Contingent Payment Provisions Flashcards
Contingent Payee
means a party to a contract with a contingent payment clause, other than an architect or engineer, whose receipt of payment is conditioned on the contingent payor’s receipt of payment from another person.
Contingent payment clause
means a provision in a contract for construction management, or for the construction of improvements to real property or the furnishing of materials for the construction, that provides that the contingent payor’s receipt of payment from another is a condition precedent to the obligation of the contingent payor to make payment to the contingent payee for work performed or materials furnished.
Contingent payor
means a party to a contract with a contingent payment clause that conditions payment by the party on the receipt of payment from another person.
Obligor
means the person obligated to make payment to the contingent payor for an improvement.
Primary Obligor
means the owner of the real property to be improved or repaired under the contract, or the contracting authority if the contract is for a public project. A primary obligor may be an obligor.
Chapter 56 of the Business Commerce Code–Contingent Payments Does not Apply to what type of matters?
1) design services;
(2) the construction or maintenance of a road, highway, street, bridge, utility, water supply project, water plant, wastewater plant, water and wastewater distribution or conveyance facility, wharf, dock, airport runway or taxiway, drainage project, or related type of project associated with civil engineering construction; or
(3) improvements to or the construction of a structure that is a:
(A) detached single-family residence;
(B) duplex;
(C) triplex; or
(D) quadruplex.
EFFECT OF CHAPTER ON TIMING OF PAYMENT PROVISIONS.
This chapter does not affect a provision that affects the timing of a payment in a contract for construction management or for the construction of improvements to real property if the payment is to be made within a reasonable period.
WAIVER OF CHAPTER PROHIBITED.
A person may not waive this chapter by contract or other means. A purported waiver of this chapter is void.
Unenforceable by Payor if money is being withheld because of them.
A contingent payor or its surety may not enforce a contingent payment clause to the extent that the obligor’s nonpayment to the contingent payor is the result of the contractual obligations of the contingent payor not being met, unless the nonpayment is the result of the contingent payee’s failure to meet the contingent payee’s contractual requirements.
Provision Unenforceable Upon Receipt of Written Notice by Payee.
Except as provided by Subsection (d), a contingent payor or its surety may not enforce a contingent payment clause as to work performed or materials delivered after the contingent payor receives written notice from the contingent payee objecting to the further enforceability of the contingent payment clause as provided by this chapter and the notice becomes effective as provided by Subsection (b). The contingent payee may send written notice only after the 45th day after the date the contingent payee submits a written request for payment to the contingent payor that is in a form substantially in accordance with the contingent payee’s contract requirements for the contents of a regular progress payment request or an invoice.
Notice becomes effective when?
the written notice becomes effective on the latest of:
(1) the 10th day after the date the contingent payor receives the notice;
(2) the eighth day after the date interest begins to accrue against the obligor under:
(A) Section 28.004, Property Code, under a contract for a private project governed by Chapter 28, Property Code; or
(B) 31 U.S.C. Section 3903(a)(6), under a contract for a public project governed by 40 U.S.C. Section 3131; or
(3) the 11th day after the date interest begins to accrue against the obligor under Section 2251.025, Government Code, under a contract for a public project governed by Chapter 2251, Government Code.
When Does Notice not Prevent Withholding Payment?
(1) the obligor has a dispute under Chapter 28, Property Code, Chapter 2251, Government Code, or 31 U.S.C. Chapter 39 as a result of the contingent payee’s failure to meet the contingent payee’s contractual requirements; and
(2) the contingent payor gives notice in writing to the contingent payee that the written notice given under Subsection (a) does not prevent enforcement of the contingent payment clause under this subsection and the contingent payee receives the notice under this subdivision not later than the later of:
(A) the fifth day before the date the written notice from the contingent payee under Subsection (a) becomes effective under Subsection (b); or
(B) the fifth day after the date the contingent payor receives the written notice from the contingent payee under Subsection (a).
ENFORCEMENT OF CLAUSE PROHIBITED IF EXISTENCE OF SHAM RELATIONSHIP.
A contingent payor or its surety may not enforce a contingent payment clause if the contingent payor is in a sham relationship with the obligor, as described by the sham relationships in Section 53.026, Property Code.
ENFORCEMENT OF CLAUSE PROHIBITED IF UNCONSCIONABLE.
(a) A contingent payor or its surety may not enforce a contingent payment clause if the enforcement would be unconscionable. The party asserting that a contingent payment clause is unconscionable has the burden of proving that the clause is unconscionable.
The enforcement of a contingent payment clause is not unconscionable if the contingent payor:
(1) proves that the contingent payor has exercised diligence in ascertaining and communicating in writing to the contingent payee, before the contract in which the contingent payment clause has been asserted becomes enforceable against the contingent payee, the financial viability of the primary obligor and the existence of adequate financial arrangements to pay for the improvements; and
(2) has done the following:
(A) made reasonable efforts to collect the amount owed to the contingent payor; or
(B) made or offered to make, at a reasonable time, an assignment by the contingent payor to the contingent payee of a cause of action against the obligor for the amounts owed to the contingent payee by the contingent payor and offered reasonable cooperation to the contingent payee’s collection efforts, if the assigned cause of action is not subject to defenses caused by the contingent payor’s action or failure to act.
