Month: May 2017

Pay attention to the signature block and guaranty provisions when signing a contract

May 31, 2017

The president of a builder signed a contract, but (1) neglected to put the full legal name of his business in the signature block and (2) a provision of the contract stated that “the obligations under this agreement are also a personal obligation of the builder representative signing below.” After the builder defaulted, the owner sued the president of the builder as an individual.

The Court ruled that the president was not individually liable because (1) the contract recited the parties as the legal entities, not as the president, individually, (2) the word, “president” appeared after the signature of the builder’s president, and (3) the personal guarantee section referred to the “builder’s representative” and not a specific individual.

The lesson here is to be very clear in the signature block to avoid disputes such as this. While eventually the builder’s president was found not personally liable, this was after a lengthy and expensive court proceeding.

Mission Grove, L.P. v. Hall, 503 S.W. 3d 546 (Tex. App.—Houston [14th. Dist.] 2016, no pet.).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Court narrowly construes law limiting contract-notice requirements

May 31, 2017

Under the Texas Civil Practice & Remedies Code, “a contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.” Tex. Civ. Prac. & Rem. Code § 16.071.

In a recent case, an owner sought to enforce a provision in a construction contract which stipulated that the contractor had to initiate a “claim” against the owner within seven days of the event. The Court ruled in favor of the owner, holding that the parties’ freedom to contract should be respected. The Court drew a distinction between giving notice of a “claim” and giving notice of a “claim for damages,” reasoning that a claim under the provision at issue was just giving notice of facts giving rise to a claim for damage. A claim for damages, in contrast was a cause of action (such as a claim for breach of contract).

As such, depending on the contractual language at issue, this statute might not provide protection from short-notice periods in construction contracts. The statute is more likely to apply if the language requires suit to be filed within a certain time period, or otherwise equates a claim with a cause of action.

El Paso Cty. v. Sunlight Enters. Co., 504 S.W. 3d 922 (Tex. App.—El Paso 2016, no pet.).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.

Contractor’s officer successfully defends against claims for misapplication of trust funds

May 17, 2017

The U.S. Court of Appeals for the Fifth Circuit recently analyzed a defense against a subcontractor’s claims asserted under the Texas Construction Trust Fund Act. Under the Act, contractors can be held liable as trustees for misapplication of payments received for the benefit of downstream contractors. Tex. Prop. Code § 162.031 (a). Owners, officers, and agents of contractors who have control or direction of trust funds can also be held individually liable as trustees. Id. § 162.002. However, the trustees can defend against the claims by showing that the trust funds were used to pay the contractor’s actual expenses directly related to the construction of the improvement. Id. § 16.031(b).

In this case, a contractor applied for and received funds for a construction project that included funds requested by a subcontractor. The subcontractor never received the funds and asserted claims against the contractor’s officer individually for misapplication of funds under the Act. The contractor’s officer showed that the funds at issue were spent on the contractor’s salaries, overhead, and supervision for the project. The Fifth Circuit found this showing was sufficient to support his defense and to defeat the subcontractor’s claims under the Act.

Monaco v. TAG Invs., Ltd. (In re Monaco), 839 F. 3d 413 (5th Cir. 2016).

The attached information is general in nature, is presented for discussion purposes only, and may not reflect current legal developments, nor fully explore all potential areas of this topic. The information included should not be relied upon or construed as legal advice and is not a substitute for obtaining legal advice from an attorney. No legal representation is undertaken or implied with the distribution of this information.