Lien and Construction
Contract Updates
Stephanie O’Rourke
“Construction Law Update” Breakfast Seminar
Sponsored by:
The Construction Zone
Dominion Country Club
San Antonio, Texas
January 16, 2014
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Lien Basics
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Introduction
• Mechanic’s lien laws in Texas are very complex,
and are provided for both in the Texas
Constitution and in the Texas Property Code.
• Whether working for the government or on
private projects, contractors must comply with
strict statutory requirements.
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The Constitution
United States Constitution, Article XVI, Section 37, which
has remain unchanged since 1876 provides:
LIENS OF MECHANICS, ARTISIANS, AND MATERIALMEN.
Mechanics, artisians 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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Constitutional Lien
• The Texas Constitution grants certain selfexecuting liens. Constitutional liens are only
available to those who contract directly with the
project’s owner.
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• New Section
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Constitutional Lien
• An original contractor is any entity that has a
direct contract with the property owner. There
may be multiple original contractors on a
project.
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Lien Holders & Proper Subject of Lien
• Contractors, subcontractors, material suppliers,
architects, engineers, surveyors, and landscapers
who perform labor or supply materials directly
to a private project may file a lien on the
property.
• Statutory liens attach to the land and the
improvements thereon.
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Three Types of Claimants:
Contractor, Subcontractor, and
Sub-Subcontractor
• Subcontractors and subsubcontractors must comply
with statutory notice
obligations when perfecting
lien affidavits.
General Contractor and Sub.
Sub-Contractor and Sub-Sub.
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Three Types of Claimants:
Original Contractor, Subcontractor, and
Sub-Subcontractor –
Accrual of Indebtedness of Claimants
• For GC, the date of the accrual of indebtedness is
typically on the last day of the month wherein the GC
or the owner has notice that the contract has either
been terminated, abandoned or completed.
• For subcontractors or sub-subcontractors, accrual of
indebtedness occurs on the last day of the last calendar
month they perform the work or furnish materials
under the prime contract.
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Perfecting a Subcontractor’s or
Materialman’s Lien
• To perfect a lien, entities having direct contract
with an original contractor must provide certain
information to the project owner prior to filing a
lien affidavit.
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Perfecting a Subcontractor’s or
Materialman’s Lien
Notice
• A subcontractor or materialman must give an owner
written notice of an original contractor's failure to
pay. The notice is sometimes referred to as a third
month notice. The notice allows an owner to
withhold funds statutorily owed to the original
contractor.
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Perfecting a Subcontractor’s or
Materialman’s Lien
Notice of Filing Lien Affidavit
• A subcontractor must send notice of filing the
lien affidavit to the owner and the original
contractor by certified or registered mail within
5 days of filing the lien with the county clerk.
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Perfecting a Subcontractor’s or
Materialman’s Lien
• In Texas, sub-subcontractors and material
providers have additional notice requirements.
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Perfecting a Subcontractor’s or
Materialman’s Lien
Notices
• A sub-subcontractor or materialman who does
not have a contract with an GC (but instead
contracts with a subcontractor) is required to
give two separate written notices by registered
mail, return receipt requested – (1) to the GC by
the 15th day of the second month, with a copy to
the sub; and (2) to the owner and GC with copy
to sub by the 15th day of the third month.
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Perfecting a Subcontractor’s or
Materialman’s Lien
Affidavit
• This “sub-sub” notice to the prime contractor is required
on or before the 15th of the 2nd month after each calendar
month labor or materials are supplied.
• Notice to the owner & prime is required on or before the
15th of the 3rd month after each calendar month labor or
materials are supplied.
• Notice to owner must contain statutorily required
language.
• Once notice is properly given, the sub-subcontractor or
materialman must file its lien affidavit.
• Invoice date does not control.
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Perfecting a Subcontractor’s or
Materialman’s Lien
Filing Lien Affidavit Against Retainage
• If owner filed an affidavit of completion and sent a copy of the
affidavit to the claimant then:
— Claimant must file its lien affidavit within 40 days after the
date of completion stated in the affidavit OR
• If owner sent a notice relating to termination or abandonment of the
original contract to the claimant then:
— Claimant must file its lien affidavit within 40 days
after the date of termination or abandonment
stated in the notice OR . . .
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Perfecting a Subcontractor’s or
Materialman’s Lien
Filing Lien Affidavit Against Retainage
• If owner sent a written notice of demand for claimant to
file its lien affidavit, then:
— Claimant must file its lien affidavit within 30 days
after the date owner sent notice of demand to
claimant.
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Demand for Payment to Owner
• If a sub or sub-sub notice is properly given to the
owner, it will “trap funds” in the hands of the
Owner. An Owner can be liable if it pays
“trapped funds” to an original contractor.
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Anti-Indemnity Portion of Chapter 151
Application
• When indemnitor is provided or procures
insurance pursuant to a CIP.
• When indemnitor procures coverage subject to
Title 10 of the Texas Insurance Code (property
and casualty).
“Have no fear of perfection –you’ll never reach it.”
(Salvador Dali)
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What is a “Construction Contract?”
A contract, subcontract, or agreement, or a performance bond
assuring the performance of any of the foregoing, entered into or
made by an owner, architect, engineer, contractor, construction
manager, subcontractor, supplier, or material or equipment
lessor for the design, construction, alteration, renovation,
remodeling, repair, or maintenance of, or for the furnishing of
material or equipment for, a building, structure, appurtenance,
or other improvement to or on public or private real property,
including moving, demolition, and excavation connected with
the real property. The term includes an agreement to which an
architect, engineer, or contractor and an owner's lender are
parties regarding an assignment of the construction contract or
other modifications thereto.
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Types of Construction Contracts
• Contracts for public or private construction
• Demolition and excavation contracts
• Design contracts
• Performance bonds
• Assignment agreements with owner’s lender
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What’s Prohibited?
• Requiring the indemnitor to indemnify against
a claim caused by the negligence or fault,
breach of statute, breach of contract, etc. of the
indemnitee.
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Scope of Indemnity Permitted
• Comparative fault or limited form indemnity
only to the extent of the indemnitor’s own
negligence or fault.
• No transfer of the indemnitee’s own negligence
or fault.
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Employee Exception
• An indemnity provision requiring a person
to indemnify another party against a claim
for the bodily injury or death of an employee
of the indemnitor or its subcontractor.
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Scope of Indemnity Permitted –
Third Party Over Actions
• An indemnitee can be indemnified for liability
arising out of the bodily injury or death of an
employee of the indemnitor or its subcontractor
as alleged in a third party over action.
• Broad form indemnity allowed as to sole
negligence or fault of the indemnitee in causing
the injury.
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Anti-Indemnity:
CIP Exceptions
• An insurance policy issued under a CIP.
• Cause of action for breach of contract or
warranty that exists independently of the
indemnity obligation for which insurance is
provided under a CIP.
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Anti-Indemnity:
Other Exceptions
• Financing documents other than construction
contracts to which the contractor and lender are
parties.
• General agreements of indemnity required by
sureties.
• Worker’s Compensation benefits
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Anti-Indemnity:
Other Exceptions (cont.)
• Benefits or protections under governmental
immunity laws
• Single family residential construction
• Municipal contracts
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Anti-Indemnity:
Joint Defense Agreements
• The statute does not apply to a joint defense
agreement entered into after a claim is made.
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Anti-Indemnity:
Effective Date
• “Original Contracts” with owners entered into
on or after January 1, 2012.
• The prime contract determines the applicable
law to the subcontracts, purchase orders and
insurance policies.
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General Indemnity Clause
Contractor shall defend, indemnify and hold harmless
Owner from and against all claims . . . arising out of the
performance of Contractor’s Work provided that any such
claim is attributable to bodily injury, sickness, disease, or
death, or to injury to or destruction of tangible property,
including the loss of use resulting therefrom, but only to
the extent caused or alleged to be caused in whole or in
part by any negligent act or omission of Contractor . . .
“The minute you read something that you can’t understand,
you can almost be sure that it was drawn up by a lawyer.”
(Will Rogers)
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Employee Injury Indemnity Clause
CONTRACTOR SHALL DEFEND, INDEMNIFY AND HOLD
HARMLESS OWNER AGAINST ALL CLAIMS … ARISING OUT OF
BODILY INJURY TO, OR SICKNESS, DISEASE OR DEATH OF, ANY
AGENT, EMPLOYEE OR REPRESENTATIVE OF CONTRACTOR OR
ANY OF ITS SUBCONTRACTORS, REGARDLESS OF WHETHER
SUCH BODILY INJURY, SICKNESS, DISEASE, OR DEATH IS
CAUSED BY OR IS ALLEGED TO BE CAUSED BY THE PARTIAL OR
SOLE NEGLIGENCE OF OWNER. IT IS THE EXPRESS INTENT OF
OWNER AND CONTRACTOR THAT CONTRACTOR IS TO
DEFEND, INDEMNIFY AND HOLD THE OWNER HARMLESS
FROM THE CONSEQUENCES OF OWNER’S OWN NEGLIGENCE,
WHETHER IT IS THE SOLE OR CONCURRING CAUSE OF THE
BODILY INJURY, SICKNESS, DISEASE OR DEATH.
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Two Pending Cases
Concerning Design Professionals
Martin K. Eby Constr. Co. V. LAN/STV,
No. 11-0810 (Tex.)
Atkins North America, Inc., fka PBS&J v. CCE, Inc.,
No. 11-0481 (Tex.)
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Two Legal Issues for the
Texas Supreme Court
1. What constitutes a “negligent
misrepresentation” by a design professional?
2. What damages are recoverable against a
design professional for negligent
misrepresentation?
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What is A “Negligent
Misrepresentation?”
“Supplying false information for the guidance of
others”
Restatement (Second) of Torts §552
“Significantly, the sort of ‘false information’
contemplated in a negligent misrepresentation
case is a misstatement of existing fact.”
AKB Hendrick, LP v. Musgrave Enterprises, Inc., 380 S.W.3d 221, 237 (Tex. App.---Dallas
2012)
See also McCamish, 991 S.W.2d at 794
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What About Damages?
1.
2.
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 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.
The damages recoverable for a negligent misrepresentation do not
include the benefit of the plaintiff’s contract with the defendant.
Restatement (Second) of Torts §552B
Federal Land Bank v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991).
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Questions?
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Thank You!
Stephanie O’Rourke
sorourke@cbylaw.com
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