proceed or does
not provide the required means to complete the contract.49 A recent case that highlights
the consequences of filing suit when the claimant may have committed a material breach
is Mustang Pipeline Co., Inc. v. Driver Pipeline Co. Inc.50 Driver agreed to construct 100
miles of pipeline pursuant to a contract that included a “time is of the essence” clause.
47
17090 Parkway, Ltd. v. McDavid, 80 S.W.3d 252, 256 (Tex. App.—Dallas 2002, pet. denied).
48
Sage St. Assocs. v. Northdale Construction Co., 809 S.W.2d 775, 777 (Tex. App.—Houston
[14th Dist.] 1991), rev’d in part on other grounds, 863 S.W.2d 438 (Tex. 1993)(owner not paying
contractor installment payments).
49
Sage, 809 S.W.2d at 777
50
134 S.W.3d 195 (Tex. 2004).
I-12
After agreeing on an acceptable project schedule, the project was delayed due to rains.
The contractor completed only 15 miles of the 100-mile project during the first half of the
project schedule. The owner terminated Driver and hired another contractor to complete
the project. The owner then sued the contractor to recover the cost of completion and lost
profits. The contractor countersued for breach of contract and lost profits alleging
wrongful termination. The jury found that both parties had breached the contract. On
appeal, the Supreme Court held that the contractor’s breach was material because it failed
to maintain a project schedule that would allow the project to be completed on time, and
therefore the owner was excused from any breach of contract action for terminating the
defaulting contractor. The court held that the evidence presented at trial established as a
matter of law that Driver materially breached the contract because there was “virtually no
chance” that Driver could have completed the remaining eighty-five miles of pipeline in
the forty days remaining in the contract time.
d. Conditions Precedent
A condition precedent to a contract is an act or event that must occur before the
defendant is required to perform its own obligations.51 A plaintiff must establish that all
conditions precedent have been satisfied before it may sue on the contract.52
e. Timing of Performance
The time for performance of a contract is usually performance within a reasonable
time.53 However, if a contract expressly or by implication provides that time is of the
51
Centex Corp. v. Dalton, 840 S.W.2d 952, 956 (Tex. 1992).
52
Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976).
53
Heritage Res. v Anschutz Corp., 689 S.W.2d 952, 955-56 (Tex. App.—El Paso 1985, writ ref’d
n.r.e.).
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essence, then a party must perform by the specified time.54 To make time of the essence,
the intention must be expressed in the contract when read as a whole.55 Merely a specific
date for performance in the contract is not sufficient, by itself, to require that time is of
the essence.56 The requirement in a contract that time is of the essence may be waived,
such as an oral or written agreement extending the time for performance.57 If the
agreement is oral, it must be made before the written contract expires.58
4 Defendant’s Breach
“Breach” means the failure, without legal excuse, to perform any promise that
forms all or part of an agreement, the refusal to recognize the existence of an agreement,
or the doing of something inconsistent with its existence.59 Defendant may breach the
contract by (1) neglecting or refusing to perform one or more contractual obligations; (2)
making performance impossible; (3) improperly terminating the contract; or (4)
repudiating the contract or, in other words, refusing to perform.
54
Beavers v. Goose Creek Consol. ISD, 884 S.W.2d 932, 935 (Tex. App.—Waco 1994, writ
denied)(holding construction company breached contract with school district by failing to begin
replacement of gym floors by date specified in contract).
55
Laredo Hides Co. v. H&H Meat Prods., 513 S.W.2d 210, 217 (Tex. Civ. App.—Corpus Christi
1974, writ ref’d. n.r.e.).
56
Id.
57
17090 Parkway, 80 S.W.3d at, 255-56 (Tex. App.—Dallas 2002, pet. denied).
58
Dracopoulas v. Rachal, 411 S.W.2d 719, 721 (Tex. 1967).
59
DeSantis v. Wackenhut Corp., 732 S.W.2d 29, 34 (Tex. App.—Houston [14th Dist.] 1987),
rev’d in part on other grounds, 793 S.W.2d 670 (Tex. 1990).
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5 Defendant’s Breach Injures Plaintiff
To recover actual damages, the Plaintiff must prove it suffered some monetary
loss as a result of the breach of contract, which was a natural, probably, and foreseeable
consequence of the Defendant’s breach.60
B. Remedies for Breach of Contract
Available remedies for breach of contract may include some or all of the
following:
(1) Actual damages;
(a) Expectation interest;
(b) Reliance interest;
(c) Restitution interest;
(d) Delay damages
(2) Liquidated damages;
(3) Equitable Remedies;
(4) Interest;
(5) Court costs; and/or
(6) Attorneys’ fees.
Remedies that are generally not available for a breach of contract claim are
exemplary damages, damages for personal injury such as mental anguish, or loss of
business reputation.61 The exception to the rule is if a legal duty arising separately from
the contract has been breached, then tort damages are potentially recoverable. 62
60
Mead v. Johnson Group, 615 S.W.2d 685, 687 (Tex. 1981); Braselton-Watson Builders v.
Burgess, 567 S.W.2d 24, 28 (Tex. Civ. App.—Corpus Christi 1978, writ ref’d n.r.e.).
61
Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986)(exemplary damages);
Stewart Title Guar. Co. v. Aiello, 941 S.W.2d 68, 72 (Tex. 1997)(mental anguish); Rubalcaba v.
Pacific/Atlantic Crop Exchange, 952 S.W.2d 552, 559 (Tex. App.—El Paso 1997, no writ).
62
Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494-95 (Tex. 1991).
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1 Actual Damages
a. Expectation Interest
The expectation interest in a contract is the damages that would give the Plaintiff
the benefit of its bargain by putting Plaintiff in as good a position as it would have been
in had the contract been performed.63
b. Reliance Interest
The reliance interest in a contract is the damages that would restore any
expenditure the Plaintiff made in reliance on the contract.64 Reliance damages are
typically sought when the expectation interest damages, such as lost profits, are too
speculative or uncertain or when Plaintiff entered into a contract that would result in a net
loss to Plaintiff if the contract were performed.65
c. Restitution Interest
Restitution interest is the damages that would restore the property or money taken
from the Plaintiff by Defendant and attempts to put the Plaintiff in as good a position as it
would have been in ha no contract been made.66 Restitution is available for breach of an
express contract when Plaintiff has partially performed but its remaining performance
was prevented by Defendant.67 However, restitution is not available when Plaintiff fully
performs and, in exchange for the performance, Defendant agreed to pay a sum of money
63
Qaddura v. Indo-European Foods, 141 S.W.3d 882, 888 –89 (Tex. App.—Dallas 2004).
64
Mistletoe Express Serv. v. Locke, 762 S.W.2d 637, 638-39 (Tex. App.—Texarkana 1988, no
writ).
65
Id.
66
Harker Heights v. Sun Meadows Land, Ltd., 830 S.W.2d 313, 317 (Tex. App.—Austin 1992, no
writ).
67
Truly v. Austin, 744 S.W.2d 934, 937 (Tex. 1988).
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immediately and unconditionally.68 Restitution is available for breach of an implied
contract when Defendant would not be entitled to some or all of Plaintiff’s rendered
performance.69 Typically in construction contracts, general contractors and
subcontractors seek restitution under the theory of quantum meruit.
For example, quantum meruit allows a general contractor to recover the
reasonable value of its goods or services an owner used, accepted, or enjoyed when the
owner had notice the general contractor expected to be paid for the goods or services. 70
d. Delay Damages
An owner, a general contractor, or a subcontractor may be entitled to recover
damages for losses arising from delays attributable to another party. For a contractor to
recover delay damages, he has the burden of proving three elements: (1) the contractor’s
work was either delayed or hindered; (2) the contractor suffered damages arising from the
delay or hindrance; and (3) the contractee caused the delay or hindrance.71 If all three
elements are established, the injured party may recover either the actual damages
resulting from the delay or the agreed-upon daily amount of an enforceable liquidated
damages clause in the contract.
To protect themselves from liability for delays in completing work, parties may
expressly agree that delay damages are not recoverable. Such provisions are called “no-
68
Angelo Broadcasting v. Satellite Music Network, 836 S.W.2d 726, 731 (Tex. App.—Dallas
1992, writ denied).
69
Burlington N. Ry. v. Southwestern Elec. Power Co., 925 S.W.2d 92, 97 (Tex. App.—Texarkana
1996 ), aff’d, 966 S.W.2d 467 (Tex. 1998).
70
Mccracken Construction Co. v. Urrutia, 518 SW.2d 618, 621 (Tex. Civ. App—El Paso 1974, no
writ).
71
See City of Houston v. R.F. Ball Construction Co., 570 S.W.2d 75, 77 (Tex. App.— Houston
[14th Dist.] 1978, writ ref’d n.r.e.).
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damages-for-delay” clauses, and they relieve a party that causes delay from liability for
associated actual damages.72 An example of such a clause was addressed in Green Int.,
Inc. v. Solis.73 The clause protected the contractor by incorporating the following
language into the construction contract:
Contractor … shall not be liable to the Subcontractor for delay to the
Subcontractor’s work by the act, neglect or default of the Owner,
Contractor, action of workmen or others, or any cause beyond
Contractor’s control.74
No-damages-for-delay clauses are distinguishable from indemnity agreements
because they are not subject to fair notice requirements such as the conspicuousness test
or the express negligence rule.75 The Texas Supreme Court has distinguished the
extraordinary risk shifting of tort and negligence damages of indemnity agreements and
releases from no-damages-for-delay clauses, which instead shift damages arising from
breach of contract.76
The Texas Supreme Court has recognized five situations in which a no-damages-
for-delay clause will be enforceable. Not surprisingly, the nature of the delay is the
critical inquiry, and delays of the following character will not be excused by a no-
damages-for-delay clause:
(1) delays not intended or contemplated by the parties
to be within the purview of the provision;
72
See Green Int., Inc. v. Solis, 951 S.W.2d 384 (Tex. 1997).
73
Id.
74
Id. at 387.
75
See id. See Chapter IV entitled “Additional Insureds and Indemnification,” infra, for a detailed
discussion of fair notice requirements.
76
See id.
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(2) delays resulting from fraud, misrepresentation, or
other bad faith on the part of one seeking the benefit of the
provision;
(3) delays extending for such an unreasonable length of
time that the party delayed would have been justified in
abandoning the contract;
(4) delays not within the specifically enumerated delays
to which the clause applies; or
(5) delays resulting from arbitrary or capricious acts.77
i. Home Office Overhead
Home office overhead based on the Eichleay formula was allowed in Alamo
Community College Dist. v. Browning Construction Co.78 This is the first Texas case to
specifically allow Eichleay damages.79
e. Categorizing Actual Damages
Actual damages are further classified as either general or special damages.80
General damages are presumed to have been foreseen by the breaching party as a natural
and necessary consequence of the wrongful act.81 Special damages arise naturally but not
necessarily from the wrongful act, and the plaintiff must prove the damages were either
77
See Green, 951 S.W.2d at 387 (citing City of Houston v. R.F. Ball Constr. Co., 570 S.W.2d 75,
77 & n.1 (Tex. Civ. App.—Houston [14th Dist.] 1978, writ ref’d n.r.e.) and assuming without
discussing that the stated exceptions preclude the enforcement of no-damages-for-delay clauses).
See also Jensen Constr. Co. v. Dallas County, 920 S.W.2d 761 (Tex. App.— Dallas 1996, writ
denied) (acknowledging the existence of exceptions 1-4).
78
131 S.W.3d 146 (Tex. App. – San Antonio 2004, pet. filed March 24, 2004).
79
Eichleay Corp., ASBCA No. 5183, 60-2BCA.
80
See Nelson v. Data Terminal Systems, Inc., 762 S.W.2d 744, 748 (Tex. App.—San Antonio
1988, writ denied).
81
See id.
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foreseen or contemplated by the parties.82 Special damages are also referred to as
“consequential damages,” and the terms are used interchangeably.83
i. Hadley v. Baxendale
The key component for measuring actual damages is foreseeing ability. The
seminal case addressing foresees ability of contract damages is the 1854 English case of
Hadley v. Baxendale.84 The Hadley court framed the foresee ability analysis as follows:
[w]here two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such
breach of contract should be such as may fairly and reasonably be
considered either arising naturally; i.e., according to the usual course of
things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties at the time they
made the contract as the probable result of the breach.85
Foresee ability is also an essential element for actual damages under §351 of the
RESTATEMENT (SECOND) OF CONTRACTS, which reads:
(1) Damages are not recoverable for loss that the party in breach
did not have reason to foresee as a probable result of the breach
when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach
because it follows from the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the
ordinary course of events, that the party in breach
has reason to know.86
82
See id.
83
See Hycel, Inc. v. American Airlines, Inc., 328 F. Supp. 190, 193 (5th Cir. 1971).
84
Mead v. Johnson Group, Inc., 615 S.W.2d 685 (Tex. 1981).
85
Hadley v. Baxendale, 9 Exch. 341, 354 (1854).
86
RESTATEMENT (SECOND) OF CONTRACTS § 351 (1981).
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This rule precludes recovery under a breach of contract theory if the losses sustained by
the injured party were not foreseeable at the time the contract was signed.
Determination of the proper measure of damages in claims between an owner,
general contractor and subcontractor is calculated by apportioning the losses sustained by
the respective parties. For example, the proper measure of damages in an action between
a general contractor and a subcontractor for abandonment of work on a subcontract is the
reasonable and necessary costs of completing the work over and above the unpaid portion
of the contract price.87 The same formula is utilized when an owner sues a general
contractor for failure to perform.88
If a general contractor is prevented by acts of the owner from performing his
duties under the contract, he may sue the owner under the contract to recover the contract
price less what it would have cost the general contractor to complete the work.89 The
general contractor may also treat the contract as rescinded and recover in quantum
meruit90 the full value of the work performed.91 These damages measures also apply to a
subcontractor who is unable to complete performance of a contract because of wrongful
interference by a general contractor.
87
See Freeman v. Shannon Const., Inc., 560 S.W.2d 732, 736 (Tex. Civ. App.— Amarillo 1977,
writ ref’d n.r.e.).
88
See id. at 735 (citing McKnight v. Renfro, 371 S.W.2d 740, 745 (Tex. Civ. App.— Dallas 1963,
writ ref’d n.r.e.)).
89
See Sage, 937 S.W.2d at, 426 Tips v. Hartland Developers, Inc., 961 S.W.2d 618, 624 (Tex.
App.—San Antonio 1998, no writ); McCracken Const. Co., Inc. v. Urrutia, 518 S.W.2d 618, 621
(Tex. Civ. App.—El Paso 1974, no writ); Kleiner v. Eubank, 358 S.W.2d 902, 905 (Tex. Civ.
App.— Austin 1962, writ ref’d n.r.e.).
90
Quantum Merit is defined as “the reasonable value of services; damages awarded in an amount
considered reasonable to compensate a person who has rendered services in a quasi-contractual
relationship.” BLACK’S LAW DICTIONARY, (1996).
91
See McCracken, 518 S.W.2d at 621-22; Kleiner, 358 S.W.2d at 905.
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ii. Perfect, Substantial, and Partial Performance
If a general contractor tenders perfect performance in accordance with the terms
of a contract or subcontract, the general contractor is entitled to recover the full contract
price in a breach of contract action against an owner or general contractor.92 Likewise,
the owner or general contractor may be liable for the full contract price less the cost of
remedying any remediable defects.93 If the general contractor or subcontractor has
partially performed but not substantially performed, he may seek either lost profit
damages or quantum meruit damages.94
For actions and counterclaims initiated by owners alleging breach by a general
contractor of the construction contract, the owner may recover the cost of completing the
job or the cost of remedying any defects that are remediable.95 If the owner has already
paid the general contractor a portion of the contract price, the amount of the owner’s
damages is credited against the balance of the payment still owed on the contract.96 If a
general contractor sues or counterclaims against a subcontractor in breach of the
subcontract, the same measure of damages is proper.
If a general contractor has performed substantially but not completely under a
contract, the owner may recover the cost of completion less the unpaid balance on the
92
See McFarland v. Sanders, 932 S.W.2d 640, 644 (Tex. App.—Tyler 1996, no writ).
93
See Vance, Inc., 677 S.W.2d at 481; McFarland, 932 S.W.2d at 644; Weitzul, 849 S.W.2d at,
363 (Tex. App.—Dallas 1993, writ denied); Shaddock v. Storm King Window Co., 696 S.W.2d
271, 273 (Tex. App.—Fort Worth 1985, writ ref’d n.r.e.).
94
See McFarland, 932 S.W.2d at 644.
95
See Vance, 677 S.W.2d at 482; Weitzul, 849 S.W.2d at 363.
96
See Vance, 677 S.W.2d at 482; Weitzul, 849 S.W.2d at 363.
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contract price.97 This is the remedial measure of damages, and it is also the proper
measure of a general contractor’s damages in a suit against a subcontractor who has
performed substantially but not completely. Thus, if the general contractor or
subcontractor has not substantially performed, the proper measure of damages for the
owner or general contractor is the difference in value between what was received and
what was promised under the contract or subcontract.98 If the general contractor or
subcontractor has wholly failed to perform, the injured party (whether owner or general
contractor) may recover the reasonable cost of remedying the defects.99 If an owner
completes the work himself following the contractor’s failure to perform, he is entitled to
recover from the general contractor the excess of the reasonable and necessary costs of
completion over the unpaid portion of the contract price.100
2 Liquidated Damages
Unless a contrary agreement exists, the non-breaching party to a contract is
entitled to any of its actual damages necessary to put it in the same economic position it
would have been in but for the breach.101 Contrary agreements may allow an injured
plaintiff to recover an amount potentially different from its expectation interest in the
form of a liquidated damages clause, but only if the clause is commercially reasonable
and not punitive in nature. This rule is articulated by §2.718(a) of the UNIFORM
97
See Oehlert v. Massey, 919 S.W.2d 796, 798 (Tex. App.— Texarkana 1996, writ denied).
98
See id. at 798; Precision Homes, Inc. v. Cooper, 671 S.W.2d 924, 927 (Tex. App.—Houston
[14th Dist.] 1984, writ ref’d n.r.e.).
99
See Ashley v. Bizzell, 694 S.W.2d 349, 353 (Tex. App.—San Antonio 1985, writ ref’d n.r.e.)
citing Smith v. Kinslow, 598 S.W.2d 910, 915 (Tex. Civ. App.— Dallas 1980, no writ)).
100
See id. at 352.
101
See Gen. Resources Organization, Inc. v. Deadman, 907 S.W.2d 22, 32 (Tex. App.—San
Antonio 1995, writ denied).
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COMMERCIAL CODE, which governs the validity of liquidated damages clauses in
contracts for the sale of goods:
Damages for breach by either party may be liquidated in the agreement but
only at an amount, which is reasonable in the light of the anticipated or
actual harm caused, by the breach, the difficulties of proof of loss, and the
inconvenience or non-feasibility of otherwise obtaining an adequate
remedy. A term fixing unreasonably large liquidated damages is void as a
penalty.102
It should be noted that the liquidated damages clauses in construction contracts
often would fall within the scope of §2.718(a). For example, a liquidated damages clause
in a contract between a general contractor and a cement-work subcontractor that requires
the subcontractor to provide labor, material, and equipment is not governed by the U.C.C.
because the contract is essentially a services contract as opposed to a contract for the sale
and passage of title to goods.103
For a liquidated damages clause to be enforceable in a service contract, which
includes most construction contracts, the clause must pass the two-part test crafted by the
Texas Supreme Court in Stewart v. Basey: (1) the actual damages caused by the breach of
contract must be impossible or difficult to estimate; and (2) the amount of liquidated
damages called for under the contract must be a reasonable forecast of just
compensation.104
This test will preclude enforcement of certain types of liquidated damages clauses
in construction contracts. For example, a contractual provision that calls for one party to
102
TEX. BUS. & COM. CODE. §2.718(a) (Vernon 1994).
103
See Freeman v. Shannon Const, Inc., 560 S.W.2d 732, 737 (Tex. Civ. App.— Amarillo 1977,
writ ref’d n.r.e.).
104
See Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1991) citing Stewart v. Basey, 245 S.W.2d
484, 485-86 (Tex. 1952).
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pay the other party treble damages in the event of breach should not be enforced by a
court. Such a provision clearly fails both prongs of the Stewart test. First, if any multiple
of actual damages can be calculated, the clause would fail the first prong per se, since
liquidated damages are contingent upon an inability to ascertain actual damages. Second,
if “just compensation” is first calculated and then multiplied, it is no longer “just
compensation” under the plain meaning of the phrase. It is also not a “reasonable
forecast of actual damages.”105
A liquidated damages provision that allows a general contractor to deduct
payment from a subcontractor who abandons a project for any amount the general
contractor pays a substitute subcontractor to complete the unfinished work is
unenforceable.106 Again, this type of provision fails both prongs of the Stewart test
because (1) it fails to limit the liquidated damages recoverable to those costs reasonable
and necessary for completion of the work; and (2) actual damages can be ascertained.107
If a court finds a liquidated damages clause to be unenforceable, the actual measure of
damages will be the reasonable and necessary costs of completing the work over and
above the unpaid portion of the subcontract.
3 Equitable Remedies
Equitable remedies are available in lieu of monetary damages when there is no
adequate remedy at law for damages and when damages would be inadequate
105
See id. at 789.
106
See Freeman, 560 S.W.2d at 738.
107
See id.
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compensation.108 These remedies include specific performance, rescission, and
reformation and whether they will be enforced is a matter within the discretion of the
court.109
Specific performance requires the Defendant to perform strictly according the
agreement and, to be enforced, requires Plaintiff to show that it is ready, willing, and able
to perform, that it has strictly complied with its duties under the contract, there was no
material breach or repudiation by Plaintiff, and Plaintiff has “clean hands” and that the
contract is fair and free from misrepresentation, misapprehension, fraud, mistake, or
surprise.110 Specific performance is a remedy that is frequently used in suits involving
real property, such as for the sale of real property when a buyer insists on purchasing
property after a seller’s breach of the contract for sale.
Rescission seeks to avoid the contract, to return any consideration paid, and to
return the parties to their earlier positions as if no contract had ever existed.111
Reformation seeks to correct a mutual mistake made in the preparation of a
written instrument so that the instrument reflects the original agreement of the parties. 112
There are two kinds of mistake that can be raised as a defense to a contract action:
unilateral mistake and mutual mistake. Both forms involve only mistakes concerning
108
United Coin Meter Co. v Johnson-Campbell Lumber Co., 493 S.W.2d 882, 886 (Tex. Civ.
App.—Fort Worth 1973, no writ).
109
Falk v. Axiam, Inc., 944 F. Supp. 542, 552 (S.D. Tex. 1996) quoting Horton v. Robinson, 776
S.W.2d 260, 267 Tex. App.—El Paso 1989, no writ.
110
Scott v. Vandor, 671 S.W.2d 79, 86 Tex. App.—Houston [1st Dist.] 1984, writ ref’d n.r.e.);
Lazy M Ranch v. TXI Operations, 978 S.W.2d 678, 683 (Tex. App.—Austin 1998, pet. denied).
111
Hunt Cty. Oil Co. v. Scott, 67 S.W. 451, 452 (Tex. Civ. App.—Austin 1902, writ ref’d).
112
Cherokee Water Co. v. Forderhause, 741 S.W.2d 377, 379 (Tex. 1987).
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past or present facts.113 A mistake in predicting a future fact known to be uncertain
cannot be raised as a basis for a defense of mistake.114 The legal theory or mistake is
typically used by general contractors or subcontractors who have made errors in their
bids.115 Recovery under the theory of unilateral mistake by the one submitting the bid is
rare and is only available when the claimant shows that the mistake would have been
made regardless of the exercise of ordinary care.116
On the other hand, if a contractor or subcontractor can show that both parties had
the same misunderstanding of the same material fact, the mistake involved a material part
of the contract, and the risk of mistake was not allocated to the defendant, then the
contract may be voidable.117
4 Interest, Court Costs, and Attorneys’ Fees
In an action for breach of contract, a Plaintiff may recover prejudgment and post
judgment interest, court costs, and attorneys’ fees.118
113
Green v. Morris, 43 S.W.3d 604, 606-07 (Tex. App.—Waco 2001, no pet.).
114
Id.
115
B.D. Holt Co. v. OCE, Inc., 971 S.W.2d 618, 620 (Tex. App.—San Antonio 1998, pet.
denied)(mistake of $100,000 in bid submitted to general contractor; price was material feature of
agreement); Harry Brown, Inc. v. McBryde, 622 S.W.2d 596, 600 (Tex. App.—Tyler 1981, no
writ)(contractor submitted bid and entered into contract under mistaken belief that certain
equipment would qualify for installation under the contract).
116
Roland v McCullough, 561 S.W.2d 207, 213 (Tex. Civ. App.—San Antonio 1977, writ ref’d
n.r.e.)
117
Williams v. Glash, 789 S.W.2d 261, 264 (Tex. 1990).
118
Johnson & Higgins, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex.
1998)(prejudgment interest); TEX. R. CIV. P. 125 – 149 (court costs); TEX. CIV. PRAC. & REM.
CODE §§ 38.001 et.seq.
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C. Statute of Limitations and Statue of Repose
1 Limitations
The statute limitations governing a breach of contract action is four years.119
Limitations generally accrue at the time of the breach.120 The limitation period begins to
run at the time the breach accrues, which is generally when the breach occurs or when
Plaintiff has sufficient basis in fact to be placed on notice of the breach.121 If fraud is
involved, the limitations period may be tolled if the claimant makes a showing the failure
to discover the breach was not due to a lack of ordinary diligence. However, if tolling is
appropriate, the limitations period will resume immediately when the claimant acquires
actual or constructive knowledge of the breach.122
For continuing contracts, limitations begins to run at the earlier of the following:
(1) when the work is completed;(2) when the contract is terminated in accordance with its
terms; or (3) when the contract is anticipatorily repudiated by the Defendant and this
repudiation is adopted by the Plaintiff.123 For contractual indemnity, limitations begin to
run after all the potential liabilities of the indemnity have become fixed and certain. 124
119
TEX. CIV. PRAC. & REM. CODE § 16.051; Stine, 80 S.W.3d at 592.
120
Heron Fin. Corp. v. U.S. Testing Co., 926 S.W.2d 329, 331 (Tex. App.—Austin 1996, writ
denied).
121
Rose v. Baker & Botts, 816 S.W.2d 805, 810 (Tex. App.—Houston [1st Dist.] 1991, writ
denied).
122
Maddox v Oldham Little Church Foundation, 411 S.W.2d 375, 381-382 (Tex. Civ. App.—
Tyler 1967, writ ref’d n.r.e.).
123
Ingersoll-Rand Co. v. Valero Energy Corp., 97 S.W.2d 203, 211 (Tex. 1999); City of Corpus
Christi v. Taylor, 126 S.W.3d 712, 725 (Tex. App.—Corpus Christi 2004, pet. dism’d).
124
Valero, 97 S.W.2d at 210.
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The discovery rule applies to a breach of contract action if the nature of the
Plaintiff’s injury is inherently undiscoverable and the injury is objectively verifiable by
physical evidence.125
2 Statute of Repose
For a discussion of the Statute of Repose, please refer to Chapter II, E.4.
D. Available Defenses
Rule 94 of the Texas Rules of Civil Procedure enumerates the affirmative
defenses available to a defendant in a breach of contract action.126 Of those available to
a general contractor defendant in a cause of action for breach of a construction contract,
the most likely to be helpful are failure to mitigate damages, modification, liquidated
damages clauses, and the statute of frauds.
1 Failure to Mitigate Damages
In order to decrease its exposure to damage liability, a defendant in a breach of
contract case may affirmatively plead the plaintiff’s failure to mitigate damages, a duty
for any party injured by breach of contract.127 This duty exists for any damages that can
be avoided with reasonable efforts or minimal expense by the claimant.128 If the claimant
fails to take reasonable corrective action to mitigate damages, a general contractor is not
liable for damages that could have been avoided by the corrective measures.
125
HECI Expl. Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998).
126
See TEX. R. CIV. P. 94. The affirmative defenses listed in Rule 94 can be pled, when
applicable, in any cause of action.
127
See Copenhaver v. Berryman, 602 S.W.2d 540, 544 (Tex. Civ. App.— Corpus Christi 1980,
writ ref’d n.r.e.).
128
See id. citing Walker v. Salt Flat Water Co., 96 S.W.2d 231, 232 (Tex. 1936).
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2 Modification
To assert the affirmative defense of modification, a general contractor defendant
must prove that he made a legitimate offer to replace the contract originally accepted by
the plaintiff.129 This defense concedes that the defendant entered the contract upon which
relief is sought, and the factual allegations in support of this original contract are not
disputed.130 However, the defense asserts that the modified contract supplants the
original contract.131
3 Liquidated Damages
In some instances, a general contractor may avoid or limit any damages in excess
of a liquidated damages clause. However, this defense requires proof of the
enforceability of the clause and must be affirmatively pled by the general contractor.132
4 Statute of Frauds
The statute of frauds provides that certain promises or agreements must be in
writing to be enforceable.133 In addition to the writing requirement, either the party to be
charged or an agent of that party must sign such agreements.134
129
See Metrocon Constr. Co. v. Gregory Constr. Co., 663 S.W.2d 460, 464 (Tex. App.— Dallas
1983, writ ref’d n.r.e.).
130
See id.
131
See id.
132
See Borders v. KRLB, Inc., 727 S.W.2d 357, 360 (Tex. App.— Amarillo 1987, writ ref’d
n.r.e.).
133
TEX. BUS. & COM. CODE §26.01 (Vernon 1987). The text of the Statute of Frauds appears in
its entirety under this manual’s tabbed section titled “Statutes.”
134
See id.
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5 Third Party Beneficiaries
Courts in Texas will not create third-party beneficiary contracts by implication,
and any such obligation must be explicit in the language of the contract for a third party
to recover damages.135 Parties are presumed to contract for themselves, and contracts
will not be construed as having been made for the benefit of third persons unless such an
intention clearly appears.136 Thus, it is a third-party claimant’s burden to establish the
clear presence of such intent. If there is any doubt, the contract will be interpreted as not
having been made for the benefit of a third party.137 As part of this principle, there is a
presumption against third-party beneficiary status, and a third party may recover only if
the third-party obligation is “clearly and fully spelled out.”138
This principle has been unequivocally applied in Texas. In Marine Creek
Partners, Ltd. v. Caldwell,139 residents of an apartment complex brought an action against
an owner to recover for injuries sustained by a child using a swing set, asserting that they
were third-party beneficiaries of the sales contract between the property owner and the
swing seller. The trial court entered judgment for the residents, but the appeals court
reversed and rendered a take-nothing judgment.140 The court held that the residents were
not entitled to third-party beneficiary status because the language in the contract was
135
See MJR Corp. v. B & B Vending Co., 76 S.W.2d 4, 12 (Tex. App.—Dallas 1988)
136
See id. at 19.
137
See id. at 12.
138
See id.
139
926 S.W.2d 793 (Tex. App.–-Fort Worth 1996, writ denied).
140
See id. at 796.
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insufficient to create any such duty under the contract.141 The disputed language
provided as follows:
MAINTENANCE: Maintenance is the responsibility of the purchaser.
All moving parts should be periodically inspected by purchaser and
replaced as signs of wear become apparent. It is recommended that
wooden components be treated with water sealant biannually, and nuts and
bolts tightened on a regular basis. Purchaser should make a visual
inspection every 3 months.
SUPERVISION: ALL PLAYGROUND AREAS AND EQUIPMENT
REQUIRE ADULT SUPERVISION.142
Plaintiffs alleged that this language created a responsibility in the purchaser to
provide adult supervision on the playground. In holding that no third-party beneficiary
status was created, the court interpreted the contractual language as merely unambiguous
warnings.143 The court noted that if there was language indicating a promise, such as that
the signer “shall” provide supervision, third-party beneficiary status would be found.144
However, since the language in the contract only said that the purchaser “should” make
inspections and was “recommended” to tighten nuts and bolts, it was clear that the
requisite language was lacking to confer third-party beneficiary status.145
The Caldwell court pointed out the sound public policy rationale for this rule,
noting that most consumers would be surprised to learn that an ordinary purchase exposes
them to contractual liability to the manufacturer for failing to follow safety warnings. As
141
See id. at 795.
142
Id. (emphasis added).
143
See id. at 796.
144
See id.
145
See id.
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such, the court was “unwilling to turn socially beneficial warnings into binding promises
by the buyers of products.”146
146
See id.
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JURY QUESTIONS
PJC 101.01 Basic Question--Evidence
QUESTION ______
Did Paul Payne and Don Davis agree [insert all disputed terms]?
[Insert instructions, if appropriate.]
Answer: _______________
PJC 101.02 Basic Question--Compliance
QUESTION ______
Did Don Davis fail to comply with the agreement?
[Insert instructions, if appropriate.]
Answer: _______________
PJC 101.03 Instruction on Formation of Agreement
In deciding whether the parties reached an agreement, you may consider what
they said and did in light of the surrounding circumstances, including any earlier course
of dealing. You may not consider the parties’ unexpressed thoughts or intentions.
PJC 101.04 Instruction on Authority
A party’s conduct includes the conduct of another who acts with the party’s
authority or apparent authority.
Authority for another to act for a party must arise from the party’s agreement that
the other acts on behalf and for the benefit of the party. If a party so authorizes another to
perform an act, that other party is also authorized to do whatever else is proper, usual,
and necessary to perform the act expressly authorized.
Apparent authority exists if a party (1) knowingly permits another to hold himself
out as having authority or, (2) through lack of ordinary care, bestows on another such
indications of authority that lead a reasonably prudent person to rely on the apparent
existence of authority to his detriment. Only the acts of the party sought to be charged
with responsibility for the conduct of another may be considered in determining whether
apparent authority exists.
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PJC 101.05 Instruction on Ratification
A party’s conduct includes conduct of others that the party has ratified.
Ratification may be express or implied.
Implied ratification occurs if a party, though he may have been unaware of
unauthorized conduct taken on his behalf at the time it occurred, retains the benefits of
the transaction involving the unauthorized conduct after he acquired full knowledge of
the unauthorized conduct. Implied ratification results in the ratification of the entire
transaction.
PJC 101.08 Instruction on Ambiguous Provisions
It is your duty to interpret the following language of the agreement:
[Insert ambiguous language.]
You must decide it’s meaning by determining the intent of the parties at the time
of the agreement. Consider all the facts and circumstances surrounding the making of the
agreement, the interpretation placed on the agreement by the parties, and the conduct of
the parties.
PJC 101.10 Instruction on Time of Compliance
Compliance with an agreement must occur within a reasonable time under the
circumstances unless the parties agreed that compliance must occur within a specified
time and the parties intended compliance within such time to be an essential part of the
agreement.
In determining whether the parties intended time of compliance to be an essential
part of the agreement, you may consider the nature and purpose of the agreement and the
facts and circumstances surrounding its making.
PJC 101.11 Instruction on Offer and Acceptance
In attempting to reach an agreement, one party may specifically prescribe the
time, manner, or other requirements for the other party’s acceptance of the offer. If the
offer is not accepted as prescribed, there is no agreement.
PJC 101.12 Instruction on Withdrawal or Revocation of Offer
There is no agreement unless the party to whom an offer is made accepts it before
knowing that the offer has been withdrawn.
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PJC 101.13 Instruction on Price
If Paul Payne and Don Davis agreed to other essential terms but failed to specify
price, it is presumed a reasonable price was intended.
PJC 101.21 Defenses--Basic Question
If your answer to Question ______ [101.1] is “Yes,” then answer the following
question. Otherwise, do not answer the following question.
QUESTION ______
Was Don Davis’s failure to comply excused?
[Insert instructions; see PJCs 101.22-.33.]
Answer: _______________
PJC 101.22 Defenses--Instruction on Plaintiff’s Material Breach
(Failure of Consideration)
Failure to comply by Don Davis is excused by Paul Payne’s previous failure to
comply with a material obligation of the same agreement.
PJC 101.23 Defenses--Instruction on Anticipatory Repudiation
Failure to comply by Don Davis is excused by Paul Payne’s prior repudiation of
the same agreement.
A party repudiates an agreement when he indicates, by his words or actions, that
he is not going to perform his obligations under the agreement in the future, showing a
fixed intention to abandon, renounce, and refuse to perform the agreement.
PJC 101.24 Defenses--Instruction on Waiver
Failure to comply by Don Davis is excused if Paul Payne waives compliance.
Waiver is an intentional surrender of a known right or intentional conduct
inconsistent with claiming the right.
PJC 101.25 Defenses--Instruction on Equitable Estoppel
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Failure to comply by Don Davis is excused if all the following circumstances
occurred:
1. Paul Payne
a. by words or conduct made a false representation or concealed
material facts,
b. with knowledge of the facts or with knowledge or information that
would lead a reasonable person to discover the facts, and
c. with the intention that Don Davis would rely on the false
representation or concealment in acting or deciding not to act; and
2. Don Davis
a. did not know and had no means of knowing the real facts and
b. relied to his detriment on the false representation or concealment
of material facts.
PJC 101.26 Defenses--Instruction on Duress
Failure to comply by Don Davis is excused if the agreement was made under
duress caused by Paul Payne.
Duress is the mental, physical, or economic coercion of another, causing that
party to act contrary to his free will and interest.
PJC 101.27 Defenses--Instruction on Undue Influence
Failure to comply by Don Davis is excused if Paul Payne made the agreement as
the result of undue influence.
“Undue influence” means that there was such dominion and control exercised
over the mind of the person executing the agreement, under the facts and circumstances
then existing, as to overcome his free will. In effect, the will of the party exerting undue
influence was substituted for that of the party entering the agreement, preventing him
from exercising his own discretion and causing him to do what he would not have done
but for such dominion and control.
PJC 101.28 Defenses--Instruction on Mutual Mistake of Fact
Failure to comply is excused if the agreement was made as the result of a mutual
mistake.
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A mutual mistake results from a mistake of fact common to both parties if both
parties had the same misconception concerning the fact in question. A mistake by one
party but not the other is not a mutual mistake.
PJC 101.29 Defenses--Instruction on Mutual Mistake--Scrivener’s Error
Failure to comply is excused if the agreement was made as the result of a mutual
mistake.
A mutual mistake arises when parties to an agreement have identical intent and
understanding of the terms to be embodied in a proposed written agreement, but, in the
effort to reduce the agreement to writing, a mistake is made so that the writing does not
present the intended agreement.
PJC 101.30 Defenses--Instruction on Novation
Failure to comply with one agreement is excused if the parties agreed that a new
agreement would take its place.
PJC 101.31 Defenses--Instruction on Modification
Failure to comply with a term in an agreement is excused if the parties agreed that
a new term would take its place.
PJC 101.32 Defenses--Instruction on Accord and Satisfaction
Failure to comply with an agreement is excused if a different performance was
accepted as full satisfaction of performance of the original obligations of the agreement.
PJC 101.33 Defenses--Instruction on Mental Capacity
Failure to comply is excused if Don Davis lacked sufficient mind and memory to
understand the nature and consequences of his acts and the business he was transacting.
PJC 101.41 Question on Promissory Estoppel
QUESTION ______
Did Paul Payne substantially rely to his detriment on Don Davis’s promise, if
any, and was this reliance foreseeable by Don Davis?
Answer: _______________
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PJC 101.42 Question and Instruction on Quantum Meruit
QUESTION ______
Did Paul Payne perform compensable work for Don Davis?
One party performs compensable work if valuable services are rendered or
materials furnished for another party who knowingly accepts and uses them and if the
party accepting them should know that the performing party expects to be paid for the
work.
Answer: _______________
PJC 101.46 Construction Contracts Distinguished from Ordinary
Contracts (Comment)
Doctrine of substantial performance. In ordinary contract cases, a party who is
himself in default cannot maintain a suit for its breach. Gulf Pipe Line Co. v. Nearen,
138 S.W.2d 1065, 1068 (Tex.1940). This strict rule has been relaxed in the law of
construction contracts by the doctrine of substantial performance, which allows recovery
to a building contractor who has breached but substantially performed his contract.
Dobbins v. Redden, 785 S.W.2d 377 (Tex.1990); Vance v. My Apartment Steak House of
San Antonio, Inc., 677 S.W.2d 480, 481 (Tex.1984); Atkinson v. Jackson Bros., 270 S.W.
848, 850 (Tex. Comm’n App. 1925, holding approved)
Quantum meruit as alternate ground. A building contractor who has not
substantially performed may have quantum meruit as an alternate ground of recovery.
Dobbins, 785 S.W.2d at 378; Truly v. Austin, 744 S.W.2d 934, 937 (Tex.1988); see also
Beeman v. Worrell, 612 S.W.2d 953, 956 (Tex.Civ.App.--Dallas 1981, no writ); Coon v.
Schoeneman, 476 S.W.2d 439, 442 (Tex.Civ.App.--Dallas 1972, writ ref’d n.r.e.). For
questions on quantum meruit, see PJCs 101.42 and 110.6.
Construction contracts and quantum meruit questions may be submitted in the
same charge. City of Galveston v. Heffernan, 155 S.W.2d 912 (Tex.1941) (dispute
concerned both subject matter of express contract and additional work done outside
contract); see also Chapa v. Reilly, 733 S.W.2d 236, 237 (Tex.App.--Corpus Christi
1986, writ ref’d n.r.e.).
Recovery. A contractor who has substantially performed may recover the
contract price less the cost of completion and remedying any defects. Vance, 677 S.W.2d
at 481.
The doctrine of substantial performance also comes into play when the owner
sues the contractor. If the contractor has substantially performed, the owner can recover
the cost of completion less the unpaid balance on the contract price, known as the
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remedial measure of damages. If the contractor has not substantially performed, the
measure of the owner’s damages is the difference between the value of the building as
constructed and its value had it been constructed in accordance with the contract. Turner,
Collie & Braden, Inc. v. Brookhollow, Inc., 642 S.W.2d 160, 164 (Tex.1982).
Jury submissions in these suits are complicated if both the owner and the
contractor seek affirmative recovery. See, e.g., Greene v. Bearden Enterprises, Inc., 598
S.W.2d 649 (Tex.Civ.App.--Fort Worth 1980, writ ref’d n.r.e.); Fidelity & Deposit Co. of
Maryland v. Stool, 607 S.W.2d 17 (Tex.Civ.App.--Tyler 1980, no writ).
Property Code requirement for suites filed after September 1, 1989. Chapter
27 of the Texas Property Code adds new defenses, notice requirements, and opportunities
to cure or settle in suits over residential defects filed after September 1, 1989. Tex. Prop.
Code Ann. ch. 27 (Vernon Supp. 1996).
PJC 110.01 Predicate--Instruction Conditioning Damages
Question on Liability
If your answer to Question _______ [insert number of appropriate liability
question] is “Yes,” then answer the following question. Otherwise, do not answer the
following question.
PJC 110.02 Question on Contract Damages
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, would fairly and reasonably
compensate Paul Payne for his damages, if any, that resulted from such failure to
comply?
Consider the following elements of damages, if any, and none other.
[Insert appropriate instructions. See samples in PJC 110.3 and instructions in PJC
110.4.]
Do not add any amount for interest on damages, if any.
Answer in dollars and cents for damages, if any, that—
were sustained in the past;
Answer: _______________
in reasonable probability will be sustained in the future.
Answer: _______________
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PJC 110.03 Sample Instructions on Direct and Incidental Damages—Contracts
Explanatory Note: Damage instructions in contract actions are often necessarily
fact-specific. Unlike most other form instructions in this volume, therefore, the following
sample instructions are illustrative only, using a hypothetical situation to give a few
examples of how instructions may be worded to submit various legal measures of
damages for use in connection with the contract damage question, PJC 110.02.
Sample A—Loss of the benefit of the bargain
The difference, if any, between the value of the paint job agreed to by the parties
and the value of the paint job performed by Don Davis. The difference in value, if any,
shall be determined at the time and place the paint job was performed.
Sample B—Remedial damages
The reasonable and necessary cost to repaint Paul Payne’s truck.
Sample C—Loss of contractual profit
The difference between the agreed price and the cost Paul Payne would have
incurred in painting the truck.
Sample D—Loss of contractual profit plus expenses incurred before breach
The amount Don Davis agreed to pay Paul Payne less the expenses Paul Payne
saved by not completing the paint job.
Sample E—Damages after mitigation
The difference between the amount paid by Paul Payne to John Jones for painting
the truck and the amount Paul Payne had agreed to pay Don Davis for that work.
Sample F—Mitigation expenses
Reasonable and necessary expenses incurred in attempting to have the truck
repainted.
Sample G—Incidental damages
Reasonable and necessary costs to store Paul Payne’s tools while the truck was
being repainted.
PJC 110.04 Instructions on Consequential Damages--Contracts
Lost profits that were a natural, probable, and foreseeable consequence of Don
Davis’s failure to comply.
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Damage to credit reputation that was a natural, probable, and foreseeable
consequence of Don Davis’s failure to comply.
PJC 110.05 Question on Promissory Estoppel--Reliance Damages
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, would fairly and reasonably
compensate Paul Payne for his damages, if any, that resulted from his reliance on Don
Davis’s promise?
Consider the following elements of damages, if any, and none other.
[Insert appropriate instructions.]
Answer in dollars and cents, if any.
Answer: _______________
PJC 110.06 Question on Quantum Meruit Recovery
[Insert predicate, PJC 110.1.]
QUESTION ______
What is the reasonable value of such compensable work at the time and place it
was performed?
Answer in dollars and cents, if any.
Answer: _______________
PJC 110.07 Defensive Instruction on Mitigation--Contract Damages
Do not include in your answer any amount that you find Paul Payne could have
avoided by the exercise of reasonable care.
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II. NEGLIGENCE
A. Elements
A plaintiff must prove the following elements to recover under a theory of
negligence: (1) the existence of a legal duty owed by one person to another; (2) a breach
of that duty; and (3) damages proximately caused by the breach.147
B. Con-tort Analysis and the Economic Loss Rule
In construction defect cases, a plaintiff’s claim may be deemed as a matter of law,
even if the plaintiff brings the claim as a “negligence” cause of action. The “economic
loss” rule precludes a plaintiff’s recovery in tort when the loss sustained is solely
economic rather than loss resulting from personal injury or property damage. Texas
courts have utilized similar reasoning – often called a “con-tort” analysis – to determine
whether a claimant can simultaneously recover under both tort and contract theories of
liability.148 A con-tort analysis can be of critical importance to the general contractor
defendant with respect to the applicable statute of limitations (e.g., two years for
negligence as opposed to four years for contract), recoverable damages, available
defenses, and the applicable legal bases for third-party contribution. The Texas Supreme
Court clarified the economic loss rule and con-tort analysis in three seminal cases.
In Jim Walter Homes, Inc. v. Reed,149 the court applied the economic loss rule in
characterizing whether plaintiffs’ causes of action properly sounded in tort or in contract.
147
Western Investments, Inc. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005); Firestone Steel Products
Co. v. Barajas, 927 S.W.2d 608, 613 (Tex. 1996).
148
See, e.g., Formosa Plastics Corp. USA v. Presidio Engineers, 960 S.W.2d 41 (Tex. 1998); Jim
Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986); Southwestern Bell Tel. Co. v.
Delanney, 809 S.W.2d 493 (Tex 1991).
149
711 S.W.2d 617 (Tex. 1986).
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Plaintiffs sought actual and punitive damages arising from the sale and construction of a
new home. The court reasoned that: “[t]he nature of the injury most often determines
which duty or duties are breached. When the injury is only the economic loss to the
subject of the contract itself, the action sounds in contract alone.”150 Because the
plaintiffs’ injury was limited to the loss of the benefit of the contract (the house they were
promised was not the house they received), the court held their cause of action sounded
only.151 Because exemplary damages are not recoverable in an action for breach of
contract, the Supreme Court reversed the lower court’s punitive damage award and noted
that a cause of action for negligent or grossly negligent breach of contract “will not
entitle an injured party to exemplary damages because even an intentional breach will
not.”152
In Southwestern Bell Tel. Co. v. Delanney,153 the Texas Supreme Court further
analyzed the distinction between contract and tort causes of action. Delanney involved a
customer who sued the telephone company for negligent omission of its advertisement
from the Southwestern Bell Yellow Pages.154 In concluding that the plaintiff’s cause of
action sounded only in contract, the court stated:
If the defendant’s conduct—such as negligently burning down a house—
would give rise to liability independent of the fact that a contract exists
between the parties, the plaintiff’s claim may also sound in tort.
Conversely, if the defendant’s conduct—such as failing to publish an
advertisement [the plaintiff’s claim in Delanney]—would give rise to
150
Id. at 617-18.
151
Id.
152
See id.
153
809 S.W.2d 493 (Tex 1991).
154
See id. at 493.
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liability only because it breaches the parties’ agreement, the plaintiff’s
claim ordinarily sounds in contract.
***
In determining whether the plaintiff may recover on a tort theory, it is also
instructive to examine the nature of the plaintiff’s loss. When the only
loss or damage is to the subject matter of the contract, the plaintiff’s action
is ordinarily on the contract.155
The court noted that although the plaintiff pled damages under a negligence theory, the
plaintiff “clearly sought to recover the benefit of his bargain” with the defendant. In
characterizing the matter as a contract cause of action, the court focused its analysis on
the nature of the injury and the recovery sought.156
Finally, in Formosa Plastics Corp. USA v. Presidio Engineers,157 the Texas
Supreme Court created an exception to the Delanney analysis. In Formosa, a contractor
sued a project owner for fraud, breach of contract, and breach of the duty of good faith
and fair dealing. The court held that a cause of action for fraudulent inducement may be
asserted in conjunction with a separate claim for breach of contract.158 Acknowledging
that Texas law has long imposed a duty to abstain from fraudulently inducing a party to
contract, the court noted that it was “well established” that this duty is separate and
independent from the duties imposed by the contract itself.159 The Formosa court further
reasoned that: “tort damages are recoverable for a fraudulent inducement claim
irrespective of whether the fraudulent representations are later subsumed in a contract or
155
Id. at 494 (emphasis added).
156
See id. at 495.
157
960 S.W.2d 41 (Tex. 1998).
158
Id.
159
Id. at 46.
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whether the plaintiff only suffers an economic loss related to the subject matter of the
contract.”160
C. Owners and Contractors Liability for Injuries: Duties Owed to
Invitees, Licensees, and Trespassers
A general contractor in control of the premises owes the same duty as an owner or
occupier of land.161 Accordingly, a general contractor may be deemed negligent in two
situations: (1) those arising from an activity or instrumentality on the premises (the
“negligent activity” theory); and (2) those arising from a premises defect.162 A general
contractor may be liable under several theories of liability to its own employees,
employees of its subcontractors, employees of sub-subcontractors, and third parties. 163
The nature and extent of a general contractor’s duty to these parties is
determined through an examination of whether the party is an invitee or a
licensee.
A licensee is a person who enters the premises of another with the
permission of the landowner, or person in control of the premises, for his
own convenience or on business for someone other than the owner.164 In
160
Id. at 47.
161
See, e.g., Clayton W. Williams, Jr., Inc. v. Olivo, 952 S.W.2d 523, 527 (Tex. 1997); Redinger
v. Living, Inc., 689 S.W.2d 415, 417 (Tex. 1985); Richard v. Cornerstone Constructors, Inc., 921
S.W.2d 465, 467 (Tex. App.—Houston [1st Dist.] 1996, writ denied); Davis v. R. Sanders &
Associates Custom Builders, Inc., 891 S.W.2d 779, 781 (Tex. App—Texarkana 1995, no writ);
Barham v. Turner Constr. Co. of Texas, 803 S.W.2d 731, 735 (Tex. App.—Dallas 1990, writ
denied).
161
Olivo, 952 S.W.2d at 527; Redinger, 689 S.W.2d at 417; Richard, 921 S.W.2d at 468. For
further discussion of the duty owed by general contractors in both types of premises liability cases,
see infra, “Premises Defect.”
162
Olivo, 952 S.W.2d at 527; Redinger, 689 S.W.2d at 417; Richard, 921 S.W.2d at 468. For
further discussion of the duty owed by general contractors in both types of premises liability cases,
see infra, this section, titled “Premises Defect.”
163
For a complete discussion of a general contractor’s duties to a subcontractor’s employees, see
infra, “General Contractor’s Duties to Subcontractor’s Employees.”
164
Weaver v. KFC Management, Inc., 750 S.W.2d 24, 26 (Tex. App.—Dallas 1988, writ denied).
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the absence of the landowner’s permission, the person may be considered
a trespasser. A trespasser is a person who enters the premises of another
for his own purpose, pleasure, or convenience, without any right, lawful
authority, express or implied invitation, permission, or license, and not in
the performance of any duties to the owner.165
A business invitee is a person who enters the premises of another in response to
the express or implied invitation of the owner or occupant, either on the business of the
owner or for the mutual benefit of both parties.166 Common law generally holds a general
contractor’s employees, employees of a subcontractor, and employees of a sub-
subcontractor as business invitees.167 The test to determine whether a claimant is an
invitee is whether the claimant “has business relations with the owner at the time of the
injury which would render his presence of mutual aid to both.”168 However, uninvited
third parties are usually considered licensees or trespassers. “In the absence of a
relationship that inures to the mutual benefit of the entrant and the owner, an entrant is
considered a licensee.”169
If an injury is the result of a premises defect (involving latent conditions
that pose danger to those entering upon the premises of another),170 the injured party may
165
Weaver, 750 S.W.2d at 26 citing Rowland v. City of Corpus Christi, 620 S.W.2d 930, 933
(Tex. App.—Corpus Christi 1981, writ ref’d n.r.e.).
166
See Dabney v. Wexler-McCoy, Inc., 953 S.W.2d 533, 536 (Tex. App.—Texarkana 1997, pet.
denied); Montes v. Indian Cliffs Ranch, Inc., 946 S.W.2d 103, 105 (Tex. App.—El Paso 1997,
writ denied). See also Rosas v. Buddies Food Store, 518 S.W.2d 534, 536 (Tex. 1975).
167
See Montes, 946 S.W.2d at 107 (“The employee of an independent contractor is a business
invitee.”). See also, Dabney, 953 S.W.2d at 536; Boyer v. Scruggs, 806 S.W.2d 941, 944 (Tex.
App.—Corpus Christi 1991, no writ).
168
Weaver, 750 S.W.2d at 26.
169
Montes, 946 S.W.2d at 106.
170
See Sibai, et al. v. Wal-Mart Stores, Inc., d/b/a Sam’s Wholesale Club, 986 S.W.2d 702, 706
(Tex. App.—Dallas1999, no pet.).
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only recover under a premises defect theory.171 Likewise, for an injury to be the result of
an allegedly negligent activity, the injured party “must have been injured by, or as a
contemporaneous result of, the activity itself—not by a condition the activity created.”172
Distinguishing between premises defect cases and negligent activity cases is important
when analyzing a claimant’s foundation for recovery.
Under a premises defect theory, invitee or licensee claimants may recover if they
establish that the general contractor breached its duty of reasonable care to keep the
premises safe.173 A general contractor’s duty of reasonable care may include (1) the duty
to inspect the premises to discover any latent defects; (2) to repair such defects; or (3) to
adequately warn of the defect.174 An injured invitee may recover only if the general
contractor knows or has reason to know of an unreasonable risk of harm on the premises
and fails to exercise reasonable care to either protect the invitee from the harm or warn
the invitee of the harm.175 However, for an injured licensee to recover, the general
contractor must have actual knowledge of the dangerous condition on the premises and
fail to repair the condition or adequately warn the licensee.176 Further, the licensee must
have not have known, or had reason to know of, the dangerous condition.177 For a
171
See id. citing H.E. Butt Grocery Co. v. Warner, 845 S.W.2d 258, 259 (Tex. 1992).
172
Id. citing Keetch v. Kroger Co., 845 S.W.2d 262, 264 (Tex. 1992).
173
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX., TEXAS PATTERN JURY CHARGES PJC
66.3 and 66.4 (2000).
174
See id.; Adam Dante Corp. v. Sharpe, 483 S.W.2d 452, 455 (Tex. 1972).
175
See Adam Dante Corp., 483 S.W.2d at 455; J. Weingarten v. Razey, 426 S.W.2d 538, 539
(Tex. 1968); RESTATEMENT (SECOND) OF TORTS § 343(a) (1965).
176
See id.
II-6
claimant who is a mere trespasser to recover, he must prove that his injury was caused by
the willful, wanton, or grossly negligent conduct of the general contractor.178
In negligent activity cases, a claimant’s licensee or invitee status is irrelevant.179
In such cases, the claimant need only prove that the general contractor breached its duty
of reasonable care. As such, willful, wanton, or grossly negligent conduct need not be
proved for a claimant to recover.180
D. General Contractor’s Duties to Subcontractors’ Employees
An owner or occupier of land has a duty of reasonable care to keep the premises
under his control in a safe condition for business invitees.181 This duty stems from the
general principle that a business invitee’s presence on the premises is in response to an
express or implied invitation of the owner or occupant.182
A general contractor in control of the premises owes the same duty as an owner or
occupier of the land.183 The employees of subcontractors are also considered business
177
See Peters v. Detsco, Inc., 820 S.W.2d 38, 40-41 (Tex. App.—Houston [14th Dist.] 1991, writ
denied); RESTATEMENT (SECOND) OF TORTS § 342 (1965). See Sibai, 986 S.W.2d at 706 (stating
that when an alleged injury is the result of a premises defect, “a mere licensee may recover only if
the licensee was injured by the willful, wanton, or grossly negligent conduct of the proprietor”).
178
See Carlisle v. J. Weingarten, Inc., 152 S.W.2d 1073, 1074 (Tex. 1941); Burton Constr. &
Shipbuilding Co. v. Broussard, 271 S.W.2d 598, 603 (Tex. 1954); Weaver v. KFC Management,
750 S.W.2d 24, 26 (Tex. App.—Dallas 1988, writ denied).
179
Sibai, 986 S.W.2d at 706.
180
Id.
181
See Olivo, 952 S.W.2d at 527; Smith v. Henger, 226 S.W.2d 425, 431 (Tex. 1950);
Redinger689 S.W.2d at 417 ; Agricultural Warehouse, Inc. v. Uvalle, 759 S.W.2d 691, 694 (Tex.
App.—Dallas 1998) writ denied per curiam, 779 S.W.2d 68 (Tex. 1989).
182
See Dabney, 953 S.W.2d at 536; Rosas v. Buddies Food Store, 518 S.W.2d 534, 536 (Tex.
1975); See also Montes v. Indian Cliffs Ranch, Inc., 946 S.W.2d 103, 105 (Tex. App.—El Paso
1997, writ denied).
183
See Olivo, 952 S.W.2d at 527; Redinger, 689 S.W.2d at 417; Shell Chemical Co. v. Lamb, 493
S.W.2d 742, 746 (Tex. 1973); Richard v. Cornerstone Constructors, Inc., 921 S.W.2d 465, 467
II-7
invitees.184 As a result, general contractors in control of the premises owe the same duty
to a subcontractor’s employees as an owner or occupier of land owes its business
invitees.185 Thus, a general contractor in control of the premises must exercise
reasonable care in providing a safe workplace for a subcontractor and his employees.186
Notably, the general contractor is not the insurer of the safety of business invitees. As
long as reasonable care is taken to keep the premises safe, a general contractor has met
his duty of care and is not negligent.187
As discussed above, a negligence cause of action against a general contractor for
failing to take reasonable measures to provide safe premises for subcontractors and their
employees may be premised on either of two theories: (1) a negligent
activity/instrumentality on the premises; or (2) a premises defect.188 Although the Texas
Supreme Court has not ruled on the issue to date, at least three Texas courts of appeal
have recognized that although a subcontractor’s employee may bring suit against the
general contractor for negligence based upon these theories, the employee may not bring
(Tex. App.—Houston [1st Dist.] 1996, writ denied); Davis v. R. Sanders & Associates Custom
Builders, Inc., 891 S.W.2d 779, 781 (Tex. App.—Texarkana 1995, no writ); Uvalle, 759 S.W.2d
at 694.
184
See Montes,946 S.W.2d at 107.
185
See Pence Construction Corp. v. Watson, 470 S.W.2d 637, 638 (Tex. 1971).
186
See Redinger, 689 S.W.2d at 417; Gutierrez v. Exxon Corp., 764 F.2d 399, 401-02 (5th Cir.
1985); Henger, 226 S.W.2d at 431; Hammack v. Conoco, Inc., 902 S.W.2d 127, 131 (Tex. App.—
Houston [1st Dist.] 1995, writ denied); Barham v. Turner Const. Co. of Texas, 803 S.W.2d 731,
735 (Tex. App.—Dallas 1990, writ denied); Zaborowske v. OES, Inc., 731 S.W.2d 614, 615 (Tex.
App.—Houston [1st Dist.] 1987, no writ).
187
See Uvalle, 759 S.W.2d at 694.
188
See Olivo, 952 S.W.2d at 527; Redinger, 689 S.W.2d at 417; Richard, 921 S.W.2d at 468;
Davis, 891 S.W.2d at 781.
II-8
a negligent hiring claim against the contractor for hiring the subcontractor for which the
claimant was employed.189
1 Negligent Activity or Instrumentality
In Texas, an owner or occupier of land, including a general contractor, has no
duty to ensure that a subcontractor performs its work safely.190 Similarly, a general
contractor is not liable for injuries to third parties caused by the acts or omissions of a
subcontractor or the subcontractor’s employees.191 An exception to this rule exists for
situations in which a subcontractor is hired to perform inherently dangerous work. In
such cases, the general contractor may be liable to third parties for the negligence of a
subcontractor.192
Subcontractors are responsible for safely performing the work for which they
were hired. Further, they are also required to provide a safe workplace for their
employees,193 a requirement that allocates risk and relieves general contractors from a
189
McClure v. Denham, 162 S.W.3d 346, 355 (Tex. App.- Fort Worth 2005, no pet.); Hagins v.
EZ-Mart Stores, Inc., 128 S.W.3d 383, 393 (Tex. App.- Texarkana 2004, no pet.); Rogers v. Pro-
Tec Installations, Inc., No. 05-96-00049-CV, 1997 WL 412090 at *9 (Tex. App.- Dallas July 24,
1997) (not designated for publication).
190
See Hoechst-Celanese Corp. v. Mendez, 967 S.W.2d 354, 355 (Tex. 1998); Olivo, 952 S.W.2d
at 527; Enserch Corp. v. Parker, 794 S.W.2d 2, 6 (Tex. 1990); Exxon Corp. v. Quinn, 726 S.W.2d
17, 19 (Tex. 1987); Redinger, 689 S.W.2d at 418; Davis, 891 S.W.2d at 781; Uvalle, 759 S.W.2d
at 693.
191
Uvalle, 759 S.W.2d at 694; Tanner v. BDK Production Co., Inc., 671 S.W.2d 941, 944 (Tex.
App.—Corpus Christi 1984, no writ).
192
For further discussion of the duties imposed on a general contractor when hiring a
subcontractor to perform inherently dangerous work, see infra, “Dangerous Condition Pre-
Existing or Not Arising From Subcontractor’s Acts.”
193
See Quinn, 726 S.W.2d at 19. See also Richard, 921 S.W.2d at 468 (stating that a general
contractor is not responsible for ensuring a subcontractor’s adherence to the safety standards and
regulations promulgated by the Occupational Safety and Health Administration).
II-9
duty to ensure the safety of a subcontractor’s employees.194 This framework allows
general contractors to assume that the subcontractor will safely complete assigned work
and take necessary precautions to protect its employees.195
If the work is conducted and controlled by a subcontractor, and where the danger
arises from the manner in which the subcontractor’s employees perform that activity, the
subcontractor, as opposed to the owner of the premises or the general contractor, is
responsible for the safety of employees.196 This rule is premised upon the notion that the
subcontractor is in a better position to discover and either eliminated or warns its
employees about safety hazards.197
However, significant exceptions exist to these general principles that may impose
liability upon an owner or general contractor when certain conditions are satisfied.
a. Redinger v. Living, Inc.: Retention of Control May
Subject Contractor to Liability
194
See Hammack v. Conoco, Inc., 902 S.W.2d 127, 131 (Tex. App.—Houston [1st Dist.] 1995,
writ denied); Barham 803 S.W.2d at 735-36; Bryant v. Gulf Oil Corp., 694 S.W.2d 443, 446 (Tex.
App.—Amarillo 1985, writ ref’d n.r.e.).
195
See Abalos v. Oil Development Co. of Texas, 544 S.W.2d 627, 631 (Tex. 1976); Staublein v.
Dow Chemical Co., 885 S.W.2d 502, 505 (Tex. App.—El Paso 1994, no writ); Pena v. TXO
Production Corp., 828 S.W.2d 188, 190 (Tex. App.—Corpus Christi 1992, no writ); Bryant, 694
S.W.2d at 445; Union Carbide Corp. v. Burton, 618 S.W.2d 410, 413 (Tex. Civ. App.—Houston
[14th Dist.] 1981, writ ref’d n.r.e.).
196
See Quinn, 726 S.W.2d at 19; Redinger, 689 S.W.2d 418 ; Abalos, 544 S.W.2d at 631;
Campbell v. Adventist Health System/Sunbelt, Inc., 946 S.W.2d 617, 621 (Tex. App.—Fort Worth
1997, no writ); Good v. Dow Chemical Co., 945 S.W.2d 877, 880 (Tex. App.—Houston [1st
Dist.] 1997, no writ); M-T Petroleum, Inc. v. Burris, 926 S.W.2d 814, 816 (Tex. App.—El Paso
1996, no writ); Richard, 921 S.W.2d at 468; Welch v. McDougal, 876 S.W.2d 218, 222 (Tex.
App.—Amarillo 1994, writ denied); Shell Oil Co. v. Waxler, 652 S.W.2d 454, 457 (Tex. App.—
Houston [1st Dist.] 1983, writ ref’d n.r.e.).
197
See Wilkerson v. Mobil Oil Corp., 941 F. Supp. 614, 616 (E.D. Tex. 1996); Ogle v. Shell Oil
Co., 913 F. Supp. 490, 493 (E.D. Tex. 1995).
II-10
If a general contractor controls or directs the details of a subcontractor’s work, the
general contractor may be liable for injuries sustained by the independent contractor and
the employees of the independent contractor.198 If the general contractor assumes such
supervisory control, he has a duty to exercise reasonable care in providing for the safety
of the employees of the subcontractor.199 The determination of whether the general
contractor has exercised reasonable care in directing the subcontractor’s work is a fact
issue for the jury.200
The exception recognizes that the actor controlling performance should also be
the one accountable for the results of the work. The Texas Supreme Court first
articulated this rule in Redinger v. Living, Inc, involving an injury sustained by an
employee of a plumbing subcontractor during a building construction job.201 While
preparing the construction site for a concrete pour, the general contractor’s
superintendent discovered that piles of dirt placed by the dirt subcontractor blocked the
route to the work area. The superintendent ordered the dirt subcontractor to move the
dirt, and during this process, Redinger, the employee of the plumbing subcontractor, had
a finger crushed by the dirt subcontractor’s tractor.202
198
See Redinger, 689 S.W.2d at 418. See also Darden v. Houston Lighting & Power Co., 936
S.W.2d 25, 26-27 (Tex. App.—San Antonio 1996, no writ); Graham v. Freese & Nichols, Inc.,
927 S.W.2d 294, 295 (Tex. App.—Eastland 1996, writ denied); Davis v. R. Sanders & Associates
Custom Builders, Inc., 891 S.W.2d 779, 781-82 (Tex. App.—Texarkana 1995, no writ); Barham,
803 S.W.2d at 735.
199
See Redinger, 689 S.W.2d at 418.
200
See Barham, 803 S.W.2d at 736.
201
689 S.W.2d 415 (Tex. 1985).
202
See id. at 417.
II-11
Redinger leaves intact the general rule that a general contractor has no duty to see
that a subcontractor performs his work in a safe manner. However, when the general
contractor chooses to exercise “some control” over the manner in which a subcontractor’s
work is performed, he is exposed to liability for injuries caused by that subcontractor’s
work.203
Because the general contractor controlled the manner in which subcontract work
was performed, the general contractor owed a duty to the subcontractors’ employees to
ensure that supervisory control was exercised in a reasonable manner.204 In this case, the
dirt to be moved was located a few feet from a work area in which Redinger and other
subcontractors’ employees were working. Since moving the dirt required the
subcontractor to operate a back-hoe within one to five feet of Redinger and the other
subcontractors’ employees, the court held that the superintendent was negligent in
allowing the dirt to be moved in such a manner and by failing to warn Redinger and the
other subcontractors’ employees.205 Thus, the general contractor did not exercise control
reasonably, and was liable for the injury to Redinger, the subcontractor’s employee.206
The Redinger court held that the general contractor exercised “some control” in
two ways: (1) by retaining the power to direct the order in which the subcontractor’s
work was to be performed; and (2) by forbidding work to be done in a manner which he
determined was dangerous.207 By providing directions to both the dirt-hauling
203
See Redinger, 689 S.W.2d at 418.
204
Id.
205
Id.
206
Id.
207
Redinger, 689 S.W.2d at 418.
II-12
subcontractor and the concrete subcontractor, the general contractor (acting through the
superintendent as his agent) controlled the on-the-job performance of two separate
subcontractors.208
Subsequent case law has broadened the scope of actions that may subject general
contractors to liability arising from the right to control, and exercise of control over, the
work of subcontractors.209
b. RESTATEMENT (SECOND) OF TORTS § 414
In its holding, the Redinger court explicitly adopted § 414 of the RESTATEMENT
(SECOND) OF TORTS, which states:210
One who entrusts work to an independent contractor, but who retains the
control of any part of the work, is subject to liability for physical harm to
others for whose safety the employer owes a duty to exercise reasonable
care, which is caused by his failure to exercise his control with reasonable
care.211
This section effectively broadens the scope of potential liability for general contractors
who retain control of work done by subcontractors.212 Comments following § 414 are
instructive on the level of control necessary to expose general contractors to liability:
208
Id.
209
See Hoechst-Celanese Corp. v. Mendez, 967 S.W.2d 354 (Tex. 1998)(holding that (1) an
employer who gives on-site orders or provides detailed instructions on means or methods to carry
out work order owes the independent contractor employee a duty of reasonable care to protect him
from work-related hazards; and (2) an employer who is aware its contractor routinely ignores
applicable federal guidelines and standard company policies related to safety may owe a duty to
require corrective measures to be taken or to cancel the contract.) For a more thorough discussion
of subsequent case law and the implications of Mendez, refer to this chapter, infra Section G.5.
210
See Redinger, 689 S.W.2d at 418.
211
RESTATEMENT (SECOND) OF TORTS §414 (1965).
212
See EDCO Production, Inc. v. Hernandez, 794 S.W.2d 69, 73 (Tex. App.—San Antonio 1990,
writ denied).
II-13
If the employer of an independent contractor retains control over the
operative detail of doing any part of the work, he is subject to liability for
the negligence of the employees of the contractor engaged therein, under
the rules of that part of the law of Agency, which deals with the relation of
master and servant. The employer may, however, retain a control less
than that which is necessary to subject him to liability as master. He may
retain only the power to direct the order in which the work shall be done,
or to forbid its being done in a manner likely to be dangerous to himself or
others. Such a supervisory control may not subject him to liability under
the principles of Agency, but he may be liable under the rule stated in this
Section unless he exercises his supervisory control with reasonable care so
as to prevent the work, which he has ordered to be done from causing
injury to others.213
In order for the rule stated in this Section to apply, the employer must
have retained at least some degree of control over the manner in which the
work is done. It is not enough that he has merely a general right to order
the work stopped or resumed, to inspect its progress or to receive reports,
to make suggestions or recommendations, which need not necessarily be
followed, or to prescribe alterations and deviations. Such a general right is
usually reserved to employers, but it does not mean that the contractor is
controlled as to his methods of work, or as to operative detail. There
must be such a retention of a right of supervision that the contractor
is not entirely free to do the work in his own way.214
c. Right to Control vs. Actual Control
A general contractor can retain the right to control an aspect of an independent
contractor’s work so as to give rise to a duty of care to that independent contractor’s
employees in two ways: (1) by contract or (2) by actual exercise of control.215 The
Texas Supreme Court has held that the right to control the independent contractor’s work
may be retained by contract alone, even when the general contractor does not actually
exercise any control over the independent contractor’s work.216 To hold the general
213
RESTATEMENT (SECOND) OF TORTS §414 cmt. a (1965).
214
RESTATEMENT (SECOND) OF TORTS §414 cmt. c (1965) (emphasis added)
215
Dow Chemical Company v. Bright, 89 S.W.3d 602, 606 (Tex. 2002); Lee Lewis Construction,
Inc. v. Harrison, 70 S.W.3d 778, 783 (Tex. 2000).
216
Elliott-Williams Co., Inc.,v. Diaz, 9 S.W.3d 801, 804 (Tex. 1999).
II-14
contractor liable for its independent contractor’s acts, the general contractor: (1) must
have the right to control the means, methods, or details of the independent contractor’s
work; (2) the control must relate to the injury the negligence causes; and (3) the contract
must grant the contractor at least the power to direct the order in which work is to be
done.217
It is not enough that the general contractor exercises control over the results of the
subcontractor’s work – liability will arise only if the general contractor (1) controls the
manner in which the subcontractor performs his work, and (2) exercises control to the
extent that the subcontractor is unable to perform entirely as he chooses.218 Additionally,
the retained control must specifically relate to the alleged injury.219 An employer is not
liable for the negligence of its independent contractor unless the employer retains the
right of control or exercises actual control over the condition or activity that causes the
injury.220
Finally, the contract itself must grant the general contractor the power to direct the
order in which the work is to be done.221 A general contractor is allowed some latitude to
instruct its independent contactors generally without becoming subject to liability.222 In
217
Id.; see also Dow Chemical Co., 89 S.W.3d at 607.
218
See Wilkerson, 941 F. Supp. at 616; Ogle, 913 F. Supp. at 493; Davis, 891 S.W.2d at 782;
Staublein v. Dow Chemical Co., 885 S.W.2d 502, 505 (Tex. App.—El Paso 1994, no writ);
RESTATEMENT (SECOND) OF TORTS § 414 cmt. c (1965).
219
Olivo, 952 S.W.2d at 528.
220
Id.
221
Elliott-Williams Co., Inc., 9 S.W.3d at 804; see also Dow Chemical Co., 89 S.W.3d at 607.
222
Koch Refining Co v. Chapa, 11 S.W.3d 153, 156 (Tex. 1999).
II-15
other words, the right to control must be more than a general right to control or supervise
the work.223
“It is the [contractual] right of control, and not the actual exercise of control,
which gives rise to a duty to see that an independent contractor performs work in a safe
manner.”224 In Bright, the Texas Supreme Court stated:
we have never concluded that a general contractor
actually exercised control of a premise where, as here,
there was no prior knowledge of a dangerous condition
and no specific approval of any dangerous act.225
Rather, a general contractor has actually exercised control over a premise when
the contractor knew of a dangerous condition before an injury occurred and approved acts
that were dangerous and unsafe.226 To constitute a finding of actual control, “[t]here
must be such a retention of a right of supervision that the contractor is not entirely free to
do the work in his own way.”227
The mere promulgation of safety policies does not establish actual control.228
Likewise, the mere presence of safety representatives or other attempts at creating a safe
223
Id.
224
Bright, 89 S.W.3d at 606.
225
Id. at 609 (emphasis added).
226
Id. at 609 citing Lee Lewis v. Harrison, 70 S.W.3d at 784; Hoechst-Celanese, 967 S.W.2d at
358.
227
Hoechst-Celanese, 967 S.W.2d at 356 quoting RESTATEMENT (SECOND) OF TORTS § 414 cmt.
c. See also Bright, 89 S.W.3d at 609-10 (citing Section 414 cmt. c. and stating the imposition of
safety personnel and other measures to attempt to create a safer work site does not serve as
evidence the independent contractors were not free to perform their work in their own way or that
the premises owner controlled the method of work or its operative details).
228
Bright, 89 S.W.3d at 611.
II-16
work environment do not unreasonably increase the probability and severity of injury.229
Such factors do “not serve as evidence that [contractor] and [subcontractor] were not free
to do the work in their own way and is not evidence that [the owner] controlled the
method of work or its operative details.”230
It is the general contractor’s right to control the manner in which a subcontractor
performs work that exposes the general contractor to potential liability.231 Thus, the
actual exercise of this control is not necessary for a general contractor to be liable to a
subcontractor’s employees, as long as the general contractor had the right, or power, to
exercise control.232 If the general contractor assumes the right to control in the contract
between it and the subcontractor, the general contractor may still be liable without the
actual exercise of control.233
In Hoechst-Celanese Corp. v. Mendez,234 an owner required an independent
contractor to train its employees in the owner’s safety regulations, observe federal safety
practices and regulations, take all necessary precautions to keep work areas free of safety
hazards, an granted the owner the right to inspect the work.235
The Texas Supreme Court held under these facts:
229
Id. at 609.
230
Id.
231
See Olivo, 952 S.W.2d at 528.
232
See Ponder v. Morrison-Knudsen Co., 685 F. Supp. 1359, 1362 (E.D. Tex. 1988).
233
See Pollard, 759 S.W.2d at 670; Campbell v. Adventist Health System/Sunbelt, Inc., 946
S.W.2d 617, 621 (Tex. App.—Fort Worth 1997, no writ); Good, 945 S.W.2d at 880.
234
967 S.W.2d 354, 357-58 (Tex. 1998).
235
Id. at 355-56.
II-17
[Contractor’s] insistence that [Subcontractor] observe and
promote compliance with federal laws, general safety
guidelines, and other safety precautions does not impose an
unqualified duty to care on [Contractor] to ensure that
[Subcontractor’s] employees did nothing unsafe. However,
[Contractor] owed [Subcontractor’s] employees a duty that
any safety requirements and procedures it promulgated did
not unreasonably increase, rather than decrease, the
probability and severity of injury.236
The court held the “employer’s duty of care is commensurate with the control it
retains over the contractor’s work.”237 For example, an employer aware its contractor
routinely ignores applicable federal guidelines and standard company policies related to
safety may owe a duty to require corrective measures is taken.238 Additionally, an
employer providing on-site orders or detailed instructions concerning the means or
methods to carry out a work order owes a duty of reasonable care.239
In Pollard v. Missouri Pacific R. Co., the written contract gave the employer
control over the completion time of the work and the authority to specify job-specific
aspects of the subcontractors’ removal and storage of work-related materials.240
Similarly, in Tovar v. Amarillo Oil Co., the written contract gave the owner the right to
repossess an oil well and discontinue drilling if the independent contractor demonstrated
carelessness, inattentiveness, or incompetence during performance of the project.241 In
Lawson-Avila Const., Inc. v. Stoutamire, the general contractor contractually assumed
236
Id. at 357-58.
237
Hoechst-Celanese, 967 S.W.2d at 357.
238
Id
239
Id.
240
See 759 S.W.2d 670, 671 (Tex. 1988).
241
692 S.W.2d 469, 470 (Tex. 1985).
II-18
responsibility “for all construction means, methods, techniques, sequences and
procedures and for coordinating all portions of the work under the contract.”242 Each of
these cases held there was sufficient evidence of the right to control.
Written contracts between the general contractor and subcontractor may also
release the general contractor from exposure to liability based on right to control. In
Romero v. Parkhill, Smith & Cooper, Inc., the written contracts explicitly released the
general contractor from responsibility for the construction methods, techniques, and
presence or absence of safety precautions taken by the subcontractor regarding the work
to be performed.243 Likewise, in Graham v. Freese & Nichols, Inc., the contract between
the engineer providing on-site administration during construction and the independent
contractor hired to perform the construction allocated any and all risks associated with
construction procedures and safety precautions to the independent contractor.244 Thus,
risks and right to control may be clarified and predetermined by explicit contractual
language regarding the right to control.
However, liability may arise if a general contractor exercises control in spite of a
contractual agreement not to control.245 If a general contractor takes actions inconsistent
with the contract and exercises actual control, liability may arise irrespective of the
contract terms.246 The result is potential liability. This rule prevents general contractors
242
791 S.W.2d 584, 589 (Tex. App.— San Antonio 1990, writ denied).
243
881 S.W.2d 522, 526 (Tex. App.— El Paso 1994, writ denied).
244
927 S.W.2d 294, 295-96 (Tex. App.— Eastland 1996, writ denied).
245
See Wilkins v. P.M.B. Systems Engineering, Inc., 741 F.2d 795, 800 (5th Cir. 1984).
246
See Wilkerson v. Mobil Oil Corp., 941 F. Supp. 614, 617 (E.D. Tex. 1996); Ponder v.
Morrison-Knudsen Co., 685 F. Supp. 1359, 1364 (E.D. Tex. 1988); Olivo, 952 S.W.2d at 528.
II-19
from avoiding liability for projects in which they exercise actual control over the manner
of the subcontractor’s performance.
d. Framing the Right to Control
The right to control requires the physical ability to control the work performed by
the subcontractors.247 Additionally, the nature of the control exercised by the general
contractor is a potentially determinative inquiry in liability analysis.248 General
contractors will only face potential liability if they exercise control related to the activity
or condition that caused the injury.249 Case law and §414 of the Restatement (Second) of
Torts are consistent in refusing to impose general vicarious liability upon the general
contractor for all work performed by the subcontractor unless the general contractor
controls the portion of the work in which the injury is sustained.250
Not surprisingly, step-by-step instructions regarding the manner in which the
subcontractor’s work is to be performed is sufficient evidence of both retention of
supervisory control and coordination of specific subcontractor activities to expose a
general contractor to liability for the injuries of the subcontractor’s employees.251 As a
general rule, retention of the power to either direct the order in which the subcontractor’s
work will be done, or to forbid the work being done in a manner likely to be dangerous to
the subcontractor and/or its employees, will not alone subject the general contractor to
247
See Tirres v. El Paso Sand Products, Inc., 808 S.W.2d 672, 676 (Tex. App.—El Paso 1991, writ
denied).
248
See Olivo, 952 S.W.2d at 528.
249
See id.
250
See Tirres, 808 S.W.2d at 676; RESTATEMENT (SECOND) OF TORTS §414 cmts. a-c (1965).
251
See Pena v. TXO Production Corp., 828 S.W.2d 188, 190 (Tex. App.—Corpus Christi 1992, no
writ).
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liability under agency principles.252 However, such control may invoke liability under
§414 if the general contractor fails to exercise the supervisory control with reasonable
care to prevent the work he has ordered from exposing others to injury.253
Considerable evidence may be required for a court to determine that a general
contractor has the right to control a subcontractor’s work. In Enserch Corp. v. Parker, a
general contractor provided the subcontractor’s employees with a book of procedures to
be followed while completing their work, reserved the right to order specific work
changes, and frequently sent representatives to the job site to supervise the
subcontractor’s employees.254 Despite this, the Texas Supreme Court held that a fact
question existed regarding whether the general contractor retained the right to exercise
control over the subcontractor’s work.255 In contrast, in another case, a general
contractor’s retention of the right to control how specific items were to be lifted and
handled, including specific instructions on how to lift a railroad switch to prevent it from
being damaged, was determined to be sufficient to expose the general contractor to
liability under §414.256
e. Failure to Establish Right to Control
To be liable to a subcontractor’s employees, a general contractor must retain more
than the right to order the work to start or stop, to inspect progress, or to receive
252
See Good v. Dow Chemical Co., 945 S.W.2d 877 (Tex. App.—Houston [1st Dist.] 1997, no
writ); RESTATEMENT (SECOND) OF TORTS §414 cmt. c (1965). But see Lee Lewis Harrison, 70
S.W.3d 778 (Tex. 2001), discussed in greater detail infra, Section G.5.e.
253
Id.
254
794 S.W.2d 2 (Tex. 1990).
255
Id. at 6.
256
See Ponder v. Morrison-Knudsen Co., 685 F. Supp. 1359, 1363 (E.D. Tex. 1988).
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reports.257 Additionally, the right to ensure that the subcontractor’s work is performed
properly and the right to fire the subcontractor have both been excluded from the types of
control that will expose the general contractor to liability.258 The same is true for joint
decisions involving both the general contractor and the subcontractor, provided that the
general contractor retains no control or right to control the manner in which the
subcontractor performs the work.259
Controlling the means, methods, or details of the work also requires more than a
right to control the general direction of the work.260 In Elliott-Williams Co., Inc., v. Diaz,
Elliott-Williams Co. (“Elliott-Williams”) entered into a contract with the United States
Army and Air Force Exchange System (“AAFES”) to install a freezer. Although Elliott-
Williams agreed in the contract to actually install the freezer, it sub-contracted the
installation work to James R. Lingle & Associates (“Lingle”). The contract between
AAFES and Elliott-Williams stated that Elliott-Williams was the sole-contractor for the
freezer installation work and was “fully responsible for the actions of all employees and
contracted representatives.”261 The contract also required Elliot-Williams to indemnify
AAFES for damages due to “injury to person or property proximately caused by action or
inaction attributable” to Elliott-Williams.262 AAFES then contracted with Industrial Air
257
See Wilkerson v. Mobil Oil Corp., 941 F. Supp. 614, 616 (E.D. Tex. 1996); Redinger v. Living,
Inc., 689 S.W.2d 415, 418 (Tex. 1985); Campbell v. Adventist Health System/Sunbelt, Inc., 946
S.W.2d 617, 623 (Tex. App.— Fort Worth 1997, no writ); Barham, 803 S.W.2d at, 736; Bryant v.
Gulf Oil Corp., 694 S.W.2d 443, 448 (Tex. App.— Amarillo 1985, writ ref’d n.r.e.).
258
See Welch v. McDougal, 876 S.W.2d 218, 223 (Tex. App.— Amarillo 1994, writ denied).
259
See Exxon Corp. v. Quinn, 726 S.W.2d 17, 20 (Tex. 1987).
260
See Elliott-Williams Co., Inc., 9 S.W.3d at 804-05.
261
Id.
262
Id. at 803.
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Systems to perform different construction work at the site, which then hired Manuel Diaz
to assist in the performance of this work.263 While doing so, Diaz was struck and injured
by some panels that fell off the freezer that was contracted by Elliott-Williams and
installed by Lingle.264
Diaz sued Elliott-Williams for negligence, alleging that it was responsible by
contract for Lingle’s acts. The court observed that the contract only required that Elliott-
Williams be responsible to AAFES for Lingle’s work and pays any claims incurred by
AAFES resulting from the work of Lingle.265 The contract did not give Elliott-Williams
the right to control the means, methods, or details of Lingle’s work.266 As a result, the
court upheld summary judgment in favor of Elliott Williams because Elliott Williams did
not owe a duty to Mr. Diaz through the contract with AAFES.
The Corpus Christi Court of Appeals has held instructions from the general
contractor to the subcontractor’s employees to “hurry up,” was insufficient to establish
interference or control by the general contractor.267 In another case, the general
contractor’s superintendent directed a subcontractor’s employee regarding where
materials were to be unloaded, warned the employee about the potentially hazardous
nature of driving under power lines with a truck-mounted boom, and told the employee to
263
Id.
264
Id.
265
Elliott-Williams, 9 S.W.3d at 804-05.
266
Id. at 804.
267
See Tanner v. BDK Production Co., Inc. 671 S.W.2d 941, 945 (Tex. App.— Corpus Christi
1984, no writ).
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“do the best [he could]” in performing this work.268 The court held that the
superintendent’s instructions were not the type of supervision or control that would
subject the general contractor to liability for failing in the duty to exercise reasonable
care.269 Notably, the instructions were given eight months before the work was to be
performed.
In a trucking case, another court held that requiring a trucker to use an employer-
leased trailer and retain specific liability insurance did not subject the general contractor
to liability for injuries to subcontractors’ employees.270 The court reasoned that such
requirements were “conditions of employment, not evidence of rights to control.”271 In
dicta, the court noted that specifying the order in which equipment or machinery was to
be moved and the hours in which the equipment could be picked up and delivered might
be evidence of a general contractor’s right to control if an injury occurred during loading
or unloading.272 Such involvement, however, would not establish the general contractor’s
control over the manner in which the trucker drove his truck on the highway whether
loaded or unloaded.273
The general contractor may ensure that the subcontractor’s work is performed in a
good and workmanlike manner and not subject himself to liability, provided the general
268
See Darden v. Houston Lighting & Power Co., 936 S.W.2d 25, 26 (Tex. App.— San Antonio
1996, no writ).
269
Id. at 27.
270
See Tirres v. El Paso Sand Products, Inc., 808 S.W.2d 672, 676 (Tex. App.— El Paso 1991,
writ denied).
271
Id.
272
Id.
273
Id.
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contractor’s oversight pertains to the results, and not the details, of the subcontractor’s
performance.274
Courts have been consistent in addressing the issue of general contractors’ safety
requirements. In Good v. Dow Chemical Co., a general contractor provided
subcontractors with a safety manual that stated that the general contractor would survey
and discuss the potential work hazards and safety requirements of the worksite with the
subcontractor’s employees.275 Holding this did not rise to the level of control to create a
duty to the employees of the subcontractor, the court reasoned that the safety
requirements did not address the details of the required work.276
Additionally, in Campbell v. Adventist Health System/Sunbelt, Inc., the general
contractor required subcontractors to comply with: (1) reasonable safety precautions
during performance of all subcontract work; (2) all laws, ordinances, rules, regulations,
and orders of public authorities relating to the work of the subcontract; and (3) the
requirement that insurance be provided for the duration of the job.277 Despite these
explicit requirements, the court considered these provisions to be an insufficient retention
of control by the general contractor over the means, methods, or details of the
subcontractor’s work for a duty to arise. Thus, the general contractor was not responsible
for supervising subcontractors and the subcontractors’ employees to ensure their
safety.278
274
See Good,945 S.W.2d at 882;Davis, 891 S.W.2d at 782.
275
945 S.W.2d at 882.
276
Id.
277
See 946 S.W.2d at 623.
278
Id.
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2 Premises Defect
A general contractor may be liable to a subcontractor and the subcontractor’s
employees for injuries arising from two types of premises defects, both involving
dangerous conditions at the worksite.279 The first type involves liability for a dangerous
condition that exists either at the time the subcontractor and its employees enter the
premises or through some means unrelated to the activities of the injured employees or
subcontractor.280 The rationale for liability on this basis is the legal presumption that the
general contractor is in a superior position to know of or discover the hidden dangerous
condition on the premises.281 The second type of dangerous condition creating premises
liability exists in the performance of the work activity for which the general contractor
hires the subcontractor and its employees.282 In this scenario, the subcontractor is
generally in the better position to inspect for, prevent, eliminate or protect its employees
from the dangerous condition.283
a. Dangerous Condition Pre-Existing or
Not Arising from Subcontractor’s Acts
An owner or occupier of land, along with a general contractor in control of the
premises, must exercise reasonable care to keep the premises safe for their business
279
See Olivo, 952 S.W.2d at 527 ; Shell Chemical Co. v. Lamb, 493 S.W.2d 742, 746 (Tex. 1973);
Barham 803 S.W.2d at 735; Zaborowske v. OES, Inc., 731 S.W.2d 614, 616 (Tex. App.—Houston
[1st Dist.] 1987, no writ); Union Carbide Corp. v. Burton, 618 S.W.2d 410, 413 (Tex. Civ. App.—
Houston [14th Dist.] 1981, writ ref’d n.r.e.).
280
See Olivo, 952 S.W.2d at 527; Lamb, 493 S.W.2d at 746; Barham, 803 S.W.2d at 735;
Zaborowske, 731 S.W.2d at 616; Union Carbide, 618 S.W.2d at 413.
281
See Lamb, 493 S.W.2d at 747; Union Carbide, 618 S.W.2d at 413.
282
See Lamb, 493 S.W.2d at 747; Union Carbide, 618 S.W.2d at 413.
283
See Union Carbide, 618 S.W.2d at 413.
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invitees.284 For a general contractor to be liable to a subcontractor or the subcontractor’s
employees under a premises liability theory, the plaintiff must prove each of the
following: (1) the general contractor had actual or constructive knowledge of some
condition on the premises; (2) the condition posed an unreasonable risk of harm to the
subcontractor or its employees; (3) the general contractor failed to exercise reasonable
care to reduce, repair, or eliminate the risk; and (4) the general contractor’s failure to
exercise reasonable care proximately caused the subcontractor’s or its employee’s
injuries.285
When a general contractor controls land on which a dangerous condition is
present at the time the subcontractor enters, or if the dangerous condition exists for
reasons unrelated to the subcontractor’s work on the premises, the general contractor has
a duty to inspect the premises and warn the subcontractor of those dangerous conditions
if he knows of them or could have discovered them by exercising reasonable care.286 In
such cases, the subcontractor and its employees have no duty to inspect the premises for
hidden dangers.287 Further, by relying upon the general contractor fulfilling his duty to
inspect the premises and warn of attendant dangers, the subcontractor is insulated from
liability.288
284
See Tanner v. BDK Production Co., Inc., 671 S.W.2d 941, 943 (Tex. App.— Corpus Christi
1984, no writ).
285
Id. (citing Corbin v. Safeway Stores, Inc., 648 S.W.2d 292 (Tex. 1983)).
286
See Olivo, 952 S.W.2d at 527; EDCO Production, Inc. v. Hernandez, 794 S.W.2d 69, 72 (Tex.
App.— San Antonio 1990, writ denied).
287
See Shell Chemical Co. v. Lamb, 493 S.W.2d 742, 746 (Tex. 1973); Henger, 226 S.W.2d at
434; Barham, 803 S.W.2d at 735; Zaborowske, 731 S.W.2d at 616.
288
See Lamb, 493 S.W.2d at 746; Henger, 226 S.W.2d at 434; Barham, 803 S.W.2d at 735;
Zaborowske, 731 S.W.2d at 616.
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If a general contractor warns the subcontractor of a dangerous condition on the
premises, he has met his duty of reasonable care and is not required to warn the
subcontractor’s employees.289 It is the subcontractor’s duty to warn its own employees of
worksite dangers, and the general contractor does not have a general duty to anticipate
the subcontractor’s failure to warn.290 An analysis of whether the general contractor’s
warning to the subcontractor is sufficient turns on the intelligence and experience of the
subcontractor and the nature of the dangerous condition.291 However, a general
contractor’s warning about a dangerous condition will not operate as an absolute bar to
liability – rather, it will be one fact to be considered in evaluating the comparative
negligence of the subcontractor or the subcontractor’s employees.292
Prior to 1978, general contractors had no duty to warn subcontractors of dangers
of which the general contractor knew the subcontractor was aware.293 Additionally, the
general contractor had no duty to warn the subcontractor of dangers that were considered
open and obvious.294 However, in Parker v. Highland Park, Inc., the Texas Supreme
Court abolished the no duty rule for “open and obvious” defects. The court reasoned that
the knowledge of a plaintiff, derived either through a warning or from the facts, is a
289
See Lamb, 492 S.W.2d at 747; Pence Constr. Corp. v. Watson, 470 S.W.2d 637, 638 (Tex.
1971).
290
See Pence, 470 S.W.2d at 638.
291
See Wilson v. Goodyear Tire & Rubber Co., 753 S.W.2d 442, 448-49 (Tex. App.—Texarkana
1988, writ denied).
292
See Shell Oil v. Wexler, 652 S.W.2d 454, 458 (Tex. App.—Houston [1st Dist.] 1983, writ ref’d
n.r.e.).
293
See Pence, 470 S.W.2d at 638.
294
See Gutierrez v. Exxon Corp., 746 S.W.2d 399, 402 (5th Cir. 1985) (discussing the duty to
warn of “any dangerous conditions which were not open and obvious”); Pence, 470 S.W.2d at 639
(stating that “if [the danger] was open and obvious, there would be no duty to warn”).
II-28
matter to be considered in apportioning negligence and should not affect the general
contractor’s duty.295 Today, the subcontractor’s knowledge, or lack thereof, of preexisting
dangerous conditions is not part of the determination of whether or not a general
contractor is negligent.296
b. Dangerous Condition Caused by
Subcontractor’s Performance of Work
The analysis for dangerous conditions arising during the subcontractor’s work
performance is different from the analysis for pre-existing conditions. First, a general
contractor has no duty to warn the subcontractor if the danger is incidental or inherent to
the work the subcontractor is hired to complete.297 For work that involves an inherently
dangerous condition, the general contractor has no duty to oversee the subcontractor’s
work or to protect the subcontractor’s employees. However, a general contractor that
hires a subcontractor to perform inherently dangerous work may be liable to outside third
parties for injuries resulting from the subcontractor’s performance of that work, though
employees of the subcontractor will not be considered third parties as a matter of law.298
Thus, a general contractor will not be liable for injuries to the employees of a
subcontractor that occur during performance of inherently dangerous work.299 If the
295
Id.
296
See EDCO, 794 S.W.2d at 75.
297
See Gutierrez, 764 F.2d at 402 (acknowledging the sufficiency of jury instructions ordering
that, if the jury found “that the accident was inherent in and arose from the performance of the
work of [the subcontractor],” the general contractor was not liable for the death of the
subcontractor’s employee); Hammack v. Conoco, Inc., 902 S.W.2d 127, 130 (Tex. App.—
Houston [1st Dist.] 1995, writ denied) (discussing the inherent danger of working with hydrogen
sulfide).
298
See Hammack, 902 S.W.2d at 131.
299
See id.
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dangerous condition is inherent in the work the subcontractor is hired to perform, the
subcontractor has a duty to work safely and is legally considered to be in a superior
position to warn its employees of the inherently dangerous condition.300
However, it should be noted that some conflict presently exists on this issue. The
case law discussed above establishes that a general contractor has no duty to warn a
subcontractor’s employees of dangerous conditions that are inherently part of the work
the subcontractor was hired to perform.301 However, a recent holding from the Corpus
Christi Court of Appeals conflicts with this rule. Citing a Texas Supreme Court case
from 1944 for the rule that an employer of an independent contractor owes a non-
delegable duty to ensure that inherently dangerous work is performed safely, the Corpus
Christi Court of Appeals determined that an independent contractor’s repair of concrete
truck tires was inherently dangerous work and that the independent contractor was
therefore owed a duty of care by its employer.302 Hopefully, this conflict will soon be
resolved.
As noted above, a general contractor has no general duty to warn a subcontractor
or a subcontractor’s employees of dangerous conditions that arise from the work
performance of either the subcontractor or the employees of the subcontractor.303 An
exception to this general rule does exist and was first articulated by the Texas Supreme
300
Id.
301
See id.
302
See Alamo Lumber v. Pena, 972 S.W.2d 800, 805-06 (Tex. App.— Corpus Christi 1999, pet.
denied) (citing Lloyd v. Herrington, 182 S.W.2d 1003 (Tex. 1944)).
303
See Shell Chemical Co. v. Lamb, 493 S.W.2d 742, 747 (Tex. 1973); Pence, 470 S.W.2d at 639
.
II-30
Court in Clayton W. Williams, Jr., Inc. v. Olivo.304 In Olivo, a general contractor operator
of an oil and gas lease hired a subcontractor to drill a well on the lease. During
performance of the work, an employee of the subcontractor was injured when he fell on
drill pipe equipment that had been left on the ground during the previous shift.”305
Alleging failure to maintain safe premises, the employee sued the general contractor and
the general contractor’s on-site agent/superintendent.306
The court extended the Restatement rule adopted in Redinger to premises defect
cases, reasoning that the “right to control” rule may subject a general contractor to
liability for a subcontractor’s worksite negligence. Evaluating whether the issue
presented in Olivo arose from an activity on the premises or a premises defect, the court
held that it was a defect case since the injuries were caused by equipment left on the
ground during the subcontractor’s work performance, as opposed to contemporaneous
negligence.307 The court again referred to the Restatement (Second) of Torts to clarify the
rationale for its holding:
[t]he rule stated in this Section is usually, though not exclusively,
applicable when a principal contractor entrusts a part of the work to
subcontractors, but himself or through a foreman superintends the entire
job. In such a situation, the principal contractor is subject to liability if he
fails to prevent the subcontractors from doing even the details of the work
in a way unreasonably dangerous to others, if he knows or by the exercise
of reasonable care should know that the subcontractors’ work is being so
done, and has the opportunity to prevent it by exercising the power of
control which he has retained in himself. So too, he is subject to liability
if he knows or should know that the subcontractors have carelessly done
their work in such a way as to create a dangerous condition, and fails to
304
952 S.W.2d 523 (Tex. 1997).
305
Id. at 526.
306
Id. at 528.
307
Id. at 527 (citing Keetch v. Kroger Co., 845 S.W.2d 262, 264 (Tex. 1992)).
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exercise reasonable care either to remedy it himself or by the exercise of
his control cause the subcontractor to do so.308
The court concluded its analysis in Olivo by reasoning that general contractors
may be liable for failing to exercise control over dangerous conditions created by the
work of subcontractors.309 However, for an injured employee of a subcontractor to
recover under this exception, he must prove both the general contractor’s right to control
the defect-producing work and a breach of the general contractor’s resulting duty under a
traditional premises defect analysis.310
Two years after Olivo, the Texas Supreme Court again confronted the right to
control issue in the context of dangerous conditions created by the work of independent
contractors. In Coastal Marine Service of Texas, Inc. v. Lawrence,311 the court
considered the question of whether mere willingness of an independent contractor to
follow a premises owner’s instructions, even absent actual instructions, is sufficient
evidence of an owner’s right to control in a premises liability case.312
Lawrence arose from a fatal injury to an employee of an independent contractor
(Lawrence) whose head was crushed by a crane. Coastal Marine Services, owner of the
premises where the injury occurred, owned the crane. Alleging negligence, negligence
per se, and gross negligence, the estate of Lawrence argued that Coastal Marine Services
was liable for his death under a premises defect theory.
308
RESTATEMENT (SECOND) OF TORTS §414 cmt. B (1965)
309
See Olivo, 952 S.W.2d at 528.
310
Id. at 529.
311
988 S.W.2d 223 (Tex. 1999).
312
Id. at 224.
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The court began its discussion by characterizing proof of a premises owner’s right
to control as an “explicit requirement” for recovery under a premises defect theory.313 To
meet this required showing, a plaintiff must demonstrate either (1) an explicit contractual
agreement whereby the premises owner is assigned a right to control; or (2) evidence that
the premises owner excised actual control over the independent contractor’s work.314
The court held that no right to control existed since (1) there was no contractual
agreement, and (2) no Coastal Marine Services employees directed the worksite at any
time before, during, or after the accident occurred.315 In response to the plaintiff’s claim
that the independent contractor and its employees would have followed the premises
owner’s instructions, had any been provided, the court reasoned: the “[p]ossibility of
control is not evidence of a `right to control’ actually retained or exercised.”
313
Id. at 225.
314
Id. at 226.
315
Id.
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3 Violation of OSHA Regulations
The Occupational and Health Administration often investigates construction site injuries.
Such investigations are for the purpose of determining whether the Occupational Safety
and Health Act of 1970 (hereinafter “OSHA”) has been violated. If violations are
discovered, the contractor may be cited for failure to comply with OSHA regulations. In
such cases, OSHA violations do not constitute evidence of a breach of the standard of
care by the contractor or evidence of negligence per se.316 Texas courts have noted the
OCCUPATIONAL SAFETY AND HEALTH ACT itself states that “Nothing in [the Act] shall be
construed ... to enlarge or diminish or affect in any other manner the common law or
statutory rights, duties, or liabilities of employers and employees under any law with
respect to injuries, diseases, or death of employees arising out of, or in the course of
employment.”317
The role of OSHA regulations with respect to the duty of a general contractor was
clarified in Richard v. Cornerstone Constructors, Inc., which addressed whether a
general contractor has a duty to the employees of a subcontractor to comply with OSHA
safety regulations at the construction site.318 In Richard, an injured employee of a
subcontractor alleged that non-compliance with OSHA by a general contractor
constituted negligence per se.319 Dismissing this argument, the court reasoned that a
general contractor’s common law duties in Texas are not expanded by OSHA
316
McClure v. Denham, 162 S.W.3d 346, 353 (Tex.App.- Fort Worth 2005, no pet.) citing
Melerine v. Avondale Shipyards, Inc., 659 F.2d 706, 707 (5th Cir. 1981).
317
McClure, 162 S.W.3d at 353 citing 29 U.S.C. § 653 (b) (4).
318
921 S.W.2d 465, 466 (Tex. App.— Houston [1st Dist.] 1996, writ denied).
319
Id. at 467.
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regulations.320 Acknowledging that a general contractor owes the same duty to invitees as
an owner or occupier of land, the Richard court refused to expose general contractors to
potential liability for ensuring subcontractor compliance with OSHA regulations.321
In Richard, the plaintiff argued that the general contractor’s alleged violation of
Section 654(a) of the OSHA regulations should entitle him to recovery. That provision
reads:
(a) Each employer--
(1) shall furnish to each of his employees
employment and place of employment, which are
free from recognized hazards that are likely to cause
death or serious physical harm to his employees;
(2) shall comply with occupational safety and health
standards promulgated under this act.322
The court interpreted Section 654(a)(2) as applicable to all employees of a
worksite “provided that the OSHA violation is the result of a premise defect or arises
from an activity under the control of the general contract.”323 However, the court also
reiterated the general rule that the right to control is the critical inquiry. Where right to
control belongs to a subcontractor, the subcontractor is responsible for ensuring
compliance with OSHA regulations.324 If a general contractor does not retain the right to
control the manner or details of a subcontractor’s work, Richard holds that OSHA
320
Id. at 468 (citing 29 U.S.C. §653(b)(4)).
321
Id.
322
Id. at 467 (citing 29 U.S.C. §654(a)(1), (2)).
323
Id. at 468.
324
Id.
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Section 654(a)(2) does not apply as a matter of law.325 However, that these rules do not
render OSHA violations irrelevant in negligence cases. If a general contractor owes a
duty to an injured party, OSHA violations may be admitted as probative evidence of a
breach in the standard of care by a general contractor.326
The Richard holding is consistent with the United States Court of Appeals for the
Fifth Circuit view that OSHA violations do not establish a private right of action for an
injured plaintiff.327 Thus, while violations of OSHA safety provisions may subject
general contractors to regulatory sanctions, the violations do not create new legal duties
between general contractors and subcontractors.328 As such, OSHA violations alone do
not establish negligence per se.329
The question of whether OSHA regulations comprise the proper standard of care
is a question of law for the trial court’s consideration.330 As the Tyler Court of Appeals
has noted, “we are not persuaded that OSHA regulations are applicable simply because
witnesses testified that they are.”331
325
Id.
326
See Baker Marine Corp. v. Herrera, 704 S.W.2d 58, 61 (Tex. App.— Corpus Christi 1985, writ
ref’d n.r.e.) (injured employee of subcontractor bringing suit against general contractor and owner
for injuries sustained in construction of offshore drilling platform); Kraus v. Alamo Nat. Bank of
San Antonio, 586 S.W.2d 202, 208 (Tex. App.— Waco 1979), aff’d, 616 S.W.2d 908 (action
against building owner and demolition contractor for injuries and death resulting from building
collapsing on car traveling down an adjoining street).
327
See Barrera v. E.I. Du Pont de Nemours & Co., Inc., 653 F.2d 915, 920 (5th Cir. 1981) (stating
that “it has long been settled” that OSHA does not create a private cause of action between
employers and employees).
328
Id.
329
See Richard, 921 S.W.2d at 467-68.
330
Ledbetter v. Missouri Pacific R.R. Co., 12 S.W.3d 139, 144 (Tex.App.- Tyler, 1999, pet.
denied).
331
Id.
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4 Safety Requirements and the “Narrow Duty”:
Hoechst-Celanese Corp. v. Mendez
The holdings in Richard and Redinger have insulated general contractors from
liability premised upon supervising the safe completion of subcontractors’ work.
Redinger provided defense counsel with forceful summary judgment grounds for many
cases involving injury to the employees of a subcontractor because of the difficulty in
proving that a general contractor had the right to control the details of a subcontractor’s
work. Because of this, the duty element was difficult to establish. However, recent
Texas case law has created an exception to the protection from liability provided by
Richard and Redinger.
Until recently, Texas courts were consistent in refusing to impose a duty based on
the right of control upon general contractors who required subcontractors to comply with
safety practices and applicable laws.332 This allowed general contractors to include
boilerplate provisions in contracts with subcontractors requiring compliance with OSHA
and other safety regulations without fear of exposure to liability, since such requirements
were deemed insufficient to create a duty based on the right of control.333
Although general contractor-imposed safety requirements for work performed by
subcontractors do not generally expose a general contractor to liability for the unsafe
practices of a subcontractor, Hoechst-Celanese Corp. v. Mendez334 suggests that a general
contractor may be liable for refusing to require corrective measures when he is aware of
332
See, e.g., Campbell v. Adventist Health System/Sunbelt, Inc., 946 S.W.2d 617, 623 (Tex.
App.— Fort Worth 1997, no writ); Good, 945 S.W.2d at 882; Davis, 891 S.W.2d at 782; Welch v.
McDougal, 876 S.W.2d 218, 223 (Tex. App.— Amarillo 1994, writ denied).
333
Id.
334
967 S.W.2d 354 (Tex. 1998).
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recurring safety violations by a subcontractor.335 In its discussion, the Texas Supreme
Court interpreted Section 414 of the Restatement (Second) of Torts as “establish[ing] a
nexus between the employer’s duty of care and its right to control.”336 Notably, this duty
of care is narrow and arises only after a general contractor contractually requires
compliance with safety practices and later ignores non-compliance by a subcontractor.337
Thus, a general contractor who promulgates safety rules and retains the right to control
the subcontractor’s adherence to those rules may owe a duty of reasonable care to a
subcontractor’s employees to enforce the rules and protect the employees from work-
related hazards and not disregard unsafe or non-compliant practices.338 In this context, a
general contractor’s duty is “commensurate with the control it retain[ed] over the
subcontractor’s work.”339 The net result of Mendez is that the requirement by a general
contractor that subcontractors comply with safety regulations imposes a duty upon the
general contractor that its safety requirements do not unreasonably increase the likelihood
and severity of a work-related injury to the employee of a subcontractor.340
Mendez clarified the new duty for general contractors as a “narrow” one satisfied
by a compliance requirement that does not “unreasonably increase … the probability and
335
Id. at 357 citing Tovar v. Amarillo Oil Co., 692 S.W.2d 469 (Tex. 1985) (holding a general
contractor negligent for failing to order the subcontractor to cease operations pursuant to a
contractual provision granting the general contractor the right to take possession of and
discontinue the project in the event of carelessness, inattention, or incompetency on the part of the
subcontractor).
336
Id. at 356.
337
Id. at 357.
338
Id.
339
Id.
340
Id. See also Mendez, 967 S.W.2d at 358.
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severity of injury”.341 The problematic part of this holding may be in applying it, since
the court provided no guidance regarding what type of safety compliance provision
between a general contractor and subcontractor would increase the likelihood of
employee injury.
Depending on the particular circumstances, the Mendez holding could potentially
create a more difficult burden for defense counsel in cases involving OSHA violations by
a subcontractor. Since subcontracts generally contain boilerplate language requiring
safety compliance, the narrow duty imposed by Mendez will require most general
contractors to be aware of whether subcontractors are complying with safety provisions.
Likewise, a general contractor may be liable for any safety requirement it imposes upon a
subcontractor that increases, rather than decreases, risks at the worksite. As a result,
summary judgment may be more difficult to obtain because of potential fact questions
surrounding the efficacy of worksite safety requirements.
Until sufficient case law interpreting Mendez more thoroughly clarifies its scope,
defense counsel representing general contractors may increasingly rely on Rule 166 of
the TEXAS RULES OF CIVIL PROCEDURE to prevail in summary judgment motions. Rule
166a(i) allows for summary judgment if the defendant establishes that there is no
evidence in support of an element of the plaintiff’s claim.342 Thus, a general contractor
may move for summary judgment on the basis that an OSHA compliance clause did not
increase the likelihood or severity of worksite injury to a subcontractor or its employees.
The burden then shifts to the plaintiff to make a prima facie showing that the safety
341
Id.
342
TEX. R. CIV. P. 166a(i) (This rule also may be used to establish that a defense or counterclaim
contains insufficient evidence of one or more essential elements).
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requirements did increase the potential for injury. If the plaintiff is unable to satisfy this
prima facie burden, the Defendant may be entitled to a no-evidence motion for summary
judgment.
5 Subsequent Case Interpretation of Mendez
Several cases have addressed the narrow duty of care for general contractors
crafted by the Texas Supreme Court in Mendez. Although the Mendez approach has
generally been followed, there has been some negative treatment as well. The recent law
is discussed chronologically.
a. Tavary v. Channel Terminal Corp.
Tavary v. Channel Terminal Corp.343 is an unpublished premises liability case
that involved a dock operator, a customer company that utilized barges at the dock, and
an employee of the customer company. An employee was injured while using a
gangplank to access the dock from the barge and later sued the dock operator for creating
a hazardous condition.344 Applying the “narrow duty of care rule” set forth in Mendez,
the Houston Court of Appeals [1st District] held that summary judgment was improper
when the dock operator (1) controlled the manner of access to the dock; (2) imposed a
“safe access policy;” and (3) required various other safety procedures.345 The court also
found summary judgment improper because the injured employee’s entire case hinged on
343
See No. 01-97-00571-CV, 1998 WL 417945 (Tex. App.— Houston [1st Dist.] July 23, 1998,
no pet.) (not designated for publication).
344
Id. at *1.
345
Id. at *2.
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the fact question of whether the dock operator’s mandates increased rather than decreased
the probability and severity of the employee’s injury.346
b. Arias v. MHI Membership Ltd.
Arias v. MHI Membership Ltd347 was a personal injury action brought by a
subcontractor’s employee against the general contractor when the employee fell from
roof framing he constructed at the worksite. The general contractor required its
subcontractors to comply with OSHA regulations, reserved the right to terminate
subcontractors for noncompliance with such regulations, provided employees with a
safety manual detailing how to prevent dangerous falls, assumed the duty of training the
subcontractors (while leaving actual implementation of safety procedures within the
control of the subcontractors), and retained the right to make periodic safety inspections.
Acknowledging Mendez, the Arias court held that such actions only imposed upon the
general contractor a narrow duty of care to ensure that its rules were not unsafe.348 Since
there was no evidence that the rules required by the general contractor were indeed
unsafe, the court of appeals affirmed summary judgment in favor of the general
contractor.349
346
Id. at *3.
347
978 S.W.2d 660 (Tex. App.— Corpus Christi 1998, pet. denied).
348
Id. at 664-65.
349
Id. at 665.
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c. Chapa v. Koch Refining Co.
Shortly after Arias, the Corpus Christi Court of Appeals applied the Mendez
holding more strictly in Chapa v. Koch Refining Co.350 Chapa, an injured employee of a
subcontractor, sued the general contractor after being injured when a co-worker who was
helping Chapa move a pipe unexpectedly lost his footing. The court discussed evidence
showing both that the general contractor’s “safety employee” was present at the job site
to intervene if the subcontractor's employees performed their jobs unsafely, and that on
the day of his injury Chapa asked his supervisor about whether the manner in which the
pipe was to be moved was safe.351 The court determined this evidence was sufficient to
raise fact issues regarding whether the general contractor, through its on-site safety
employee, retained control over the safety requirements of its subcontractor and as to
whether the general contractor failed to take corrective measures when he was aware that
the subcontractor violated safety guidelines.352 Due to these underlying facts, the court
refused to grant summary judgment for the contractor.353
In a holding favorable to owners, the Texas Supreme Court reversed the court of
appeals in Chapa, holding that: (1) the owner’s evidence established that it did not
maintain supervisory right over Chapa; and (2) testimony that the owner had a safety
employee present at the job site advising the subcontractor’s employees on safety was not
evidence that the owner controlled the method or operative details of the work.354
350
985 S.W.2d 158 (Tex. App.–Corpus Christi 1998).
351
Id. at 162.
352
Id.
353
See id.
354
See Koch Refining Co. v. Chapa, 11 S.W.3d 153, 157 (Tex. 1999).
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Agreeing with the trial court that no genuine issue of material fact existed, the court
reasoned that testimony of Chapa’s co-worker that Koch’s safety employee was present
to tell them if the “job [was] being done unsafely” was not sufficient evidence that Koch
exercised the requisite control to give rise to a duty.355 Thus, the court of appeals’
decision was reversed and a take-nothing judgment entered in its place.356
d. Traylor Bros., Inc. v. Garcia
The case of Traylor Bros., Inc. v. Garcia initially greatly expanded the application
of the Mendez holding by disregarding the Mendez limitation that a general contractor’s
duty to a subcontractor’s employee is commensurate with the general contractor’s
supervisory control, and by finding that the general contractor owed a duty to the
subcontractor’s employees.357 However, the San Antonio Court of Appeals later
withdrew its initial opinion on grant of rehearing en banc,358 and found in favor of the
general contractor.359
Traylor Brothers, Inc. was the general contractor on a $45 million project to
widen and expand a Houston freeway. The case arose when the employee of Traylor
Brothers’ subcontractor, Paige Barricades, was killed by a drunk driver while applying
raised pavement markers to the freeway. The process of completing this type of work is
often done by utilizing “rolling lane closures,” during which a work truck moves at a
355
See id. at 156.
356
Id. at 157.
357
No. 04-97-00179-CV.1999 WL 15937 (Tex. App.— San Antonio Jan. 13, 1999) (not
designated for publication).
358
Id.
359
49 S.W.3d 430, 437 (Tex. App.—San Antonio 2001).
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walking pace, while the lane is open to traffic in front of and behind the crew, but not in
the space where work is being completed.360
The subcontracting crew, including the decedent employee, used a lighted arrow
board that had been borrowed from the general contractor to direct traffic.361 The
subcontract between Paige and Traylor Brothers incorporated by reference the Manual of
Uniform Traffic Control Devices (hereinafter, “MUTCD”), which provides that a
“shadow vehicle” should tow a lighted arrow sign whenever this type of work is
performed.362 In its subsequent opinion, the questions addressed by the court were: (1)
whether connecting the lighted arrow board directly to the work truck, rather than to a
shadow vehicle, violated the MUTCD guidelines given the nature of the work being
performed; and (2) whether Traylor Brothers was aware that those guidelines were being
ignored by the subcontractor and subcontractor’s employees.363
Although the plaintiff’s expert witness testified that a shadow truck should have
been used, all other witnesses, including Traylor Brothers’ traffic superintendent, Paige’s
crew supervisor, Paige’s vice president, and a construction staff engineer with the Texas
Department of Transportation, testified that the subcontractor was working in compliance
with the MUTCD guidelines at the time of the accident.364 The court held that Traylor
did not owe a duty to the subcontractor’s employee, stating: “Even if we were to assume
360
Id. at 433.
361
Id. at 432.
362
Id. at 436-37.
363
Id. at 437.
364
Id.
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that Paige had violated the MUTCD guidelines by failing to use a second truck in its
moving lane closure, Traylor was not aware that a violation existed.”365
6 Lee Lewis Const., Inc., v. Harrison
The most potentially unfavorable holding and language for general contractors
regarding application of the narrow duty of care is the Texas Supreme Court’s opinion of
Lee Lewis Const., Inc. v. Harrison,366 which expands the understanding of the “right to
control” test and widens the potential for general contractor liability to the employees of a
subcontractor.
a. Factual Background and Damage Award
The case of Lee Lewis Construction, Inc. v. Harrison involved a wrongful death
action brought by the family of a glass installer employee who fell to his death during an
installation project. Prior to the fall, the employee was seen sitting on a boson’s chair (a
wooden board suspended from the roof by a rope) without using an independent lifeline.
The family alleged negligence and gross negligence against the glass installer
subcontractor who employed the worker, as well as against the general contractor for the
construction project. The glass installer subcontractor settled the case before trial. The
jury returned a verdict against the general contractor and awarded the plaintiffs $7.9
million in compensatory damages plus prejudgment interest and $5 million in punitive
damages. The award was upheld on appeal, with the exception of a reduction of
365
Id.
366
70 S.W.3d 778 (Tex. 2001).
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$450,000 for pain and suffering damages that were not sufficiently proven by the
plaintiffs.367
b. Majority Opinion—Actual Control
The court recognized the general rule under Texas law that general contractors
typically do not owe a duty to independent contractors (or their employees) to ensure that
an independent contractor’s work is performed in a safe manner, unless the general
contractor contractually or actually retains control over the manner in which the
independent contractor performs the work.368 The court’s opinion does not address
whether the general contractor in this case retained contractual control of the
subcontractor’s work, but instead focuses on a finding of actual control retained.
Evidence at trial showed that the general contractor routinely inspected the project
site to “see to it that the subcontractor and their employees properly utilized fall
protection equipment,” witnessed and approved the fall-protection measures used by the
subcontractor, and knew of and did not object to the glass subcontractor’s employees
using a boson’s chair without an independent lifeline.369 The court found this sufficient
evidence that the general contractor retained the right to control fall-protection systems
on the jobsite, and thus that the general contractor owed a duty of care to the
subcontractor’s employees.370
Moreover, the court found that the general contractor knew of, but was
consciously indifferent to, the extreme risk to which the subcontractor’s employees were
367
Id. at 782.
368
Id. at 783.
369
Id. at 784.
370
Id.
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exposed, and therefore upheld the finding of gross negligence.371 The court found
sufficient evidence that, viewed objectively from the general contractor’s standpoint,
working nine or ten stories above the ground without using an independent lifeline
created an extreme risk of a fatal fall.372 In addition, the court found that the general
contractor subjectively knew of the risk involved in such activity (the general contractor
required its own employees to utilize independent lifelines and acknowledged that the
fall-protection system used by the subcontractor was inefficient), but consciously chose
to do nothing to protect the safety of the subcontractor’s employees.373 The contractor
also required its own employees to utilize safety harnesses but did not require similar
safety measures to be taken by the subcontractor.374 Based upon the evidence of the
general contractor’s retention of actual control over the subcontractor’s safety procedures
and the general contractor’s failure to exercise that control when it actually knew of the
subcontractor’s unsafe procedures, the court upheld the liability and damages judgments
against the general contractor.375
Although each of the Texas Supreme Court Justices agreed with the end result of
the case (upholding the liability verdict and damages award against the general
contractor), several had different reasons for doing so. Although the rationales of the
concurring opinions are not binding law in Texas, their motivations provide insight to
371
Id. at 786.
372
Id.
373
Id.
374
Id.
375
Id. at 786 – 787.
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potential future decisions of the court. Thus, their concurring opinions bear at least a
brief scrutiny here.
c. Concurring Opinion—Duty of Care Owed
A lengthy concurring opinion argues that the policies underlying section 414 of
the RESTATEMENT (SECOND) OF TORTS (which provides for a general contractor’s liability
when the general contractor retains control over the independent contractor’s work)
support holding a general contractor liable for gross negligence when the general
contractor fails to exercise his retained right of control over an independent contractor to
prevent the independent contractor from causing the death of its own employee by the
independent contractor’s own gross negligence.376 In other words, the two justices who
signed the concurring opinion feel it is reasonable to expect the general contractor to take
action to prevent a subcontractor’s grossly negligent behavior, when the general
contractor is actually aware of the contractor’s grossly negligent conduct. Addressing
“the important public interest of minimizing work-related injuries,” the concurring
opinion asserts a belief that general contractors should not be allowed to escape liability
simply by giving independent contractors “free rein” to complete their work in whatever
manner they see fit, whether or not the general contractor retains contractual or actual
control over job safety.377
d. Concurring Opinion—Contractual Right to Control
A separate concurring opinion argues that the general contractor’s liability
stemmed from its contractual right to compel compliance with standard safety measures
376
Id. at 793.
377
Id. at 785.
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and its tacit approval of the subcontractor’s dangerous operations.378 The opinion
disagrees with the majority conclusion that the general contractor’s approval of the
subcontractor’s fall-protection system constituted “actual control” in this case and states
that liability must be based on more than mere acquiescence or approval by the general
contractor.379 The opinion asserts the following belief, favorable to general contractors:
“Our tort system should not penalize a general contractor for insisting on compliance
with basic safety standards.”380 However, because the general contractor in this case was
affirmatively aware that the subcontractor was violating standard company safety
policies, and by its silence endorsed the subcontractor’s repeated use of an obviously
hazardous activity, the opinion states the general contractor was liable to the
subcontractor’s employee.381
e. Practical Effect of Decision
Lee Lewis Construction v. Harrison arguably makes it easier for injured plaintiffs
to prove actual control over a subcontractor’s work, thereby making it easier for plaintiff
employees of subcontractors to obtain judgments against general contractors for injuries
sustained while on a construction project. Considering the unanimous finding of liability
by the Supreme Court, albeit for different reasons, plaintiffs now have a variety of
arguments to use in their attempts to persuade courts across the state: actual retained
control, contractual retained control, policy arguments of a desire to minimize workplace
accidents, and a prohibition on general contractors blindly relying on subcontractors to
378
Id. at 796.
379
Id. at 795.
380
Id. at 795.
381
Id.
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perform their work safely. Finally, given the large actual and punitive damages awarded
in this case, plaintiffs will likely be encouraged to sue the general contractor as well as
the subcontractor employer, except where barred by the workers’ compensation laws, in
each and every personal injury case stemming from a construction accident. However,
the facts of this case were particularly egregious and the particular facts at issue in each
case will continue to govern the possible imposition of liability.
General contractors should thus be cautious in the amount of control they
contractually retain. At the very least, Harrison should serve as a warning to general
contractors to cautiously limit the safety oversight language of contracts to avoid
unwittingly broadening exposure to liability. Moreover, general contractors should
continue to enforce established safety requirements, not only for their own employees,
but now for their subcontractors and subcontractors’ employees as well. Although the
basic rule that a general contractor does not owe a duty of care to a subcontractor’s
employees unless the general contractor retains the right to control the details of the
subcontractor’s work is still valid, the Harrison opinion makes it less likely that a general
contractor will be able to prevail on summary judgment when asserting this argument.
This unlikelihood should always be taken into account when drafting construction
contracts and when supervising a construction project.
7 Dow Chemical Co. v. Bright.
In Dow Chemical Company v. Bright382, the Texas Supreme Court once again dealt with
the issue of the proper duty of care for employees on a construction project. The plaintiff
in Bright was an injured employee of the independent contractor hired by the owner. A
382
89 S.W.3d 602 (Tex. 2002).
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falling pipe, which had been improperly secured by another employee of the independent
contractor, injured the employee.
a. Contractual Control.
In contrast to the decision in Lee Lewis, the court held that the following
provision of the contract did not impose a duty upon the owner, because it did not retain
the right to control the means, methods, or details of the independent contractor’s work:
30.01. Responsibilities—CONTRACTOR shall be an independent
contractor under this Contract and shall assume all of the rights,
obligations, liabilities, applicable to it as such independent contractor
hereunder and any provisions in this Contract which may appear to give
[OWNER] the right to direct CONTRACTOR as to details of doing the
work herein covered or to exercise a measure of control over the work
shall be deemed to mean that CONTRACTOR shall follow the desires of
[OWNER] in the results of the work only.
b. Actual Exercise of Control.
Regarding the exercise of actual control, the court distinguished the Lee Lewis
decision on its facts. Although the owner had safety personnel and procedures in place,
this was insufficient to constitute actual control over the independent contractor’s work.
The court noted that if the owner’s “safety representative actually approved how the pipe
in question was secured or instructed [the independent contractor] to perform his work
knowing of the dangerous condition, we could have a fact scenario mirroring Lee
Lewis.”383 Clarifying its opinion in Lee Lewis, the court noted that it has never
concluded that a general contractor has exercised control over a premise where “there
was no prior knowledge of a dangerous condition and no specific approval of any
dangerous act.”
383
Id. at 609.
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The Court further recited that for liability to attach to the general contractor, (1)
the retained control must relate to the injury caused by the negligence; and (2) if the
control is retained by requiring a subcontractor to comply with safety regulations, the
general contractor only owes the narrow duty of ensuring that its safety regulations do not
unreasonably increase the probability and severity of injury.384
c. Practical Ramifications
This opinion brings the right to control case law back on the path that the Court
had begun a few years before with Redinger. The Lee Lewis result was probably the
correct one, but the Court’s analysis in reaching that result was a departure from its
typical analysis. This case obviously gives some instruction to contractors on how to
avoid contractual assumption of control. Where parties have the freedom to decide the
terms of their contract, the contractual provision in Dow Chemical should be used as a
form for how to contractually avoid assuming control of a subcontractors work.
Furthermore, the Dow Chemical opinion brings the Mendez opinion and its “narrow
duty” exception back into the analysis.
8 Texas Civil Practice and Remedies Code Chapter 95
In 1995, the Texas Legislature enacted §95.003 of the TEXAS CIVIL PRACTICE AND
REMEDIES CODE, entitled “Liability for Acts of Independent Contractors.”385 Section
95.003 essentially codifies the “right to control” test set forth in Redinger and its
progeny. The Chapter applies to both premises defect and negligent activity claims.386
384
Id. at 607 citing Elliot Williams 11 S.W.3d at 155 (Tex. 1999); Mendez., 967 S.W.2d at 358
(Tex. 1998).
385
TEX. CIV. PRAC. & REM. CODE §95.003 (Vernon 1997).
386
Arsement v. Spinnaker Exploration Co., L.L.C., 400 F.3d 238, 250 (5th Cir. 2005) citing
Fisher v. Lee & Chang P’ship, 16 S.W.3d 198, 202 (Tex.App. Houston [1st Dist.] 2000, pet.
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The three elements necessary for recovery against a property owner under
Chapter 95 are similar to those created under Texas common law by Redinger and its
progeny and include: (1) the property owner must exercise some control over the manner
over which the work is performed, other than the right to start and stop work and receive
progress reports; (2) the owner must have actual knowledge of the danger or condition
resulting in the danger or condition resulting in the personal injury; and (3) the owner
must have failed to adequately warn of the danger.387
The United States Court of Appeals for the Fifth Circuit recently ruled that
Chapter 95 only applies to property owners, and not to general or independent
contractors.388 The court noted that Redinger controlled the common law analysis but
that Chapter 95 was only intended to protect property owners.389
Application of the provision is more limited in its scope than prior case law.
Section 95.002 limits application of the rule to a claim “that arises from the condition or
use of an improvement to real property where the contractor or subcontractor constructs,
repairs, renovates or modifies the improvement.”390
denied) (premises defect claims); Francis v. Coastal Oil & Gas Corp., 130 S.W.3d 76, 84
(Tex.App.- Houston [1st Dist.] 2003, no pet.) (negligent activity claims).
387
Arsement, 400 F.3d at 249.
388
Arsement, 400 F.3d at 251. See also Chi Energy, Inc. v. Urias, 156 S.W.3d 873, 878-89
(Tex.App.- El Paso, 2005, pet. filed October 11, 2005) (discussing elements for recovery pursuant
to Chapter 95); Francis v. Coastal Oil & Gas Corp., 130 S.W.3d 76, 83-85 (Tex.App.- Houston
[1st Dist.] 2003, no pet.).
389
Id. See TEX. CIV. PRAC. & REM. CODE § 95.003 (stating a “property owner is not liable…”)
(emphasis added).
390
TEX. CIV. PRAC. & REM. CODE §95.002(2) (Vernon 1997).
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Several Texas courts have interpreted §95.003 and §95.002 since their enactment
in 1996. In Fisher v. Lee and Chang Partnership,391 the Houston Court of Appeals
affirmed a summary judgment granted to the owner of property where a contractor’s
employee was hired to work on roof-mounted air conditioning units. The employee fell
from a ladder while working on the units, and sued the property owner for personal
injuries. The owner won a traditional summary judgment pursuant to §95.003, based on
the argument that “a property owner is not liable for injury unless it exercised or retained
control over the contractor’s work and knew of the danger.”392 The injured employee
argued that §95.003 did not apply to his case, because under §95.002, he was not injured
by the very improvement he had worked on, i.e., the air conditioner.393 The court held
the statute does not require that the defective condition causing the injury be the object of
the contractor’s work. Because the injury arose from the owner’s failure to provide a safe
workplace and the evidence showed that the owner was unaware of the defect, the court
upheld the judgment in favor of the property owner.394
The court in Fisher also held the protections afforded to property owners under
Chapter 95 apply to owners and to their agents “who oversee their properties.”395 In an
unreported decision the United States District Court for the Southern District of Texas
391
16 S.W.3d 198 (Tex. App.—Houston [1st. Dist.] 2000).
392
Id. at 200.
393
Id. at 200-01.
394
Id. at 201, 202.
395
Nagle v. GOM Shelf, L.L.C., No. Civ.A. V-03-103, 2005 WL 1515439 at *4 (S.D. Tex. 2005)
(memorandum opinion) citing Fisher, 16 S.W.3d at 203. The court noted that activities
facilitating an oil well’s performance qualify as “construction, renovation, or modification” for the
purposes of Chapter 95. Id. at *5 citing Credeur v. MJ Oil Inc., 123 Fed. Appx. 585 (5th Cir.
2004) citing Francis, 130 S.W.3d at 85.
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recently expanded on this holding and extended protection to the manager of an oil
platform because it was acting on behalf of the owner pursuant to a written contract.396
Texas appellate courts have also extended the protections in Chapter 95 to the holder of a
leasehold interest in certain mineral leases on the owner’s property397 and to property
management companies acting as the owner’s agent for the property.398
In Kelly v. Lin Television of Texas, L.P.,399 the Eastland Court of Appeals also
affirmed a summary judgment in favor of property owners sued by the families of
employees of an independent contractor hired to replace a broadcasting antenna. The
plaintiffs in that case argued on appeal that Chapter 95 of the TEXAS CIVIL PRACTICES
AND REMEDIES CODE did not apply because the dangerous condition of the broadcasting
tower existed and arose before the contractor was hired to work on the tower.400 The
court rejected this argument, relying on the clear, unambiguous language of the statute,
which applies to a negligence claim “that arises from the condition” of an improvement
to real property.401 As the broadcasting tower was an improvement to the property, the
statute applied, regardless of when the condition arose.402 Moreover, because the owner
retained only the “right to order the work to start or to stop or to inspect progress and
396
Nagle, 2005 WL 1515439 at *4.
397
See Francis v. Coastal Oil & Gas Corp., 130 S.W.3d 76, 84 (Tex.App.- Houston [1st Dist.]
2003, no pet.).
398
Padron v. L&M Properties, Inc. No. 11-02-00151-CV, 2003 WL 253927 (Tex.App.- Eastland,
February 6, 2003) (not designated for publication).
399
27 S.W.3d 564 (Tex. App.—Eastland 2000).
400
Id. at 570.
401
Id.
402
Id.
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receive reports,”403 rather than retained the right to control the manner in which the work
was performed, and because the plaintiffs produced no evidence that the owner was
aware of the dangerous condition, the court held in favor of the owner.404
Because courts interpreting Chapter 95 have held it only protects property owners
from such claims, it is doubtful Texas contractors may be afforded protection by these
statutory Provisions
E. Damages Recoverable
1 Personal Injury
A plaintiff who suffers personal injury may recover damages for physical pain,
mental anguish, disfigurement, physical impairment, loss of earning capacity, and
medical expenses.405 The spouse of an injured party may be entitled to recover damages
for loss of consortium and loss of household services.406
2 Wrongful Death and Survival
In a claim brought under the Texas Wrongful Death statute,407 the decedent’s
surviving spouse, children, and parents may recover damages for pecuniary loss, loss of
inheritance, loss of companionship and society, and mental anguish.408
403
Id. at 571.
404
Id. at 572-73.
405
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX. TEXAS PATTERN JURY CHARGES PJC
80.2 (2000).
406
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX. TEXAS PATTERN JURY CHARGES PJC
80.3 (2000).
407
TEX. CIV. PRAC. & REM. CODE §71.002(a), §71.004 (Vernon 1997).
408
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX, TEXAS PATTERN JURY CHARGES PJC
81.2 (2000).
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In a claim brought under the Texas Survival statute,409 the decedent’s heirs, legal
representatives, and estate may recover damages for the decedent’s pain and mental
anguish, the decedent’s medical expenses, and the decedent’s funeral and burial
expenses.410
3 Exemplary Damages
In both personal injury and wrongful death claims, a claimant may recover
exemplary damages if he proves by clear and convincing evidence that the injury or harm
of which he complains resulted from:
1) fraud;
2) malice; or
3) willful act or omission or gross neglect in wrongful death
actions brought by or on behalf of a surviving spouse or
heirs of the decedent’s body, under a statute enacted
pursuant to Section 26, Article XVI, TEXAS
CONSTITUTION.411
4 Tort Reform and Exemplary Damages
Pursuant to the tort-reform legislation enacted in 2003 during the 78th
Legislature, Section 41.008 of the TEXAS CIVIL PRACTICE & REMEDIES CODE now places
limits on the amount of exemplary damages that may be awarded to a plaintiff.
409
TEX CIV. PRAC. & REM. CODE §71.021 (Vernon 1997).
410
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX, TEXAS PATTERN JURY CHARGES PJC
82.2 (2000).
411
TEX. CIV. PRAC. & REM. CODE § 41.003 (Vernon 1997).
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Specifically, the Code provides that an award of exemplary damages against a defendant
shall not exceed an amount equal to the greater of:
two times the amount of economic damages
plus
the amount of non-economic damages found by the jury, not to
exceed $750,000;
or
$200,000.412
This damage cap applies to all actions in which exemplary damages are awarded, with
the exception of actions brought under the Texas DTPA and other miscellaneous
actions.413
As an example of the cap’s application, assume a jury finds that a defendant’s
conduct was grossly negligent and awards plaintiff $50,000 in property damage,
$150,000 in past and future medical expenses, $100,000 in past and future lost earnings,
and $1,000,000 total in metal anguish and physical pain and suffering. In this scenario,
the plaintiff’s recoverable exemplary damages would be limited to $1,350,000. This is
calculated by taking 2 times the total economic damages of $300,000 ($50K + $150K +
$100K X 2 = $600K) plus the amount of non-economic damages ($1 million) not
exceeding $750,000.
Although there is no controlling case on the issue, Texas law suggests that the
punitive damage cap is applied to the total amount of compensatory damages awarded to
all plaintiffs. In some reported cases, the trial court has submitted a separate question to
the jury, asking the jury to assign percentages allocating the exemplary damage award.
412
Id. at § 41.008(b).
413
Id. at 41.002 (d). There are other limited actions exempted from the damage caps, although the
DTPA exemption is the only action of significance for the Texas construction industry. Damages
arising from certain criminally felonious conduct are also exempted from the damages caps. See
TEX. CIV. PRAC. & REM. CODE § 41.008 (c).
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Other courts allocate the exemplary damages on a percentage basis comparing each
plaintiff’s individual compensatory damages to the total compensatory damages awarded
to all plaintiffs. Although this latter method is the most logical method of allocating
punitive damages, Texas Pattern Jury Charge 9.7 states a separate question should be
submitted asking the jury to apportion the exemplary damage award by percentage
among the multiple plaintiffs.414
One final note of interest pertains to suits by parents arising from the wrongful
death of a child. The Texas Constitution and the Supreme Court of Texas unequivocally
provide that parents have no standing to recover exemplary damages for the death of their
child, even if the death resulted from gross neglect.415 Thus, in a multiple plaintiff
scenario where, the plaintiffs include the wife and children of an adult decedent and also
the decedent’s parents, only the economic and non-economic damages of the wife and
child would be factored into the exemplary damage cap. The parents’ damages would
not factor into the formula because they have no standing under Texas law to recover
exemplary damages for the death of their child.
5 Property Damage
If the negligence claim is for property damage, the plaintiff may recover damages
for the decline in market value of the property as a result of the defendant’s negligence.416
Alternatively, when the property damage can be repaired, the plaintiff may elect to
recover the reasonable cost of repairs necessary to restore the property to the condition it
414
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX. TEXAS PATTERN JURY CHARGES PJC
9.7 (2000). However, this jury charge only addresses wrongful death cases.
415
TEX. CONST. art. 16, § 26; General Chemical Corp. v. De La Lastra, 852 S.W.2d 916 (Tex.
1993), cert. denied, 114 S. Ct. 440 (1994).
416
See City of Tyler v. Likes, 962 S.W.2d 489, 497 (Tex. 1997).
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was in immediately prior to the time of the damage.417 A plaintiff in this situation may
also recover damages for lost use of the property during the time reasonably required to
repair the property.418
The law treats damaged property differently depending on whether the damage is
temporary or permanent. Permanent property damages are calculated by determining the
differences between the reasonable cash market value immediately prior to and
immediately after the injury.419 Temporary property damages are calculated by
determining costs accrued during the continuance of the injury for which the action is
brought.420 The distinction between temporary and permanent property damages is
straightforward:
Permanent injuries to land result from an activity of such a character and
existing under such circumstances that it will be presumed to continue
indefinitely; the injury must be constant and continuous, not intermittent
or recurrent. Temporary injuries, however, have been found where the
injury is not continuous, but sporadic and contingent upon some irregular
force such as rain.421
Courts have refused to extend the scope of property damages beyond those
attributable to the diminished value of the property. Accordingly, mental anguish
damages are not recoverable in connection with a property damage claim.422
417
COMM. ON PATTERN JURY CHARGES, STATE BAR OF TEX., TEXAS PATTERN JURY CHARGES PJC
11.3 (2000).
418
Id.
419
See Cook Consultants, Inc. v. Larson, 700 S.W.2d 231, 238 (Tex. App.—Dallas 1985, writ
ref’d n.r.e.).
420
See Bayouth v. Lion Co., 671 S.W.2d 867, 868 (Tex. 1984) overruled on other grounds by
Schneider Nat’l Carriers, Inc. v. Bates, 147 S.W.2d 264, 281 (Tex. 2004).
421
See Bayouth, 671 S.W.2d at 868.
422
See Likes, 962 S.W.2d at 497.
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F. Statute of Limitations and Statutes of Repose
A cause of action for negligence is governed by a two-year statute of limitations.423 A
plaintiff must bring suit no later than two years after the day the cause of action
accrued.424 The accrual of the cause of action is established by common law.425
1 Accrual in Personal Injury Actions
As a general rule, a personal injury negligence cause of action accrues whenever
the negligent act causes the injury.426 This accrual ordinarily occurs regardless of when
the injured party discovers the injury, even if the damages become apparent later.427
In exceptional cases, courts will apply the discovery rule as an exception
to the general rule of accrual, provided two conditions are met: (1) the injury is inherently
undiscoverable; and (2) the evidence of the injury is objectively verifiable.428 In such
cases, the statute of limitations does not begin to run from the time of injury. Rather, the
statute is tolled until the plaintiff either discovers, or should have discovered through the
exercise of reasonable diligence, the wrongful act and resulting injury.429
The Texas Supreme Court recently held that the discovery rule does not toll the
limitations period until it learns of actual causes and cures.430 It only tolls the limitations
423
See TEX. CIV. PRAC. & REM. CODE § 16.003 (Vernon Supp. 1999) (governing causes of action
for “trespass for injury to the estate or to the property of another, personal injury, forcible entry
and detainer, and forcible detainer”); Barrett v. U.S. Brass Corp., 864 S.W.2d 606, (Tex. App.—
Houston [1st Dist.] 1993), rev’d on other grounds, 919 S.W.2d 644 (Tex. 1996).
424
Id.
425
See Childs v. Haussecker, 974 S.W.2d 31, 36 (Tex. 1998).
426
Id.
427
Id.
428
Id. at 36-37.
429
See id.
430
Id. At 357 citing PPG Indus., Inc. v. JMB/Houston Ctrs. Ltd. P’ship, 146 S.W.3d 79, 93-94
(Tex. 2004).
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until the claimant learns of the injury.431 Once this occurs, the “clock is running,” even if
the claimant does not yet know:
• the specific cause of the injury;
• the party responsible for it;
• the full extent of it; or
• the chances of avoiding it.432
2 Accrual in Wrongful Death Actions
In wrongful death cases, a negligence cause of action accrues at the moment the
injured person dies, not upon discovery of the cause of death.433 Survival and wrongful
death claims can be asserted only if the deceased could have brought the claim, had he
survived, without being barred by the statute of limitations.434
3 Accrual in Property Damage Actions
In negligence causes of action for property damages, accrual occurs when the first
actionable injury is discovered, not on the date when the extents of the damages are fully
ascertainable.435
4 Statute of Repose
Statutes of repose create an absolute applied limit within which a suit must be
initiated, regardless of when the suit accrues.436 In certain negligence actions, statutes of
431
Id.
432
Id.
433
See TEX. CIV. PRAC. & REM. CODE § 16.003(b) (Vernon 1986); Trapnell v. Sysco Food
Services, Inc., 850 S.W.2d 529, 550 (Tex. App.-—Corpus Christi 1992), aff’d, 890 S.W.2d 796
(Tex. 1994) (citing Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 352 (Tex. 1990)).
434
See Trapnell, 850 S.W.2d at 550.
435
See Bayouth, 671 S.W.2d at 868.
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repose insulate general contractors. Section 16.009 of the TEXAS CIVIL PRACTICE AND
REMEDIES CODE protects persons who construct or repair real property from liability for
certain actions brought later than ten years after the project has been substantially
completed. If the action alleges a defective or unsafe condition of the real property or a
construction or repair defect, the claimant must bring suit no later than ten years after
substantial completion of the improvement.437 This rule applies regardless of whether the
negligence action alleges personal injury, wrongful death, or property damage. The ten-
year period may be extended by two years if the claimant presents a written claim for
damages, contribution, or indemnity to the person performing or furnishing the
construction or repair work.438
Architects, engineers, landscape architects, and interior designers are afforded
protection from certain claims under a similar statute of repose.439 Unlike the statute of
repose for contractors, the statute does not contain a provision extending the repose
period based upon fraudulent concealment, written agreements, or presentation of written
demands.440
Suppliers of construction products and materials may also take advantage of a
statute of repose. The TEXAS CIVIL PRACTICE AND REMEDIES CODE provides that actions
against manufacturers and sellers of products may not be commenced more than 15 years
436
See Johnson v. City of Fort Worth, 774 S.W.2d 653, 654 n.1 (Tex. 1989) (providing a general
explanation of statutes of repose).
437
Id. §16.009(a).
438
Id. §16.009(c).
439
See TEX. CIV. PRAC. & REM. CODE § 16.008.
440
Id.
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from the date of the sale of the product.441 If the manufacturer or seller warrants the
product for greater than 15 years, the statute of repose will not bar the claim for the
period of the warranty.442
G. Available Defenses
Inferential rebuttal defenses are also available for defendants in addition to the
statutes of limitation and other affirmative defenses. Inferential rebuttal defenses include
sudden emergency, acts of God, sole proximate cause, and unavoidable accident.443
These defenses disprove one or more of the elements of a plaintiff’s claim.
For a plaintiff to prevail in a negligence action, he must prove each of the required
elements by a preponderance of the evidence. If a defendant can disprove any one of
these elements, there is no liability. General contractors, for example, are not liable for
the personal injuries of persons to whom they owe no duty.
441
TEX. CIV. PRAC. & REM. CODE § 16.012 (a) – (b).
442
TEX. CIV. PRAC. & REM. CODE § 16.012 (c).
443
See Select Ins. Co. v. Boucher, 561 S.W.2d 474, 477 (Tex. 1978).
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JURY QUESTIONS
Negligence
PJC 4.1 Broad Form—Joint Submission of Negligence and Proximate Cause
QUESTION
Did the negligence, if any, of the persons named below proximately cause the
[occurrence] [injury] [occurrence or injury] in question?
Answer “Yes” or “No” for each of the following:
a. Don Davis ______________________
b. Paul Payne ______________________
c. Sam Settlor ______________________
d. Responsible Ray ______________________
e. Connie Contributor ______________________
PJC 4.2B Malice- Causes of Action Accruing on or after September 1, 1995
QUESTION
If you have answered “Yes” to Question _ [4.1 or other applicable liability
question], and you have inserted a sum of money in answer to question [7.2 or other
applicable damages question], then answer the following question. Otherwise, do not
answer the following question.
QUESTION
Do you find by clear and convincing evidence that the harm to Paul Payne
resulted from malice?
“Clear and convincing evidence,” means the measure or degree of proof that
produces a firm belief or conviction of the truth of the allegations sought to be
established.
“Malice” means:
(a) a specific intent by Don Davis to cause substantial
injury to Paul Payne; or
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(b) an act or omission by Don Davis,
i. which, when viewed objectively from the standpoint of
Don Davis at the-time of its occurrence, involved an
extreme degree of risk, considering the probability and
magnitude of the potential harm to others; and
ii. of which Don Davis had actual, subjective awareness of the
risk involved, but nevertheless proceeded with conscious
indifference to the rights, safety, or welfare of others.
Answer “Yes” or “No.”
Answer: __________
PJC 65.1 Negligence and Ordinary Care of Plaintiffs or of
Defendants Other Than Owners or Occupiers of Premises
“Negligence,” when used with respect to the conduct of [Paul Payne] [Don
Davis], means failure to use ordinary care, that is, failing to do that which a person of
ordinary prudence would have done under the same or similar circumstances or doing
that which a person of ordinary prudence would not have done under the same or similar
circumstances.
“Ordinary care,” when used with respect to the conduct of [Paul Payne] [Don
Davis], means that degree of care that would be used by a person of ordinary prudence
under the same or similar circumstances.
PJC 65.3 Proximate Cause--Premises
“Proximate cause” means that cause which, in a natural and continuous sequence,
produces an event, and without which cause such event would not have occurred. In order
to be a proximate cause, the act or omission complained of must be such that a person
using ordinary care would have foreseen that the event, or some similar event, might
reasonably result therefore. There may be more than one proximate cause of an event.
PJC 65.4 New and Independent Cause--Premises
“Proximate cause” means that cause which, in a natural and continuous sequence,
unbroken by any new and independent cause, produces an event, and without which
cause such event would not have occurred. In order to be a proximate cause, the act or
omission complained of must be such that a person using ordinary care would have
foreseen that the event, or some similar event, might reasonably result therefore. There
may be more than one proximate cause of an event.
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“New and independent cause” means the act or omission of a separate and
independent agency, not reasonably foreseeable that destroys the causal connection, if
any, between the act or omission inquired about and the occurrence in question and
thereby becomes the immediate cause of such occurrence.
PJC 65.5 Emergency
If a person is confronted by an emergency arising suddenly and unexpectedly,
which was not proximately caused by any negligence on his part and which, to a
reasonable person, requires immediate action without time for deliberation, his conduct in
such an emergency is not negligence or failure to use ordinary care, if, after such
emergency arises, he acts as a person of ordinary prudence would have acted under the
same or similar circumstances.
PJC 66.3 Premises Liability--Plaintiff is Invitee
QUESTION ______
Did the negligence, if any, of those named below proximately cause the
[occurrence] [injury] [occurrence or injury] in question?
With respect to the condition of the premises, Don Davis was negligent if—
a. the condition posed an unreasonable risk of harm, and
b. Don Davis knew or reasonably should have known of the danger, and
c. Don Davis failed to exercise ordinary care to protect Paul Payne from the
danger, by both failing to adequately warn Paul Payne of the condition and failing to
make that condition reasonably safe.
“Ordinary care,” when used with respect to the conduct of Don Davis as an owner
or occupier of a premises, means that degree of care that would be used by an owner or
occupier of ordinary prudence under the same or similar circumstances.
Answer “Yes” or “No” for each of the following:
a. Don Davis ____________________
b. Paul Payne ____________________
c. Sam Settlor ____________________
d. Responsible Ray ____________________
e. Connie Contributor ____________________
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PJC 66.4 Premises Liability--Plaintiff is Licensee
QUESTION ______
Did the negligence, if any, of those named below proximately cause the
[occurrence] [injury] [occurrence or injury] in question?
With respect to the condition of the premises, Don Davis was negligent if—
a. the condition posed an unreasonable risk of harm, and
b. Don Davis had actual knowledge of the danger, and
c. Paul Payne did not have actual knowledge of the danger, and
d. Don Davis failed to exercise ordinary care to protect Paul Payne
from danger, by both failing to adequately warn Paul Payne of the
condition and failing to make that condition reasonably safe.
“Ordinary care,” when used with respect to the conduct of Don Davis as
an owner or occupier of a premises, means that degree of care that would be used by an
owner or occupier of ordinary prudence under the same or similar circumstances.
Answer “Yes” or “No” for each of the following:
a. Don Davis ____________________
b. Paul Payne ____________________
c. Sam Settlor ____________________
d. Responsible Ray ____________________
e. Connie Contributor ____________________
PJC 66.5 Premises Liability--Plaintiff’s Status in Dispute
QUESTION ______
On the occasion in question, was Paul Payne an invitee on that part of Don
Davis’s premises under consideration?
An “invitee” is a person who is on the premises at the express or implied
invitation of the possessor of the premises and who has entered thereon either as a
member of the public for a purpose for which the premises are held open to the public or
for a purpose connected with the business of the possessor that does or may result in their
mutual economic benefit.
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Answer “Yes” or “No.”
Answer: _______________
PJC 66.6 Premises Liability--Disjunctive Submission of Invitee-Licensee
for Alternate Theories of Recovery
QUESTION ______
On the occasion in question, was Paul Payne an invitee or a licensee on that part
of Don Davis’s premises under consideration?
An “invitee” is a person who is on the premises at the express or implied
invitation of the possessor of the premises and who has entered thereon either as a
member of the public for a purpose for which the premises are held open to the public or
for a purpose connected with the business of the possessor that does or may result in their
mutual economic benefit. One who is an invitee cannot be a licensee at the same time.
A “licensee” is a person on the premises with the permission of the possessor but
without an express or implied invitation. Such person is on the premises only because the
possessor has allowed him to enter and not because of any business or contractual
relations with, or enticement, allurement, or inducement to enter by, the possessor.
Answer “invitee” or “licensee.”
Answer: _______________
PJC 66.7 Premises Liability--Plaintiff-Licensee Injured by Gross Negligence
QUESTION ______
Was Don Davis’s gross negligence, if any, a proximate cause of the [occurrence]
[injury] [occurrence or injury] in question?
Don Davis was grossly negligent with respect to the condition of the premises
if—
a. the condition posed an unreasonable risk of harm, and
b. Don Davis both failed to adequately warn Paul Payne of the
danger and failed to make that condition reasonably safe, and
c. Don Davis’s conduct was more than momentary thoughtlessness,
inadvertence, or error of judgment. In other words, Don Davis must have
either known or been substantially certain that the result or a similar result
would occur, or he must have displayed such an entire want of care as to
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establish that the act or omission was the result of actual conscious
indifference to the rights, safety, or welfare of the persons affected by it.
Answer “Yes” or “No.”
Answer: _______________
PJC 66.8 Premises Liability--Plaintiff is Trespasser
QUESTION ______
Was Don Davis’s gross negligence, if any, a proximate cause of the [occurrence]
[injury] [occurrence or injury] in question?
Don Davis was grossly negligent with respect to the condition of the premises
if—
a. the condition posed an unreasonable risk of harm, and
b. Don Davis both failed to adequately warn Paul Payne of the
danger and failed to make that condition reasonably safe, and
c. Don Davis’s conduct was more than momentary thoughtlessness,
inadvertence, or error of judgment. In other words, Don Davis must have
either known or been substantially certain that the result or a similar result
would occur, or he must have displayed such an entire want of care as to
establish that the act or omission was the result of actual conscious
indifference to the rights, safety, or welfare of the persons affected by it.
Answer “Yes” or “No.”
Answer: _______________
PJC 66.10 Premises Liability--Proportionate Responsibility
If you have answered “Yes” to Question[s] ______ [the liability question(s)] for
more than one of those named below, then answer the following question. Otherwise, do
not answer the following question.
The percentages you find must total 100 percent. The percentages must be
expressed in whole numbers. The number of acts does not necessarily measure the
negligence attributable to any one named below or omissions found. The percentage
attributable to a person need not be the same percentage attributed to that person in
answering another question.
QUESTION ______
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What percentage of the negligence that caused the [occurrence] [injury]
[occurrence or injury] do you find to be attributable to each of those found by you, in
your answer[s] to Question[s] ______ [the liability question(s)], to have been negligent?
a. Don Davis ____________________%
b. Paul Payne ____________________%
c. Sam Settlor ____________________%
d. Responsible Ray ____________________%
Total 100 %
PJC 66.11 Premises Liability--Proportionate Responsibility if Contribution
Defendant is Joined
If you have answered “Yes” to Question[s] [the liability questions(s)] for more
than one of the persons named below, then answer the following question. Otherwise, do
not answer the following question.
The percentages you find must total 100 percent. The percentages must be
expressed in whole numbers. The number of acts does not necessarily measure the
negligence attributable to anyone named below or omissions found.
QUESTION ______
With respect to causing or contributing to cause in any way the injury to Paul
Payne, find the percentage of negligence, if any, attributable as between or among—
a. Don Davis ____________________%
b. Connie Contributor ____________________%
Total 100 %
PJC 66.12 Premises Liability--Proportionate Responsibility--Derivative
Claimant
If you have answered “Yes” to Question[s] [the liability question(s)] for more
than one of the persons named below, then answer the following question. Otherwise, do
not answer the following question.
The percentages you find must total 100 percent. The percentages must be
expressed in whole numbers. The number of acts does not necessarily measure the
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negligence attributable to anyone named below or omissions found. The percentage
attributable to a person need not be the same percentage attributed to that person in
answering another question.
QUESTION ______
What percentage of the negligence that caused the [occurrence] [injury]
[occurrence or injury] do you find to be attributable to each of those found by you, in
your answer[s] to Question[s] [the liability question(s)], to have been negligent?
a. Don Davis ____________________%
b. Mary Minor ____________________%
c. Fred Father ____________________%
d. Sam Settlor ____________________%
e. Responsible Ray ____________________%
Total 100 %
PJC 66.13 Property Owner’s Liability to Contractors, Subcontractors, or Their
Employees--Causes of Action Accruing on or after September 1, 1996 (Comment)
Certain property owners’ liability for person injury, death, or property damage to
an owner, contractor, or subcontractor arising from the condition or use of an
improvement to real property where the contractor or subcontractor constructs, repairs,
renovates, or modifies the improvement is governed by chapter 95 of the Texas Civil
Practice and Remedies Code. Under the statute, the property owner is not liable unless
he controlled the manner in which the work was performed and knew of the danger or
condition resulting in the harm and failed to adequately warn of it. TEX. CIV. PRAC. &
REM. CODE ANN. ch. 95 (Vernon 1997). The Committee expresses no opinion on
whether questions submitting such claims should only tract the statutory language or
should also incorporate the “unreasonable risk of harm” language contained in PJCs 66.3-
-.4. A question tracking just the statutory language might read as follows:
Did the negligence, if any, of those named below proximately cause the
[occurrence] [injury] [occurrence or injury] in question?
“Negligence,” when used with respect to the conduct of Olivia Owner, means
failure to use ordinary care to provide a safe workplace; provided, however, that Olivia
Owner must have had actual knowledge of a danger or condition and failed to adequately
warn of it.
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“Ordinary care,” when used with respect to the conduct of Olivia Owner as an
owner of a premises, means that degree of care that would be used by an owner of
ordinary prudence under the same or similar circumstances.
Answer “Yes” or “No” for each of the following:
a. Olivia Owner
b. Paul Payne
A question incorporating the common law “unreasonable risk of harm” language
(see Keetch v. Kroger Co., 845 S.W.2d 262, 267 (Tex.1992) along with the statutory
language might look like this--
Did the negligence, if any, of those named below proximately cause the
[occurrence] [injury] [occurrence or injury] in question?
“Negligence,” when used with respect to the conduct of Olivia Owner,
means failure to use ordinary care to reduce or eliminate an unreasonable risk of harm
created by the condition or use of an improvement to real property; provided, however
that Oliver Owner must have had actual knowledge of such risk and failed to adequately
warn of it.
“Ordinary care,” when used with respect to the conduct of Olivia Owner
as an owner of a premises, means that degree of care that would be used by an owner of
ordinary prudence under the same or similar circumstances.
Answer “Yes” or “No” for each of the following:
a. Olivia Owner
b. Paul Payne
Predicate questions submitting other conditions necessary to incur liability under
the statute may also be required. For example, fact questions may exist on whether the
property was used primarily for commercial purposes; whether the occurrence or injury
arose from an improvement to the property that was constructed by the contractor; or
whether the owner exercised control over the manner in which the work was performed.
PJC 80.1 Personal Injury Damages--Instruction Conditioning Damages
Questions on Liability
If, in answer to Question [the liability question], you have answered “No” for
Paul Payne or if, in answer to Question [the percentage causation question], you have
answered 50 percent or less for Paul Payne, then answer the following question.
Otherwise, do not answer the following question.
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PJC 80.2 Personal Injury Damages--Basic Question
QUESTION ______
What sum of money, if paid now in cash, would fairly and reasonably compensate
Paul Payne for his injuries, if any, that resulted from the occurrence in question?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do not
include interest on any amount of damages you find.
a. Physical pain and mental anguish.
b. Loss of earning capacity.
c. Disfigurement.
d. Physical impairment.
e. Medical care.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, of Paul Payne.
Answer in dollars and cents for damages, if any, that—
were sustained in the past;
Answer: _______________
in reasonable probability will be sustained in the future.
Answer: _______________
PJC 80.3 Personal Injury Damages (Injury of Spouse)
QUESTION ________
What sum of money, if paid now in cash, would fairly and reasonably compensate
Mary Payne for injuries, if any, to her husband, Paul Payne, that resulted from the
occurrence in question?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do
not include interest on any amount of damages you find.
a. Loss of household services.
“Household services,” means the performance of household and domestic duties
by a spouse to the marriage.
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b. Loss of consortium.
“Consortium” means the mutual right of the husband and wife to that affection,
solace, comfort, companionship, society, assistance, sexual relations, emotional support,
love, and felicity necessary to a successful marriage.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, of Paul Payne.
Answer in dollars and cents for damages, if any, that
were sustained in the past;
Answer: _______________________
in reasonable probability will
be sustained in the future.
Answer: _______________________
PJC 80.4 Personal Injury Damages--Injury of Minor Child
QUESTION ______
What sum of money, if paid now in cash, would fairly and reasonably compensate
Paul Payne, Jr. for his injuries, if any, that resulted from the occurrence in question?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do not
include interest on any amount of damages you find.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, of Paul Payne, Jr.
a. Physical pain and mental anguish.
b. Disfigurement.
c. Physical impairment.
Answer in dollars and cents for damages, if any, that—
were sustained in the past;
Answer: _______________
in reasonable probability will be sustained in the future.
Answer: _______________
d. Loss of earning capacity that in reasonable probability will be
sustained in the future after Paul Payne, Jr. reaches the age of eighteen years.
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Answer in dollars and cents for damages, if any.
Answer: _______________
PJC 80.5 Personal Injury Damages--Parents’ Loss of Services of Minor Child
QUESTION ______
What sum of money, if paid now in cash, would fairly and reasonably compensate
Paul Payne and Mary Payne for their loss, if any, of Paul Payne, Jr.’s services, as a
result of the occurrence in question?
Do not include interest on any amount of damages you find.
Answer in dollars and cents for damages, if any, that—
were sustained in the past;
Answer: _______________
in reasonable probability will be sustained in the future
until age eighteen.
Answer: _______________
PJC 80.6 Personal Injury Damages--Exemplary Damages
PJC 80.6A Personal Injury Damages--Exemplary Damages--Causes of Action
Accruing before September 1, 1995
QUESTION ______
What sum of money, if any, should be assessed against Don Davis and awarded to
Paul Payne as exemplary damages for the conduct found in response to Question
[question authorizing potential recovery of punitive damages]?
“Exemplary damages” means an amount that you may in your discretion award as
an example to others and as a penalty or by way of punishment, in addition to any amount
that you may have found as actual damages.
Factors to consider in awarding exemplary damages, if any, are—
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of the wrongdoer.
d. The situation and sensibilities of the parties concerned.
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e. The extent to which such conduct offends a public sense of justice
and propriety.
Answer in dollars and cents, if any.
Answer: _______________
PJC 80.6B Personal Injury Damages--Exemplary Damages--Causes of Action
Accruing on or after September 1, 1995
QUESTION ______
What sum of money, if any, should be assessed against Don Davis and awarded to
Paul Payne as exemplary damages for the conduct found in response to Question ______
[question authorizing potential recovery of punitive damages]?
“Exemplary damages” means any damages awarded as a penalty or by way of
punishment. Exemplary damages include punitive damages.
In determining the amount of exemplary damages you should consider evidence,
if any, relating to:
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of the wrongdoer.
d. The situation and sensibilities of the parties concerned.
e. The extent to which such conduct offends a public sense of justice
and propriety.
f. The net worth of Don Davis.
Answer in dollars and cents, if any.
Answer: _______________
PJC 80.7 Personal Injury Damages--Exclusionary Instruction for Other
Condition
Do not include any amount for any condition not resulting from the occurrence in
question.
PJC 80.8 Personal Injury Damages--Exclusionary Instruction for Preexisting
Condition that is Aggravated
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Do not include any amount for any condition existing before the occurrence in
question, except to the extent, if any, that such other condition was aggravated by any
injuries that resulted from the occurrence in question.
PJC 80.9 Personal Injury Damages--Exclusionary Instruction for Failure to
Mitigate
Do not include any amount for any condition resulting from the failure, if any, of
Paul Payne to have acted as a person of ordinary prudence would have done under the
same or similar circumstances in caring for and treating his injuries, if any, that resulted
from the occurrence in question.
PJC 80.10 Personal Injury Damages--Percentage Question Concerning Failure
to Mitigate
If, in answer to Question [the percentage causation question], you have found
that a percentage of the [occurrence] [injury] [occurrence or injury] in question was
caused by Paul Payne, then answer the following question. Otherwise, do not answer the
following question.
QUESTION ______
What percentage, if any, of the causation assigned by you to Paul Payne did you
attribute to his failure, if any, to mitigate his damages?
Answer with a percentage.
Answer: _______________%
PJC 80.12 Personal Injury Damages--Child’s Loss of Consortium--Questions
about Parent’s Injury
If you have answered “yes” to Question(s) _____ [questions establishing the
liability of one or more defendants], then answer the following question. Otherwise, do
not answer the following question.
QUESTION ______
Was the physical injury to Paul Payne a serious, permanent, and disabling injury?
Answer “Yes” or “No.”
Answer: _______________
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PJC 80.13 Personal Injury Damages--Child’s Loss of Consortium--Damages
Question
If you have answered “Yes” to Question [80.12], then answer the following
question. Otherwise, do not answer the following question.
QUESTION ______
What sum of money, if paid now in cash, would fairly and reasonably compensate
Polly Payne for the loss, if any, of parental consortium that resulted from the physical
injury to Paul Payne?
“Parental consortium” means the positive benefits flowing from the parent’s love,
affection, protection, emotional support, services, companionship, care, and society.
In considering your answer to this question, you may consider only the following
factors: the severity of the injury to the parent and its actual effect on the parent–child
relationship, the child’s age, the nature of the child’s relationship with the parent, the
child’s emotional and physical characteristics, and whether other consortium–giving
relationships are available to the child.
Do not include interest on any amount of damages you find. Do not reduce the
amounts, if any, in your answer because of the negligence, if any, of Paul Payne.
Answer in dollars and cents for damages, if any, that—
were sustained in the past;
Answer: _______________
in reasonable probability will be sustained in the future.
Answer: _______________
PJC 81.1 Wrongful Death Damages--Instruction Conditioning Damages
Questions on Liability
If, in answer to Question [the negligence question], you have answered “No”
for Paul Payne or if, in answer to Question [the percentage causation question], you
have answered 50 percent or less for Paul Payne, then answer the following question.
Otherwise, do not answer the following question.
PJC 81.2 Wrongful Death Damages (Claim of Surviving Spouse)
QUESTION ______
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What sum of money, if paid now in cash, would fairly and reasonably compensate
Mary Payne for her damages, if any, resulting from the death of Paul Payne?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do
not include interest on any amount of damages you find.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, of Paul Payne.
a. Pecuniary loss.
“Pecuniary loss” means the loss of the care, maintenance, support, services,
advice, counsel, and reasonable contributions of a pecuniary value, excluding loss of
inheritance, that Mary Payne, in reasonable probability, would have received from Paul
Payne had he lived.
b. Loss of companionship and society.
“Loss of companionship and society” means the loss of the positive benefits
flowing from the love, comfort, companionship, and society that Mary Payne, in
reasonable probability, would have received from Paul Payne had he lived.
c. Mental anguish.
“Mental anguish” means the emotional pain, torment, and suffering experienced
by Mary Payne because of the death of Paul Payne.
In determining damages for elements b and c, you may consider the relationship
between Mary Payne and Paul Payne, their living arrangements, any extended absences
from one another, the harmony of their family relations, and their common interests and
activities. You are reminded that elements b and c, like the other elements of damages,
are separate, and, in awarding damages for one element, you shall not include damages
for the other.
Answer, with respect to the elements listed above, in dollars and cents for
damages, if any, that (
were sustained in the past;
Answer: ______________________
in reasonable probability will be sustained in the future;
Answer: ______________________
d. Loss of inheritance.
“Loss of inheritance” means the loss of the present value of the assets that the
deceased, in reasonable probability, would have added to the estate and left at natural
death to Mary Payne.
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Answer in dollars and cents for damages, if any.
Answer: _______________
PJC 81.03 Wrongful Death Damages (Claim of Surviving Child)
QUESTION ______
What sum of money, if paid in cash now, would fairly and reasonably compensate
Paul Payne, Jr. for his damages, if any, resulting from the death of Mary Payne?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do
not include interest on any amount of damages you find.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, of Mary Payne.
a. Pecuniary loss.
“Pecuniary loss” means the loss of the care, maintenance, support, services,
advice, counsel, and reasonable contributions of a pecuniary value, excluding loss of
inheritance, that Paul Payne, Jr., in reasonable probability, would have received from
Mary Payne had she lived.
b. Loss of companionship and society.
“Loss of companionship and society” means the loss of the positive benefits
flowing from the love, comfort, companionship, and society that Paul Payne, Jr., in
reasonable probability, would have received from Mary Payne had she lived.
c. Mental anguish.
“Mental anguish” means the emotional pain, torment, and suffering experienced
by Paul Payne, Jr. because of the death of Mary Payne.
In determining damages for elements b and c, you may consider the relationship
between Paul Payne, Jr. and Mary Payne, their living arrangements, any extended
absences from one another, the harmony of their family relations, and their common
interests and activities. You are reminded that elements b and c, like the other elements
of damages, are separate, and, in awarding damages for one element, you shall not
include damages for the other.
Answer, with respect to the elements listed above, in dollars and cents for
damages, if any, that (
were sustained in the past;
Answer: ______________________
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in reasonable probability will be sustained in the future.
Answer: ______________________
d. Loss of inheritance.
“Loss of inheritance” means the loss of the present value of the assets that the
deceased, in reasonable probability, would have added to the estate and left at natural
death to Paul Payne, Jr.
Answer in dollars and cents for damages, if any.
Answer: _______________
PJC 81.4 Wrongful Death Damages (Claim of Surviving Parents of Minor
Child)
QUESTION ______
What sum of money, if paid now in cash, would fairly and reasonably compensate
Paul Payne and Mary Payne for their damages, if any, resulting from the death of Paul
Payne, Jr.?
Consider the elements of damages listed below and none other. Consider each
element separately. No not include damages for one element in any other element. Do
not include interest on any amount of damages you find.
a. Pecuniary loss.
“Pecuniary loss” means the loss of the care, maintenance, support, services,
advice, counsel, and reasonable contributions of a pecuniary value that Paul Payne and
Mary Payne, in reasonable probability, would have received from Paul Payne, Jr. had he
lived.
b. Loss of companionship and society.
“Loss of companionship and society” means the loss of the positive benefits
flowing from the love, comfort, companionship, and society that Paul Payne and Mary
Payne, in reasonable probability, would have received from Paul Payne, Jr. had he lived.
c. Mental anguish.
“Mental anguish” means the emotional pain, torment, and suffering experienced
by Paul Payne and Mary Payne because of the death of Paul Payne, Jr.
In determining damages for elements b and c, you may consider the relationship
between Paul Payne, Jr. and his parents, their living arrangements, any extended
absences from one another, the harmony of their family relations, and their common
interests and activities. You are reminded that elements b and c, like the other elements
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of damages, are separate, and, in awarding damages for one element, you shall not
include damages for the other.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, of Paul Payne, Jr.
Answer, with respect to the elements listed above, in dollars and cents for
damages, if any, that
were sustained in the past by
Paul Payne
Answer:______________________
Mary Payne
Answer:______________________
in reasonable probability will be sustained in the future by
Paul Payne
Answer:______________________
Mary Payne
Answer:______________________
PJC 81.05 Wrongful Death Damages (Claim of Surviving Parents of Adult
Child)
QUESTION ______
What amount of money, if paid now in cash, would fairly and reasonably
compensate Paul Payne and Mary Payne for their damages, if any, resulting from the
death of Paul Payne, Jr.?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do
not include interest on any amount of damages you find.
a. Pecuniary loss.
“Pecuniary loss” means the loss of the care, maintenance, support, services,
advice, counsel, and reasonable contributions of a pecuniary value that Paul Payne and
Mary Payne, in reasonable probability, would have received from Paul Payne, Jr. had he
lived.
b. Loss of companionship and society.
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“Loss of companionship and society” means the loss of the positive benefits
flowing from the love, comfort, companionship, and society that Paul Payne and Mary
Payne, in reasonable probability, would have received from Paul Payne, Jr. had he lived.
c. Mental anguish.
“Mental anguish” means the emotional pain, torment, and suffering experienced
by Paul Payne and Mary Payne because of the death of Paul Payne, Jr.
In determining damages for elements b and c, you may consider the relationship
between Paul Payne, Jr. and his parents, their living arrangements, any extended
absences from one another, the harmony of their family relations, and their common
interests and activities. You are reminded that elements b and c, like the other elements
of damages, are separate, and, in awarding damages for one element, you shall not
include damages for the other.
Do not reduce the amounts, if any, in your answers because of the negligence, if
any, in your answers because of the negligence, if any, of Paul Payne, Jr.
Answer, with respect to the elements listed above, in dollars and cents for
damages, if any, that were sustained in the past by
Mary Payne
Answer:______________________
Paul Payne
Answer:______________________
in reasonable probability will be
sustained in the future by
Paul Payne
Answer:______________________
Mary Payne
Answer:______________________
PJC 81.6 Wrongful Death Damages--Exemplary Damages
PJC 81.6A Wrongful Death Damages--Exemplary Damages--Causes of Action
Accruing before September 1, 1995
QUESTION ______
What sum of money, if any, should be assessed against Don Davis and awarded to
Paul Payne as exemplary damages for the death of Mary Payne?
“Exemplary damages” means an amount that you may in your discretion award as
an example to others and as a penalty or by way of punishment, in addition to any amount
that you may have found as actual damages.
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Factors to consider in awarding exemplary damages, if any, are—
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of the wrongdoer.
d. The situation and sensibilities of the parties concerned.
e. The extent to which such conduct offends a public sense of justice
and propriety.
Answer in dollars and cents, if any.
Answer: _______________
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PJC 81.6B Wrongful Death Damages--Exemplary Damages--Causes of Action
Accruing before September 1, 1995
QUESTION ______
What sum of money, if any, should be assessed against Don Davis and awarded to
Paul Payne as exemplary damages for the death of Mary Payne?
“Exemplary damages” means any damages awarded as a penalty or by way of
punishment. Exemplary damages include punitive damages.
In determining the amount of exemplary damages, you shall consider evidence, if
any, relating to—
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of the wrongdoer.
d. The situation and sensibilities of the parties concerned.
e. The extent to which such conduct offends a public sense of justice
and propriety.
f. The net worth of Don Davis.
Answer in dollars and cents, if any.
Answer: _______________
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PJC 81.7 Wrongful Death Damages--Apportionment of Exemplary Damages
If, in your answer to Question [81.6], you have entered any amount of
exemplary damages, then answer Question [81.7]. Otherwise, do not answer Question
[81.7].
QUESTION ______
How do you apportion the exemplary damages between Mary Payne and Paul
Payne, Jr.?
Answer by stating a percentage for each person named below. The percentages
you find must total 100 percent.
a. Mary Payne ____________________%
b. Paul Payne, Jr. ____________________%
Total _________ 100 _%
PJC 82.1 Survival Damages--Instruction Conditioning Damages Questions
on Liability
If, in answer to Question [the liability question], you have answered “No” for
Paul Payne or if, in answer to Question [the percentage causation question], you have
answered 50 percent or less for Paul Payne, then answer the following question.
Otherwise, do not answer the following question.
PJC 82.2 Survival Damages (Compensatory Damages
QUESTION ____
What sum of money would have fairly and reasonably compensated Paul Payne
for (
a. Pain and mental anguish.
“Pain and mental anguish” means the conscious physical pain and
emotional pain, torment, and suffering experienced by Paul Payne before his death as a
result of the occurrence in question.
b. Medical expenses.
“Medical expenses” means the reasonable expense of the necessary
medical and hospital care received by Paul Payne for treatment of injuries sustained by
him as a result of the occurrence in question.
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c. Funeral and burial expenses.
“Funeral and burial expenses” means the reasonable amount of expenses
for funeral and burial for Paul Payne reasonably suitable to his station in life.
Do not reduce the amount, if any, in your answer because of the negligence, if
any, of Paul Payne.
Answer in dollars and cents for damages, if any.
Answer: _______________
If the decedent’s negligence is also in question, the instruction given in this PJC
immediately before the answer blank is proper. This instruction should be omitted if
there is no claim of decedent’s negligence. Also, if an instruction on mitigation of
damages is required, this instruction should be modified. See PJC 80.09.
PJC 82.3 Survival Damages--Exemplary Damages
PJC 82.3A Survival Damages--Exemplary Damages--Causes of Action Accruing
before September 1, 1995
QUESTION ______
What sum of money, if any, should be assessed against Don Davis and awarded to
Paul Payne as exemplary damages for the death of Mary Payne?
“Exemplary damages” means an amount that you may in your discretion award as
an example to others and as a penalty or by way of punishment, in addition to any amount
that you may have found as actual damages.
Factors to consider in awarding exemplary damages, if any, are—
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of the wrongdoer.
d. The situation and sensibilities of the parties concerned.
e. The extent to which such conduct offends a public sense of justice
and propriety.
Answer in dollars and cents, if any.
Answer: _______________
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PJC 82.3B Survival Damages--Exemplary Damages--Causes of Action Accruing
on or after September 1, 1995
QUESTION ______
What sum of money, if any, should be assessed against Don Davis and awarded to
Paul Payne as exemplary damages for the death of Mary Payne?
“Exemplary damages” means any damages awarded as a penalty or by way of
punishment. Exemplary damages include punitive damages.
In determining the amount of exemplary damages, you shall consider evidence, if
any, relating to:
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of the wrongdoer.
d. The situation and sensibilities of the parties concerned.
e. The extent to which such conduct offends a public sense of justice
and propriety.
f. The net worth of Don Davis.
Answer in dollars and cents, if any.
Answer: _______________
PJC 83.1 Property Damages--Instruction Conditioning Damages Questions
on Liability
If, in answer to Question [the liability question], you have answered “No” for
Paul Payne or if, in answer to Question [the percentage causation question], you have
answered 50 percent or less for Paul Payne, then answer the following question.
Otherwise, do not answer the following question.
PJC 83.2 Property Damages--Market Value before and after Occurrence
QUESTION ______
What is the difference in the market value in Clay County, Texas, of the vehicle
driven by Paul Payne immediately before and immediately after the occurrence in
question?
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“Market value” means the amount that would be paid in cash by a willing buyer
who desires to buy, but is not required to buy, to a willing seller who desires to sell, but is
under no necessity of selling.
Do not reduce the amount, if any, in your answer because of the negligence, if
any, of Paul Payne.
Answer in dollars and cents for damages, if any.
Answer: _______________
PJC 83.3 Property Damages--Cost of Repairs and Loss of Use of Vehicle
QUESTION ______
What sum of money, if paid now in cash, would fairly and reasonably compensate
Paul Payne for his damages, if any, for the repairs to and loss of use of his vehicle
resulting from the occurrence in question?
Consider the elements of damages listed below and none other. Consider each
element separately. Do not include damages for one element in any other element. Do not
include interest on any amount of damages you find.
a. Cost of repairs.
Consider the reasonable cost in Clay County, Texas, to restore the vehicle to the
condition it was in immediately before the occurrence in question.
b. Loss of use of vehicle.
Consider the reasonable value of the use of a vehicle in the same class as the
vehicle in question for a period of time required to repair the damage, if any, caused by
the occurrence in question.
Do not reduce the amount, if any, in your answer because of the negligence, if
any, of Paul Payne.
Answer in dollars and cents for damages, if any.
Answer: _______________
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PJC 84.1 Economic Damages--Instruction Conditioning Damages Question on
Liability
If, in answer to Question [the liability question], you have answered “No” for
Paul Payne or if, in answer to Question [the percentage causation question], you have
answered 50 percent or less for Paul Payne, then answer the following question.
Otherwise, do not answer the following question.
PJC 110.31 Instructions on Exemplary Damages Assessed against Master for Acts
of
Servant
Exemplary damages can be assessed against [Don Davis] [ABC Corporation] as a
principal because of an act by an agent if, but only if,
a. the principal authorized the doing and the manner of the act, or
b. the agent was unfit and the principal was reckless in employing
him, or
c. the agent was employed in a managerial capacity and was acting in
the scope of employment, or
d. the employer or a manager of the employer’s ratified or approved
the act.
PJC 110.37 Question on Attorney’s Fees--Cash Award
If you have answered “Yes” to Question _____ [the liability question, e.g., 101.2,
103.2, 105.1, or 106.1], then answer the following question. Otherwise, do not answer the
following question.
QUESTION ______
What is a reasonable fee for the necessary services of Paul Payne’s attorney in
this case, stated in dollars and cents?
Answer with an amount for each of the following:
a. For preparation and trial.
Answer: _______________
b. For an appeal to the Court of Appeals.
Answer: _______________
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c. For making or responding to an application for writ of error to the
Supreme Court of Texas.
Answer: _______________
d. If application for writ of error is granted by the Supreme Court of
Texas.
Answer: _______________
PJC 110.38 Question on Attorney’s Fees--Percentage Award
If you have answered “Yes” to Question _____ [the liability question, e.g., 101.2,
103.2, 105.1, or 106.1], then answer the following question. Otherwise, do not answer the
following question.
QUESTION ______
What is a reasonable fee for the necessary services of Paul Payne’s attorneys in
this case, stated as a percentage of Paul Payne’s recovery?
Answer by stating a percentage.
Answer: _______________%
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III. ECONOMIC LOSS RULE/CON-TORT ANALYSIS
The distinction between contract analysis and negligence analysis is significant in
terms of both the extent of a plaintiff’s recovery and the applicable statute of limitations.
The economic loss rule dictates that losses that are exclusively economic and do not
involve personal injury or property damage are not recoverable under negligence or strict
liability theories. In evaluating whether cases properly sound in tort or contract, Texas
courts utilize a “con-tort” analysis to categorize the claim and determine whether a
plaintiff may recover under both tort and contract theories.444 A court’s finding on the
applicability of con-tort analysis is critical to general contractor defendants for several
reasons: (1) it will determine the appropriate statute of limitations (two years for
negligence, four years for contract); (2) it will impact the availability of third party
contribution; and (3) it will determine which defenses are available. Analysis of the
interplay between the economic loss rule and con-tort analysis is illustrated in a series of
Texas Supreme Court cases.
A. Jim Walter Homes, Inc. v. Reed
In Jim Walter Homes, Inc. v. Reed,445 the plaintiffs sought compensatory and
punitive damages, alleging that the house they were promised was not the one they
actually received. In determining whether the plaintiffs’ cause of action sounded in tort
or contract, the court focused on the nature of the injury. Since the economic loss was
entirely within the scope of the contract itself, the court held that the action sounded in
444
See, e.g., Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986); Southwestern Bell
Tel. Co. v. Delanney, 809 S.W.2d 493 (Tex. 1991); Formosa Plastics Corp. USA v. Presidio
Engineers, 960 S.W.2d 41 (Tex. 1998).
445
711 S.W.2d 617 (Tex. 1986).
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contract alone.446 The court also reversed the lower court’s award of punitive damages,
since punitive damages are not recoverable under a breach of contract theory.447 The
court explained that exemplary damages couldn’t be awarded for negligent or grossly
negligent breach of contract since they are not available for intentional breach of
contract.448
B. Southwestern Bell Telephone Company v. Delanney
The Texas Supreme Court clarified the distinction between tort and contract
actions in Southwestern Bell Telephone. Co. v. Delanney.449 After evaluating whether
negligent omission of a Yellow Pages ad by Southwestern Bell sounded in tort or
contract, the court used a hypothetical scenario to illustrate why the cause of action
properly sounded in contract:
[i]f the defendant’s conduct—such as negligently burning down a house—
would give rise to liability independent of the fact that a contract exists
between the parties, the plaintiff’s claim may also sound in tort.
Conversely, if the defendant’s conduct—such as failing to publish an
advertisement—would give rise to liability only because it breaches the
parties’ agreement, the plaintiff’s claim ordinarily sounds only in
contract.450
The Delanney court was consistent with Reed in categorizing the action according to the
nature of plaintiff’s injury:
In determining whether the plaintiff may recover on a tort theory, it is also
instructive to examine the nature of the plaintiff’s loss. When the only
446
See id. at 617-18.
447
See id.
448
See id.
449
Southwestern Bell Tel. Co. v. Delanney, 809 S.W.2d 493 (Tex. 1991).
450
Id. at 494.
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loss or damage is to the subject matter of the contract, the plaintiff’s action
is ordinarily on the contract.451
Although the plaintiff pled the cause of action under a negligence theory, the recovery
sought was the benefit of the bargain with the defendant. As such, the nature of the
injury and recovery sounded in contract alone.452
C. Formosa Plastics Corp. USA v. Presidio Engineers
In 1998, the Texas Supreme Court fashioned an exception to the Delanney
analysis in Formosa Plastics Corp. USA v. Presidio Engineers.453 In an action for fraud,
breach of the duty of good faith and fair dealing, and breach of contract, the court
allowed a contractor to plead a cause of action for fraudulent inducement in conjunction
with a separate breach of contract claim against a project owner.454 Since Texas law has
long imposed a duty to abstain from fraudulently inducing a party to contract, the court
noted that it was well established that this duty exists independently of the duties created
by the contract itself.455 The language of the Formosa court is clear: “[t]ort damages are
recoverable for a fraudulent inducement claim irrespective of whether the fraudulent
representations are later subsumed in a contract or whether the plaintiff only suffers an
economic loss related to the subject matter of the contract.”456
451
Id.
452
See id. at 495.
453
960 S.W.2d 41 (Tex. 1998).
454
See id.
455
See id. at 46.
456
Id. at 47.
III-3
The “economic loss” rule requires a claimant to recover its economic damages
based on defective work in contract rather than tort.457 If a Plaintiff’s alleged damages
are only economic in nature, no viable cause of action for negligence or
misrepresentation will exist.
Economic losses have been characterized as damages for inadequate value, costs
of repair, cost of replacement, loss of profits, and loss of wages.458 Several of courts have
extended the bar of the economic loss rule to negligence actions that seek only the
recovery of economic losses when the parties have no contractual relationship and there
is no accompanying claim for damages to a person or property.459 The damages sought
by Plaintiff are purely economic in nature.460 Depending on the nature of the damage,
property damage may also be purely economic. For instance, damage to the product
itself is purely an economic loss.461 Similarly, damage to a product caused by a defective
component is an “economic loss” and, therefore, not subject to recovery under any tort
457
See, e.g., Hininger v. Case Corp., 23F.3d 124, 126 (5th Cir. 1994)(applying Texas Law);
Arkwright-Boston Manufacturers Mut. Ins. Co. v. Westinghouse Electric Corp., 844 F.2d 1174,
1178 n.8 (5th Cir. 1988) (applying Texas law); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617,
618 (Tex. 1986); Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77, 79 (Tex. 1977).
458
Thomson v. Espey Huston & Assoc., 899 S.W.2d 415, 421 (Tex. App.—Austin 1995, no writ);
Rodriquez v. Carson, 519 S.W.2d 214, 216 (Tex. App.—Amarillo 1975, writ ref’d n.r.e.).
459
Coastal Conduit & Ditching v. Noram, 29 S.W.3d 282, 286, 290 (Tex. App.—Houston [14th
Dist.] 2000, no pet.). See also Trans-Gulf Corp. v. Performance Aircraft Servs., 82 S.W.3d 691,
695 (Tex. App.— Eastland 2002, no pet.); Express One Int’l v. Steinbeck, 53 S.W.3d 895, 898-99
(Tex. App. –Dallas 2001, no pet.).
460
See Hininger, 23 F.3d at, 126 n.1 (applying Texas law) (economic losses can be either direct or
consequential; consequential losses include indirect losses such as loss of profits).
461
See Mid-Continent Aircraft Corp. v. Curry County Spraying Service, Inc., 572 S.W.2d 308,
313 (Tex. 1978) (“injury to the defective product itself is an economic loss governed by the
UNIFORM COMMERCIAL CODE.”).
III-4
theory.462 Only where collateral damage exists in addition to damage to the product itself
can a plaintiff recover in tort as well as in contract under Texas law.463
462
See Alcan Aluminum Corp. v. BASF Corp., 133 F. Supp. 2d 482, 505 (N.D. Tex. 2001).
463
DeLanney, 809 S.W.2d at, 494 (contract claim); Signal Oil & Gas Co. v. Universal Oil
Products, 572 S.W.2d 320, 325 (Tex. 1978)(products).
III-5
IV. INDEMNITY/ADDITIONAL INSUREDS
A. Indemnity Agreements and Fair Notice Requirements
1 Indemnity in General
Indemnity shifts “the entire burden of loss from one tortfeasor to another.”464
Texas courts have virtually eliminated common law indemnity, although some important
aspects remain and will be discussed in this Chapter.465 The surviving common law
provides that manufacturers shall fully indemnify innocent retailers of their defective
products; and Common-law indemnity still recognizes the right of contractual
indemnity.466 Common law also grants employers indemnification rights against an
employee for all damages paid as a result of the employee’s actions.467
Construction contracts often contain contractual indemnity provisions, frequently
referred to as indemnity agreements, releases, exculpatory agreements, or waivers, all of
which can exculpate a negligent party from liability arising from its own actions. An
indemnity agreement is enforceable if: (1) the intent of the parties is clear; (2) the intent
of the parties is set out in the agreement; and (3) the specific intent of the parties is
expressed.468
464
See B&B Auto Supply, Sand Pit, and Trucking Co. v. Central Freight Lines, 603 S.W.2d 814,
816 (Tex. 1980).
465
See Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 819 (Tex. 1984) overruled on other
grounds by Barr v. Resolution Trust Corp. ex. rel. Sunbelt Fed. Sav., 837 S.W.2d 627 (Tex. 1992).
466
Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 432 (Tex. 1984);B&B Auto Supply, 603
S.W.2d at 817.
467
See e.g., South Austin Drive-In Theatre v. Thomison, 421 S.W.2d 933 (Tex. Civ. App.—Austin
1967, writ ref’d n.r.e.).
468
See Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705, 708 (Tex. 1987).
IV-1
Indemnity provisions in construction contracts shift the risk of liability between
owners, general contractors, and subcontractors.469 In order to meet the fair notice
requirements developed by the Texas Supreme Court, an indemnity provision must
comply with the elements of the express negligence rule and the conspicuousness test.470
2 Fair Notice Requirements
Indemnity agreements under Texas law are subject to two “fair notice
requirements:” (1) express negligence rule; and (2) conspicuousness.471 The purpose of
these requirements is to afford adequate protection to the parties affected by the operation
by “extreme risk-shifting” provisions such as an indemnity agreement.
The fair notice requirements were only extended to indemnity provisions until
1993 when the Texas Supreme Court rendered its decision in Dresser Industries, Inc. v.
Page Petroleum, Inc., which extended the fair notice requirements to releases.472
However, the Texas Supreme Court has refused to extend the fair notice requirements to
no damage for delay clauses in construction contracts because such clauses are not the
“extreme risk-shifting” type of agreement that require such protections.473 The court
noted that one party agreeing to bear the costs as a result of delays on a construction
project was a normal contractual agreement, and not so extreme and risk-shifting to
require the extraordinary protections of the fair notice requirements.
469
See Dresser, 853 S.W.2d at 508.
470
See id.
471
Id. at 509.
472
Id. at 508.
473
Green Int’l, Inc. v. Solis, 951 S.W.2d 384, 386-87 (Tex. 1997).
IV-2
Importantly, the fair notice requirements also only apply to indemnity agreements,
which operate to relieve a party in advance for the consequences of its own negligence,
and therefore only apply when a party seeks to avoid the consequences of its future
negligence.474
3 Actual Knowledge Mitigates Fair Notice
The fair notice requirements provide excellent defenses for contractors,
subcontractors, suppliers and other parties seeking to avoid the operation of such clauses.
However, a critical exception exists to the operation of the fair notice requirements. The
fair notice requirements are not applicable if a party establishes the party seeking to avoid
the operation of the indemnity obligation had “actual notice” or “actual knowledge” of
the indemnity obligation in the contract.475 The Texas Supreme Court recently
reaffirmed this principle when it stated, “if both contracting parties have actual
knowledge of the [contract’s] terms, an agreement can be enforced even if the fair notice
requirements were not satisfied.”476
The policy behind the fair notice requirements underscores the fact the fair notice
requirements are inapplicable if the party had actual notice. The Texas Supreme Court
has stated that “in adopting the fair notice requirements, it was ‘concerned with the
injustice arising when a contracting party buries a provision substantially releasing itself
from its own negligence in a way that is inconspicuous and does not provide fair notice to
the other party.”477
474
Id.
475
Dresser, 853 S.W.2d at 508 n.2 citing Cate v. Dover Corp., 790 S.W.2d 559, 561 (Tex. 1990).
476
Storage & Processors, Inc. v. Reyes, 134 S.W.3d 190, 192 (Tex. 2004).
477
OXY USA, 161 S.W.3d at 283 citing Green, 951 S.W.2d at 387; Dresser, 853 S.W.2d at 508.
IV-3
Many owners will attempt to demonstrate the contractor had actual notice of the
indemnity obligations to avoid a challenge based upon the fair notice requirements.
Likewise, many subcontractors and suppliers could face such a challenge from a
contractor seeking to enforce an indemnity obligation in a subcontract.
4 Express Negligence Rule
Whether a contractual right to indemnity meets the requirements of the express
negligence rule is determined as a matter of law.478 The application of the express
negligence rule is not an affirmative defense.479
a. Indemnity Agreements
An indemnity agreement is defined as: “[a] collateral contract or assurance, by
which one person engages to secure another against an anticipated loss or to prevent him
from being indemnified by the legal consequences of an act or forbearance on the part of
one of the parties or of some third person.”480 An indemnitor typically agrees to hold
harmless the indemnitee against existing and/or future loss liability, which subjects the
indemnitor to a lawsuit if they refuse to indemnify the indemnitee.481
i. Sole or Concurrent Negligence
The express negligence rule was created by the Texas Supreme Court in Ethyl
Corp. v. Daniel Const. Co.482 Indemnity agreements before the Ethyl decision were
analyzed under the “clear and unequivocal” test: the parties’ contract must have
478
See id.
479
Id.
480
Id. at 508 citing BLACK’S LAW DICTIONARY 692 (5th ed. 1979).
481
See id. at 508.
482
725 S.W.2d 705, 708 (Tex. 1987).
IV-4
expressed “in clear and unequivocal language the intent of the indemnitor to indemnify
the indemnitee against the consequences of the indemnitee’s own negligence whether
such negligence was the sole proximate cause of the injury or a proximate cause jointly
and concurrently with the indemnitor’s negligence.”483 In Ethyl, the court stated that the
new express negligence doctrine “provides that parties seeking to indemnify the
indemnitee from the consequences of its own negligence must express that intent in
specific terms. Under the doctrine of express negligence, the intent of the parties must be
specifically stated within the four corners of the contract.”484
The express negligence doctrine prevents powerful owners and contractors from
imposing contractual indemnity obligations on unknowing subcontractors. The Supreme
Court noted in Ethyl that, “the scriveners of indemnity agreements have devised novel
ways of writing provisions which fail to expressly state the true intent of those
provisions. The intent of the scriveners is to indemnify the indemnitee for its negligence,
yet be just ambiguous enough to conceal that intent from the indemnitor.”485 Courts have
adopted the express negligence rule to ensure that all contractual parties are aware that
the indemnity agreement shifts the risk from one party to the other.
The contract before the Ethyl court read: “Contractor shall indemnify and hold
Owner harmless against any loss or damage to persons or property as a result of
operations growing out of the performance of this contract and caused by the negligence
or carelessness of Contractor, Contractor’s employees, Subcontractors, and agents or
483
See Ethyl, 725 S.W.2d at 707 (citing Sira v. Payne, 484 S.W.2d 559, 561 (Tex. 1972)).
484
Id.
485
See id. at 707-08.
IV-5
licensees.”486 The Supreme Court ruled that the provision did not comply with the
express negligence rule and did not indemnify the Owner.487 Furthermore, the court
eliminated the right to common law comparative indemnity by holding that an indemnitee
may be indemnified based on a percentage of the indemnitor’s negligence only when the
agreement satisfies the express negligence rule.488
ii. Strict Liability
The express negligence rule must be satisfied to indemnify an indemnitee against
strict liability.489 In Houston Lighting & Power Co. v. Atchison, Topeka, & Santa Fe R.R.
Co. the Texas Supreme Court examined Ethyl and held that “parties to an indemnity
agreement must expressly state their intent to cover strict liability claims in specific
terms.”490 The court examined the validity of a provision that indemnified against claims
“arising or growing out of loss of or damage to property . . . whether such loss, damage,
injury or death be caused or contributed to by the negligence of Railway Company, its
agents or employees, or otherwise.”491 Because the clause did not specifically provide
for indemnity from strict liability claims, the court held that the contract did not
indemnify the company against strict liability causes of action.492
486
See id. at 707.
487
See id. at 708.
488
See id.
489
See Houston Lighting & Power Co. v. Atchison, Topeka, & Santa Fe R.R. Co., 890 S.W.2d
455, 456 (Tex. 1994).
490
See id. at 459.
491
See id. at 456.
492
See id. at 459.
IV-6
iii. Attorney Fees and Defense Costs
Parties may also agree to indemnify an indemnitee for attorney’s fees and defense
costs. But these agreements must also satisfy the requirements of the express negligence
doctrine.493 In Fisk Elec. Co. v. Constructors & Associates, Inc., the Texas Supreme
Court held “no obligation to indemnify an indemnitee for the costs or expenses resulting
from a claim made against it for its own negligence arises unless the indemnification
agreement complies with the express negligence test.”494 The Fisk court analyzed an
indemnity clause that provided for the indemnification of an indemnitee “from and
against all claims, damages, losses, and expenses, including but not limited to attorney’s
fees” that resulted from the indemnitor’s work.495 Because it did not clearly provide for
indemnification of the indemnitee’s own negligence, the Texas Supreme Court held it
was unenforceable.496
The indemnitee in Fisk acknowledged that the indemnity clause did not meet the
requirements of the express negligence rule, but contended that the indemnitor was still
liable for litigation costs. The court responded that this would contradict the Ethyl ruling
because there is no obligation to pay attorney’s fees without a duty to indemnify.497
Moreover, the court stated that “without an express reference in the indemnification
provision to claims based upon negligence, there is no indemnity for defense costs
493
Fisk Elec. Co. v. Constructors & Associates, Inc., 888 S.W.2d 813, 813-14 (Tex. 1994).
494
See id. at 813-14. See also U.S. Rentals, Inc. v. Mundy Service Corp., 901 S.W.2d 789, 792
(Tex. App.— Houston [14th Dist.] 1995, writ denied) (stating “[W]e interpret Fisk to mean that an
obligation to indemnify for defense costs is enforceable only if the indemnity agreement satisfies
both the express negligence doctrine and the conspicuousness requirement.”).
495
See Fisk, 888 S.W.2d at 814.
496
See id.
497
See id. at 815.
IV-7
incurred in connection with a negligence claim irrespective of whether the claim is
ultimately proved.”498
iv. Gross Negligence
The Texas Supreme Court has not addressed whether a contractual provision that
indemnifies a party for the consequences of its own negligence also indemnifies that
party for its own gross negligence.499 In Webb v. Lawson-Avila Construction, Inc., the
court stated that “no exact line can be drawn between negligence and gross negligence.
The difference between the two is one of degree rather than kind.”500 The court applied a
“fair and reasonable meaning” to the indemnity provision and determined that the term
“negligence” indicated their intent to indemnify the indemnitee “from the consequences
of all shades and degrees of its own negligence, including gross negligence.”501
However, one federal court, however, has held that Texas law does not permit punitive
damages to be covered by insurance as a matter of public policy.502
Several Texas courts of appeal have held that parties may agree to
indemnification for gross negligence if the intent is clearly expressed within the
498
See id. at 815-16.
499
See Atlantic Richfield Co. v. Petroleum Personnel, Inc., 768 S.W.2d 724, 726 n.2 (Tex. 1989)
“We do not decide whether indemnity for one’s own gross negligence or intentional injury may be
contracted for or awarded by Texas courts. This issue is not presented in this appeal from a
summary judgment. Public policy concerns are presented by such an issue that have not been
argued or briefed by the parties.”
500
911 S.W.2d 457, 461 (Tex. App.--San Antonio 1995, writ denied) (citing Newman v. Tropical
Visions, Inc., 891 S.W.2d 713, 721 (Tex. App.--San Antonio 1994, writ denied)).
501
See id. at 461.
502
See Hartford Cas. Ins. Co. v. Powell, 19 F. Supp. 2d 678, 696 (N.D. Tex. 1998).
IV-8
agreement.503 The San Antonio Court of Appeals has expressly held that an agreement
between a contractor and its subcontractor to indemnify for grossly negligent acts does
not violate public policy.504
In Houston Lighting & Power Co. v. Atchison, Topeka, & Santa Fe Railway Co.
the Texas Supreme Court held that “parties to an indemnity agreement must expressly
state their intent to cover strict liability claims in specific terms.” The Austin Court of
Appeals has held this rationale is also applicable to indemnity clauses seeking to
indemnify the other party for the consequences of its own grossly negligent conduct.505
Therefore, it may be possible to obtain indemnification for gross negligence if the
indemnification clause specifically references grossly negligent conduct. However,
uncertainty will remain until the Texas Supreme Court specifically rules on this issue.
b. Releases
A release is defined as: “[a] contractual agreement whereby one party assumes the
liability inherent in a situation, thereby relieving the other party of responsibility.... [An]
[a]greement or contract in which one party agrees to hold the other without responsibility
for damage or other liability arising out of the transaction involved.”506 Like an indemnity
503
OXY USA, Inc. v. Southwestern Energy Production, Inc., 161 S.W.2d 277, 286 (Tex.App.-
Corpus Christi 2005, pet. filed August 4, 2005) citing Valero Energy Corp. v. M.W. Kellogg
Constr. Co., 866 S.W.2d 252, 256 (Tex.App.- Corpus Christi 1993, writ denied) (holding
enforcement of indemnity provision for gross negligence does not offend public policy when
parties are sophisticated entities with equal bargaining positions); Ranger Ins. Co. v. American
Intern. Specialty Lines Ins. Co., 78 S.W.2d 659, 663 (Tex.App.- Houston [1st Dist.] 2002, no pet.)
(recognizing rights of parties to agree to indemnification for gross negligence under Oilfield Anti-
Indemnity Act, although limiting such right to the “lowest common denominator of coverage”).
504
Webb v. Lawson-Avila Constr., Inc., 911 S.W.2d 457 (Tex.App.- San Antonio 1995, writ
dism’d).
505
Aetna Cas. & Surety Co. v. Texas Workers Compensation Ins. Facility, No. 03-97-00285-CV,
1998 WL 153564 (Tex.App.- Austin 1998, pet. denied).
506
See Dresser, 853 S.W.2d at 505 (citing BLACK’S LAW DICTIONARY 658 (5th ed. 1979)).
IV-9
agreement, a release may relieve a party of liability for its own negligence and force the
other party to relinquish their legal rights.507 But a release, unlike an indemnity
agreement, is an affirmative defense against a claim between the parties and prohibits the
recovery on any claim regarding the released matter.508
As discussed above, the Texas Supreme Court has previously held the
requirements of the express negligence rule and the conspicuousness test apply to
releases.509
c. Cases
i. Provisions Satisfying the Express Negligence
Rule
Additional case examples may assist contract drafters’ compliance with the
express negligence rule. In Texas cases, the following indemnity provisions were
determined to satisfy the requirements of the express negligence doctrine.
1) Payne & Keller, Inc. v. P.P.G. Industries,
Inc.
In Payne & Keller, Inc. v. P.P.G. Industries, Inc., a maintenance contractor’s
employee was killed while performing maintenance work at a chemical plant.510 The
deceased employee’s wife and parents sued the chemical plant for negligence and the
chemical plant filed a third-party indemnity claim against the deceased’s employer.511
507
See id. at 507.
508
See id. at 508.
509
See Dresser, 853 S.W.2d at 507.
510
See id
511
See id. at 957.
IV-10
The contract between Payne & Keller, the maintenance contractor, and P.P.G., the owner
of the chemical plant, required that Payne & Keller indemnify P.P.G. for work-related
claims.512 The clause indemnified the chemical plant against claims “arising out of . . .
the acts or omissions . . . of [Payne & Keller] or its . . . employees . . . in the performance
of the work . . . irrespective of whether [P.P.G.] was concurrently negligent . . . but
excepting where the injury or death . . . was caused by the sole negligence of [P.P.G.].”513
The Texas Supreme Court held that the indemnity provision complied with the express
negligence rule.514 The provision specifically indemnified PPG for its own concurrent
negligence and excluded PPG’s sole negligence from indemnity protection.515 The jury
found that Payne & Keller’s negligence did not proximately cause the employee’s death.
Hence, the court found that PPG was not contractually indemnified against the claim
because they were not concurrently negligent, but were solely negligent for the plaintiff’s
death.516
2) Enserch Corporation v. Parker
In Enserch Corp. v. Parker, a wrongful death action was filed on behalf of
workers who were asphyxiated while working on a natural gas pipeline.517 The
indemnity clause between Enserch, the owner and operator of the pipeline, and Christie,
the deceased workers’ employer, stated:
512
See id.
513
See id. (emphasis added).
514
See id. at 958.
515
See id.
516
See id.
517
See 794 S.W.2d 2 (Tex. 1990).
IV-11
[Christie] assumes entire responsibility and liability for any claim or
actions based on or arising out of injuries, including death, to persons or
damages to or destruction of property, sustained or alleged to have been
sustained in connection with or to have arisen out of or incidental to the
performance of this contract by [Christie], its agents and employees, and
its subcontractors, their agents and employees, regardless of whether such
claims or actions are founded in whole or in part upon alleged negligence
of [Enserch], [Enserch’s] representative, or the employees, agents,
invitees, or licensees thereof. [Christie] further agrees to indemnify and
hold harmless [Enserch] and its representatives, and the employees,
agents, invitees and licensees thereof in respect of any such matters and
agrees to defend any claim or suit or action brought against [Enserch],
[Enserch’s] representative, and employees, agents, invitees, and licensees
thereof.518
The court held an indemnity agreement may be greater than one sentence and still satisfy
the express negligence rule.519 If the contract “as a whole is sufficient to define the
parties’ intent” to indemnify the indemnitee, then the agreement is valid and
enforceable.520
3) Atlantic Richfield Co. v. Petroleum
Personnel, Inc.
In Atlantic Richfield Co. v. Petroleum Personnel, Inc., an injured employee of a
contractor sued a platform owner for damages sustained while working on the
platform.521 The indemnity provision between the contractor and the platform owner
read:
CONTRACTOR [PPI] agrees to hold harmless and unconditionally
indemnify COMPANY [ARCO] against and for all liability, cost,
expenses, claims and damages which [ARCO] may at any time suffer or
sustain or become liable for by reason of any accidents, damages or
injuries either to the persons or property or both, of [PPI], or of the
518
See id. at 6-7 (emphasis added).
519
See id. at 8.
520
See id.
521
768 S.W.2d 724 (Tex. 1989).
IV-12
workmen of either party, or of any other parties, or to the property of
[ARCO], in any matter arising from the work performed hereunder,
including but not limited to any negligent act or omission of [ARCO], its
officers, agents or employees.522
Although the clause did not differentiate between degrees of negligence, the court held
that it adequately described the parties’ intent to exculpate ARCO for its own
negligence.523 The court stated that contractual terms such as “joint,” “concurrent,” or
“comparative contractual” were not necessary to define the parties’ intent.524
4) Faulk Management Services v. Lufkin
Industries, Inc.
In Faulk Management Services v. Lufkin Industries, Inc., a janitorial services
contractor sought a declaratory judgment that it had no duty to indemnify the premises
owner for on-site injuries sustained by an employee of the service contractor.525 The
indemnity provision in Faulk stated:
[Owner] will exercise no control or right of control over the employees or
details of the work. Contractor is to furnish his own tools and [Owner] is
interested only in the final results of the completed contract. Contractor is
doing the work under contract and is an independent contractor and not an
employee of the [Owner] company.
By signing the below statement, the seller agrees to protect, defend,
indemnify, and save harmless [Owner] against loss, damage, or expense
by reason of any suits, claims, demands, or judgment and causes of action
caused by the setter, its employees, agents or any subcontractor arising out
of or in consequence of the performance of this contract.
It is the intention of the Seller and/or Contractor to indemnify [Owner]
even in the event that any such claims, demands, actions or liability arises
522
Id. (emphasis added).
523
See id. at 726.
524
See id.
525
See 905 S.W.2d 476 (Tex. App.--Beaumont 1995, writ denied).
IV-13
in whole or in part from warranties, express or implied, defects in
materials, workmanship or design, condition of property or its premises
and/or negligence of [Owner] or any other fault claims as a basis of
liability for [Owner].526
The court held that the portion of the provision that read “[i]t is the intention of the Seller
and/or Contractor to indemnify [Owner] even in the event that . . . liability arises in
whole or in part from . . . condition of property or its premises and/or negligence of
[Owner]” satisfied the express negligence test.527
5) B-F-W Construction, Inc. v. Garza
In B-F-W Const. Co., Inc. v. Garza, an injured employee of a subcontractor sued
the general contractor for negligence, and the general contractor filed a third-party
indemnity claim against the subcontractor.528 The indemnity clause between the general
contractor and the subcontractor read:
(a) Subcontractor shall fully protect, indemnify and defend Contractor and
hold it harmless from and against any and all claims, demands, liens,
damages, causes of action and liabilities of any and every nature
whatsoever arising in any manner, directly or indirectly, out of or in
connection with or in the course of or incidental to any of the
Subcontractor’s work or operations hereunder or in connection herewith
(regardless of cause or of any concurrent or contributing fault or
negligence of Contractor) or any breach of or failure to comply with any
of the provisions of this Subcontract or the Contract Documents by
Subcontractor.
(b) Subcontractor shall fully protect, indemnify and defend Contractor and
hold it harmless from and against any and all claims, demands, causes of
action, damages and liabilities for injury to or death of Subcontractor, or
of any one or more of Subcontractor’s employees or agents, or any
subcontractor or supplier of Subcontractor, or any employee or agent of
any such subcontractor or supplier, arising in any manner, directly or
indirectly, out of or in connection with or in the course of or incidental to
526
Id. at 478.
527
See id.
528
748 S.W.2d 611 (Tex. App.— Fort Worth 1988, no writ).
IV-14
any work or operation or operations of Subcontractor or Contractor or any
other contractor or subcontractor or party, or otherwise in the course and
scope of their employment, and regardless of cause or of any fault or
negligence of Contractor.529
The court held that the phrase “and regardless of any cause or of any fault or negligence
of contractor” sufficiently expressed the parties’ intent to indemnify the contractor for the
contractor’s own negligence.530
6) Delta Air Lines, Inc. v. ARC Security,
Inc.
The Fort Worth Court of Appeals recently distinguished the B.F.W. decision when
it interpreted the following clause:
Contractor [ARC] shall indemnify, defend and hold harmless Delta ...
from and against any and all claims ... of any kind or nature whatsoever,
including, but not limited to, interest, court costs and attorneys fees, which
in any way arise out of or result from any act(s) or omission(s) by
Contractor ... in the performance or non performance of services under this
Agreement.... This section shall apply regardless of whether or not the
damage, loss or injury complained of arises out of or relates to the
negligence ... of, or was caused in part by, a party indemnified hereunder.
However, nothing contained in this section shall be construed as an
indemnity by Contractor against any loss, liability or claim arising solely
from the gross negligence or willful misconduct of Delta.531
In contrast to B.F.W., the court held this clause did not satisfy the express negligence test
because it only arose if Delta had been sued for ARC’s acts or omissions.532 Since Delta
had not been sued for ARC’s acts or omissions, the clause did not apply.533 This detailed
529
Id. at 612-13 (emphasis added).
530
See id. at 613.
531
Delta v. ARC Security, Inc., 164 S.W.3d 666, 672-73 (Tex.App. Fort Worth 2005,) et. Denied).
532
Id.
533
Id.
IV-15
inquiry exemplifies the fact-specific nature of the examination necessary to determine
whether a particular contractual clause satisfies the express negligence test.
ii. Provisions Failing to Satisfy the Express
Negligence Rule
The following cases provide examples of indemnity provisions that did not meet
the requirements of the express negligence rule.
1) Gulf Coast Masonry, Inc. v. Owens-
Illinois, Inc.
In Gulf Coast Masonry, Inc. v. Owens-Illinois, Inc., the injured employee of a
contractor sued the plant owner, and the plant owner filed a third-party indemnity claim
against the contractor.534 The indemnity provision in Gulf Coast Masonry read:
Contractor [Gulf Coast] agrees to indemnify and save owner [Owens-
Illinois] harmless from any and all loss sustained by owner by reason of
damage to owner’s property or operations, and from any liability or
expense on account of property damage or personal injury (including
death resulted therefore) sustained or alleged to have been sustained by
any person or persons, including but not limited to employees of owner,
contractor and subcontractors, arising out of or in any way connected with
or attributable to the performance or non-performance of work hereunder
by contractor, its subcontractor(s) and their respective employees and
agents, or by any act or omission of contractor, its subcontractor(s), and
their respective employees and agents while on owner’s premises, or by
defects in material or equipment furnished hereunder . . . .535
The Texas Supreme Court held that since the indemnity provision was
unenforceable because it did not specifically state the parties’ intention to indemnify the
owner for its own negligence. The court stated the contractor “may have reasonably
assumed” that because it was obligated to indemnify the owner for its acts, then a
534
See 739 S.W.2d 239 (Tex. 1987).
535
Id. at 239-40.
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requirement to indemnify the owner for the owner’s negligence would have been stated
with equal specificity.536
2) Powerhouse v. Bechtel
In Powerhouse Services, Inc. v. Bechtel Corp.,537 the Amarillo Court of Appeals
distinguished the Gulf Coast Masonry decision because the clause at issue in that opinion
did not clearly provide the indemnitor was to indemnify the indemnitee for the
consequences of its own negligence.538 In contrast, the clause at issue in Bechtel stated:
[Powerhouse] shall indemnify ... [Bechtel] ... from and against any and all
suits ... claims, demands, damages ... attorney's fees ... and losses of
whatsoever kind or nature in connection with or incidental to the
performance of this subcontract ... in any manner directly or indirectly
caused, occasioned, or contributed to ... by reason of any act, omission,
fault or negligence whether active or passive of [Powerhouse] ... or of
anyone acting under its direction or control of on its behalf.
***
[Powerhouse's] ... indemnity ... shall apply even in the event of the fault or
negligence ... of [Bechtel] ... to the fullest extent permitted by law, but in
no event shall they apply to liability caused by the willful misconduct or
sole negligence of [Bechtel]....539
In contrast to the clause from Gulf Coast Masonry, this indemnity obligation
arose even in the event of the fault or negligence of Bechtel (the party indemnified under
the aforementioned clause).540 Therefore, “Powerhouse had the duty to indemnify
Bechtel ‘notwithstanding’ Bechtel's fault or negligence, willful misconduct, or sole
536
See id.
537
108 S.W.3d 322, 326-27 (Tex.App.- Amarillo 2003, pet. denied).
538
Id. at 326.
539
Id.
540
Id.
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negligence excepted.”541 The clause in Bechtel was also “readily apparent,” and
appeared “in larger type than the preceding paragraphs and the title ‘Indemnity’ [was]
capitalized in bold print.”542 Based on these facts, the court held this indemnity provision
satisfied the express negligence test.543
3) Singleton v. Crown Center Petroleum
Corporation
Singleton v. Crown Cent. Petroleum Corp. involved a third party deliveryman
who was injured on the owner’s land and whose injury was allegedly caused by a
contractor’s employee.544 The indemnity provision between the owner and the contractor
stated:
Contractor agrees to . . . indemnify . . . owner . . . from and against any
and all claims . . . of every kind and character whatsoever, . . . for or in
connection with loss of life or personal injury . . . directly or indirectly
arising out of . . . the activities of contractor . . . excepting only claims
arising out of accidents resulting from the sole negligence of owner.545
The Texas Supreme Court held this provision did not comply with the express negligence
rule because it did not specifically state the contractor’s intention to indemnify the owner
for the consequences of the owner’s own negligence.546 In fact, the provision expressly
excluded indemnification of claims resulting from the sole negligence of the owner.547
541
Id. at 527.
542
Id.
543
Id.
544
729 S.W.2d 690 (Tex. 1987).
545
Atlantic Richfield, 768 S.W.2d at 725 (interpreting Singleton v. Crown Cent. Petroleum Corp.,
729 S.W.2d 690 (Tex. 1987)).
546
See id.
547
See id.
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Hence, the indemnitor has not “expressly” agreed to indemnify the indemnitee against the
indemnitee’s own negligence of any degree.548
4) Jobs Building Services, Inc. v. Rom, Inc.
In Jobs Bldg. Services, Inc. v. Rom, Inc., the family of a deceased worker sued a
general contractor and subcontractor for wrongful death and personal injury.549 The
general contractor sought indemnification from the subcontractor on the basis of an
indemnity provision in their building maintenance contract. The indemnity provision
stated:
The Subcontractor agrees to indemnify and hold harmless the Contractor
and the Contractor’s directors, officers, shareholders, agents and
employees, from and against all claims, damages, losses and expenses,
including reasonable attorneys’ fees, arising out of or in any manner
related to the performance of the work hereunder. Without limiting the
generality of the foregoing sentence, Contractor shall be indemnified for:
(i) bodily injury, illness or death of any person; (ii) property damage,
including loss of use, and (iii) consequential damages of any nature; which
. . . damage is caused by the Subcontractor’s negligent act or omission or
by the negligent act or omission of anyone employed by the Subcontractor
or for whose acts the Contractor or the Subcontractor may be liable or for
which the subcontractor is liable or responsible.550
The court held the provision did not comply with the express negligence rule because it
did not specify the intent of the general contractor and subcontractor to indemnify the
general contractor for its own negligence.
548
See id.
549
846 S.W. 2d 867 (Tex. App.—Houston [1st Dist.] 1992, writ denied).
550
Id. at 870.
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5) Monsanto Co. v. Owens-Corning
Fiberglas Corporation
In Monsanto Co. v. Owens-Corning Fiberglas Corp., a general contractor sought
indemnity from a subcontractor for a negligence claim brought against the general
contractor by the subcontractor’s employee.551 The indemnity clause at issue provided:
Contractor agrees to indemnify and save Monsanto and its employees
harmless against any and all liabilities, penalties, demands, claims, causes
of action, suits, losses, damages, costs and expenses (including costs of
defense, settlement and reasonable attorneys’ fees) which any or all of
them may hereafter suffer, incur, be responsible for or pay out . . . as a
result of bodily injuries . . . to any person or damage . . . to any property
occurring to or caused in whole or in part by, Contractor (or any of his
employees), any of his Subcontractors (or any employee thereof), or any
person, firm or corporation (or any employee thereof) directly or indirectly
employed or engaged by either Contractor or any of his Subcontractors.552
The court held the general contractor was not entitled to indemnity for the claim because
the parties’ intention was not sufficiently expressed in the provision.553 As a result, the
clause did not satisfy the express negligence rule. 554
5 Conspicuousness Requirement
An indemnity clause must satisfy the conspicuousness test as well as the express
negligence rule to comply with fair notice requirements.555 “The conspicuous
requirement mandates ‘that something must appear on the face of the [contract] to attract
the attention of a reasonable person when he looks at it.’“556 Thus, if a reasonable person
551
See 764 S.W.2d 293 (Tex. App.--Houston [1st Dist.] 1988, no writ).
552
Id. at 295.
553
Id.
554
Id.
555
See Dresser, 853 S.W.2d at 508.
556
See id. quoting Ling & Co. v. Trinity Sav. & Loan Ass’n, 482 S.W.2d 841, 843 (Tex. 1972).
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in the place of the indemnitor should have noticed the provision, then the provision
satisfies the conspicuousness test.557
The courts determine whether an indemnity clause is conspicuous by applying an
objective, reasonable person standard.558 But the subjective actual knowledge of the
indemnitor will be considered “when the indemnitee establishes that the indemnitor
possessed actual notice or knowledge” of the indemnity provision.559 This will act as an
affirmative defense to an indemnitor’s claim of lack of fair notice and, thus, the
conspicuousness test does not have to be satisfied for the clause to be enforced.560
a. Conspicuousness under the Uniform Commercial Code
In 1993, the Texas Supreme Court adopted the Uniform Commercial Code
standard for determining “conspicuousness” when examining whether particular language
satisfies the conspicuousness requirement. 561 The U.C.C. defines conspicuousness as:
A term or clause is conspicuous when it is so written that a reasonable
person against whom it is to operate ought to have noticed it. A printed
heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is
conspicuous. Language in the body of a form is “conspicuous” if it is in a
larger or other contrasting type or color. But in a telegram any stated term
is “conspicuous”.562
557
See id. at 511.
558
See U.S. Rentals, Inc. v. Mundy Service Corp., 901 S.W.2d 789, 792 (Tex. App.--Houston
[14th Dist.] 1995, writ denied).
559
See Dresser, 853 S.W.2d at 508 n.2 citing Cate,790 S.W.2d at 561.
560
See U.S. Rentals, 901 S.W.2d at 793.
561
853 S.W.2d 505, 511 (Tex. 1993).
562
Id. quoting TEX. BUS. & COM. CODE § 1.201(10).
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b. Cases
i. Provisions Satisfying the Conspicuousness Test
The following examples indicate how an indemnity provision may be drafted to
satisfy the conspicuousness test.
In Enserch Corp. v. Parker the Texas Supreme Court enforced the parties’
indemnity provision after determining it was sufficiently conspicuous because the
provision was located on the front page of the contract and was clearly identifiable. The
clause was also in the same paragraph as the exculpatory language and the paragraph
related solely to indemnification.563
In Goodyear Tire and Rubber Co. v. Jefferson Constr. Co., the Texas Supreme
Court upheld an indemnity provision placed on the reverse side of the contract because a
statement appearing in large red type read that the contract was subject to the
indemnification clause on the back side of the contract.564
In a more recent case following the adoption of the UCC standard, the Eastland
Court of Appeals examined the following indemnity clause:
THE CUSTOMER…AGREES THAT ADT SHALL BE EXEMPT
FROM LIABILITY FOR LOSS, DAMAGE OR INJURY DUE
DIRECTLY OR INDIRECTLY TO OCCURRENCES, OR
CONSEQUENCES THEREFROM, WHICH THE SERVICE OR
SYSTEM IS DESIGNED TO DETECT OR AVERT; THAT IF ADT
SHOULD BE FOUND LIABLE FOR LOSS, DAMAGE OR INJURY
DUE TO A FAILURE OF SERVICE OR EQUIPMENT IN ANY
RESPECT, ITS LIABILITY SHALL BE LIMITED TO A SUM
EQUAL TO 100% OF THE ANNUAL SERVICE CHARGE OR
$10,000, WHICIHEVER IS LESS…AS THE EXCLUSIVE
REMEDY; AND THAT THE PROVISIONS OF THIS PARAGRAPH
SHALL APPLY IF LOSS, DAMAGE, OR INJURY, IRRESPECTIVE
563
794 S.W.2d 2, 9 (Tex. 1990).
564
565 S.W.2d 916, 920 (Tex. 1978).
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OF CAUSE OR ORIGIN, RESULTS DIRECTLY OR INDIRECTLY
TO PERSON OR PEROPRTY FROM PERFORMANCE OR NON
PERFORMANCE OF OBLIATIONS IMPOSED BY THIS
CONTRACT OR FROM NEGLIGENCE, ACTIVE OR OTHERWISE,
OF ADT, ITS AGENTS OR EMPLOYEES.565
The contract also contained the following provision just above the signature lines:
ATTENTION IS DIRECTED THE WARRANTY, LIMIT OF
LIABILITY AND OTHER CONDITIONS ON REVERSE SIDE.566
The court held this indemnity provision satisfied the conspicuousness requirement
because the language was in large capital language and boldface typeset.567 The court
specifically noted the provision just above the signature line also satisfied the
conspicuousness standard.568
ii. Provisions Failing to Satisfy the Conspicuousness
Test
The following cases provide examples of indemnity provisions that did not meet
the requirements of the conspicuousness test and may assist drafters in determining the
enforceability of a proposed indemnification clause.
1) Littlefield v. Schaefer
In Littlefield v. Schaefer, the wife of a professional motorcyclist killed in a race
filed a claim against the promoter and operator of the event.569 The Texas Supreme Court
held a release and waiver of liability form that the deceased rider signed was not
565
Banzhaf v. ADT Security Sys. Southwest, Inc., 28 S.W.3d 180, 189 (Tex.App.- Eastland 2000,
pet. denied) (emphasis added).
566
Id. at 190 (emphasis added).
567
Id. The court specifically referenced the Enserch decision as support for its holding. Id. citing
Enserch, 794 S.W.2d at 7.
568
Banzhaf, 28 S.W.3d at 190.
569
955 S.W.2d 272 (Tex. 1997).
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enforceable because it did not comply with the conspicuousness test.570 The court stated
that the text of the release was not conspicuous because it was smaller than the rest of the
form and was not in any contrasting type or color. 571 In fact, the type was four-point font
and contained 28 characters per inch, significantly smaller than the remainder of the form
in question.572 In contrast to this type, the Houston Court of Appeals recently contrasted
the facts in Littlefield when it held a contract clause was conspicuous because it was
underlined and located directly above the parties’ signature lines.573
2) Dresser Industries, Inc. v. Page
Petroleum, Inc.
In Dresser Industries, Inc. v. Page Petroleum, Inc., multiple parties in an oil and
gas case sought indemnification for their negligence based on release provisions in their
contracts.574 The Texas Supreme Court found that the parties could not be exculpated
because the indemnification provision was not conspicuous. The provision was located
on the back of a lengthy form among a series of numbered paragraphs that were of the
same font and color and did not draw any special attention to the provision.575 As a
570
See id. at 275.
571
See id.
572
Id.
573
Segal v. Emmes Capital, L.L.C., 155 S.W.3d 267, 283 n.25 (Tex.App.-Hous. [1st Dist.] 2004,
pet. denied).
574
See Dresser, 853 S.W.2d at 505.
575
See id. at 511.
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result, the court struck the provision and held it did not satisfy the conspicuousness
requirement.576
3) K & S Oil Well Service, Inc. v. Cabot
Corporation
K & S Oil Well Service, Inc. v. Cabot Corp.,577 involved an indemnification
provision on the reverse side of an order form under a “warranty” subheading that
578
contained language unrelated to indemnification. The court refused to enforce the
clause because the provision did not provide conspicuous notice of the provision’s terms.
6 Indemnification for the Acts of the Indemnitor
The preceding section explained how an indemnitee, typically a general
contractor, is protected against liability resulting from its own negligence. But an
indemnitee will often need to be indemnified for losses resulting from others’ negligence.
In these situations, an indemnity provision does not have to comply with the fair notice
requirements in order to provide the indemnitee some remedies. The fair notice
requirements only apply when an indemnitee seeks indemnity for the consequences of its
own negligence.
Indemnitees commonly need protection against personal injury claims by
employees of the indemnitor because the injured employee will usually sue the general
contractor because their employer is immune from liability for actual damages if it has
workers’ compensation insurance. Ordinarily, the general contractor also cannot seek
576
Id.
577
491 S.W.2d 733 (Tex. Civ. App.--Corpus Christi 1973, writ ref’d n.r.e.).
578
See Dresser, 853 S.W.2d at 510 citing K & S, 491 S.W.2d at 737; Enserch, 794 S.W.2d at 8-9.
IV-25
contribution from the employer regardless of its degree of fault.579 But under the Texas
Workers’ Compensation Act, the parties’ indemnity agreement waives the employer’s
immunity from liability and permits the general contractor to obtain contribution from the
employer for its share of fault.580
B. Prohibition of Certain Indemnification Agreements Related to
Architects and Engineers
The Texas Legislature has enacted a statutory scheme rendering void and
unenforceable certain indemnity obligations in construction contracts.581 Chapter 130 of
the Texas Civil Practice and Remedies Code renders void and unenforceable any
indemnity obligation by a contractor to indemnify a registered architect or licensed
engineer from liability for damage that was caused by or resulted from defects in the
plans, specifications, or designs prepared, approved, or used by the architect or engineer
or other negligence by the architect or engineer arising out of such plans, specifications
or designs.582
However, the statute also renders void and unenforceable any covenant in a
construction contract for commercial purposes that requires the architect or engineer to
579
See TEX. LAB. CODE §417.004.
580
See id. (extending immunity to employers for contribution claims “unless the employer
executed, before the injury or death occurred, a written agreement with the third party to assume
the liability”).
581
See TEX. CIV. PRAC. & REM. CODE § 130.001 et. seq. The Act defines a “construction
contract” as:
a contract or agreement made and entered into by an owner, contractor, subcontractor, registered
architect, licensed engineer, or supplier concerning the design, construction, alteration, repair, or
maintenance of a building, structure, appurtenance, road, highway, bridge, dam, levee, or other
improvement to or on real property, including moving, demolition, and excavation connected with
the real property.
TEX. CIV. PRAC. & REM. CODE § 130.001.
582
TEX. CIV. PRAC. & REM. CODE § 130.002 (a).
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indemnify an owner for the consequences of the owner’s own negligence.583 Despite this
exemption, Chapter 130 does not prohibit agreements to indemnify an owner of an
interest in real property and persons employed by that owner or agreements to allocate,
release, liquidate, limit, or exclude liability between an owner or other person for whom
the contract is performed and an architect or engineer.584
Interpreting these exclusions, the El Paso Court of Appeals held Section 130.002
did not apply to an agreement by a contractor to indemnify an architect because: (1)
Section 130.003 expressly renders an indemnity obligation void when the damage is
caused by the architect; and (2) Section 130.005 states the prohibitions do not apply when
the indemnity is for the negligent acts of the contractor.585 The court noted the damage
was attributable to the negligent acts of the contractor, but not the architect.586 Therefore,
the architect was entitled to indemnification from the contractor pursuant to their
contractual agreement.587
Insurance contracts and workers compensation agreements are exempted from
Chapter 130.588 The Chapter also does not apply to the negligent acts of contractors,
subcontractors, or any person for whose acts they may be liable.589
583
TEX. CIV. PRAC. & REM. CODE § 130.002 (b). This provision does not apply to single or
multifamily residential projects. Id.
584
TEX. CIV. PRAC. & REM. CODE § 130.003 (b).
585
Foster, Henry, Henry, & Thorpe, Inc. v. J.T. Constr. Co., Inc., 808 S.W.2d 139, 141
(Tex.App.- El Paso, 1991, writ denied).
586
Id.
587
Id.
588
TEX. CIV. PRAC. & REM. CODE § 130.003.
589
TEX. CIV. PRAC. & REM. CODE § 130.005.
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The Foster Henry decision is the only reported decision interpreting Chapter 130.
However, its holding can provide a valuable claim or defense under Chapter 130 for
design professionals and contractors when faced with indemnity obligations.
C. Insurance and “Additional Insured” Endorsements
Insurance policies and contracts to insure additional parties are other options that
may be employed to reduce potential liability resulting from personal injury or property
damage occurring on a construction project.
1 Types of Insurance Available to Contractors
This subsection generally describes different insurance policies that are prevalent
in the construction industry and the extent of their coverage.
a. Liability Insurance
i. CGL
Part A of this insurance provides coverage for bodily injury and property damage
caused by an accident, but excludes coverage for property damage rising out of the
insured's work or product. Part B gives coverage for personal injury and advertising
liability.
An insured party is often asked or required to include another party such as:
vendors; owners, lessee or contractors; managers of premises; volunteer workers; lessors
of leased equipment; and architects, engineers or surveyors under their insurance policy.
These additional insured endorsements usually afford the same coverage as that afforded
the named insured but may be limited to vicarious liability.
ii. Workers’ Compensation/Employer’s Liability
Generally, workers’ compensation insurance provides coverage to employees who
are injured on the job and within the scope of their employment. It covers payment for
IV-28
medical treatment, lost wages and disability. The injured employee can either accept or
reject the workers’ compensation law, but the statute will be his or her exclusive remedy
if he or she accepts it.590 They may, however, sue contractors who are not their
employer. Texas courts determine who the actual employer of the injured employee is by
deciding who has the “right to control” the employee’s conduct on the work site.591
The employer’s liability part of the policy covers the employer for an employee’s
injury that occurs on the job and within the scope of their employment but is not covered
by workers’ compensation.592 This coverage may be necessary for third party actions,
damages for care and loss of services and consequential injury to a spouse, child, parent,
brother or sister of the injured worker. The damages must be directly related to the
employee’s bodily injury to be covered.593 General liability policies, such as CGL, do
not cover these employer liability claims or workers’ compensation claims.594
A “waiver of subrogation” clause in a workers’ compensation insurance contract
is of critical importance to parties involved in a suit based on work-related injury. If an
injured employee recovers damages against a contractor or subcontractor, the workers’
compensation insurance carrier must first be fully reimbursed for all benefits it has
paid.595 Additionally, the carrier may be entitled to any recovery that exceeds the amount
590
See Robert J. Franco, II, Types of Insurance Available to Contractors: DRI Construction-
Related Insurance Coverage Issues, Vol. 1997 (July 1997) at p.68.
591
See Vasquez v. Ritchey, 973 S.W.2d 406, 409 (Tex. App.—Corpus Christi 1998) motion to
vacate denied 986 S.W.2d 611 (Tex. 1999).
592
See Franco at 70-71.
593
See id.
594
See id.
595
See TEX. LAB. CODE §417.002.
IV-29
of benefits paid because it will be considered an advance against any future benefits that
must be paid.596 Thus, the injured employee is often reluctant to settle the lawsuit
because of the insurance carrier’s effective lien on the first proceeds of the settlement.
In 2003 the Texas Legislature added a provision to the workers compensation
statutes as a part of the tort reform package passed during the 78th Legislature. These
amendments limited the insurance carrier's subrogation interest “to the amount of the
total benefits paid or assumed by the carrier to the employee or the legal beneficiary, less
the amount by which the court reduces the judgment based on the percentage of
responsibility determined by the trier of fact under Section 33.003, Civil Practice and
Remedies Code, attributable to the employer.”597
Accordingly, a waiver of subrogation endorsement is often required to be in the
workers’ compensation insurance contract to prevent the carrier from being entitled to
any past or future benefits.598 Further, Texas law allows any damages awarded to an
injured employee against a defendant contractor, subcontractor, or property owner that is
sued for property damage, personal injury, or death to be mitigated by any amount paid
by the workers’ compensation insurance carrier if a waiver of subrogation rights clause is
in the insurance contract.599
596
See id. at §§ 417.002(b), (c).
597
TEX. LAB. CODE § 417.001 (b).
598
See Hartford Accident & Indem. Co. v. Buckland, 882 S.W.2d 440, 445 (Tex. App.--Dallas
1994, writ denied); National Union Fire Ins. Co. v. Pennzoil Co., 866 S.W.2d 248, 251 (Tex.
App.--Corpus Christi 1993, no writ).
599
See TEX. CIV. PRAC. & REM. CODE § 95.004.
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iii. Professional Liability
Design professionals such as architects, engineers and surveyors often obtain
professional liability policies. These policies provide coverage for the professionals’
negligent acts, errors and omissions that occur on the job and within their scope of
employment, but exclude coverage for punitive damages.
b. Property Insurance
i. Builders Risk
Builders Risk insurance generally covers general contractors, subcontractors,
property owners, and mortgagees for accidental loss, damage or destruction of property
that is under construction, renovation, or repair.600 Property covered under these policies
includes all buildings and additions thereto, temporary structures, machinery and
equipment, and materials and supplies.601 If any damage occurs during the construction
project, the insurer will cover all repair, salvage, and clean-up costs up to the policy
limits.602
The insured may choose either a specified peril policy or an all risk policy, which
are basically self-explanatory. The specified peril policy covers only those situations
indicated in the insurance contract while the all risk policy covers all risks, unless the
contract explicitly excludes them.603 These policies typically extend coverage to the
600
See Franco at 59.
601
See Franco at 61.
602
See id.
603
See Franco at 60.
IV-31
insured until the building is ready for occupancy or is suitable for its intended purpose
and the insured has been fully compensated for the project.604
ii. Inland Marine Insurance
Inland Marine insurance is commonly used to cover property losses that are
caused by inclement weather or theft while transporting property on land.605 A party to a
construction project may generally choose from the following four types of coverage:
1. Motor Truck Cargo policies: protect the property of another
that a trucking company transports;
2. Transportation policies: cover the owner’s property
delivered by common carrier;
3. Owners Form Motor Truck Cargo policies: cover the
owner’s goods being transported in its own trucks; and
4. Trip Transit policies: typically provide coverage for single,
one-time shipments.606
A popular form of Inland Marine Insurance is “floater policies”, which cover
equipment or property that is frequently transported between construction sites.607 They
are called “floaters” because they provide continual coverage for mobile equipment that
changes ownership often.608 This type of coverage generally provides protection on an
all-risk basis against losses incurred while installing the equipment at construction sites
604
See Franco at 63.
605
See Franco at 65.
606
Franco at 66.
607
See id.
608
See id.
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as well as losses incurred during transportation. 609 Thus, the coverage essentially travels
with the equipment or property without having to continually renew the policy.610
2 Indemnification’s Effect on CGL Coverage
An indemnity agreement may affect an indemnitor’s CGL policy in two ways.
First, the insured/indemnitor will request that its CGL carrier protect it from any liability
created by its indemnity obligation. Second, the carrier will most likely assume the
liability of the indemnitee because it will probably be named as an additional insured
under the indemnitor’s liability policy. This section addresses the insurance coverage
implications created by an indemnity agreement.
a. Policy Provisions
The following analysis of the applicability of the CGL policy provisions to
indemnity agreements is from the standpoint of the insured/indemnitor’s assumption of
contractual liability. The analysis assumes that the indemnitee is not named as an
additional insured in the indemnitor’s insurance policy.
The indemnitor’s insurer will typically take an active role in defending a claim
against the indemnitee because of its duty to provide coverage for the indemnity
obligation. An insurer’s obligation to pay the indemnitee’s defense is discussed in this
section.
i. Coverage A Insuring Agreement
Coverage A of a CGL policy covers the insured for bodily injury or property
damage that is accidentally caused. Hence, these policies provide coverage for liability
609
See id.
610
See id.
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assumed under an indemnity agreement if bodily injury and/or property damage is caused
by an “occurrence”.
ii. Coverage A Contractual Liability Exclusion
“Contractual coverage” or “contractual liability coverage” can be misleading.
Coverage A provides coverage for liability for damages assumed in the contract with the
insured, but excludes coverage for liability assumed by the insured in a third party
contract. This exclusion protects the carrier from obligations not intended to be covered
by the policy. Specifically, the contractual liability exclusion precludes coverage for:
“Bodily injury” or “property damage” for which the insured is
obligated to pay damages by reason of the assumption of liability in a
contract or agreement. This exclusion does not apply to liability for
damages:
(1) Assumed in a contract or agreement that is
an “insured contract”, provided the “bodily injury”
or “property damage” occurs subsequent to the
execution of the contract or agreement; or
(2) That the insured would have in the absence
of the contract or agreement.
iii. “Insured Contract” Exception
As stated above, the contractual liability exclusion does not apply to insured
contracts. The term “insured contract” includes six definitional types of contracts:
(1) Under section (a), a contract for a lease of premises
constitutes an “insured contract” as long as the insured assumes the
liability of another party in the lease. However, that portion of the
contract for a lease of premises that indemnifies any person or
organization for damage by fire to premises while rented to you or
temporarily occupied by you with permission of the owner is not an
“insured contract”;
(2) Under section (b), sidetrack agreements are included as
“insured contracts.” As a condition within a sidetrack agreement, a
railroad may require an insured to hold the railroad harmless from losses
IV-34
arising out of the use of the sidetrack. Such assumption of liability would
constitute an “insured contract.”611
(3) Under section (c), any easement or license agreement
constitutes an “insured contract,” except in connection with construction
or demolition operations within 50 feet of a railroad. With an easement or
license agreement, it is generally the party enjoying the benefit of being on
the property of another who assumes the property owner’s liability. Such
agreements are “insured contracts” subject to the railroad exception.612
(4) Many municipalities have ordinances, which require
indemnification from private citizens, or organizations that erect any
object, which may cause harm to the public. Such agreements constitute
“insured contracts” under section (d).613
(5) Section (e) defines “insured contract” to include elevator
maintenance agreements. This is intended to cover agreements to
maintain or service elevators. Because of the similarity of such
agreements as they relate to escalators, this definition would probably
encompass escalator maintenance agreements as well.
(6) Section (f) defines “insured contract” to include contracts
pertaining to the insured’s business. This is an important element of the
definition of “insured contract” as it encompasses all other contracts
pertaining to the insured’s business, which are not encompassed by
sections (a) through (e).
The sixth type of “insured contract” only covers the assumption of tort liability of
another party. Thus, breach of contract claims against the indemnitee of the
insured/indemnitor will not constitute an “insured contract” and will be excluded from
coverage even if the indemnity agreement is otherwise enforceable. Furthermore, the
sixth type of “insured contract” does not cover for “first party” losses such as damages
occurring to the insured’s/indemnitor’s own products.614
611
International Risk Management Institute, Inc., Contractual Risk Transfer, Vol. I, § X.C.3.
612
International Risk Management Institute, Inc., Contractual Risk Transfer, Vol. I, § X.C.5.
613
International Risk Management Institute, Inc., Contractual Risk Transfer, Vol. I, § X.C.5.
614
International Risk Management Institute, Inc., Contractual Risk Transfer, Vol. I, § X.L.5.
IV-35
It should also be noted that Section (f) above does not include that part of any
contract or agreement:
(1) That indemnifies a railroad for “bodily injury” or “property
damage” arising out of construction or demolition operations,
within 50 feet of any railroad property and affecting any railroad
bridge or trestle, tracks, road-beds, tunnel, underpass or crossing;
(2) That indemnifies an architect, engineer or surveyor for
injury or damage arising out of:
(a) Preparing, approving or failing to prepare or
approve maps, drawings, opinions, reports, surveys,
change orders, designs or specifications; or
(b) Giving directions or instructions, or failing
to give them, if that is the primary cause of the
injury or damage; or
(3) Under which the insured, if an architect, engineer or
surveyor, assumes liability for an injury or damage arising out of
the insured’s rendering or failure to render professional services,
including those listed in (2) above and supervisory, inspection or
engineering services.
iv. The 1996 ISO CGL Form
The 1996 CGL form CG 00 01 01 96 introduced by ISO modifies the contractual
liability exclusion. The form defines “damages” for purposes of liability assumed in an
“insured contract” as follows:
. . . reasonable attorneys fees and necessary litigation expenses
incurred by or for a party other than an insured are deemed to be damages
because of “bodily injury” or “property damage,” provided . . . [l]inability
to such party for, or for the cost of, that party’s defense has also been
assumed in the same “insured contract,” and . . . [s]uch attorneys fees and
litigation expenses are for defense of that party against a civil or
alternative dispute resolution proceeding in which damages to which this
insurance applies are alleged.
Unlike prior CGL forms, the new form indicates that litigation expenses are
recoverable for purposes of contractual liability coverage. But these expenses are only
IV-36
recoverable if the insured/indemnitor assumed liability for such expenses in the “insured
contract.”
Moreover, a provision in the new form states that supplementary payments may be made
by the insurer for the defense of the indemnitee (if the insured/indemnitor is a party to the
same suit) and not reduce the policy limits if:
a. The “suit” against the indemnitee seeks damages for which
the insured has assumed the liability of the indemnitee in a contract
or agreement that is an “insured contract”;
b. This insurance applies to such liability assumed by the
insured;
c. The obligation to defend, or the cost of the defense of, that
indemnitee, has also been assumed by the insured in the same
“insured contract”;
d. The allegations in the “suit” and the information we know
about the “occurrence” are such that no conflict appears to exist
between the interests of the insured and the interests of the
indemnitee;
e. The indemnitee and the insured ask us to conduct and
control the defense of that indemnitee against such “suit” and agree
that we can assign the same counsel to defend the insured and the
indemnitee; and
f. The indemnitee:
(1) agrees in writing to:
(a) cooperate with us in the investigation,
settlement or defense of the “suit”;
(b) immediately send us copies of any demands,
notices, summonses or legal papers received in
connection with the “suit”;
(c) notify any other insurer whose coverage is
available to the indemnitee; and
(d) cooperate with us with respect to
coordinating other applicable insurance available to
the indemnitee; and
IV-37
(2) provides us with written authorization to:
(a) obtain records and other information related
to the “suit;” and
(b) conduct and control the defense of the
indemnitee in such “suit.”
An insurer has no duty to defend an insured’s indemnitee unless the insurer is
defending the insured in the same suit. Also, an insurer has no duty to defend the
indemnitee after the claim against the indemnitor is settled.615
v. Wrap-Up Programs
Wrap-up insurance is a new, low-cost insurance vehicle that is used on larger
construction projects and is also called owner controlled insurance programs (“OCIP”) or
consolidated insurance programs (“CIP”).616 The owner or the general contractor
typically purchases worker’s compensation, liability, and property coverage for all of the
parties in the project.617
These programs provide higher coverage limits, eliminate the need for the
contractor to verify and accept coverage for the subcontractors, and do not give rise to
cross-claims or actions for indemnity or contribution. Most wrap-up programs require
pre-paid premiums that are adjusted each year based on the insured’s loss history. 618
615
See International Risk Management Institute, Inc., Commercial Liability Insurance, § IV.H.I
(1996). This is merely an overview of Form CG 00 01 01 96. For a complete discussion of Form
CG 00 01 01 96, see Richard Lee Angell, Substantive Coverage Revisions (1996), as prepared for
the DRI Insurance Coverage and Practice Symposium, December 5-6, 1996.
616
See Robert J. Franco, II, Types of Insurance Coverage Available to Contractors: DRI
Construction-Related Insurance Coverage Issues, Vol. 1997 (July 1997) at pp.74-75.
617
See id.
618
See id.
IV-38
The 1996 CGL form excludes any project covered by a wrap-up program from
the contractor’s CGL coverage, which protects the insured from duplicating its coverage
and the insurer from liability exposure for which it has not been paid. 619
3 Indemnitee as an Additional Insured
Indemnitees are often named as additional insureds under their indemnitor’s’
liability insurance policies for protection in case the indemnity agreement is invalidated.
Indemnitors usually purchase a broad form additional insured endorsement that names
the indemnitee as an additional insured. A typical endorsement reads as follows:
“Who is an insured” is amended to include as an insured the person
or organization shown in the Schedule as an insured, but only with respect
to liability arising out of your work (or your operations) for that insured by
or for you or premises owned by or rented to you.
A policy that specifically names the indemnitee as an additional named insured
generally provides the same coverage to the indemnitee that the indemnitor is afforded.
But when an indemnitee is not named as an additional named insured in the indemnitor’s
policy, it is unclear whether the indemnitee is covered for its own negligence or only for
the indemnitor’s negligent acts for which the indemnitee is held vicariously liable.
This type of additional insured language, and language similar to it has been the
subject of much current debate in Texas courts. Until recently, limited additional insured
language had been interpreted only twice by Texas courts. In Granite Construction Co.
v. Bituminous Ins. Cos.,620 the appellate court found that a party named under an
additional insured endorsement was only actually covered for claims arising out of the
work of the named insured. Granite contracted with a third party, Joe Brown Company
619
See Form CG 21 54 01 96, Insurance Services Office, Inc.
620
832 S.W.2d 427 (Tex. App.— Amarillo 1992, no writ)
IV-39
(“Brown”), to haul asphalt materials from Granite’s construction site. Accordingly,
Granite was included as an insured under Brown’s policy with Bituminous pursuant to
the following Additional Insured Endorsement:
The “Persons Insured” provision is amended to include as an insured the
person or organization named below [Granite Construction Company] but
only with respect to liability arising out of operations performed for such
insured [Granite] by or on behalf of the named insured [Brown].621
One of Brown’s employees subsequently brought suit against Granite for
Granite’s negligence in loading the truck with asphalt, and Granite requested coverage
from Bituminous. The court found that under the contract between Granite and Brown,
the loading operation was the sole obligation of Granite, and Brown was not responsible
for any part of that operation. The court found that the endorsement was susceptible to
only one reasonable interpretation: that Granite was insured for liability only arising out
of Brown’s operations. Since the claim of injury against Granite arose solely out of
operations performed by Granite as delineated by the contract, Bituminous had no duty to
defend Granite in the suit.622
According to Granite, an insurer is to look at the contract between the parties to
determine whether potential liability arises out of the potential additional insured’s work
for the insured or the insured’s own operations. This argument would also conform with
the rules set forth by the Northern District of Texas in Northern Ins. Co. of New York v.
621
Id. at 428.
622
See also Harbor Ins. Co. v. Lewis, 562 F. Supp. 800 (E.D. Pa. 1983); Travelers Indemnity Co.
v. Hanover Ins. Co., 470 F. Supp. 630 (E.D. Va. 1979); National Union Fire Ins. v. Glenview Park
District, 158 Ill.2d 116, 632 N.E.2d 1039 (1994); Federal Ins. Co. v. Commerce and Industry Ins.
Co., 187 A.D.2d 278, 589 N.Y.S.2d 439 (1992), appeal denied, 599 N.Y.S.2d 804, 616 N.E.2d
159 (1993); Scottish & York International Ins. Group v. Ensign Ins. Co., 709 P.2d 397 (Wash.
App. 1985); Anaconda Co. v. General Accident Fire and Life Assurance Corp., Ltd., 1980-81
CCH (Fire & Casualty) 410 (Mont. S. Ct. 1980).
IV-40
Austin Commercial, Inc. and American Airlines, Inc.623 This court interpreted similar
additional insured endorsement language as providing coverage only for liability
resulting from claims of direct negligence on the part of the named insured (not the
additional insured). In American Airlines, Process Piping was a subcontractor for Austin
Commercial, the general contractor, for certain jobs on an American Airlines owned
facility. Two of Process Piping’s employees filed a lawsuit against both American
Airlines and Austin Commercial for injuries incurred during these projects. American
Airlines and Austin Commercial were both additional insured’s under Process Piping’s
liability policy. The policy covered additional insured’s for “liability arising out of your
[Process Piping’s] work.” Pursuant to this policy, both parties requested coverage from
Northern Insurance for this lawsuit.
The district court held that the endorsement language clearly stated that
additional insured’s were covered only for claims involving direct
negligence on the part of the named insured, Process Piping. The court
noted that since Process Piping was not even named as a defendant in the
underlying lawsuit, and since the pleadings contained no allegations that
the injuries were caused by the joint negligence of Process Piping, the
implied causal link between the activities of Process Piping and the
alleged claims did not constitute an allegation of negligence on the part of
Process Piping. The court thus held that Northern Insurance had no duty
to defend American Airlines or Austin Commercial pursuant to the
additional insured endorsement. In essence, the court found that the
limited insured language (like the language in the Valley Forge policy)
was intended to provide coverage for claims of vicarious liability only.
Texas cases have been rapidly moving away from the “vicarious liability”
position set forth above. Until March 1999, Texas cases have conflicted with the majority
of other states who have analyzed this type of endorsement to extend additional insured
623
908 F. Supp. 436 (N.D. Tex. 1994)
IV-41
coverage to the independent acts of negligence of the additional insured.624 However, in
March 1999, the Houston Court of Appeals issued an opinion contrary to both Granite
and American Airlines. This case held, in general, that a commercial general liability
policy defining an “additional insured” to include the owner of the facilities but only with
respect to liability arising out of the named insured’s operations, did not require the
named insured’s performance of the contract to be the cause of injury to the named
insured’s employee that caused the liability at issue.625 In Admiral Insurance Co. v.
Trident NGL, Inc.,626 K-D Oilfield Services (“KD”) was in the business of providing
crews and equipment to serve as oil and gas facilities owned by other companies. KD
entered into a contract with Trident for KD to service certain facilities owned by Trident.
Pursuant to their contract, KD was required to purchase commercial general liability
insurance to include Trident as an additional insured. KD obtained the insurance from
Admiral Insurance Company (“Admiral”) who included an additional insured
endorsement on the policy naming Trident as an insured, but “only with respect to
liability arising out of the named insured’s operations.”
Later, Santos, a KD employee, was assigned by KD to assist Trident in
performing maintenance on a compressor. While he was unloading Trident’s tools from
Trident’s truck, the compressor exploded and Santos was seriously injured. Apparently
624
See e.g., Macintosh v. Scottsdale Ins. Co., 992 F.2d 251 (10th Cir. 1993); Saavedra v. Murphy
Oil USA, Inc., 930 F.2d 1104 (5th Cir. 1991) (applying Louisiana Law); Philadelphia Electric Co.
v. Nationwide Mut. Ins. Co., 721 F. Supp. 740 (E.D. Pa. 1989); Heat & Power Corp. v. Air
Products and Chemicals, Inc., 578 A.2d 1202 (Md. 1990); Casualty Ins. Co. v. Northbrook
Property & Cas. Ins. Co., 501 N.E.2d 812 (Ill. App. 1986).
625
See Admiral Ins. Co. v. Trident NGL, Inc., 988 S.W.2d 451 (Tex. App.— Houston [1st Dist.]
1999, pet. denied)
626
988 S.W.2d 451 (Tex. App. – Houston [1st Dist.] 1999, pet. denied)
IV-42
there was not a question of whether Santos or anyone employed by KD had performed or
failed to perform any act that caused the compressor to explode. Trident made a claim
for coverage as an additional insured under the Admiral policy, and Admiral denied
coverage. In the later lawsuit for insurance coverage, Admiral obtained a summary
judgment regarding its duty to defend arguing that the liability had arisen out of Trident’s
operations rather than KD’s operations so the additional insured endorsement did not
apply. (Admiral also argued that coverage was precluded from bodily injury to KD’s
employees, and that KD did not provide contractual liability insurance to Trident). The
particular policy defined “operations” as “oil or gas well servicing … to include
materials, parts or equipment furnished in connection therewith.” Admiral argued,
supported by the previous two Texas opinions cited above, that the term “arising out of
the named insured’s operations” was intended only to provide coverage if the named
insured’s (KD) performance was the cause of the injury. Admiral argued that “absent an
affirmative act by KD that caused or contributed to the explosion, the additional insured
endorsement and the policy in this case did not provide coverage.” Trident argued in
response, however, that the term “arising out of the named insured’s operations” was
meant to provide Trident coverage for any claim that had a logical “cause in fact”
connection with KD’s operations.
In coming to its conclusion, the court noted that “the majority view of these cases
is that for liability to ‘arise out of operations’ of a named insured it is not necessary for
the named insured’s acts to have ‘caused’ the accident; rather it is sufficient that the
named insured’s employee was injured while present at the scene in connection with
performing the named insured’s business, even if the cause of the injury was the
IV-43
negligence of the additional insured.”627 The court then held that because the accident in
the case occurred to a KD employee while the employee was on the premises for
performing preventative maintenance on the compressor that exploded, then the alleged
liability “arose out of KD’s operations” and was therefore covered by the additional
insured endorsement. The court noted that the policy was at best ambiguous, and thus the
construction that provided coverage would be the only proper construction to take.
Finally, the court stated that to the extent that Granite Construction Company, Inc. vs.
Bituminous Ins. Co., and Northern Ins. Co. vs. Austin Commercial, Inc. (supra.) are
contrary to this opinion, the court was in disagreement with those cases.
The Trident case interpretation of the endorsement language provides the
broadest coverage possible under an additional insured endorsement.
Basically, under this law the mere fact that a person working for or on
behalf of Aerohead was injured would be enough to show liability “arising
out of Aerohead’s work.” Furthermore, since that case, there have also
been various cases that are looking at similar issues.628
The holding in Trident, although declined to be reviewed by the Texas
Supreme Court, was quickly followed by another appellate court by way
of very different reasoning.629 In McCarthy Brothers, McCarthy was the
general contractor and an additional insured under the subcontractor
Crouch’s liability policy “with respect to liability arising out of [Crouch’s]
work for [McCarthy] by or for [Crouch].”630 An employee of Crouch was
injured when he slipped and fell on a muddy slope that he had to cross in
obtaining materials needed for the contract work, The injured employee
then sued McCarthy based upon premises liability.
627
Id.
628
See also St. Paul Ins. Co. v. Texas Department of Transp., 999 S.W.2d 881 (Tex. App.—
Austin 1999, pet. denied) (stating “vicarious liability” need not be specifically alleged in order to
trigger St. Paul’s duty to defend under additional insured endorsement); Assicurazioni Generali
SPA v. Crown Central Petroleum Corp., et al, 1998 W.L. 476462 (S.D. Tex. 1998) (court refused
to limit additional insured status to claims of direct negligence against named insured) (unreported
decision).
629
See McCarthy Brothers Co. v. Continental Lloyds Insurance Co 7 S.W.3d 725 (Tex. App.—
Austin 2000, no pet.).
630
Id. at 727, n.4.
IV-44
McCarthy then presented the claim to Continental Lloyds Insurance
Company who denied coverage, arguing that “the allegations in the
[underlying lawsuit] allege negligence only on the part of McCarthy and
not on the part of Crouch, and thus the liability in this case did not arise
out of Crouch’s work for McCarthy.”631 In the subsequent declaratory
judgment action, Continental Lloyds won at the trial court level, however
was reversed by the court of appeals. The Austin court relied heavily on
the Texas Supreme Court’s interpretation of the “arising out of” language
in the Lindsey opinion discussed above, and found that there was in fact a
causal connection between the injured worker’s injury and the contract
work.632
D. Conclusion
Indemnity agreements can effectively shift the risk of liability for tortuous acts
from an indemnitee to an indemnitor if they are legally enforceable. If the indemnity
clause seeks to indemnify the indemnitee for the consequences of its own negligence, the
indemnity clause must meet the fair notice requirements of the express negligence test
and the conspicuousness requirement unless the indemnitee can establish the indemnitor
had actual knowledge of the clause.
The indemnitor’s CGL policy will cover these liabilities if the contract with the
indemnitee constitutes an “insured contract” or the insured/indemnitor would have
assumed liability in the absence of the contract.
631
Id. at 727 (emphasis in original).
632
See also, Mid-Continent Casualty Co. v. Swift Energy Co., 206 F.3d 487 (5thCir. 2000)
(holding that under Texas law, the injuries sustained by an insured contractor’s employee on an oil
well operator’s premises in connection with contractor’s operation “arose out of” insured’s
ongoing operations performed for operator, as required for operator to be covered under
“additional insured” provision of liability policy, even though contractor was not alleged to be
negligent); Mid-Continent Casualty Co. v. Chevron Pipeline Co., 205 F.3d 222 (5th Cir. 2000)
(holding that under Texas law, premises owner’s liability for injuries to employee of named
insured “arose out of” insured’s independent contractor work for premises owner, making owner
an additional insured even though owner’s liability rested solely on its own negligence).
IV-45
Most indemnitees will negotiate an additional insured clause in their indemnity
agreement that protects them in the event that a court finds their indemnity agreement
unenforceable.
The courts and CGL carriers closely scrutinize indemnity agreements. The
indemnity provision and the entire contract should be reviewed to determine the rights
and liabilities of all parties. Also, the CGL policy and, in particular, all endorsements
should be examined to determine the extent of an indemnitee’s coverage.
IV-46
V. CONTRIBUTION AND RESPONSIBLE THIRD PARTIES
This section reviews Texas law on contribution and the concept of the
“responsible third party.” State law regarding proportionate responsibility and joint and
several liability is also discussed.
At the present time, given recent changes by the Texas Legislature, Texas cases
can be governed by one of two different versions of Chapter 33 of the Texas Civil
Practice and Remedies Code, the chapter that governs contribution and responsible third
party practice. For cases filed prior to July 1, 2003, the law discussed below will
govern the case. For cases filed on or after July 1, 2003, a new version applies. Those
changes will be highlighted below for ease of reference.
A. Tort cases
1 Common Law Definition
Texas courts have defined contribution as “the payment by each tortfeasor of his
proportionate share of the plaintiff’s damages to any other tortfeasor who has paid more
than his proportionate part.”633 Scholars have defined “contribution” as:
The right to demand that another who is jointly responsible for injury to
another contribute to the one required to compensate the victim, or the
actual payment by a joint tortfeasor of his share of what is due. It may
entail an equal sharing of loss, but in some jurisdictions entails a payment
proportional to one’s fault.634
633
General Motors Corp. v. Simmons, 558 S.W.2d 855, 859 (Tex. 1977), overruled by Duncan v.
Cessna Aircraft Co., 665 S.W.2d 414 (Tex. 1984).
634
BRYAN A. GARNER, A DICTIONARY OF MODERN LEGAL USAGE 219 (2d ed. 1995).
V-1
2 The Source of Contribution Rights
a. No common law right to contribution
Under the common law, there are no rights of contribution among joint
tortfeasors. These rights are only recognized by statute.635 The principal Texas statutes
on contribution are sections 33.015 and 33.016 of the Texas Civil Practice and Remedies
Code, entitled “Contribution” and “Claim Against Contribution Defendant,” respectively.
The law applicable to cases filed prior to July 1, 2003, reflects the 1995
amendments to Chapter 33 of the Texas Civil Practice and Remedies Code, entitled
“Proportionate Responsibility.” These prior tort reform amendments applied to all causes
of action that accrued on or after September 1, 1995, and to all causes of action that
accrued before September 1, 1996, if suit was not filed until on or after September 1,
1996.636 In June 2003, the Texas Legislature, providing even further reform of a wide
array of Texas law, passed House Bill 4. The new changes to Chapter 33 apply to all
cases filed on or after July 1, 2003.637
b. Chapter 33
Before the 1995 amendments to Chapter 33, Chapter 32 governed cases in which
the plaintiff pleaded intentional torts in lieu of or in addition to negligence and products
liability theories; Chapter 33, then entitled “Comparative Responsibility,” governed
contribution in negligence and products cases.
635
Casa Ford, Inc. v. Ford Motor Co., 951 S.W.2d 865, 876 (Tex. App.—Texarkana 1997, pet.
denied).
636
See Act of May 8, 1995, 74th Leg., R.S., ch. 136, §3, 1995 Tex. Sess. Law Serv. 976.
637
Tex. H.B. 4, § 23.02(c), 78th Leg., R.S. (2003).
V-2
In 1995, the Texas legislature renamed Chapter 33 “Proportionate Responsibility”
and broadened its scope to apply “to any cause of action based on tort in which a
defendant, settling person, or responsible third party is found responsible for a percentage
of the harm for which relief is sought” and any action brought under the Texas Deceptive
Trade Practices Act (“DTPA”).638 There are, however, four exceptions:
1. The general rules of Chapter 33 regarding joint and several liability
do not apply to a tortfeasor “who, with the specific intent to do
harm to others, acts in concert with another person to engage in
[certain conduct proscribed by the Penal Code, such as murder,
assault, forgery, bribery, and the like. That tortfeasor] shall be
jointly and severally liable with such other person for the damages
legally recoverable by the claimant that were proximately caused
by such conduct[.]”639
2. Chapter 33 does not apply to an action to collect workers’
compensation benefits, or to an action against an employer for
exemplary damages arising out of the death of an employee.640
3. Chapter 33 does not apply “to a claim for exemplary damages
included in an action to which this chapter otherwise applies.”641
In other words, there is no “proportionate responsibility” for
punitive damages, nor is there joint and several liability for such
damages.642
4. Chapter 33 does not apply to a cause of action for damages arising
from the manufacture of methamphetamine as described by
Chapter 99.643
638
See TEX. CIV. PRAC. & REM. CODE. §33.002(a), (h) (Vernon 1997) (now §33.002(a)(1) & (2)).
639
Id. § 33.002(b) [repealed by Tex. H.B. 4, §4.10(1), 78th Leg., R.S. (2003)].
640
Id. §33.002(c)(1).
641
Id. §33.002(c)(2).
642
See id. §41.006 (“In any action in which there are two or more defendants, an award of
exemplary damages must be specific as to a defendant, and each defendant is liable only for the
amount of the award made against that defendant.”).
643
Id. §33.002(c)(3).
V-3
3 Recognizing and Asserting Contribution Rights
Two sections of Chapter 33 create contribution rights. The first states:
If a defendant who is jointly and severally liable under Section 33.013
pays a percentage of the damages for which the defendant is jointly and
severally liable greater than his percentage of responsibility, that
defendant has a right of contribution for the overpayment against each
other liable defendant to the extent that the other liable defendant has not
paid the percentage of the damages found by the trier of fact equal to that
other defendant’s percentage of responsibility.644
This provision applies to a defendant’s contribution rights against another tortfeasor who
has also been sued by the claimant. The following section permits a defendant to seek
contribution from tortfeasors who have not been sued by the claimant:
Each liable defendant is entitled to contribution from each person who is
not a settling person and who is liable to the claimant for a percentage of
responsibility but from whom the claimant seeks no relief at the time of
submission.645
a. Appropriate targets
Anyone jointly responsible for the damages sought by the claimant is an
appropriate target for contribution, whether or not the claimant has sued that person,
unless they are a settling person or they have immunity from the claim.
A defendant can seek contribution from a “liable defendant,” which is “a
defendant against whom a judgment can be entered for at least a portion of the damages
awarded to the claimant.”646 A defendant does not have “a right of contribution against
644
TEX. CIV. PRAC. & REM. CODE. § 33.015(a) (Vernon 1997).
645
Id. § 33.016(b).
646
Id. §33.011(3).
V-4
any settling person.”647 But defendants can settle with the plaintiff and determine their
proper shares of liability at a later date.
Among non-parties, a defendant has contribution rights against a “contribution
defendant,” defined as “any defendant, counter defendant, or third-party defendant from
whom any party seeks contribution with respect to any portion of damages for which that
party may be liable, but from whom the claimant seeks no relief at the time of
submission.”648
Finally, a defendant has no contribution rights against a party who enjoys
immunity from liability to the claimant.649
b. Joint and several liability
Joint and several liability means that the plaintiff may collect all damages from
one of several defendants even if all defendants are liable. The defendant that pays the
damages cannot protest the decision. The defendant’s only recourse is to seek
contribution from his liable co-tortfeasors.
An objective of the 1995 tort reform amendments was to reduce defendants’
exposure to joint and several liabilities. The 1995 amendments make a defendant jointly
and severally liable if any one of the following is true:
• The defendant acted with specific intent to do harm to others and
acted in concert with another person to engage in certain conduct
647
Id. §33.015(d).
648
Id. §33.016(a).
649
See Shoemake v. Fogel, Ltd., 826 S.W.2d 933, 935 (Tex. 1992) (“A defendant’s claim of
contribution is derivative of the plaintiff’s right to recover from the joint defendant against whom
contribution is sought.”).
V-5
prohibited by the Penal Code, thereby proximately causing
damages legally recoverable by the claimant.650
• The defendant percentage of responsibility is greater than 50
percent.651
• The defendant percentage of responsibility is equal to or greater
than 15 percent, and either (1) the claimant’s harm is caused by the
depositing, discharge, or release into the environment of any
hazardous or harmful substance, as defined by statute, or (2) the
claimant’s harm resulted from a toxic tort.652
Therefore, for most causes of action, only one defendant will be held jointly and
severally liable because only one defendant can meet or exceed the 51% threshold in a
multi-defendant case.
c. Timely assertion of the right to contribution
Texas courts have held that defendants must assert their contribution rights
against co-defendants in the plaintiff’s lawsuit against them. If a defendant seeks
contribution against a party not named as a defendant, it is not clear whether the
defendant must assert contribution rights against the non-party during the plaintiff’s
lawsuit.
i. Contribution between defendants
Before 1989, the contribution statute provided:
All claims for contribution between named defendants must be determined
in the primary suit, but a named defendant may sue a person who is not a
party to the primary suit and who has not effected a settlement with the
claimant.653
650
Id. §33.002(b) [now §33.013(b)(2)].
651
Id. §33.013(b) [now §33.013(b)(1)].
652
Id. §33.013(c)(1) & (2) [repealed by Tex. H.B. 4, §4.10(5), 78th Leg., R.S. (2003)].
653
TEX. CIV. PRAC. & REM. CODE. §33.017 (Vernon 1986) (repealed by 70th Leg., 1st C.S., ch. 2,
§ 2.11B (1987)).
V-6
Thus, named defendants had to assert contribution rights against other parties to the same
suit during that lawsuit.654 If one defendant sued a new party as a third-party/contribution
defendant, then all other defendants had to assert their contribution rights against that
party as well.655
Although the statute above was repealed in 1987, there is no subsequent case law
that permits a defendant to assert contribution rights against a co-party in a separate,
subsequent suit. Justice Duncan of the San Antonio Court of Appeals has stated that
contribution rights will be waived if defendants don’t bring all contribution claims
against co-parties in the “primary suit” because of res judicata and the risk of inconsistent
jury findings.656
ii. Contribution against non-parties
Prior to 1989, Texas law permitted a defendant to wait and bring a separate,
subsequent suit for contribution against non-parties. The Texarkana Court of Appeals
recently ruled, however, that defendants must assert contribution rights against non-
parties within the plaintiff’s case.657 The court reasoned that: . . . Chapter 33 explicitly
does not grant a right to pursue a contribution claim against a nonparty after submission
654
E.g., Mercy Hosp. of Laredo v. Rios, 776 S.W.2d 626, 630 (Tex. App.—San Antonio 1989,
writ denied); Nowsco Serv. Div. of Big Three Indus., Inc. v. Lassman, 686 S.W.2d 197, 199 (Tex.
App.—Houston [14th Dist.] 1984, writ ref'd n.r.e.).
655
Lane Wood, Inc. v. Grayco Mobile Homes, Inc., 668 S.W.2d 892, 893 (Tex. App.—Houston
[14th Dist.] 1984, no writ) (this case appears to address the issue of venue and discusses the old
statute 2212a – all claims for contribution between named defendants in the primary suit shall be
determined in the primary suit).
656
See Union City Body Co. v. Ramirez, 911 S.W.2d 196, 207-08 (Tex. App.—San Antonio 1995,
no writ) (Duncan, J., dissenting).
657
See Casa Ford, Inc. v. Ford Motor Co., 951 S.W.2d 865, 875-76 (Tex. App.—Texarkana 1997,
pet. denied); disag’d with by In re Martin, 147 S.W.3d 453 (Tex. App.—Beaumont 2004, et
denied).
V-7
of the primary case to the trier of fact. Section 33.016(b) grants a right of contribution
only to a “liable defendant.” A liable defendant, as defined by Section 33.011(3), is:
a defendant against whom a judgment can be entered for at least a portion
of the damages awarded to the claimant.” In other words, a liable
defendant is not a party against which a judgment already has been entered
in the primary suit. . . . Furthermore, Section 33.016(b) grants the right of
contribution only against “each person who is not a settling person and
who is liable to the claimant for a percentage of responsibility.658
Because a party ceases to be a claimant once judgment is entered659 no person can
be said to be “liable to the claimant” once judgment is entered.
Following the Texarkana Court’s holding, in order to maintain a contribution
claim against a non-party it would be necessary for a defendant to implead any
potentially liable non-parties. Texas Rule of Civil Procedure 38, entitled “Third-Party
Practice,” states that a defendant may implead any non-party “who is or may be liable to
him or to the plaintiff for all or part of the plaintiff’s claim against him.”660 It requires a
citation to be served on the impleaded party, who is called a third party defendant. The
defendant may file the third-party action without leave of court if done within 30 days
after filing his answer; otherwise, leave of court is required.661
Contrary to the holding by the Texarkana Court of Appeals, the Court of Appeals
in Beaumont has recently held as follows:
. . . we respectfully disagree with the assertion that Chapter 33 precludes a
post-judgment contribution claim against a joint tortfeasor that is not made
a party to the primary lawsuit. . . . We see nothing in the applicable
provisions of Chapter 33 requiring that a contribution claim be asserted in
658
Case Ford, 951 S.W.2d at 876.
659
See Tex. Civ. Prac. Rem Code § 33.011(1).
660
TEX. R. CIV. P. 38(a).
661
Id.
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the primary lawsuit, or precluding a post-judgment contribution claim
against a joint tortfeasor who was not a party to the primary lawsuit.662
In reaching its holding, the court relies on the last sentence of section 33.016(b), which
provides that a “party may assert this contribution right against any such person as a
contribution defendant in the claimant’s action.”663 The Court reasons that the use of the
word “may” instead of “shall” or “must” suggests that “the contribution claimant has
discretion to assert the contribution right in the primary lawsuit,” but is not required to do
so.664 Additionally, commentators have also expressed skepticism about the Texarkana
Court’s reasoning on this point.665
iii. Statute of repose
There is a ten-year statute of repose for contribution claims against persons who
construct or repair improvements to real property.666 For example, a roof repairman who
is sued by the owner of a ten-year old building could not seek contribution from the
original builder because of the statute of repose. A similar statute of repose exists for
design professionals such as architects and engineers.667
662
See by In re Martin, 147 S.W.3d at 459.
663
Id.
664
Id.
665
See 19 WILLIAM V. DORSANEO, III, TEXAS LITIGATION GUIDE § 291.02A[3][c] (1998) (“[T]he
court’s reasoning is unconvincing, and there is no convincing policy reason for making
contribution or any remaining indemnity claims compulsory.”).
666
TEX. CIV. PRAC. & REM. CODE § 16.009(a), (b)(4) (Vernon 1986).
667
See TEX. CIV. PRAC. & REM. CODE § 16.008. See Chapter II, section F.4 for a complete
discussion on the application of statutes of repose under Texas Law.
V-9
4 Application
This section demonstrates how the contribution statute works in a case not
involving responsible third parties.
a. Assertion of contribution rights among defendants
The simplest case is one arising under section 33.015 only, in which the plaintiff
has sued several tortfeasors, who then assert contribution rights against each other.
i. Hypothetical #1
Assume that Plaintiff (P) sues Defendants 1, 2, and 3 (D1, D2, D3). The jury
finds damages of $100 and assesses no percentage of responsibility to P, 60% to D1, 20%
to D2, and 20% to D3. D1 is jointly and severally liable for the entire amount since his
percentage of responsibility exceeds 50%.668 If he pays more than $60, then he can seek
contribution from D2 and D3, though neither can be compelled to pay more than $20
total.669 If D3 is insolvent, the statute requires the joint and severally liable defendant,
D1, to pay D3’s share of the damages.
ii. Hypothetical #2
Assume the same facts as above, but the jury returns percentages of 5% to P, 55%
to D1, 25% to D2, and 15% to D3. D1 is jointly and severally liable for the entire $95,
D2’s maximum liability is $25, and D3’s maximum liability is $15.
668
See TEX. CIV. PRAC. & REM. CODE §33.013(b) (Vernon 1997).
669
Id. § 33.015(a) (the right of contribution against a liable defendant extends only “to the extent
that the other liable defendant has not paid the percentage of the damages found by the trier of fact
equal to that other defendant’s percentage of responsibility”).
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iii. Hypothetical #3
Consider Texas Department of Public Safety v. Staples in which Plaintiff-Driver
and Plaintiff-Passenger sued Defendant-Driver.670 The jury determined that the Plaintiff-
Driver was 90% liable and the Defendant-Driver was 10% liable.671 Plaintiff-Driver was
denied recovery because his responsibility exceeded 50%672 and the question on appeal
was whether Defendant-Driver had to pay 10% or 100% of Plaintiff-Passenger’s damages
of $59,500. Plaintiff-Passenger argued that the law on proportionate responsibility did
not apply because there was only one defendant, and that Defendant-Driver should pay
all damages of the Plaintiff-Passenger. The court ruled that Chapter 33 did apply and the
Defendant-Driver was therefore only liable for 10% of the damages.
b. Assertion of contribution rights among defendants, with
settling persons
Settling persons are immune to claims for contribution and have no rights of
contribution against the remaining tortfeasors.673 At least one Texas court of appeals has
held that a settling defendant can continue to pursue cross-claims against a co-defendant
after settling if the co-defendant is alleged to have breached a duty owed directly to the
settling defendant, in addition to whatever duty it may have owed to the plaintiff.674
Furthermore, the non-settling defendants will be less likely to be held jointly and
severally liable because the jury must consider the percentage of responsibility of each
670
882 S.W.2d 431, 431 (Tex. App.—Houston [1st Dist.] 1994, writ denied).
671
Id.
672
If the plaintiff’s share of liability exceeds 50%, he or she is totally barred from recovery. TEX.
CIV. PRAC. & REM. CODE §33.001 (Vernon 1997).
673
TEX. CIV. PRAC. & REM. CODE §33.015(d) (Vernon 1997).
674
General Motors Acceptance Corp. v. Crenshaw, Dupree & Milam, L.L.P., 986 S.W.2d 632
(Tex. App.—El Paso 1998, pet. denied).
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settling person.675 The non-settling defendants may also be entitled to deduct the settling
defendant’s payment from the total damages found by the trier of fact.676
2003 Amendments
Except in medical malpractice cases, the dollar-for-dollar and sliding scale
credits have been abolished. Now, a jointly and severally liable defendant
will be entitled to have the judgment reduced by the settling party’s share
of liability.677 This change, however, should not impact a defendant’s
ability to have a plaintiff’s recovery capped based on money already
received in settlement, as discussed in Hypothetical #5, below.
i. Hypothetical #4
Assume that Plaintiff (P) sues Defendant (D) and settles with Settlor (S) for $50.
The jury determines damages of $100 and assesses P with 1% of the responsibility, D
with 19%, and S with 80%. The damages are first reduced by $1 to account for P’s
percentage of responsibility and are further reduced by the amount of the settlement
($50), which brings the maximum amount of P’s recovery to $49.678 Since D is not
jointly and severally liable for the whole $49, he will have to pay only $19 of the
damages.679 P cannot collect the remaining $30 of his damages just because he made a
bad settlement.
675
See TEX. CIV. PRAC. & REM. CODE § 33.003 (Vernon 1997).
676
Id. §33.012(b).
677
Id. at amended §33.012(b).
678
See id. §33.012(b).
679
This hypothetical is taken from, and reaches the same conclusion as, the court of appeals’
opinion in Kirby v. Amerigas, Inc., 892 S.W.2d 179 (Tex. App.—Houston [14th Dist.] 1994, writ
denied).
V-12
ii. Hypothetical #5
Application of the statute is more complicated with multiple defendants.
Returning to our previous hypothetical, again assume that the Plaintiff has settled with
one possible tortfeasor for $50. The jury finds damages of $100 and assesses 20% of the
responsibility against P, 20% to D1, 20% to D2, 10% to D3, and 30% to S. The damages
are first reduced to $80 since the P is 20%. Plaintiff’s damages are then reduced to $30
after the $50 settlement is deducted. This establishes a cap on the Plaintiff’s damages.680
In other words, the $30 amount becomes a cap on the amount the Plaintiff can recover
from the remaining defendants.681
The statute states that each Defendant is liable to P “for the percentage of the
damages found by the trier of fact equal to that defendant’s percentage of
responsibility.”682 So, D1 and D2 will be liable for $20 apiece and D3 for $10.
However, because those amounts result in a recovery for P above the capped amount, the
defendants’ proportionate shares will need to be further reduced.683 Thus, the $30 should
be allocated among the defendants according to their share of liability – i.e., D1 and D2
each being charged $12 (40% x $30) and D3 being charged $6 (20% x $30).
680
Roberts v. Willliamson, 111 S.W.3d 113. 123 (Tex. 2003).
681
Id.
682
TEX. CIV. PRAC. & REM. CODE §33.013(a) (Vernon 1997) (emphasis added).
683
Id. at n. 7.
V-13
c. Assertion of contribution rights by and among
defendants and contribution defendants
Finally, we consider a defendant’s contribution rights against persons not sued by
the claimant himself. Remember that it would be prudent to assert contribution rights in
the same action in which the defendant is being sued.684
i. Hypothetical #6
In our hypothetical, P now sues D1 and D2 but does not sue CD, a third potential
tortfeasor. Historically, D1 and D2 could only implead CD as a “contribution
defendant.” Under Chapter 33, this required the submission of two separate jury
questions concerning the parties’ proportionate responsibility: one that included all
claimants, defendants, and settling persons,685 and a second question that would compare
only the defendants (collectively) and the contribution defendants (individually).686 The
questions will typically take the following form:
5 Questions
a. Question 1
Did the negligence, if any, of those named below
proximately cause the occurrence in question?
P: Yes
D1: Yes
D2: Yes
CD: Yes
684
See Casa Ford, Inc. v. Ford Motor Co., 951 S.W.2d 865, 876 (Tex. App.—Texarkana 1997, pet.
denied).
685
TEX. CIV. PRAC. & REM. CODE §33.003 (Vernon 1997).
686
Id. §33.016(c); see also State Bar of Texas, Texas Pattern Jury Charges: General Negligence
& Intentional Personal Torts PJC 4.4 (2002).
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b. Question 2
What percentage of the negligence that caused the
occurrence do you find to be attributable to each of those
found by you, in your answer to Question 1, to have been
negligent?
P: 20%
D1: 60%
D2: 20%
Total: 100%
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c. Question 3
With respect to causing or contributing to cause in
any way the injury to Plaintiff, find the percentage of
negligence, if any, attributable as between or among—
D1 and D2:687 40%
CD: 60%
Total 100%
d. Question 4
What sum of money, if paid now in cash, would
fairly and reasonably compensate Plaintiff for his injuries,
if any, which resulted from the occurrence in question?
$100.00
The total recovery is first reduced to $80 by deducting the Plaintiff’s percentage
of responsibility.688 Next, the liability of D1 and D2 is determined under section 33.013.
D2 is not jointly and severally liable because his percentage was less than or equal to
50%, so D2 will be held liable in the judgment for $20 only. D1, of course, is jointly and
severally liable to P for all $80, but his contribution rights will be incorporated into the
judgment and will be triggered if he should pay more than his fair share.
Assume that D1 pays P $80 because he is the only joint and severally defendant.
Section 33.016(d) determines D1’s contribution rights as follows:
687
The Pattern Jury Charge recommends submitting the defendants collectively because
submitting them separately is likely to cause inconsistent jury findings, i.e., the jury is likely, if
given a chance, to assign percentages to D1 and D2 in different ratios in the different questions.
See, e.g., State Bar of Texas, Texas Pattern Jury Charges: General Negligence & Intentional
Personal Torts PJC 4.4 cmt. (2002). This is a sensible proposal, although some commentators,
including two who were intimately involved in the drafting of the 1987 amendments in which the
contribution defendant scheme was adopted, have assumed that all defendants and contribution
defendants should be submitted separately. John T. Montford & Will G. Barber, 1987 Texas Tort
Reform: The Quest For a Fairer and More Predictable Texas Civil Justice System, Part Two, 25
HOUS. L. REV. 245, 300-03 (1988).
688
See TEX. CIV. PRAC. & REM. CODE § 33.012(a) (Vernon 1997).
V-16
As among liable defendants, including each defendant who is jointly and
severally liable under Section 33.013, each contribution defendant’s
percentage of responsibility is to be included for all purposes of Section
33.015. The amount to be contributed by each contribution defendant
pursuant to Section 33.015 shall be in proportion to his respective
percentage of responsibility relative to the sum of percentages of
responsibility of all liable defendants and liable contribution defendants.
Therefore, it is necessary to reapportion the liability among the defendants and
contribution defendants. The 40% of responsibility assigned to D1 and D2 must be
broken down according to the ratio established in Question 2 of 60%/20%, or 3/1; in
other words, as between D1 and D2, D1 was responsible for ¾ of the 40% and D2 was
responsible for ¼ of the 40%. Therefore, a redivision of responsibility yields 30% to D1,
10% to D2, and 60% to CD.
These percentages are then applied to the $80 figure rather than the $100 figure,
which results in CD being liable for 60% of the $80, or $48, while D1 is liable for only
$24 (30% of $80), and D2 is liable for only $8 (10% of $80). The judgment would
provide, that
1) D1 is jointly and severally liable to P for $80;
2) D2 is severally liable to P for $20;
3) if D1 pays more than $24, he may collect contribution from D2
and CD to bring his total liability to $24, but he cannot force D2 to
pay more than $8 or CD to pay more than $48;
4) if D2 pays more than $8, he may collect contribution from D1 and
CD to bring his total down to $8, but he cannot force D1 to pay
more than $24 or CD to pay more than $48 (and D2 cannot be
forced to pay more than $8 by anyone except P); and
5) CD’s maximum liability is $48.689
689
Montford and Barber appear to believe this is the correct result. See Montford & Barber,
supra n.685, at 300-03.
V-17
This approach seems to permit D2 to recover in contribution despite D2 not being
held jointly and severally liable under section 33.013. However, D2 has no contribution
rights but should not be required to pay more than $8 if CD is solvent enough to make
them whole.
This is the way these circumstances would play out largely in theory only. As a
practical matter, the contribution defendant was often not sued by the plaintiff for a good
reason – it was insolvent. Thus, while a defendant had the legal ability to sue that party
and have his/her negligence submitted to the jury, the proportionate liability questions
were such that bringing this insolvent party into the litigation as a contribution defendant
provided no real benefit. The legislature attempted to correct this problem in 1995 (and
again in 2003) with the advent of “responsible third party” practice.
B. Responsible Third Parties
In 1995, the Texas legislature added a new category to the proportionate
responsibility scheme, the “responsible third party.”690 This statute was recently
amended, changing significantly the responsible third party procedure.691 These new
amendments, however, apply only to cases filed on or after July 1, 2003. This section
will first examine the practice under the previous version of the statute, with the
significant 2003 changes highlighted for convenience since either statutory scheme could
currently be implicated.
1 Definition of “Responsible Third Party”
Chapter 33 defines “responsible third party” as follows:
690
Of course, the responsible third party mechanism, being part of Chapter 33, is limited to tort
cases.
691
Tex. H.B. 4, §4.04, 78th Leg., R.S. (2003).
V-18
(6) (A) “Responsible third party” means any person to whom all of the
following apply:
(i) the court in which the action was filed could exercise
jurisdiction over the person;
(ii) the person could have been, but was not, sued by the
claimant; and
(iii) the person is or may be liable to the plaintiff for all or a
part of the damages claimed against the named defendant
or defendants.
(B) The term “responsible third party” does not include:
(i) the claimant’s employer, if the employer maintained
workers’ compensation insurance coverage, as defined by
Section 401.011(44), Labor Code, at the time of the act,
event, or occurrence made the basis of the claimant’s suit;
or
(ii) a person or entity that is a debtor in bankruptcy proceedings
or a person or entity against whom this claimant’s claim
has been discharged in bankruptcy, except to the extent that
liability insurance or other source of third party funding
may be available to pay claims asserted against the
debtor.692
2003 Amendments
(6) “Responsible third party” means any person who is alleged
to have caused or contributed to causing in any way the
harm for which recover of damages is sought, whether by
negligent act or omission, by any defective or unreasonably
dangerous product, by other conduct or activity that
violates an applicable legal standard, or by any
combination of these. The term “responsible third party”
does not include a seller eligible for indemnity under
Section 82.002.693
692
TEX. CIV. PRAC. & REM. CODE § 33.011(6) (Vernon 1997).
693
See Amended §33.011(6).
V-19
2 Joinder Limitations
A defendant must file a motion seeking leave to join a responsible third party:
Except as provided in Subsections (d) and (e), prior to the expiration of
limitations on the claimant’s claim for damages against the defendant and
on timely motion made for that purpose, a defendant may seek to join a
responsible third party who has not been sued by the claimant.694
The defendant must file claims against a responsible third party on or before 30 days after
the defendant’s answer is due. If limitations is a concern, and obtaining a hearing on a
motion to join a responsible third party will be difficult, the defendant should join the
party in the pleadings to assure that the joinder will be perfected within the limitations
period, and obtain leave from the court as soon thereafter as possible.
2003 Amendments
No longer is a responsible third party “joined” and no longer is limitations
a concern. Now, a “responsible third party” is simply “designated” as
such by filing a “motion for leave to designate that person as a responsible
third party” on or before the 60th day before the trial date, unless good
cause exists for filing the motion later.695 The trial court is required to
grant leave unless another party files an objection.696 Any objection must
be filed within 15 days after service of the motion for leave and, to prevent
designation of a third party, must establish: (1) that the defendant did not
plead sufficient facts concerning the third party’s alleged liability to
satisfy the Texas Rules of Civil Procedure’s pleading requirements; and
(2) after being granted leave to replead, the defendant still fails to plead
sufficient facts.697 Finally, the new statute makes clear that being
designated a “responsible third party” has no effect on that party. The
designation expressly does not impose liability on the responsible third
party and may not be used in any other proceeding “on the basis of res
694
Id. §33.004(a) (emphasis added).
695
See amended §33.004(a).
696
Id. at §33.004(f).
697
Id. at §33.004(f) & (g).
698
Id. at §33.004(i).
V-20
judicata, collateral estoppel, or any other legal theory, to impose liability
on the person.”698
a. Immune or Vicariously-Liable-Only Responsible Third
Parties Cannot be Joined
There are several limitations on a defendant’s right to join responsible third
parties. A defendant cannot join as a responsible third party the plaintiff’s employer (if
protected by workers’ compensation immunity) or a person who is in bankruptcy, or
whose debt to the plaintiff has been discharged in bankruptcy, unless there is a liability
insurer or someone else available as an indemnitor to pay claims against that debtor.699
Further, the defendant is not permitted to join an “innocent retailer” as a “responsible
third party,” but a retailer can be joined as a responsible third party if “there is alleged
against the seller a claim for relief based on the seller’s negligence, intentional
misconduct, or other action or omission, such as negligently modifying or altering a
product, for which the seller is independently liable to the claimant.”700
2003 Amendments
These limitations, other than that pertaining to innocent sellers of
products, have been removed.701 Now, employers protected by workers’
compensation and bankrupt individuals or entities can be designated as
“responsible third parties.” This new, broader definition of “responsible
third party” should also allow the designation of co-defendants against
whom plaintiff’s claims have been compelled to arbitration and other,
previously immune parties, such as negligent parents in a suit by a child.
699
See id., § 33.011(6)(B)(i) & (ii).
700
See id., §33.004(c).
701
See amended §33.011(6).
V-21
b. Personal jurisdiction
Defendants are also precluded from joining responsible third parties that are not
within the particular court’s personal jurisdiction.702 A defendant is subject to personal
jurisdiction if their acts or omissions were committed within the forum state.703 Thus,
defendants may join responsible third parties if the lawsuit relates to the party’s actions
within Texas.
2003 Amendments
Since a “responsible third party” is no longer defined as one which, among
other things, the court could exercise jurisdiction over, a defendant can
now designate as a responsible third party an entity over which the court
would not otherwise have jurisdiction.704
c. Timely Joinder
There is an exception to the requirement that a responsible third party be joined
before the claimant’s claim against the defendant expires. “[E]ven though the claimant’s
action against the responsible third party would be barred by limitations,” a defendant can
still join the responsible third party if the “third party claim” against the responsible third
party “is filed on or before 30 days after the date the defendant’s answer is required to be
filed.”705
702
Id. §33.011(6)(A)(i).
703
Joseph S. Pevsner & Gregory W. Curry, Down the Block But Outside Jurisdiction: Personal
Jurisdiction in a Modern World, 29 TEX. TECH L. REV. 977, 990 (1998) (“As long as the
defendant purposefully directed activities to the forum and the cause of action arises out of or is
related to those contacts, the exercise of [personal] jurisdiction is justified even if the defendant
had only a single contact with the forum.”) (citations omitted).
704
See amended §33.011(6).
705
TEX. CIV. PRAC. & REM. CODE §33.004(d) [repealed by Tex. H.B. 4, §4.04, 78th Leg., R.S.
(2003)].
V-22
Although section 33.004(a) requires the defendant to join the responsible third
party before the claimant’s claim against the defendant is time-barred, the exception
permits joinder of the responsible third party after the claim against the responsible third
party is time-barred. Moreover, Section 33.004(d) goes on to state that “[t]his section
shall not apply if the limitations period governing the claimant’s action against the
defendant joining the responsible third party is longer than the limitations period
governing the claimant’s action against the responsible third party.” The intended
meaning of this provision is unclear.
2003 Amendments
Again, by express omission, limitations on the plaintiff’s claims against
the proposed “responsible third party” are no longer a concern under the
amended statute.
Section 33.004 provides that if the defendant joins a responsible third party
against whom claimant’s claim is time-barred (by joining that person as a responsible
third party within 30 days of filing his answer, as per section 33.004(d)), the “claimant
may join [the] responsible third party, even though such joinder would otherwise be
barred by limitations, if the claimant seeks to join the responsible third party not later
than 60 days after a third party claim is filed under Subsection (d).”706
706
See id., §33.004(e).
V-23
2003 Amendments
Under the amended statute, this savings clause remains. Thus, if a party is
designated “a responsible third party,” the plaintiff may join that party,
even though such joinder would otherwise be barred by limitations, if the
plaintiff seeks to join that person not later than 60 days after that party is
designated a responsible third party.707
3 Effect of joinder of responsible third party
Responsible third parties that are properly joined are included in the jury question
submitted to determine percentages of responsibility.708 This may shift liability
percentages enough to help defendants avoid being held jointly and severally liable. This
is the primary difference between responsible third parties and contribution defendants:
contribution defendants do not help defendants avoid joint and several liabilities to the
plaintiff because contribution defendants are not included in the percentage-of-
responsibility question that determines joint and several liabilities. Thus, an insolvent
contribution defendant is of no practical use to a defendant, but an insolvent responsible
third party can be.
a. Hypothetical #7
Assume that P sues D1 and D2, but not an insolvent tortfeasor. If D1 and D2 join
the insolvent tortfeasor as a contribution defendant, then under Hypothetical #6 D1 will
pay $60 and D2 will pay $20, despite the jury finding them only 24% and 8% responsible
for the damage-causing occurrence when considering the insolvent contribution
707
Id.
708
Id. §33.003.
V-24
defendant. But if D1 and D2 join the insolvent tortfeasor as a responsible third party
(RTP), the jury’s findings to the percentage of responsibility question would be:
P: 20%
D1: 24%
D2: 8%
RTP: 48%
Total: 100%
Thus, P’s maximum amount of recovery is first reduced to $80 because of his
20% responsibility. 709 Judgment will then be entered against D1 for $24 and against D2
for $8. Hence, P only recovers $32 of his $80 “amount of recovery” from D1 and D2
because of the responsible third party mechanism. P may sue the insolvent responsible
third party directly and obtain a judgment against him, although essentially the same
result will be reached because the insolvent party cannot pay the judgment.
4 Questions and Answers
This section attempts to answer some frequently asked questions regarding
responsible third parties that were not addressed by the legislature and have remained
unanswered because few cases have interpreted the responsible third party concept.
a. Is a party joined solely as a responsible third party
liable to any party for its percentage of the plaintiff’s amount
of recovery?
The question primarily concerns two categories of persons that might have an
interest in recovering against the responsible third party: plaintiffs, and defendants who
have been held jointly and severally liable.
709
Id., §33.013.
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Chapter 33 mentions responsible third parties in only three sections: (1) section
33.003, which provides for inclusion of responsible third parties in the “main”
percentages-of-responsibility jury question; (2) section 33.004, which describes the
procedure joining of responsible third parties; and (3) section 33.011, which defines
“responsible third party.” None overtly suggests that a judgment can be entered fastening
liability on a responsible third party.
Section 33.011 may imply that no one can obtain judgment against a mere
responsible third party, because the categories of “responsible third party” and “liable
defendant” seem to be mutually exclusive. A “liable defendant” is “a defendant against
whom a judgment can be entered for at least a portion of the damages awarded to the
claimant.”710 A “responsible third party” is someone who “could have been, but was not,
sued by the claimant.”711 Thus, it seems that a responsible third party could not be a
liable defendant and could not be held liable to anyone in the judgment.
Further, the Constitution and common law arguably prohibit a judgment from
being entered against a responsible third party. As the Texas Supreme Court has stated:
[A] judgment must be supported by the pleadings and, if not so supported,
it is erroneous. Thus, a party may not be granted relief in the absence of
pleadings to support that relief.712
The Constitution requires that notice be given “that is reasonably calculated to inform
parties of proceedings which may directly and adversely affect their legally protected
710
Id. §33.011(3).
711
Id. §33.011(6)(A)(ii).
712
Cunningham v. Parkdale Bank, 660 S.W.2d 810, 813 (Tex. 1983) (citations omitted); accord R.
Conrad Moore & Assocs., Inc. v. Lerma, 946 S.W.2d 90, 96 (Tex. App.—El Paso 1997, writ
denied).
V-26
interests.”713 A judgment finding a responsible third party liable without any pleadings
that seek relief from a responsible third party may raise constitutional due process
concerns.
It is possible that a responsible third party could be held liable for contribution in
the judgment under section 33.004. First, section 33.004(b) states that “[n]othing in this
section shall affect the third-party practice as previously recognized in the rules and
statutes of this state with regard to the assertion by a defendant of rights to contribution or
indemnity,” which may suggest that “claims” against responsible third parties are
tantamount to contribution claims. Additionally, section 33.004(d) refers to the
responsible third party mechanism as a “third party claim,” which is typically a claim by
a defendant against a non-party for either indemnification or contribution. However,
these provisions do not conclusively determine that a responsible third party can be held
liable for contribution in the judgment.
Therefore, a person joined solely as a responsible third party likely will not be
held liable in the judgment for contribution to the plaintiff or to the defendants.
2003 Amendments
The amended statute squarely addresses this issue, expressly providing
that being designated a “responsible third party” does not, by itself,
impose liability on that party.714 Additionally, the amended statute
generally defines a responsible third party as any person who is alleged to
have caused or contributed to causing the harm for which recovery of
713
Cunningham, 660 S.W.2d at 813.
714
TEX. CIV. PRAC. & REM. CODE §33.004(i)(1).
715
TEX. CIV. PRAC. & REM. CODE §33.011(6).
716
TEX. CIV. PRAC. & REM. CODE §33.011(6)(A)(ii) [repealed by Tex. H.B. 4, §4.04, 78th Leg.,
R.S. (2003)].
V-27
damages is sought.715 As such, the amended version of the statute no
longer requires that a responsible third party be a person that could have,
but was not, sued by the claimant.716
b. Can a defendant join the same party both as a
responsible third party and as a contribution defendant?
The defendants will probably want to join a solvent tortfeasor as both a
responsible third party (to help them avoid joint and several liability) and as a
contribution defendant (to preserve contribution rights in case they are held jointly and
severally liable). Is this permitted?
i. Arguably, no.
Texas law seems to indicate that a party cannot be joined as both a responsible
third party and a contribution defendant. Under Chapter 33, a responsible third party is a
person who “could have been, but was not, sued by the claimant,”717 but a third-party
plaintiff is included in the Chapter 33 definition of “claimant.”718 Thus, a contribution
defendant has been sued by a “claimant,” but a responsible third party is someone who
has not been sued by “the claimant.” Perhaps an argument can be made that the
definition of “responsible third party” refers to someone who has not been sued by “the
claimant,” meaning only the plaintiff, rather than “a claimant,” meaning any of the
various kinds of claimants defined in Chapter 33. If so, the responsible third party can
also be a contribution defendant because he will not have been sued by the plaintiff, i.e.,
“the claimant.”
717
TEX. CIV. PRAC. & REM. CODE §33.011(6)(A)(ii).
718
See id., §33.011(1).
V-28
Another contention against the same person being joined as both a responsible
third party and a contribution defendant is that the dual joinder will eventually cause
inconsistent jury findings. Consider the following:
• In the first “percentages” jury question, we may submit only claimants,
defendants, settling persons, and responsible third parties.719
• Section 33.016 requires a separate “percentages” question that includes
only defendants and contribution defendants:
The trier of fact shall determine as a separate issue or
finding of fact the percentage of responsibility with respect
to each contribution defendant and these findings shall be
solely for purposes of this section and Section 33.015 and
not as a part of the percentages of responsibility determined
under Section 33.003. Only the percentage of
responsibility of each defendant and contribution defendant
shall be included in this determination.720
• It is easy to imagine a jury returning inconsistent results if two percentage
questions are submitted. For instance:
Question 2
What percentage of the negligence that caused the
occurrence do you find to be attributable to each of those
found by you, in your answer to Question 1, to have been
negligent?
P: 20%
D1: 20%
D2: 20%
RTP: 40%
Total: 100%
719
Id. §33.011(1).
720
Id. §33.016(c).
V-29
Question 3
With respect to causing or contributing to cause in
any way the injury to Plaintiff, find the percentage of
negligence, if any, attributable as between or among—
D1 and D2: 45%
RTP: 55%
Total: 100%
The answer to the contribution question (Q3) conflicts with the percentage of
responsibility question (Q2). This could be rectified by not submitting Question 3 or by
giving an instruction that requires the jury to “apportion the responsibility among those
named below in the same ratio in which you apportioned their responsibility in Question
2.” This instruction, however, would be difficult for the average jury to understand, and
it would render Question 3 superfluous since the outcome would be controlled
completely by the answer to Question 2.
ii. Arguably, yes.
Professor William Dorsaneo of the Southern Methodist University School of Law
has stated that the same person may be joined as both a contribution defendant and a
responsible third party:
The joinder of a responsible third party who has [not] been sued by the
claimant does not affect the assertion by a defendant of contribution rights
against such persons. . . . Hence, a responsible third party may also be
made a contribution defendant . . . .721
721
19 WILLIAM V. DORSANEO, III, TEXAS LITIGATION GUIDE § 291.02A[3][c] (1998). We assume
that Professor Dorsaneo inadvertently omitted the word “not” in the above quotation, because
there is no such thing as a “responsible third party who has been sued by the claimant.” If a
claimant asserts a claim against a responsible third party, that person becomes a “defendant,” and
all of these messy questions evaporate.
V-30
Professor Dorsaneo’s authority for his conclusion is section 33.004(b), which states in its
entirety:
Nothing in this section [section 33.004, “Joinder of Responsible Third
Parties”] shall affect the third-party practice as previously recognized in
the rules and statutes of this state with regard to the assertion by a
defendant of rights to contribution or indemnity. Nothing in this section
shall affect the filing of cross-claims or counterclaims.722
This does not expressly permit a defendant to join a non-party as both a responsible third
party and a contribution defendant. This provision merely states that ordinary third-party
joinder practices are unaffected by the procedural requirements for the joinder of
responsible third parties.
Also, not permitting simultaneous joinder forces defendants to choose between
joining a person as a contribution defendant or a responsible third party. A defendant
who joins a person as a responsible third party apparently loses his contribution rights
against that person for failure to assert them in the plaintiff’s action. And if he joins that
person solely as a contribution defendant, he cannot include that person in a percentage
question that determines joint and several liability.
Permitting joinder of a non-party, as both responsible third party and contribution
defendant would simplify jury charges. A single question would determine the
contribution rights and obligations of all parties and which defendants are jointly and
severally liable as follows:
722
TEX. CIV. PRAC. & REM. CODE §33.004(b) (Vernon 1997).
V-31
Question 2
What percentage of the negligence that caused the
occurrence do you find to be attributable to each of those
found by you, in your answer to Question 1, to have been
negligent?
P: 10%
D1: 60%
D2: 15%
S: 5%
RTP/CD: 10%
Total: 100%
If damages are $100, then P’s amount of recovery is $85, in which D1 is jointly
and severally liable. If he pays more than $60 he can seek contribution from D2 (if he
has paid less than $15) and from RTP/CD (up to $10).
2003 Amendments
These questions disappear under the new statute, which defines a
“responsible third party” very simply and broadly as any person who is
alleged to have caused or contributed to cause the harm.723
c. Is it necessary to serve a responsible third party with
full process?
The answer to this question will depend primarily on whether a party believes that
a responsible third party can be held liable in the judgment for damages or contribution.
Although Chapter 33 does require a defendant to file a motion in order to join a
responsible third party, it does not explicitly require the responsible third party to be
served with process. The responsible third party mechanism is referred to as a “third
723
See amended §33.011(6).
V-32
party claim” for contribution, which has always been considered as a “claim” that
requires service. Thus, service may be necessary to recover unless the court decides that
a responsible third party cannot be held liable for the judgment.
Some courts require full service of process on responsible third parties, and others
do not. Therefore, it is prudent to complete service of process on the responsible third
party to avoid any unpleasant surprises later in the case.
2003 Amendments
Under the amended statute, no service would be required because, by its
very language, the “responsible third party” is no longer joined but simply
designated.724 Based on this distinction, as well as the fact that no
judgment may be had against the “responsible third party,”725 no service
on the third party is necessary.
d. Can a defendant name an unknown person as a
responsible third party?
A defendant will often name an unknown person as a responsible third party in
cases such as (1) a premises liability lawsuit brought by the victim of an unknown violent
criminal, based on allegations of inadequate security measures, (2) a vehicle accident
case in which the defendant claims that the negligence of a third party who cannot be
located caused the accident, or (3) a claim for personal injuries or property damage
caused by a premises defect that the defendant claims was caused by an unknown vandal
or vandals. In these types of cases, it is critical for a defendant to use the responsible
724
See generally, §33.004.
725
Id. at §33.004(i)(1).
V-33
third party device to lower his proportionate responsibility and to avoid being held jointly
and severally liable.
The three requirements of a responsible third party are that: (1) he is within the
court’s personal jurisdiction, (2) he could have been but was not sued by the claimant,
and (3) he is or may be liable to the plaintiff for all or part of the damages claimed
against the named defendant or defendants.726 The first and third elements usually can be
satisfied for unknown persons, but plaintiffs typically argue that an unknown tortfeasor
could not have been sued because the claimant doesn’t know who he is and cannot serve
the unknown tortfeasor.
But the defendant could contend that since unknown persons are not specifically
excluded from the definition, they are permissible responsible third parties. The
defendant could also argue that joinder of an unknown responsible third party is tenable if
the court does not require service or allow responsible third parties to be held liable for
the judgment.
In short, the text of Chapter 33 and its legislative history are inconclusive on the
question of whether unknown persons can be used as responsible third parties.
Some difficulties may arise if a defendant cannot join an unknown tortfeasor as a
responsible third party because such a person could not have been sued by the claimant.
One issue of primary concern is where to place the burden of proof on the question of
“unknowingness.” If the burden were placed on the plaintiff, the plaintiff would have to
prove that he could not have identified and joined the unknown tortfeasor. If the burden
were placed on the defendant, the defendant would have to show that the plaintiff could
726
Id. § 33.011(6)(A)(i)-(iii).
V-34
have identified and sued the unknown tortfeasor if plaintiff had conducted a more diligent
search. The inherent difficulties in deciding which party must meet this burden support
the argument for promulgating a uniform rule permitting the use of unknown persons as
responsible third parties.
The majority of trial courts now permit unknown persons to be joined as “John
Doe” responsible third parties. This is generally a good tactical decision because the
defendant, by trying the “empty chair,” may be able to shift most of the responsibility
onto the responsible third party and avoid joint and several liabilities.
2003 Amendments
The amended statute now expressly allows for Jane and John Doe third
parties who have “committed a criminal act that was a cause of the loss or
injury that is the subject of the lawsuit” to be designated “responsible third
parties.”727 Such a designation must be made within 60 days after filing of
the defendant’s original answer and must be granted if: (1) the court
determines that the defendant has pleaded sufficient facts for the court to
determine that there is a reasonable probability the act of the unknown
person was criminal; (2) the defendant states in its answer all identifying
characteristics of the unknown person known at the time of the answer;
and (3) the allegations against the unknown person satisfy the Texas Rules
of Civil Procedure’s pleading requirements.728
e. What should a responsible third party do once it has
been joined?
The responsible third party must decide whether to appear in the lawsuit and
defend, to disregard the lawsuit, or to take some intermediate course of action. This
decision is difficult because the question of whether a responsible third party can be held
liable in the judgment is still unresolved.
727
Id. at §33.004(j).
728
Id.
V-35
If the party has not been served with process, no action is required because the
trial court does not have jurisdiction over the party. If the party has been served in a
Texas state court action, they should answer in order to avoid a default judgment and
follow up with a motion for summary judgment asserting that a responsible third party is
not a true party to the lawsuit and cannot be held liable in the judgment. If the party has
been served in a federal court action, an option not available in state court is for the
responsible third party to file a motion to dismiss.
Another option is for the responsible third party to reach some sort of agreement
with the defendant who named him that releases him from liability, or to settle with the
plaintiff for a nominal amount and thereby become a “settling person” instead of a
responsible third party.
2003 Amendments
Again, these concerns are largely rendered moot under the amended
statute based upon the 2003 amendments to chapter 33 discussed above.
C. Contribution in non-tort cases
1 Co-obligors on the same contract
Although there are no statutory provisions concerning contribution in non-tort
cases, contribution rights have been recognized under the common law for breach of
contract claims.
“The law is well-settled in this State that each joint obligor in a contract is liable
to the other for contribution to indemnify him for any payments made in excess of his pro
V-36
rata share.”729 Therefore, the plaintiff cannot release one co-obligor of all liability and
collect the entire obligation from a different co-obligor because the released party will
still be subject to a contribution claim by his co-obligor.730
2 Quasi-contribution
Contribution becomes complicated when there is a “chain” of contractual
relationships and the breach of a contractor near the end of the chain creates a cause of
action for parties further up the chain. Assume that a landowner hires a general
contractor to build a house with a specified type of foundation. The general contractor
then hires a subcontractor to construct the foundation to those specifications. If the
subcontractor breaches its contract by constructing a substandard foundation, then the
owner will likely sue the general contractor for breach of the original contract.
There may be an indemnity agreement between the general contractor and
subcontractor that protects the general contractor against claims based on the
subcontractor’s negligence. But if there is no indemnity agreement, the general
contractor is probably entitled to be made whole by the subcontractor. If the owner
successfully sues the general contractor because of a substandard foundation, the general
contractor is likely to prevail on the same breach of contract claim against the
729
See Nelms v. Chazanow, 404 S.W.2d 359, 362 (Tex. Civ. App.—Houston 1966, no writ); see
also Merchants’ Nat’l Bank v. McAnulty, 33 S.W. 963, 966 (Tex. 1896) (“While each surety is, as
to the creditor, liable for the whole debt, as between himself as his cosureties he is liable to
contribution, as those paying the debt, to no more than his equal portion, ratably distributed
between those who are solvent and able to sustain with him the common burden.”); Faires v.
Cockrill, 31 S.W. 190, 194 (Tex. 1895) (“[T]he plaintiffs and Faires being joint obligors in the
contract made with the railroad company, each was liable to the other for contribution to
indemnify him for any payments made in excess of his share.”), overruled in part on other
grounds by Fox v. Kroeger, 35 S.W.2d 679 (Tex. 1931).
730
See Will A. Watkin Music Co. v. Basham, 106 S.W. 734, 736 (Tex. Civ. App. 1907, no writ)
(holding that the creditor’s agreement not to collect against one joint obligor did not deprive the
other joint obligor of the right to contribution if he paid more than his share of the debt).
V-37
subcontractor and should recover the damages recovered by the owner and the attorney’s
fees spent in defense of the owner’s claims. Further, the general contractor would be
entitled to recover the attorney’s fees he incurred while pursuing the breach of contract
claim against the subcontractor.731
731
TEX. CIV. PRAC. & REM. CODE § 38.001(8)(Vernon 1997).
V-38
JURY QUESTIONS
Contribution/Responsible Third Parties
PJC 66.2 Submission of Settling Persons, Contribution Defendants, and
Responsible Third Parties (Comment)
Settling persons. The proportionate responsibility statute requires the
responsibility of a settling person (Sam Settlor) to be determined by the trier of fact. Tex.
Civ. Prac. & Rem. Code §§ 33.003. 33.011 (Vernon 1997). “Settling person” is defined
as one--
who at the time of submission has paid or promised to pay money or
anything of monetary value to a claimant at any time in consideration of
potential liability pursuant to the provisions of Section 33.001 with respect
to the personal injury, property damage, death, or other harm for which
recovery of damages is sought. TCPRC § 33.011(5). Thus, if the case
includes a settling person, that person’s name must be included in the
basic liability question as well as in the proportionate responsibility
question.
Contribution defendants.
A. Inclusion in liability question. If there is a contribution defendant (Connie
Contributor), that person’s name should be included in the basic liability
question. See TCPRC §§ 33.003, 33.011. “Contribution defendant” is defined as
“any defendant, counter defendant, or third-party defendant from whom any party
seeks contribution with respect to any portion of damages for which that party
may be liable, but from whom the claimant seeks no relief at the time of
submission.” TCPRC § 33.016.
B. Separate comparative question necessary. The responsibility of the contribution
defendant should not be included in the question comparing the responsibility of
the plaintiff with that of the other defendants. A separate comparative question is
necessary. For an example of a question on comparative responsibility of a
contribution defendant, see PJC 66.11.
Responsible third parties--causes of action accruing on or after
September 1, 1995, and causes of action accruing before September 1, 1995,
on which suit is filed on or after September 1, 1996. A “responsible third
party” (Responsible Ray) should only be included in the basic liability question if
joined under TCPRC § 33.004. A “responsible third party” is defined in TCPRC
§ 33.001(6). If submitted in the basic liability question, a responsible third party
should also be submitted in the proportionate responsibility question. TCPRC §
33.003. See PJC 66.10.
V-39
VI. DTPA/FRAUD/MISREPRESENTATION
A. Deceptive Trade Practices Act
The DTPA has narrow application in construction actions. The Texas rule on
economic loss limits claimants’ damages to the terms of the contract for residential and
commercial construction actions alleging damages arising from the contract, rendering
the DTPA inapplicable.732 Additionally, the Texas Residential Construction Liability Act
(RCLA) arguably preempts the DTPA for claims arising solely from a residential
construction defect.733
The DTPA is also not available to consumers for non-residential claims in
transactions for consideration in excess of $100,000 if the consumer had legal
representation while negotiating the contract, or $500,000 if counsel in the transaction did
not represent the claimant.734
Professional advice is generally also outside the scope of the DTPA. As such, the
rendering of professional opinion, judgment, or advice by architects, engineers, and other
professionals is not actionable under the DTPA unless: (1) the alleged misrepresentation
does not constitute advice, judgment, or opinion; or (2) the misrepresentation was
intended to induce the consumer into the transaction.735 Because of this, the DTPA is
presumptively not available to consumers absent evidence of misrepresentations, fraud,
or conduct intended to induce the consumer into executing the construction transaction.
732
See TEX. BUS. & COM. CODE §17.49(f)-(g) (Vernon Supp. 1999).
733
See TEX. PROP. CODE §27.002(a) (Vernon Supp. 1999); but see Perry Homes, Joint Venture v.
Aziz Alwattari, 33 S.W.3d 376 (Tex.App.—Fort Worth 2000, pet .denied).
734
See id. at §17.49(c).
735
See id. at §17.49(c).
VI-1
The Texas Supreme Court recently held that claims under the DTPA might not be
assigned to subsequent purchasers.736 The court noted the primary purpose of the DTPA
is to protect individual consumers from deceptive trade practices and this purpose would
be thwarted by allowing subsequent purchasers with no underlying interest in the claim to
bring a DTPA suit directly against a party against whom it did not deal personally.737
This ruling underscores the personal nature of a DTPA claim, which is distinguishable
from a mere interest in property that could be transferred to a subsequent purchaser.738
1 Elements
A claimant under the DTPA must qualify as a “consumer” to recover damages. A
“consumer” is not limited to an individual under the DTPA, which defines a consumer as:
an individual, partnership, corporation, this state, or a
subdivision or agency of this state who seeks or acquires by
purchase or lease, any goods or services, except that the
term does not include a business consumer that has assets
of $25 million or more, or that is owned or controlled by a
corporation or entity with assets of $25 million or more.739
Under this definition, limited liability companies, partnerships, and corporations
may also assert DTPA claims as “business consumers.” However, business entities with
assets in excess of $25 million may not assert claims under the DTPA because they are
excluded from the definition of a “business consumer.”740 This exclusion underscores the
personal nature of DTPA actions, since entities this large may not be affected by a
736
PPG Indus. v. JMB/Houston Ctrs. Partners, 146 S.W.3d 79, 82 (Tex. 2004).
737
Id.
738
Id.
739
TEX. BUS. & COM. CODE § 17.45 (4).
740
See TEX. BUS. & COM. CODE § 17.45 (4). See also PPG, 146 S.W.3d at 85.
VI-2
deceptive act to the same extent as smaller entities, thereby mitigating any possibility the
entity could be harmed through misrepresentation or other conduct actionable through the
DTPA.
The consumer must seek or acquire “goods or services” by purchase or lease to
assert a claim under the DTPA. “Goods” includes tangible chattels or real property
purchased or leased for use.741 “Services” includes “work, labor, or service purchased or
leased for use, including services furnished in connection with the sale or repair of
goods.”742
When these definitions are applied to construction actions, many owners claim
contractors provided goods (the materials incorporated during construction) and services
(the contractor’s work on the project) to attempt to fall within the DTPA provisions.
However, suppliers may provide materials for incorporation into the project in smaller
amounts, and DTPA claims can be more commonly asserted against suppliers than to
large contractors.
As discussed above, however, larger owners or contractors with assets in excess
of $25 million are unable to take advantage of the statutory remedies afforded to parties
under the DTPA. Many commercial construction contracts exceed $500,000.00 and
would therefore be excluded under the DTPA. However, residential homeowners may
assert claims in any amount.
741
See id. at §17.45(1).
742
See id. at §17.45(2).
VI-3
A consumer may bring an action under the DTPA when any of the following
occurrences constitutes a producing cause of economic damages or damages for mental
anguish:
(1) the use or employment by any person of a false,
misleading, or deceptive act or practice that is:
(A) specifically enumerated in a subdivision of
Subsection (b) of Section 17.46 of this
subchapter; and
(B) relied on by a consumer to the consumer’s
detriment;
(2) breach of an express or implied warranty;
(3) any unconscionable action or course of action by any
person; or
(4) the use or employment by any person of an act or practice
in violation of Article 21.21, Insurance Code.743
“Producing cause” resembles causation in fact as opposed to proximate causation;
because producing cause does not require the plaintiff to prove foresee ability.744 As
such, it is a lesser burden for plaintiffs than proximate cause.
Section 1 (A) above is frequently referred to as a “laundry list violation” because
the statute enumerates 27 specific actions that are actionable under the DTPA. Among
the items included within this “laundry list,” the most commonly litigated violations in
construction include:
(5) representing that goods or services have sponsorship,
approval, characteristics, ingredients, uses, benefits, or
quantities, which they do not have, or that a person has a
743
Id. at §17.50(a).
744
See Dubow v. Dragon, 746 S.W.2d 857, 860 (Tex. App.— Dallas 1988, no writ) (holding
statements by the seller of a house to a buyer were not a producing cause of damages where the
buyers relied on their own inspection of the house in making the purchase).
VI-4
sponsorship, approval, status, affiliation, or connection,
which he does not;
(7) representing that goods or services are of a particular
standard, quality, or grade, or that goods are of a particular
style or model, if they are of another;
(12) representing that an agreement confers or involves rights,
remedies, or obligations, which it does not have or involve,
or which are prohibited by law;
(23) filing suit founded upon a written contractual obligation of
and signed by the defendant to pay money arising out of or
based on a consumer transaction for goods, services, loans,
or extensions of credit intended primarily for personal,
family, household, or agricultural use in any county other
than in the county in which the defendant resides at the
time of the commencement of the action or in the county in
which the defendant in fact signed the contract; provided,
however, that a violation of this subsection shall not occur
where it is shown by the person filing such suit he neither
knew or had reason to know that the county in which such
suit was filed was neither the county in which the defendant
resides at the commencement of the suit nor the county in
which the defendant in fact signed the contract;
(24) failing to disclose information concerning goods or services
which was known at the time of the transaction if such
failure to disclose such information was intended to induce
the consumer into a transaction into which the consumer
would not have entered had the information been disclosed;
2 Damages Recoverable
Prior to amendments to the DTPA in 1995, a successful claimant was entitled to
the amount of actual damages found by the trier of fact, plus double the actual damages
not exceeding $1,000. “Actual damages” are damages recoverable at common law.745
Actual damages exceeding $1,000 were trebled only if the fact finder determined that the
defendant acted knowingly.746
745
See Farrell v. Hunt, 714 S.W.2d 298, 300 (Tex. 1986).
746
See TEX. BUS. & COM. CODE §17.50(b)(1) (West 1994).
VI-5
The 1995 Amendment to the DTPA reduced recoverable damages. The changes
govern all claims that accrued after September 1, 1995, along with any claims filed after
this date, regardless of the time of accrual. In general, economic damages are the only
available damages.747 Economic damages include compensatory damages for pecuniary
loss, such as repair and replacement costs.748 Prevailing claimants are also entitled to
recover court costs and any reasonable attorney’s fees.749
Non-economic damages are only available under the DTPA in certain
circumstances. If a violation of the Act is committed intentionally or knowingly,
consumers may recover mental anguish damages in addition to economic damages.750
The 1995 Amendments further provide that if authority to sue is granted by another law,
including common law, the damage limitations of the 1995 amendments do not preclude
a claimant’s recoverable damages under the other applicable law.751 The essence of the
amendment, then, is that mental anguish damages are the only non-economic damages
available under the Act, and such damages are available only when the defendant’s
violation is committed knowingly or intentionally. The lone exception occurs when a
consumer relies on another applicable law.
In contrast to the pre-1995 Act, the amended Act no longer automatically trebles
the first $1,000 in actual damages.752 Rather, in cases involving a knowing violation, the
747
See id. at §17.44.
748
See id. at §17.45(11).
749
See id. at §17.50(d).
750
See id. at §§17.50(a),(b)(1) and 17.45(11).
751
See id., §17.50(h).
752
See id., §17.50(b)(1).
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trier of fact may award a maximum of three times the amount of economic damages. If
the trier of fact finds that the unlawful conduct was intentional, damages may be trebled
for both mental anguish damages and economic damages.753
3 Statute of Limitations and Statutes of Repose
a. Statute of Limitations
All actions brought under the DTPA must commence within two years after the
date on which the false, misleading, or deceptive act or practice occurred, or within two
years after the consumer discovered or reasonably should have discovered the occurrence
of the false, misleading, or deceptive act or practice.754Texas law holds a cause of action
accrues when the plaintiff “knew or should have known of the wrongful injury.”755
However, the application of the discovery rule may serve to toll the statute of limitations
until the injury was discovered.756 However, the rule is only applied when the nature of
the injury is “inherently undiscoverable,” and “it is difficult for the injured party to learn
of the negligent act or omission.”757
The Texas Supreme Court recently held that the discovery rule does not toll the
limitations period until it learns of actual causes and cures.758 It only tolls the limitations
753
See id., §17.60(b)(1).
754
See id., §17.565.
755
Dean v. Neal, 166 S.W.3d 352, 356 (Tex.App.- Fort Worth, 2005, no pet.).
756
Id.
757
Id.
758
Id. at 357 citing PPG 146 S.W.3d at 93-94.
VI-7
until the claimant learns of the injury.759 Once this occurs, the “clock is running,” even if
the claimant does not yet know:
• The specific cause of the injury;
• The party responsible for the injury;
• The full extent of the injury; or
• The chances of avoiding the injury.760
Unsuccessful efforts to make repairs do not toll the statute of limitations when
determining the accrual of a cause of action.761
b. Statutes of Repose
Although claims under the DTPA are governed by a two-year statute of
limitations, a general ten-year statute of repose operates as an absolute bar for certain
actions against a contractor.762 Statutes of repose terminate a party’s right to an action
even before it accrues irrespective of the application of the discovery rule.763 The
purpose of a statute of repose is to afford absolute protection from liability to certain
parties to relieve the burden of indefinite potential liability, and establishes an outer limit
beyond which no action may be maintained.764
Claimants are required to bring actions arising from an allegedly unsafe or
defective condition caused by a person who constructed or repaired the property within
759
Id.
760
Id.
761
Dean, 166 S.W.3d at 360.
762
See TEX. CIV. PRAC. & REM. CODE §16.009 (Vernon 1986).
763
Holubec v. Brandenberger, 111, S.W.3d 32, 37 (Tex. 2003).
764
Id.
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ten years after substantial completion of the improvement.765 This limitations period may
be extended by two years only if the claimant presents a written claim for damages,
contribution, or indemnity to the person that performed the construction or repair work
within the ten-year limitations period.766
Architects, engineers, landscape architects, and interior designers are afforded
protection from certain claims under a similar statute of repose.767 Unlike the statute of
repose for contractors, however, the statute does not contain a provision extending the
repose period based upon fraudulent concealment, written agreements, or presentation of
written demands.768
Suppliers of construction products and materials may also take advantage of a
statute of repose. The TEXAS CIVIL PRACTICE AND REMEDIES CODE provides that actions
against manufacturers and sellers of products may not be commenced more than 15 years
from the date of the sale of the product.769 If the manufacturer or seller warrants the
product for 15 years, the statute of repose will not bar the claim.770
4 Available Defenses
DTPA claims are always defensible with evidence that the conduct complained
of was not false, deceptive or misleading. There are also several defenses uniquely
765
See id.
766
See id. at §16.009(c).
767
See TEX. CIV. PRAC. & REM. CODE § 16.008.
768
Id.
769
TEX. CIV. PRAC. & REM. CODE § 16.012 (a) – (b).
770
TEX. CIV. PRAC. & REM. CODE § 16.012 (c).
VI-9
available to a defendant under the Act, many of which relate to the content and timing of
the claimant’s demand letter.
Parties defending DTPA claims should also ensure the claimant meets the
definition of a “consumer” under the Act,771 and satisfies the remaining elements of the
DTPA.772
a. Damages Limitations
Prior to filing suit under the DTPA, a claimant must provide the opposing party
with written notice of the claim, detailing the basis for the complaint and the alleged
amounts of economic damages, mental anguish damages, and expenses reasonably
incurred by the consumer in asserting the claim, including attorney’s fees.773 This notice
must be furnished at least 60 days prior to the day the DTPA claim is filed.774 If a
consumer fails to provide this required notice, the defendant may file a plea in abatement
within 30 days after filing an answer.775
Any settlement offer must be made within 60 days after the notice letter is
received.776 The offer must include reference to both of the following, each itemized
individually: (1) an amount of money or other consideration, reduced to its cash value, as
settlement of the consumer’s claim for damages; and (2) an amount of money to
771
See Section III.A.1., supra.
772
See generally Section III.A., supra. For example, a party may generally not assert a claim for
professional advice or judgment, and non-residential claims in excess of $100,000.00 or
$500,000.00 are also excluded from the DTPA.
773
See TEX. BUS. & COM. CODE §17.505(a).
774
See id.
775
See id., §17.505(c).
776
See id., §17.5052(a).
VI-10
compensate the consumer for the reasonable and necessary attorney’s fees incurred as of
the date of the offer.777 If such an offer is made, the consumer must accept both parts of
the offer within 30 days from the date of the offer.778 If the offer is not responded to, it is
considered rejected as a matter of law.779
If the court finds that the amount tendered for damages in the settlement offer is
the same as, substantially the same as, or more than the damages ultimately found by the
trier of fact, the consumer may only recover damages not exceeding the lesser of (1) the
amount of damages found by the trier of fact or (2) the amount of damages tendered in
the settlement offer.780 Recoverable attorney’s fees are limited to the amount tendered in
the settlement offer, provided that amount is equal or greater than the amount the court
determines to be reasonable and necessary.781
b. Absolute Defense
It is an absolute defense to a DTPA cause of action if the defendant tenders to the
consumer both (1) the amount of economic damages and damages for mental anguish
alleged; and (2) the expenses, including attorney’s fees reasonably incurred by the
consumer within 30 days after receiving notice of the consumer’s claim (as opposed to
the 60 day period in §17.5052 regarding offer of settlement damage limitations).782 The
critical element of this defense is actual proof the defendant tendered the full amount of
777
See id., §17.5052.
778
See id., §17.5052(e).
779
See id.
780
See id., §17.5052(g).
781
See id. at §17.5052(h).
782
See id. at §17.506(d). See also Hines v. Hash, 843 S.W.2d 464, 467 (Tex. 1992).
VI-11
damages, including expenses. Mere payment of those amounts set out in the offer of
settlement scheme under §17.5052, which does not require an offer of expenses apart
from attorney’s fees, is not sufficient to invoke the absolute defense.
If a consumer’s written notice of claim fails to meet the specificity requirements
of §17.505(a), which requires alleged expenses and attorney’s fees, the defendant should
request such amounts to be revealed and seek abatement if necessary. Ascertaining the
consumer’s specific demand for expenses enables the defendant to make an offer under
§17.506(d) to establish an absolute defense. The protection can be valuable in a case
involving liquidated damages, and proof of the adequacy of tender can be established
through summary judgment as a matter of law.
c. Misplaced Reliance on Third Party Information
It is a defense to the award of any damages or attorney’s fees if the defendant
proves that, before consummation of the transaction, he or she gave reasonable and
timely written notice to the consumer of his reliance upon:
(1) written information relating to the particular goods or
services in question obtained from official government records if
the written information was false or inaccurate and the defendant
did not know and could not reasonably have known of the falsity
or inaccuracy of the information;
(2) written information relating to the particular goods or
service in question obtained from another source if the information
was false or inaccurate and the defendant did not know and could
not reasonably have known of the falsity or inaccuracy of the
information; or
(3) written information concerning a test required or prescribed
by a government agency if the information from the test was false
or inaccurate and the defendant did not know and could not
VI-12
reasonably have known of the falsity or inaccuracy of the
information.783
Although there are no reported Texas cases applying §17.506(a) in a construction
context, it may still govern certain construction situations. For example, if during
contract negotiations a homebuilder mistakenly relies upon city records for property
description and survey information in establishing building lines, and the consumer was
provided written notice of such reliance, a subsequently discovered encroachment may
not form the basis of a DTPA claim. Similarly, if a builder uses materials or components
manufactured by a third party while constructing a home and provides written notice to
the consumer regarding his reliance upon the manufacturer’s warranties, a deficiency in
those materials would not form the basis of a DTPA claim against the builder. In such
circumstances, §17.506(c) allows a consumer to assert a DTPA claim against the third
party who provided the inaccurate information, without regard to privity, if the third party
knew or should have reasonably foreseen that the information would be eventually
provided to a consumer.
B. Fraud
1 Application
A false representation in a construction setting is not always actionable as fraud.
The “economic loss” rule784 stipulates that if the nature of the alleged damages relate only
to the subject of a construction contract, the action sounds in contract alone.785 Despite
this general rule, the Texas Supreme Court has held that a claim of fraud in the
783
Id. at § 17.506(a) (1)-(3).
784
For a discussion of the economic loss rule, see the “Negligence” and “Breach of Contract”
sections of this publication.
785
See Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986).
VI-13
inducement of a transaction is actionable regardless of whether the false promise is later
subsumed within a contract.786
2 Elements
a. Common Law Claim
An action for common law fraud requires proof that: (1) a material
misrepresentation was made; (2) the misrepresentation was false; (3) the speaker made
the misrepresentation he either knowingly or recklessly as a positive assertion and
without any knowledge of the truth; (4) the speaker made the misrepresentation intending
that it would be relied upon by the party; (5) the party in fact relied upon the
misrepresentation; and (6) that reliance proximately caused the injury complained of.787
In construction actions, the mere failure to perform as contracted is not
considered fraud. Rather, the failure to perform the terms of a contract is considered
breach of contract as opposed to a tort. However, when one party enters into a contract
with no good faith intention of actually performing, that misrepresentation may give rise
to an action for fraud.”788
Circumstantial evidence may also support a finding of fraud.789 Of particular
importance to suppliers to the construction industry, the Fort Worth Court of Appeals
786
See Formosa Plastics Corp. v. Presidio Engineers and Contractors, Inc., 960 S.W.2d 41 (Tex.
1998).
787
See id. at 47.
788
See id. at 46 (quoting Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d
591, 597 (Tex. 1992)).
789
Taylor Elec. Servs., Inc. v. Armstrong Elec. Supply Co., 167 S.W.3d 522, 528 (Tex.App.- Fort
Worth, 2005, no pet.).
VI-14
held the following facts supported a finding of fraud against a supplier of electrical
equipment to an electrical subcontractor:
• The supplier was aware the subcontractor would not be awarded
the job if it could not provide the supplies by a certain date;
• The supplier and subcontractor engaged in discussions concerning
exact dates the supplies must have been delivered; and
• The supplier agreed to supply the materials by a date certain,
contrary to its policy to not guarantee delivery dates.
After analyzing this combination of factors, the court held these facts amounted to
circumstantial evidence sufficient to impose liability for fraud upon the supplier for the
“material misrepresentations” it made to the subcontractor.790
b. Fraudulent Inducement
Texas also recognizes fraudulent inducement actions in certain situations. The
Texas Supreme Court has held fraudulent inducement and fraud are separate causes of
actions, although the elements necessary for recovery are identical for each cause of
791
action. Nevertheless, fraudulent inducement is a “particular species of fraud that
arises only in the context of a contract and requires the existence of a contract as part of
its proof.”792 The Plaintiff must establish the elements of fraud within the context of a
contractual agreement to successfully prosecute a claim of fraudulent inducement.793
790
Id. at 527-28.
791
Haase v. Glazner, 62 S.W.3d 795, 798-99 (Tex. 2001). See also Formosa, 960 S.W.2d at 46-
47.
792
Id. at 799.
793
Id.
VI-15
Therefore, a Plaintiff may not assert a fraudulent inducement claim in the absence of a
contract.794
c. Statutory Claim
The common law approach to fraud in the inducement of a contract has been
closely followed by statutes governing transactions involving real estate. The Texas
Business & Commerce Code recognizes a cause of action for fraud if the plaintiff proves
either of the following: (1) that a false representation of a past or existing material fact
was made to a person for the purpose of inducing that person to enter into a contract and
was relied on by that person in entering into the contract; or (2) that a false promise to
perform an act was made under all of the following circumstances:
1. The false promise was material;
2. The false promise was made with no intention of actually fulfilling
it;
3. The false promise was intended to induce the other person into
entering a contract; and
4. The false promise was relied upon by the person entering into the
contract.795
3 Damages Recoverable
The measure of damages recoverable is the same in both common law (including
both fraud and fraudulent inducement) and statutory fraud actions.796 In Texas, two
measures of direct damages are recognized for common law fraud: (1) the “out-of-
794
Id. at 800.
795
See TEX. BUS. & COM. CODE §27.01(a) (Vernon 1987).
796
See Quest Medical, Inc. v. Apprill, 90 F.3d 1080, 1084 n. 4 (5th Cir. 1996), reh’g denied, 99
F.3d 1137.
VI-16
pocket” measure, and (2) the “benefit-of-the-bargain” measure.797 The out-of-pocket
measure computes the difference between the value paid and the value received.798 The
benefit-of-the-bargain measure computes the difference between the value as represented
and the value as actually received.799
Although economic damages are recoverable under fraud and fraudulent
inducement, the damages available under each action are not interchangeable.800 A
claimant may not be able to recover benefit of the bargain damages unless it is able to
prove it entered into the contract based upon the fraudulent representations.801 This
requirement further underscores the importance of proving the justifiable reliance
element of a fraud claim in the fraudulent inducement context. If the claimant cannot
meet this important reliance element in a fraudulent inducement claim, it is limited to
recovering its “out of pocket” damages.802
A plaintiff in a common law fraud case may also seek exemplary damages.803 In
Formosa Plastics Corp. v. Presidio Engineers and Contractors, Inc., the Texas Supreme
Court reasoned that foreseeable consequential damages might be recoverable if caused by
the fraud, noting: “[I]t is possible that, in the proper case, consequential damages could
797
See Formosa, 960 S.W.2d at 49. Some legal commentators argue this language in Formosa is
merely dicta, and the traditional common law measure of damages for fraud is limited to out-of-
pocket damages only.
798
See id.
799
See id.
800
Haas, 62 S.W.3d at 799.
801
Id.
802
Id. at 798-800.
803
See Tilton v. Marshall, 925 S.W.2d 672, 680 (Tex. 1996).
VI-17
include foreseeable profits from other business opportunities lost as a result of the
fraudulent misrepresentation.”804
4 Statute of Limitations
All actions for fraud are subject to a four-year statute of limitations regardless of
the remedy sought.805 In a case of fraud, the statute of limitations generally does not
begin to run until the fraud is discovered or until it might have been discovered by the
exercise of reasonable diligence.806
Texas law holds a cause of action accrues when the plaintiff “knew or should
have known of the wrongful injury.”807 However, the application of the discovery rule
may serve to toll the statute of limitations until the injury was discovered.808 However,
the rule is only applied when the nature of the injury is “inherently undiscoverable,” and
“it is difficult for the injured party to learn of the negligent act or omission.”809
The Texas Supreme Court recently held that the discovery rule does not toll the
limitations period until it learns of actual causes and cures.810 It only tolls the limitations
until the claimant learns of the injury.811 Once this occurs, the “clock is running,” even if
the claimant does not yet know:
804
See 960 S.W.2d at 49 n.1.
805
See Williams v. Khalaf, 802 S.W.2d 651, 658 (Tex. 1990).
806
See Little v. Smith, 943 S.W.2d 414, 420 (Tex. 1997).
807
Dean, 166 S.W.3d at 356.
808
Id.
809
Id.
810
Id. At 357 citing PPG 146 S.W.3d at 93-94.
811
Id.
VI-18
• The specific cause of the injury;
• the party responsible for it;
• the full extent of it; or
• the chances of avoiding it.812
Unsuccessful efforts to make repairs also do not toll the statute of limitations when
determining the accrual of a cause of action.813
5 Statutes of Repose
In certain fraud suits against general contractors, a ten-year statute of repose
provides an ultimate bar to actions against the contractors.814 Statutes of repose terminate
a party’s right to an action even before it accrues irrespective of the application of the
discovery rule.815 The purpose of a statute of repose is to afford absolute protection from
liability to certain parties to relieve the burden of indefinite potential liability.816 A
statute of repose establishes an outer limit beyond which no action may be maintained.817
If a suit for damages arising out of a defective or unsafe condition of the real
property or a deficiency in the construction or repair of the improvements brought more
than ten years after substantial completion of the project, the statute of repose bars the
818
claim against the contractor in its entirety. However, the statute of repose does not
bar an action for fraudulent concealment arising from the construction or repair.819 If the
812
Id.
813
Dean, 166 S.W.3d at 360.
814
See TEX. CIV. PRAC. & REM. CODE §16.009 (Vernon 1986).
815
Holubec, 111, S.W.3d at 37.
816
Id.
817
Id.
818
See id.
819
See id. at §16.009(e)(3).
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Plaintiff proves the alleged defects were fraudulently concealed, the ten-year statute of
repose may be extended by two years if, during the ten-year limitations period, the
claimant presents a written claim for damages, contribution, or indemnity to the person
performing or furnishing the construction or repair work.820
Architects, engineers, landscape architects, and interior designers are afforded
protection from certain claims under a similar statute of repose.821 Unlike the statute of
repose for contractors, however, the statute does not contain a provision extending the
repose period based upon fraudulent concealment, written agreements, or presentation of
written demands.822 Suppliers of construction products and materials may also take
advantage of a statute of repose. The TEXAS CIVIL PRACTICE AND REMEDIES CODE
provides that actions against manufacturers and sellers of products may not be
commenced more than 15 years from the date of the sale of the product.823 If the
manufacturer or seller warrants the product for 15 years, the statute of repose will not bar
the claim.824
C. Negligent Misrepresentation
1 Application
A construction defendant sued for negligent misrepresentation should analyze
whether the plaintiff alleges an economic injury independent of breach of contract
damages. Otherwise, the economic loss rule dictates that the action sounds exclusively in
820
See id. at §16.009(c).
821
See TEX. CIV. PRAC. & REM. CODE § 16.008.
822
Id.
823
TEX. CIV. PRAC. & REM. CODE § 16.012 (a) – (b).
824
TEX. CIV. PRAC. & REM. CODE § 16.012 (c).
VI-20
contract, not tort.825 A defendant should also be aware of whether the alleged conduct
constitutes mere negligent misrepresentation or rises to the level of fraud. Under the
holding of Formosa, claims for fraudulent inducement sound in tort, whereas a negligent
misrepresentation in negotiating a contract sounds only in contract.826
2 Elements
A cause of action for negligent misrepresentation requires proof of each of the
following elements: (1) a representation made by a defendant either in the course of his
business, or in a transaction in which he has a pecuniary interest; (2) the defendant
supplies false information for the guidance of others in their business; (3) the failure by
defendant to exercise reasonable care or competence in obtaining or communicating the
information; and (4) pecuniary loss to plaintiff as a result of justifiably relying on the
representation.827
A promise to act or not to act in the future cannot form the basis for a negligent
misrepresentation claim.828 Instead, the plaintiff must prove the defendant
misrepresented an existing fact in the course of the defendant’s business.829
825
For a discussion of the “economic loss” rule, see supra, “Breach of Contract” and
“Negligence.”
826
Formosa, 960 S.W.2d at 46-47. See also Section III.B., supra.
827
See Federal Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991).
828
Roof Systems, Inc. v. Johns Manville Corp., 130 S.W.3d 430, 439 (Tex.App.- Houston [14th
Dist.] 2004, no writ). See also BCY Water Sup. Corp. v. Residential Invs., 170 S.W.3d 596
(Tex.App.- Tyler 2005, pet. denied).
829
Id.
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3 Damages Recoverable
The Texas Supreme Court has adopted the damages provisions of Section 522B of
the Restatement (Second) of Torts for claims of negligent misrepresentation, which
provides:
(1) The damages recoverable for a negligent misrepresentation
are those necessary to compensate the plaintiff for the
pecuniary loss to him of which the misrepresentation is the
legal cause, including
(a) the difference between the value of what he
has received in the transaction and its
purchase price or other value given for it;
and
(b) pecuniary loss suffered otherwise as a
consequence of the plaintiff’s reliance upon
the misrepresentation.
(2) the damages recoverable for a negligent misrepresentation
do not include the benefit of the plaintiff’s contract with the
defendant.830
This section limits recoverable damages for negligent misrepresentation to direct
pecuniary loss resulting from the negligent misrepresentation, and an injured party may
not recover damages for lost benefit-of-the-bargain, lost profits, or mental anguish.831
4 Statute of Limitations and Statutes of Repose
a. Statute of Limitations
Since a claim of negligent misrepresentation is more properly identified as a
negligence claim than a fraud claim, the statute of limitations for the tort is two years.832
830
See Sloane, 825 S.W.2d at 442 (adopting RESTATEMENT (SECOND) OF TORTS §552B (1977)).
831
D.S.A., Inc. v. Hillsboro Ind. Sch. Dist., 973 S.W.2d 662, 663 (Tex. 1998); Sloane, 825 S.W.2d
at 442-43; Williams v. City of Midland, 932 S.W.2d 679, 685 (Tex. App.--El Paso 1996, no writ).
832
See Milestone Properties v. Federated Metals, 867 S.W.2d 113, 118-19 (Tex. App.— Austin
1993, no writ) citing Texas Am. Corp. v. Woodbridge Joint Venture, 809 S.W.2d 299, 302-03
(Tex. App.— Fort Worth 1991, writ denied); Coleman v. Rotana, Inc., 778 S.W.2d 867, 873 (Tex.
App.— Dallas 1984), rev’d on other grounds, 690 S.W.2d 567 (Tex. 1985); Susser Petroleum Co.
v. Latina Oil Corp., 574 S.W.2d 830, 832 (Tex. Civ. App.— Texarkana 1978, no writ)).
VI-22
Texas law holds a cause of action accrues when the plaintiff “knew or should
have known of the wrongful injury.”833 However, the application of the discovery rule
may serve to toll the statute of limitations until the injury was discovered.834 However,
the rule is only applied when the nature of the injury is “inherently undiscoverable,” and
“it is difficult for the injured party to learn of the negligent act or omission.”835
The Texas Supreme Court recently held the discovery rule does not toll the
limitations period until it learns of actual causes and cures.836 It only tolls the limitations
until the claimant learns of the injury.837 Once this occurs, the “clock is running,” even if
the claimant does not yet know:
• The specific cause of the injury;
• the party responsible for it;
• the full extent of it; or
• the chances of avoiding it.838
Unsuccessful efforts to make repairs also do not toll the statute of limitations
when determining the accrual of a cause of action.839
b. Statutes of Repose
Although causes of action for negligent misrepresentation are governed by a two-
year statute of limitations, a general ten-year statute of repose serves as an absolute bar
833
Dean, 166 S.W.3d at 356.
834
Id.
835
Id.
836
Id. at 357 citing PPG, 146 S.W.3d at 93-94.
837
Id.
838
Id.
839
Dean, 166 S.W.3d at 360.
VI-23
on certain actions against a contractor.840 Statutes of repose terminate a party’s right to
an action even before it accrues irrespective of the application of the discovery rule.841
The purpose of a statute of repose is to afford absolute protection from liability to certain
parties to relieve the burden of indefinite potential liability.842 A statute of repose
establishes an outer limit beyond which no action may be maintained.843
Section 16.009 of the TEXAS CIVIL PRACTICE & REMEDIES CODE requires that a
claimant bring suit for damages against a person who constructs or repairs an
improvement to real property not later than ten years after the substantial completion of
the improvement in an action arising out of a defective or unsafe condition of the real
property or a deficiency in the construction or repair of the improvement.844 This ten-
year limitations period may be extended by two years if, during the ten-year limitations
period, the claimant presents a written claim for damages, contribution, or indemnity to
the person performing or furnishing the construction or repair work.845
Architects, engineers, landscape architects, and interior designers are afforded
protection from certain claims under a similar statute of repose.846 Unlike the statute of
repose for contractors, the statute does not contain a provision extending the repose
840
See TEX. CIV. PRAC. & REM. CODE § 16.009 (Vernon 1986).
841
Holubec, 111, S.W.3d at 37.
842
Id.
843
Id.
844
See id.
845
See id. at §16.009(c).
846
See TEX. CIV. PRAC. & REM. CODE § 16.008.
VI-24
period based upon fraudulent concealment, written agreements, or presentation of written
demands.847
Suppliers of construction products and materials may also take advantage of a
statute of repose. The TEXAS CIVIL PRACTICE AND REMEDIES CODE provides that actions
against manufacturers and sellers of products may not be commenced more than 15 years
from the date of the sale of the product.848 If the manufacturer or seller warrants the
product in excess of 15 years, the statute of repose will not bar the claim up to the
extension of the warranty.849
5 Defenses
The primary defense to a negligent misrepresentation claim is evidence
disproving one of the four required elements of the tort. If a defendant can establish that
he acted reasonably under the circumstances or that the alleged misrepresentation did not
proximately cause the damages giving rise to the action, there is not an actionable claim
against the defendant for negligent misrepresentation. However, proof of good faith and
honesty is not a defense to a claim of negligent misrepresentation, as it is to a claim of
fraudulent misrepresentation850
The application of negligent misrepresentation analysis in a construction context
is exemplified in D.S.A., Inc. v. Hillsboro Ind. School Dist.851 The case involved several
construction-related claims alleged by the Hillsboro Independent School District
847
Id.
848
TEX. CIV. PRAC. & REM. CODE § 16.012 (a) – (b).
849
TEX. CIV. PRAC. & REM. CODE § 16.012 (c).
850
See D.S.A., 973 S.W.2d at 664.
851
Id. at 662.
VI-25
(hereinafter “HISD”) against D.S.A., Inc. (hereinafter “DSA”), a construction
management firm supervising the construction of an elementary school. The school
building had a roof that was unable to withstand winds common to the area, and poor
water drainage beneath the school that led to sewage problems, both defects complained
of in the action.
After HISD incurred over $220,000 in repair expenses, it sued DSA for breach of
contract, negligent misrepresentation, and violation of the DTPA. The jury awarded
HISD $220,661 in actual damages and $170,000 in punitive damages plus attorney’s
fees. The amount of actual damages was reduced by $416.67 on appeal, but otherwise
the court of appeals affirmed the judgment for grossly negligent misrepresentation.
The case was subsequently remanded to the trial court for recalculation of
damages based only upon the breach of contract claim. Applying the economic loss rule,
the Texas Supreme Court determined HISD failed to prove an injury independent of the
subject matter of the construction contract.852 Although the court’s holding in Formosa
allowed tort recovery under a fraudulent inducement claim, the court ruled that a claim of
negligent misrepresentation requires proof of an independent injury.853
The court also reasoned that damages recoverable under a negligent
misrepresentation claim are limited to those enumerated in §552B of the RESTATEMENT
(SECOND) OF TORTS (1977), which states:
(1) The damages recoverable for a negligent misrepresentation are
those necessary to compensate the plaintiff for the pecuniary loss
to him of which the misrepresentation is the legal cause, including:
852
See id. at 663.
853
See id.
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(a) the difference between the value of what he has
received in the transaction and its purchase price or
other value given for it; and
(b) pecuniary loss suffered otherwise as a consequence
of the plaintiff’s reliance upon the
misrepresentation.
(2) The damages recoverable for a negligent misrepresentation do not
include the benefit of the plaintiff’s contract with the defendant.854
Therefore, the plaintiff may not recover its benefit of the bargain damages in a
negligent misrepresentation claim, although it may recover such damages under a
fraudulent inducement claim.855
854
Id. at 663-64 citing RESTATEMENT (SECOND) OF TORTS § 522B (1977).
855
DSA, 973 S.W.2d at 663-64.
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JURY QUESTIONS
DTPA/Fraud/Warranty/Misrepresentation
PJC 102.1 Question for False, Misleading, or Deceptive Act or Practice
(DTPA § 17.46(b))
QUESTION
Did Don Davis engage in any false, misleading, or deceptive act or practice that
was a producing cause of damages to Paul Payne?
“Producing cause,” means an efficient, exciting, or contributing cause that, in a
natural sequence, produced the damages, if any. There may be more than one producing
cause.
“False, misleading, or deceptive act or practice” means any of the following:
[Insert appropriate instructions.]
ANSWER:
1995 amendments--detrimental reliance. The 1995 amendments to the DTPA
added a requirement that the false, misleading, or deceptive act or practice be “relied on
by the consumer to the consumer’s detriment.” DTPA § 17.50(a)(1)(B). The
amendments apply to all suits filed on or after September 1, 1996. In suits subject to the
amendments, the question should read:
Did Don Davis engage in any false, misleading, or deceptive act or practice that
Paul Payne relied on to his detriment and that was a producing cause of damages to Paul
Payne?
PJC 102.2 Description of Goods or Services or Affiliation of Persons
(DTPA § 17.46(b)(5))
Representing that goods or services had or would have characteristics they did
not have [or]
PJC 102.03 Quality of Goods or Services (DTPA § 17.46(b)(7))
Representing that goods [or services] are or will be of a particular quality if they
were of another [or]
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PJC 102.05 Failure to Disclose Information (DTPA § 17.46(b)(23))
Failing to disclose information about goods [or services] that was known at the
time of the transaction with the intention to induce Paul Payne into a transaction he
otherwise would not have entered into if the information had been disclosed [or]
PJC 102.06 Other “Laundry List” Violations (Comment) (DTPA §
17.46(b))
PJC 102.2-.5 provides patterns for submitting the most frequently litigated claims
under section 17.46(b). See DTPA § 17.46(b)(5), (7), (12), (23) (Vernon Supp. 1996).
However, a claim arising under any other subsection of section 17.46(b) may be handled
in the same manner — for example, by adapting the statutory language to the facts of the
case in the form of an instruction to be submitted with PJC 102.1.
PJC 102.07 Question and Instruction on Unconscionable Action or
Course of Action (DTPA §§ 17.50(a)(3) and 17.45 (5))
QUESTION _______
Did Don Davis engage in any unconscionable action or course of action that was a
producing cause of damages to Paul Payne?
“Producing cause,” means an efficient, exciting, or contributing cause that,
in a natural sequence, produced the damages, if any. There may be more
than one producing cause.
An unconscionable action or course of action is an act or practice that, to a
person’s detriment, either--
a. takes advantage of the lack of knowledge, ability, experience, or capacity
of a person to a grossly unfair degree or
b. results in a gross disparity between value received and consideration paid
in a transaction involving transfer of consideration.
Answer: _______
PJC 102.08 Question for Warranty (DTPA §17.50(a); UCC §§ 2.313 - .315)
QUESTION
Was the failure, if any, of Don Davis to comply with a warranty a producing
cause of damages to Paul Payne?
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“Producing cause,” means an efficient, exciting, or contributing cause that,
in a nature sequence, produced the damages, if any. There may be more than one
producing cause.
“Failure to comply with a warranty” means any of the following:
[Insert appropriate instructions.]
ANSWER:
PJC 102.12 Implied Warranty of Good and Workmanlike Performance--
Services (DTPA § 17.50(a)(2))
Failing to perform services in a good and workmanlike manner. A good and
workmanlike manner is that quality of work performed by one who has the knowledge,
training, or experience necessary for the successful practice of a trade or occupation and
performed in a manner generally considered proficient by those capable of judging such
work.
PJC 102.13 Implied Warranty of Habitability (DTPA § 17.50(a)(2))
Selling a home that is not suitable for human habitation.
PJC 102.21 Questions and Instruction on Knowing or Intentional Conduct
If your answer to Question [102.1, 102.7, 102.8 or 102.14] is “Yes,”
then answer the following question. Otherwise do not answer the following question.
QUESTION
Did Don Davis engage in any such conduct knowingly [intentionally]?
“Knowingly” means actual awareness of the falsity, deception, or unfairness of
the conduct in question or actual awareness of the conduct constituting a failure to
comply with a warranty. Actual awareness may be inferred where objective
manifestations indicate that a person acted with actual awareness.
[or insert definition of “intentionally”]
In answering this question, consider only the conduct that you have found was a
producing cause of damages to Paul Payne.
Answer:
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The 1995 amendments changed the definition of “knowingly” under the DTPA,
but not under article 21.21. The amendments apply to all causes of action accruing on or
after September 1, 1995, and to all suits filed on or after September 1, 1996. Therefore,
in DTPA suits subject to the amendments, the definition should read:
“Knowingly” means actual awareness, at the time of the conduct, of the falsity,
deception, or unfairness of the conduct in question or actual awareness of the conduct
constituting a failure to comply with a warranty. Actual awareness may be inferred
where objective manifestations indicate that a person acted with actual awareness.
DTPA § 17.45(9). Because the definition was not changed in Tex. Ins. Code art. 21.21, §
2(c), insurance cases will continue to use the old definition.
PJC 102.23 Statute of Limitations (DTPA § 17.565)
If your answer to Question _______ [102.1, 102.7, 102.8, or 102.14] is “Yes,”
then answer the following question. Otherwise, do not answer the following question.
QUESTION ________
By what date should Paul Payne, in the exercise of reasonable diligence, have
discovered all the false, misleading, or deceptive acts or practices of Don Davis?
Answer with a date in the blank below.
Answer: ___________
PJC 105.01 Question on Common-Law Fraud--Intentional
Misrepresentation
QUESTION ______
Did Don Davis commit fraud against Paul Payne?
[Insert appropriate instructions.]
Answer: _______________
PJC 105.2 Instruction on Common-Law Fraud--Intentional
Misrepresentation
Fraud occurs when—
a. a party makes a material misrepresentation,
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b. the misrepresentation is made with knowledge of its falsity or
made recklessly without any knowledge of the truth and as a positive
assertion,
c. the misrepresentation is made with the intention that it should be
acted on by the other party, and
d. the other party acts in reliance on the misrepresentation and
thereby suffers injury.
“Misrepresentation” means: [Insert appropriate definitions from PJCs
105.3A-.3E.]
PJC 105.03 Definitions of Misrepresentation--Intentional
Misrepresentation
PJC 105.3A Factual Misrepresentation
A false statement of fact [or]
PJC 105.3B Promise of Future Action
A promise of future performance made with an intent not to perform as promised
[or]
PJC 105.3C Opinion Mixed with Fact
A statement of opinion based on a false statement of fact [or]
PJC 105.3D False Statement of Opinion
A statement of opinion that the maker knows to be false [or]
PJC 105.3E Opinion Made with Special Knowledge
An expression of opinion that is false made by one claiming or implying to have special
knowledge of the subject matter of the opinion.
“Special knowledge” means knowledge or information superior to that possessed by the
other party and to which the other party did not have equal access.
[or]
PJC 105.4 Instruction on Common-Law Fraud--Concealment or
Failure to Disclose
Fraud occurs when—
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a. a party conceals or fails to disclose a material fact within the
knowledge of that party,
b. the party knows that the other party is ignorant of the fact and does
not have an equal opportunity to discover the truth,
c. the party intends to induce the other party to take some action by
concealing or failing to disclose the fact, and
d. the other party suffers injury as a result of acting without
knowledge of the undisclosed fact.
PJC 105.8 Instruction on Statutory Fraud--Factual Misrepresentation
Fraud occurs when—
a. there is a false representation of a past or existing material fact,
b. the false representation is made to a person for the purpose of
inducing that person to enter into a contract,
c. the false representation is relied on by that person in entering into
that contract, and
d. that person thereby suffers injury.
PJC 105.09 Instruction on Statutory Fraud--False Promise
Fraud occurs when—
a. a party makes a false promise to do an act,
b. the promise is material,
c. the promise is made with the intention of not fulfilling it,
d. the promise is made to a person for the purpose of inducing that
person to enter into a contract, and
e. that person relies on the promise in entering into that contract.
PJC 105.10 Question and Instruction on Benefiting from Statutory Fraud
If your answer to Question ______ [105.1 used with 105.8 or 105.9] is “Yes,”
then answer the following question. Otherwise, do not answer the following question.
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QUESTION ______
Did Deborah Dennis commit fraud against Paul Payne?
Fraud occurs when—
a. a person has actual awareness of the falsity of a representation or
promise made by another person, and
b. fails to disclose the falsity of the representation or promise to the
person defrauded, and
c. benefits from the false representation or promise.
Actual awareness may be inferred where objective manifestations indicate a
person acted with actual awareness.
“Representation or promise” means the representation or promise you found to be
fraud in response to Question ______ [105.1 used with 105.8 or 105.9].
Answer: _______________
PJC 105.11 Question and Instruction on Actual Awareness of Statutory
Fraud
If your answer to Question ______ [105.1 used with 105.8 or 105.9] is “Yes,”
then answer the following question. Otherwise, do not answer the following question.
QUESTION ______
Did Don Davis have actual awareness of the falsity of the representation or
promise you found to be fraud in Question ______ [105.1 used with 105.8 or 105.9]?
Actual awareness may be inferred where objective manifestations indicate a
person acted with actual awareness.
Answer: _______________
PJC 105.16 Question and Instruction on Negligent Misrepresentation
QUESTION ______
Did Don Davis make a negligent misrepresentation on which Paul Payne
justifiably relied?
Negligent misrepresentation occurs when—
VI-34
a. a party makes a representation in the course of his business or in a
transaction in which he has a pecuniary interest,
b. the representation supplies false information for the guidance of
others in their business, and
c. the party making the representation did not exercise reasonable
care or competence in obtaining or communicating the information.
Answer: _______________
PJC 110.01 Predicate--Instruction Conditioning Damages
Question on Liability
If your answer to Question _______ [insert number of appropriate liability
question] is “Yes,” then answer the following question. Otherwise, do not answer the
following question.
PJC 110.08 Question and Instruction on Deceptive Trade Practice
Damages
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, would fairly and reasonably
compensate Paul Payne for his damages, if any, that resulted from such conduct?
Consider the following elements of damages, if any, and none other.
Answer separately in dollars and cents, if any, for each of the following:
[Insert appropriate instructions. See examples in PJCs 110.3 and 110.9 and instructions
in PJC 110.10.]
In answering questions about damages, answer each question separately. Do not
increase or reduce the amount in one answer because of your answer to any other
question about damages. Do not speculate about what any party’s ultimate recovery may
or may not be. The court will determine any recovery when it applies the law to your
answers at the time of judgment. Do not add any amount for interest on damages, if any.
PJC 110.09 Sample Instructions--Deceptive Trade Practice Damages
Explanatory Note: Damage instructions in DTPA actions are necessarily fact-
specific. Unlike most other form instructions in this volume, therefore, the following
VI-35
sample instructions are illustrative only, giving examples of how instructions may be
worded to submit various legal measures of damages for use in connection with the
DTPA damage question, PJC 110.08.
Sample A—Loss of the benefit of the bargain
The difference, if any, in the value of the paint job as it was received and the
value it would have had if it had been as [represented] [warranted]. The difference in
value, if any, shall be determined at the time and place the paint job was done.
Sample B—Out of pocket
The difference, if any, in the value of the paint job as it was received and the price
Paul Payne paid for it. The difference, if any, shall be determined at the time and place
the paint job was done.
Sample C—Expenses
The reasonable and necessary cost to repaint the truck.
The reasonable and necessary interest expense that Paul Payne incurred on the
loan he received to pay for the paint job.
Sample D—Loss of use
[The reasonable and necessary expense incurred in renting a car.] [The reasonable
rental value of a replacement vehicle.]
Sample E—Lost profits
Paul Payne’s lost profits sustained in the past.
Paul Payne’s lost profits that, in reasonable probability, he will sustain in the
future.
Sample F—Lost time
The reasonable value of the time spent by Paul Payne correcting or attempting to
correct the problems with the paint job.
Sample G—Damage to credit
Damage to Paul Payne’s credit reputation sustained in the past.
Damage to Paul Payne’s credit reputation that, in reasonable probability, he will
sustain in the future.
Sample H—Mental anguish
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Paul Payne’s mental anguish sustained in the past.
Paul Payne’s mental anguish that, in reasonable probability, he will sustain in the
future.
PJC 110.10 Instructions on Personal Injury Damages--Deceptive Trade
Practices
a. Physical pain.
b. Loss of earning capacity.
c. Disfigurement.
d. Physical Impairment
e. Medical Care.
PJC 110.11 Question on Additional Damages--Deceptive Trade Practices
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, in addition to actual damages, should be awarded to
Paul Payne against Don Davis because Don Davis’s conduct was committed knowingly
[intentionally]?
Answer in dollars and cents, if any.
Answer: _______________
PJC 110.12 Contribution--Deceptive Trade Practices Act and Insurance Code
Article 21.21 (Comment)
DTPA and article 21.21 incorporate existing principles. DTPA section 17.555
provides that a DTPA defendant “may seek contribution or indemnity from one who
under the statute law or at common law, may have liability for the damaging event of
which the consumer complains.” DTPA §17.555 (Vernon 1987). No new contribution
scheme was created; rather, the section incorporates “existing principles of contribution
and indemnity law into DTPA cases.” Plas-Tex, Inc. v. United States Steel Corp., 772
S.W.2d 442, 446 (Tex.1989). Through Insurance Code article 21.21 does have a section
like DTPA § 17.555 incorporating existing contribution principles, the supreme court
applied the original statutory pro rata scheme in chapter 32 of the Civil Practice and
VI-37
Remedies Code to an article 21.21 in Stewart Title Guaranty Co. v. Sterling, 822
S.W.2d 1, 6 n. 7 (Tex. 1991).
1989-1995 DTPA claims. In claims commended between August 31, 1989, and
September 1, 1996 (unless the cause of action accrued on or after September 1, 1995), if
the DTPA damages sought are for death, personal injury, or damage to property other
than the property involved in the consumer transaction, the prior version of TEX. CIV.
PRAC. & REM. CODE ch. 33 (Vernon Supp. 1996) applies. Act of May 29, 1989, 71st
Leg., R.S., ch. 380, §2, 1989 Tex. Gen. Laws 1490, 1491, amended by Act of May 19,
1995, 74th Leg., R.S., ch. 414, § 5, 1995 Tex. Gen. Laws 2988, 2992. The contribution
responsibility of the parties, therefore, including that of the consumer, may be submitted
as in other person injury cases. See, e.g., State Bar of Texas, Texas Pattern Jury
Charges--Malpractice, Premises & Products PJCs 51.7, 71.3, 71.12, and 71.13 (1997).
DTPA claims not covered by 1989 amendments and claims under article
21.21. For DTPA claims not covered by the 1989 amendments and for claims under
article 21.21, the original contribution statute, Tex. Civ. Prac, governs contribution. &
Rem. ode ch. 32 (1986), Stewart Title Guaranty Co., 822 S.W.2d at 6 n. 7.
1995 DTPA amendments. In DTPA causes of action accruing on or after
September 1, 1995, and for all such suits filed on or after September 1, 1996, contribution
is governed by chapter 33, TEX. CIV. PRAC. & REM. CODE. See Tex. Civ. Prac. & Rem.
Code § 33.002(h)(Supp. 1996). For a discussion and a sample submission, see comment
“Contribution defendants” to PJC 110.28.
PJC 110.15 Question and Instruction on Direct Damages Resulting from
Fraud
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, would fairly and reasonably
compensate Paul Payne for his damages, if any, that resulted from such fraud?
Consider the following elements of damages, if any, and none other.
Answer separately in dollars and cents, if any, for each of the following:
[Insert appropriate instructions. See sample instructions in PJC 110.3 and PJC 110.9 for
format.]
In answering questions about damages, answer each question separately. Do not
increase or reduce the amount in one answer because of your answer to any other
question about damages. Do not speculate about what any party’s ultimate recovery may
or may not be. The court will determine any recovery when it applies the law to your
answers at the time of judgment. Do not add any amount for interest on damages, if any.
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PJC 110.16 Question and Instruction on Consequential Damages
Caused by Fraud
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, would fairly and reasonably
compensate Paul Payne for his damages, if any, that were proximately caused by such
fraud?
[Insert definition of proximate cause, PJC 100.9.]
Consider the following elements of damages, if any, and none other.
Answer separately in dollars and cents, if any, for each of the following:
[Insert appropriate instructions. See sample instructions in PJC 110.3 and PJC 110.9 for
format, and see PJC 110.4.]
In answering questions about damages, answer each question separately. Do not
increase or reduce the amount in one answer because of your answer to any other
question about damages. Do not speculate about what any party’s ultimate recovery may
or may not be. The court will determine any recovery when it applies the law to your
answers at the time of judgment. Do not add any amount for interest on damages, if any.
PJC 110.17 Question and Instruction on Monetary Loss Caused by
Negligent Misrepresentation
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, would fairly and reasonably
compensate Paul Payne for his damages, if any, that were proximately caused by such
negligent misrepresentation?
[Insert definition of proximate cause, PJC 100.9.]
Consider the following elements of damages, if any, and none other.
The difference, if any, between the values of what Paul Payne has received in the
transaction and the purchase price or value given.
The pecuniary loss, if any, otherwise suffered as a consequence of Paul Payne’s
reliance on the misrepresentation.
Do not add any amount for interest on past damages, if any.
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Answer in dollars and cents for damages, if any, that—
were sustained in the past.
Answer: _______________
in reasonable probability will be sustained in the future.
Answer: _______________
PJC 110.29 Predicate Question and Instruction on Award of
Exemplary Damages (Post-September 1995 Cases)
If you have answered “Yes” to Question ______ [103.2, 106.1, or other
applicable liability question], then answer the following question. Otherwise, do not
answer the following question.
QUESTION ______
Do you find by clear and convincing evidence that the harm to Paul Payne
resulted from [malice or fraud]?
“Clear and convincing evidence,” means the measure or degree of proof that
produces a firm belief or conviction of the truth of the allegations sought to be
established.
“Malice” means:
(a) a specific intent by Don Davis to cause substantial injury to Paul Payne;
or
(b) an act or omission by Don Davis,
(i) which, when viewed objectively from the standpoint of Don Davis
at the time of its occurrence, involved an extreme degree of risk,
considering the probability and magnitude of the potential harm to others;
and
(ii) of which Don Davis had actual, subjective awareness of the risk
involved, but nevertheless proceeded with conscious indifference to the
rights, safety, or welfare of others.
[and/or use appropriate definition for “fraud”; see comment, “Fraud as a ground for
exemplary damages”]
Answer “Yes” or “No.”
Answer: _______________
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PJC 110.30 Question and Instruction on Exemplary Damages
[Insert predicate, PJC 110.1.]
QUESTION ______
What sum of money, if any, if paid now in cash, should be assessed against Don
Davis and awarded to Paul Payne as exemplary damages, if any, for the conduct found in
response to Question ______ [question authorizing potential recovery of punitive
damages]?
“Exemplary damages” means an amount that you may in your discretion award as
a penalty or by way of punishment.
Factors to consider in awarding exemplary damages, if any, are—
a. The nature of the wrong.
b. The character of the conduct involved.
c. The degree of culpability of Don Davis.
d. The situation and sensibilities of the parties concerned.
e. The extent to which such conduct offends a public sense of justice
and propriety.
f. The net worth of Don Davis.
[Insert additional instructions if appropriate. See, e.g., PJC 110.31.]
Answer in dollars and cents, if any.
Answer: _______________
PJC 110.32 Question and Instructions--Securing Execution of Document
by Deception as a Ground for Removing Limitation on
Exemplary Damages (Tex. Civ. Prac. & Rem. Code § 41.008(c)(11))
If you have answered “Yes” to Question ______ [110.29], then answer the
following question. Otherwise, do not answer the following question.
QUESTION ______
Did Don Davis secure the execution of a document by deception [and was the
value of the property affected $1,500 or more]?
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“Securing the execution of a document by deception” occurs when a person
causes another person to sign any document affecting property, and does so by deception,
with the intent to defraud or harm any person.
A person acts with intent with respect to the nature of his conduct or to a result of
his conduct when it is the conscious objective or desire to engage in the conduct or cause
the result.
“Deception” means creating or confirming by words or conduct a false impression
of law or fact that is likely to affect the judgment of another in the transaction, and that
the actor does not believe to be true.
“Property” means: (a) real property; (b) tangible or intangible personal property,
including anything severed from land; or (c) a document, including money, that
represents or embodies anything of value.
Answer “Yes” or “No.”
Answer: _______________
PJC 110.33 Question and Instructions--Fraudulent Destruction, Removal,
Alteration, or Concealment of Writing as a Ground for
Removing Limitations on Exemplary Damages
(Tex. Civ. Prac. & Rem. Code § 41.008(c)(12)
If you have answered “Yes” to Question ______ [110.29], then answer the
following question. Otherwise, do not answer the following question.
QUESTION ______
Did Don Davis alter [describe the writing in question, e.g., Terry Testator’s will
dated February 29, 1992] with intent to defraud or harm another?
A person acts with intent with respect to the nature of his conduct or to a result of
his conduct when it is the conscious objective or desire to engage in the conduct or cause
the result.
Answer “Yes” or “No.”
Answer: _______________
PJC 110.37 Question on Attorney’s Fees--Cash Award
If you have answered “Yes” to Question _____ [the liability question, e.g., 101.2,
103.2, 105.1, or 106.1], then answer the following question. Otherwise, do not answer the
following question.
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QUESTION ______
What is a reasonable fee for the necessary services of Paul Payne’s attorney in
this case, stated in dollars and cents?
Answer with an amount for each of the following:
a. For preparation and trial.
Answer: _______________
b. For an appeal to the Court of Appeals.
Answer: _______________
c. For making or responding to an application for writ
of error to the Supreme Court of Texas.
Answer: _______________
d. If application for writ of error is granted by the
Supreme Court of Texas.
Answer: _______________
PJC 110.38 Question on Attorney’s Fees--Percentage Award
If you have answered “Yes” to Question _____ [the liability question, e.g., 101.2,
103.2, 105.1, or 106.1], then answer the following question. Otherwise, do not answer the
following question.
QUESTION ______
What is a reasonable fee for the necessary services of Paul Payne’s attorneys in
this case, stated as a percentage of Paul Payne’s recovery?
Answer by stating a percentage.
Answer: _______________%
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VII. RESIDENTIAL CONSTRUCTION LIABILITY ACT
A. Legislative History and Intent
The RESIDENTIAL AND CONSTRUCTION LIABILITY ACT (hereinafter “RCLA” or
“the Act”) was enacted by the Texas Legislature to fairly allocate risk in construction
856
disputes between contractors and owners. Since its inception, the RCLA has been
amended three times, in the 1993, 1995 and 1999 sessions of the Texas Legislature. 857
B. Scope of the RCLA
Included within the scope of RCLA coverage are causes of action involving
defects arising from both construction of new residences and alterations to existing
residences.858 Its protections also extend to actions initiated by subsequent purchasers of
a residence who file claims against a contractor.859 Claims for personal injury, damages
to goods, wrongful death and survival are outside the scope of the Act.860
The notice provisions of the RCLA are similar to those required under the TEXAS
DECEPTIVE TRADE PRACTICES ACT861 (hereinafter “DTPA”), with two notable
differences.862 First, the applicable time period within which a contractor must inspect
alleged construction defects and arrange necessary repairs is shorter than that of the
856
See House Comm. on Bus. and Industry, Bill Analysis, Tex. H.B. 1395, 73rd Leg., R.S. (1993).
857
See TEX. PROP. CODE §§27.001-.007 historical notes (Vernon Supp. 2000). The text of the
RCLA appears in its entirety under this manual’s tabbed section titled “Statutory Provisions.”
858
TEX. PROP. CODE §27.001(2) (Vernon Supp. 2000).
859
Id. §27.002(a)(2)
860
Id.
861
TEX. BUS. & COM. CODE §17.41-.63 (Vernon 1987and Supp. 1999).
862
Compare TEX. PROP. CODE §27.004(a) (Vernon Supp. 2000) with TEX. BUS. & COM. CODE
§17.505(a) (Vernon Supp. 1998) (both requiring sixty days notice). The DTPA protects
consumers from misleading or deceptive acts or practices in the conduct of any trade or
commerce.
VII-1
DTPA.863 Second, the RCLA provides the contractor with defenses unavailable under the
DTPA.864
The RCLA supersedes other conflicting laws in residential construction cases,
including the DTPA.865 Thus, absent evidence of deceptive conduct by a residential
contractor, claims are governed by the damage limitations and available defenses of the
RCLA. The language of the statute is unclear regarding whether claims between an
owner and a subcontractor fall within the RCLA. Read literally, the language suggests
that subcontractors sued for residential construction defects would not be able to rely
upon the RCLA, unless a subcontractor has a contract directly with the homeowner,
because “contractor” is defined as “a person contracting with an owner.”866
1 Actionable Construction Defects
A contractor is liable for injuries proximately caused by construction defects in a
residence or appurtenance to a residence.867 Contractor liability includes liability for
work done by the contractor as well as the work of his employees, agents, and
subcontractors.868 Beyond this, liability is limited by §27.003(a) of the Act, which
expressly insulates contractors from liability for the following:
1) negligence of a person other than the contractor or an agent,
employee, or subcontractor of the contractor;
863
See TEX. PROP. CODE §27.004(a-b) (Vernon Supp. 2000).
864
See id. §27.003.
865
See id. §27.002(a).
866
Id. §27.001(3).
867
TEX. PROP. CODE §27.006 (Vernon Supp. 2000).
868
See id. §27.003.
VII-2
2) failure of a person other than the contractor or an agent, employee,
or subcontractor of the contractor to:
a.) take reasonable action to mitigate the damages; or
b.) take reasonable action to maintain the residence;
3) normal wear, tear, or deterioration;
4) normal shrinkage due to drying or settlement of construction
components within the tolerance of building standards; or
5) the contractor’s reliance on written information relating to the
residence, appurtenance, or real property on which the residence
and appurtenance are affixed that was obtained from official
government records, if the written information was false or
inaccurate and the contractor did not know and could not
reasonably have known of the falsity or inaccuracy of the
information.869
2 Notice of Claim and Contractor’s Response
a. Timing and Substance of Notice and Response
The notice requirements of the RCLA mandate that claimants provide contractors
with notice via certified mail specifying with reasonable detail the alleged defects giving
rise to the action.870 In response, the contractor may request evidence that depicts the
nature and cause of the defect, including expert reports, photographs, and videotapes that
would be discoverable under Rule 192 of the Texas Rules of Civil Procedure.871 The
claimant is then required to give the contractor a reasonable opportunity to inspect the
property.872 Under the Act, the contractor has 35 days to request in writing and conducts
an inspection of the subject residence.873
Within 45 days after the date the contractor receives written notice of the claim,
the contractor may make a written offer of money, an offer of repair, or an offer to cure
869
Id. §27.003(a).
870
TEX. PROP. CODE §27.004(a) (Vernon Supp. 2000).
871
Id.
872
See id.
873
Id.
VII-3
the construction defect.874 If the claimant accepts the contractor’s settlement offer, the
contractor is allowed an additional 45-day period after receiving written notice of
claimant’s acceptance within which to actually complete the repairs, though this period
may be extended if delays arise from acts of the claimant or other events outside the
control of the contractor.875 The parties are free to contract in writing and extend any of
the time periods of the RCLA.876
b. Effect of Claimant’s Failure to Provide Adequate Notice
If a claimant files suit without first complying with the Racal’s notice
requirements, the case may be abated until 60 days after notice is provided as required by
the Act.877 However, if the statute of limitations would expire during the pre-suit notice
period, or if a construction defect claim is a counterclaim, not an original action, the pre-
suit notice requirements of the RCLA do not apply.878 In such circumstances, the
owner’s original pleading in a suit or counterclaim must describe the alleged construction
defects in reasonable detail.879 After service of the owner’s original petition or
counterclaim, the contractor has 60 days within which to complete the following: (1)
make a written request to the owner to inspect the residence and actually complete such
inspection; and (2) send a written offer to settle or repair the construction defect.880 If
874
Id. § 27.004(b)(the settlement offer may also be sent to the claimant’s attorney).
875
Id.
876
Id.
877
TEX. PROP. CODE §27.004(d) (Vernon Supp. 2000).
878
Id. §27.004(c).
879
Id.
880
Id.
VII-4
the limitations period is set to expire while the suit is pending, and the plaintiff or
counterclaimant has not complied with the notice requirements, the suit will be abated for
up to 75 days to comply with the notice, inspection, and settlement provisions of the
RCLA.881
c. Unreasonable Rejection of Contractor’s Reasonable
Settlement Offer
The RCLA authorizes a claimant to recover: (1) the reasonable cost of necessary
repairs to cure any construction defect that the contractor failed to cure during initial job
performance; (2) reasonable expenses of temporary housing during the repair period; (3)
any reduction in market value of the home attributable to structural failure; and (4)
reasonable and necessary attorney’s fees.882 However, if a claimant unreasonably rejects
the contractor’s settlement offer or the offer to repair the construction defects, the
claimant’s damages are limited to: (1) the reasonable cost of repairs necessary to cure the
construction defect or the amount of the reasonable settlement offer made by the
contractor; and (2) the reasonable and necessary attorney’s fees and costs incurred before
the contractor’s offer was rejected.883
Damages in a suit governed by the RCLA are generally limited to the greater of
(1) the claimant’s purchase price of the home, or (2) the current fair market value of the
residence without the construction defect.884 This limitation applies only if the contractor
881
Id.
882
TEX. PROP. CODE §27.004(h) (Vernon Supp. 2000).
883
Id. §27.004(f).
884
See id. §27.004(i).
VII-5
makes a reasonable and timely settlement offer and completes the repairs specified in an
agreed upon settlement.885
C. Mediation
If an action against a contractor alleges injuries in excess of $7,500, the Act
provides a basis for either party to compel mediation.886 If mediation is sought, the
motion must be filed within 90 days from commencement of the action.887 After the
motion to mediate is filed, the court will order mediation within 30 days and appoint a
mediator if the parties cannot agree on one.888 The mediation will generally begin not
later than the 30th day after the day the court enters its order, though the parties may
petition the court for a 30-day extension.889
885
See id. §27.004(g).
886
See id. §27.0041(a).
887
Id.
888
Id.
889
See TEX. PROP. CODE §27.0041(a) (Vernon Supp. 2000).
VII-6
D. Disclosure Statement
Under the latest amendments to the Act, for construction contracts entered into on
or after January 1, 2000, the contract must contain language substantially similar to the
following, in 10-point boldface type or its equivalent in order for the contract to fall
within the scope of the RCLA:
This contract is subject to Chapter 27, Property Code. The provisions of
that chapter may affect your right to recover damages arising from the
performance of this contract. If you have a complaint concerning a
construction defect arising from the performance of this contract and that
defect has not been corrected through normal warranty service, you must
provide notice regarding the defect to the contractor by certified mail,
return receipt requested, not later than the 60th day before the date you file
suit to recover damages in a court of law. The notice must refer to
Chapter 27, Property Code, and must describe the construction defect. If
requested by the contractor, you must provide the contractor an
opportunity to inspect and cure the defect as provided by Section 27.004,
Property Code.890
If a construction contract does not contain the above-referenced language, a
claimant may recover from the contractor a civil penalty of $500 in addition to other
available damages.891
E. Checklist of Important RCLA Principles
The RCLA governs damage claims resulting from construction defects but not claims
for damage to goods, personal injury, wrongful death or survival.
A claimant must give a contractor written notice of the claim 60 days prior to filing
suit.
A contractor has 35 days after receiving notice within which to inspect the property to
determine necessary repairs.
890
Id. §27.007(a).
891
Id. §27.007(b).
VII-7
A contractor has 45 days after receiving notice within which to make a written
settlement offer and/or proposed repair plan.
If a claimant unreasonably rejects a settlement offer, the claimant’s damages will be
limited to: (1) the reasonable cost of any repairs necessary to repair the construction
defect; and (2) attorney’s fees incurred prior to rejection of the settlement offer. The
damages are generally limited to the claimant’s purchase price for the residence.
The damages limitation does not apply if the contractor fails to make a timely,
reasonable settlement offer.
If a contractor fails to make a reasonable settlement offer or fails to complete agreed-
upon repairs, the damages recoverable include: (1) the reasonable cost of repairing
the construction defects; (2) reasonable expenses of necessary temporary housing; (3)
the reduction in market value of the residence; and (4) reasonable and necessary
attorney fees.
The amended definition of “contractor” under the RCLA includes employees of the
general contractor.
Contractors are not liable for damages caused by another person’s failure to
reasonably mitigate damages, failure to reasonably maintain the residence, or normal
wear, tear, deterioration, material shrinkage or settlement associated with the
residence.
Either party may compel mediation as a method of dispute resolution if alleged
injuries exceed $7,500.
VII-8
F. Case Law Applying the RCLA
Several cases have interpreted the RCLA as amended. Those with the most
instructive language regarding the scope and application of the Act are summarized
herein.
1 Trimble v. Itz
In Trimble v. Itz,892 a homeowner’s insurer brought a subrogation action against
the contractor and the electrical subcontractor to recover for fire damage to a home.893
The trial court imposed “death penalty sanctions” against the claimant and struck the
insurer’s pleadings, in part due to the claimant’s failure to give proper pre-suit notice
under the RCLA.894 The insurer appealed.895
Pre-suit notice of claim must be given to the contractor 60 days prior to filing any
claim seeking damages arising from a construction defect.896 Acknowledging the
similarity of the notice provisions of the RCLA, the DTPA,897 and article 4590i of the
MEDICAL LIABILITY AND INSURANCE IMPROVEMENT ACT,898 the court concluded that
failure to provide notice pursuant to TEXAS PROPERTY CODE § 27.004(a) requires
892
898 S.W.2d 370 (Tex. App.— San Antonio 1995), writ denied per curiam, 906 S.W.2d 481
(Tex. 1995).
893
Id. at 371.
894
Id.
895
Id.
896
Id. at 373 (citing TEX. PROP. CODE §27.004(a)).
897
See TEX. BUS. & COMM. CODE §17.505 (Vernon Supp. 1998).
898
See TEX.REV.CIV.STAT. art. 4590i, § 4.01 (Vernon Supp. 1998).
VII-9
abatement of the action for sixty days in order to give the claimant time to comply with
the statute, and is not a basis for dismissing the claim or imposing Rule 13 sanctions.899
2 Bruce v. Jim Walters Homes, Inc.
In Bruce v. Jim Walters Homes, Inc.,900 homeowners brought suit against a
contractor for damages resulting from alleged construction defects in their home.901 The
homeowners asserted causes of action for common law fraud, breach of contract, tortuous
breach of contract, breach of warranty, and negligence, and sought additional damages
under the RCLA.902 The contractor filed a motion for partial summary judgment,
alleging that the RCLA was an exclusive remedy that superseded all other causes of
action pled by the homeowners.903 After the trial court granted the motion for summary
judgment; the homeowners appealed.904
In addition to recognizing the preemptive language of the RCLA,905 the court also
noted “the equally clear restrictive clause preceding the preemptive clause” and held that
a common law cause of action for fraud may coexist with the RCLA.906 The court stated:
“The RCLA was enacted to promote settlement between homeowners and contractors
899
Trimble, 898 S.W.2d at 374.
900
943 S.W.2d 121 (Tex. App.— San Antonio 1997, writ denied).
901
Id. at 122.
902
Id.
903
Id.
904
Id.
905
See TEX. PROP. CODE §27.002(a) (Vernon Supp. 2000) (“To the extent of conflict between [the
RCLA] and any other law, including the Deceptive Trade Practices-Consumer Protection Act, [the
RCLA] prevails.”).
906
Bruce, 943 S.W.2d at 123.
VII-10
and to afford contractors the opportunity to repair their work in the face of dissatisfaction.
. . . This purpose contemplates actual defects in construction, not willful
misrepresentation regarding the construction, which can certainly exist independent of a
construction defect.”907 The court further noted that exemplary damages are available for
fraud, but not for an RCLA claim, and that the “damages available under a fraud cause of
action are separate and distinct from those available under the RCLA.”908 They then
concluded that the preemptive language of the RCLA is not triggered when both fraud
and the RCLA are pled, since a common law fraud cause of action is independent from
the RCLA in terms of available remedies and the harm to be cured.909
3 O’Donnell v. Roger Bullivant of Texas, Inc.
In O’Donnell v. Roger Bullivant of Texas, Inc.,910 homeowners brought suit
against a contractor who repaired the foundation of their home.911 The lawsuit alleged
deceptive trade practices, negligence, gross negligence, breach of warranty, product
liability, and breach of contract.912 The trial court awarded summary judgment to the
contractor based on the contention that the homeowners were limited by the RCLA to
907
Id.
908
Id.
909
Id. at 124.
910
940 S.W.2d 411 (Tex. App.— Fort Worth 1997, writ denied).
911
Id. at 413.
912
Id.
VII-11
recovering the purchase price of their home.913 The homeowners subsequently
appealed.914
The court first discussed the applicability of the RCLA to the homeowners’ claim.
Since the RCLA only applies to construction defects, the court considered whether a suit
concerning foundation repairs using concrete pilings was an “action to recover damages
resulting from a construction defect,” as required by the RCLA.915 Specifically, the court
held that the concrete pilings were alterations because they modified the design of the
foundation without increasing the house’s exterior dimensions and qualified as additions
“because they were physically attached to the foundation and became a part of it.”916
Thus, the work performed by the contractor was governed by the RCLA.
The main question in O’Donnell was whether the offer from the contractor was
reasonable enough to bring the action within the scope of the RCLA.917 The plaintiffs
argued that the damage cap did not apply because Bullivant: (1) failed to make a timely
offer; and (2) failed to make a reasonable offer to repair the foundation damage.
Although the RCLA requires a contractor to make a written settlement offer to the
claimant within 45 days of receiving the required notice of a complaint, the parties may
agree in writing to extend the 45-day time period.918 Since the notice letter from
913
O’Donnell, 940 S.W.2d at 414.
914
Id.
915
Id. at 414-15.
916
Id.
917
See id. at 414.
918
Id. at 419 (citing TEX. PROP. CODE §27.004(b) (Vernon Supp. 1997)).
VII-12
claimants expressly extended the contractor’s response time to 60 days, his response was
deemed to be timely even though it was beyond 45 days from the time of notice.919
Finally, the court interpreted the damages cap provision of the RCLA as imposing
a ceiling limiting recoverable damages to the amount of the claimants’ purchase price of
the home.920 The court further held that the RCLA clearly does not limit damages if a
contractor fails to make a reasonable settlement offer as required under the Act.921
4 In Re Kimball Homes Texas, Inc.
In Re Kimball Homes Texas, Inc.,922 was an action in which several hundred
homeowners brought suit against a contractor alleging misrepresentations and
construction defects relating to the quality, craftsmanship, and energy efficiency of their
homes. After the trial court refused the contractor’s request to abate the case under the
RCLA, the contractor filed an action for a writ of mandamus.
The court of appeals determined that review by mandamus is appropriate when
abatement under the RCLA is denied.923 In discussing why mandamus was proper in the
case, the court reasoned that forcing a contractor to trial without reviewing the propriety
of an abatement under the RCLA would compromise the contractor’s defense to the
suit.924 The court also noted that a refusal to abate the case under the RCLA would
919
Id. at 417.
920
Id. at 420-21 (construing TEX. PROP. CODE §27.004(g) (Vernon Supp. 1997), current version
at TEX. PROP. CODE §27.004(i) (Vernon Supp. 2000)).
921
Id. at 421 (construing TEX. PROP. CODE §27.004(e) (Vernon Supp. 1997), current version at
TEX. PROP. CODE §27.004(g) (Vernon Supp. 2000)).
922
969 S.W.2d 522 (Tex. App.— Houston [14th Dist.] 1998, no writ).
923
Id. at 525.
924
Id.
VII-13
deprive the contractor of the opportunity to inspect the allegedly defective homes, make a
reasonable settlement offer, and/or present a defense to damages based on such an
offer.925 Because of these potential prejudices, the court of appeals held that appeal was
an inadequate remedy and found mandamus was warranted.926 After acknowledging that
the notice provision of the RCLA is a mandatory prerequisite to filing suit, the court
reasoned that the purpose of the notice provision is to facilitate pre-suit negotiations and
thereby attempt to avoid the expense of litigation.927 The court clarified the rule in
simple terms, concluding: “If the claimant fails to give the required notice, the trial court,
after a hearing, must abate the suit.”928
The In Re Kimball Homes court also held that plaintiffs might not escape
preemption by the RCLA with creative pleading.929 The homeowners never specifically
pled the RCLA, and the amended petitions alleged only that their homes did not meet
certain standards, that the workmanship and materials were substandard, and that the
homes were completely lacking in craftsmanship.930 The court noted that while facially
the plaintiffs’ claims alleged only false promises and misrepresentations, the amended
claims were based on construction defects.931 The court concluded that any claim that
exists solely on the basis of an alleged construction defect clearly falls within the
925
Id.
926
Id.
927
Id.
928
Id.
929
Id. at 526.
930
Id.
931
Id.
VII-14
RCLA.932 The Act was also implicated because homeowners sought damages for
reduced market value, which are explicitly recognized by the RCLA.933 Thus, the
homeowners’ petition fell within the scope of the RCLA for two reasons: (1) they alleged
construction defects; and (2) they sought damages specifically within the purview of the
Act. Because of this, they were required to comply with the pre-suit notice provisions of
the RCLA or timely assert their claim that the Act was inapplicable so as to render notice
unnecessary.934
5 Perry Homes, Joint Venure v. Aziz Alwattari.
Both contractors and homeowners found a silver lining in O’Donnell. Contractors
were optimistic about the distinction that the court made between “types of damages” and
“amount” of damages. Lawyers for claimants on the other hand believed that O’Donnell
supported the argument that the effect of a contractor’s failure to make a reasonable offer
was that none of the limitations on damages in §27.004 would apply. This issue was
addressed head on in Perry Homes, Joint Venture v. Aziz Alwattari.935 In Perry, the
homeowner sued the contractor complaining of foundation problems. In response to a
formal demand letter, Perry Homes proposed a plan whereby 20 piers would be installed
at a cost of $7000. Perry Homes agreed to pay 60% of the cost up front, while the
remaining 40% would be submitted to the homeowners warranty company. Perry
Homes’ offer stated that if the warranty company failed to pay the remaining 40%, Perry
Homes would reimburse the homeowner for that part of the claim. Perry Homes also
932
Id.
933
See id.
934
See id. at 526-27.
935
33 S.W.3d 376 (Tex.App.—Fort Worth 2000, pet. denied).
VII-15
offered to repair all cosmetic items related to the foundation problems and to pay a
portion of the attorneys’ fees. Ultimately, Perry Homes hired a foundation company,
paid for the entire foundation repair, and completed all the foundation repairs demanded
by the Plaintiffs.
However, at trial the jury found that Perry Homes did not make a reasonable offer
of settlement. The jury also found that Perry Homes was negligent and violated the
DTPA. The jury awarded the homeowners actual expenses of $10,000 for the diminution
in market value in its repaired condition, $5000 for knowing conduct, and $35,000 in
attorneys’ fees. On appeal, Perry Homes argued that the DTPA claim was preempted by
the RCLA. Perry Homes further argued that it made a reasonable written settlement offer
as a matter of law and that the homeowners unreasonably rejected the offer. Perry
Homes argued that even if it did not make a reasonable settlement offer, the result is that
the limitation of the amount of damages set out in the RCLA does not apply, but that a
limitation of the types of damages provided for in the RCLA would still apply.
The court held that it could not find as a matter of law that the settlement offer
was reasonable and that there was enough evidence to support the jury’s findings. The
court also held that because the jury found the settlement offer was unreasonable, none of
the defenses or limitations provided for in the RCLA would apply. According to the Fort
Worth Court, the contractor loses the benefit of all limitations on damages and defenses
to liability, including the limitation on the types of damages and the limitation of the
amount of damages. The Court held that because those limitations do not apply, there
was no conflict with the DTPA. And the homeowners were entitled to recover under the
DTPA.
VII-16
Under the reasoning of the Perry case, if a jury finds that a builder failed to make
a reasonable offer of settlement, or failed to implement such offer within the
requirements of the RCLA, the Plaintiff would be entitled to recover under the DTPA.
The Plaintiff could recover actual damages, any diminution in value, plus all reasonable
and necessary attorneys’ fees and other consequential damages. A Plaintiff could also
recover treble damages under the DTPA if the acts were committed knowing and
intentionally.
VII-17
JURY QUESTIONS
Residential Construction Liability Act
RESIDENTIAL CONSTRUCTION LIABILITY ACT: IF FACT ISSUE AS
TO WHETHER THE CASE INVOLVES A CONSTRUCTION DEFECT
If you have answered “Yes” to [the liability questions; e.g. breach of
contract, negligence, breach of warranty], then answer the following question.
Otherwise, do not answer the following question.
QUESTION
Do you find that Plaintiff’s damages resulted from a construction defect?
“Construction defect” means a matter concerning the design, construction, or
repair of a new residence, of an alteration of or addition to an existing residence, or of an
appurtenance to a residence on which a person has a complaint against a contractor. The
term “construction defect” may include any physical damage to the residence, any
appurtenance, or the real property on which the residence and appurtenance are affixed
proximately caused by a construction defect.936
“Appurtenance” means any structure or recreational facility that is appurtenant to
a residence but is not a part of the dwelling unit.937
“Residence” means a single-family house, duplex, triplex, or quadruplex or a unit
in a multi-unit residential structure in which title to the individual units is transferred to
the owners under a condominium or cooperative system.938
Answer “Yes” or “No.”
Answer: _________________________
936
TEX. PROP. CODE § 27.001(2)
937
TEX. PROP. CODE § 27.001(1)
938
TEX. PROP. CODE § 27.001(4)
VII-18
RESIDENTIAL CONSTRUCTION LIABILITY ACT: DAMAGES QUESTION
QUESTION
What sum of money, if any, if paid now in cash, would fairly and
reasonably compensate Plaintiff for his damages, if any, proximately
caused by the construction defect?
Consider the following elements of damages, if any, and none other.
1. The reasonable cost of repairs necessary to cure any construction defect
that the contractor failed to cure
2. The reasonable expenses of temporary housing reasonably necessary
during the repair
3. The reduction in market value, if any, to the extent the reduction is due to
structural failure, and
4. Reasonable and necessary attorney’s fees.939
Do not include any amount for any percentage of damages caused by negligence
of a person other than the contractor or agent, employee, or subcontractor of the
contractor.940
Do not include any amount for any percentage of damages caused by a failure of a
person other than the contractor or an agent, employee, or subcontractor of the contractor
to take reasonable action to mitigate the damages or maintain the residence.941
Do not include any amount for any percentage of damages caused by normal
wear, tear, or deterioration.942
Do not include any amount for any percentage of damages caused by normal
shrinkage due to drying or settlement of construction components within the tolerance of
building standards.943
939
TEX. PROP. CODE § 27.004(h)
940
TEX. PROP. CODE § 27.003(a)(1)
941
TEX. PROP. CODE § 27.003(a)(2)
942
TEX. PROP. CODE § 27.003(a)(3)
943
TEX. PROP. CODE § 27.003(a)(4)
VII-19
Do not include any amount for any percentage of damages caused by the
contractor’s reliance on written information relating to the residence, appurtenance, or
real property on which the residence an appurtenance are affixed that was obtained from
official government records, if the written information was false or inaccurate and the
contractor did not know and could not reasonably have known of the falsity or inaccuracy
of the information.944
Answer in dollars and cents for damages, if any, for each of the following:
a. The reasonable cost of repairs necessary to cure any construction defect that the
contractor failed to cure
$___________________
b. The reasonable expenses of temporary housing
reasonably necessary during the repair
$
__________________
c. The reduction, in market value, if any, to the extent the
reduction is due to structural failure
$___________________
d. Reasonable and necessary attorney’s fees
$___________________
944
TEX PROP. CODE §§27.003(a)(5)
VII-20
RESIDENTIAL CONSTRUCTION LIABILITY ACT: IF FACT ISSUE AS TO
WHETHER PLAINTIFF UNREASONABLY REJECTED CONTRACTOR’S
OFFER TO REPAIR
QUESTION
Did the Plaintiff unreasonably reject an offer to the contractor to repair or to have
repaired by an independent contractor at the contractor’s expense any construction
defect?945
You are instructed that an offer by the contractor to repair or to have repaired by
an independent contractor at the contractor’s expense that is not accepted before the
twenty-fifth day after the date the offer is received by the Plaintiff is considered
rejected.946
Answer “Yes” or “No”
Answer: ___________________
945
TEX. PROP. CODE §§ 27.004(f) and 27.004(k) (“the trier of fact shall determine the
reasonableness of a rejection of an offer of settlement made under this section.”). If so, the
Plaintiff’s damages are limited to the following: (1) the reasonable cost of repairs necessary to
cure any construction defect, and (2) the reasonable and necessary attorney’s fees and costs
incurred before the offer was rejected or considered rejected. Tex. Prop. Code §27.004(f)
946
TEX. PROP. CODE §§ 27.004(j)
VII-21
RESIDENTIAL CONSTRUCTION LIABILITY ACT: IF FACT ISSUE AS TO
WHETHER PLAINTIFF UNREASONABLY DENIED CONTRACTOR AN
OPPORTUNITY TO REPAIR
QUESTION
Do you find that the Plaintiff unreasonably denied the contractor an opportunity to
repair or to have repaired by an independent contractor at the contractor’s expense the
construction defect?947
Answer “Yes” or “No”
Answer:___________________
947
TEX. PROP. CODE §§27.004(f). If so, the Plaintiff’s damages are limited to the following: (1)
the reasonable cost of repairs necessary to cure any construction defect, and (2) the reasonable and
necessary attorney’s fees and costs incurred before the offer was rejected or considered rejected.
TEX. PROP. CODE §§27.004(f).
VII-22
RESIDENTIAL CONSTRUCTION LIABILITY ACT: IF FACT ISSUE AS TO
WHETHER CONTRACTOR UNREASONABLY FAILED TO REPAIR
QUESTION
Did the contractor fail to make a reasonable offer to repair or have repaired by an
independent contractor at the contractor’s expense any construction defect, or fail to
make a reasonable attempt to complete the repairs, or fail to complete, in a good and
workmanlike manner, the repairs?948
Answer “Yes” or “No”
Answer:__________________________
948
TEX. PROP. CODE §§27.004(g). If so, the limitations on damages and defenses to liability
provided for in the RCLA do not apply. Id.
VII-23
VIII. ARCHITECT/ENGINEER LIABILITY
A. Theories of Liability
Theories of liability against architects and engineers (“A/E”) in Texas include
breach of contract, negligence, indemnity, and, under certain circumstances, breach of
implied warranty and deceptive trade practices.
1 Breach of Contract
Owner versus Architect
An Owner-Architect contract generally identifies the duties the architect and its
consultants must perform, such as execution of plans and specifications. Failure to
perform the duties enumerated in the contract may lead to a breach of contract claim.
Liability exposure for design professionals in Texas extends beyond the duties
enumerated in the basic contract documents. Although generally the design contract
identifies the duties an architect or engineer must perform, the execution of plans and
specifications for a project do not negate liability for failure of a design professional to
issue drawings and perform construction administration in a competent manner.949 The
court in Ryan held that an architect is obligated to use reasonable care in preparing plans.
The same standard has been applied to engineers in Coulson v. Lake LBJ Municipal
Utility Dist.950 The court in Coulson recognized a presumption that an engineer’s work
was performed in a good and workmanlike manner because it complied with the express
requirements of the contract; however, the court also allowed evidence that the work did
949
IOI Systems, Inc. v. City of Cleveland, Texas, 615 S.W.2d 786, 790 (Tex. Civ. App.—Houston
[1st Dist.] 1981 writ ref’d n.r.e.); Ryan v. Morgan Spear Assoc., Inc. 546 S.W.2d 678, 681 (Tex.
Civ. App.—Corpus Christi 1988, writ ref’d n.r.e.).
950
734 S.W.2d 649 (Tex. 1987), on remand to 771 S.W.2d 145 (Tex. App.—Austin 1988), rev’d,
781 S.W.2d 594 (Tex. 1989).
VIII-1
not meet the standards of “reasonable engineering practice” to rebut the presumption.951
This standard exposes an architect to a breach of contract or negligence claim against
architects who fail to exercise the same level of care as others in the same profession.952
To determine which cause of action arises, one must analyze the nature of the injury. If
the injury is only the economic loss to the subject of the contract, then the proper cause of
action is breach of contract.953 This is the Economic Loss Doctrine. Therefore typically,
as between and owner and an architect, the cause of action usually lies in contract.
Contractor v. Architect
The contractor is typically not in privity with the architect. As such, breaches of
contract actions are not generally available to contractors against architects with whom
they are not in contractual privity.954 Another method of attack would be for the
contractor to assert that it is a third-party beneficiary of the Owner-Architect agreement;
however, if form AIA documents were used, they specifically negate any third-party
beneficiary status.
2 Negligence
Architects are held to a standard of care, which is defined as the care with which
an architect of ordinary prudence would have used under the same or similar
951
Coulson, 734 S.W.2d at 651-652.
952
Ryan, 546 S.W.2d 678, 681.
953
Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986); Thomas v. Espey Huston
& Associates, Inc., 899 S.W.2d 415, 421 (Tex. App.—Austin 1995, no writ); CBI NA-COM, Inc.
v. UOP, Inc., 961 S.W.2d 336 (Tex. App.—Houston [1st Dist.] 1998, writ denied).
954
Bernard Johnson v. Continental Constructors, Inc., 630 S.W.2d 365 (Tex. Civ. App.—Austin
1982, writ ref’d n.r.e.).
VIII-2
circumstances or doing that which an architect of ordinary prudence would do under the
same or similar circumstances. See the Texas Pattern Jury Charges, infra.
An architect implies that it possesses skill and ability, and that it will exercise and
apply its skill and ability reasonably and without neglect. The skill and diligence, which
it is bound to exercise, are such as are ordinarily required of architects, and its duty
depends on the particular design agreement.955
Negligence Prerequisite - Certificate of Merit
The Texas Legislature, as part of its Tort Reform legislation, instituted a condition
to the filing of any lawsuit against a registered architect or professional engineer.956 The
new legislation sets up a procedure requiring any plaintiff filing suit against a design
professional to demonstrate some evidence of the negligence of the design professional
by way of an affidavit from an expert. The affidavit is called a Certificate of Merit and,
except in limited circumstances, it must be filed contemporaneously with the complaint.
Specifically, Section 150.002 of Chapter 150 requires that in any action for damages
alleging professional negligence against a design professional, the Plaintiff must file with
the complaint a “certificate of merit.” The certificate of merit is an affidavit that must set
forth specifically at least one negligent act, error or omission of the design professional
claimed to exist and the factual basis of each such claim and is of an engineer or architect
who is:
1. A third party to the case;
2. Either a professional engineer or registered architect;
3. Practicing in the same area of practice of the defendant;
955
Cobb v. Thomas, 565 S.W.2d 281 (Tex. Civ. App.—1978, write ref’d n.r.e.); Ryan, 546
S.W.2d at 678 (Tex. Civ. App.—Corpus Christi 1977, writ ref’d n.r.e.).
956
TEX. CIV. PRAC. & REM. CODE ANN §§ 150.001 – 150.002.
VIII-3
4. Licensed in Texas; and
5. Actively engaged in the practice of architecture or engineering.
In doing so, Chapter 150 of the CIVIL PRACTICE AND REMEDIES CODE seeks to reform
litigation against architects and engineers by requiring some proof of negligence at the
time suit is filed in the form of an affidavit from another architect or engineer who is not
a professional expert, but an expert actually engaged in architecture or engineering.
The certificate of merit does not have to be filed with the complaint if within 10
days of the date of filing, limitations will expire on the claim and the plaintiff alleges in
the complaint that the certificate of merit could not be prepared due to time constraints.
The plaintiff then has 30 days after filing the complaint to file the certificate of merit,
which may be extended by the court after a motion and hearing showing good cause for
the extension.
The defendant is not required to answer a complaint until 30 days after the filing
of the certificate of merit and the failure of the plaintiff to file a certificate of merit is
grounds for dismissal of the complaint with prejudice.
Contractor versus Architect
The typical scenario in which a contractor seeks to hold an architect responsible
for damages is when the plans and/or specifications are not adequate for the construction
of a project. In this scenario, Texas courts are split on whether the contractor may pursue
a negligence claim against the architect. One line of cases allows such claims, holding
that a cause of action exists in favor of a contractor against an owner or architect who
VIII-4
furnishes defective plans and specifications.957 However, the court in Bernard Johnson
found there was no duty running from the architect to the contractor.958
Property or Workmen Injured during Construction
An architect’s duties toward workmen on a jobsite during construction arise out of
the architect’s contract.959 The form AIA contracts do not impose any duty on the
architect for the safety of workmen.
Personal Injury After Construction
An Architect owes a duty to innocent third parties for his negligence if it
proximately causes physical injuries to them. Columbia Eng’g Int’l, Ltd. v. Dorman,
602. S.W.2d 72 (Tex.Civ.App.—Beaumont 1980, writ ref’d m.n.e).
3 Negligent Misrepresentation
A contractor might also seek redress against an architect or engineer through a
negligent misrepresentation claim, which requires that:
One who, in the course of his business, profession or employment, or in
any other transaction in which he has a pecuniary interest, supplies false
information for the guidance of others in their business transactions, is
subject to liability for pecuniary loss caused to them by their justifiable
reliance upon the information, if he fails to exercise reasonable care or
competence in obtaining or communicating the information. Restatement
(Second) of Torts, Section 552.
957
Turner, Collie & Braden, Inc. v. Brookhollow, Inc., 624 S.W.2d 203, 208 (Tex. Civ. App.—
Houston [1st Dist.] 1981), rev’d on other grounds, 642 S.W.2d 160 (Tex. 1982); I.O.I. Systems,
Inc. v. City of Cleveland, Texas, 615 S.W.2d 786 (Tex. Civ. App.—Houston [1st Dist.] 1981, writ
ref’d n.r.e.); Associated Architects & Engineers, Inc. v. Lubbock Glass & Mirror Co., 522 S.W.2d
942 (Tex. Civ. App.—Amarillo 1967, writ ref’d n.r.e.).
958
Bernard Johnson v. Continental Constructors, Inc., 630 S.W.2d 365 (Tex. Civ. App.—Austin
1982, writ ref’d n.r.e.).
959
Redinger v. Living, Inc., 689 S.W.2d 415 (Tex. 1985); Bernard Johnson v. Continental
Constructors, 630 S.W.2d 365 (Tex. App.—Austin 1982, writ ref’d n.r.e.); Rodriguez v. Universal
Fastenings Corp., 777 S.W.2d 513 (Tex. App.—Corpus Christi 1989, no writ).
VIII-5
This cause of action has been applied to professional service suppliers, such as
accountants and surveyors.960 Damages available under this cause of action are limited to
losses suffered by the person(s) for whose benefit and guidance the information was
supplied or for whom the supplier knows the recipient intends to supply the information.
Texas courts have extended the doctrine of negligent misrepresentation to persons outside
those identified in the statute.961
4 Breach of Implied Warranty
Owner versus Architect
The Texas Supreme Court has addressed the issue of whether to impose implied
warranties on the rendering of professional services by holding that no implied warranty
is necessary as a matter of public policy.962 Most appellate courts follow this and other
related holdings and do not recognize a cause of action for breach of implied warranty
arising out of the rendering of professional services. However, the Beaumont Court of
Appeals held that such an implied warranty is applicable to architects.963 The court held
that the architect’s recommendation of the use of a substitute product during value
engineering, which later developed problems, gave rise to a cause of action for breach of
the implied warranty of good and workmanlike performance. Although the case went to
960
McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex.
1999); Shatterproof Glass Corp. v. James, 446 S.W.2d 873 (Tex. Civ. App.—Fort Worth 1971,
writ ref’d n.r.e.)(accountant); Cook Consultants, Inc. v. Larson, 701 S.W.2d 231, 234-235 (Tex.
App.—Dallas 1985, writ ref’d n.r.e.)(surveyor).
961
Cook Consultants, Inc. v. Larson, 700 S.W.2d 231 (Tex. App.—Dallas 1985, writ ref’d
n.r.e.)(allowing suit by a home purchaser against the surveyor).
962
Murphy v. Campbell, 964 S.W.2d 265, 268 (Tex. 1998); Parkway Co. v. Woodruff, 901
S.W.2d 434, 439 (Tex. 1995); Dennis v. Allison, 698 S.W.2d 94 (Tex. 1985).
963
White Budd Van Ness Partnership v. Major-Gladys Drive Joint Venture, 798 S.W.2d 805 (Tx.
App.—Beaumont 1990) writ dism’d 811 S.W.2d 541 (Tex. 1991).
VIII-6
the Texas Supreme Court, it was dismissed on procedural errors in the filing of the
appeal, so the high court never addressed the substantive issues of the case.
Contractor versus Architect
Although the architect does not directly owe the contractor any warranty, Texas
courts imply a warranty of the accuracy and sufficiency of the plans and specifications
for the project running between the owner and the contractor.964 The warranty can be
shifted from the owner to the contractor through the Owner-Contractor contract.965 The
result of a claim by a contractor against an owner is typically the owner’s subsequent
claim for breach of contract against the architect.
5 Deceptive Trade Practices
The TEXAS DECEPTIVE TRADE PRACTICES Act applies to professional services
only under specific conditions. These include:
1) An express misrepresentation of a material fact that cannot be
characterized as advice, judgment, or opinion;
2) A failure to disclose information in violation of Section
17.46(b)(23);
3) An unconscionable action or course of action that cannot be
characterized as advice, judgment, or opinion; or
4) Breach of an express warranty that cannot be characterized as
advice, judgment, or opinion.
B. Statute of Repose
Registered architects, engineers, interior designers, and landscape architects who
design, plan, or inspect construction of an improvement to real property or equipment
attached to real property are protected by a statute of repose which bars suits for damages
964
Shintech, Inc. v. Group Constructors, Inc., 688 S.W.2d 144, 151 (Tex. App.—Houston [14th
Dist.] 1985, no writ); Newell v. Mosely, 469 S.W.2d 481, 483 (Tex. Civ. App.—Tyler 1971, writ
ref’d n.r.e.).
965
Emerald Forest Utility Dist. v. Simonsen Constr. Co., 679 S.W.2d 51 (Tex. App—Houston
[14th Dist.] 1984, writ ref’d n.r.e.).
VIII-7
to real or personal property, personal injury, wrongful death, contribution, and indemnity
that are brought more than ten years after substantial completion of the project or, for the
design of equipment, when the equipment begins operation.966 The statute is an absolute
bar to suit, whether a cause of action has accrued or not.967
If the claimant presents a written claim for damages, contribution, or indemnity to
the registered professional within the ten year limitations period, the period is extended
for two years from the day the claim is presented.968
Indemnity
Architects and engineers are prevented by statute from obtaining indemnification
from their own negligence from contractors.969 The statute voids any promise in a
construction contract requiring a contractor to indemnify or hold harmless a registered
architect, licensed engineer or an agent, servant, or employee of a registered architect or
licensed engineer from liability for damage that (1) is caused by or results from (a)
defects in plans, designs, or specifications prepared, approved, or used by the architect or
engineer; or (b) negligence of the architect or engineer in the rendition or conduct of
professional duties called for or arising out of the construction contract and the plans,
designs, or specifications that are a part of the construction contract; and (2) arises from
(a) personal injury or death; (b) property injury; or (c) any other expense that arises from
personal injury, death, or property injury.
966
TEX. CIV. PRAC. & REM. CODE § 16.008.
967
Sowders v. M.W. Kellogg Co., 663 S.W.2d 644, 647 (Tex. App.—Houston [14th Dist.] 1983,
writ ref’d n.r.e.).
968
TEX. CIV. PRAC. & REM. CODE § 16.008(c).
969
TEX. CIV. PRAC. & REM. CODE §130.002.
VIII-8
The statute also prevents an owner from requiring an architect/engineer to
indemnify the owner for the owner’s own negligence or the negligence of the owner’s
agent or employee.970
The statute does not prevent an architect from being indemnified for liability for
negligent acts of the contractor, any subcontractor, or any person directly or indirectly
employed by the contractor or subcontract.971
970
TEX. CIV. PRAC. & REM. CODE § 130.002 (b).
971
TEX. CIV. PRAC. & REM. CODE § 130.003.
VIII-9
IX. PAYMENT ENTITLEMENT ON CONSTRUCTION PROJECTS
A. TEXAS PROPERTY CODES Chapter 53 And Mechanic’s Liens
1 Introduction
Chapter 53 of TEXAS PROPERTY CODE provides requirements for creating,
perfecting and discharging mechanic’s liens.972 These liens provide persons supplying
labor; materials and other specified services for construction purposes a means by which
to secure payment their labor and materials. Accordingly, a perfected mechanic’s lien
permits subcontractors, laborers and material men to have preference over other
creditors.973
a. Who Can Claim a Mechanic’s Lien?
All persons who provide labor or materials for the construction, repair or
demolition of a house, building, improvement or other structure on real property by virtue
of a contract with the owner of the property or his agent, trustee, receiver, contractor or
subcontractor may claim a mechanic’s lien.974 More specifically, mechanic’s liens may
be available to general or original contractors, subcontractors, suppliers, architects,
engineers, surveyors, landscapers, and those persons or entities that specially fabricate
materials for use on a construction project.975 Original contractors include those persons
or entities contracting with an owner either directly or through the owner’s agent.976
972
The text of Chapter 53 of the TEXAS PROPERTY CODE appears in its entirety under this
manual’s tabbed section titled “Statutes.”
973
See id. at §53.121.
974
See id. at §53.021.
975
Id.
976
See id. at §53.001(7).
IX-1
Subcontractors are those persons or entities that provide labor or materials under an
obligation to an original contractor or another subcontractor.977
b. Scope of Lien
Mechanic’s liens can be used to secure payment for furnished labor and materials,
specially fabricated materials (even if not yet delivered), and preparation of plans by
architects and engineers.978 As such, a perfected lien generally extends to the property
improved by the labor and materials provided, including houses, buildings, fixtures and
other improvements on the property.979 The lien, however, does not extend to abutting
public property such as sidewalks and utilities.980
2 Procedures for Perfecting a Mechanic’s Lien
Although a discussion of the general procedures required for perfecting a
mechanic’s lien is provided below, a quick-reference chart outlining the following
procedures can be found at the outset of this section.
a. Notice of Debt
Providing proper notice of a claimed debt is critical to perfecting a mechanic’s
lien. Although Texas Courts have held that substantial compliance with statutory
requirements may be sufficient to perfect a lien when technical deficiencies in the notice
exist, the same Courts generally hold that timing requirements for sending notice must be
977
See TEX. PROP. CODE §53.001(13).
978
See id. at §53.023.
979
See id. at §53.022(a).
980
See id. at §53.022(b).
IX-2
strictly enforced.981 For example, courts have held that if written notice is timely
received by the proper party, the method by which notice was delivered is immaterial.982
However, in instances where an owner and/or original contractor had actual notice of a
claimed debt, the claimant was not excused from the requirement to provide timely
written notice as set forth in Chapter 53 of the TEXAS PROPERTY CODE.983
Generally, all claimants must give their original contractor notice of any unpaid
balance by the 15th day of the second month after each month in which the claimant
provided labor or materials.984 The claimant must also give notice of the debt to the
owner and original contractor no later than the 15th day of the third month after each
month in which labor or materials were provided.985 The notice must be sent via
registered or certified mail and must be addressed to the owner and/or original contractor
at their last known addresses.986
Claimants providing specially fabricated materials on nonresidential projects must
give notice to the owner of the property and (if the claimant is not an original contractor)
to the original contractor no later than the 15th day of the second month after the month in
which the claimant receives and accepts the order for the materials.987 This notice must
include a statement that the order has been received and accepted, the price of the order,
981
See Wesco Distribution, Inc. v. Westport Group, Inc., 150 S.W.3d 553, 558-559 (Tex.App.-
Austin, 2004).
982
See id. at 558.
983
Id.
984
See TEX. PROP. CODE §53.056(b).
985
Id.
986
See id. at §53.056(e).
987
See id. at §53.058(b).
IX-3
and, if applicable, a statement as to whether delivery has already been made or that the
normal time for delivery already passed.988
In the case of residential construction projects, claimants must give written notice
to the owner and original contractor no later than the 15th day of the second month after
the month in which the labor, materials or specially fabricated materials were
delivered.989 In the event that the property made the subject of the lien is a homestead,
additional requirements must be met.990
b. Authorization to Withhold Funds
A claimant may authorize an owner to withhold funds from payments to the
original contractor in order to secure payment of an unpaid balance by inserting the
proper declaration into the notice of debt. The declaration must include the following
statement that:
If the claim remains unpaid, the owner may be held personally liable
and the owner’s property made subject to a lien unless the owner
withholds funds from the original contractor for payment of the claim
or the claim is otherwise settled. 991
Again, in the case where the property to be affected by the lien is a homestead, additional
requirements will apply.992
If proper notice and authorization are provided an owner may withhold funds
from payments to the original contract in an amount necessary to pay the claimed debt.993
988
See id. at §53.058(c)(e).
989
See TEX. PROP. CODE §53.252(b).
990
See id. at §53.254.
991
See id. at §53.056(d).
992
See id. at §53.254.
IX-4
Unless the claim is settled or discharged, the owner must retain the withheld funds until
the time for filing a mechanic’s lien has passed or if a lien has already been filed, until
the lien claim is satisfied or released.994
A claimant may make a demand for payment of the withheld funds in accordance
with §53.083, which would require the owner to pay the claim unless the original
contractor gives timely notice of its intent to dispute the claim as required under
§53.083(b).995 Additionally, if an owner receives all required notices, if the lien is
properly filed and secured, and if the claim is reduced to final judgment, the owner will
be liable and the owner’s property will be subject to a claim for any money paid to the
original contractor after authorization to withhold was given.996 The owner, however, is
not liable for any amount paid to the original contractor prior to receiving authorization to
withhold funds other than the retainage requirement imposed by §53.101.997
c. Filing the Lien Affidavit
When and Where to File an Affidavit
A person seeking to claim a mechanic’s lien must file a lien affidavit with the
county clerk for the county where the subject property is located.998 If the claim arises
from a nonresidential project, the affidavit must be filed no later than the 15th day of the
993
See id. at §53.081(a).
994
See TEX. PROP. CODE §53.082.
995
See id. at §53.083.
996
See id. at §53.084(b).
997
See id. at §53.084(a).
998
See id. at §53.052.
IX-5
4th month after the day on which the debt accrues.999 If the claim arises from a residential
project, the affidavit must be filed no later than the 15th day of the third month after the
day on which the debt accrues.1000
The date upon which the claimed debt is deemed to accrue varies depending on
the claimant. Debt owed to an original contractor accrues on the last day of the month in
which the original contract has been completed, settled, abandoned, or terminated.1001
Indebtedness for specially fabricated materials accrues either on the last day of the last
month in which the materials were delivered or the day when deliver would have been
required or on the last day of the month in which the contract is terminated or materially
breached.1002 In all other cases debt is deemed to accrue on the last day of the last month
in which the claimant provided labor or materials.1003
Affidavit Requirements
The required contents for a lien affidavit are specifically set forth in §53.054(a),
but generally a proper affidavit must:
(1) be signed by the person claiming the lien or by someone on his or
her behalf;
(2) contain a sworn statement of the amount claimed;
(3) include the name and last known address of the owner or reputed
owner of the property to be affected by the lien;
(4) contain a general statement of the type of work done and materials
furnished by the claimant, and if the claimant is not an original
contractor, the affidavit must state each month in which labor or
materials were provided without receipt of payment;
999
See TEX. PROP. CODE §53.052(a).
1000
See id. at §53.052(b).
1001
See id. at §53.053(b)(1)-(2)
1002
See id. at §53.053(d).
1003
See id. at §53.053(c).
IX-6
(5) include the name and last known address of the person by whom
claimant was employed or to whom claimant provided labor or
materials;
(6) include the name and last known address of original contractor;
(7) include a legally sufficient description of the subject property;
(8) include the claimant’s name and address; and
(9) for claimants other than original contractor, the affidavit must
identify the date each notice of the claim was sent to the owner as
well as the method of delivery.1004
d. Notice of Affidavit
A claimant must send a copy of the lien affidavit by registered or certified mail to
the owner of the affected property at the owner’s last known address no later than fifth
day after the affidavit is filed with county clerk.1005 If the claimant is not an original
contractor, an additional copy of the affidavit must be sent to the original contractor at its
last known address within the same time period.1006
3 Retainage Requirement
On any original contract for labor or materials wherein a mechanic’s lien may be
claimed the property owner is required to retain either 10% of the contract price or 10%
of the value of the percentage of work done.1007 The owner is required to retain this
amount for the duration of the work and for thirty days following completion of the
work.1008 Failure to retain accordingly may provide a claimant with a lien if that claimant
has complied with the notice and filing requirements set forth in §53.103. This retainage
lien, which extends to the amount that should have been retained by the owner, can
1004
See TEX. PROP. CODE §53.054(a).
1005
See id. at §53.055(a).
1006
See id. at §53.055(b).
1007
See id. at §53.101.
1008
Id.
IX-7
include the building, structure, fixture or improvement and all of the properties and lots
of land necessarily connected.1009
4 Discharging a Lien
a. Release of Lien
A lien may be discharged by recording a lien release signed by the claimant.1010
The release must be filed with county clerk in the county where the subject property is
located.1011 If a claimed debt for labor or materials is settled and a written request for a
release is made, the claimant must provide a release of indebtedness and lien no later than
ten days after receiving the request.1012 The release must be in a form such that it may be
filed of record.1013
b. Failure to Bring Suit
Failing to institute suit to foreclose a lien within the prescribed time period and in
the county where the subject property is located will result in discharge of the lien.1014 A
mechanic’s lien may be foreclosed upon only on judgment of a court of competent
jurisdiction foreclosing the lien and ordering sale of the subject property.1015 For all
nonresidential projects, a suit to foreclose a mechanic’s lien must be brought within two
years after the last day a claimant may file a lien affidavit under §53.052 or within one
1009
SEE TEX. PROP. CODE §53.101(a).
1010
See id. at §53.157(1).
1011
Id.
1012
See id. at §53.152(a).
1013
See id. at §53.101(b).
1014
See TEX. PROP. CODE §53.157(2).
1015
See id. at §53.154.
IX-8
year after termination, completion, or abandonment of the work under the original
contract, whichever is later.1016 For liens arising from a residential project suit must be
filed either one year from the last day a claimant may file an affidavit under §53.052 or
one year after termination, completion, or abandonment of the work under the original
contract, whichever is later.1017
c. Court’s Final Judgment
A lien may be discharged by recording an original or certified copy of a final
judgment or decree of court of a competent court of jurisdiction.1018
d. Subchapter H Bonds – Bonds to Indemnify Against
Liens
The purpose of a bond under Subchapter H is to indemnify against a lien that has
been or will be fixed so that title to the subject property can be cleared. Subchapter H
bonds must be filed with the county clerk of the county where the subject property is
located and can be filed by anyone.1019 A properly filed bond and notice of the bond
results in the discharge of the mechanic’s lien, while permitting all claimants named in
the bond to file suit on the bond itself.1020 However, claimants may not sue on the bond
later than one year after date on which notice is served or after date the underlying lien
claim becomes unenforceable under section 53.158.1021
1016
See id. at §53.158(a).
1017
See id. at §53.158(b).
1018
See id. at §53.157(3).
1019
See TEX. PROP. CODE §53.171.
1020
See id. at §53.171(c).
1021
See id. at §53.175(a).
IX-9
i. Bond Requirements:
Generally, to be valid a bond to indemnify against a mechanic’s lien must:
(1) must describe the property on which liens are claimed;
(2) must refer to each lien claimed in a manner sufficient to identify it;
(3) be in an amount double the amount of the liens it refers to unless
the total amount of the liens exceeds $40,000, in which case the
bond amount must be 1 ½ times the total amount of the liens or the
sum of $40,000 and the total amount of the liens;
(4) be payable to all parties claiming the liens referred to in the bond;
(5) be signed by the party filing the bond as the principal as well as an
authorized surety;
(6) the bond must be conditioned substantially that the principal and
sureties will pay the named claimants the amount they would have
been entitled to recover if their claims had been proven valid.1022
ii. Notice of Bond Requirements
After filing a bond, the county clerk with whom the filing was made must send a
notice of the filing to all named claimants on the bond, along with a copy of bond
itself.1023 The copy and notice must be sent via certified mail; return receipt requested to
all claimants at the address listed in their respective lien affidavits.1024
e. Subchapter I Bonds – Bonding Around Liens
Subchapter I bonds are different from H bonds in that if a valid I bond is filed a
claimant cannot file suit against the owner or the owner’s property and the owner is
relieved from any obligation to withhold or retain funds under Subchapters D and E.1025
Thus, subcontractors and suppliers may not avail themselves of these statutory
1022
See id. at §53.172.
1023
See id. at §53.173(a)-(b).
1024
See TEX. PROP. CODE §53.173(c).
1025
See id. at §53.201(b).
IX-10
protections. Subchapter I bonds may be furnished at any time by an original contractor
that has a written contract with the owner.1026
i. Requirements
Generally, to be valid a bond to indemnify against a mechanic’s lien must:
(1) be in an amount at least equal to the total contract amount;
(2) be in favor of the owner;
(3) endorsed and approved by the owner;
(4) be signed by the original contractor as the principal as well as an
authorized corporate surety;
(5) be conditioned on prompt payment of all labor, materials, specially
made materials, subcontracts and all normal use extras;
(6) clearly and prominently display on its face or an attachment the
name, address and telephone number of the surety company;
(7) be filed with the contract between the original contractor and
owner with the county clerk where the subject property is
located.1027
ii. Perfecting a Bond Claim
In order to perfect a claim on a bond a claimant must do one of the following:
(1) comply with the requirements set forth in Subchapter C for fixing a
lien on nonresidential construction projects;
(2) comply with the requirements set forth in Subchapter K for fixing
a lien on residential construction projects; or
(3) comply with the following requirements found in section 53.206:
(i) claimant must give the original contractor all applicable
notices required under the appropriate subchapter
(Subchapter C or Subchapter K);
(ii) claimant must give the surety for the bond all notices that
are required to be given to the owner under the appropriate
subchapter (Subchapter C or Subchapter K).1028
Although all notices under §53.206 must be given within the time period and in
the manner as required under Subchapter C and/or Subchapter K, the notice itself need
1026
See id. at §53.201(a).
1027
See id. at §53.202.
1028
See id. at §53.206.
IX-11
only provide fair notice of the claimed amount and the nature of the claim, and the
claimant need not file a lien affidavit with the county clerk.1029 Additionally, an owner
must mail to the surety on the bond any notices of debt or lien received.1030 However,
failure to do so does not relieve the surety of any liability and does not impose liability on
the owner.1031
iii. Action on Bond
A claimant may sue the principal or the surety either jointly or severally if a claim
remains unpaid after 60 days following perfection of the claim.1032 The claimant must
file the suit in the county where the subject property is located and is entitled to recover
court costs.1033 In the event that all valid claims against the bond exceed the total bond
value, each claimant is entitled to a pro rata share of the bond value.1034 If a Subchapter I
bond has already been recorded at the time the lien is filed, the claimant must file suit on
the bond within one year of perfecting his/her claim.1035 However, if the bond has not
already been recorded at the time the lien is filed, suit must be filed within two years of
perfection of the claim.1036
1029
TEX. PROP. CODE §53.206(b)2-(c).
1030
See id. at §53.207(a).
1031
See id. at §53.207(b).
1032
See id. at §53.208(a).
1033
See id. at §53.208(b)-(c).
1034
See TEX. PROP. CODE §53.210.
1035
See id. at §53.208(d).
1036
Id.
IX-12
f. Failure to Provide Bond After Order to Remove
Finally, a lien may be discharged by recording a certified copy of an order to
remove the lien in accordance with §53.160 along with a certificate from the court clerk
stating that no bond or deposit as required by §53.161 has been timely filed by the
claimant.1037
5 Damages Recoverable
In any proceeding to foreclose a lien, enforce a claim on a bond in lieu of a lien,
or to have a lien or claim declared invalid the court may award attorneys fees and court
costs.1038 Further, as discussed previously herein, an owner may be held liable for failure
to retain and/or withhold funds in accordance with §53.101 and §53.084(b), respectively.
Noncompliance with these requirements can result in liability for the owner to the extent
the owner failed to retain or withhold the appropriate amount of funds.1039 Failure to pay
these owed funds can result in foreclosure of the owner’s property by virtue of a
perfected mechanic’s lien, and the property may be sold with the proceeds disbursed to
all claimants. In the event that the claimant(s) is not an original contractor, the owner
may be entitled to recover the amount of judgment and costs from the appropriate
original contractor.1040
B. Public Construction Works and Bonds
Although mechanic’s liens provide protection for persons and entities providing
labor and supplies on private construction projects, no such liens are available to similar
1037
See id. at §53.157(6).
1038
See id. at §53.156.
1039
See TEX. PROP. CODE §53.105(a) and §53.084(b).
1040
See id. at §53.153.
IX-13
persons and entities involved with public construction projects. In the public
construction works arena, liens against government property are not permitted. As such,
laborers and material men must bring their claims for unpaid balances against various
types of bonds as provided for in the Miller Act and what was formerly known as the
McGregor Act in Texas.1041
1 The Miller Act And Federal Construction Projects
a. Bond Types
The Miller Act requires that before any contract of more than $100,000 is
awarded for the construction, alteration, or repair of any public building or work
belonging to the Federal Government, a person must furnish to the Government two types
of bonds, which become binding if and when the contract is awarded.1042 The first type
of required bond is a performance bond, which requires that the officer awarding the
contract (hereinafter referred to as the “contracting officer”) approve of both the surety of
the bond and the amount of the bond for the protection of the Government.1043 The other
type of bond required under the Miller Act is a payment bond, which is for the protection
of all laborers and suppliers carrying out the work under the contract.1044 The payment
bond must also have a surety that is satisfactory to the contracting officer, but must be in
an amount equal to the total amount payable under the contract.1045 If a payment bond
1041
The text of the Miller Act and Chapter 2253 of the TEXAS GOVERNMENT CODE (formerly
known as the McGregor Act) appear in their entirety under this manual’s tabbed section titled
“Statutes.”
1042
See 40 U.S.C.A. §3131(b).
1043
See id. at §3131(b)(1).
1044
See id. at §3131(b)(2).
1045
Id.
IX-14
for the total amount of the contract is impractical, the contracting officer must set the
amount of the payment bond, which cannot be less than the amount of the performance
bond.1046
b. Exceptions to Bond Requirements
Only a few exceptions to the bond requirements exist. The first exception occurs
when the work under the subject construction contract is to be performed in a foreign
country. In this instance, if the contracting officer finds it impractical for the contractor
to furnish the required bonds the officer may waive the requirement for both bonds.1047
The other exception can be more accurately described as an alternative to the payment
bond requirement and can be found in 40 U.S.C.A. §3132. That section empowers the
Federal Acquisition Regulation to provide alternatives to payment bonds as long as the
contract under which the labor and materials are to be provided is for an amount
exceeding $25,000, but not more than $100,000.1048 The contracting officer must select
one or more of the payment protection alternatives provided by the Federal Acquisition
Regulation and must specify the alternative(s) selected in the solicitation of offers to
contractors.1049 The contractor awarded the contract must then submit the selected
payment protection alternative(s) to the Federal Government.1050
1046
Id.
1047
See 40 U.S.C.A. §3131(d).
1048
See id. at §3132(a).
1049
See id. at §3132(b).
1050
See id. at §3132(b)(1).
IX-15
c. Obtaining a Copy of a Payment Bond
Any person who has provided labor or material under the contract for which a
payment bond has been furnished may obtain a copy of the bond from government
agency, which awarded the contract. In order to obtain a copy of the bond, the requesting
party must submit an affidavit either stating that it has supplied labor or material for work
under the contract and that payment for the work has not been made or that it is being
sued on the bond.1051 After receiving such an affidavit, the government agency must
provide the requesting party with a certified copy of the payment bond and subject
contract.1052
d. Bringing Suit on a Payment Bond
In order to successfully bring suit on a payment bond a claimant must be able to
show that he/she has provided labor or material under a contract for which a payment
bond was issued.1053 The claimant must further show that he/she has not been paid in full
for the labor or materials provided and that 90 days have passed since the last day the
claimant provided the labor or materials made the subject of the claim.1054
An exception to the preceding requirements exists when the claimant only has a
direct contractual relationship with a subcontractor, but has no contractual relationship at
all with an original contractor. In this instance, the claimant must give written notice to
the original contractor within 90 days of the date on which the claimant last provided the
1051
See id. at §3133(a).
1052
See 40 U.S.C.A. §3133(a).
1053
See id. at §3133(b)(1).
1054
Id.
IX-16
labor or materials for which the claim is made.1055 The notice must state with substantial
accuracy the amount claimed and name of the party to whom the labor or materials were
provided.1056 Notice may be served by any means that provides written third-party
verification of delivery to the original contractor anywhere the contractor maintains an
office, does business or at his/her residence.1057 Notice may also be served by a United
States marshal of the district in which the public improvement is located.1058
A claimant that brings suit on a payment bond must do so in the name of the
United States and must file the suit in the U.S. District Court for any district wherein the
contract was to be performed and executed.1059 Additionally, the suit must be filed within
one year of the day on which the claimant last provided the labor or materials made the
subject of the claim.1060
2 Texas Public Works Projects
a. Bond Types
Chapter 2253 requires any entity entering into a public work contract with a state
governmental agency to execute to the contracting agency a performance bond and/or a
payment bond prior to the commencement of any work.1061 A public work contract is any
contract for the construction, alteration, or repair of a public building or for the
1055
See id. at §3133(b)(2).
1056
Id.
1057
See 40 U.S.C.A. §3133(b)(2)(a).
1058
See id. at §3133(b)(2)(b).
1059
See id. at §3133(b)(3).
1060
See id. at §3133(b)(4).
1061
See TEX. GOVT. CODE §2253.021(a).
IX-17
completion or carrying out of any public work. Performance bonds, which are issued for
the protection of the contracting governmental agency, are required if the public work
contract is in excess of $100,000.1062 Payment bonds are required whenever the subject
contract is in excess of $25,000, and are intended for the protection of those laborers and
suppliers who have a direct contractual relationship with either a prime contractor
(original contractor) or a subcontractor.1063
Performance bonds must be in the amount of the subject public work contract and
must be conditioned on the faithful performance of the work as set forth in the pertinent
plans, specifications and contract documents.1064 A payment bond must also be in the
amount of the subject contract and must be executed by an authorized corporate
surety.1065 Additionally, all bonds must be approved by and made payable to the
governmental entity awarding the public work contract, unless the awarding entity is the
state or one of its departments, agencies or boards, in which case, the bond must be made
payable to the state and approved by the attorney general.1066 All bonds must also
provide the contact information for the surety company to which all notices of claims
should be sent or a toll-free telephone number where such information may be
obtained.1067
1062
See id. at §2253.021(a)(1)-(b).
1063
See id. at §2253.021(a)(2)-(c).
1064
See id. at §2253.021(b).
1065
See id. at §2253.021(c)(2)-(d).
1066
See TEX. GOVT. CODE §2253.021(e).
1067
See id. at §2253.021(f).
IX-18
b. Government Liability for Failure to Obtain Payment
Bond
A governmental entity that fails to obtain a required payment bond from a prime
contractor is subject to the same liability the issuing surety would have had if a bond had
been obtained.1068 Additionally, a claimant may be entitled to a lien on the money due to
the prime contractor as if the public work contract were subject to Subchapter J, Chapter
53 of the TEXAS PROPERTY CODE.1069 To pursue a claim against the governmental entity,
a claimant must give notice to that entity as if it were a surety as described in the “Notice
Requirements” subsection below.1070
c. Party Obligations
i. Prime Contractors and Subcontractors
Any person supplying labor or material on a public work project may request
from the prime contractor on same project the name and last known address of the
governmental entity with whom the prime contractor contracted, a copy of the payment
and performance bonds on the project, and the name of the surety of each bond.1071 The
prime contractor must provide the requested information within a reasonable time, which
may not exceed ten days after the receipt of the request.1072
Within ten days of receiving a written request from the governmental entity
awarding the public work contract or any prime contractors, subcontractors or sureties
1068
See id. at §2253.027(a)(1).
1069
See id. at §2253.027(a)(2) and see Subchapter J of TEX. PROP. CODE §53.
1070
See id. at §2253.027(b) and see Subchapter C of TEX. GOVT. CODE §2253.
1071
See id. at §2253.024(a).
1072
See id. at §2253.024(c).
IX-19
involved with the public work project, a subcontractor must provide the following
information:
(1) the name and last known address of any person from whom the
subcontractor purchased any public work labor or materials, other
than the public work material from the subcontractor’s inventory;
(2) the name and last known address of any person to whom the
subcontractor provided public work labor or materials;
(3) a statement as to whether the subcontractor provided a bond for the
benefit of its subcontractors and material men;
(4) the name and last known address of the surety on any bond
furnished by the subcontractor; and
(5) a copy of any bond furnished by the subcontractor.1073
ii. Payment Bond Beneficiaries
If a payment bond beneficiary receives a written request from a prime contractor
or the surety on a bond for which a claim has been made, the beneficiary must provide a
copy of any applicable written agreement or purchase order, any statement or payment
request made by the beneficiary that shows the amount claimed and the labor or materials
made the basis of the claim, and the estimated amount due for each month in which the
beneficiary provided labor or materials.1074 The beneficiary must provide the requested
information within 30 days of receiving the written request.1075
iii. Governmental Entity
The governmental entity awarding a public work contract is obligated to provide a
certified copy of any payment bond issued and its attachments, the contract for which the
bond was issued, and the Texas Department of Insurance’s toll-free telephone number for
1073
See id. at §2253.024(b)-(c).
1074
See id. at §2253.025.
1075
See TEX. GOVT. CODE §2253.025(a).
IX-20
obtaining information concerning licensed insurance companies.1076 The governmental
entity must provide this information to any person who requests it and who submits an
affidavit stating that he/she has supplied public work labor, material or specially
fabricated materials for which payment has not been received or stating that he/she is
being sued on a payment bond.1077
d. Notice Requirements
i. General Requirements for Notice of Claim
A payment bond beneficiary seeking to recover payment for labor or materials
provided must mail written notice of his/her claim to the prime contractor and surety on
or before the 15th day of the third month after each month in which the claimed labor or
materials were provided.1078 The claimant must attach a sworn statement of account that
states that the amount claimed is just and correct, that all just and lawful offsets,
payments and credits have been allowed, and the amount of any retainage applicable to
the account that has not become due under any public work contract.1079
All notices must be sent by certified or registered mail.1080 Notices to prime
contractors must be sent to the prime contractor’s residence or last known address.1081
Notices to sureties must be sent to the address listed on the subject bonds, to the address
1076
See id. at §2253.026(d).
1077
See id. at §2253.026(a).
1078
See id. at §2253.041(a)-(b).
1079
See id. at §2253.041(c)-(d).
1080
See TEX. GOVT. CODE §2253.048(a).
1081
See id. at §2253.048(b).
IX-21
on file with the Texas Department of Insurance, or any other address permitted by
law.1082
e. Copy of Written Agreement as Notice
A payment bond beneficiary may provide notice of a claim arising from a written
agreement for labor or materials by providing a copy of the written agreement and a
statement of completion or value of partial completion of the agreement along with the
required sworn statement of account.1083
i. Notice of Claim When No Written Agreement
Exists
Generally, when no written agreement exists between the claimant and the prime
contractor or subcontractor, the notice of claim must name the party to whom the claimed
labor or materials were provided, identify the date of performance or delivery, reasonably
describe the labor and materials claimed, and state the amount due.1084 The claimant
must also provide a general itemization of the claim and include copies of documents that
reasonably identify the labor and materials claimed, the job, and the destination of
delivery.1085
ii. Additional Notice Requirements
Additional and/or different notice requirements may apply in cases where the
notice of claim is for a lump sum payment for multiple items of labor or materials, for a
claim arising from a written unit price agreement, for a claim for payment of retainage, or
1082
See id. at §2253.048(c).
1083
See id. at §2253.042.
1084
See id. at §2253.043(a).
1085
See TEX. GOVT. CODE §2253.043(b).
IX-22
for a claim wherein the payment bond beneficiary has no direct contractual relationship
with the prime contractor.1086
f. Claims on Bonds
A payment bond beneficiary who has provided public work labor or materials
under a contract for which a payment bond was issued may sue the principal or surety,
either jointly or severally, if the claim is not paid within 61 days of the date on which the
notice of claim was mailed.1087 Any suit on a payment bond must be brought in the
county in which all or part of the public work is located.1088 The statute of limitations for
a suit on a performance bond is one year after the date of final completion, termination or
abandonment of the public work contract.1089 The statute of limitations for a payment
bond suit is one year after the date on which the claimant mails the notice of claim.1090
g. Damages Recoverable
A suit on a payment bond may be brought for any unpaid balance claimed by the
beneficiary at the time the notice was mailed or when suit is brought.1091 Additionally, a
court may award costs and reasonable attorney fees in any proceeding to enforce a
payment bond claim or to declare any part of a claim invalid.1092
1086
See id. at §2253.044-§2253.047.
1087
See id. at §2253.073(a).
1088
See id. at §2253.077.
1089
See id. at §2253.078(a).
1090
See TEX. GOVT. CODE §2253.073(b).
1091
See id. at §2253.073(b).
1092
See id. at §2253.074.
IX-23
X. QUICK REFERENCE GUIDE TO PERFECTING MECHANIC’S LIENS
Subcontractors and Material men Original Contractors (OC)
Deadline to 1. Nonresidential Projects - 1. Nonresidential Projects –
Send Notice of written notice required by 15th written notice required by 15th
Debt to OC day of the 2nd month after day of the 2nd month after each
each month in which claimant month in which claimant
provided the claimed labor/ provided the claimed
th
materials and by 15 day of labor/materials and by 15th day
the 3rd month after each of the 3rd month after each
month in which claimant month in which claimant
provided claimed labor/ provided claimed
materials. labor/materials (same as #1 for
subcontractors).
2. Residential Projects – written
notice required by 15th day of 2. Residential Projects – if
the 2nd month after each applicable, same as #1 above.
month in which claimant
provided claimed labor/ 3. Specially Fabricated Materials
materials. - notice from OC only required
to be given to owner, UNLESS
3. Specially Fabricated materials already delivered,
Materials then, in addition to notice
a) Materials not yet required to be given to owner,
delivered - written notice claimant must comply with #1
required by 15th day of the above.
nd
2 month after the month
in which claimant
received and accepted the
order.
b) Delivered materials –
same as a) above AND
must comply with #1
above.
c) Delivered materials for
residential project -
claimant must comply
with requirements under
#1 above.
X-1
Subcontractors and Material men Original Contractors (OC)
Deadline to 1. Nonresidential Projects – 1. Nonresidential Projects – same
Send Notice of written notice required by 15th as #1 above.
rd
Debt to day of the 3 month after
Owner each month in which claimant 2. Residential Projects – same as
Continued provided claimed #1 above.
labor/materials.
3. Specially Fabricated Materials
2. Residential Projects – same a) Materials not yet delivered
as notice to OC. - written notice required by
15th day of the 2nd month
3. Specially Fabricated after the month in which
Materials – Same as notice to claimant received and
OC. accepted the order.
b) Delivered materials – same
as a) above AND must
comply with #1 above.
Date Debt 1. Generally debt owed to 1. Debt owed to OC deemed to
Begins to subcontractors/material men accrue on last day of the month
Accrue deemed to accrue on the last in which the original contract
day of the last month in which was completed, settled,
the claimant provided labor or abandoned, or terminated.
materials.
2. Debt from specially fabricated
2. Debt from specially materials deemed to accrue
fabricated materials deemed either on the last day of the last
to accrue either on the last month in which the materials
day of the last month in which were delivered or the day when
the materials were delivered deliver would have been
or the day when deliver required or on the last day of
would have been required or the month in which the contract
on the last day of the month is terminated or materially
in which the contract is breached (same as for
terminated or materially subcontractors).
breached.
Deadline to 1. Claim arising from Same as requirements for
Filing Lien nonresidential project - must subcontractors.
Affidavit file no later than the 15th day
of the 4th month after the day
on which the debt accrues.
2. Claim arising from residential
project – must file no later
than the 15th day of the third
month after the day on which
the debt accrues.
X-2
Subcontractors and Material men Original Contractors (OC)
Lien Affidavit 1. Must be signed by person 1. Same as #1 for subcontractors;
Requirements claiming the lien or by
someone on his/her behalf; 2. Same as #2 for subcontractors;
2. Must contain sworn statement 3. Same as #3 for Subcontractors;
of the amount claimed;
4. Must contain general statement
3. Must include the name and of the type of labor/materials
last known address of the provided by claimant;
owner of the property to be
affected by the lien; 5. Same as #5 for subcontractors;
4. Must contain general 6. Same as #6 for subcontractors;
statement of the type of
labor/materials provided by 7. Same as #7 for subcontractors;
claimant, AND affidavit must and
state each month in which
8. Same as #8 for subcontractors;
labor or materials were
provided without receipt of
payment;
5. Must include the name and
last known address of the
person by whom claimant was
employed or to whom
claimant provided
labor/materials;
6. Must include the name and
last known address of OC;
7. Must include legally
sufficient description of the
subject property;
8. Must include claimant’s name
and address; AND
9. Must identify the date each
notice of the claim was sent to
the owner as well as the
method of delivery.
X-3
Subcontractors and Material men Original Contractors (OC)
Notice of Must send copy of lien affidavit Must send copy of lien affidavit
Affidavit by registered/certified mail to by registered/certified mail to
owner of affected property AND owner of affected property at
to OC at their last known owner’s last known address no
addresses no later than the 5th later than the 5th day after
day after affidavit is filed. affidavit is filed.
*Note – If property that is to be affected by the lien is a homestead, claimant must also
comply with §53.254 of the TPC.
**Note – This Guide does not contain requirements regarding authorizing an owner to
withhold funds, which should be included in a claimant’s notice of debt. For more
information and requirements regarding authorizing an owner to withhold funds please
see the “Authorization to Withhold Funds” subsection.
X-4
XI. PROTOCOL FOR HANDLING CONSTRUCTION CASES
XI-1
XI-2
XI-3
XI-4
XII. STATUTORY PROVISIONS
MILLER ACT – 40 U.S.C. §§ 3131-3134
§ 3131. Bonds of contractors of public buildings or works.
(a) Definition. In this subchapter, the term "contractor" means a person
awarded a contract described in subsection (b).
(b) Type of bonds required. Before any contract of more than $100,000 is
awarded for the construction, alteration, or repair of any public building or public
work of the Federal Government, a person must furnish to the Government the
following bonds, which become binding when the contract is awarded:
(1) Performance bond. A performance bond with a surety satisfactory
to the officer awarding the contract, and in an amount the officer
considers adequate, for the protection of the Government.
(2) Payment bond. A payment bond with a surety satisfactory to the
officer for the protection of all persons supplying labor and material in
carrying out the work provided for in the contract for the use of each
person. The amount of the payment bond shall equal the total amount
payable by the terms of the contract unless the officer awarding the
contract determines, in a writing supported by specific findings, that a
payment bond in that amount is impractical, in which case the contracting
officer shall set the amount of the payment bond. The amount of the
payment bond shall not be less than the amount of the performance bond.
(c) Coverage for taxes in performance bond.
(1) In general. Every performance bond required under this section
specifically shall provide coverage for taxes the Government imposes
which are collected, deducted, or withheld from wages the contractor
pays in carrying out the contract with respect to which the bond is
furnished.
(2) Notice. The Government shall give the surety on the bond written
notice, with respect to any unpaid taxes attributable to any period, within
90 days after the date when the contractor files a return for the period,
except that notice must be given no later than 180 days from the date
when a return for the period was required to be filed under the Internal
Revenue Code of 1986 (26 U.S.C. 1 et seq.).
XII-1
(3) Civil action. The Government may not bring a civil action on the
bond for the taxes:
(A) unless notice is given as provided in this subsection;
and
(B) more than one year after the day on which notice is
given.
(d) Waiver of bonds for contracts performed in foreign countries. A
contracting officer may waive the requirement of a performance bond and
payment bond for work under a contract that is to be performed in a foreign
country if the officer finds that it is impracticable for the contractor to furnish the
bonds.
(e) Authority to require additional bonds. This section does not limit the
authority of a contracting officer to require a performance bond or other security
in addition to those, or in cases other than the cases, specified in subsection (b).
(§ 3131 was formerly cited as 40 U.S.C. § 270a; 40 U.S.C. § 270d; 40 U.S.C. § 270d-1)
§ 3132. Alternatives to payment bonds provided by Federal Acquisition Regulation.
(a) In general. The Federal Acquisition Regulation shall provide alternatives
o payment bonds as payment protections for suppliers of labor and materials
under contracts referred to in section 3131(a) of this title that are more than
$25,000 and not more than $100,000.
(b) Responsibilities of contracting officer. The contracting officer for a
contract shall:
(1) select, from among the payment protections provided for in the
Federal Acquisition Regulation pursuant to subsection (a), one or more
payment protections which the offeror awarded the contract is to submit
to the Federal Government for the protection of suppliers of labor and
materials for the contract; and
(2) specify in the solicitation of offers for the contract the payment
protections selected.
(§ 3132 was formerly cited as 40 U.S.C. § 270a)
§ 3133. Rights of persons furnishing labor or material.
(a) Right of person furnishing labor or material to copy of bond. The
department secretary or agency head of the contracting agency shall furnish a
XII-2
certified copy of a payment bond and the contract for which it was given to any
person applying for a copy who submits an affidavit that the person has supplied
labor or material for work described in the contract and payment for the work has
not been made or that the person is being sued on the bond. The copy is prima
facie evidence of the contents, execution, and delivery of the original. Applicants
shall pay any fees the department secretary or agency head of the contracting
agency fixes to cover the cost of preparing the certified copy.
(b) Right to bring a civil action.
(1) In general. Every person that has furnished labor or material in
carrying out work provided for in a contract for which a payment bond is
furnished under section 3131 of this title and that has not been paid in full
within 90 days after the day on which the person did or performed the last
of the labor or furnished or supplied the material for which the claim is
made may bring a civil action on the payment bond for the amount unpaid
at the time the civil action is brought and may prosecute the action to
final execution and judgment for the amount due.
(2) Person having direct contractual relationship with a subcontractor.
A person having a direct contractual relationship with a subcontractor but
no contractual relationship, express or implied, with the contractor
furnishing the payment bond may bring a civil action on the payment
bond on giving written notice to the contractor within 90 days from the
date on which the person did or performed the last of the labor or
furnished or supplied the last of the material for which the claim is made.
The action must state with substantial accuracy the amount claimed and
the name of the party to whom the material was furnished or supplied or
for whom the labor was done or performed. The notice shall be served:
(A) by any means that provides written, third-party
verification of delivery to the contractor at any place the
contractor maintains an office or conducts business or at
the contractor's residence; or
(B) in any manner in which the United States marshal
of the district in which the public improvement is situated
by law may serve summons.
(3) Venue. A civil action brought under this subsection must be
brought:
(A) in the name of the United States for the use of the
person bringing the action; and
XII-3
(B) in the United States District Court for any district
in which the contract was to be performed and executed,
regardless of the amount in controversy.
(4) Period in which action must be brought. An action brought under
this subsection must be brought no later than one year after the day on
which the last of the labor was performed or the person bringing the
action supplied material.
(5) Liability of Federal Government. The Government is not liable
for the payment of any costs or expenses of any civil action brought under
this subsection.
(c) A waiver of the right to bring a civil action on a payment bond required
under this subchapter is void unless the waiver is:
(1) in writing;
(2) signed by the person whose right is waived; and
(3) executed after the person whose right is waived has furnished labor
or material for use in the performance of the contract.
(§3133 was formerly cited as 40 U.S.C. § 270b; 40 U.S.C. § 270c)
§ 3134. Waivers for certain contracts.
(a) Military. The Secretary of the Army, the Secretary of the Navy, the
Secretary of the Air Force, or the Secretary of Transportation may waive this
subchapter with respect to cost-plus-a-fixed fee and other cost-type contracts for
the construction, alteration, or repair of any public building or public work of the
Federal Government and with respect to contracts for manufacturing, producing,
furnishing, constructing, altering, repairing, processing, or assembling vessels,
aircraft, munitions, materiel, or supplies for the Army, Navy, Air Force, or Coast
Guard, respectively, regardless of the terms of the contracts as to payment or title.
(b) Transportation. The Secretary of Transportation may waive this
subchapter with respect to contracts for the construction, alteration, or repair of
vessels when the contract is made under sections 1535 and 1536 of title 31, the
Merchant Marine Act, 1936 (46 App. U.S.C. 1101 et seq.), or the Merchant Ship
Sales Act of 1946 (50 App. U.S.C. 1735 et seq.), regardless of the terms of the
contracts as to payment or title.
(§ 3134 was formerly cited as 40 U.S.C. § 270e; 40 USCA § 270f)
XII-4
DAVIS-BACON ACT – 40 U.S.C. §§ 3141-3148
§ 3141. Definitions.
In this subchapter, the following definitions apply:
(1) Federal Government. The term "Federal Government" has the
same meaning that the term "United States" had in the Act of March 3,
1931 (ch. 411, 46 Stat. 1494 (known as the Davis-Bacon Act).
(2) Wages, scale of wages, wage rates, minimum wages, and
prevailing wages. The terms "wages", "scale of wages", "wage rates",
"minimum wages", and "prevailing wages" include:
(A) the basic hourly rate of pay; and
(B) for medical or hospital care, pensions on retirement
or death, compensation for injuries or illness resulting from
occupational activity, or insurance to provide any of the
forgoing, for unemployment benefits, life insurance,
disability and sickness insurance, or accident insurance, for
vacation and holiday pay, for defraying the costs of
apprenticeship or other similar programs, or for other bona
fide fringe benefits, but only where the contractor or
subcontractor is not required by other federal, state, or local
law to provide any of those benefits, the amount of:
(i) the rate of contribution irrevocably
made by a contractor or subcontractor to a
trustee or to a third person under a fund,
plan, or program; and
(ii) the rate of costs to the contractor or
subcontractor that may be reasonably
anticipated in providing benefits to laborers
and mechanics pursuant to an enforceable
commitment to carry out a financially
responsible plan or program which was
communicated in writing to the laborers and
mechanics affected.
(§ 3141 was formerly cited as 40 USCA § 276a)
§ 3142. Rate of wages for laborers and mechanics.
(a) Application. The advertised specifications for every contract in excess of
XII-5
$2,000, to which the Federal Government or the District of Columbia is a party,
for construction, alteration, or repair, including painting and decorating, of public
buildings and public works of the Government or the District of Columbia that
are located in a State or the District of Columbia and which requires or involves
the employment of mechanics or laborers shall contain a provision stating the
minimum wages to be paid various classes of laborers and mechanics.
(b) Based on prevailing wage. The minimum wages shall be based on the
wages the Secretary of Labor determines to be prevailing for the corresponding
classes of laborers and mechanics employed on projects of a character similar to
the contract work in the civil subdivision of the State in which the work is to be
performed, or in the District of Columbia if the work is to be performed there.
(c) Stipulations required in contract. Every contract based upon the
specifications referred to in subsection (a) must contain stipulations that:
(1) the contractor or subcontractor shall pay all mechanics and
laborers employed directly on the site of the work, unconditionally and at
least once a week, and without subsequent deduction or rebate on any
account, the full amounts accrued at time of payment, computed at wage
rates not less than those stated in the advertised specifications, regardless
of any contractual relationship which may be alleged to exist between the
contractor or subcontractor and the laborers and mechanics;
(2) the contractor will post the scale of wages to be paid in a
prominent and easily accessible place at the site of the work; and
(3) there may be withheld from the contractor so much of accrued
payments as the contracting officer considers necessary to pay to laborers
and mechanics employed by the contractor or any subcontractor on the
work the difference between the rates of wages required by the contract to
be paid laborers and mechanics on the work and the rates of wages
received by the laborers and mechanics and not refunded to the contractor
or subcontractors or their agents.
(d) Discharge of obligation. The obligation of a contractor or subcontractor to
make payment in accordance with the prevailing wage determinations of the
Secretary of Labor, under this subchapter and other laws incorporating this
subchapter by reference, may be discharged by making payments in cash, by
making contributions described in section 3141(2)(B)(i) of this title, by assuming
an enforceable commitment to bear the costs of a plan or program referred to in
section 3141(2)(B)(ii) of this title, or by any combination of payment,
contribution, and assumption, where the aggregate of the payments, contributions,
and costs is not less than the basic hourly rate of pay plus the amount referred to
in section 3141(2)(B).
XII-6
(e) Overtime pay. In determining the overtime pay to which a laborer or
mechanic is entitled under any federal law, the regular or basic hourly rate of pay
(or other alternative rate on which premium rate of overtime compensation is
computed) of the laborer or mechanic is deemed to be the rate computed under
section 3141(2)(A) of this title, except that where the amount of payments,
contributions, or costs incurred with respect to the laborer or mechanic exceeds
the applicable prevailing wage, the regular or basic hourly rate of pay (or other
alternative rate) is the amount of payments, contributions, or costs actually
incurred with respect to the laborer or mechanic minus the greater of the amount
of contributions or costs of the types described in section 3141(2)(B) of this title
actually incurred with respect to the laborer or mechanic or the amount
determined under section 3141(2)(B) but not actually paid.
(§ 3142 was formerly cited as 40 USCA § 276a)
§ 3143. Termination of work on failure to pay agreed wages.
Every contract within the scope of this subchapter shall contain a provision that if
the contracting officer finds that any laborer or mechanic employed by the contractor or
any subcontractor directly on the site of the work covered by the contract has been or is
being paid a rate of wages less than the rate of wages required by the contract to be paid,
the Federal Government by written notice to the contractor may terminate the contractor's
right to proceed with the work or the part of the work as to which there has been a failure
to pay the required wages. The Government may have the work completed, by contract or
otherwise, and the contractor and the contractor's sureties shall be liable to the
Government for any excess costs the Government incurs.
(§ 3143 was formerly cited as 40 USCA § 276a-1)
§ 3144. Authority of Comptroller General to pay wages and list contractors
violating contracts.
(a) Payment of wages.
(1) In general. The Comptroller General shall pay directly to laborers
and mechanics from any accrued payments withheld under the terms of a
contract any wages found to be due laborers and mechanics under this
subchapter.
(2) Right of action. If the accrued payments withheld under the terms
of the contract are insufficient to reimburse all the laborers and mechanics
who have not been paid the wages required under this subchapter, the
laborers and mechanics have the same right to bring a civil action and
intervene against the contractor and the contractor's sureties as is
conferred by law on persons furnishing labor or materials. In those
XII-7
proceedings it is not a defense that the laborers and mechanics accepted
or agreed to accept less than the required rate of wages or voluntarily
made refunds.
(b) List of contractors violating contracts.
(1) In general. The Comptroller General shall distribute to all
departments of the Federal Government a list of the names of persons
whom the Comptroller General has found to disregard their obligations to
employees and subcontractors.
(2) Restriction on awarding contracts. No contract shall be awarded
to persons appearing on the list or to any firm, corporation, partnership, or
association in which the persons have an interest until three years have
elapsed from the date of publication of the list.
(§ 3144 was formerly cited as 40 USCA § 276a-2)
§ 3145. Regulations governing contractors and subcontractors.
(a) In general. The Secretary of Labor shall prescribe reasonable regulations
for contractors and subcontractors engaged in constructing, carrying out,
completing, or repairing public buildings, public works, or buildings or works that
at least partly are financed by a loan or grant from the Federal Government. The
regulations shall include a provision that each contractor and subcontractor each
week must furnish a statement on the wages paid each employee during the prior
week.
(b) Application. Section 1001 of title 18 applies to the statements.
(§ 3145 was formerly cited as 40 USCA § 276c)
§ 3146. Effect on other federal laws.
This subchapter does not supersede or impair any authority otherwise granted by
federal law to provide for the establishment of specific wage rates.
(§ 3146 was formerly cited as 40 USCA § 276a-3)
§ 3147. Suspension of this subchapter during a national emergency.
The President may suspend the provisions of this subchapter during a national
emergency.
(§ 3147 was formerly cited as 40 USCA § 276a-5)
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§ 3148. Application of this subchapter to certain contracts.
This subchapter applies to a contract authorized by law that is made without
regard to section 3709 of the Revised Statutes (41 U.S.C. 5), or on a cost-plus-a-fixed-fee
basis or otherwise without advertising for proposals, if this subchapter otherwise would
apply to the contract.
(§ 3148 was formerly cited as 40 USCA § 276a-7)
OCCUPATIONAL SAFETY & HEALTH ACT OF 1970 - 29 U.S.C. §§ 651-678
§ 651. Congressional statement of findings and declaration of purpose and policy.
(a) The Congress finds that personal injuries and illnesses arising out of work
situations impose a substantial burden upon, and are a hindrance to, interstate
commerce in terms of lost production, wage loss, medical expenses, and disability
compensation payments.
(b) The Congress declares it to be its purpose and policy, through the exercise
of its powers to regulate commerce among the several States and with foreign
nations and to provide for the general welfare, to assure so far as possible every
working man and woman in the Nation safe and healthful working conditions and
to preserve our human resources:
(1) by encouraging employers and employees in their efforts to
reduce the number of occupational safety and health hazards at their
places of employment, and to stimulate employers and employees to
institute new and to perfect existing programs for providing safe and
healthful working conditions;
(2) by providing that employers and employees have separate but
dependent responsibilities and rights with respect to achieving safe and
healthful working conditions;
(3) by authorizing the Secretary of Labor to set mandatory
occupational safety and health standards applicable to businesses affecting
interstate commerce, and by creating an Occupational Safety and Health
Review Commission for carrying out adjudicatory functions under this
chapter;
(4) by building upon advances already made through employer and
employee initiative for providing safe and healthful working conditions;
(5) by providing for research in the field of occupational safety and
health, including the psychological factors involved, and by developing
innovative methods, techniques, and approaches for dealing with
occupational safety and health problems;
XII-9
(6) by exploring ways to discover latent diseases, establishing causal
connections between diseases and work in environmental conditions, and
conducting other research relating to health problems, in recognition of the
fact that occupational health standards present problems often different
from those involved in occupational safety;
(7) by providing medical criteria which will assure insofar as
practicable that no employee will suffer diminished health, functional
capacity, or life expectancy as a result of his work experience;
(8) by providing for training programs to increase the number and
competence of personnel engaged in the field of occupational safety and
health;
(9) by providing for the development and promulgation of
occupational safety and health standards;
(10) by providing an effective enforcement program which shall include
a prohibition against giving advance notice of any inspection and
sanctions for any individual violating this prohibition;
(11) by encouraging the States to assume the fullest responsibility for
the administration and enforcement of their occupational safety and health
laws by providing grants to the States to assist in identifying their needs
and responsibilities in the area of occupational safety and health, to
develop plans in accordance with the provisions of this chapter, to
improve the administration and enforcement of State occupational safety
and health laws, and to conduct experimental and demonstration projects
in connection therewith;
(12) by providing for appropriate reporting procedures with respect to
occupational safety and health, which procedures will help achieve the
objectives of this chapter and accurately describe the nature of the
occupational safety and health problem;
(13) by encouraging joint labor-management efforts to reduce injuries
and disease arising out of employment.
§ 652. Definitions.
For the purposes of this chapter:
(1) The term “Secretary” mean(s) the Secretary of Labor.
XII-10
(2) The term “Commission” means the Occupational Safety and
Health Review Commission established under this chapter.
(3) The term “commerce” means trade, traffic, commerce,
transportation, or communication among the several States, or between a
State and any place outside thereof, or within the District of Columbia, or
a possession of the United States (other than the Trust Territory of the
Pacific Islands), or between points in the same State but through a point
outside thereof.
(4) The term “person” means one or more individuals, partnerships,
associations, corporations, business trusts, legal representatives, or any
organized group of persons.
(5) The term “employer” means a person engaged in a business
affecting commerce who has employees, but does not include the United
States (not including the United States Postal Service) or any State or
political subdivision of a State.
(6) The term “employee” means an employee of an employer who is
employed in a business of his employer, which affects commerce.
(7) The term “State” includes a State of the United States, the District
of Columbia, Puerto Rico, the Virgin Islands, American Samoa, Guam,
and the Trust Territory of the Pacific Islands.
(8) The term “occupational safety and health standard” means a
standard which requires conditions, or the adoption or use of one or more
practices, means, methods, operations, or processes, reasonably necessary
or appropriate to provide safe or healthful employment and places of
employment.
(9) The term “national consensus standard” means any occupational
safety and health standard or modification thereof which (1) has been
adopted and promulgated by a nationally recognized standards-producing
organization under procedures whereby it can be determined by the
Secretary that persons interested and affected by the scope or provisions of
the standard have reached substantial agreement on its adoption, (2) was
formulated in a manner which afforded an opportunity for diverse views to
be considered and (3) has been designated as such a standard by the
Secretary, after consultation with other appropriate Federal agencies.
(10) The term “established Federal standard” means any operative
occupational safety and health standard established by any agency of the
United States and presently in effect, or contained in any Act of Congress
in force on December 29, 1970.
XII-11
(11) The term “Committee” means the National Advisory Committee
on Occupational Safety and Health established under this chapter.
(12) The term “Director” means the Director of the National Institute
for Occupational Safety and Health.
(13) The term “Institute” means the National Institute for Occupational
Safety and Health established under this chapter.
(14) The term “Workmen's Compensation Commission” means the
National Commission on State Workmen's Compensation Laws
established under this chapter.
§ 653. Geographic applicability; judicial enforcement; applicability to existing
standards; report to Congress on duplication and coordination of Federal laws;
workmen's compensation law or common law or statutory rights, duties, or
liabilities of employers and employees unaffected.
(a) This chapter shall apply with respect to employment performed in a
workplace in a State, the District of Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, American Samoa, Guam, the Trust Territory of the
Pacific Islands, Lake Island, Outer Continental Shelf lands defined in the Outer
Continental Shelf Lands Act [43 U.S.C. 1331 et seq.], Johnston Island, and the
Canal Zone. The Secretary of the Interior shall, by regulation, provide for judicial
enforcement of this chapter by the courts established for areas in which there are
no United States district courts having jurisdiction.
(b) (1) Nothing in this chapter shall apply to working conditions of
employees with respect to which other Federal agencies, and State
agencies acting under section 2021 of title 42, exercise statutory authority
to prescribe or enforce standards or regulations affecting occupational
safety or health.
(2) The safety and health standards promulgated under the Act of June
30, 1936, commonly known as the Walsh-Healey Act [41 U.S.C. 35 et
seq.], the Service Contract Act of 1965 [41 U.S.C. 351 et seq.], Public
Law 91-54, Act of August 9, 1969, Public Law 85-742, Act of August 23,
1958, and the National Foundation on Arts and Humanities Act [20 U.S.C.
951 et seq.] are superseded on the effective date of corresponding
standards, promulgated under this chapter, which are determined by the
Secretary to be more effective. Standards issued under the laws listed in
this paragraph and in effect on or after the effective date of this chapter
shall be deemed to be occupational safety and health standards issued
under this chapter, as well as under such other Acts.
XII-12
(3) The Secretary shall, within three years after the effective date of
this chapter, report to the Congress his recommendations for legislation to
avoid unnecessary duplication and to achieve coordination between this
chapter and other Federal laws.
(4) Nothing in this chapter shall be construed to supersede or in any
manner affect any workmen's compensation law or to enlarge or diminish
or affect in any other manner the common law or statutory rights, duties,
or liabilities of employers and employees under any law with respect to
injuries, diseases, or death of employees arising out of, or in the course of,
employment.
§ 654. Duties of employers and employees.
(a) Each employer:
(1) shall furnish to each of his employees employment and a place of
employment, which are free from recognized hazards that are causing or
are likely to cause death or serious physical harm to his employees;
(2) shall comply with occupational safety and health standards
promulgated under this chapter.
(b) Each employee shall comply with occupational safety and health standards
and all rules, regulations, and orders issued pursuant to this chapter, which are
applicable to his own actions and conduct.
§ 655. Standards.
(a) Promulgation by Secretary of national consensus standards and
established Federal standards; time for promulgation; conflicting standards
Without regard to chapter 5 of Title 5 or to the other subsections of this
section, the Secretary shall, as soon as practicable during the period beginning
with the effective date of this chapter and ending two years after such date, by
rule promulgate as an occupational safety or health standard any national
consensus standard, and any established Federal standard, unless he determines
that the promulgation of such a standard would not result in improved safety or
health for specifically designated employees. In the event of conflict among any
such standards, the Secretary shall promulgate the standard, which assures the
greatest protection of the safety or health of the affected employees.
(b) Procedure for promulgation, modification, or revocation of standards
XII-13
The Secretary may by rule promulgate, modify, or revoke any
occupational safety or health standard in the following manner:
(1) Whenever the Secretary, upon the basis of information submitted
to him in writing by an interested person, a representative of any
organization of employers or employees, a nationally recognized
standards-producing organization, the Secretary of Health and Human
Services, the National Institute for Occupational Safety and Health, or a
State or political subdivision, or on the basis of information developed by
the Secretary or otherwise available to him, determines that a rule should
be promulgated in order to serve the objectives of this chapter, the
Secretary may request the recommendations of an advisory committee
appointed under section 656 of this title. The Secretary shall provide such
an advisory committee with any proposals of his own or of the Secretary
of Health and Human Services, together with all pertinent factual
information developed by the Secretary or the Secretary of Health and
Human Services, or otherwise available, including the results of research,
demonstrations, and experiments. An advisory committee shall submit to
the Secretary its recommendations regarding the rule to be promulgated
within ninety days from the date of its appointment or within such longer
or shorter period as may be prescribed by the Secretary, but in no event
for a period which is longer than two hundred and seventy days.
(2) The Secretary shall publish a proposed rule promulgating,
modifying, or revoking an occupational safety or health standard in the
Federal Register and shall afford interested persons a period of thirty days
after publication to submit written data or comments. Where an advisory
committee is appointed and the Secretary determines that a rule should be
issued, he shall publish the proposed rule within sixty days after the
submission of the advisory committee's recommendations or the
expiration of the period prescribed by the Secretary for such submission.
(3) On or before the last day of the period provided for the
submission of written data or comments under paragraph (2), any
interested person may file with the Secretary written objections to the
proposed rule, stating the grounds therefore and requesting a public
hearing on such objections. Within thirty days after the last day for filing
such objections, the Secretary shall publish in the Federal Register a
notice specifying the occupational safety or health standard to which
objections have been filed and a hearing requested, and specifying a time
and place for such hearing.
(4) Within sixty days after the expiration of the period provided for
the submission of written data or comments under paragraph (2), or
within sixty days after the completion of any hearing held under
paragraph (3), the Secretary shall issue a rule promulgating, modifying, or
XII-14
revoking an occupational safety or health standard or make a
determination that a rule should not be issued. Such a rule may contain a
provision delaying its effective date for such period (not in excess of
ninety days) as the Secretary determines may be necessary to insure that
affected employers and employees will be informed of the existence of
the standard and of its terms and that employers affected are given an
opportunity to familiarize themselves and their employees with the
existence of the requirements of the standard.
(5) The Secretary, in promulgating standards dealing with toxic
materials or harmful physical agents under this subsection, shall set the
standard which most adequately assures, to the extent feasible, on the
basis of the best available evidence, that no employee will suffer material
impairment of health or functional capacity even if such employee has
regular exposure to the hazard dealt with by such standard for the period
of his working life. Development of standards under this subsection shall
be based upon research, demonstrations, experiments, and such other
information as may be appropriate. In addition to the attainment of the
highest degree of health and safety protection for the employee, other
considerations shall be the latest available scientific data in the field, the
feasibility of the standards, and experience gained under this and other
health and safety laws. Whenever practicable, the standard promulgated
shall be expressed in terms of objective criteria and of the performance
desired.
(6) (A) Any employer may apply to the Secretary for a
temporary order granting a variance from a standard or any
provision thereof promulgated under this section. Such
temporary order shall be granted only if the employer files
an application which meets the requirements of clause (B)
and establishes that (i) he is unable to comply with a
standard by its effective date because of unavailability of
professional or technical personnel or of materials and
equipment needed to come into compliance with the
standard or because necessary construction or alteration of
facilities cannot be completed by the effective date, (ii) he
is taking all available steps to safeguard his employees
against the hazards covered by the standard, and (iii) he has
an effective program for coming into compliance with the
standard as quickly as practicable. Any temporary order
issued under this paragraph shall prescribe the practices,
means, methods, operations, and processes which the
employer must adopt and use while the order is in effect
and state in detail his program for coming into compliance
with the standard. Such a temporary order may be granted
only after notice to employees and an opportunity for a
XII-15
hearing: Provided, That the Secretary may issue one
interim order to be effective until a decision is made on the
basis of the hearing. No temporary order may be in effect
for longer than the period needed by the employer to
achieve compliance with the standard or one year,
whichever is shorter, except that such an order may be
renewed not more than twice (I) so long as the
requirements of this paragraph are met and (II) if an
application for renewal is filed at least 90 days prior to the
expiration date of the order. No interim renewal of an order
may remain in effect for longer than 180 days.
(B) An application for a temporary order under this
paragraph (6) shall contain:
(i) a specification of the standard or
portion thereof from which the employer
seeks a variance,
(ii) a representation by the employer,
supported by representations from qualified
persons having firsthand knowledge of the
facts represented, that he is unable to
comply with the standard or portion thereof
and a detailed statement of the reasons
therefore,
(iii) a statement of the steps he has taken
and will take (with specific dates) to protect
employees against the hazard covered by the
standard,
(iv) a statement of when he expects to be
able to comply with the standard and what
steps he has taken and what steps he will
take (with dates specified) to come into
compliance with the standard, and
(v) a certification that he has informed
his employees of the application by giving a
copy thereof to their authorized
representative, posting a statement giving a
summary of the application and specifying
where a copy may be examined at the place
or places where notices to employees are
XII-16
normally posted, and by other appropriate
means.
A description of how employees have been informed shall be contained in the
certification. The information to employees shall also inform them of their right to
petition the Secretary for a hearing.
(C) The Secretary is authorized to grant a variance from any
standard or portion thereof whenever he determines, or the
Secretary of Health and Human Services certifies, that such
variance is necessary to permit an employer to participate in an
experiment approved by him or the Secretary of Health and
Human Services designed to demonstrate or validate new and
improved techniques to safeguard the health or safety of workers.
(7) Any standard promulgated under this subsection shall prescribe
the use of labels or other appropriate forms of warning as are necessary to
insure that employees are apprised of all hazards to which they are
exposed, relevant symptoms and appropriate emergency treatment, and
proper conditions and precautions of safe use or exposure. Where
appropriate, such standard shall also prescribe suitable protective
equipment and control or technological procedures to be used in
connection with such hazards and shall provide for monitoring or
measuring employee exposure at such locations and intervals, and in such
manner as may be necessary for the protection of employees. In addition,
where appropriate, any such standard shall prescribe the type and
frequency of medical examinations or other tests, which shall be made
available, by the employer or at his cost, to employees exposed to such
hazards in order to most effectively, determine whether the health of such
employees is adversely affected by such exposure. In the event such
medical examinations are in the nature of research, as determined by the
Secretary of Health and Human Services, such examinations may be
furnished at the expense of the Secretary of Health and Human Services.
The results of such examinations or tests shall be furnished only to the
Secretary or the Secretary of Health and Human Services, and, at the
request of the employee, to his physician. The Secretary, in consultation
with the Secretary of Health and Human Services, may by rule
promulgated pursuant to section 553 of Title 5, make appropriate
modifications in the foregoing requirements relating to the use of labels
or other forms of warning, monitoring or measuring, and medical
examinations, as may be warranted by experience, information, or
medical or technological developments acquired subsequent to the
promulgation of the relevant standard.
(8) Whenever a rule promulgated by the Secretary differs
substantially from an existing national consensus standard, the Secretary
shall, at the same time, publish in the Federal Register a statement of the
XII-17
reasons why the rule as adopted will better effectuate the purposes of this
chapter than the national consensus standard.
(c) Emergency temporary standards
(1) The Secretary shall provide, without regard to the requirements of
chapter 5 of Title 5, for an emergency temporary standard to take
immediate effect upon publication in the Federal Register if he determines
(A) that employees are exposed to grave danger from exposure to
substances or agents determined to be toxic or physically harmful or from
new hazards, and (B) that such emergency standard is necessary to protect
employees from such danger.
(2) Such standard shall be effective until superseded by a standard
promulgated in accordance with the procedures prescribed in paragraph
(3) of this subsection.
(3) Upon publication of such standard in the Federal Register the
Secretary shall commence a proceeding in accordance with subsection (b)
of this section, and the standard as published shall also serve as a proposed
rule for the proceeding. The Secretary shall promulgate a standard under
this paragraph no later than six months after publication of the emergency
standard as provided in paragraph (2) of this subsection.
(d) Variances from standards; procedure
Any affected employer may apply to the Secretary for a rule or order for a
variance from a standard promulgated under this section. Affected employees
shall be given notice of each such application and an opportunity to participate in
a hearing. The Secretary shall issue such rule or order if he determines on the
record, after opportunity for an inspection where appropriate and a hearing, that
the proponent of the variance has demonstrated by a preponderance of the
evidence that the conditions, practices, means, methods, operations, or processes
used or proposed to be used by an employer will provide employment and places
of employment to his employees which are as safe and healthful as those which
would prevail if he complied with the standard. The rule or order so issued shall
prescribe the conditions the employer must maintain, and the practices, means,
methods, operations, and processes, which he must adopt and utilize to the extent
they, differ from the standard in question. Such a rule or order may be modified or
revoked upon application by an employer, employees, or by the Secretary on his
own motion, in the manner prescribed for its issuance under this subsection at any
time after six months from its issuance.
(e) Statement of reasons for Secretary's determinations; publication in Federal
Register
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Whenever the Secretary promulgates any standard, makes any rule, order,
or decision, grants any exemption or extension of time, or compromises,
mitigates, or settles any penalty assessed under this chapter, he shall include a
statement of the reasons for such action, which shall be published in the Federal
Register.
(f) Judicial review
Any person who may be adversely affected by a standard issued under this
section may at any time prior to the sixtieth day after such standard is
promulgated file a petition challenging the validity of such standard with the
United States court of appeals for the circuit wherein such person resides or has
his principal place of business, for a judicial review of such standard. A copy of
the petition shall be forthwith transmitted by the clerk of the court to the
Secretary. The filing of such petition shall not, unless otherwise ordered by the
court, operate as a stay of the standard. The determinations of the Secretary shall
be conclusive if supported by substantial evidence in the record considered as a
whole.
(g) Priority for establishment of standards
In determining the priority for establishing standards under this section,
the Secretary shall give due regard to the urgency of the need for mandatory
safety and health standards for particular industries, trades, crafts, occupations,
businesses, workplaces or work environments. The Secretary shall also give due
regard to the recommendations of the Secretary of Health and Human Services
regarding the need for mandatory standards in determining the priority for
establishing such standards.
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MAGNUSON-MOSS WARRANTY ACT - §§ 2301-2312
§ 2301. Definitions.
For the purposes of this chapter:
(1) The term "consumer product" means any tangible personal
property which is distributed in commerce and which is normally used for
personal, family, or household purposes (including any such property
intended to be attached to or installed in any real property without regard
to whether it is so attached or installed).
(2) The term "Commission" means the Federal Trade Commission.
(3) The term "consumer" means a buyer (other than for purposes of
resale) of any consumer product, any person to whom such product is
transferred during the duration of an implied or written warranty (or
service contract) applicable to the product, and any other person who is
entitled by the terms of such warranty (or service contract) or under
applicable State law to enforce against the warrantor (or service
contractor) the obligations of the warranty (or service contract).
(4) The term "supplier" means any person engaged in the business of
making a consumer product directly or indirectly available to consumers.
(5) The term "warrantor" means any supplier or other person who
gives or offers to give a written warranty or who is or may be obligated
under an implied warranty.
(6) The term "written warranty" means:
(A) any written affirmation of fact or written promise
made in connection with the sale of a consumer product by
a supplier to a buyer which relates to the nature of the
material or workmanship and affirms or promises that such
material or workmanship is defect free or will meet a
specified level of performance over a specified period of
time, or
(B) any undertaking in writing in connection with the
sale by a supplier of a consumer product to refund, repair,
replace, or take other remedial action with respect to such
product in the event that such product fails to meet the
specifications set forth in the undertaking, which written
affirmation, promise, or undertaking becomes part of the
XII-20
basis of the bargain between a supplier and a buyer for
purposes other than resale of such product.
(7) The term "implied warranty" means an implied warranty arising
under State law (as modified by sections 2308 and 2304(a) of this title) in
connection with the sale by a supplier of a consumer product.
(8) The term "service contract" means a contract in writing to
perform, over a fixed period of time or for a specified duration, services
relating to the maintenance or repair (or both) of a consumer product.
(9) The term "reasonable and necessary maintenance" consists of
those operations (A) which the consumer reasonably can be expected to
perform or have performed and (B) which are necessary to keep any
consumer product performing its intended function and operating at a
reasonable level of performance.
(10) The term "remedy,” means whichever of the following actions the
warrantor elects:
(A) repair,
(B) replacement, or
(C) refund;
except that the warrantor may not elect refund unless (i) the warrantor is
unable to provide replacement and repair is not commercially practicable
or cannot be timely made, or (ii) the consumer is willing to accept such
refund.
(11) The term "replacement" means furnishing a new consumer
product, which is identical or reasonably equivalent to the warranted
consumer product.
(12) The term "refund" means refunding the actual purchase price (less
reasonable depreciation based on actual use where permitted by rules of
the Commission).
(13) The term "distributed in commerce" means sold in commerce,
introduced or delivered for introduction into commerce, or held for sale
or distribution after introduction into commerce.
(14) The term "commerce" means trade, traffic, commerce, or t
transportation:
XII-21
(A) between a place in a State and any place outside
thereof, or
(B) which affects trade, traffic, commerce, or
transportation described in subparagraph (A).
(15) The term "State" means a State, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Canal
Zone, or American Samoa. The term "State law" includes a law of the
United States applicable only to the District of Columbia or only to a
territory or possession of the United States; and the term "Federal law"
excludes any State law.
§ 2302. Rules governing contents of warranties.
(a) Full and conspicuous disclosure of terms and conditions; additional
requirements for contents
In order to improve the adequacy of information available to consumers,
prevent deception, and improve competition in the marketing of consumer
products, any warrantor warranting a consumer product to a consumer by means
of a written warranty shall, to the extent required by rules of the Commission,
fully and conspicuously disclose in simple and readily understood language the
terms and conditions of such warranty. Such rules may require inclusion in the
written warranty of any of the following items among others:
(1) The clear identification of the names and addresses of the
warrantors.
(2) The identity of the party or parties to whom the warranty is
extended.
(3) The products or parts covered.
(4) A statement of what the warrantor will do in the event of a defect,
malfunction, or failure to conform to such written warranty--at whose
expense--and for what period of time.
(5) A statement of what the consumer must do and expenses he must
bear.
(6) Exceptions and exclusions from the terms of the warranty.
(7) The step-by-step procedure which the consumer should take in
order to obtain performance of any obligation under the warranty,
XII-22
including the identification of any person or class of persons authorized to
perform the obligations set forth in the warranty.
(8) Information respecting the availability of any informal dispute
settlement procedure offered by the warrantor and a recital, where the
warranty so provides, that the purchaser may be required to resort to such
procedure before pursuing any legal remedies in the courts.
(9) A brief, general description of the legal remedies available to the
consumer.
(10) The time at which the warrantor will perform any obligations
under the warranty.
(11) The period of time within which, after notice of a defect,
malfunction, or failure to conform with the warranty, the warrantor will
perform any obligations under the warranty.
(12) The characteristics or properties of the products, or parts thereof
that are not covered by the warranty.
(13) The elements of the warranty in words or phrases, which would not
mislead a reasonable, average consumer as to the nature or scope of the
warranty.
(b) Availability of terms to consumer; manner and form for presentation and
display of information; duration; extension of period for written warranty or
service contract
(1) (A) The Commission shall prescribe rules requiring that
the terms of any written warranty on a consumer product be
made available to the consumer (or prospective consumer)
prior to the sale of the product to him.
(B) The Commission may prescribe rules for
determining the manner and form in which information
with respect to any written warranty of a consumer product
shall be clearly and conspicuously presented or displayed
so as not to mislead the reasonable, average consumer,
when such information is contained in advertising, labeling,
point-of-sale material, or other representations in writing.
(2) Nothing in this chapter (other than paragraph (3) of this
subsection) shall be deemed to authorize the Commission to
prescribe the duration of written warranties given or to require that
a consumer product or any of its components be warranted.
XII-23
(3) The Commission may prescribe rules for extending the
period of time a written warranty or service contract is in effect to
correspond with any period of time in excess of a reasonable
period (not less than 10 days) during which the consumer is
deprived of the use of such consumer product by reason of failure
of the product to conform with the written warranty or by reason of
the failure of the warrantor (or service contractor) to carry out such
warranty (or service contract) within the period specified in the
warranty (or service contract).
(c) Prohibition on conditions for written or implied warranty; waiver
by Commission
No warrantor of a consumer product may condition his written or
implied warranty of such product on the consumer's using, in connection
with such product, any article or service (other than article or service
provided without charge under the terms of the warranty) which is
identified by brand, trade, or corporate name; except that the prohibition
of this subsection may be waived by the Commission if:
(1) the warrantor satisfies the Commission that the warranted product
will function properly only if the article or service so identified is used in
connection with the warranted product, and
(2) the Commission finds that such a waiver is in the public interest.
The Commission shall identify in the Federal Register, and permit public
comment on, all applications for waiver of the prohibition of this subsection, and
shall publish in the Federal Register its disposition of any such application,
including the reasons therefore.
(d) Incorporation by reference of detailed substantive warranty provisions
The Commission may by rule devise detailed substantive warranty
provisions, which warrantors may incorporate by reference in their warranties.
(e) Applicability to consumer products costing more than $5
The provisions of this section apply only to warranties, which pertain to
consumer products actually costing the consumer more than $5.
§ 2303. Designation of written warranties.
(a) Full (statement of duration) or limited warranty
XII-24
Any warrantor warranting a consumer product by means of a written
warranty shall clearly and conspicuously designate such warranty in the following
manner, unless exempted from doing so by the Commission pursuant to
subsection (c) of this section:
(1) If the written warranty meets the Federal minimum standards for
warranty set forth in section 2304 of this title, then it shall be
conspicuously designated a "full (statement of duration) warranty".
(2) If the written warranty does not meet the Federal minimum
standards for warranty set forth in section 2304 of this title, then it shall be
conspicuously designated a "limited warranty".
(b) Applicability of requirements, standards, etc., to representations or
statements of customer satisfaction
This section and sections 2302 and 2304 of this title shall not apply to
statements or representations which are similar to expressions of general policy
concerning customer satisfaction and which are not subject to any specific
limitations.
(c) Exemptions by Commission
In addition to exercising the authority pertaining to disclosure granted in
section 2302 of this title, the Commission may by rule determine when a written
warranty does not have to be designated either "full (statement of duration)" or
"limited" in accordance with this section.
(d) Applicability to consumer products costing more than $10 and not
designated as full warranties
The provisions of subsections (a) and (c) of this section apply only to
warranties, which pertain to consumer products actually costing the consumer
more than $10, and which are not designated "full (statement of duration)
warranties".
§ 2304. Federal minimum standards for warranties.
(a) Remedies under written warranty; duration of implied warranty; exclusion
or limitation on consequential damages for breach of written or implied warranty;
election of refund or replacement
In order for a warrantor warranting a consumer product by means of a
written warranty to meet the Federal minimum standards for warranty:
XII-25
(1) such warrantor must as a minimum remedy such consumer product
within a reasonable time and without charge, in the case of a defect,
malfunction, or failure to conform with such written warranty;
(2) notwithstanding section 2308(b) of this title, such warrantor may
not impose any limitation on the duration of any implied warranty on the
product;
(3) such warrantor may not exclude or limit consequential damages for
breach of any written or implied warranty on such product, unless such
exclusion or limitation conspicuously appears on the face of the warranty;
and
(4) if the product (or a component part thereof) contains a defect or
malfunction after a reasonable number of attempts by the warrantor to
remedy defects or malfunctions in such product, such warrantor must
permit the consumer to elect either a refund for, or replacement without
charge of, such product or part (as the case may be). The Commission may
by rule specify for purposes of this paragraph, what constitutes a
reasonable number of attempts to remedy particular kinds of defects or
malfunctions under different circumstances. If the warrantor replaces a
component part of a consumer product, such replacement shall include
installing the part in the product without charge.
(b) Duties and conditions imposed on consumer by warrantor
(1) In fulfilling the duties under subsection (a) of this section
respecting a written warranty, the warrantor shall not impose any duty
other than notification upon any consumer as a condition of securing
remedy of any consumer product which malfunctions, is defective, or does
not conform to the written warranty, unless the warrantor has
demonstrated in a rulemaking proceeding, or can demonstrate in an
administrative or judicial enforcement proceeding (including private
enforcement), or in an informal dispute settlement proceeding, that such a
duty is reasonable.
(2) Notwithstanding paragraph (1), a warrantor may require, as a
condition to replacement of, or refund for, any consumer product under
subsection (a) of this section, that such consumer product shall be made
available to the warrantor free and clear of liens and other encumbrances,
except as otherwise provided by rule or order of the Commission in cases
in which such a requirement would not be practicable.
(3) The Commission may, by rule define in detail the duties set forth
in subsection (a) of this section and the applicability of such duties to
XII-26
warrantors of different categories of consumer products with "full
(statement of duration)" warranties.
(4) The duties under subsection (a) of this section extend from the
warrantor to each person who is a consumer with respect to the consumer
product.
(c) Waiver of standards
The performance of the duties under subsection (a) of this section shall not
be required of the warrantor if he can show that the defect, malfunction, or failure
of any warranted consumer product to conform with a written warranty, was
caused by damage (not resulting from defect or malfunction) while in the
possession of the consumer, or unreasonable use (including failure to provide
reasonable and necessary maintenance).
(d) Remedy without charge
For purposes of this section and of section 2301(c) of this title, the term
"without charge" means that the warrantor may not assess the consumer for any
costs the warrantor or his representatives incur in connection with the required
remedy of a warranted consumer product. An obligation under subsection
(a)(1)(A) of this section to remedy without charge does not necessarily require the
warrantor to compensate the consumer for incidental expenses; however, if any
incidental expenses are incurred because the remedy is not made within a
reasonable time or because the warrantor imposed an unreasonable duty upon the
consumer as a condition of securing remedy, then the consumer shall be entitled
to recover reasonable incidental expenses which are so incurred in any action
against the warrantor.
(e) Incorporation of standards to products designated with full warranty for
purposes of judicial actions
If a supplier designates a warranty applicable to a consumer product as a
"full (statement of duration)" warranty, then the warranty on such product shall,
for purposes of any action under section 2310(d) of this title or under any State
law, be deemed to incorporate at least the minimum requirements of this section
and rules prescribed under this section.
§ 2305. Full and limited warranting of a consumer product.
Nothing in this chapter shall prohibit the selling of a consumer product, which has
both full and limited warranties if such warranties are clearly and conspicuously
differentiated.
XII-27
§ 2306. Service contracts; rules for full, clear and conspicuous disclosure of terms
and conditions; addition to or in lieu of written warranty.
(a) The Commission may prescribe by rule the manner and form in which the
terms and conditions of service contracts shall be fully, clearly, and conspicuously
disclosed.
(b) Nothing in this chapter shall be construed to prevent a supplier or
warrantor from entering into a service contract with the consumer in addition to or
in lieu of a written warranty if such contract fully, clearly, and conspicuously
discloses its terms and conditions in simple and readily understood language.
§ 2307. Designation of representatives by warrantor to perform duties under
written or implied warranty.
Nothing in this chapter shall be construed to prevent any warrantor from
designating representatives to perform duties under the written or implied warranty:
Provided, That such warrantor shall make reasonable arrangements for compensation of
such designated representatives, but no such designation shall relieve the warrantor of his
direct responsibilities to the consumer or make the representative a cowarrantor.
§ 2308. Implied warranties.
(a) Restrictions on disclaimers or modifications
No supplier may disclaim or modify (except as provided in subsection (b)
of this section) any implied warranty to a consumer with respect to such consumer
product if (1) such supplier makes any written warranty to the consumer with
respect to such consumer product, or (2) at the time of sale, or within 90 days
thereafter, such supplier enters into a service contract with the consumer which
applies to such consumer product.
(b) Limitation on duration
For purposes of this chapter (other than section 2304(a)(2) of this title),
implied warranties may be limited in duration to the duration of a written
warranty of reasonable duration, if such limitation is conscionable and is set forth
in clear and unmistakable language and prominently displayed on the face of the
warranty.
(c) Effectiveness of disclaimers, modifications, or limitations
A disclaimer, modification, or limitation made in violation of this section
shall be ineffective for purposes of this chapter and State law.
XII-28
§ 2309. Procedures applicable to promulgation of rules by Commission.
(a) Oral presentation
Any rule prescribed under this chapter shall be prescribed in accordance
with section 553 of Title 5; except that the Commission shall give interested
persons an opportunity for oral presentations of data, views, and arguments, in
addition to written submissions. A transcript shall be kept of any oral
presentation. Any such rule shall be subject to judicial review under section
57a(e) of this title in the same manner as rules prescribed under section
57a(a)(1)(B) of this title, except that section 57a(e)(3)(B) of this title shall not
apply.
(b) Warranties and warranty practices involved in sale of used motor vehicles
The Commission shall initiate within one year after January 4, 1975, a
rulemaking proceeding dealing with warranties and warranty practices in
connection with the sale of used motor vehicles; and, to the extent necessary to
supplement the protections offered the consumer by this chapter, shall prescribe
rules dealing with such warranties and practices. In prescribing rules under this
subsection, the Commission may exercise any authority it may have under this
chapter, or other law, and in addition it may require disclosure that a used motor
vehicle is sold without any warranty and specify the form and content of such
disclosure.
§ 2310. Remedies in consumer disputes.
(a) Informal dispute settlement procedures; establishment; rules setting forth
minimum requirements; effect of compliance by warrantor; review of informal
procedures or implementation by Commission; application to existing informal
procedures
(1) Congress hereby declares it to be its policy to encourage
warrantors to establish procedures whereby consumer disputes are fairly
and expeditiously settled through informal dispute settlement mechanisms.
(2) The Commission shall prescribe rules setting forth minimum
requirements for any informal dispute settlement procedure, which is
incorporated into the terms of a written warranty to which any provision of
this chapter applies. Such rules shall provide for participation in such
procedure by independent or governmental entities.
(3) One or more warrantors may establish an informal dispute
settlement procedure which meets the requirements of the Commission's
rules under paragraph (2). If:
XII-29
(A) a warrantor establishes such a procedure,
(B) such procedure, and its implementation, meets the
requirements of such rules, and
(C) he incorporates in a written warranty a requirement
that the consumer resort to such procedure before pursuing
any legal remedy under this section respecting such
warranty,
then (i) the consumer may not commence a civil action (other than a class
action) under subsection (d) of this section unless he initially resorts to
such procedure; and (ii) a class of consumers may not proceed in a class
action under subsection (d) of this section except to the extent the court
determines necessary to establish the representative capacity of the named
plaintiffs, unless the named plaintiffs (upon notifying the defendant that
they are named plaintiffs in a class action with respect to a warranty
obligation) initially resort to such procedure. In the case of such a class
action, which is brought in a district court of the United States, the
representative capacity of the named plaintiffs shall be established in the
application of RULE 23 OF THE FEDERAL RULES OF CIVIL PROCEDURE. In
any civil action arising out of a warranty obligation and relating to a
matter considered in such a procedure, any decision in such procedure
shall be admissible in evidence.
(4) The Commission on its own initiative may, or upon written
complaint filed by any interested person shall, review the bona fide
operation of any dispute settlement procedure resort to which is stated in a
written warranty to be a prerequisite to pursuing a legal remedy under this
section. If the Commission finds that such procedure or its implementation
fails to comply with the requirements of the rules under paragraph (2), the
Commission may take appropriate remedial action under any authority it
may have under this chapter or any other provision of law.
(5) Until rules under paragraph (2) take effect, this subsection shall not
affect the validity of any informal dispute settlement procedure respecting
consumer warranties, but in any action under subsection (d) of this
section, the court may invalidate any such procedure if it finds that such
procedure is unfair.
(b) Prohibited acts
It shall be a violation of section 45(a)(1) of this title for any person to fail
to comply with any requirement imposed on such person by this chapter (or a rule
XII-30
there under) or to violate any prohibition contained in this chapter (or a rule there
under).
(c) Injunction proceedings by Attorney General or Commission for deceptive
warranty, noncompliance with requirements, or violating prohibitions;
procedures; definitions
(1) The district courts of the United States shall have jurisdiction of
any action brought by the Attorney General (in his capacity as such), or by
the Commission by any of its attorneys designated by it for such purpose,
to restrain (A) any warrantor from making a deceptive warranty with
respect to a consumer product, or (B) any person from failing to comply
with any requirement imposed on such person by or pursuant to this
chapter or from violating any prohibition contained in this chapter. Upon
proper showing that, weighing the equities and considering the
Commission's or Attorney General's likelihood of ultimate success, such
action would be in the public interest and after notice to the defendant; a
temporary restraining order or preliminary injunction may be granted
without bond. In the case of an action brought by the Commission, if a
complaint under section 45 of this title is not filed within such period (not
exceeding 10 days) as may be specified by the court after the issuance of
the temporary restraining order or preliminary injunction, the order or
injunction shall be dissolved by the court and be of no further force and
effect. Any suit shall be brought in the district in which such person
resides or transacts business. Whenever it appears to the court that the
ends of justice require that other persons should be parties in the action,
the court may cause them to be summoned whether or not they reside in
the district in which the court is held, and to that end process may be
served in any district.
(2) For the purposes of this subsection, the term "deceptive warranty"
means (A) a written warranty which (i) contains an affirmation, promise,
description, or representation which is either false or fraudulent, or which,
in light of all of the circumstances, would mislead a reasonable individual
exercising due care; or (ii) fails to contain information which is necessary
in light of all of the circumstances, to make the warranty not misleading to
a reasonable individual exercising due care; or (B) a written warranty
created by the use of such terms as "guaranty" or "warranty", if the terms
and conditions of such warranty so limit its scope and application as to
deceive a reasonable individual.
(d) Civil action by consumer for damages, etc.; jurisdiction; recovery of costs
and expenses; cognizable claims
(1) Subject to subsections (a)(3) and (e) of this section, a consumer
who is damaged by the failure of a supplier, warrantor, or service
XII-31
contractor to comply with any obligation under this chapter, or under a
written warranty, implied warranty, or service contract, may bring suit for
damages and other legal and equitable relief:
(A) in any court of competent jurisdiction in any State or the
District of Columbia; or
(B) in an appropriate district court of the United States, subject
to paragraph (3) of this subsection.
(2) If a consumer finally prevails in any action brought under
paragraph (1) of this subsection, he may be allowed by the court to recover
as part of the judgment a sum equal to the aggregate amount of cost and
expenses (including attorneys' fees based on actual time expended)
determined by the court to have been reasonably incurred by the plaintiff
for or in connection with the commencement and prosecution of such
action, unless the court in its discretion shall determine that such an award
of attorneys' fees would be inappropriate.
(3) No claim shall be cognizable in a suit brought under paragraph
(1)(B) of this subsection:
(A) if the amount in controversy of any individual claim
is less than the sum or value of $25;
(B) if the amount in controversy is less than the sum or
value of $50,000 (exclusive of interests and costs)
computed on the basis of all claims to be determined in this
suit; or
(C) if the action is brought as a class action, and the
number of named plaintiffs is less than one hundred.
(e) Class actions; conditions; procedures applicable
No action (other than a class action or an action respecting a warranty to
which subsection (a)(3) of this section applies) may be brought under subsection
(d) of this section for failure to comply with any obligation under any written or
implied warranty or service contract, and a class of consumers may not proceed in
a class action under such subsection with respect to such a failure except to the
extent the court determines necessary to establish the representative capacity of
the named plaintiffs, unless the person obligated under the warranty or service
contract is afforded a reasonable opportunity to cure such failure to comply. In the
case of such a class action (other than a class action respecting a warranty to
which subsection (a)(3) of this section applies) brought under subsection (d) of
this section for breach of any written or implied warranty or service contract, such
XII-32
reasonable opportunity will be afforded by the named plaintiffs and they shall at
that time notify the defendant that they are acting on behalf of the class. In the
case of such a class action, which is brought in a district court of the United
States, the representative capacity of the named plaintiffs shall be established in
the application of RULE 23 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
(f) Warrantors subject to enforcement of remedies
For purposes of this section, only the warrantor actually making a written
affirmation of fact, promise, or undertaking shall be deemed to have created a
written warranty, and any rights arising there under may be enforced under this
section only against such warrantor and no other person.
§ 2311. Applicability to other laws.
(a) Federal Trade Commission Act and Federal Seed Act
(1) Nothing contained in this chapter shall be construed to
repeal, invalidate, or supersede the Federal Trade Commission Act
[15 U.S.C. § 41 et seq.] or any statute defined therein as an
Antitrust Act.
(2) Nothing in this chapter shall be construed to repeal, invalidate, or
supersede the Federal Seed Act [7 U.S.C. § 1551 et seq.] and nothing in
this chapter shall apply to seed for planting.
(b) Rights, remedies, and liabilities
(1) Nothing in this chapter shall invalidate or restrict any right or
remedy of any consumer under State law or any other Federal law.
(2) Nothing in this chapter (other than sections 2308 and 2304(a)(2)
and (3) of this title) shall (A) affect the liability of, or impose liability on,
any person for personal injury, or (B) supersede any provision of State law
regarding consequential damages for injury to the person or other injury.
(c) State warranty laws
(1) Except as provided in subsection (b) of this section and in
paragraph (2) of this subsection, a State requirement:
(A) which relates to labeling or disclosure with respect to
written warranties or performance there under;
XII-33
(B) which is within the scope of an applicable requirement of
sections 2302, 2303, and 2304 of this title (and rules implementing
such sections), and
(C) which is not identical to a requirement of section 2302,
2303, or 2304 of this title (or a rule there under),
shall not be applicable to written warranties complying with such sections
(or rules there under).
(2) If, upon application of an appropriate State agency, the
Commission determines (pursuant to rules issued in accordance with
section 2309 of this title) that any requirement of such State covering any
transaction to which this chapter applies (A) affords protection to
consumers greater than the requirements of this chapter and (B) does not
unduly burden interstate commerce, then such State requirement shall be
applicable (notwithstanding the provisions of paragraph (1) of this
subsection) to the extent specified in such determination for so long as the
State administers and enforces effectively any such greater requirement.
(d) Other Federal warranty laws
This chapter (other than section 2302(c) of this title) shall be inapplicable
to any written warranty the making or content of which is otherwise governed by
Federal law. If only a portion of a written warranty is so governed by Federal law,
the remaining portion shall be subject to this chapter.
§ 2312. Effective dates.
(a) Effective date of chapter
Except as provided in subsection (b) of this section, this chapter shall take
effect 6 months after January 4, 1975, but shall not apply to consumer products
manufactured prior to such date.
(b) Effective date of section 2302(a)
Section 2302(a) of this title shall take effect 6 months after the final
publication of rules respecting such section; except that the Commission, for good
cause shown, may postpone the applicability of such sections until one year after
such final publication in order to permit any designated classes of suppliers to
bring their written warranties into compliance with rules promulgated pursuant to
this chapter.
(c) Promulgation of rules
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The Commission shall promulgate rules for initial implementation of this
chapter as soon as possible after January 4, 1975, but in no event later than one
year after such date.
TEXAS BUSINESS AND COMMERCE CODE
Fraud - §§ 27.01-27.02
§ 27.01. Fraud in Real Estate and Stock Transactions.
(a) Fraud in a transaction involving real estate or stock in a corporation or
joint stock company consists of a
(1) false representation of a past or existing material fact, when the
false representation is
(A) made to a person for the purpose of inducing that person to
enter into a contract; and
(B) relied on by that person in entering into that contract; or
(2) false promise to do an act, when the false promise is
(A) material;
(B) made with the intention of not fulfilling it;
(C) made to a person for the purpose of inducing that person to
enter into a contract; and
(D) relied on by that person in entering into
that contract.
(b) A person who makes a false representation or false promise commits the
fraud described in Subsection (a) of this section and is liable to the person
defrauded for actual damages.
(c) A person who makes a false representation or false promise with actual
awareness of the falsity thereof commits the fraud described in Subsection (a) of
this section and is liable to the person defrauded for exemplary damages. Actual
awareness may be inferred where objective manifestations indicate that a person
acted with actual awareness.
(d) A person who (1) has actual awareness of the falsity of a representation or
promise made by another person and (2) fails to disclose the falsity of the
representation or promise to the person defrauded, and (3) benefits from the false
XII-35
representation or promise commits the fraud described in Subsection (a) of this
section and is liable to the person defrauded for exemplary damages. Actual
awareness may be inferred where objective manifestations indicate that a person
acted with actual awareness.
(e) Any person who violates the provisions of this section shall be liable to
the person defrauded for reasonable and necessary attorney's fees, expert witness
fees, costs for copies of depositions, and costs of court.
§ 27.02. Certain Insurance Claims for Excessive Charges.
(a) A person who sells goods or services commits an offense if:
(1) the person advertises or promises to provide the good or service
and to pay:
(A) all or part of any applicable insurance deductible; or
(B) a rebate in an amount equal to all or part of any applicable
insurance deductible;
(2) the good or service is paid for by the consumer from proceeds of a
property or casualty insurance policy; and
(3) the person knowingly charges an amount for the good or service
that exceeds the usual and customary charge by the person for the good or
service by an amount equal to or greater than all or part of the applicable
insurance deductible paid by the person to an insurer on behalf of an
insured or remitted to an insured by the person as a rebate.
(b) A person who is insured under a property or casualty insurance policy
commits an offense if the person:
(1) submits a claim under the policy based on charges that are in
violation of Subsection (a) of this section; or
(2) knowingly allows a claim in violation of Subsection (a) of this
section to be submitted, unless the person promptly notifies the insurer of
the excessive charges.
(c) An offense under this section is a Class A misdemeanor.
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Principal and Surety - §§ 34.01-34.05
§ 34.01. Definition of Surety.
In this chapter, unless the context requires a different definition, "surety" includes
endorser, guarantor, drawer of a draft, which has been accepted, and every other form of
suretyship, whether created by express contract or by operation of law.
§ 34.02. Surety May Require Suit on Accrued Right of Action.
(a) When a right of action has accrued on a contract for the payment of money
or performance of an act, a surety on the contract may require by written notice
that the obligee forthwith sue on the contract.
(b) A surety who gives notice to an obligee under Subsection (a) of this
section is discharged from all liability on the contract if the obligee
(1) is not under legal disability; and either
(2) fails to sue on the contract during the first term of court after
receiving the notice, or during the second term showing good cause for the
delay; or
(3) fails to prosecute the suit to judgment and execution.
§ 34.03. Levy First on Principal’s Property.
(a) If a judgment granted against two or more defendants finds a suretyship
relation between or among them, the court shall order the sheriff to levy the
execution
(1) first, against the principal's property which is located in the county
where the judgment was granted;
(2) second, if the sheriff cannot find enough of the principal's property
in the county to satisfy the execution, against so much of the principal's
property as he finds; and
(3) third, against so much of the surety's property as is necessary to
make up the balance of the amount shown in the writ of execution.
(b) The clerk shall note the order to the sheriff on the writ
of execution.
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§ 34.04. Subrogation Rights of Surety.
(a) A judgment is not discharged by a surety's payment of it in whole or part
if the payment is compelled or, if voluntarily made, is applied to the judgment
because of the suretyship relation.
(b) A surety who pays on a judgment as described in Subsection (a) of this
section is subrogated to all of the judgment creditor's rights under the judgment.
A subrogated surety is entitled
(1) to execution on the judgment against the principal's property for
the amount of his payment, plus interest and costs; and
(2) if there is more than one surety, to execution on the judgment
against both the principal's property and the property of his cosurety or
cosureties for the amount his payment exceeded his proportionate share of
the judgment, plus interest and costs.
(c) A subrogated surety seeking execution under Subsection (b) of this section
shall apply for it to the clerk or court, and execution shall be levied, collected, and
returned as in other cases.
§ 34.05. Officer Compelled to Pay on Judgment Treated as Surety.
(a) An officer has the rights of a surety provided in Section 34.04 of this code
if compelled to pay a judgment in whole or part because of his default.
(b) An officer who fails to pay over money collected, or who wastes property
levied on by him or in his possession, does not have the rights of a surety
provided in Section 34.04 of this code.
Miscellaneous Commercial Provisions
§ 35.52. Law Applicable to Construction Contracts.
(a) If a contract is principally for the construction or repair of improvements
to real property located in this state and the contract contains a provision that
makes the contract or any conflict arising under it subject to the law of another
state, to litigation in the courts of another state, or to arbitration in another state,
that provision is voidable by the party that is obligated by the contract to perform
the construction or repair.
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(b) A contract is principally for the construction or repair of improvements to
real property located in this state if the contract obligates a party, as its principal
obligation under the contract, to provide labor, or labor and materials, for the
construction or repair of improvements to real property located in this state as a
general contractor or subcontractor.
(c) A contract is not principally for the construction or repair of
improvements to real property located in this state if:
(1) the contract is a partnership agreement or other agreement
governing an entity or trust;
(2) the contract provides for a loan or other extension of credit and the
party promising to construct or repair improvements does so as part of its
agreements with the lender or other extender of credit; or
(3) the contract is for the management of real property or
improvements and the obligation to construct or repair is part of that
management.
(d) Subsections (b) and (c) of this section are not an exclusive list of situations
in which a contract is or is not principally for the construction or repair of
improvements to real property located in this state.
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TEXAS CIVIL PRACTICE AND REMEDIES CODE
Property Owner’s Liability For Acts Of Independent Contractors And Amount Of
Recovery – §§ 95.001 – 95.004
§ 95.001. Definitions.
In this chapter:
(1) 'Claim' means a claim for damages caused by negligence,
including a counterclaim, cross-claim, or third party claim.
(2) 'Claimant' means a party making a claim subject to this chapter.
(3) 'Property owner' means a person or entity that owns real property
primarily used for commercial or business purposes.
§ 95.002. Applicability.
This chapter applies only to a claim:
(1) against a property owner, contractor, or subcontractor for personal
injury, death, or property damage to an owner, a contractor, or a
subcontractor or an employee of a contractor or subcontractor; and
(2) that arises from the condition or use of an improvement to real
property where the contractor or subcontractor constructs, repairs,
renovates, or modifies the improvement.
§ 95.003. Liability for Acts of Independent Contractors.
A property owner is not liable for personal injury, death, or property damage to a
contractor, subcontractor, or an employee of a contractor or subcontractor who
constructs, repairs, renovates, or modifies an improvement to real property, including
personal injury, death, or property damage arising from the failure to provide a safe
workplace unless:
(1) the property owner exercises or retains some control over the
manner in which the work is performed, other than the right to order the
work to start or stop or to inspect progress or receive reports; and
(2) the property owner had actual knowledge of the danger or
condition resulting in the personal injury, death, or property damage and
failed to adequately warn.
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§ 95.004. Evidence Admissible.
In the trial of a case against a contractor, subcontractor, or property owner for
personal injury, property damage, or death to a contractor, a subcontractor, or an
employee of a contractor or subcontractor that arises from the condition or use of an
improvement to real property where the contractor or subcontractor constructs, repairs,
renovates, or modifies the improvement, the trial judge, outside the presence of the jury,
shall receive evidence of workers' compensation benefits paid and shall deduct the
amount of the benefits from the damages awarded by the trier of fact. The deduction for
workers' compensation benefits does not apply unless the workers' compensation carrier's
subrogation rights have been waived.
Permission To Sue The State – §§ 107.001 – 107.004
§ 107.001. Grants of Permission Covered.
This chapter applies to resolutions granting permission to sue the state or any of
the agencies of government that collectively constitute the government of this state,
including agencies, departments, bureaus, boards, commissions, offices, agencies,
councils, courts, and institutions of higher education as defined by Section 61.003,
Education Code.
§ 107.002. Effect of Grant of Permission.
(a) A resolution that grants a person permission to sue the state has the
following effect and the permission is granted subject to the following conditions:
(1) the claimant may sue for any relief to which the claimant is entitled
as a result of the described claim;
(2) the suit must be filed before the second anniversary of the effective
date of the resolution;
(3) service of citation and other required process must be made on the
attorney general and on a person named in the resolution as a
representative of the affected state agency;
(4) the suit must be tried as other civil suits;
(5) neither the state, nor any of its employees, agents, departments,
agencies, or political subdivisions, admits to liability for, or to the truth of,
any allegation asserted by the claimant;
XII-41
(6) the alleged cause of action must be proved under the law of this
state as in other civil suits;
(7) the state does not waive any defense, of law or fact, available to
the state or to any of its employees or agents;
(8) the state reserves every defense, except the defense of immunity
from suit without legislative permission;
(9) the state's ability to plead res judicata to any issue is not affected;
(10) the state does not grant permission to recover exemplary or
punitive damages;
(11) the state's sovereign immunity under the Eleventh Amendment to
the United States Constitution is not waived; and
(12) the state does not grant permission to be sued in
any federal court.
(b) A resolution granting permission to sue does not waive to any extent
immunity from liability.
§ 107.003. Method Exclusive.
(a) A resolution may grant permission to sue the state only in accordance with
this chapter.
(b) A resolution may not alter the effect of the permission as described by
Section 107.002, except that a resolution may further limit the relief to which the
claimant may be entitled.
§ 107.004. Additional Conditions.
A resolution may specifically provide additional conditions to which a grant of
permission to sue is subject.
§ 107.005. Effect on Other Laws.
This chapter does not affect a waiver of immunity from suit contained in other
law.
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Indemnification In Certain Construction Contracts
§ 130.001. Definition.
In this chapter 'construction contract' means a contract or agreement made and
entered into by an owner, contractor, subcontractor, registered architect, licensed
engineer, or supplier concerning the design, construction, alteration, repair, or
maintenance of a building, structure, appurtenance, road, highway, bridge, dam, levee, or
other improvement to or on real property, including moving, demolition, and excavation
connected with the real property.
§ 130.002. Covenant or Promise Void and Unenforceable.
(a) A covenant or promise in, in connection with, or collateral to a
construction contract is void and unenforceable if the covenant or promise
provides for a contractor who is to perform the work that is the subject of the
construction contract to indemnify or hold harmless a registered architect,
licensed engineer or an agent, servant, or employee of a registered architect or
licensed engineer from liability for damage that:
(1) is caused by or results from:
(A) defects in plans, designs, or specifications prepared,
approved, or used by the architect or engineer; or
(B) negligence of the architect or engineer in the rendition or
conduct of professional duties called for or arising out of the
construction contract and the plans, designs, or specifications that
are a part of the construction contract; and
(2) arises from:
(A) personal injury or death;
(B) property injury; or
(C) any other expense that arises from personal injury, death, or
property injury.
(b) A covenant or promise in, in connection with, or collateral to a
construction contract other than a contract for a single family or multifamily
residence is void and unenforceable if the covenant or promise provides for a
registered architect or licensed engineer whose engineering or architectural design
services are the subject of the construction contract to indemnify or hold harmless
XII-43
an owner or owner's agent or employee from liability for damage that is caused by
or results from the negligence of an owner or an owner's agent or employee.
§ 130.003. Insurance Contract; Workers’ Compensation.
This chapter does not apply to:
(1) an insurance contract; or
(2) a workers' compensation agreement.
§ 130.004. Owner of Interest in Real Property.
(a) Except as provided by Section 130.002(b), this chapter does not apply to
an owner of an interest in real property or persons employed solely by that owner.
(b) Except as provided by Section 130.002(b), this chapter does not prohibit
or make void or unenforceable a covenant or promise to:
(1) indemnify or hold harmless an owner of an interest in real property
and persons employed solely by that owner; or
(2) allocate, release, liquidate, limit, or exclude liability in connection
with a construction contract between an owner or other person for whom a
construction contract is being performed and a registered architect or
licensed engineer.
§ 130.005. Application of Chapter.
This chapter does not apply to a contract or agreement in which an architect or
engineer or an agent, servant, or employee of an architect or engineer is indemnified from
liability for:
(1) negligent acts other than those described by this chapter; or
(2) negligent acts of the contractor, any subcontractor, any person
directly or indirectly employed by the contractor or a subcontractor, or any
person for whose acts the contractor or a subcontractor may be liable.
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Design Professionals - §§ 150.001-150.002
§ 150.001. Definition.
In this chapter, 'design professional' means a registered architect or licensed
professional engineer.
§ 150.002. Certificate of Merit.
(a) In any action for damages alleging professional negligence by a design
professional, the plaintiff shall be required to file with the complaint an affidavit
of a third-party registered architect or licensed professional engineer competent to
testify and practicing in the same area of practice as the defendant, which affidavit
shall set forth specifically at least one negligent act, error, or omission claimed to
exist and the factual basis for each such claim. The third-party professional
engineer or registered architect shall be licensed in this state and actively engaged
in the practice of architecture or engineering.
(b) The contemporaneous filing requirement of Subsection (a) shall not apply
to any case in which the period of limitation will expire within 10 days of the date
of filing and, because of such time constraints, the plaintiff has alleged that an
affidavit of a third-party registered architect or professional engineer could not be
prepared. In such cases, the plaintiff shall have 30 days after the filing of the
complaint to supplement the pleadings with the affidavit. The trial court may, on
motion, after hearing and for good cause, extend such time, as it shall determine
justice requires.
(c) The defendant shall not be required to file an answer to the complaint and
affidavit until 30 days after the filing of such affidavit.
(d) The plaintiff's failure to file the affidavit in accordance with Subsection (a)
or (b) may result in dismissal with prejudice of the complaint against the
defendant.
(e) This statute shall not be construed to extend any applicable period of
limitation or repose.
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TEXAS EDUCATION CODE
Fiscal Management
§ 44.031. Purchasing Contracts.
(a) Except as provided by this subchapter, all school district contracts, except
contracts for the purchase of produce or vehicle fuel, valued at $25,000 or more in
the aggregate for each 12-month period shall be made by the method, of the
following methods, that provides the best value for the district:
(1) competitive bidding;
(2) competitive sealed proposals;
(3) a request for proposals, for services other than construction
services;
(4) a catalogue purchase as provided by Subchapter B, Chapter 2157,
GOVERNMENT CODE;
(5) an interlocal contract;
(6) a design/build contract;
(7) a contract to construct, rehabilitate, alter, or repair facilities that
involves using a construction manager;
(8) a job order contract for the minor construction, repair,
rehabilitation, or alteration of a facility;
(9) the reverse auction procedure as defined by Section 2155.062(d),
GOVERNMENT CODE; or
(10) the formation of a political subdivision corporation under Section
304.001, LOCAL GOVERNMENT CODE.
(b) Except as provided by this subchapter, in determining to whom to award a
contract, the district may consider:
(1) the purchase price;
(2) the reputation of the vendor and of the vendor's goods or services;
(3) the quality of the vendor's goods or services;
XII-46
(4) the extent to which the goods or services meet the
district's needs;
(5) the vendor's past relationship with the district;
(6) the impact on the ability of the district to comply with laws and
rules relating to historically underutilized businesses;
(7) the total long-term cost to the district to acquire the vendor's goods
or services; and
(8) any other relevant factor specifically listed in the request for bids
or proposals.
(c) The state auditor may audit purchases of goods or services by the district.
(d) The board of trustees of the district may adopt rules and procedures for the
acquisition of goods or services.
(e) To the extent of any conflict, this subchapter prevails over any other law
relating to the purchasing of goods and services except a law relating to
contracting with historically underutilized businesses.
(f) This section does not apply to a contract for professional services
rendered, including services of an architect, attorney, or fiscal agent. A school
district may, at its option, contract for professional services rendered by a
financial consultant or a technology consultant in the manner provided by Section
2254.003, GOVERNMENT CODE, in lieu of the methods provided by this section.
(g) Notice of the time by when and place where the bids or proposals, or the
responses to a request for qualifications, will be received and opened shall be
published in the county in which the district's central administrative office is
located, once a week for at least two weeks before the deadline for receiving bids,
proposals, or responses to a request for qualifications. If there is not a newspaper
in that county, the advertising shall be published in a newspaper in the county
nearest the county seat of the county in which the district's central administrative
office is located. In a two-step procurement process, the time and place where the
second-step bids, proposals, or responses will be received are not required to be
published separately.
Text of subsec. (h) as amended by Acts 1999, 76th Leg., ch. 922, § 1
(h) If school equipment, a school facility, or a portion of a school facility is
destroyed, severely damaged, or experiences a major unforeseen operational or
structural failure, and the board of trustees determines that the delay posed by the
contract methods required by this section would prevent or substantially impair
XII-47
the conduct of classes or other essential school activities, then contracts for the
replacement or repair of the equipment, school facility, or portion of the school
facility may be made by a method other than the methods required by this section.
Text of subsec. (h) as amended by Acts 1999, 76th Leg., ch. 1225, § 1
(h) If school equipment or a part of a school facility or personal property is
destroyed or severely damaged or, as a result of an unforeseen catastrophe or
emergency, undergoes major operational or structural failure, and the board of
trustees determines that the delay posed by the methods provided for in this
section would prevent or substantially impair the conduct of classes or other
essential school activities, then contracts for the replacement or repair of the
equipment or the part of the school facility may be made by methods other than
those required by this section.
(i) A school district may acquire computers and computer-related equipment,
including computer software, through the General Services Commission under
contracts entered into in accordance with Chapter 2157, GOVERNMENT CODE.
Before issuing an invitation for bids, the commission shall consult with the
agency concerning the computer and computer-related equipment needs of school
districts. To the extent possible the resulting contract shall provide for such
needs.
(j) Without complying with Subsection (a), a school district may purchase an
item that is available from only one source, including:
(1) an item for which competition is precluded because of the
existence of a patent, copyright, secret process, or monopoly;
(2) a film, manuscript, or book;
(3) a utility service, including electricity, gas, or water; and
(4) a captive replacement part or component for equipment.
(k) The exceptions provided by Subsection (j) do not apply to mainframe
data-processing equipment and peripheral attachments with a single-item
purchase price in excess of $15,000.
(l) Each contract proposed to be made by a school district for the purchase or
lease of one or more school buses, including a lease with an option to purchase,
must be submitted to competitive bidding when the contract is valued at $20,000
or more.
(m) If a purchase is made at the campus level in a school district with an
average daily attendance of 190,000 or more as determined under Section 42.005
XII-48
that has formally adopted a site-based decision-making plan under Subchapter F,
Chapter 11, that delegates purchasing decisions to the campus level, this section
applies only to the campus and does not require the district to aggregate and
jointly award purchasing contracts. A district that adopts site-based purchasing
under this subsection shall adopt a policy to ensure that campus purchases achieve
the best value to the district and are not intended or used to avoid the requirement
that a district aggregate purchases under Subsection (a).
§ 44.034. Notification of Criminal History of Contractor.
(a) A person or business entity that enters into a contract with a school district
must give advance notice to the district if the person or an owner or operator of
the business entity has been convicted of a felony. The notice must include a
general description of the conduct resulting in the conviction of a felony.
(b) A school district may terminate a contract with a person or business entity
if the district determines that the person or business entity failed to give notice as
required by Subsection (a) or misrepresented the conduct resulting in the
conviction. The district must compensate the person or business entity for
services performed before the termination of the contract.
(c) This section does not apply to a publicly held corporation.
§ 44.035. Evaluation of Bids and Proposals for Construction Services.
(a) The board of trustees of a school district that is considering a construction
contract using a method specified by Section 44.031(a) must, before advertising,
determine which method provides the best value for the district.
(b) The district shall base its selection among offerors on criteria authorized to
be used under Section 44.031(b). The district shall publish in the request for bids,
proposals, or qualifications the criteria that will be used to evaluate the offerors
and the relative weights given to the criteria.
(c) The district shall document the basis of its selection and shall make the
evaluations public not later than the seventh day after the date the contract is
awarded.
§ 44.036. Design-Build Contracts for Facilities.
(a) In this section:
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(1) "Design-build contract" means a single contract with a design-
build firm for the design and construction of a facility.
(2) "Design-build firm" means a partnership, corporation, or other
legal entity or team that includes an engineer or architect and builder
qualified to engage in building construction in Texas.
(3) "Design criteria package" means a set of documents that provides
sufficient information to permit a design-build firm to prepare a response
to a school district's request for qualifications and any additional
information requested, including criteria for selection. The design criteria
package must specify criteria the district considers necessary to describe
the project and may include, as appropriate, the legal description of the
site, survey information concerning the site, interior space requirements,
special material requirements, material quality standards, conceptual
criteria for the project, special equipment requirements, cost or budget
estimates, time schedules, quality assurance and quality control
requirements, site development requirements, applicable codes and
ordinances, provisions for utilities, parking requirements, or any other
requirement, as applicable.
(b) A school district may use the design-build method for the construction,
rehabilitation, alteration, or repair of a facility. In using that method and in
entering into a contract for the services of a design-build firm, the contracting
school district and the design-build firm shall follow the procedures provided by
Subsections (c)-(j).
(c) The district shall designate an engineer or architect independent of the
design-build firm to act as its representative for the duration of the work on the
facility. If the district's engineer or architect is not a full-time employee of the
district, any engineer or architect designated shall be selected on the basis of
demonstrated competence and qualifications in accordance with Section
2254.004, GOVERNMENT CODE.
(d) The district shall prepare a request for qualifications that includes general
information on the project site, project scope, budget, special systems, selection
criteria, and other information that may assist potential design-build firms in
submitting proposals for the project. The district shall also prepare the design
criteria package that includes more detailed information on the project. If the
preparation of the design criteria package requires engineering or architectural
services that constitute the practice of engineering within the meaning of Chapter
1001, OCCUPATIONS CODE, or the practice of architecture within the meaning of
Chapter 1051, OCCUPATIONS CODE, those services shall be provided in
accordance with the applicable law.
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(e) The district shall evaluate statements of qualifications and select a design-
build firm in two phases:
(1) In phase one, the district shall prepare a request for qualifications
and evaluate each offeror's experience, technical competence, and
capability to perform, the past performance of the offeror's team and
members of the team, and other appropriate factors submitted by the team
or firm in response to the request for qualifications, except that cost-
related or price-related evaluation factors are not permitted. Each offeror
must certify to the district that each engineer or architect that is a member
of its team was selected based on demonstrated competence and
qualifications, in the manner provided by Section 2254.004, GOVERNMENT
CODE. The district shall qualify a maximum of five offerors to submit
additional information and, if the district chooses, to interview for final
selection.
(2) In phase two, the district shall evaluate the information submitted
by the offerors on the basis of the selection criteria stated in the request for
qualifications and the results of any interview. The district may request
additional information regarding demonstrated competence and
qualifications, considerations of the safety and long-term durability of the
project, the feasibility of implementing the project as proposed, the ability
of the offeror to meet schedules, costing methodology, or other factors as
appropriate. The district may not require offerors to submit detailed
engineering or architectural designs as part of the proposal. The district
shall rank each proposal submitted on the basis of the criteria set forth in
the request for qualifications. The district shall select the design-build
firm that submits the proposal offering the best value for the district on the
basis of the published selection criteria and on its ranking evaluations.
The district shall first attempt to negotiate with the selected offeror a
contract. If the district is unable to negotiate a satisfactory contract with
the selected offeror, the district shall, formally and in writing, end
negotiations with that offeror and proceed to negotiate with the next
offeror in the order of the selection ranking until a contract is reached or
negotiations with all ranked offerors end.
(f) Following selection of a design-build firm under Subsection (e), that firm's
engineers or architects shall complete the design, submitting all design elements
for review and determination of scope compliance to the district or district's
engineer or architect before or concurrently with construction.
(g) An engineer shall have responsibility for compliance with the engineering
design requirements and all other applicable requirements of Chapter 1001,
OCCUPATIONS CODE. An architect shall have responsibility for compliance with
the requirements of Chapter 1051, OCCUPATIONS CODE.
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(h) The district shall provide or contract for, independently of the design-build
firm, the inspection services, the testing of construction materials engineering,
and the verification testing services necessary for acceptance of the facility by the
district. The district shall select those services for which it contracts in
accordance with Section 2254.004, GOVERNMENT CODE.
(i) The design-build firm shall supply a signed and sealed set of construction
documents for the project to the district at the conclusion of construction.
(j) A payment or performance bond is not required for, and may not provide
coverage for, the portion of a design-build contract under this section that
includes design services only. If a fixed contract amount or guaranteed maximum
price has not been determined at the time a design-build contract is awarded, the
penal sums of the performance and payment bonds delivered to the district must
each be in an amount equal to the project budget, as specified in the design
criteria package. The design-build firm shall deliver the bonds not later than the
10th day after the date the design-build firm executes the contract unless the
design-build firm furnishes a bid bond or other financial security acceptable to the
district to ensure that the design-build firm will furnish the required performance
and payment bonds when a guaranteed maximum price is established.
§ 44.037. Contracts for Facilities: Construction Manager-Agent.
(a) A school district may use the construction manager-agent method for the
construction, rehabilitation, alteration, or repair of a facility. In using that method
and in entering into a contract for the services of a construction manager-agent, a
district shall follow the procedures prescribed by this section.
(b) A construction manager-agent is a sole proprietorship, partnership,
corporation, or other legal entity that provides consultation to the school district
regarding construction, rehabilitation, alteration, or repair of the facility. A
district using the construction manager-agent method may, under the contract
between the district and the construction manager-agent, require the construction
manager-agent to provide administrative personnel, equipment necessary to
perform duties under this section, and on-site management and other services
specified in the contract. A construction manager-agent represents the district in a
fiduciary capacity.
(c) Before or concurrently with selecting a construction manager-agent, the
district shall select or designate an engineer or architect who shall prepare the
construction documents for the project and who has full responsibility for
complying with Chapter 1001 or 1051, OCCUPATIONS CODE, as applicable. If the
engineer or architect is not a full-time employee of the district, the district shall
select the engineer or architect on the basis of demonstrated competence and
qualifications as provided by Section 2254.004, GOVERNMENT CODE. The
district's engineer or architect may not serve, alone or in combination with another
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person, as the construction manager-agent unless the engineer or architect is hired
to serve as the construction manager-agent under a separate or concurrent
procurement conducted in accordance with this subchapter. This subsection does
not prohibit the district's engineer or architect from providing customary
construction phase services under the engineer or architect's original professional
service agreement in accordance with applicable licensing laws.
(d) A district shall select a construction manager-agent on the basis of
demonstrated competence and qualifications in the same manner as provided for
the selection of engineers or architects under Section 2254.004, GOVERNMENT
CODE.
(e) A district using the construction manager-agent method shall procure, in
accordance with applicable law and in any manner authorized by this chapter, a
general contractor, trade contractors, or subcontractors who will serve as the
prime contractor for their specific portion of the work.
(f) The district or the construction manager-agent shall procure in accordance
with Section 2254.004, GOVERNMENT CODE, all of the testing of construction
materials engineering, the inspection services, and the verification testing services
necessary for acceptance of the facility by the district.
§ 44.038. Contracts for Facilities: Construction Manager-at-Risk.
(a) A school district may use the construction manager-at-risk method for the
construction, rehabilitation, alteration, or repair of a facility. In using that method
and in entering into a contract for the services of a construction manager-at-risk, a
district shall follow the procedures prescribed by this section.
(b) A construction manager-at-risk is a sole proprietorship, partnership,
corporation, or other legal entity that assumes the risk for construction,
rehabilitation, alteration, or repair of a facility at the contracted price as a general
contractor and provides consultation to the school district regarding construction
during and after the design of the facility.
(c) Before or concurrently with selecting a construction manager-at-risk, the
district shall select or designate an engineer or architect who shall prepare the
construction documents for the project and who has full responsibility for
complying with Chapter 1001 or 1051, OCCUPATIONS CODE, as applicable. If the
engineer or architect is not a full-time employee of the district, the district shall
select the engineer or architect on the basis of demonstrated competence and
qualifications as provided by Section 2254.004, GOVERNMENT CODE. The
district's engineer, architect, or construction manager-agent for a project may not
serve, alone or in combination with another, as the construction manager-at-risk
unless the engineer or architect is hired to serve as the construction manager-at-
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risk under a separate or concurrent procurement conducted in accordance with
this subchapter. This subsection does not prohibit the district's engineer or
architect from providing customary construction phase services under the
engineer or architect's original professional service agreement in accordance with
applicable licensing laws.
(d) The district shall provide or contract for, independently of the construction
manager-at-risk, the inspection services, the testing of construction materials
engineering, and the verification testing services necessary for acceptance of the
facility by the district. The district shall select those services for which it
contracts in accordance with Section 2254.004, GOVERNMENT CODE.
(e) The district shall select the construction manager-at-risk in either a one-
step or two-step process. The district shall prepare a request for proposals, in the
case of a one-step process, or a request for qualifications, in the case of a two-step
process, that includes general information on the project site, project scope,
schedule, selection criteria, estimated budget, and the time and place for receipt of
proposals or qualifications, as applicable, a statement as to whether the selection
process is a one-step or two-step process, and other information that may assist
the district in its selection of a construction manager-at-risk. The district shall
state the selection criteria in the request for proposals or qualifications, as
applicable. The selection criteria may include the offeror's experience, past
performance, safety record, proposed personnel and methodology, and other
appropriate factors that demonstrate the capability of the construction manager-at-
risk. If a one-step process is used, the district may request, as part of the offeror's
proposal, proposed fees and prices for fulfilling the general conditions. If a two-
step process is used, the district may not request fees or prices in step one. In step
two, the district may request that five or fewer offerors, selected solely on the
basis of qualifications, provide additional information, including the construction
manager-at-risk's proposed fee and its price for fulfilling the general conditions.
(f) At each step, the district shall receive, publicly open, and read aloud the
names of the offerors. At the appropriate step, the district shall also read aloud
the fees and prices, if any, stated in each proposal as the proposal is opened.
Within 45 days after the date of opening the proposals, the district shall evaluate
and rank each proposal submitted in relation to the criteria set forth in the request
for proposals.
(g) The district shall select the offeror that submits the proposal that offers the
best value for the district based on the published selection criteria and on its
ranking evaluation. The district shall first attempt to negotiate with the selected
offeror a contract. If the district is unable to negotiate a satisfactory contract with
the selected offeror, the district shall, formally and in writing, end negotiations
with that offeror and proceed to negotiate with the next offeror in the order of the
selection ranking until a contract is reached or negotiations with all ranked
offerors end.
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(h) A construction manager-at-risk shall publicly advertise, in accordance
with Section 44.031(g), and receive bids or proposals from trade contractors or
subcontractors for the performance of all major elements of the work other than
the minor work that may be included in the general conditions. A construction
manager-at-risk may seek to perform portions of the work itself if the construction
manager-at-risk submits its bid or proposal for those portions of the work in the
same manner as all other trade contractors or subcontractors and if the district
determines that the construction manager-at-risk's bid or proposal provides the
best value for the district.
(i) The construction manager-at-risk and the district or its representative shall
review all trade contractor or subcontractor bids or proposals in a manner that
does not disclose the contents of the bid or proposal during the selection process
to a person not employed by the construction manager-at-risk, engineer, architect,
or district. All bids or proposals shall be made public after the award of the
contract or within seven days after the date of final selection of bids or proposals,
whichever is later.
(j) If the construction manager-at-risk reviews, evaluates, and recommends to
the district a bid or proposal from a trade contractor or subcontractor but the
district requires another bid or proposal to be accepted, the district shall
compensate the construction manager-at-risk by a change in price, time, or
guaranteed maximum cost for any additional cost and risk that the construction
manager-at-risk may incur because of the district's requirement that another bid or
proposal be accepted.
(k) If a selected trade contractor or subcontractor defaults in the performance
of its work or fails to execute a subcontract after being selected in accordance
with this section, the construction manager-at-risk may, without advertising, itself
fulfill the contract requirements or select a replacement trade contractor or
subcontractor to fulfill the contract requirements.
(l) If a fixed contract amount or guaranteed maximum price has not been
determined at the time the contract is awarded, the penal sums of the performance
and payment bonds delivered to the district must each be in an amount equal to
the project budget, as specified in the request for qualifications. The construction
manager shall deliver the bonds not later than the 10th day after the date the
construction manager executes the contract unless the construction manager
furnishes a bid bond or other financial security acceptable to the district to ensure
that the construction manager will furnish the required performance and payment
bonds when a guaranteed maximum price is established.
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§ 44.039. Selecting Contractor for Construction Services Through Competitive
Sealed Proposals.
(a) In selecting a contractor for construction, rehabilitation, alteration, or
repair services for a facility through competitive sealed proposals, a school district
shall follow the procedures prescribed by this section.
(b) The district shall select or designate an engineer or architect to prepare
construction documents for the project. The selected or designated engineer or
architect has full responsibility for complying with Chapter 1001 or 1051,
OCCUPATIONS CODE, as applicable. If the engineer or architect is not a full-time
employee of the district, the district shall select the engineer or architect on the
basis of demonstrated competence and qualifications as provided by Section
2254.004, GOVERNMENT CODE.
(c) The district shall provide or contract for, independently of the contractor,
the inspection services, the testing of construction materials engineering, and the
verification testing services necessary for acceptance of the facility by the district.
The district shall select those services for which it contracts in accordance with
Section 2254.004, GOVERNMENT CODE, and shall identify them in the request for
proposals.
(d) The district shall prepare a request for competitive sealed proposals that
includes construction documents, selection criteria, estimated budget, project
scope, schedule, and other information that contractors may require to respond to
the request. The district shall state in the request for proposals the selection
criteria that will be used in selecting the successful offeror.
(e) The district shall receive, publicly open, and read aloud the names of the
offerors and, if any are required to be stated, all prices stated in each proposal.
Within 45 days after the date of opening the proposals, the district shall evaluate
and rank each proposal submitted in relation to the published selection criteria.
(f) The district shall select the offeror that offers the best value for the district
based on the published selection criteria and on its ranking evaluation. The
district shall first attempt to negotiate with the selected offeror a contract. The
district and its engineer or architect may discuss with the selected offeror options
for a scope or time modification and any price change associated with the
modification. If the district is unable to negotiate a contract with the selected
offeror, the district shall, formally and in writing, end negotiations with that
offeror and proceed to the next offeror in the order of the selection ranking until a
contract is reached or all proposals are rejected.
(g) In determining best value for the district, the district is not restricted to
considering price alone, but may consider any other factor stated in the selection
criteria.
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§ 44.040. Selecting Contractor for Construction Services Through Competitive
Bidding.
(a) Except to the extent prohibited by other law and to the extent consistent
with this subchapter, a school district may use competitive bidding to select a
contractor to perform construction, rehabilitation, alteration, or repair services for
a facility.
(b) Except as otherwise specifically provided by this subsection, Subchapter
B, Chapter 271, LOCAL GOVERNMENT CODE, does not apply to a competitive
bidding process under this subchapter. Sections 271.026, 271.027(a), and
271.0275, LOCAL GOVERNMENT CODE, apply to a competitive bidding process
under this subchapter.
(c) The district shall select or designate an engineer or architect to prepare
construction documents for the project. The selected or designated engineer or
architect has full responsibility for complying with Chapter 1001 and Chapter
1051, OCCUPATIONS CODE, as applicable.
(d) A school district shall award a competitively bid contract at the bid
amount to the bidder offering the best value to the district according to the
selection criteria that were established by the district. The selection criteria may
include the factors listed in Section 44.031(b).
§ 44.041. Job Order Contracts for Facilities Construction or Repair.
(a) A school district may award job order contracts for the minor construction,
repair, rehabilitation, or alteration of a facility if the work is of a recurring nature
but the delivery times are indefinite and indefinite quantities and orders are
awarded substantially on the basis of predescribed and prepriced tasks.
(b) The school district may establish contractual unit prices for a job order
contract by:
(1) specifying one or more published construction unit price books and
the applicable divisions or line items; or
(2) providing a list of work items and requiring the offerors to bid or
propose one or more coefficients or multipliers to be applied to the price
book or work items as the price proposal.
(c) The school district shall advertise for, receive, and publicly open sealed
proposals for job order contracts.
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(d) The district may require offerors to submit additional information besides
rates, including experience, past performance, and proposed personnel and
methodology.
(e) The district may award job order contracts to one or more job order
contractors in connection with each solicitation of bids or proposals.
(f) An order for a job or project under the job order contract must be signed
by the district's representative and the contractor. The order may be a fixed price;
lump-sum contract based substantially on contractual unit pricing applied to
estimated quantities or may be a unit price order based on the quantities and line
items delivered.
(g) The contractor shall provide payment and performance bonds, if required
by law, based on the amount or estimated amount of any order.
(h) The base term of a job order contract is for the period and with any
renewal option that the district sets forth in the request for proposals. If the
district fails to advertise that term, the base term may not exceed two years and is
not renewable without further advertisement and solicitation of proposals.
(i) If a job order contract or an order issued under the contract requires
engineering or architectural services that constitute the practice of engineering
within the meaning of Chapter 1001, OCCUPATIONS CODE, or the practice of
architecture within the meaning of Chapter 1051, OCCUPATIONS CODE, those
services shall be provided in accordance with applicable law.
TEXAS GOVERNMENT CODE
Chapter 2251- Payment for Goods and Services- Texas Public Prompt Pay Act
§ 2251.001. Definitions.
Except as otherwise provided by this chapter, in this chapter:
(1) "Distribution date" means:
(A) if no payment law prohibits the comptroller from issuing a
warrant, the date the comptroller makes the warrant available:
(i) for mailing directly to its payee under Section
2155.382(c); or
(ii) to the state agency that requested issuance of the
warrant;
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(B) if no payment law prohibits the comptroller from initiating
an electronic funds transfer, the date the comptroller initiates the
transfer;
(C) if a payment law prohibits the comptroller from issuing a
warrant, the date the comptroller would have made the warrant
available, in the absence of the payment law:
(i) for mailing directly to its payee under Section
2155.382(c); or
(ii) to the state agency that requested issuance of the
warrant; or
(D) if a payment law prohibits the comptroller from initiating
an electronic funds transfer, the date the comptroller would have
made the warrant prepared under Section 403.0552(b) available, in
the absence of the payment law:
(i) for mailing directly to its payee under Section
2155.382(c); or
(ii) to the state agency that requested initiation of the
transfer.
(2) "Goods" includes supplies, materials, or
equipment.
(3) "Governmental entity" means a state agency or
political subdivision of this state.
(4) "Payment" means money owed to a vendor.
(5) "Payment law" means:
(A) Section 57.48 or 57.482, Education Code;
(B) Section 231.007, Family Code;
(C) Section 403.055 or 2107.008; or
(D) any similar statute.
(6) "Political subdivision" means:
(A) a county;
(B) a municipality;
(C) a public school district; or
(D) special-purpose district or authority.
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(7) "Service" includes gas and water utility service.
(8) "State agency" means:
(A) a board, commission, department, office, or other agency in
the executive branch of state government that is created by the
constitution or a statute of this state, including a river authority and
an institution of higher education as defined by Section 61.003,
Education Code;
(B) the legislature or a legislative agency; or
(C) the Supreme Court of Texas, the Court of Criminal Appeals
of Texas, a court of appeals, a state judicial agency, or the State
Bar of Texas.
(9) "Subcontractor" means a person who contracts with a vendor to
work or contribute toward completing work for a governmental entity. The term
does not include a state agency. The term includes an officer or employee of a
state agency when the officer or employee contracts with a vendor in a private
capacity.
(10) "Vendor" means a person who supplies goods or a service to a
governmental entity or another person directed by the entity. The term does not
include a state agency, except for Texas Correctional Industries. The term
includes an officer or employee of a state agency when acting in a private
capacity to supply goods or a service.
§ 2251.002. Exceptions.
(a) Except as provided by Subchapter D, Subchapter B does not apply to a
payment made by a governmental entity, vendor, or subcontractor if:
(1) there is a bona fide dispute between the political subdivision and a
vendor, contractor, subcontractor, or supplier about the goods
delivered or the service performed that causes the payment to be
late;
(2) there is a bona fide dispute between a vendor and a subcontractor
or between a subcontractor and its supplier about the goods
delivered or the service performed that causes the payment to be
late;
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(3) the terms of a federal contract, grant, regulation, or statute prevent
the governmental entity from making a timely payment with
federal funds; or
(4) the invoice is not mailed to the person to whom it is addressed in
strict accordance with any instruction on the purchase order
relating to the payment.
(b) This chapter does not affect Chapter 2253.
(c) Repealed by Acts 2001, 77th Leg., ch. 1158, § 94(4), eff. June 15, 2001.
§ 2251.003. Rules.
The General Services Commission shall establish procedures and adopt rules to
administer this chapter, except that the commission may not establish a procedure or
adopt a rule that conflicts with a procedure established or a rule adopted by the
comptroller under Section 2251.026(i).
§ 2251.004. Waiver.
A person may not waive any right or remedy granted by this chapter. A purported
waiver of any right or remedy granted by this chapter is void.
§ 2251.021. Time for Payment by Governmental Entity.
(a) Except as provided by Subsection (b), a payment by a governmental entity
under a contract executed on or after September 1, 1987, is overdue on the 31st
day after the later of:
(1) the date the governmental entity receives the goods under the
contract;
(2) the date the performance of the service under the contract is
completed; or
(3) the date the governmental entity receives an invoice for the goods
or service.
(b) A payment under a contract executed on or after September 1, 1993, owed
by a political subdivision whose governing body meets only once a month or less
frequently is overdue on the 46th day after the later event described by
Subsections (a)(1) through (3).
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(c) For a contract executed on or after July 1, 1986, and before September 1,
1987, a payment by a governmental entity under that contract is overdue on the
46th day after the later event described by Subsections (a)(1) through (3).
(d) For purposes of this section, the renewal, amendment, or extension of a
contract executed on or before September 1, 1993, is considered to be the
execution of a new contract.
§ 2251.022. Time for Payment by Vendor.
(a) A vendor who receives a payment from a governmental entity shall pay a
subcontractor the appropriate share of the payment not later than the 10th day
after the date the vendor receives the payment.
(b) The appropriate share is overdue on the 11th day after the date the vendor
receives the payment.
§ 2251.023. Time for Payment by Subcontractor.
(a) A subcontractor who receives a payment from a vendor shall pay a person
who supplies goods or a service for which the payment is made the appropriate
share of the payment not later than the 10th day after the date the subcontractor
receives the payment.
(b) The appropriate share is overdue on the 11th day after the date the
subcontractor receives the payment.
§ 2251.024. Mailing of Payment.
A payment is considered to be mailed on the date the payment is postmarked.
§ 2251.025. Interest on Overdue Payment.
(a) A payment begins to accrue interest on the date the payment becomes
overdue.
Text of subsec. (b) effective until July 1, 2004
(b) Interest accrues on an overdue payment at the rate of one percent each
month.
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Text of subsec. (b) effective July 1, 2004
(b) The rate of interest that accrues on an overdue payment is the rate in effect
on September 1 of the fiscal year in which the payment becomes overdue. The
rate in effect on September 1 is equal to the sum of:
(1) one percent; and
(2) the prime rate as published in the Wall Street Journal on the first
day of July of the preceding fiscal year that does not fall on a Saturday or
Sunday.
(c) Interest on an overdue payment stops accruing on the date the
governmental entity or vendor mails or electronically transmits the payment. In
this subsection, "governmental entity" does not include a state agency.
(d) This subsection applies only if the comptroller is not responsible for
issuing a warrant or initiating an electronic funds transfer to pay the principal
amount owed by a state agency to a vendor. The accrual of interest on an overdue
payment to the vendor:
(1) stops on the date the agency mails or electronically transmits the
payment; and
(2) is not suspended during any period that a payment law prohibits
the agency from paying the vendor.
(e) This subsection applies only if the comptroller is responsible for issuing a
warrant or initiating an electronic funds transfer to pay the principal amount owed
by a state agency to a vendor. Interest on an overdue payment to the vendor:
(1) stops accruing on its distribution date; and
(2) does not stop accruing during any period that a payment law
prohibits the comptroller from issuing the warrant or initiating the transfer.
§ 2251.026. Payment of Interest by State Agency.
(a) A state agency is liable for any interest that accrues on an overdue
payment under this chapter and shall pay the interest from funds appropriated or
otherwise available to the agency at the same time the principal is paid.
(b) The comptroller shall issue a warrant or initiate an electronic funds
transfer on behalf of a state agency to pay any interest that the agency must pay
under Subsection (a) if the comptroller is responsible for issuing a warrant or
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initiating an electronic funds transfer to pay the principal amount on behalf of the
agency.
(c) The comptroller shall determine the amount of interest that accrues on an
overdue payment by a state agency under this chapter if the comptroller is
responsible for issuing a warrant or initiating an electronic funds transfer to pay
the principal amount on behalf of the agency.
(d) A state agency shall determine the amount of interest that accrues on an
overdue payment by the agency under this chapter if the comptroller is not
responsible for issuing a warrant or initiating an electronic funds transfer to pay
the principal amount on behalf of the agency.
(e) The comptroller or state agency shall submit the interest payment with the
net amount due for the goods or services.
(f) Neither the comptroller nor a state agency may require a vendor to request
payment of the interest that accrues under this chapter before the interest is paid to
the vendor.
(g) The comptroller may require a state agency to submit any information the
comptroller determines necessary to administer and comply with Subsections (b)
and (c). The information must be submitted at the time and in the manner
required by the comptroller.
(h) The comptroller may require a state agency to change its accounting
systems or procedure as the comptroller determines necessary to administer and
comply with Subsections (b) and (c). Any changes must conform with the
comptroller's requirements.
(i) The comptroller may establish procedures and adopt rules to administer
Subsections (b), (c), (g), and (h).
(j) No interest accrues or may be paid under this section on a payment if the
total amount of interest that would otherwise have accrued is equal to or less than
$5 and the payment is made from the institutional funds of an institution of higher
education as defined by Section 61.003, Education Code.
§ 2251.027. Payment of Interest by Political Subdivision.
(a) A political subdivision shall compute interest imposed on the political
subdivision under this chapter.
(b) The political subdivision shall pay the interest at the time payment is made
on the principal.
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(c) The political subdivision shall submit the interest payment with the net
amount due for the goods or service.
(d) The political subdivision may not require a vendor to petition, bill, or wait
an additional day to receive the interest due.
(e) The political subdivision may not require a vendor or subcontractor to
agree to waive the vendor's or subcontractors right to interest under this chapter as
a condition of the contract between the parties.
§ 2251.028. Payment of Interest by Vendor or Subcontractor.
A vendor or subcontractor shall pay interest, as a payment is overdue.
§ 2251.029. Partial Payment.
(a) The unpaid balance of a partial payment made within the period provided
by this chapter accrues interest as provided by Section 2251.025 unless the
balance is in dispute.
(b) Section 2251.042 applies to a disputed balance.
§ 2251.030. Prompt or Early Payment Discount.
(a) The intent of the legislature is that a governmental entity should take
advantage of an offer for an early payment discount. A state agency shall when
possible negotiate a prompt payment discount with a vendor.
(b) A governmental entity may not take an early payment discount a vendor
offers unless the governmental entity makes a full payment within the discount
period.
(c) If a governmental entity takes an early payment discount later, the unpaid
balance accrues interest beginning on the date the discount offer expires.
(d) A state agency, when paying for the goods or service purchased under an
agreement that includes a prompt or early payment discount, shall submit the
necessary payment documents or information to the comptroller sufficiently in
advance of the prompt or early payment deadline to allow the comptroller or the
agency to pay the vendor in time to obtain the discount.
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§ 2251.042. Disputed Payment.
(a) A governmental entity shall notify a vendor of an error in an invoice
submitted for payment by the vendor not later than the 21st day after the date the
entity receives the invoice.
(b) If a dispute is resolved in favor of the vendor, the vendor is entitled to
receive interest on the unpaid balance of the invoice submitted by the vendor
beginning on the date under Section 2251.021 that the payment for the invoice is
overdue.
(c) If a dispute is resolved in favor of the governmental entity, the vendor
shall submit a corrected invoice that must be paid in accordance with Section
2251.021. The unpaid balance accrues interest as provided by this chapter if the
corrected invoice is not paid by the appropriate date.
§ 2251.043. Attorney Fees.
In a formal administrative or judicial action to collect an invoice payment or
interest due under this chapter, the opposing party, which may be the
governmental entity or the vendor, shall pay the reasonable attorney fees of the
prevailing party.
§ 2251.051. Vendor Remedy for Non-Payment of Contract.
(a) A vendor may suspend performance required under a contract with a
governmental entity if:
(1) the governmental entity does not pay the vendor an undisputed
amount within the time limits provided by Subchapter B; and
(2) the vendor gives the governmental entity written notice:
(A) informing the governmental entity that payment has not
been received; and
(B) stating the intent of the vendor to suspend performance for
nonpayment.
(b) The vendor may not suspend performance under this section before the
later of:
(1) the 10th day after the date the vendor gives notice under
Subsection (a); or
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(2) the day specified by Section 2251.053(b).
(c) A vendor who suspends performance under this section is not:
(1) required to supply further labor, services, or materials until the
vendor is paid the amount provided for under this chapter, plus costs for
demobilization and remobilization; or
(2) responsible for damages resulting from suspending work if the
governmental entity with which the vendor has the contract has not
notified the vendor in writing before performance is suspended that
payment has been made or that a bona fide dispute for payment exists.
(d) A notification under Subsection (c)(2) that a bona fide dispute for payment
exists must include a list of the specific reasons for nonpayment. If a reason
specified is that labor, services, or materials provided by the vendor or the
vendor's subcontractor are not provided in compliance with the contract, the
vendor is entitled to a reasonable opportunity to:
(1) cure the noncompliance of the listed items; or
(2) offer a reasonable amount to compensate for listed items for which
noncompliance cannot be promptly cured.
§ 2251.052. Subcontractor Remedy for Vendor’s Non-Payment of Contract.
(a) A subcontractor of a vendor under a contract with a governmental entity
may suspend performance required under the contract with the vendor if:
(1) the governmental entity with whom the subcontractor's vendor has
a contract does not pay the vendor an undisputed amount within the time
limits provided by Subchapter B; or
(2) the governmental entity with whom the subcontractor's vendor has
a contract has paid the vendor undisputed amounts and the vendor does
not pay the subcontractor an undisputed amount within the time limits
provided by Subchapter B.
(b) A subcontractor who suspends performance under Subsection (a) must
give the vendor written notice, a copy of which the subcontractor may provide the
governmental entity with which the vendor has a contract:
(1) informing the vendor that payment has not been received; and
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(2) stating the intent of the subcontractor to suspend performance for
nonpayment.
(c) The subcontractor may not suspend performance under this section before
the later of:
(1) the 10th day after the date the subcontractor gives notice under
Subsection (b); or
(2) the date specified by Section 2251.053(b), if applicable.
(d) A subcontractor who suspends performance under this section is not:
(1) required to supply further labor, services, or materials until the
subcontractor is paid the amount provided for under the contract, plus
costs for demobilization and remobilization; or
(2) responsible for damages resulting from suspending work if the
vendor has not notified the subcontractor in writing before performance is
suspended that payment has been made or the governmental entity has
notified the vendor that a bona fide dispute for payment exists.
(e) A notification under Subsection (d)(2) that a bona fide dispute for
payment exists must include a list of the specific reasons for nonpayment. If a
reason specified is that labor, services, or materials provided by the subcontractor
are not provided in compliance with the contract, the subcontractor is
entitled to a reasonable opportunity to:
(1) cure the noncompliance of the listed items; or
(2) offer a reasonable amount to compensate for listed items for which
noncompliance cannot be promptly cured.
§ 2251.053. Highway-Related Contracts.
(a) This section applies only to a contract entered into by the Texas
Department of Transportation for the construction or maintenance of
a highway or a related facility.
(b) A vendor or subcontractor may not suspend performance under Section
2251.051 or 2251.052 before the 20th day after the date:
(1) the vendor gives written notice under Section 2251.051(a); or
(2) the subcontractor gives written notice under Section 2251.052(b).
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(c) A notice required under this subchapter and relating to a contract
described by Subsection (a) must be sent by certified mail to:
(1) the executive director of the Texas Department of Transportation;
(2) the director of construction of the Texas Department of
Transportation; or
(3) the person designated in the contract as the person to whom notices
must be sent.
§ 2251.054. Notices.
(a) This section applies only to a notice or other written communication
required by this subchapter.
(b) A notice or other written communication to a governmental entity must be
delivered to:
(1) the person designated in the contract as the person to whom a
notice or other written communication must be sent; or
(2) if the contract does not designate a person to whom a notice or
other written communication must be sent, the executive director or chief
administrative officer of the governmental entity.
(c) Any notice or other written communication may be personally delivered
to a person described by Subsection (b) or the person's agent, regardless of any
other manner of delivery prescribed by law.
(d) If a notice or other written communication is sent by certified mail, the
notice is effective on the date the notice or other written communication is
deposited in the United States mail.
(e) If a notice or other written communication is sent by electronic means, the
notice or other written communication is effective on the date the person
designated or entitled to receive the notice or other written communication
receives the notice or other written communication.
(f) If a notice or other written communication is received by the person
designated or entitled to receive the notice or other written communication, the
method of delivery of the notice or other written communication is immaterial.
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§ 2251.055. Rights and Remedies Not Exclusive.
The rights and remedies provided by this subchapter are in addition to rights and
remedies provided by this chapter or other law.
CHAPTER 2253. Public Work Performance And Payment Bonds
§ 2253.001. Definitions.
In this chapter:
(1) "Governmental entity" means a governmental or quasi-
governmental authority authorized by state law to make a public work
contract, including:
(A) the state, a county, or a municipality;
(B) a department, board, or agency of the state, a county, or a
municipality; and
(C) a school district or a subdivision of a school district.
(2) "Payment bond beneficiary" means a person for whose protection
and use this chapter requires a payment bond.
(3) "Prime contractor" means a person, firm, or corporation that makes
a public work contract with a governmental entity.
(4) "Public work contract" means a contract for constructing, altering,
or repairing a public building or carrying out or completing any public
work.
(5) "Public work labor" means labor used directly to carry out a public
work.
(6) "Public work material" means:
(A) material used, or ordered and delivered for use, directly to
carry out a public work;
(B) specially fabricated material;
(C) reasonable rental and actual running repair costs for
construction equipment used, or reasonably required and delivered
for use, directly to carry out work at the project site; or
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(D) power, water, fuel, and lubricants used, or ordered and
delivered for use, directly to carry out a public work.
(7) "Retainage" means the part of the payments under a public work
contract that are not required to be paid within the month after the month
in which the public work labor is performed or public work material is
delivered under the contract.
(8) "Specially fabricated material" means material ordered by a prime
contractor or subcontractor that is:
(A) specially fabricated for use in a public work; and
(B) reasonably unsuitable for another use.
(9) "Subcontractor" means a person, firm, or corporation that provides
public work labor or material to fulfill an obligation to a prime contractor
or to a subcontractor for the performance and installation of any of the
work required by a public work contract.
§ 2253.002. Exemption.
This chapter does not apply to a public work contract entered into by a state
agency relating to an action taken under Subchapter F or I, Chapter 361, HEALTH AND
SAFETY CODE, or Subchapter I, Chapter 26, WATER CODE.
§ 2253.021. Performance and Payment Bonds Required.
(a) A governmental entity that makes a public work contract with a prime
contractor shall require the contractor, before beginning the work, to execute to
the governmental entity:
(1) a performance bond if the contract is in excess of $100,000; and
(2) a payment bonds if the contract is in excess of $25,000.
(b) The performance bond is:
(1) solely for the protection of the state or governmental entity
awarding the public work contract;
(2) in the amount of the contract; and
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(3) conditioned on the faithful performance of the work in accordance
with the plans, specifications, and contract documents.
(c) The payment bond is:
(1) solely for the protection and use of payment bond beneficiaries
who have a direct contractual relationship with the prime contractor or a
subcontractor to supply public work labor or material; and
(2) in the amount of the contract.
(d) A bond required by this section must be executed by a corporate surety in
accordance with Section 1, Chapter 87, Acts of the 56th Legislature, Regular
Session, 1959 (Article 7.19-1, Vernon's TEXAS INSURANCE CODE).
(e) A bond executed for a public work contract with the state or a department,
board, or agency of the state must be payable to the state and its form must be
approved by the attorney general. A bond executed for a public work contract
with another governmental entity must be payable to and its form must be
approved by the awarding governmental entity.
(f) A bond required under this section must clearly and prominently display
on the bond or on an attachment to the bond:
(1) the name, mailing address, physical address, and telephone
number, including the area code, of the surety company to which any
notice of claim should be sent; or
(2) the toll-free telephone number maintained by the Texas
Department of Insurance under Article 1.35D, INSURANCE CODE, and a
statement that the address of the surety company to which any notice of
claim should be sent may be obtained from the Texas Department of
Insurance by calling the toll-free telephone number.
(g) A governmental entity may not require a contractor for any public
building or other construction contract to obtain a surety bond from any specific
insurance or surety company, agent, or broker.
§ 2253.022. Performance and Payment Bonds; Insured Loss.
(a) A governmental entity shall ensure that an insurance company that is
fulfilling its obligation under a contract of insurance by arranging for the
replacement of a loss, rather than by making a cash payment directly to the
governmental entity, furnishes or has furnished by a contractor, in accordance
with this chapter:
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(1) a performance bond as described by Section 2253.021(b) for the
benefit of the governmental entity; and
(2) a payment bond as described in Section 2253.021(c) for the benefit
of the beneficiaries described by that subsection.
(b) The bonds required to be furnished under Subsection (a) must be furnished
before the contractor begins work.
(c) It is an implied obligation under a contract of insurance for the insurance
company to furnish the bonds required by this section.
(d) To recover in a suit with respect to which the insurance company has
furnished or caused to be furnished a payment bond, the only notice required of a
payment bond beneficiary is the notice given to the surety in accordance with
Subchapter C.
(e) This section does not apply to a governmental entity when a surety
company is complying with an obligation under a bond that had been issued for
the benefit of the governmental entity.
(f) If the payment bond required by Subsection (a) is not furnished, the
governmental entity is subject to the same liability that a surety would have if the
surety had issued the payment bond and the governmental entity had required the
bond to be provided. To recover in a suit under this subsection, the only notice
required of a payment bond beneficiary is a notice given to the governmental
entity, as if the governmental entity were the surety, in accordance with
Subchapter C.
§ 2253.023. Attempted Compliance.
(a) A bond furnished by a prime contractor in an attempt to comply with this
chapter shall be construed to comply with this chapter regarding the rights
created, limitations on those rights, and remedies provided.
(b) A provision in a bond furnished by a prime contractor in an attempt to
comply with this chapter that expands or restricts a right or liability under this
chapter shall be disregarded, and this chapter shall apply to that bond.
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§ 2253.024. Information from Contractor or Subcontractor.
(a) A prime contractor, on the written request of a person who provides public
work labor or material and when required by Subsection (c), shall provide to the
person:
(1) the name and last known address of the governmental entity with
which the prime contractor contracted for the public work;
(2) a copy of the payment and performance bonds for the public work,
including bonds furnished by or to the prime contractor; and
(3) the name of the surety issuing the payment bond and the
performance bond and the toll-free telephone number maintained by the
Texas Department of Insurance under Article 1.35D, Insurance Code, for
obtaining information concerning licensed insurance companies.
(b) A subcontractor, on the written request of a governmental entity, the prime
contractor, a surety on a bond that covers the public work contract, or a person
providing work under the subcontract and when required by Subsection (c), shall
provide to the person requesting the information:
(1) the name and last known address of each person from whom the
subcontractor purchased public work labor or material, other than public
work material from the subcontractor's inventory;
(2) the name and last known address of each person to whom the
subcontractor provided public work labor or material;
(3) a statement of whether the subcontractor furnished a bond for the
benefit of its subcontractors and material men;
(4) the name and last known address of the surety on the bond the
subcontractor furnished; and
(5) a copy of that bond.
(c) Information requested shall be provided within a reasonable time but not
later than the 10th day after the receipt of the written request for the information.
(d) A person from whom information is requested may require payment of the
actual cost, not to exceed $25, for providing the requested information if the
person does not have a direct contractual relationship with the person requesting
information that relates to the public work.
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(e) A person who fails to provide information required by this section is liable
to the requesting person for that person's reasonable and necessary costs incurred
in getting the requested information.
§ 2253.025. Information from Payment Bond Beneficiary.
(a) A payment bond beneficiary, not later than the 30th day after the date the
beneficiary receives a written request from the prime contractor or a surety on a
bond on which a claim is made, shall provide to the contractor or surety:
(1) a copy of any applicable written agreement or purchase order; and
(2) any statement or payment request of the beneficiary that shows the
amount claimed and the work performed by the beneficiary for which the
claim is made.
(b) If requested, the payment bond beneficiary shall provide the estimated
amount due for each calendar month in which the beneficiary performed public
work labor or provided public work material.
§ 2253.026. Copy of Payment Bond and Contract.
(a) A governmental entity shall furnish the information required by
Subsection (d) to any person who applies for the information and who
submits an affidavit that the person:
(1) has supplied public work labor or material for which the person
has not been paid;
(2) has contracted for specially fabricated material for which the
person has not been paid; or
(3) is being sued on a payment bond.
(b) The copy of the payment bond or public work contract is prima facie
evidence of the content, execution, and delivery of the original.
(c) An applicant under this section shall pay any reasonable fee set by the
governmental entity for the actual cost of preparation of the copies.
(d) A governmental entity shall furnish the following information to a person
who makes a request under Subsection (a):
(1) a certified copy of a payment bond and any attachment to the bond;
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(2) the public work contract for which the bond was given; and
(3) the toll-free telephone number maintained by the Texas
Department of Insurance under Article 1.35D, INSURANCE CODE, for
obtaining information concerning licensed insurance companies.
§ 2253.027. Liability of Governmental Entity.
(a) If a governmental entity fails to obtain from a prime contractor a payment
bond as required by Section 2253.021:
(1) the entity is subject to the same liability that a surety would have if
the surety had issued a payment bond and if the entity had obtained the
bond; and
(2) a payment bond beneficiary is entitled to a lien on money due to
the prime contractor in the same manner and to the same extent as if the
public work contract were subject to Subchapter J, Chapter 53, PROPERTY
CODE.
(b) To recover in a suit under Subsection (a), the only notice a payment bond
beneficiary is required to provide to the governmental entity is a notice provided
in the same manner as described by Subchapter C. The notice must be provided as
if the governmental entity were a surety.
§ 2253.041. Notice Required for Claim for Payment for Labor or Material.
(a) To recover in a suit under Section 2253.073 on a payment bond for a
claim for payment for public work labor performed or public work material
delivered, a payment bond beneficiary must mail to the prime contractor and the
surety written notice of the claim.
(b) The notice must be mailed on or before the 15th day of the third month
after each month in which any of the claimed labor was performed or any of the
claimed material was delivered.
(c) The notice must be accompanied by a sworn statement of account that
states in substance:
(1) the amount claimed is just and correct; and
(2) all just and lawful offsets, payments, and credits known to the
affiant have been allowed.
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(d) The statement of account shall include the amount of any retainage
applicable to the account that has not become due under the terms of the public
work contract between the payment bond beneficiary and the prime contractor or
between the payment bond beneficiary and a subcontractor.
§ 2253.042. Copy of Agreement as Notice of Claim for Unpaid Labor or Material.
A payment bond beneficiary has the option to enclose with the sworn statement of
account, as the notice for a claim under a written agreement for payment for public work
labor performed or public work material delivered, a copy of the written agreement and a
statement of the completion or the value of partial completion of the agreement.
§ 2253.043. Notice of Claim for Unpaid Labor or Material When Written
Agreement Does Not Exist.
(a) Except as provided by Section 2253.044, if a written agreement does not
exist between the payment bond beneficiary and the prime contractor or between
the payment bond beneficiary and the subcontractor, the notice for a claim for
unpaid bills must contain:
(1) the name of the party for whom the public works labor was
performed or to whom the public work material was delivered;
(2) the approximate date of performance or delivery;
(3) a description of the public work labor or material for reasonable
identification; and
(4) the amount due.
(b) The payment bond beneficiary must generally itemize the claim and
include with it copies of documents, invoices, or orders that reasonably identify:
(1) the public work labor performed or public work material delivered
for which the claim is made;
(2) the job; and
(3) the destination of delivery.
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§ 2253.044. Notice of Claim for Multiple Items of Labor or Material.
The notice for a claim for lump-sum payment for multiple items of public work
labor or material must:
(1) describe the labor or material in a manner that reasonably identifies
the labor or material;
(2) state the name of the party for whom the labor was performed or to
whom the material was delivered;
(3) state the approximate date of performance or delivery;
(4) state whether the contract is written or oral;
(5) state the amount of the contract; and
(6) state the amount claimed.
§ 2253.045. Notice of Claim or Unpaid Labor or Material Under Written Unit Price
Agreement.
The notice for a claim for public work labor performed or public work material
delivered by a payment bond beneficiary who is a subcontractor or material man to the
prime contractor or to a subcontractor and who has a written unit price agreement that is
wholly or partially completed is sufficient if the beneficiary attaches to the sworn
statement of account:
(1) a list of units and unit prices set by the contract; and
(2) a statement of those completed and partially completed units.
§ 2253.046. Notice Required for Claim for Payment of Retainage.
(a) To recover in a suit under Section 2253.073 on a payment bond for a
claim for payment of retainage, a payment bond beneficiary whose contract with a
prime contractor or subcontractor provides for retainage must mail written notice
of the claim to the prime contractor and the surety on or before the 90th day after
the date of final completion of the public work contract.
(b) The notice shall consist of a statement of:
(1) the amount of the contract;
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(2) any amount paid; and
(3) the outstanding balance.
(c) Notice of a claim for payment of retainage is not required if the amount
claimed is part of a prior claim made under this subchapter.
§ 2253.047. Additional Notice Required for Payment Bond Beneficiary Without
Direct Contractual Relationship with Prime Contractor.
(a) To recover in a suit under Section 2253.073 on a payment bond, a
payment bond beneficiary who does not have a direct contractual relationship
with the prime contractor for public work labor or material must mail notice as
required by this section.
(b) A payment bond beneficiary who contracts with a subcontractor for
retainage must mail, on or before the 15th day of the second month after the date
of the beginning of the delivery of public work material or the performance of
public work labor, written notice to the prime contractor that:
(1) the contract provides for retainage; and
(2) generally indicates the nature of the retainage.
(c) The payment bond beneficiary must mail to the prime contractor written
notice of a claim for any unpaid public work labor performed or public work
material delivered. The notice must be mailed on or before the 15th day of the
second month after each month in which the labor was performed or the material
was delivered. A copy of the statement sent to a subcontractor is
sufficient as notice under this subsection.
(d) The payment bond beneficiary must mail to the prime contractor, on or
before the 15th day of the second month after the receipt and acceptance of an
order for specially fabricated material, written notice that the order has been
received and accepted.
(e) This section applies only to a payment bond beneficiary who is not an
individual mechanic or laborer and who makes a claim for wages.
§ 2253.048. Mailing Notice.
(a) A notice required by this subchapter to be mailed must be sent by certified
or registered mail.
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(b) A notice required by this subchapter to be mailed to a prime contractor
must be addressed to the prime contractor at the
contractor's residence or last known business address.
(c) A person satisfies the requirements of this subchapter relating to providing
notice to the surety if the person mails the notice by certified or registered mail to
the surety:
(1) at the address stated on the bond or on an attachment to the bond;
(2) at the address on file with the Texas Department of Insurance; or
(3) at any other address allowed by law.
§ 2253.071. Termination or Abandonment of Contract; Proceeds of Contract.
(a) The proceeds of a public work contract are not payable, until all costs of
completion of the contract work are paid by the contractor or the contractor's
surety, to a contractor who furnishes a bond required by this chapter if:
(1) the contractor abandons performance of the contract; or
(2) the contractor's right to proceed with performance of the contract is
lawfully terminated by the awarding governmental entity because of the
contractor's default.
(b) The balance of the public work contract proceeds remaining after the costs
of completion are paid shall be paid according to the contractor's and the surety's
interests as may be established by agreement or by judgment of a court.
(c) A surety that completes a public work contract or incurs a loss under a
performance bond required under this chapter has a claim to the proceeds of the
contract prior to all other creditors of the prime contractor to the full extent of the
surety's loss. That priority does not excuse the surety from paying an obligation
under a payment bond.
§ 2253.072. State Not Liable for Costs.
The state is not liable for payment of a cost or expense of a suit brought by any
party on a payment bond furnished under this chapter.
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§ 2253.073. Suit on Payment Bond.
(a) A payment bond beneficiary who has provided public work labor or
material under a public work contract for which a payment bond is furnished
under this chapter may sue the principal or surety, jointly or severally, on the
payment bond if the claim is not paid before the 61st day after the date the notice
for the claim is mailed.
(b) Suit may be brought under Subsection (a) for:
(1) the unpaid balance of the beneficiary's claim at the time the claim
was mailed or the suit is brought; and
(2) reasonable attorney fees.
§ 2253.074. Costs and Attorney Fees.
A court may award costs and reasonable attorney fees that are equitable in a
proceeding to enforce a claim on a payment bond or to declare that any part of a claim is
invalid.
§ 2253.075. Assignment of Claim.
A third party to whom a claim is assigned is in the same position as a payment
bond beneficiary if notice is given as required by this chapter.
§ 2253.076. Limitations on Certain Claims; Maximum Retainage.
(a) The amount of a subcontractor's claim, including previous payments, may
not exceed the proportion of the subcontract price that the work done bears to the
total of the work covered by the subcontract.
(b) A claim for specially fabricated material that has not been delivered or
incorporated into the public work is limited to material that conforms to and
complies with the plans, specifications, and contract documents for the material.
The amount of the claim may not exceed the reasonable cost, less the fair salvage
value, of the specially fabricated material.
(c) A claim for retainage in a notice under this subchapter is not valid for an
amount greater than the amount of retainage specified in the public work contract
between the payment bond beneficiary and the prime contractor or between the
payment bond beneficiary and the subcontractor. A claim for retainage is never
valid for an amount greater than 10 percent of the amount of that contract.
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§ 2253.077. Venue.
A suit under this chapter shall be brought in a court in a county in which any part
of the public work is located.
§ 2253.078. Statute of Limitations.
(a) A suit on a performance bond may not be brought after the first anniversary of
the date of final completion, abandonment, or termination of the public work
contract.
(b) A suit on a payment bond may not be brought by a payment bond beneficiary
after the first anniversary of the date notice for a claim is mailed under this
chapter.
§ 2253.079. Criminal Offense for False and Fraudulent Claim.
(a) A person commits an offense if the person willfully files a false and
fraudulent claim under this chapter.
(b) An offense under this section is subject to the penalty for false swearing.
§ 406.096. Required Coverage for Certain Building or Construction Contractors.
(a) A governmental entity that enters into a building or construction contract
shall require the contractor to certify in writing that the contractor provides
workers' compensation insurance coverage for each employee of the contractor
employed on the public project.
(b) Each subcontractor on the public project shall provide such a certificate
relating to coverage of the subcontractor's employees to the general contractor,
who shall provide the subcontractor's certificate to the governmental entity.
(c) A contractor who has a contract that requires workers' compensation
insurance coverage may provide the coverage through a group plan or other
method satisfactory to the governing body of the governmental entity.
(d) The employment of a maintenance employee by an employer who is not
engaging in building or construction as the employer's primary business does not
constitute engaging in building or construction.
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(e) In this section:
(1) "Building or construction" includes:
(A) erecting or preparing to erect a structure, including a
building, bridge, roadway, public utility facility, or related
appurtenance;
(B) remodeling, extending, repairing, or demolishing a
structure; or
(C) otherwise improving real property or an appurtenance to
real property through similar activities.
(2) "Governmental entity" means this state or a political subdivision of
this state. The term includes a municipality.
TEXAS LABOR CODE
§ 451.001. Discrimination Against Employees Prohibited.
A person may not discharge or in any other manner discriminate against an
employee because the employee has:
(1) filed a workers' compensation claim in good faith;
(2) hired a lawyer to represent the employee in a claim;
(3) instituted or caused to be instituted in good faith a proceeding
under Subtitle A; or
(4) testified or is about to testify in a proceeding under Subtitle A.
§ 451.002. Remedies; Burden of Proof.
(a) A person who violates Section 451.001 is liable for reasonable damages
incurred by the employee as a result of the violation.
(b) An employee discharged in violation of Section 451.001 is entitled to
reinstatement in the former position of employment.
(c) The burden of proof in a proceeding under this section is on the employee.
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§ 451.003. Injunction.
A district court may restrain, for cause shown, a violation of Section 451.001.
TEXAS PROPERTY CODE
Chapter 53. Mechanic's, Contractor's, Or Material man’s Lien
§ 53.001. Definitions.
In this chapter:
(1) "Contract price" means the cost to the owner for any part of
construction or repair performed under an original contract.
(2) "Improvement" includes:
(A) abutting sidewalks and streets and utilities in or on those
sidewalks and streets;
(B) clearing, grubbing, draining, or fencing of land;
(C) wells, cisterns, tanks, reservoirs, or artificial lakes or pools
made for supplying or storing water;
(D) pumps, siphons, and windmills or other machinery or
apparatuses used for raising water for stock, domestic use, or
irrigation; and
(E) planting orchard trees, grubbing out orchards and replacing
trees, and pruning of orchard trees.
(3) "Labor" means labor used in the direct prosecution of the work.
(4) "Material" means all or part of:
(A) the material, machinery, fixtures, or tools incorporated into
the work, consumed in the direct prosecution of the work, or
ordered and delivered for incorporation or consumption;
(B) rent at a reasonable rate and actual running repairs at a
reasonable cost for construction equipment used or reasonably
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required and delivered for use in the direct prosecution of the work
at the site of the construction or repair; or
(C) power, water, fuel, and lubricants consumed or ordered and
delivered for consumption in the direct prosecution of the work.
(5) "Mechanic's lien" means the lien provided by this chapter.
(6) "Original contract" means an agreement to which an owner is a
party either directly or by implication of law.
(7) "Original contractor" means a person contracting with an owner
either directly or through the owner's agent.
(8) "Residence" means a single-family house, duplex, triplex, or
quadruplex or a unit in a multiunit structure used for residential purposes
that is:
(A) owned by one or more adult persons; and
(B) used or intended to be used as a dwelling by one of the
owners.
(9) "Residential construction contract" means a contract between an
owner and a contractor, in which the contractor agrees to construct or
repair the owner's residence, including improvements appurtenant to the
residence.
(10) “Residential construction project" means a project for the
construction or repair of a new or existing residence, including
improvements appurtenant to the residence, as provided by a residential
construction contract.
(11) "Retainage" means an amount representing part of a contract
payment that is not required to be paid to the claimant within the month
following the month in which labor is performed, material is furnished, or
specially fabricated material is
delivered. The term does not include retainage under Subchapter E.
(12) "Specially fabricated material" means material fabricated for use as
a component of the construction or repair so as to be reasonably unsuitable
for use elsewhere.
(13) "Subcontractor" means a person who has furnished labor or
materials to fulfill an obligation to an original contractor or to a
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subcontractor to perform all or part of the work required by an original
contract.
(14) "Work" means any part of construction or repair performed under
an original contract.
(15) "Completion" of an original contract means the actual completion
of the work, including any extras or change orders reasonably required or
contemplated under the original contract, other than warranty work or
replacement or repair of the work performed under the contract.
§ 53.002. More Than One Original Contractor.
On any work there may be more than one original contractor for purposes of this
chapter.
§ 53.003. Notices.
(a) This section applies to notices required by Subchapters B through G and
K.
(b) Any notice or other written communication may be delivered in person to
the party entitled to the notice or to that party's agent, regardless of the manner
prescribed by law.
(c) If notice is sent by registered or certified mail, deposit or mailing of the
notice in the United States mail in the form required constitutes compliance with
the notice requirement. This subsection does not apply if the law requires receipt
of the notice by the person to whom it is directed.
(d) If a written notice is received by the person entitled to receive it, the
method by which the notice was delivered is immaterial.
§ 53.021. Persons Entitled to Lien.
(a) A person has a lien if:
(1) the person labors, specially fabricates material, or furnishes labor
or materials for construction or repair in this state of:
(A) a house, building, or improvement;
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(B) a levee or embankment to be erected for the reclamation of
overflow land along a river or creek; or
(C) a railroad; and
(2) the person labors, specially fabricates the material, or furnishes the
labor or materials under or by virtue of a contract with the owner or the
owner's agent, trustee, receiver, contractor, or subcontractor.
(b) A person who specially fabricates material has a lien even if the material
is not delivered.
(c) An architect, engineer, or surveyor who prepares a plan or plat under or by
virtue of a written contract with the owner or the owner's agent, trustee, or
receiver in connection with the actual or proposed design, construction, or repair
of improvements on real property or the location of the boundaries of real
property has a lien on the property.
(d) A person who provides labor, plant material, or other supplies for the
installation of landscaping for a house, building, or improvement, including the
construction of a retention pond, retaining wall, berm, irrigation system, fountain,
or other similar installation, under or by virtue of a written contract with the
Owner or the owner's agent, trustee, or receiver has a lien on the property.
(e) A person who performs labor as part of, or who furnishes labor or
materials for, the demolition of a structure on real property under or by virtue of a
written contract with the owner of the property or the owner's agent, trustee,
receiver, contractor, or subcontractor has a lien on the property.
§ 53.022. Property To Which Lien Extends.
(a) The lien extends to the house, building, fixtures, or improvements, the
land reclaimed from overflow, or the railroad and all of its properties, and to each
lot of land necessarily connected or reclaimed.
(b) The lien does not extend to abutting sidewalks, streets, and utilities that
are public property.
(c) A lien against land in a city, town, or village extends to each lot on which
the house, building, or improvement is situated or on which the labor was
performed.
(d) A lien against land not in a city, town, or village extends to not more than
50 acres on which the house, building, or improvement is situated or on which the
labor was performed.
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§ 53.023. Payment Secured by Lien.
The lien secures payment for:
(1) the labor done or material furnished for the construction or repair;
(2) the specially fabricated material, even if the material has not been
delivered or incorporated into the construction or repair, less its fair
salvage value; or
(3) the preparation of a plan or plat by an architect, engineer, or
surveyor in accordance with Section 53.021(c).
§ 53.024. Limitation on Subcontractor’s Lien.
The amount of a lien claimed by a subcontractor may not exceed:
(1) an amount equal to the proportion of the total subcontract price
that the sum of the labor performed, materials furnished, materials
specially fabricated, reasonable overhead costs incurred, and proportionate
profit margin bears to the total subcontract price; minus
(2) the sum of previous payments received by the claimant on the
subcontract.
§ 53.025. Limitation on Ordinary Retainage Lien.
A lien for retainage is valid only for the amount specified to be retained in the
contract, including any amendments to the contract, between the claimant and the original
contractor or between the claimant and a subcontractor.
§ 53.026. Sham Contract
(a) A person who labors, specially fabricates materials, or furnishes labor or
materials under a direct contractual relationship with another person is considered
to be in direct contractual relationship with the owner and has a lien as an original
contractor, if:
(1) the owner contracted with the other person for the construction or
repair of a house, building, or improvements and the owner can effectively
control that person through ownership of voting stock, interlocking
directorships, or otherwise;
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(2) the owner contracted with the other person for the construction or
repair of a house, building, or improvements and that other person can
effectively control the owner through ownership of voting stock,
interlocking directorships, or
otherwise; or
(3) the owner contracted with the other person for the construction or
repair of a house, building, or improvements and the contract was made
without good faith intention of the parties that the other person was to
perform the contract.
(b) In this section, "owner" does not include a person who has or claims a
security interest only.
§ 53.051. Necessary Procedures.
To perfect the lien, a person must comply with this subchapter.
§ 53.052. Filing of Affidavit.
(a) Except as provided by Subsection (b), the person claiming the lien must
file an affidavit with the county clerk of the county in which the property is
located or into which the railroad extends not later than the 15th day of the fourth
calendar month after the day on which the indebtedness accrues.
(b) A person claiming a lien arising from a residential construction project
must file an affidavit with the county clerk of the county in which the property is
located not later than the 15th day of the third calendar month after the day on
which the indebtedness accrues.
(c) The county clerk shall record the affidavit in records kept for that purpose
and shall index and cross-index the affidavit in the names of the claimant, the
original contractor, and the owner. Failure of the county clerk to properly record
or index a filed affidavit does not invalidate the lien.
§ 53.053. Accrual of Indebtedness.
(a) For purposes of Section 53.052, indebtedness accrues on a contract under
which a plan or plat is prepared, labor was performed, materials furnished, or
specially fabricated materials are to be furnished in accordance with this section.
(b) Indebtedness to an original contractor accrues:
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(1) on the last day of the month in which a written declaration by the
original contractor or the owner is received by the other party to the
original contract stating that the original contract has been terminated; or
(2) on the last day of the month in which the original contract has been
completed, finally settled, or abandoned.
(c) Indebtedness to a subcontractor, or to any person not covered by
Subsection (b) or (d), which has furnished labor or material to an original
contractor or to another subcontractor accrues on the last day of the last month in
which the labor was performed or the material furnished.
(d) Indebtedness for specially fabricated material accrues:
(1) on the last day of the last month in which materials were delivered;
(2) on the last day of the last month in which delivery of the last of the
material would normally have been required at the job site; or
(3) on the last day of the month of any material breach or termination
of the original contract by the owner or contractor or have the subcontract
under which the specially fabricated material was furnished.
(e) A claim for retainage accrues on the last day of the month in which all
work called for by the contract between the owner and the original contractor has
been completed, finally settled, or abandoned.
§ 53.054. Contents of Affidavit.
(a) The affidavit must be signed by the person claiming the lien or by another
person on the claimant's behalf and must contain substantially:
(1) a sworn statement of the amount of the claim;
(2) the name and last known address of the owner or reputed owner;
(3) a general statement of the kind of work done and materials
furnished by the claimant and, for a claimant other than an original
contractor, a statement of each month in which the work was done and
materials furnished for which payment is requested;
(4) the name and last known address of the person by whom the
claimant was employed or to whom the claimant furnished the materials or
labor;
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(5) the name and last known address of the original contractor;
(6) a description, legally sufficient for identification, of the property
sought to be charged with the lien;
(7) the claimant's name, mailing address, and, if different, physical
address; and
(8) for a claimant other than an original contractor, a statement
identifying the date each notice of the claim was sent to the owner and the
method by which the notice was sent.
(b) The claimant may attach to the affidavit a copy of any applicable written
agreement or contract and a copy of each notice sent to the owner.
(c) The affidavit is not required to set forth individual items of work done or
material furnished or specially fabricated. The affidavit may use any
abbreviations or symbols customary in the trade.
§ 53.055. Notice of Filed Affidavit.
(a) A person who files an affidavit must send a copy of the affidavit by
registered or certified mail to the owner or reputed owner at the owner's last
known business or residence address not later than the fifth day after the date the
affidavit is filed with the county clerk.
(b) If the person is not an original contractor, the person must also send a
copy of the affidavit to the original contractor at the original contractor's last
known business or residence address within the same period.
§ 53.056. Derivative Claimant: Notice to Owner of Original Contractor.
(a) Except as provided by Subchapter K, a claimant other than an original
contractor must give the notice prescribed by this section for the lien to be valid.
(b) If the lien claim arises from a debt incurred by a subcontractor, the
claimant must give to the original contractor written notice of the unpaid balance.
The claimant must give the notice not later than the 15th day of the second month
following each month in which all or part of the claimant's labor was performed
or material delivered. The claimant must give the same notice to the owner or
reputed owner and the original contractor not later than the 15th day of the third
month following each month in which all or part of the claimant's labor was
performed or material or specially fabricated material was delivered.
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(c) If the lien claim arises from a debt incurred by the original contractor, the
claimant must give notice to the owner or reputed owner, with a copy to the
original contractor, in accordance with Subsection (b).
(d) To authorize the owner to withhold funds under Subchapter D, the notice
to the owner must state that if the claim remains unpaid, the owner may be
personally liable and the owner's property may be subjected to a lien unless:
(1) the owner withholds payments from the contractor for payment of
the claim; or
(2) the claim is otherwise paid or settled.
(e) The notice must be sent by registered or certified mail and must be
addressed to the owner or reputed owner or the original contractor, as applicable,
at his last known business or residence address.
(f) A copy of the statement or billing in the usual and customary form is
sufficient as notice under this section.
§ 53.057. Derivative Claimant: Notice for Contractual Retainage Claim.
(a) A claimant may give notice under this section instead of or in addition to
notice under Section 53.056 or 53.252 if the claimant is to labor, furnish labor or
materials, or specially fabricate materials under an agreement with an original
contractor or a subcontractor providing for retainage.
(b) The claimant must give the owner or reputed owner notice of the retainage
agreement not later than the 15th day of the second month following the delivery
of materials or the performance of labor by the claimant that first occurs after the
claimant has agreed to the contractual retainage. If the agreement is with a
subcontractor, the claimant must also give notice within that time to the original
contractor.
(c) The notice must contain:
(1) the sum to be retained;
(2) the due date or dates, if known; and
(3) a general indication of the nature of the agreement.
(d) The notice must be sent by registered or certified mail to the last known
business or residence address of the owner or reputed owner or the original
contractor, as applicable.
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(e) If a claimant gives notice under this section and Section 53.055 or, if the
claim relates to a residential construction project, under this section and Section
53.252, the claimant is not required to give any other notice as to the retainage.
§ 53.058. Derivative Claimant: Notice for Specially Fabricated Items.
(a) Except as provided by Subchapter K, a claimant who specially fabricates
material must give notice under this section for the lien to be valid.
(b) The claimant must give the owner or reputed owner notice not later than
the 15th day of the second month after the month in which the claimant receives
and accepts the order for the material. If a person other than the original
contractor incurs the indebtedness, the claimant must also give notice within that
time to the original contractor.
(c) The notice must contain:
(1) a statement that the order has been received and accepted; and
(2) the price of the order.
(d) The notice must be sent by registered or certified mail to the last known
business or residence address of the owner or the reputed owner or the original
contractor, as applicable.
(e) In addition to notice under this section, the claimant must give notice
under Section 53.056 if delivery has been made or if the normal delivery time for
the job has passed.
(f) The lien of a claimant who accepts an order but fails to give notice under
this section is valid as to delivered items if the claimant has given notice under
Section 53.056.
(g) If a retainage agreement consists in whole or part of an obligation to
furnish specially fabricated materials and the claimant has given notice under
Section 53.057, the claimant is not required to give notice under this section.
§ 53.081. Authority to Withhold Funds for Benefit of Claimants.
(a) If an owner receives notice under Section 53.056, 53.057, 53.058, 53.252,
or 53.253, the owner may withhold from payments to the original contractor an
amount necessary to pay the claim for which he receives notice.
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(b) If notice is sent in a form that substantially complies with Section 53.056
or 53.252, the owner may withhold the funds immediately on receipt of the notice.
(c) If notice is sent under Section 53.057, the owner may withhold funds
immediately on receipt of a copy of the claimant's affidavit prepared in
accordance with Sections 53.052 through 53.055.
(d) If notice is sent under Section 53.058, the owner may withhold funds
immediately on receipt of the notices sent under Subsection (e) of that section. If
notice is sent as provided by Section 53.253(b), the owner may withhold funds
immediately on receipt of the notice sent as required by Section 53.252.
§ 53.082. Time For Which Funds Are Withheld.
Unless payment is made under Section 53.083 or the claim is otherwise settled,
discharged, indemnified against under Subchapter H or I, or determined to be invalid by a
final judgment of a court, the owner shall retain the funds withheld until:
(1) the time for filing the affidavit of mechanic's lien has passed; or
(2) if a lien affidavit has been filed, until the lien claim has been
satisfied or released.
§ 53.083. Payment to Claimant on Demand.
(a) The claimant may make written demand for payment of the claim to an
owner authorized to withhold funds under this subchapter. The demand must give
notice to the owner that all or part of the claim has accrued under Section 53.053
or is past due according to the agreement between the parties.
(b) The claimant must send a copy of the demand to the original contractor.
The original contractor may give the owner written notice that the contractor
intends to dispute the claim. The original contractor must give the notice not later
than the 30th day after the day he receives the copy of the demand. If the original
contractor does not give the owner timely notice, he is considered to have
assented to the demand and the owner shall pay the claim.
(c) The claimant's demand may accompany the original notice of nonpayment
or of a past-due claim and may be stamped or written in legible form on the face
of the notice.
(d) Unless the lien has been secured, the demand may not be made after
expiration of the time within which the claimant may
secure the lien for the claim.
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§ 53.084. Owner’s Liability.
(a) Except for the amount required to be retained under Subchapter E, the
owner is not liable for any amount paid to the original contractor before the owner
is authorized to withhold funds under this subchapter.
(b) If the owner has received the notices required by Subchapter C or K, if the
lien has been secured, and if the claim has been reduced to final judgment, the
owner is liable and the owner's property is subject to a claim for any money paid
to the original contractor after the owner was authorized to withhold funds under
this subchapter. The owner is liable for that amount in addition to any amount for
which he is liable under Subchapter E.
§ 53.085. Affidavit Required.
(a) Any person who furnishes labor or materials for the construction of
improvements on real property shall, if requested and as a condition of payment
for such labor or materials, provide to the requesting party, or the party's agent, an
affidavit stating that the person has paid each of the person's subcontractors,
laborers, or material men in full for all labor and materials provided to the person
for the construction. In the event, however, that the person has not paid each of
the person's subcontractors, laborers, or material men in full, the person shall state
in the affidavit the amount owed and the name and, if known, the address and
telephone number of each subcontractor, laborer, or material man to whom the
payment is owed.
(b) The seller of any real property shall, upon request by the purchaser or the
purchaser's agent prior to closing of the purchase of the real property, provide to
the purchaser or the purchaser's agent, a written affidavit stating that the seller has
paid each of the seller's contractors, laborers, or material men in full for all labor
and materials provided to the seller through the date specified in the affidavit for
any construction of improvements on the real property and that the seller is not
indebted to any person, firm, or corporation by reason of any such construction
through the date specified in the affidavit. In the event that the seller has not paid
each of the seller's contractors, laborers, or material men in full for labor and
material provided through the date specified in the affidavit, the seller shall state
in the affidavit the amount owed and the name and, if known, the address and
telephone number of each contractor, laborer, or material man to whom the
payment is owed.
(c) The affidavit may include:
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(1) a waiver or release of lien rights by the affiant that is conditioned
on the receipt of actual payment or collection of funds when payment is
made by check or draft;
(2) warranty or representation that certain bills or classes of bills will
be paid by the affiant from funds paid in reliance on the affidavit; and
(3) indemnification by the affiant for any loss or expense resulting
from false or incorrect information in the affidavit.
(d) A person, including a seller, commits an offense if the person
intentionally, knowingly, or recklessly makes a false or misleading statement in
an affidavit under this section. An offense under this section is a misdemeanor.
A person adjudged guilty of an offense under this section shall be punished by a
fine not to exceed $4,000 or confinement in jail for a term not to exceed one-year
or both a fine and confinement. A person may not receive community supervision
for the offense.
(e) A person signing an affidavit under this section is personally liable for any
loss or damage resulting from any false or incorrect information in the affidavit.
§ 53.101. Required Retainage.
(a) During the progress of work under an original contract for which a
mechanic's lien may be claimed and for 30 days after the work is completed, the
owner shall retain:
(1) 10 percent of the contract price of the work to the owner; or
(2) 10 percent of the value of the work, measured by the proportion
that the work done bears to the work to be done, using the contract price
or, if there is no contract price, using the reasonable value of the
completed work.
(b) In this section, "owner" includes the owner's agent, trustee, or receiver.
§ 53.102. Payment Secured by Retainage.
The retained funds secure the payment of artisans and mechanics that perform
labor or service and the payment of other persons who furnish material, material and
labor, or specially fabricated material for any contractor, subcontractor, agent, or receiver
in the performance of the work.
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§ 53.103. Lien on Retained Funds.
A claimant has a lien on the retained funds if the claimant:
(1) sends the notices required by this chapter in the time and manner
required; and
(2) files an affidavit claiming a lien not later than the 30th day after
the work is completed.
§ 53.104. Preferences.
(a) Individual artisans and mechanics are entitled to a preference to the
retained funds and shall share proportionately to the extent of their claims for
wages and fringe benefits earned.
(b) After payment of artisans and mechanics that are entitled to a preference
under Subsection (a), other participating claimants share proportionately in the
balance of the retained funds.
§ 53.105. Owner’s Liability for Failure to Retain.
(a) If the owner fails or refuses to comply with this subchapter, the claimants
complying with this chapter have a lien, at least to the extent of the amount that
should have been retained from the original contract under which they are
claiming, against the house, building, structure, fixture, or improvement and all of
its properties and against the lot or lots of land necessarily connected.
(b) The claimants share the lien proportionately in accordance with the
preference provided by Section 53.104.
§ 53.106. Affidavit of Completion.
(a) An owner may file with the county clerk of the county in which the
property is located an affidavit of completion. The affidavit must contain:
(1) the name and address of the owner;
(2) the name and address of the original contractor;
(3) a description, legally sufficient for
identification, of the real property on which the improvements are
located;
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(4) a description of the improvements furnished under the original
contract;
(5) a statement that the improvements under the original contract have
been completed and the date of completion; and
(6) a conspicuous statement that a claimant may not have a lien on
retained funds unless the claimant files the affidavit claiming a lien not
later than the 30th day after the date of completion.
(b) A copy of the affidavit must be sent by certified or registered mail to the
original contractor not later than the date the affidavit is filed and to each claimant
who sends a notice of lien liability to the owner under Section 53.056, 53.057,
53.058, 53.252, or 53.253 not later than the date the affidavit is filed or the 10th
day after the date the owner receives the notice of lien liability, whichever is later.
(c) A copy of the affidavit must also be sent to each person who furnishes
labor or materials for the property and who furnishes the owner with a written
request for the copy. The owner must furnish the copy to the person not later than
the date the affidavit is filed or the 10th day after the date the request is received,
whichever is later.
(d) Except as provided by this subsection, an affidavit filed under this section
on or before the 10th day after the date of completion of the improvements is
prima facie evidence of the date the work under the original contract is completed
for purposes of this subchapter. If the affidavit is filed after the 10th day after the
date of completion, the date of completion for purposes of this subchapter is the
date the affidavit is filed. This subsection does not apply to a person to whom this
section did not send the affidavit as required.
(e) Repealed by Acts 1999, 76th Leg., ch. 889, § 12, eff. Sept. 1, 1999.
§ 53.121. Preference Over Other Creditors.
All subcontractors, laborers, and material men who have a mechanic's lien have
preference over other creditors of the original contractor.
§ 53.122. Equality of Mechanic’s Liens.
(a) Except as provided by Subchapter E and Section 53.124(e), perfected
mechanics liens are on equal footing without reference to the date of filing the
affidavit claiming the lien.
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(b) If the proceeds of a foreclosure sale of property are insufficient to
discharge all mechanic's liens against the property, the proceeds shall be paid pro
rata on the perfected mechanic's liens on which suit is brought.
(c) This chapter does not affect the contract between the owner and the
original contractor as to the amount, manner, or time of payment of the contract
price.
§ 53.123. Priority of Mechanic’s Lien Over Other Liens.
(a) Except as provided by this section, a mechanic's lien attaches to the house,
building, improvements, or railroad property in preference to any prior lien,
encumbrance, or mortgage on the land on which it is located, and the person
enforcing the lien may have the house, building, improvement, or any piece of the
railroad property sold separately.
(b) The mechanic's lien does not affect any lien, encumbrance, or mortgage on
the land or improvement at the time of the inception of the mechanic's lien, and
the holder of the lien, encumbrance, or mortgage need not be made a party to a
suit to foreclose the mechanic's lien.
§ 53.124. Inception of Mechanic’s Lien.
(a) Except as provided by Subsection (e), for purposes of Section 53.123, the
time of inception of a mechanic's lien is the commencement of construction of
improvements or delivery of materials to the land on which the improvements are
to be located and on which the materials are to be used.
(b) The construction or materials under Subsection (a) must be visible from
inspection of the land on which the improvements are being made.
(c) An owner and original contractor may jointly file an affidavit of
commencement with the county clerk of the county in which the land is located
not later than the 30th day after the date of actual commencement of construction
of the improvements or delivery of materials to the land. The affidavit must
contain:
(1) the name and address of the owner;
(2) the name and address of each original contractor, known at the time to
the owner, that is furnishing labor, service, or materials for the
construction of the improvements;
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(3) a description, legally sufficient for identification, of the property
being improved;
(4) the date the work actually commenced; and
(5) a general description of the improvement.
(d) An affidavit filed in compliance with this section is prima facie evidence
of the date of the commencement of the improvement described in the affidavit.
The time of inception of a mechanic's lien arising from work described in an
affidavit of commencement is the date of commencement of the work stated in the
affidavit.
(e) The time of inception of a lien that is created under Section 53.021(c), (d),
or (e) is the date of recording of an affidavit of lien under Section 53.052. The
priority of a lien claimed by a person entitled to a lien under Section 53.021(c),
(d), or (e) with respect to other mechanic's liens is determined by the date of
recording. A lien created under Section 53.021(c), (d), or (e) is not valid or
enforceable against a grantee or purchaser who acquires an interest in the real
property before the time of inception of the lien.
§ 53.151. Enforcement of Remedies Against Money Due Original Contractor or
Subcontractor.
(a) A creditor of an original contractor may not collect, enforce a security
interest against, garnish, or levy execution on the money due the original
contractor or the contractor's surety from the owner, and a creditor of a
subcontractor may not collect, enforce a security interest against, garnish, or levy
execution on the money due the subcontractor, to the prejudice of the
subcontractors, mechanics, laborers, material men, or their sureties.
(b) A surety issuing a payment bond or performance bond in connection with
the improvements has a priority claim over other creditors of its principal to
contract funds to the extent of any loss it suffers or incurs. That priority does not
excuse the surety from paying any obligations that it may have under its payment
bonds.
§ 53.152. Release of Claim or Lien.
(a) When a debt for labor or materials is satisfied or paid by collected funds,
the person who furnished the labor or materials shall, not later than the 10th day
after the date of receipt of a written request, furnish to the requesting person a
release of the indebtedness and any lien claimed, to the extent of the indebtedness
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paid. An owner, the original contractor, or any person making the payment may
request the release.
(b) A release of lien must be in a form that would permit it to be filed of
record.
§ 53.153. Defense of Actions.
(a) If an affidavit claiming a mechanic's lien is filed by a person other than the
original contractor, the original contractor shall defend at his own expense a suit
brought on the claim.
(b) If the suit results in judgment on the lien against the owner or the owner's
property, the owner is entitled to deduct the amount of the judgment and costs
from any amount due the original contractor. If the owner has settled with the
original contractor in full, the owner is entitled to recover from the original
contractor any amount paid for which the original contractor was originally liable.
§ 53.154. Foreclosure.
A mechanic's lien may be foreclosed only on judgment of a court of competent
jurisdiction foreclosing the lien and ordering the sale of the property subject to the lien.
§ 53.155. Transfer of Property Sold.
If the house, building, improvement, or any piece of railroad property is sold
separately, the officer making the sale shall place the purchaser in possession. The
purchaser is entitled to a reasonable time after the date of purchase within which to
remove the purchased property.
§ 53.156. Costs and Attorney’s Fees.
In any proceeding to foreclose a lien or to enforce a claim against a bond issued
under Subchapter H, I, or J or in any proceeding to declare that any lien or claim is
invalid or unenforceable in whole or in part, the court may award costs and reasonable
attorney's fees as are equitable and just.
§ 53.157. Discharge of Lien.
A mechanic's lien or affidavit claiming a mechanic's lien filed under Section
53.052 may be discharged of record by:
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(1) recording a lien release signed by the claimant under Section
53.152;
(2) failing to institute suit to foreclose the lien in the county in which
the property is located within the period prescribed by Section 53.158,
53.175, or 53.208;
(3) recording the original or certified copy of a final judgment or
decree of a court of competent jurisdiction providing for the discharge;
(4) filing the bond and notice in compliance with Subchapter H;
(5) filing the bond in compliance with Subchapter I; or
(6) recording a certified copy of the order removing the lien under
Section 53.160 and a certificate from the clerk of the court that states that
no bond or deposit as described by Section 53.161 was filed by the
claimant within 30 days after the date the order was entered.
§ 53.158. Period for Bringing Suit to Foreclose Lien.
(a) Except as provided by Subsection (b), suit must be brought to foreclose
the lien within two years after the last day a claimant may file the lien affidavit
under Section 53.052 or within one year after completion, termination, or
abandonment of the work under the original contract under which the lien is
claimed, whichever is later.
(b) For a claim arising from a residential construction project, suit must be
brought to foreclose the lien within one year after the last day a claimant may file
a lien affidavit under Section 53.052 or within one year after completion,
termination, or abandonment of the work under the original contract under which
the lien is claimed, whichever is later.
§ 53.159. Obligation to Furnish Information.
(a) An owner, on written request, shall furnish the following information
within a reasonable time, but not later than the 10th day after the date the request
is received, to any person furnishing labor or materials for the project:
(1) a description of the real property being improved legally sufficient
to identify it;
(2) whether there is a surety bond and if so, the name and last known
address of the surety and a copy of the bond; and
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(3) whether there are any prior recorded liens or security interests on
the real property being improved and if so, the name and address of the
person having the lien or security interest.
(b) An original contractor, on written request by a person who furnished work
under the original contract, shall furnish to the person the following information
within a reasonable time, but not later than the 10th day after the date the request
is received:
(1) the name and last known address of the person to whom the
original contractor furnished labor or materials for the construction
project; and
(2) whether the original contractor has furnished or has been furnished
a payment bond for any of the work on the construction project and if so,
the name and last known address of the surety and a copy of the bond.
(c) A subcontractor, on written request by an owner of the property being
improved, the original contractor, a surety on a bond covering the original
contract, or any person furnishing work under the subcontract, shall furnish to the
person the following information within a reasonable time, but not later than the
10th day after the date the request is received:
(1) the name and last known address of each person from whom the
subcontractor purchased labor or materials for the construction project,
other than those materials that were furnished to the project from the
subcontractor's inventory;
(2) the name and last known address of each person to whom the
subcontractor furnished labor or materials for the construction project; and
(3) whether the subcontractor has furnished or has been furnished a
payment bond for any of the work on the construction project and if so,
the name and last known address of the surety and a copy of the bond.
(d) Not later than the 30th day after the date a written request is received from
the owner, the contractor under whom a claim of lien or under whom a bond is
made, or a surety on a bond on which a claim is made, a claimant for a lien or
under a bond shall furnish to the requesting person a copy of any applicable
written agreement, purchase order, or contract and any billing, statement, or
payment request of the claimant reflecting the amount claimed and the work
performed by the claimant for which the claim is made. If requested, the claimant
shall provide the estimated amount due for each calendar month in which the
claimant has performed labor or furnished materials.
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(e) If a person from whom information is requested does not have a direct
contractual relationship on the project with the person requesting the information,
the person from whom information is requested, other than a claimant requested
to furnish information under Subsection (d), may require payment of the actual
costs, not to exceed $25, in furnishing the requested information.
(f) A person, other than a claimant requested to furnish information under
Subsection (d), who fails to furnish information as required by this section is
liable to the requesting person for that person's reasonable and necessary costs
incurred in procuring the requested information.
§ 53.160. Summary Motion to Remove Invalid or Unenforceable Lien.
(a) In a suit brought to foreclose a lien or to declare a claim or lien invalid or
unenforceable, a party objecting to the validity or enforceability of the claim or
lien may file a motion to remove the claim or lien. The motion must be verified
and state the legal and factual basis for objecting to the validity or enforceability
of the claim or lien. The motion may be accompanied by supporting affidavits.
(b) The grounds for objecting to the validity or enforceability of the claim or
lien for purposes of the motion are limited to the following:
(1) notice of claim was not furnished to the owner or original
contractor as required by Section 53.056, 53.057, 53.058, 53.252, or
53.253;
(2) an affidavit claiming a lien failed to comply with Section 53.054 or
was not filed as required by Section 53.052;
(3) notice of the filed affidavit was not furnished to the owner or
original contractor as required by Section 53.055;
(4) the owner complied with the requirements of Section 53.101 and
paid the retainage and all other funds owed to the original contractor
before:
(A) the claimant perfected the lien claim; and
(B) the owner received a notice of the claim as required by this
chapter;
(5) all funds subject to the notice of a claim to the owner and the
perfection of a claim against the statutory retainage have been deposited in
the registry of the court and the owner has no additional liability to the
claimant;
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(6) when the lien affidavit was filed on homestead property:
(A) no contract was executed or filed as required by Section
53.254;
(B) the affidavit claiming a lien failed to contain the notice as
required by Section 53.254; or
(C) the notice of the claim failed to include the statement
required by Section 53.254; and
(7) the claimant executed a valid and enforceable waiver or release of
the claim or lien claimed in the affidavit.
(c) The claimant is not required to file a response. The claimant and any
other party that has appeared in the proceeding must be notified by at least 21
days before the date of the hearing on the motion. A motion may not be heard
before the 21st day after the date the claimant answers or appears in the
proceeding.
(d) At the hearing on the motion, the burden is on:
(1) the claimant to prove that the notice of claim and affidavit of lien
were furnished to the owner and original contractor as required by this
chapter; and
(2) the movant to establish that the lien should be removed for any
other ground authorized by this section.
(e) The court shall promptly determine a motion to remove a claim or lien
under this section. If the court determines that the movant is not entitled to
remove the lien, the court shall enter an order denying the motion. If the court
determines that the movant is entitled to remove the lien, the court shall enter an
order removing the lien claimed in the lien affidavit. A party to the proceeding
may not file an interlocutory appeal from the court's order.
(f) Any admissible evidence offered at the hearing may be admitted in the
trial of the case. The court's order under Subsection (e) is not admissible as
evidence in determining the validity and enforceability of the claim or lien.
§ 53.161. Bond Requirements After Order to Remove.
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(a) In the order removing a lien, the court shall set the amount of security that
the claimant may provide in order to stay the removal of the claim or lien. The
sum must be an amount that the court determines is a reasonable estimate of the
costs and attorney's fees the movant is likely to incur in the proceeding to
determine the validity or enforceability of the lien. The sum may not exceed the
amount of the lien claim.
(b) The court shall stay the order removing the lien if the claimant files a bond
or a deposit in lieu of a bond in the amount set in the order with the clerk of the
court not later than the 30th day after the date the order is entered by the court
unless, for good cause, the court orders a later date for filing the bond or the
deposit in lieu of a bond. If the court fails to set the amount of the security
required, the amount required is the amount of the lien claim.
(c) The bond must be:
(1) executed by a corporate surety authorized to do business in this
state and licensed by this state to execute bonds as surety; and
(2) conditioned on the claimant's payment of any final judgment
rendered against the claimant in the proceeding for attorney's fees and
costs to the movant under Section 53.156.
(d) In lieu of filing a bond, the claimant may deposit in the amount set by the
court for the surety bond:
(1) cash;
(2) a negotiable obligation of the federal government or a federal
agency; or
(3) a negotiable obligation of a financial institution chartered by the
federal or state government that is insured by the federal government or a
federal agency.
(e) A deposit made under Subsection (d) must be conditioned in the same
manner as a surety bond. Any interest accrued on the deposit amount is a part of
the deposit.
(f) If the claimant fails to file the bond or the deposit in lieu of the bond in
compliance with this section, the owner may file:
(1) a certified copy of the order; and
(2) a certificate from the clerk of the court stating that:
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(A) no bond or deposit in lieu of the bond was filed within 30
days after the date the order was entered by the court; and
(B) no order staying the order to remove the lien was entered
by the court.
(g) The claim or lien is removed and extinguished as to a creditor or
subsequent purchaser for valuable consideration who obtains an interest in the
property after the certified copy of the order and certificate of the clerk of the
court are filed with the county clerk. The removal of the lien does not constitute a
release of the liability of the owner, if any, to the claimant.
§ 53.162. Revival of Removed Lien.
(a) If an order removing the lien is not stayed as provided by Section 53.161
and the claimant later obtains a final judgment in the suit establishing the validity
and ordering the foreclosure of the lien, the claimant may file a certified copy of
the final judgment with the county clerk.
(b) The filed judgment revives the lien, and the claimant may foreclose the
lien.
(c) A lien revived under this section is void as to a creditor or subsequent
purchaser for valuable consideration who obtained an interest in the property:
(1) after the order removing the lien and the certificate from the clerk
of the court was filed with the county clerk; and
(2) before the final judgment reviving the lien was filed with the
county clerk.
§ 53.171. Bond.
(a) If a lien, other than a lien granted by the owner in a written contract, is
fixed or has attempted to be fixed by a recorded instrument under this chapter,
any person may file a bond to indemnify against the lien.
(b) The bond shall be filed with the county clerk of the county in which the
property subject to the lien is located.
(c) A mechanic's lien claim against an owner's property is discharged after:
(1) a bond that complies with Section 53.172 is filed;
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(2) the notice of the bond is issued as provided by Section 53.173; and
(3) the bond and notice are recorded as provided by Section 53.174.
§ 53.172. Bond Requirements.
The bond must:
(1) describe the property on which the liens are claimed;
(2) refer to each lien claimed in a manner sufficient to identify it;
(3) be in an amount that is double the amount of the liens referred to in
the bond unless the total amount claimed in the liens exceeds $40,000, in
which case the bond must be in an amount that is the greater of 1-1/2
times the amount of the liens or the sum of $40,000 and the amount of the
liens;
(4) be payable to the parties claiming the liens;
(5) be executed by:
(A) the party filing the bond as principal; and
(B) a corporate surety authorized and admitted to do business
under the law in this state and licensed by this state to execute the
bond as surety, subject to Section 1, Chapter 87, Acts of the 56th
Legislature, Regular Session, 1959 (Article 7.19-1, Vernon's Texas
Insurance Code); and
(6) be conditioned substantially that the principal and sureties will pay
to the named obligees or to their assignees the amount that the named
obligees would have been entitled to recover if their claims had been
proved to be valid and enforceable liens on the property.
§ 53.173. Notice of Bond.
(a) After the bond is filed, the county clerk shall issue notice of the bond to all
named obligees.
(b) A copy of the bond must be attached to the notice.
(c) The notice must be served on each obligee by mailing a copy of the notice
and the bond to the obligee by certified United States mail, return receipt
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requested, addressed to the claimant at the address stated in the lien affidavit for
the obligee.
(d) If the claimant's lien affidavit does not state the claimant's address, the
notice is not required to be mailed to the claimant.
§ 53.174. Recording of Bond and Notice.
(a) The county clerk shall record the bond, the notice, and a certificate of
mailing in the real property records.
(b) In acquiring an interest in or insuring title to real property, a purchaser,
insurer of title, or lender may rely on and is absolutely protected by the record of
the bond and the notice to the same extent as if the lien claimant had filed a
release of lien in the real property records.
§ 53.175. Action on Bond.
(a) A party making or holding a lien claim may not sue on the bond later than
one year after the date on which the notice is served or after the date on which the
underlying lien claim becomes unenforceable under Section 53.158.
(b) The bond is not exhausted by one action against it. Each named obligee or
assignee of an obligee may maintain a separate suit on the bond in any court of
jurisdiction in the county in which the real property is located.
§ 53.201. Bond.
(a) An original contractor who has a written contract with the owner may
furnish at any time a bond for the benefit of claimants.
(b) If a valid bond is filed, a claimant may not file suit against the owner or
the owner's property and the owner is relieved of obligations under Subchapter D
or E.
§ 53.202. Bond Requirements.
The bond must:
(1) be in a penal sum at least equal to the total of the original contract
amount;
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(2) be in favor of the owner;
(3) have the written approval of the owner endorsed on it;
(4) be executed by:
(A) the original contractor as principal; and
(B) a corporate surety authorized and admitted to do business
in this state and licensed by this state to execute bonds as surety,
subject to Section 1, Chapter 87, Acts of the 56th Legislature,
Regular Session, 1959 (Article 7.19-1, Vernon's Texas INSURANCE
CODE);
(5) be conditioned on prompt payment for all labor, subcontracts,
materials, specially fabricated materials, and normal and usual extras not
exceeding 15 percent of the contract price; and
(6) clearly and prominently display on the bond or on an attachment to
the bond:
(A) the name, mailing address, physical address, and telephone
number, including the area code, of the surety company to which
any notice of claim should be sent; or
(B) the toll-free telephone number maintained by the Texas
Department of Insurance under Article 1.35D, INSURANCE CODE,
and a statement that the address of the surety company to which
any notice of claim should be sent may be obtained from the Texas
Department of Insurance by calling the toll-free telephone number.
§ 53.203. Recording of Bond and Contract.
(a) The bond and the contract between the original contractor and the owner
shall be filed with the county clerk of the county in which is located all or part of
the owner's property on which the construction or repair is being performed or is
to be performed. A memorandum of the contract or a copy of the contract may be
substituted for the original.
(b) The plans, specifications, and general conditions of the contract are not
required to be filed.
(c) The county clerk shall record the bond and place the contract on file in the
clerk's office and shall index and cross-index both in the names of the original
contractor and the owner in records kept for that purpose.
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(d) On request and payment of a reasonable fee, the county clerk shall furnish
a copy of the bond and contract to any person.
(e) In any court of this state or in the United States, a copy of the bond and
contract certified by the county clerk constitutes prima facie evidence of the
contents, execution, delivery, and filing of the originals.
§ 53.204. Reliance on Record.
A purchaser, lender, or other person acquiring an interest in the owner's property
or an insurer of title is entitled to rely on the record of the bond and contract as
constituting payment of all claims and liens for labor, subcontracts, materials, or specially
fabricated materials incurred by the original contractor as if the purchaser, lender, or
other person acquiring an interest in the owner's property or an insurer of title were the
owner who approved, accepted, and endorsed the bond and as if each person furnishing
labor or materials for the work performed under the original contract, other than the
original contractor, had filed a complete release and relinquishment of lien of record.
§ 53.205. Enforceable Claims.
(a) The bond protects all persons with a claim that is:
(1) perfected in the manner prescribed for fixing a lien under
Subchapter C or, if the claim relates to a residential construction project,
under Subchapter K; or
(2) perfected in the manner prescribed by Section 53.206.
(b) A claim or the rights to a claim under the bond may be assigned.
§ 53.206. Perfection of Claim.
(a) To perfect a claim against a bond in a manner other than that prescribed by
Subchapter C or K for fixing a lien, a person must:
(1) give to the original contractor all applicable notices under the
appropriate subchapter; and
(2) give to the surety on the bond, instead of the owner, all notices
under the appropriate subchapter required to be given to the owner.
(b) To perfect a claim under this section, a person is not required to:
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(1) give notice to the surety under Section 53.057, unless the claimant
has a direct contractual relationship with the original contractor and the
agreed retainage is in excess of 10 percent of the contract;
(2) give notice to the surety under Section 53.058(b) or, if the claim
relates to a residential construction project, under Section 53.253(c); or
(3) file any affidavit with the county clerk.
(c) For the claim to be valid, a person must give notice in the time and manner
required by this section, but the content of the notices need only provide fair
notice of the amount and the nature of the claim asserted.
(d) A person satisfies the requirements of this section relating to providing
notice to the surety if the person mails the notice by certified or registered mail to
the surety:
(1) at the address stated on the bond or on an attachment to the bond;
(2) at the address on file with the Texas Department of Insurance; or
(3) at any other address allowed by law.
§ 53.207. Owner’s Notice of Claim to Surety.
(a) If the owner receives any of the notices or a lien is fixed under Subchapter
C or K, the owner shall mail to the surety on the bond a copy of all notices
received.
(b) Failure of the owner to send copies of notices to the surety does not relieve
the surety of any liability under the bond if the claimant has complied with the
requirements of this subchapter, nor does that failure impose any liability on the
Owner.
§ 53.208. Action on Bond.
(a) A claimant may sue the principal and surety on the bond either jointly or
severally, if his claim remains unpaid for 60 days after the claimant perfects the
claim.
(b) The claimant may sue for the amount of the claim and court costs.
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(c) The suit must be brought in the county in which the property being
improved is located.
(d) If the bond is recorded at the time the lien is filed, the claimant must sue
on the bond within one year following perfection of his claim. If the bond is not
recorded at the time the lien is filed, the claimant must sue on the bond within two
years following perfection of his claim.
§ 53.210. Claims in Excess of Bond Amount.
If valid claims against the bond exceed the penal sum of the bond, each claimant
is entitled to a pro rata share of the penal sum.
§ 53.211. Attempted Compliance.
(a) A bond shall be construed to comply with this subchapter, and the rights
and remedies on the bond are enforceable in the same manner as on other bonds
under this subchapter, if the bond:
(1) is furnished and filed in attempted compliance with this
subchapter; or
(2) evidences by its terms intent to comply with this subchapter.
(b) Any provision in any payment bond furnished or filed in attempted
compliance with this subchapter that expands or restricts the rights or liabilities
provided under this chapter shall be disregarded and the provisions of this
subchapter shall be read into that bond.
§ 53.231. Lien.
A person who furnishes material or labor to a contractor under a prime contract
that does not exceed $25,000 and that is for public improvements in this state and who
gives notice required by this subchapter has a lien on the money, bonds, or warrants due
the contractor for the improvements.
§ 53.232. To Whom Notice Given; Manner.
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The lien claimant must send written notice of his claim by registered or certified
mail to:
(1) the officials of the state, county, town, or municipality whose duty
it is to pay the contractor; and
(2) the contractor at the contractor's last known business or residence
address.
§ 53.233. Contents of Notice.
(a) Whether based on written or oral agreement, the notice must contain:
(1) the amount claimed;
(2) the name of the party to whom the materials were delivered or for
whom the labor was performed;
(3) the dates and place of delivery or performance;
(4) a description reasonably sufficient to identify the materials
delivered or labors performed and the amount due;
(5) a description reasonably sufficient to identify the project for which
the material was delivered or the labor performed; and
(6) the claimant's business address.
(b) The notice must be accompanied by a statement under oath that the
amount claimed is just and correct and that all payments, lawful offsets, and
credits known to the affiant have been allowed.
§ 53.234. Time for Notice.
The lien claimant must give notice before any payment is made to the contractor
and not later than the 15th day of the second month following the month in which the
labor was performed or the material furnished.
§ 53.235. Official to Retain Funds.
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A public official who receives the notice may not pay all of the money, bonds, or
warrants due the contractor, but shall retain enough to pay the claim for which notice is
given.
§ 53.236. Bond for Release of Lien.
(a) If a claim is filed attempting to fix a lien under this subchapter, the
contractor against whom the claim is made may file a bond with the officials of
the state, county, town, or municipality whose duty it is to pay the money, bonds,
or warrants to the contractor.
(b) If the bond is approved by the proper official, its filing releases and
discharges all liens fixed or attempted to be fixed by the filing of a claim, and the
appropriate officials shall pay the money, bonds, or warrants to the contractor or
the contractor's assignee.
§ 53.237. Bond Requirements.
The bond must be:
(1) in an amount double the amount of the claims filed;
(2) payable to the claimants;
(3) executed by:
(A) the party filing the bond as principal; and
(B) a corporate surety authorized, admitted to do business, and
licensed by the law of this state to execute the bond as surety; and
(4) conditioned that:
(A) the principal and surety will pay to the obligees named or
to their assignees the amount of the claims or the portions of the
claims proved to be liens under this subchapter; and
(B) the principal and surety will pay all court costs adjudged
against the principal in actions brought by a claimant on the bond.
§ 53.238. Notice of Bond.
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The official with whom the bond is filed shall send an exact copy of the bond by
registered mail or certified mail, return receipt requested, to all claimants.
§ 53.239. Action on Bond.
(a) A claimant must sue on the bond within six months after the bond is filed.
(b) The bond is not exhausted by one action on it. Each obligee or his
assignee may maintain a separate suit on the bond in any court of jurisdiction.
§ 53.251. Procedures for Residential Construction Projects.
(a) This subchapter applies only to residential construction projects.
(b) A person must comply with this subchapter in addition to the other
applicable provisions of this chapter to perfect a lien that arises from a claim
resulting from a residential construction project.
§ 53.252. Derivative Claimant: Notice to Owner or Original Contractor.
(a) A claimant other than an original contractor must give the notice
prescribed by this section for the lien to be valid. If the property that is the
subject of the lien is a homestead, the notice must also comply with Section
53.254.
(b) The claimant must give to the owner or reputed owner and the original
contractor written notice of the unpaid balance. The claimant must give the notice
not later than the 15th day of the second month following each month in which all
or part of the claimant's labor was performed or material or specially fabricated
material was delivered.
(c) To authorize the owner to withhold funds under Subchapter D, the notice
to the owner must state that if the claim remains unpaid, the owner may be
personally liable and the owner's property may be subjected to a lien unless:
(1) the owner withholds payments from the contractor for payment of
the claim; or
(2) the claim is otherwise paid or settled.
(d) The notice must be sent by registered or certified mail and must be
addressed to the owner or reputed owner and the original contractor, as
applicable, at the person's last known business or residence address.
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(e) A copy of the statement or billing in the usual and customary form is
sufficient as notice under this section.
§ 53.253. Derivative Claimant: Notice for Specially Fabricated Items.
(a) If specially fabricated materials have not been delivered to the property or
incorporated in the residential construction project, the claimant who specially
fabricates material for incorporation in the residential construction project must
give notice under this section for the lien to be valid.
(b) Once the specially fabricated materials have been delivered, the claimant
must give notice under Section 53.252.
(c) The claimant must give the owner or reputed owner notice not later than
the 15th day of the second month after the month in which the claimant receives
and accepts the order for the material. If a person other than the original
contractor incurs the indebtedness, the claimant must also give notice within that
time to the original contractor.
(d) The notice must contain:
(1) a statement that the order has been received and accepted; and
(2) the price of the order.
(e) The notice must be sent by registered or certified mail to the last known
business or residence address of the owner or the reputed owner or the original
contractor, as applicable.
(f) The lien of a claimant who accepts an order but fails to give notice under
this section is valid as to delivered items if the claimant has given notice under
Section 53.252.
§ 53.254. Homestead.
(a) To fix a lien on a homestead, the person who is to furnish material or
perform labor and the owner must execute a written contract setting forth the
terms of the agreement.
(b) The contract must be executed before the material is furnished or the labor
is performed.
(c) If the owner is married, the contract must be signed by both spouses.
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(d) If the contract is made by an original contractor, the contract inures to the
benefit of all persons who labor or furnish material for the original contractor.
(e) The contract must be filed with the county clerk of the county in which the
homestead is located. The county clerk shall record the contract in records kept
for that purpose.
(f) An affidavit for lien filed under this subchapter that relates to a homestead
must contain the following notice conspicuously printed, stamped, or typed in a
size equal to at least 10-point boldface or the computer equivalent, at the top of
the page:
"NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT
CLAIMING A LIEN."
(g) For the lien on a homestead to be valid, the notice required to be given to
the owner under Section 53.252 must include or have attached the following
statement:
"If a subcontractor or supplier who furnishes materials or performs labor
for construction of improvements on your property is not paid, your property may
be subject to a lien for the unpaid amount if:
(1) after receiving notice of the unpaid claim from the claimant, you
fail to withhold payment to your contractor that is sufficient to cover the
unpaid claim until the dispute is resolved; or
(2) during construction and for 30 days after completion of
construction, you fail to retain 10 percent of the contract price or 10
percent of the value of the work performed by your contractor.
"If you have complied with the law regarding the 10 percent retainage and
you have withheld payment to the contractor sufficient to cover any written notice
of claim and have paid that amount, if any, to the claimant, any lien claim filed on
your property by a subcontractor or supplier, other than a person who contracted
directly with you, will not be a valid lien on your property. In addition, except for
the required 10 percent retainage, you are not liable to a subcontractor or supplier
for any amount paid to your contractor before you received written notice of the
claim."
§ 53.255. Disclosure Statement Required for Residential Construction Contract.
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(a) Before a residential construction contract is executed by the owner, the
original contractor shall deliver to the owner a disclosure statement described by
this section.
(b) The disclosure statement must read substantially similar to the following:
"KNOW YOUR RIGHTS AND RESPONSIBILITIES UNDER THE
LAW. You are about to enter into a transaction to build a new home or remodel
existing residential property. Texas law requires your contractor to provide you
with this brief overview of some of your rights, responsibilities, and risks in this
transaction.
"CONVEYANCE TO CONTRACTOR NOT REQUIRED. Your
contractor may not require you to convey your real property to your contractor as
a condition to the agreement for the construction of improvements on your
property.
"KNOW YOUR CONTRACTOR. Before you enter into your agreement
for the construction of improvements to your real property, make sure that you
have investigated your contractor. Obtain and verify references from other people
who have used the contractor for the type and size of construction project on your
property.
"GET IT IN WRITING. Make sure that you have a written agreement with
your contractor that includes: (1) a description of the work the contractor is to
perform; (2) the required or estimated time for completion of the work; (3) the
cost of the work or how the cost will be determined; and (4) the procedure and
method of payment, including provisions for statutory retainage and conditions
for final payment. If your contractor made a promise, warranty, or representation
to you concerning the work the contractor is to perform make sure that promise,
warranty, or representation is specified in the written agreement. An oral promise
that is not included in the written agreement may not be enforceable under Texas
law.
"READ BEFORE YOU SIGN. Do not sign any document before you have
read and understood it. NEVER SIGN A DOCUMENT THAT INCLUDES AN
UNTRUE STATEMENT. Take your time in reviewing documents. If you
borrow money from a lender to pay for the improvements, you are entitled to have
the loan closing documents furnished to you for review at least one business day
before the closing. Do not waive this requirement unless a bona fide emergency
or another good cause exists, and make sure you understand the documents before
you sign them. If you fail to comply with the terms of the documents, you could
lose your property. You are entitled to have your own attorney review any
documents. If you have any question about the meaning of a document, consult
an attorney.
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"GET A LIST OF SUBCONTRACTORS AND SUPPLIERS. Before
construction commences, your contractor is required to provide you with a list of
the subcontractors and suppliers the contractor intends to use on your project.
Your contractor is required to supply updated information on any subcontractors
and suppliers added after the list is provided. Your contractor is not required to
supply this information if you sign a written waiver of your rights to receive this
information.
"MONITOR THE WORK. Lenders and governmental authorities may
inspect the work in progress from time to time for their own purposes. These
inspections are not intended as quality control inspections. Quality control is a
matter for you and your contractor. To ensure that your home is being
constructed in accordance with your wishes and specifications, you should inspect
the work yourself or have your own independent inspector review the work in
progress.
"MONITOR PAYMENTS. If you use a lender, your lender is required to
provide you with a periodic statement showing the money disbursed by the lender
from the proceeds of your loan. Each time your contractor requests payment from
you or your lender for work performed, your contractor is also required to furnish
you with a disbursement statement that lists the name and address of each
subcontractor or supplier that the contractor intends to pay from the requested
funds. Review these statements and make sure that the money is being properly
disbursed.
"CLAIMS BY SUBCONTRACTORS AND SUPPLIERS. Under Texas
law, if a subcontractor or supplier who furnishes labor or materials for the
construction of improvements on your property is not paid, you may become
liable and your property may be subject to a lien for the unpaid amount, even if
you have not contracted directly with the subcontractor or supplier. To avoid
liability, you should take the following actions:
(1) If you receive a written notice from a subcontractor or supplier,
you should withhold payment from your contractor for the amount of the
claim stated in the notice until the dispute between your contractor and the
subcontractor or supplier is resolved. If your lender is disbursing money
directly to your contractor, you should immediately provide a copy of the
notice to your lender and instruct the lender to withhold payment in the
amount of the claim stated in the notice. If you continue to pay the
contractor after receiving the written notice without withholding the
amount of the claim, you may be liable and your property may be subject
to a lien for the amount you failed to withhold.
(2) During construction and for 30 days after final completion,
termination, or abandonment of the contract by the contractor, you should
withhold or cause your lender to withhold 10 percent of the amount of
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payments made for the work performed by your contractor. This is
sometimes referred to as "statutory retainage.' If you choose not to
withhold the 10 percent for at least 30 days after final completion,
termination, or abandonment of the contract by the contractor and if a
valid claim is timely made by a claimant and your contractor fails to pay
the claim, you may be personally liable and your property may be subject
to a lien up to the amount that you failed to withhold.
"If a claim is not paid within a certain time period, the claimant is required
to file a mechanic's lien affidavit in the real property records in the county where
the property is located. A mechanic's lien affidavit is not a lien on your property,
but the filing of the affidavit could result in a court imposing a lien on your
property if the claimant is successful in litigation to enforce the lien claim.
"SOME CLAIMS MAY NOT BE VALID. When you receive a written
notice of a claim or when a mechanic's lien affidavit is filed on your property, you
should know your legal rights and responsibilities regarding the claim. Not all
claims are valid. A notice of a claim by a subcontractor or supplier is required to
be sent, and the mechanic's lien affidavit is required to be filed, within strict time
periods. The notice and the affidavit must contain certain information. All
claimants may not fully comply with the legal requirements to collect on a claim.
If you have paid the contractor in full before receiving a notice of a claim and
have fully complied with the law regarding statutory retainage, you may not be
liable for that claim. Accordingly, you should consult your attorney when you
receive a written notice of a claim to determine the true extent of your liability or
potential liability for that claim.
"OBTAIN A LIEN RELEASE AND A BILLS-PAID AFFIDAVIT. When
you receive a notice of claim, do not release withheld funds without obtaining a
signed and notarized release of lien and claim from the claimant. You can also
reduce the risk of having a claim filed by a subcontractor or supplier by requiring
as a condition of each payment made by you or your lender that your contractor
furnish you with an affidavit stating that all bills have been paid. Under Texas
law, on final completion of the work and before final payment, the contractor is
required to furnish you with an affidavit stating that all bills have been paid. If
the contractor discloses any unpaid bill in the affidavit, you should withhold
payment in the amount of the unpaid bill until you receive a waiver of lien or
release from that subcontractor or supplier.
"OBTAIN TITLE INSURANCE PROTECTION. You may be able to
obtain a title insurance policy to insure that the title to your property and the
existing improvements on your property are free from liens claimed by
subcontractors and suppliers. If your policy is issued before the improvements
are completed and covers the value of the improvements to be completed, you
should obtain, on the completion of the improvements and as a condition of your
final payment, a 'completion of improvements' policy endorsement. This
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endorsement will protect your property from liens claimed by subcontractors and
suppliers that may arise from the date the original title policy is issued to the date
of the endorsement."
(c) The failure of a contractor to comply with this section does not invalidate
a lien under this chapter, a contract lien, or a deed of trust.
§ 53.256. List of Subcontractors and Suppliers.
(a) Except as provided by Subsection (d), for the construction of
improvements under a residential construction contract, the original contractor
shall:
(1) furnish to the owner before the commencement of construction a
written list that identifies by name, address, and telephone number each
subcontractor and supplier the contractor intends to use in the work to be
performed; and
(2) provide the owner with an updated list of subcontractors and
suppliers not later than the 15th day after the date a subcontractor or
supplier is added or deleted.
(b) The list must contain the following notice conspicuously printed, stamped,
or typed in a size equal to at least 10-point boldface or the computer equivalent:
"NOTICE: THIS LIST OF SUBCONTRACTORS AND SUPPLIERS
MAY NOT BE A FINAL LISTING. UNLESS YOU SIGN A WAIVER OF
YOUR RIGHT TO RECEIVE UPDATED INFORMATION, THE
CONTRACTOR IS REQUIRED BY LAW TO SUPPLY UPDATED
INFORMATION, AS THE INFORMATION BECOMES AVAILABLE, FOR
EACH SUBCONTRACTOR OR SUPPLIER USED IN THE WORK
PERFORMED ON YOUR RESIDENCE."
(c) The failure of a contractor to comply with this section does not invalidate
a lien under this chapter, a contract lien, or a deed of trust.
(d) An owner may waive the right to receive the list of subcontractors and
suppliers or any updated information required by this section only as provided by
this subsection. The waiver must be in writing and may be included in the
residential construction contract. If the waiver is not included as a provision of
the residential construction contract, the separate waiver statement must be signed
by the owner. The waiver must be conspicuously printed in at least 10-point
bold-faced type and read substantially similar to the following:
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"WAIVER OF THE LIST OF SUBCONTRACTORS AND SUPPLIERS.
AN OWNER IS NOT REQUIRED TO WAIVE THE RIGHT GRANTED BY
SECTION 53.256, PROPERTY CODE, TO RECEIVE FROM THE
CONTRACTOR AN ORIGINAL OR UPDATED LIST OF
SUBCONTRACTORS AND SUPPLIERS.
"BY SIGNING THIS DOCUMENT, I AGREE TO WAIVE MY RIGHT
TO RECEIVE FROM THE CONTRACTOR AN ORIGINAL OR UPDATED
LIST OF SUBCONTRACTORS AND SUPPLIERS.
"I UNDERSTAND AND ACKNOWLEDGE THAT, AFTER SIGNING
THIS DOCUMENT, THIS WAIVER MAY NOT BE CANCELED AT A
LATER DATE.
"I HAVE VOLUNTARILY CONSENTED TO THIS WAIVER."
§ 53.257. Provisions Related to Closing of Loan for Construction of Improvements.
(a) If the owner is obtaining third-party financing for the construction of
improvements under a residential construction contract, the lender shall deliver to
the owner all documentation relating to the closing of the loan not later than one
business day before the date of the closing. If a bona fide emergency or another
good cause exists and the lender obtains the written consent of the owner, the
lender may provide the documentation to the owner or the lender may modify
previously provided documentation on the date of closing.
(b) The lender shall provide to the owner the disclosure statement described
by Section 53.255(b). The disclosure statement must be provided to the owner
before the date of closing. If a bona fide emergency or another good cause exists
and the lender obtains the written consent of the owner, the lender may provide
the disclosure statement at the closing. The lender shall retain a signed and dated
copy of the disclosure statement with the closing documents.
(c) The failure of a lender to comply with this section does not invalidate a
lien under this chapter, a contract lien, or a deed of trust.
§ 53.258. Disbursements of Funds.
(a) At the time the original contractor requests payment from the owner or the
owner's lender for the construction of improvements under a residential
construction contract, the original contractor shall provide to the owner a
disbursement statement. The statement may include any information agreed to by
the owner and the original contractor and must include at least the name and
address of each person who subcontracted directly with the original contractor
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and who the original contractor intends to pay from the requested funds. The
original contractor shall provide the disbursement statement:
(1) in the manner agreed to in writing by the owner and original
contractor; or
(2) if no agreement exists, by depositing the statement in the United
States mail, first class, postage paid, and properly addressed to the owner
or by hand delivering the statement to the owner before the original
contractor receives the requested funds.
(b) If the owner finances the construction of improvements through a third
party that advances loan proceeds directly to the original contractor, the lender
shall:
(1) obtain from the original contractor the signed disbursement
statement required by Subsection (a) that covers the funds for which the
original contractor is requesting payment; and
(2) provide to the owner a statement of funds disbursed by the lender
since the last statement was provided to the owner.
(c) The lender shall provide to the owner the lender's disbursement statement
and the disbursement statement the lender obtained from the contractor before the
lender disburses the funds to the original contractor. The disbursement statements
may be provided in any manner agreed to by the lender and the owner.
(d) The lender is not responsible for the accuracy of the information contained
in the disbursement statement obtained from the original contractor.
(e) The failure of a lender or an original contractor to comply with this section
does not invalidate a lien under this chapter, a contract lien, or a deed of trust.
(f) A person commits an offense if the person intentionally, knowingly, or
recklessly provides false or misleading information in a disbursement statement
required under this section. An offense under this section is a misdemeanor. A
person adjudged guilty of an offense under this section shall be punished by a fine
not to exceed $4,000 or confinement in jail for a term not to exceed one-year or
both a fine and confinement. A person may not receive community supervision
for the offense.
§ 53.259. Final Bills-Paid Affidavit Required.
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(a) As a condition of final payment under a residential construction contract,
the original contractor shall, at the time the final payment is tendered, execute and
deliver to the owner, or the owner's agent, an affidavit stating that the original
contractor has paid each person in full for all labor and materials used in the
construction of improvements on the real property. If the original contractor has
not paid each person in full, the original contractor shall state in the affidavit the
amount owed and the name and, if known, the address and telephone number of
each person to whom a payment is owed.
(b) The seller of any real property on which a structure of not more than four
units is constructed and that is intended as the principal place of residence for the
purchaser shall, at the closing of the purchase of the real property, execute and
deliver to the purchaser, or the purchaser's agent, an affidavit stating that the seller
has paid each person in full for all labor and materials used in the construction of
improvements on the real property and that the seller is not indebted to any person
by reason of any construction. In the event that the seller has not paid each
person in full, the seller shall state in the affidavit the amount owed and the name
and, if known, the address and telephone number of each person to whom a
payment is owed.
(c) A person commits an offense if the person intentionally, knowingly, or
recklessly makes a false or misleading statement in an affidavit under this section.
An offense under this section is a misdemeanor. A person adjudged guilty of an
offense under this section shall be punished by a fine not to exceed $4,000 or
confinement in jail for a term not to exceed one-year or both a fine and
confinement. A person may not receive community supervision for the offense.
(d) A person signing an affidavit under this section is personally liable for any
loss or damage resulting from any false or incorrect information in the affidavit.
§ 53.260. Conveyance to Contractor Not Required.
An original contractor may not require an owner of real property to convey the
real property to the original contractor or an entity controlled by the original contractor as
a condition to the performance of the residential construction contract for improvements
to the real property.
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Chapter 162. Construction Payments, Loan Receipts, And
Misapplication Of Trust Funds
§ 162.001. Construction Payments and Loan Receipts as Trust Funds.
(a) Construction payments are trust funds under this chapter if the payments
are made to a contractor or subcontractor or to an officer, director, or agent of a
contractor or subcontractor, under a construction contract for the improvement
of specific real property in this state.
(b) Loan receipts are trust funds under this chapter if the funds are borrowed
by a contractor, subcontractor, or owner or by an officer, director, or agent of a
contractor, subcontractor, or owner for the purpose of improving specific real
property in this state, and the loan is secured in whole or in part by a lien on the
property.
(c) If a contractor and property owner have entered into a written construction
contract for the improvement of specific real property in this state before the
commencement of construction of the improvement and the contract provides for
the payment by the owner of the costs of construction and a reasonable fee
specified in the contract payable to the contractor, the fee paid to the contractor is
not considered trust funds.
§ 162.002. Contractors as Trustees.
A contractor, subcontractor, or owner or an officer, director, or agent of a
contractor, subcontractor, or owner, who receives trust funds or who has control or
direction of trust funds, is a trustee of the trust funds.
§ 162.003. Beneficiaries of Trust Funds.
An artisan, laborer, mechanic, contractor, subcontractor, or material man who
labors or who furnishes labor or material for the construction or repair of an improvement
on specific real property in this state is a beneficiary of any trust funds paid or received in
connection with the improvement.
§ 162.004. Application.
(a) This chapter does not apply to:
(1) a bank, savings and loan, or other lender;
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(2) a title company or other closing agent; or
(3) a corporate surety who issues a payment bond covering the
contract for the construction or repair of the improvement.
(b) The TEXAS TRUST ACT (Chapters 111 through 115) does not apply to any
trust created under this chapter, nor does this chapter affect any provision of the
TEXAS TRUST ACT.
§ 162.005. Definitions.
In this chapter:
(1) A trustee acts with "intent to defraud" when the trustee:
(A) retains, uses, disburses, or diverts trust funds with the intent
to deprive the beneficiaries of the trust funds;
(B) retains, uses, disburses, or diverts trust funds and fails to
establish or maintain a construction account as required by Section
162.006 or fails to establish or maintain an account record for the
construction account as required by Section 162.007; or
(C) uses, disburses, or diverts trust funds that were paid to the
trustee in reliance on an affidavit furnished by the trustee under
Section 53.085 if the affidavit contains false information relating to
the trustee's payment of current or past due obligations.
(2) "Current or past due obligations" are those obligations incurred or
owed by the trustee for labor or materials furnished in the direct
prosecution of the work under the construction contract prior to the receipt
of the trust funds and which are due and payable by the trustee no later
than 30 days following receipt of the trust funds.
(3) "Direct cost" means a cost included under a construction contract
that is specific to the construction of the improvement that is the subject of
the contract.
(4) "Indirect cost,” means a cost included under a construction
contract that is not specific to the construction of the improvement that is
the subject of the contract.
(5) "Financial institution" means a bank, savings association, savings
bank, credit union, or savings and loan association authorized to do
business in the state.
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(6) "Construction account" means an account in a financial institution
into which only trust funds and funds deposited by the contractor that are
necessary to pay charges imposed on the account by the financial
institution may be maintained.
§ 162.006. Construction Account Required in Certain Circumstances.
(a) A contractor who enters into a written contract with a property owner to
construct improvements to a residential homestead for an amount exceeding
$5,000 shall deposit the trust funds in a construction account in a financial
institution.
(b) The periodic statement received from the financial institution must refer to
the account as a "construction account" to satisfy the requirements of this section.
§ 162.007. Management of Construction Accounts.
(a) A contractor required to maintain a construction account under this
subchapter shall maintain an account record for the construction account that
provides information relating to:
(1) the source and amount of the funds in the account and the date the
funds were deposited;
(2) the date and amount of each disbursement from the account and
the person to whom the funds were disbursed; and
(3) the current balance of the account.
(b) The contractor shall maintain an account record for each construction
project that specifies the direct costs and indirect costs charged to the owner.
(c) The contractor shall retain all invoices and other supporting
documentation received relating to funds that were disbursed from the
construction account.
(d) The contractor shall ensure that all deposit and disbursement
documentation includes the construction account number or information that
provides a direct connection between the documentation and the account.
(e) The contractor may not destroy information required to be maintained
under this section before the first anniversary of the date the improvement that is
the subject of the contract is completed.
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§ 162.031. Misapplication of Trust Funds.
(a) A trustee who, intentionally or knowingly or with intent to defraud,
directly or indirectly retains, uses, disburses, or otherwise diverts trust funds
without first fully paying all current or past due obligations incurred by the trustee
to the beneficiaries of the trust funds, has misapplied the trust funds.
(b) It is an affirmative defense to prosecution or other action brought under
Subsection (a) that the trust funds not paid to the beneficiaries of the trust were
used by the trustee to pay the trustee's actual expenses directly related to the
construction or repair of the improvement or have been retained by the trustee,
after notice to the beneficiary who has made a request for payment, as a result of
the trustee's reasonable belief that the beneficiary is not entitled to such funds or
have been retained as authorized or required by Chapter 53.
(c) It is also an affirmative defense to prosecution or other action brought
under Subsection (a) that the trustee paid the beneficiaries all trust funds which
they are entitled to receive no later than 30 days following written notice to the
trustee of the filing of a criminal complaint or other notice of a pending criminal
investigation.
§ 162.032. Penalties.
(a) A trustee who misapplies trust funds amounting to $500 or more in
violation of this chapter commits a Class A misdemeanor.
(b) A trustee who misapplies trust funds amounting to $500 or more in
violation of this chapter, with intent to defraud, commits a felony of the third
degree.
(c) A trustee who fails to establish or maintain a construction account in
violation of Section 162.006 or fails to establish or maintain an account record for
the construction account in violation of Section 162.007 commits a Class A
misdemeanor.
§ 162.033. Election of Offenses.
If the misapplication of trust funds by a trustee constitutes another offense
punishable under the laws of this state, the state may elect the offense for which it will
prosecute the trustee.
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TEXAS CONSTITUTION
Article XVI - GENERAL PROVISIONS
Section 37 - LIENS OF MECHANICS, ARTISANS, AND MATERIAL MEN
Mechanics, artisans and material men, of every class, shall have a lien upon the
buildings and articles made or repaired by them for the value of their labor done thereon,
or material furnished therefore; and the Legislature shall provide by law for the speedy
and efficient enforcement of said liens.
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