1.01 This agreement is entered into on ________ ___, 2015, by and between ______________(hereinafter referred to as “Employer”) and _________, an Individual (“hereinafter referred to as “Employee”)
PURPOSE
2.01 EMPLOYEE and EMPLOYER have entered into Employment Agreement, dated ___ , 2015, which calls for the provision of certain services by EMPLOYEE to EMPLOYER.
2.02 In his capacity as ______________, EMPLOYEE will have access to information, data, documents and procedures (“information”) which are confidential or contain proprietary value to EMPLOYER. EMPLOYER will provide EMPLOYEE with specialized training as to the use to all proprietary operating systems, strategies, procedures and processes to insure that EMPLOYEE properly and effectively utilizes said information for the benefit of the EMPLOYER.
III. PROPRIETARY VALUE
3.01 The parties hereby agree and acknowledge that considerable sums of money and time have been spent in the creation, development, obtaining and maintenance of information which is confidential and has proprietary value.
3.02 The parties agree that the information and products or services which have been or may be derived from the information is worth a considerable amount of money and therefore is a benefit worthy of protection.
3.03 The parties acknowledge that the information has independent economic value to the EMPLOYER. EMPLOYEE further acknowledges that the EMPLOYER has taken steps to preserve and safeguard the secrecy of the information.
3.04 The parties agree that EMPLOYER desires and has a right to keep such information confidential. The protection of such information is hereby agreed to and acknowledged by both parties as being reasonable consideration for establishing the covenants contained in this agreement.
The parties agree that if confidential information is disseminated to third parties, the same would be detrimental to the owner of the information.
3.06 The EMPLOYEE understands that absent his entering into this agreement, the EMPLOER would not enter into the Employment Agreement with EMPLOYEE.
INFORMATION TO BE PROTECTED AND REMAIN CONFIDENTIAL
4.01 DEFINITION OF “CONFIDENTIAL INFORMATION”
“Confidential Information” means the Work Product and any proprietary information, technical data, trade secrets or know-how of EMPLOYER, including, but not limited to, operating systems and procedures, marketing strategies, research, business plans or models, product plans, products, services, computer software and code, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, customer lists and customers (including, but not limited to, customers of EMPLOYER on whom EMPLOYEE called or with whom EMPLOYEE became acquainted during the term of its services), knowledge of specialized requirements of Employer’s customers, markets, finances or other business information, including analytical methods and procedures, forecast and forecast assumptions, and future plans and strategies, including price and cost objectives, disclosed by EMPLOYER either directly or indirectly in writing, orally or by drawings or inspection of parts or equipment. Confidential Information does not include information which: (a) is known to EMPLOYEE at the time of disclosure to EMPLOYEE by EMPLOYER as evidenced by written records of EMPLOYEE, (b) has become publicly known and made generally available through no wrongful act of EMPLOYEE, or (c) has been rightfully received by EMPLOYEE from a third party who is authorized to make such disclosure.
4.02 NON-USE AND NON-DISCLOSURE
EMPLOYEE shall not, during or subsequent to the term of this Agreement: (i) use EMPLOYER’S Confidential Information for any purpose whatsoever other than the performance of the duties owed to EMPLOYER, or (ii) disclose EMPLOYER’S Confidential Information to any third party. It is understood that said Confidential Information is and will remain the sole property of EMPLOYER. EMPLOYEE shall take all reasonable precautions to prevent any unauthorized use or disclosure of such Confidential Information. EMPLOYEE shall not use, disseminate or distribute to any person, firm or corporation, incorporate, reproduce, modify, reverse engineer, decompile or network any Confidential Information, or any portion thereof, for any purpose, commercial, personal, or otherwise, except as expressly authorized in writing by the Board of Directors of EMPLOYER. Upon termination of the Employment Agreement, or at any time thereafter, EMPLOYEE and its servants, agents, and employees shall promptly return to EMPLOYER, or upon the request of EMPLOYER shall destroy or delete, all such tangible Confidential Information, including, but not limited to, any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items developed by EMPLOYEE pursuant to its employment by EMPLOYER or otherwise belonging to EMPLOYER.
4.03 THIRD PARTY CONFIDENTIAL INFORMATION
Employee recognizes that EMPLOYER has received and in the future will receive from third parties their proprietary information, technical data, know-how, trade secrets or other information of a type or nature similar to Confidential Information (“Third Party Information”) subject to a duty on EMPLOYER’S part to maintain the confidentiality of such information and to use it only for certain limited purposes. EMPLOYEE agrees that EMPLOYEE owes EMPLOYER and such third parties, during the term of this Agreement and thereafter, a duty to treat such Third Party Information as if it were Confidential Information in accordance with the obligations of Section 4.01 above.
PARTIES OBLIGATIONS
5.01 PRESERVE THE CONFIDENTIALITY OF THE INFORMATION
EMPLOYEE agrees to keep all confidential information private and shall not disclose any confidential information to any person, firm, entity or organization, etc. without the express written authorization of EMPLOYER.
EMPLOYEE agrees to keep and maintain confidential information in a safe and secure place with adequate safeguards to ensure that unauthorized persons do not have access to the confidential information.
All oral and written discussions, communications, e‑mail transmissions and other forms of communication or transmission which contain confidential information shall be kept secret and remain confidential; each party hereto agrees to restrict such communications solely to those persons who are authorized to receive such communications.
5.02 NO USE OF CONFIDENTIAL INFORMATION FOR OTHER PURPOSES
EMPLOYEE agrees not to use any of EMPLOYER’s confidential data or confidential information for any third party bids, contracts, evaluations, industry reports including but not limited to “best practices” statements or summaries, analyses, proposals or other work.
5.03 NO PUBLIC DISSEMINATION OF CONFIDENTIAL INFORMATION
The parties agree not to allow confidential information to be publicly disseminated in any form, including but not limited to oral, written or computer communications.
NOTIFICATION IN THE EVENT OF RELEASE OF CONFIDENTIAL INFORMATION
In the event that confidential information is inadvertently released to an unauthorized person, or any misuse or misappropriation of the information occurs, then the party who has such knowledge agrees to notify the other party of this event within 10 days of the receipt of such knowledge or awareness.
RETURN OF CONFIDENTIAL INFORMATION
6.01 PROPERTY RIGHTS
Each party shall retain ownership of its confidential information, including without limitation all rights in patents, copyrights, trade marks and trade secrets. The recipient of any confidential information shall not acquire any title or ownership rights to the other party’s confidential information by virtue of having access to the information.
The confidential information shall remain the property of the disclosing party and shall be kept confidential by the receiving party following the date of any such disclosure.
6.02 CONTINUING OBLIGATION
This obligation shall continue and shall survive notwithstanding the completion, modification or termination of this agreement.
6.03 RETURN OF CONFIDENTIAL INFORMATION
Upon conclusion of the Employment Agreement, EMPLOYEE shall return all confidential information to EMPLOYER.
VII. NONSOLICITATION AND NONCOMPETITION
7.01 During the term of the Contract, and for a period of two (2) year thereafter, EMPLOYEE shall not, directly or indirectly, or through any third party or entity, solicit, call on, contact, or accept business or leads from any past, present, or prospective customers, suppliers, employees, agents, or independent contractors of EMPLOYER.
VIII. DAMAGES
8.01 IRREPARABLE HARM AND INJUNCTIVE RELIEF
The parties agree and stipulate that a breach of this agreement may cause irreparable damage to the party whose information has been disseminated in an unauthorized manner. Consequently, remedies at law for such a breach may not be adequate, therefore the non‑breaching party shall be entitled to seek whatever remedies or damages the party may desire including but not limited to money damages, preliminary and other injunctive or equitable relief.
The parties agree and stipulate that if injunctive relief is requested, then the requirement to show that monetary damages is an insufficient remedy has been met. The parties agree and stipulate that no bond or surety shall be required if an injunction is granted.
The parties agree that the non‑breaching party may elect damages under any statute, rule or common law cause of action or claim that it sees fit including but not limited to the provisions of the Uniform Trade Secrets Act.
8.02 ATTORNEY’S FEES AND COSTS OF COURT
The non‑breaching party, if successful at trial, shall be entitled to reimbursement of reasonable attorneys’ fees and costs of court, including expert witness fees, deposition expenses, and all other costs or expenses which may be or have been required to enforce this agreement.
8.03 VALIDITY OF AGREEMENT
The parties agree that this provision shall survive the agreement and if any of the terms in this paragraph VIII are subsequently held invalid, then the invalid terms shall be deemed to be severable and shall not defeat the remaining provisions in this agreement.
GENERAL AND ADMINISTRATIVE PROVISIONS
9.01 ACCEPTANCE AND DATE OF EFFECTIVENESS
This agreement is not binding until it is executed by all parties to this agreement. This agreement shall become effective upon such execution. Thereafter, all obligations contained in this agreement shall be conclusive and binding upon all of the parties. Accordingly, this agreement shall no longer be considered executory as of the date that all parties have affixed their signatures to it.
9.02 AMENDMENT OR MODIFICATION
This agreement represents the entire agreement by and between the parties except as otherwise provided in this agreement. It may not be changed except by written agreement duly executed by all of the parties.
9.03 ASSIGNMENT
Neither party shall have the right to transfer or assign its obligations or interest in this agreement without the prior written consent of the other party.
9.04 CORPORATE AUTHORITY
If any party to this agreement is a legal entity, including, but not limited to, an association, corporation, joint venture, limited partnership, partnership, or trust, then that party represents to the other that this agreement and the transactions contemplated in this agreement and the execution and delivery hereof have been duly authorized by all necessary corporate, partnership, or trust proceedings and actions including, but not limited to, action on the part of the directors, officers and agents of the entity, if said actions are required.
Furthermore, a corporate party represents that all appropriate corporate meetings were held or the actions contemplated herein will be ratified to authorize the aforementioned obligations and certified copies of all corporate meetings or minutes and corporate resolutions authorizing this transaction have been delivered to all parties to this agreement prior to or at the time of execution of this agreement, if such corporate authorization was requested by the party desiring such authorization within five (5) days of the execution of this agreement.
9.05 FURTHER ASSURANCES
Each party further agrees that it shall take any and all necessary steps and sign and execute any and all necessary documents or agreements required to implement the terms of the agreement of the parties contained in this contract, and each party agrees to refrain from taking any action, either expressly or impliedly, which would have the effect of prohibiting or hindering the performance of the other party to this agreement.
9.06 NO WAIVER
The failure or delay of either party in the enforcement of the rights detailed in this agreement shall not constitute a waiver of the rights nor shall it be considered as a basis for estoppel either at equity or at law.
That party may exercise its rights under this agreement despite any delay or failure to enforce those rights at the time the cause of action or right or obligation arose.
9.07 PAROL EVIDENCE, STATUS OF AGREEMENT AND PRIOR UNDERSTANDINGS
This agreement and the exhibits attached hereto and incorporated herein, if any, contain the entire agreement of the parties and there are no representations, inducements, promises, agreements, arrangements or undertakings, oral or written, between the parties to this agreement other than those set forth herein and duly executed in writing.
No agreement of any kind shall be binding upon either party unless and until the same has been made in writing and duly executed by both parties.
Upon execution of this agreement by all parties, all previous agreements, contracts, oral understandings, representations, arrangements, or undertakings of any kind relative to the matters contained in this agreement are hereby superseded and canceled and all claims and demands not contained in this agreement are deemed fully completed and satisfied.
9.08 PARTIES BOUND CLAUSE AND SUCCESSORS
This agreement shall be binding upon and inure to the benefit of the parties, their respective heirs, executors, administrators, legal representatives, successors and assigns.
The parties to this agreement expressly agree that in the event a party seeks to or does transfer part or all of its assets to a separate entity, not a party to this agreement, the party shall be liable under this agreement as if the transfer had not occurred.
Any party to this agreement may assign its rights and obligations under this agreement without consent to a successor to all or substantially all of its business, whether the successor has acquired this business by sale, merger, consolidation, or otherwise.
9.09 REPRESENTATIONS
No representations, promises, guarantees or warranties were made to induce either party to execute this agreement other than those stated in the agreement.
9.10 SEVERABILITY
If any provision of this agreement is for any reason held violative of any applicable law, governmental rule or regulation, or if the provision is held to be unenforceable or unconscionable, then the invalidity of that specific provision shall not be held to invalidate the remaining provisions of this agreement.
All other provisions and the entirety of this agreement shall remain in full force and effect unless the removal of the invalid provision destroys the legitimate purposes of this agreement, in which event this agreement shall be canceled and terminated.
9.11 STATE LAW AND VENUE DETERMINATION
This agreement shall be subject to and governed under the laws of the State of Texas. Any and all obligations and payments are due and performable and payable in Tarrant County, Texas.
The parties agree that venue for purposes of any and all lawsuits, causes of action, arbitrations, or other disputes shall be in Dallas County, Texas.
9.12 UNDERSTANDING AND FAIR CONSTRUCTION
By execution of this agreement, the parties acknowledge that they have read and understood each provision, term and obligation contained in this agreement.
This agreement, although drawn by one party, shall be construed fairly and reasonably and not more strictly against the drafting party than the non‑drafting party.
IN WITNESS WHEREOF, the parties have executed this Confidentiality and Non-Competition Agreement as of the date written below.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
300 S.W.3d 35 (Tex.App.-Houston [14 Dist.] 2009)
In re Mark A. JACOBS, M.D., Debra C. Gunn, M.D.,
and Obstetrical and Gynecologist Associates, P.A.,
Relators.
No. 14-09-00123-CV.
Court of Appeals of Texas, Fourteenth District,
Houston.
October 20, 2009
Panel consists of Justices BROWN, BOYCE, and
SULLIVAN.
MAJORITY OPINION
JEFFREY V. BROWN, Justice.
In this original proceeding, the relators, Mark A.
Jacobs, M.D., Debra C. Gunn, M.D., and Obstetrical and
Gynecologist Associates, P.A., seek a writ of mandamus
ordering the Honorable Mike Wood, presiding judge of
Probate Court No. 2 of Harris County, to set aside his two
orders of January 23, 2009-one compelling the deposition
of Dr. Jacobs and one compelling net-worth discovery for
the past two years-and his order of January 30, 2009,
clarifying the two January 23 orders. We conditionally
grant the petition in part and deny it in part.
I
Real parties in interest, Andre McCoy, Individually
and as Permanent Guardian of Shannon Miles McCoy, an
Incapacitated Person (the ” McCoys” ), have sued the
relators and others [1] for negligence and gross
negligence in providing medical care and treatment to
Shannon while she was an obstetrical patient at Woman’s
Hospital of Texas from September 13, 2004 to September
14, 2004. On November 16, 2007, the McCoys served the
relators with requests for discovery of net-worth
information. When the relators objected to the requests
for production, the McCoys filed a motion to compel
discovery.
Page 39
On January 23, 2009, the trial court held a hearing
and signed an order directing the McCoys to amend their
pleadings to provide more specific allegations of gross
negligence against the relators following the completion
of the depositions of Dr. Jacobs and Dr. Gunn. Subject to
the filing of a sufficient pleading as to gross negligence,
the trial court further ordered the relators to produce ” the
actual financial statements they have provided to a lender
within the past two (2) years that identifies the assets and
liabilities of each Defendant.” Alternatively, if the
relators had not submitted any such financial statement to
a lender within the two years preceding the date of the
order, the court ordered each relator to:
(i) Produce an affidavit swearing that no such financial
statement has actually been submitted to a lender in the
past two (2) years; and
(ii) Produce an affidavit under oath in the format of what
would have been provided to a lender as to net worth.
The order directed that the relators produce such
net-worth information no later than thirty days after the
McCoys sufficiently pleaded gross negligence. In the
order, Judge Wood also prohibited the McCoys from
seeking to compel any additional responses to their
outstanding net-worth discovery requests, and announced
that any net-worth information provided to the McCoys
would be ” safeguarded by a protective order.” On
January 23, Judge Wood signed another order granting
the McCoys’ motion to compel the deposition of Dr.
Jacobs, and directed that the deposition may not exceed
three hours on the record.
On January 26, the relators filed a motion to clarify
the order regarding the discoverability of net worth. The
relators stated they did not understand when to produce
the net-worth information to comply with the order and
requested the trial court to so specify. Also, the relators
requested a written order on what net-worth matters, if
any, the McCoys would be allowed to cover during the
depositions of Dr. Jacobs and Dr. Gunn.
On January 30, the trial court signed an order
clarifying its prior orders regarding the discoverability of
net-worth information. The trial court directed the
relators to produce the information by February 6, 2009,
and ruled that the McCoys would be permitted to depose
Dr. Gunn and Dr. Jacobs about their net worth.
In their petition, the relators argue that the trial
court abused its discretion with respect to the orders of
January 23 and 30 by directing the relators to (1) produce
net-worth information for the past two years in the form
of actual financial statements they have provided to
lenders; (2) create a net-worth document in the format of
what would have been provided to a lender; and (3)
present Dr. Jacobs and Dr. Gunn for deposition regarding
their net worth without any temporal or subject-matter
limitations. The relators further assert they have no
adequate remedy by appeal because their rights to due
process and privacy are in jeopardy of being permanently
lost or compromised.
II
To be entitled to the extraordinary relief of a writ
of mandamus, the relator must show that the trial court
clearly abused its discretion and he has no adequate
remedy by appeal. In re Team Rocket, L.P., 256 S.W.3d
257, 259 (Tex.2008) (orig. proceeding). The party
resisting discovery bears the heavy burden of establishing
an abuse of discretion and an inadequate remedy by
appeal. In re CSX Corp., 124 S.W.3d 149, 151
(Tex.2003) (orig. proceeding) (per curiam). A trial court
abuses its discretion if it reaches a
Page 40
decision so arbitrary and unreasonable as to constitute a
clear and prejudicial error of law, or if it clearly fails to
correctly analyze or apply the law. In re Cerberus
Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex.2005)
(orig. proceeding) (per curiam); Walker v. Packer, 827
S.W.2d 833, 839 (Tex.1992) (orig. proceeding).
Whether a clear abuse of discretion can be
adequately remedied by appeal depends on a careful
analysis of costs and benefits of interlocutory review. In
re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 464
(Tex.2008) (orig. proceeding). Because this balance
depends heavily on circumstances, it must be guided by
analysis of principles rather than simple rules that treat
cases as categories. Id. ” Mandamus review of significant
rulings in exceptional cases may be essential to preserve
important substantive and procedural rights from
impairment or loss, allow the appellate courts to give
needed and helpful direction to the law that would
otherwise prove elusive in appeals from final judgments,
and spare private parties and the public the time and
money utterly wasted enduring eventual reversal of
improperly conducted proceedings.” In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 136 (Tex.2004) (orig.
proceeding); see also In re Columbia Med. Ctr. of Las
Colinas, Subsidiary, L.P., 290 S.W.3d 204, 207
(Tex.2009) (orig. proceeding) (” Used selectively,
mandamus can ‘ correct clear errors in exceptional cases
and afford appropriate guidance to the law without the
disruption and burden of interlocutory appeal.’ ” )
(quoting In re Prudential, 148 S.W.3d at 138). Thus, in
determining whether appeal is an adequate remedy, we
consider whether the benefits of mandamus review
outweigh the detriments. In re BP Prods. N. Am., Inc.,
244 S.W.3d 840, 845 (Tex.2008) (orig. proceeding).
Appeal is not an adequate remedy when the appellate
court would not be able to cure the trial court’s discovery
error. In re Dana Corp., 138 S.W.3d 298, 301 (Tex.2004)
(per curiam) (orig. proceeding); In re Kuntz, 124 S.W.3d
179, 181 (Tex.2003) (orig. proceeding).
A
The relators assert the trial court abused its
discretion by ordering them to produce their net-worth
information to the McCoys. A defendant’s net worth is
relevant in a suit involving exemplary damages. Lunsford
v. Morris, 746 S.W.2d 471, 473 (Tex.1988) (orig.
proceeding), overruled on other grounds, Walker, 827
S.W.2d at 842; Miller v. O’Neill, 775 S.W.2d 56, 58
(Tex.App.-Houston [1st Dist.] 1989, orig. proceeding).
Therefore, in cases where punitive or exemplary damages
may be awarded, parties may discover and offer evidence
of a defendant’s net worth. Lunsford, 746 S.W.2d at 473.
Generally, in cases concerning the production of financial
records, the burden rests upon the party seeking to
prevent production. In re Brewer Leasing, Inc., 255
S.W.3d 708, 712 (Tex.App.-Houston [1st Dist.] 2008,
orig. proceeding [mand. denied] ); In re Patel, 218
S.W.3d 911, 916 (Tex.App.-Corpus Christi 2007, orig.
proceeding).
The relators argue the McCoys are not entitled to
discovery on net worth until they have established a
prima facie case of gross negligence. However, the Texas
Supreme Court has expressly rejected this contention. See
Lunsford, 746 S.W.2d at 473 (rejecting requirement of
prima facie showing because ” [o]ur rules of civil
procedure and evidence do not require similar practices
before net worth may be discovered” ).[2] Therefore,
under Texas law, a party seeking discovery of net-worth
Page 41
information need not satisfy any evidentiary prerequisite,
such as making a prima facie showing of entitlement to
punitive damages, before discovery of net worth is
permitted. In re House of Yahweh, 266 S.W.3d 668, 673
(Tex.App.-Eastland 2008, orig. proceeding); In re Garth,
214 S.W.3d 190, 192 (Tex.App.-Beaumont 2007, orig.
proceeding [mand. dism’d] ); In re W. Star Trucks US,
Inc., 112 S.W.3d 756, 763 (Tex.App.-Eastland 2003,
orig. proceeding); Al Parker Buick Co. v. Touchy, 788
S.W.2d 129, 131 (Tex.App.-Houston [1st Dist.] 1990,
orig. proceeding).
The relators acknowledge the Texas Supreme
Court’s express holding in Lunsford, but argue that we
should follow other jurisdictions that require a plaintiff to
demonstrate a factual basis for punitive damages before
being allowed to do net-worth discovery.[3] Even though
Lunsford is over twenty years old, the Texas Supreme
Court has not revisited this issue. [4] As an intermediate
court of appeals, we are bound by the supreme court’s
ruling in Lunsford and, therefore, we decline the relators’
invitation. See Dallas Area Rapid Transit v.
Amalgamated Transit Union Local No. 1338, 273 S.W.3d
659, 666 (Tex.2008), cert. denied, __ U.S. __, 129 S.Ct.
2767, 174 L.Ed.2d 284 (2009) (” It is fundamental to the
very structure of our appellate system that this Court’s
decisions be binding on the lower courts.” );
Page 42
Lubbock County, Tex. v. Trammel’s Lubbock Bail Bonds,
80 S.W.3d 580, 585 (Tex.2002) (” It is not the function of
a court of appeals to abrogate or modify established
precedent…. That function lies solely with this Court.” ).
In accordance with Lunsford, the McCoys are not
required to make a prima facie case, or any other
evidentiary showing, of entitlement to punitive damages
before seeking discovery of the relators’ net-worth
information.
B
The relators also argue evidence of their net worth
is not relevant because the McCoys have not alleged
sufficient facts to support their claim of gross negligence
under section 41.001(11) of the Texas Civil Practices and
Remedies Code. Section 41.001(11) defines ” gross
negligence” :
(11) ” Gross negligence” means an act or omission:
(A) which when viewed objectively from the standpoint
of the actor at the time of its occurrence involves an
extreme degree of risk, considering the probability and
magnitude of the potential harm to others; and
(B) of which the actor has actual, subjective awareness of
the risk involved, but nevertheless proceeds with
conscious indifference to the rights, safety, or welfare of
others.
Id.
The McCoys allege Dr. Jacobs and Dr. Gunn
knowingly failed to: (1) adequately and appropriately
treat Shannon’s disseminated intravascular coagulopathy
(” DIC” ) [5]; (2) appreciate the severity of Shannon’s
coagulopathy in light of abnormal lab values indicating
that she was actively bleeding and suffering from DIC;
(3) aggressively treat Shannon’s DIC with adequate blood
products and blood-volume replacement; and (4)
repeatedly order appropriate coagulation profiles and to
serially re-check Shannon’s blood work or to monitor and
evaluate her clotting factors [6] to determine how well, or
how poorly, she was responding to treatment.
The McCoys further allege Dr. Jacobs knowingly
failed to: (1) verify that his orders for blood-volume
replacement were being carried out and Shannon was
being administered blood products as ordered; and (2)
appropriately and aggressively manage Shannon’s DIC
from the outset of her admission by ordering and
administering additional units of fresh frozen plasma to
increase Shannon’s blood volume and to correct her
consumptive coagulopathy before the delivery of her
baby.
The McCoys also allege Dr. Gunn knowingly failed
to: (1) appreciate that Shannon’s DIC was depleting and
consuming her clotting factors and that if these clotting
factors were not replaced through aggressive
blood-volume replacement and clotting-factor
replacement,
Page 43
Shannon’s blood would not be able to coagulate
effectively at the time she delivered her baby; (2)
recognize and appreciate that Dr. Jacobs had undertreated
Shannon; (3) recognize, appreciate, and appropriately
respond to Shannon’s tachycardia on September 14, 2004,
by more aggressively treating her DIC; (4) order Laisix (a
diuretic medication that increases urine output) for
Shannon, even though she knew that Shannon was
suffering from DIC and actively bleeding, and did not
need to be administered a diuretic medication; (5)
recognize, appreciate, and properly respond to the fact
that Shannon’s condition was deteriorating (as evidenced
by her tachycardia (rapid heartbeat) and urine output),
and that she was developing hypovolemic shock (shock
caused by reduction in blood volume); and (6) recognize
that she was not qualified to treat and manage Shannon’s
DIC and to request the help of a more specialized
physician to treat and manage Shannon’s DIC.
Finally, the McCoys allege the conduct of Dr.
Jacobs and Dr. Gunn, when viewed objectively from their
standpoint at the time of the occurrence, involved an
extreme degree of risk, considering the probability and
magnitude of the potential harm to others. The McCoys
further allege Dr. Jacobs and Dr. Gunn had actual,
subjective awareness of the risk involved, but
nevertheless proceeded with conscious indifference to
Shannon’s rights, safety, or welfare.
In response to the McCoys’ gross-negligence
allegations, the relators argue that merely adding the
word ” knowingly” to existing allegations of negligence
is not enough. Texas follows the ” fair notice” standard
for pleadings, which looks to whether the opposing party
can ascertain from the pleadings the nature and basic
issues of the controversy and the type of evidence that
might be relevant to the controversy. Low v. Henry, 221
S.W.3d 609, 612 (Tex.2007); Horizon/CMS Healthcare
Corp. of Am. v. Auld, 34 S.W.3d 887, 896 (Tex.2000). ” ‘
A petition is sufficient if it gives fair and adequate notice
of the facts upon which the pleader bases his claim. The
purpose of this rule is to give the opposing party
information sufficient to enable him to prepare a defense.’
” Horizon/CMS Healthcare, 34 S.W.3d at 897 (quoting
Roark v. Allen, 633 S.W.2d 804, 810 (Tex.1982)).
Exemplary damages are special damages that must be
supported by express allegations of willfulness, malice,
or gross negligence that go beyond the allegations
necessary to recover compensatory damages. Al Parker
Buick Co., 788 S.W.2d at 130. Texas law requires a
plaintiff seeking production of net worth information to ”
‘ allege facts showing that relator is liable for punitive
damages.’ ” Delgado v. Kitzman, 793 S.W.2d 332, 333
(Tex.App.-Houston [1st Dist.] 1990, orig. proceeding)
(quoting Al Parker Buick Co., 788 S.W.2d at 131).
Under Texas’ basic pleading requirements, the
McCoys’ live pleadings sufficiently allege specific facts
supporting gross negligence and invoke the objective and
subjective standards as set forth in section 41.001(11). [7]
See Tex. Civ. Prac. & Rem.Code Ann. Therefore, we
conclude the McCoys have pleaded facts sufficient for
purposes of showing they are entitled to discovery of
net-worth information from
Page 44
the relators. See In re Garth, 214 S.W.3d at 192 (holding
plaintiff’s pleadings were sufficient to notify defendants
that she sought to hold them liable for punitive damages
through conspiracy theory); In re W. Star Trucks US,
Inc., 112 S.W.3d at 763-64 (holding allegations in
petition that defendant had engaged in fraudulent and
malicious conduct were sufficient to permit discovery of
net worth); Delgado, 793 S.W.2d at 333 (holding
plaintiff’s pleading alleging defendant was ” consciously
indifferent” to safety of others was sufficient to entitle
plaintiff to discovery of net worth information).[8]
C
The relators also contend the trial court’s order
directing them to provide net-worth information for the
past two years is overly broad and unduly burdensome
because it goes beyond what is necessary to demonstrate
their respective current net worths. Discovery is limited
to matters relevant to the case. Texaco, Inc. v. Sanderson,
898 S.W.2d 813, 814 (Tex.1995) (orig. proceeding) (per
curiam); see also Tex.R. Civ. P. 192 cmt. 1 (” While the
scope of discovery is quite broad, it is nevertheless
confined by the subject matter of the case and reasonable
expectations of obtaining information that will aid
resolution of the dispute.” ). A party’s requests must show
a reasonable expectation of obtaining information that
will aid in the resolution of the dispute. In re CSX Corp.,
124 S.W.3d at 152. Therefore, discovery requests must be
reasonably tailored to include only matters relevant to the
case. In re Am. Optical Corp., 988 S.W.2d 711, 713
(Tex.1998) (orig. proceeding) (per curiam). The Texas
Supreme Court has repeatedly admonished that discovery
may not be used as a fishing expedition. K Mart Corp. v.
Sanderson, 937 S.W.2d 429, 431 (Tex.1996) (orig.
proceeding) (per curiam); Dillard Dep’t Stores, Inc. v.
Hall, 909 S.W.2d 491, 492 (Tex.1995) (orig. proceeding)
(per curiam); Texaco, Inc., 898 S.W.2d at 815.
The scope of discovery is a matter of trial-court
discretion. In re CSX Corp., 124 S.W.3d at 152.
However, a trial court abuses its discretion when it
compels overly broad discovery. In re Graco Children’s
Prods., Inc., 210 S.W.3d 598, 600 (Tex.2006) (orig.
proceeding) (per curiam); Dillard Dep’t Stores, Inc., 909
S.W.2d at 492. ” A central question in determining
overbreadth is whether the request could have been more
narrowly tailored to avoid including tenuous information
and still obtain the necessary information.” In re CSX
Corp., 124 S.W.3d at 153. Overbroad requests encompass
time periods or activities beyond those at issue in the
case-in other words, matters of questionable relevance. In
re Alford Chevrolet-Geo, 997 S.W.2d 173, 180 n. 1
(Tex.1999) (orig. proceeding).
The McCoys sought five years’ worth of financial
information from the relators. The trial court narrowed
the scope of discovery to two years’ worth. But we do not
believe the trial court sufficiently narrowed the scope of
production because only the relators’ current [9] net
Page 45
worth is relevant. See In re House of Yahweh, 266
S.W.3d at 673 (holding trial court erred in failing to limit
discovery to relators’ current balance sheets because
earlier balance sheets would not be relevant to relators’
current net worth).[10] Therefore, we conclude the trial
court abused its discretion by ordering the relators to
produce net-worth information beyond the relators’
current net worth. See In re Allstate County Mut. Ins. Co.,
227 S.W.3d 667, 669 (Tex.2007) (orig. proceeding) (per
curiam) (holding trial court’s order was abuse of
discretion because it did not limit discovery requests
which were overbroad as to time and scope). Moreover,
the relators do not have an adequate remedy by appeal
from the production of their net worth from previous
years. See In re Weekley Homes, L.P., 295 S.W.3d 309,
322-23 (Tex.2009) (orig. proceeding) (” Intrusive
discovery measures … require at a minimum, that the
benefits of the discovery measure outweigh the burden
imposed upon the discovered party.” ); In re CSX Corp.,
124 S.W.3d at 153 (holding relator lacked adequate
remedy by appeal where discovery order compelled
production of ” patently irrelevant” documents); Tilton v.
Marshall, 925 S.W.2d 672, 683 (Tex.1996) (orig.
proceeding) (op. on reh’g) (” ‘ [w]here … discovery order
imposes a burden on the producing party far out of
proportion to any benefit that may obtain to the
requesting party,’ ” mandamus relief may be justified)
(quoting Walker, 827 S.W.2d at 843).
D
The relators also complain about the trial court’s
order requiring Dr. Jacobs and Dr. Gunn to answer
questions about their net worth at their depositions.
Allowing such inquiries without any limitations as to
time or subject matter, the relators argue, is overly broad
and burdensome. See In re Alford Chevrolet-Geo, 997
S.W.2d at 180 n. 1 (explaining overbroad requests
encompass time periods or activities beyond those at
issue in case, i.e., matters of questionable relevance).
Further, the relators contend that answering deposition
questions about information they already have provided
in written discovery responses would be unnecessarily
cumulative. We address this issue by observing that we
are concerned not only with determining the appropriate
scope of discovery of the relators’ net worth under
Lunsford, but also with employing the most efficient and
least intrusive methods by which to permit the McCoys to
discover that information. See Tex.R. Civ. P. 192 cmt. 1
(explaining scope of discovery is confined by subject
matter of case and reasonable expectations of obtaining
information that will aid resolution of dispute);
Page 46
In re Weekley Homes, L.P., 295 S.W.3d at 321 (” [T]rial
courts should be mindful of protecting sensitive
information and utilize the least intrusive means
necessary to facilitate discovery.” ).
Allowing litigants to delve without limitation into
personal finances not only raises serious privacy
concerns, but also provides an opportunity for ” needless
abuse and harassment.” Wal-Mart Stores, Inc. v.
Alexander, 868 S.W.2d 322, 331-32 (Tex.1993)
(Gonzalez, J., concurring). In light of these concerns, we
believe it is appropriate to limit the scope of
oral-deposition inquiry into net worth. See Axelson, Inc.
v. McIlhany, 798 S.W.2d 550, 553 (Tex.1990) (orig.
proceeding) (explaining scope of discovery is limited by
legitimate interests of a party to avoid overly broad
requests, harassment, or disclosure of privileged
information). Accordingly, with respect to net-worth
discovery during the oral depositions of Dr. Jacobs and
Dr. Gunn, the McCoys are limited to asking each
physician to state (1) his or her current net worth, i.e., the
amount of current total assets less current total liabilities
determined in accordance with generally accepted
accounting principles (” GAAP” ),[11] and (2) the facts
and methods used to calculate what each physician
alleges is his or her current net worth. Any questioning
beyond these two narrow inquiries shall be allowed only
upon leave of the trial court after a showing that the
McCoys have reason to believe that the information
provided was incomplete or inaccurate. See In re
Prudential, 148 S.W.3d at 136 (explaining mandamus is
appropriate in exceptional cases ” to give needed and
helpful direction to the law that would otherwise prove
elusive in appeals from final judgments” ). And to the
extent more specific limitations are appropriate, such as
on the amount of on-the-record deposition time that may
be devoted to questioning about net worth, we leave that
to the sound discretion of the trial court.
E
Finally, the relators assert the trial court abused its
discretion by ordering them to create and produce
affidavits in a format of what would have been provided
to a lender as to their respective net worth. The trial court
ordered the relators to produce ” the actual financial
statements they have provided to a lender within the past
two-years.” Alternatively, the trial court directed the
relators, if they had not submitted any such financial
statements to a lender within the preceding two years, to
produce (1) an affidavit swearing that no such financial
statement has been submitted, and (2) an affidavit in the
form of what would have been provided to a lender as to
net worth. It is well-settled that a party cannot be forced
to create documents that do not exist for the sole
Page 47
purpose of complying with a request for production.[12]
Therefore, the relators are not required to create affidavits
in a format of what would have been provided to a lender
to comply with the McCoys’ request for production.[13]
Instead, the relators are required to produce in response to
the McCoys’ requests for production only documents that
already exist. In keeping with our above-holding, any
such information is limited to the relators’ respective
current net worth, as well as whatever other limitations
the trial court has set forth or may yet impose.
III
We deny the relators’ petition with regard to their
assertions that the McCoys are precluded from seeking
discovery of information of any net worth because Texas
law requires a claimant first to make a prima facie
showing of entitlement to punitive damages and the
McCoys have not pleaded sufficient allegations of
conduct entitling them to punitive damages.
We conditionally grant the relators’ petition with
regard to the trial court’s order of January 23, 2009,
requiring the relators to produce net-worth information
for the past two years. The relators are required to
produce only current net-worth information. Further, the
relators are not required to create affidavits in a format of
what would have been provided to a lender, but are
required only to produce documents in response to the
McCoys’ request for production that already exist. The
trial court is directed to modify that portion of its order
accordingly.
We further conditionally grant the relators’ petition
with regard to the trial court’s order of January 30, 2009,
permitting the questioning of Dr. Jacobs and Dr. Gunn
about their respective current net worth. Specifically, the
McCoys are limited to asking each physician to (1) state
his or her current net worth, i.e., the amount of current
total assets less current total liabilities, and (2) the facts
and methods used to calculate what each physician
alleges is his or her current net worth. Moreover, any
questioning beyond these two narrow inquiries shall be
allowed only upon leave of the trial court after a showing
that the McCoys have reason to believe that the
information provided was incomplete or inaccurate. The
trial court is directed to modify that portion of its order
accordingly, and is free to otherwise impose whatever
other limitations it determines, in its discretion, to be
appropriate.
We lift our stays issued on February 4, 2009, and
March 6, 2009. The writ will issue only if the trial court
fails to act in accordance with this opinion.
SULLIVAN, J., concurring.
KENT C. SULLIVAN, Justice, concurring.
The Court today reaches a result consistent with the
current state of Texas law. I write separately only to note
that the current Texas rule on net-worth discovery is now
decades-old and, in light of the evolution
Page 48
of Texas law, needs to be revisited. The instant case
illustrates how it contributes to unnecessary ” satellite
litigation” unrelated to the merits of the case and often
produces expense and burden far exceeding any potential
benefit.
A brief review of the history of this dispute is
illustrative. It is noteworthy that the medical incident
made the basis of this lawsuit occurred in September
2004. Five years later this legal dispute remains
unresolved-even at the trial-court level.
The specific controversy over net-worth discovery
is fast approaching its second anniversary and has
continued largely unabated. It began with an exhaustive
request for financial records covering a multi-year period.
Those discovery requests inevitably produced-over many
months-a flood of objections, hours of court hearings,
multiple court orders, and the current mandamus
proceeding with multiple appellate briefs from each side.
The cost to the parties has no doubt been significant. The
level of chaos in this case-a tort case with themes
common to many such disputes-has given me pause, with
a belief that some assessment is in order as to the efficacy
of this process as well as the relative value of the
discovery in question.
A. The Role of Net-Worth Discovery in Resolving
Material Case Issues
Under the Rules, a trial judge should limit discovery
for which the burden or expense outweighs the likely
benefit. Tex.R. Civ. P. 192.4(b). In weighing these
factors, courts are to consider, among other things, the
importance of the proposed discovery in resolving the
material issues of the lawsuit. See id.
As a general rule, evidence of a party’s wealth is
irrelevant and prejudicial. See Carter v. Exxon Corp., 842
S.W.2d 393, 399 (Tex.App.-Eastland 1992, writ denied).
Consequently, it is almost always inadmissible at trial.
See Cooke v. Dykstra, 800 S.W.2d 556, 562
(Tex.App.-Houston [14th Dist.] 1990, no writ); Carter,
842 S.W.2d at 399.
In Lunsford v. Morris, however, the Texas Supreme
Court carved out a narrow exception to the general rule of
inadmissibility, allowing parties to discover and
introduce evidence of a defendant’s net worth in cases in
which punitive or exemplary damages could be awarded.
746 S.W.2d 471, 473 (Tex.1988) (orig. proceeding),
disapproved of on other grounds by Walker v. Packer,
827 S.W.2d 833, 842 (Tex.1992) (orig. proceeding).
However, Lunsford properly should be considered in its
historical context.
Specifically, in 1981, the Texas Supreme Court
decided to re-visit the standard of review used in
reviewing jury awards of punitive damages. See Burk
Royalty Co. v. Walls, 616 S.W.2d 911, 920 (Tex.1981).
Under the prior standard, a defendant could successfully
challenge a punitive-damages award on appeal simply by
pointing to any evidence suggesting he exercised some
care. See id. at 921. However, the Court chose to depart
from that standard because it was seen as creating a
virtually impossible hurdle to the recovery of punitive
damages ” since anything may amount to some care.” Id.
In its place, the Court substituted a no-evidence standard
of review that effectively ” gave ‘ the jury greater
discretion to award punitive damages.’ ” [1]
In addition, the Burk Court authorized plaintiffs to
prove ” gross negligence,” the
Page 49
standard for imposing punitive damages, merely by
constructive notice of the defendant’s subjective state of
mind. See Burk, 616 S.W.2d at 922. Four years later, the
Court re-affirmed that holding and also expanded the
definition of ” gross negligence” to give plaintiffs
additional methods to prove a defendant’s culpability for
exemplary damages:
[T]he test for gross negligence is both an objective and a
subjective test. A plaintiff may prove a defendant’s gross
negligence by proving that the defendant had actual
subjective knowledge that his conduct created an extreme
degree of risk. In addition, a plaintiff may objectively
prove a defendant’s gross negligence by proving that
under the surrounding circumstances a reasonable person
would have realized that his conduct created an extreme
degree of risk to the safety of others.
Williams v. Steves Indus., Inc., 699 S.W.2d 570, 573
(Tex.1985) (emphasis added), superseded by statute as
recognized by Transp. Ins. Co. v. Moriel, 879 S.W.2d 10,
20 n. 11 (Tex.1994).
In 1987, the Texas Legislature began to scale back
the availability of punitive damages by enacting Chapter
41 of the Texas Civil Practice and Remedies Code.[2]
However, while the original version of Chapter 41
introduced basic limitations to the recovery of punitive
damages,[3] the protections it extended to defendants
pale in comparison with those found in the version
currently in effect.[4] Lunsford was decided the
following year but, apart from a brief mention in one of
the dissenting opinions, ignores any discussion of the
1987 reforms or their effect on the Court’s expansive
exemplary-damage decisions from earlier that decade.
See Lunsford, 746 S.W.2d at 476 (Gonzalez, J.,
dissenting).
In 1995, the Legislature passed more sweeping tort
reform to the substantive and procedural law governing
punitive damages. See Act of April 11, 1995, 74th Leg.,
R.S., ch. 19, § 1, 1995 Tex. Gen. Laws 108, 108-13
(amended 2003) (current version at Tex. Civ. Prac. &
Rem.Code Ann. §§ 41.001-.013 (Vernon 2008 & Supp.
2009)). Chapter 41 was significantly rewritten to provide
defendants dramatic protection from punitive-damage
awards, including:
• Juries could no longer award exemplary damages
intended solely to serve ” as an example to others,” but
were instead limited to assessing damages with the
purpose of punishing the defendant.
• The Legislature dramatically expanded Chapter
41’s coverage to apply to all but a very few types of tort
actions.
• A plaintiff’s burden of proof for punitive damages
was elevated to require proof of all elements by clear and
convincing evidence.
Page 50
• With few limitations, a defendant could no longer
be exposed to punitive damages because of another
person’s criminal act.
• The Legislature lowered the existing cap on
punitive damages.
• Upon a defendant’s motion, the trial court had to
bifurcate the jury’s determination of the amount of
punitive damages, and evidence of a defendant’s net
worth could not be admitted during the liability phase of
the trial.
Id. These substantive and procedural amendments
changed the legal landscape on two levels. First, they
further limited the amount of punitive damages that could
be assessed. See id. § 1 secs. 41.007, 41.008. Second, and
more significantly, these revisions dramatically lessened
the chances of any punitive-damage recovery by a
claimant. See id. § 1 secs. 41.001(5), 41.002, 41.003(b),
41.005.
In 2003, the Legislature further eroded a plaintiff’s
ability to recover punitive damages as a part of
comprehensive tort-reform legislation.[5] Now, unlike
the general rule permitting a civil verdict upon the vote of
only ten jurors, an award of punitive damages requires a
unanimous verdict as to liability for, and the amount of,
such damages. See Tex. Civ. Prac. & Rem.Code Ann. §
41.003(d) (Vernon 2008 & Supp. 2009); Tex.R. Civ. P.
292; Deatley v. Rodriguez, 246 S.W.3d 848, 850
(Tex.App.-Dallas 2008, no pet.).
In their brief, the McCoys acknowledge the
dramatic shift in the law on punitive damages since
Lunsford, as the Legislature has repeatedly acted ” to
tightly restrict the ability of litigants to seek and recover
exemplary damages.” [6] Thus, in the current legal
climate, far fewer cases are likely to present fact issues
for trial as to punitive-damage liability than when
Lunsford was decided more than two decades ago.[7]
Accordingly, because net-worth discovery may serve
little practical purpose in many cases, [8] trial courts
performing
Page 51
a benefit-to-burden analysis should consider appropriate
management of the scope of such discovery
corresponding to its utility in resolving these important
issues. See Tex.R. Civ. P. 192.4(b).
B. Burden and Expense of Net-Worth Discovery
The benefits of net-worth discovery are likely
limited in most cases, but the direct and indirect costs
may not be. Of course, a case against a publicly traded
corporation may present little problem in this respect, as
its net worth should be discernible simply from the
contents of a widely available annual report. Under that
scenario, the burden and expense of the proposed
discovery would be minimal. See id.
A private individual, however, presents a far
different profile with, at minimum, potentially serious
issues as to privacy rights and availability of responsive
information. Net-worth discovery as to an individual will
almost inevitably require-and deserve-much more
management and oversight by the trial court.[9] See In re
Weekley Homes, L.P., 295 S.W.3d 309, 316 (Tex.2009)
(orig. proceeding) (” To the extent possible, courts should
be mindful of protecting sensitive information and should
choose the least intrusive means of retrieval.” ).
In this case, the McCoys sought audited financial
statements that, while invasive, may at least represent one
of the most accurate and efficient ways for indicating an
individual’s net worth, if available.[10] However, they
also sought countless other categories of documents that
have been repeatedly held undiscoverable, such as
income-tax returns,[11] or which possess only the most
indirect and tenuous connection to net worth. Among this
latter category of documents are the McCoys’ requests for
(1) HUD statements reflecting the sale or purchase of real
estate; (2) ” any and all contracts that you are a party to
with any health insurance company, HMO, including
Medicare and/or Medicaid, managed care entity, or
hospital” ; (3) any documents reflecting accounts
receivable, from any time period, for the provision of
medical care; (4) accounts receivable due to the
defendant’s ” participation in any clinical drug trials,
medical device trials, or other medical product trials” for
the purpose of obtaining FDA approval; and (5) all
medical bills issued for an entire calendar year,
presumably as to all of the physicians’ patients, ”
touching, concerning, or dealing with” the provision of
medical care.
This sort of invasive discovery generally raises very
serious privacy concerns, but that is not its only cost. It
also imposes additional burden and expense on the parties
and their attorneys, as well as occupying the limited
resources of the trial court and, now, this appellate court.
See Wal-Mart Stores, Inc. v. Alexander, 868 S.W.2d 322,
331-32 (Tex.1993) (Gonzalez, J., concurring)
(commenting on the privacy concerns and potential for
abuse inherent in the ” unlimited discovery … of
sensitive, private, and confidential financial information”
).
Page 52
However, this sort of discovery should not be
unexpected given the Texas Supreme Court’s lengthy
silence as to both the precise definition of ” net worth” in
this context and the proper boundaries for the discovery
and ultimate presentation of information as to a
defendant’s net worth:
This Court in Lunsford failed to define net worth and
failed to suggest a procedure for placing such evidence
before the jury. I predicted then that in the absence of
guidance from this Court, ” confusion will prevail as
practitioners and judges attempt to ascertain the
components of ‘ net worth.’ ” Lunsford, 746 S.W.2d at
475.
Conflicting appellate court decisions on the meaning of
the term ” net worth” are evidence of the confusion
surrounding this fundamental issue. This confusion
should be resolved by this Court.
Wal-Mart, 868 S.W.2d at 330 (Gonzalez, J., concurring)
(citations omitted); see also Lunsford, 746 S.W.2d at 476
(Gonzalez, J., dissenting) (calling for clear definition of
term ” net worth” and clarity on types of documents
relevant to calculate it).
Here, the majority attempts to fairly bridge some of
this gap by offering a solid definition of ” net worth” as
assets minus liabilities. See Black’s Law Dictionary 1041
(6th ed. 1990); Wal-Mart, 868 S.W.2d at 330-31
(Gonzalez, J., concurring). Yet, even this pronouncement
may still lead to disagreements about the documents that
are relevant and discoverable to calculate this figure, in
light of the relative lack of guidance on this issue.
Trial courts have the necessary management tools to
control the sequence, timing, and scope of discovery to
minimize burden, maximize efficiency, and protect
privacy rights.[12] See Tex.R. Civ. P. 166, 192. Still, we
must acknowledge that there are literally hundreds of
Texas trial-court judges-spread over 254 counties-who
may preside over cases with claims for exemplary
damages and, of necessity, disputes involving net-worth
discovery. They each have different backgrounds,
different approaches, and different dockets. Those
dynamics are likely to produce a highly unpredictable
and idiosyncratic approach to the management of these
issues across the state-and history shows us that these are
issues that regularly recur. I believe parties to litigation in
Texas are entitled to greater clarity and predictability
from our courts. Accordingly, I would urge that Lunsford
be revisited and updated.
———
Notes:
[1] The other defendants are Woman’s Hospital of Texas,
Inc., CHCA Woman’s Hospital, L.P. d/b/a Woman’s
Hospital of Texas, Houston Woman’s Hospital Partner,
L.L.C., and James A. Collins, M.D.
[2] We note other jurisdictions require a prima facie
showing of entitlement to recover punitive damages prior
to conducting discovery on a defendant’s financial status.
See, e.g., Iowa Code Ann. § 668A.1 (1998); Larriva v.
Montiel, 143 Ariz. 23, 691 P.2d 735, 738 (1984); Curtis
v. Partain, 272 Ark. 400, 614 S.W.2d 671, 674 (1981),
overruled on other grounds, Lupo v. Lineberger, 313
Ark. 315, 855 S.W.2d 293 (1993); Herman v. Sunshine
Chem. Specialties, Inc., 133 N.J. 329, 627 A.2d 1081,
1089 (1993); Mark v. Congregation Mishkon Tefiloh, 745
A.2d 777, 780 (R.I.2000); Cramer v. Powder River Coal,
L.L.C., 204 P.3d 974, 980 (Wyo.2009). However, most
federal courts do not require a plaintiff to make a prima
facie showing of entitlement to recover punitive damages
before seeking pretrial discovery of the defendant’s
financial information. See, e.g., United States v. Matusoff
Rental Co., 204 F.R.D. 396, 399 (S.D.Ohio 2001) (stating
overwhelming majority of federal courts have concluded
plaintiffs seeking punitive damages are entitled to
discover information on defendant’s financial condition
without making prima facie showing of entitlement to
recovery of such damages); CEH, Inc. v. FV ” Seafarer” ,
153 F.R.D. 491, 498 (D.R.I.1994) (same); Mid Continent
Cabinetry, Inc. v. George Koch Sons, Inc., 130 F.R.D.
149, 151 (D.Kan.1990) (same); Doe v. Young, 2009 WL
440478, at *2 (E.D.Mo. Feb. 18, 2009) (same);
Westbrook v. Charlie Sciara & Son Produce Co., 2008
WL 839745, *2 (W.D.Tenn. Mar. 27, 2008) (same); S.
Cal. Hous. Rights Ctr. v. Krug, 2006 WL 4122148, at *4
(C.D.Cal. Sept. 5, 2006) (same).
[3] Other jurisdictions require the plaintiff to establish a
factual or evidentiary basis to be entitled to discovery on
a defendant’s net worth. See, e.g., Bryan v. Thos. Best &
Sons, Inc., 453 A.2d 107, 108 (Del.Super.Ct.1982);
Globe Newspaper Co. v. King, 658 So.2d 518, 519
(Fla.1995) (citing Fla. Stat. § 768.72); Smith v. Morris,
Manning & Martin, L.L.P., 293 Ga.App. 153, 666 S.E.2d
683, 697 (2008) (quoting Holman v. Burgess, 199
Ga.App. 61, 404 S.E.2d 144, 147 (1991)); Breault v.
Friedli, 610 S.W.2d 134, 139-40 (Tenn.Ct.App.1980). At
least two states go so far as to require the jury to return a
verdict awarding punitive damages prior to the plaintiff’s
conducting discovery on a defendant’s financial status.
See, e.g., Ex parte Hsu, 707 So.2d 223, 225-26
(Ala.1997) (citing Ala.Code § 6-11-23(b)); Prior v.
Brown Transp. Corp., 103 A.D.2d 1042, 478 N.Y.S.2d
435, 436 (N.Y.App.Div.1984) (quoting Rupert v. Sellers,
48 A.D.2d 265, 368 N.Y.S.2d 904, 912
(N.Y.App.Div.1975)).
[4] After Lunsford, the supreme court established a
bifurcated procedure for conducting trials involving
claims for punitive damages because of the ” very real
potential” that evidence of a defendant’s wealth will
prejudice the jury’s determination of other disputed issues
in tort cases. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10,
30 (Tex.1994); see also Tex. Civ. Prac. & Rem.Code
Ann. § 41.009 (Vernon 2008) (providing for bifurcated
trial on claim for punitive damages).
[5] DIC ” is a rare, life-threatening condition that
prevents a person’s blood from clotting normally. It may
cause excessive clotting (thrombosis) or bleeding
(hemorrhage) throughout the body and lead to shock,
organ failure, and death.” WebMD, ” Disseminated
Intravascular Coagulation (DIC),” http:// www. webmd.
com/ a- to- z- guides/ disseminated- intravascularcoagulation-
dictopic- overview (last visited July 7,
2009). To treat DIC, ” [t]ransfusions of blood cells and
other blood products may be necessary to replace blood
that has been lost through bleeding and to replace clotting
factors used up by the body.” Id.
[6] ” Clotting factor” refers to ” any of several plasma
components (as fibrinogen, prothrombin, and
thromboplastin) that are involved in the clotting of
blood.” Merriam-Webster OnLine, ” clotting factor,”
http:// merriam-webster. com/medical/ clotting factors
(last visited July 8, 2009).
[7] Some states do not permit a plaintiff to claim punitive
damages in an original pleading, but allow for the
amendment of the plaintiff’s pleadings to claim punitive
damages, with the trial court’s permission, after satisfying
a requisite evidentiary showing. See, e.g., Idaho Code
Ann. § 6-160.4(2) (2008); Minn.Stat. Ann. § 549.191
(2000); Or.Rev.Stat. Ann. § 31.725(2) (2007).
[8] The relators argue, for the first time in their reply
brief, that we should consider, not only the pleadings, but
also the requirement that a plaintiff must first present
expert opinion of the applicable standard of care, the
alleged breach of that standard, and the causal link to
proceed on a health care liability claim when determining
whether net worth information is relevant. We do not
consider this contention because it was not raised in the
trial court or in the relators’ petition for writ of
mandamus. See In re TCW Global Project Fund, II, Ltd.,
274 S.W.3d 166, 171 (Tex.App.-Houston [14th Dist.]
2008, orig. proceeding).
[9] By ” current,” we mean as of the time the discovery is
responded to, though net-worth information should be
updated through supplementation-as should the
information in any discovery response-if it changes
materially between the service of the discovery response
and the time of trial. See Tex.R. Civ. P. 193.5(a).
[10] Other courts have similarly held only current
financial information is relevant to a punitive damages
claim. See, e.g., Hightower v. Heritage Acad. of Tulsa,
Inc., 2008 WL 2937227, at *1 (N.D.Okla. July 29, 2008)
(limiting discovery of financial information to defendant’s
balance sheet for 2008 and net worth for 2008); McCloud
v. Board of County Comm’rs, 2008 WL 1743444, at *4
(D.Kan. Apr. 11, 2008) (limiting production of
defendant’s financial information to most recent annual
reports and current financial statements); Platcher v.
Health Prof’ls, Ltd., 2007 WL 2772855, at *3 (C.D.Ill.
Sept. 18, 2007) (” Only Defendants’ current assets and
liabilities are relevant to the punitive damages claim
against them, …” ); Fieldturf Int’l, Inc. v. Triexe Mgmt.
Group, Inc., 2004 WL 866494, at *3 (N.D.Ill. Apr. 16,
2004) (” Plaintiffs’ request for non-current financial
information is irrelevant to punitive damages
determination.” ).
[11] Although section 41.011 provides that the fact finder
shall consider evidence, if any, of the defendant’s ” net
worth,” the statute does not define that term. Tex. Civ.
Prac. & Rem.Code Ann. 41.011(a)(6); see also Lunsford,
746 S.W.2d at 475 (Gonzalez, J., dissenting) (criticizing
court’s failure to define ” net worth” ). The parties have
not cited, and we have not found, any cases defining the
term ” net worth” in connection with the recovery of
punitive damages. However, ” net worth,” as used to
ascertain the amount of security required to suspend a
judgment pending appeal, has been defined as the
difference between total assets and liabilities determined
in accordance with GAAP. See Ramco Oil & Gas, Ltd. v.
Anglo Dutch (Tenge) L.L.C., 171 S.W.3d 905, 914
(Tex.App.-Houston [14th Dist.] 2005, no pet.) (defining ”
net worth” as difference between total assets and
liabilities determined in accordance with GAAP after
thorough discussion of numerous authorities); see also
Black’s Law Dictionary 1041 (6th ed. 1990) (defining net
worth as ” the amount by which assets exceed liabilities”
).
[12] See In re Guzman, 19 S.W.3d 522, 525
(Tex.App.-Corpus Christi 2000, orig. proceeding); Smith
v. O’Neal, 850 S.W.2d 797, 799 (Tex.App.-Houston [14th
Dist.] 1993, no writ); see also In re Colonial Pipeline
Co., 968 S.W.2d 938, 942 (Tex.1998) (quoting McKinney
v. Nat’l Union Fire Ins. Co., 772 S.W.2d 72, 73 n. 2
(Tex.1989) (op. on reh’g)) (” ‘ [T]his rule cannot be used
to force a party to make lists or reduce information to
tangible form.’ ” ).
[13] The relators do not complain about the order in so
far as it requires them to produce an affidavit swearing
that no such documents had been submitted to a lender in
the preceding two years.
[1] Patricia F. Miller, Comment, 2003 Texas House Bill
4: Unanimous Exemplary Damage Awards and Texas
Civil Jury Instructions, 37 St. Mary’s L.J. 515, 529
(2006) (citations omitted); see Burk, 616 S.W.2d at 922.
[2] See Act of June 3, 1987, 70th Leg., 1st C.S., ch. 2, §
2.12, 1987 Tex. Gen. Laws 37, 44 (amended 1995 &
2003) (current version at Tex. Civ. Prac. & Rem.Code
Ann. §§ 41.001-.013 (Vernon 2008 & Supp. 2009)).
[3] For example, the tort-reform legislation included a
basic cap on exemplary damages. See Act of June 3,
1987, 70th Leg., 1st C.S., ch. 2, § 2.12 sec. 41.007, 1987
Tex. Gen. Laws 37, 46 (amended 1995 & 2003). In
addition, the legislature effectively abrogated the purely
objective method of proving gross negligence. See
Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 20 n. 11
(Tex.1994). However, because this narrower definition of
” gross negligence” applied only to products-liability
cases and certain negligence actions, courts continued to
apply Burk Royalty and Steves Industries to all other
gross-negligence suits. See J. Stephen Barrick, Comment,
Moriel and the Exemplary Damages Act: Texas
Tag-Team Overhauls Punitive Damages, 32 Hous. L.Rev.
1059, 1066 (1995).
[4] See infra pp. 49-50.
[5] See Act of June 2, 2003, 78th Leg., R.S., ch. 204, §§
13.01-.08, 2003 Tex. Gen. Laws 847, 886-89 (current
version at Tex. Civ. Prac. & Rem.Code Ann. §§
41.001-.013 (Vernon 2008 & Supp. 2009)).
[6] See Miller, supra note 1, at 520 (” [T]he unanimity
requirements make it more difficult for a plaintiff to
receive a punitive damage award from a Texas jury.” ).
[7] In fact, some might argue Chapter 41, as currently
constituted, imposes punitive-damage liability only for
intentional torts. See Tex. Civ. Prac. & Rem.Code Ann.
§§ 41.001(7), (11), 41.003(a) (authorizing exemplary
damages only for fraud, malice, and gross negligence,
where malice requires proof of ” a specific intent … to
cause substantial injury or harm” and gross negligence
similarly mandates a showing of the defendant’s (1)
actual, subjective awareness of an extreme degree of risk
and (2) consciously indifferent decision to proceed
nonetheless).
[8] Indeed, discovery into a defendant’s net worth may
consume a disproportionate amount of attention inasmuch
as net worth is only one among several factors a jury
should consider, and not even the most important factor
in reviewing an amount of punitive damages. See Tex.
Civ. Prac. & Rem.Code Ann. § 41.011(a) (Vernon 2008);
Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d
35, 45-46 (Tex.1998) (” [T]he degree of reprehensibility
of the defendant’s conduct is ‘ [p]erhaps the most
important indicium’ of the reasonableness of a punitive
damage award.” ) (quoting BMW of N. Am., Inc. v. Gore,
517 U.S. 559, 575, 116 S.Ct. 1589, 134 L.Ed.2d 809
(1996)). In fact, until Lunsford, a defendant’s net worth
was not even listed as a factor for the jury to consider in
awarding punitive damages. See Lunsford, 746 S.W.2d at
472-73; Alamo Nat’l Bank v. Kraus, 616 S.W.2d 908, 910
(Tex.1981). Even so, a post- Lunsford jury may still
decide on the amount of punitive damages without
considering evidence of the defendant’s net worth. See
Durban v. Guajardo, 79 S.W.3d 198, 210-11
(Tex.App.-Dallas 2002, no pet.).
[9] Closed corporations and closely-held corporations
may present similar, albeit somewhat less serious, issues.
[10] See Sears, Roebuck & Co. v. Ramirez, 824 S.W.2d
558, 559 (Tex.1992) (orig. proceeding). Of course, the
average private individual is highly unlikely to have
audited financial statements readily available.
[11] See id.; see also Wal-Mart Stores, Inc. v. Alexander,
868 S.W.2d 322, 331 (Tex.1993) (Gonzalez, J.,
concurring) (surveying numerous cases precluding
discovery into federal income-tax returns).
[12] For example, in appropriate cases, some trial courts
use a docket-control order to schedule and hear
summary-judgment motions on predicate
exemplary-damage issues in advance of allowing pre-trial
discovery on net worth. This approach could limit
discovery disputes and the potential cost of compliance to
only what is necessarily justified by the facts and claims
of the case. Similarly, trial courts may wish in certain
cases to allow only the threshold discovery of net-worth
amounts by way of limited disclosure at one stage of
pre-trial, and delay discovery as to underlying facts or
methods of calculation of those amounts-potentially
much more invasive and complicated-until a later point
when necessary.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
The Texas Supreme Court years ago held that net worth is relevant to exemplary damages and therefore discoverable. Lunsford v. Morris, 746 S.W.2d 471, 471 (Tex. 1988) [See below]
Several courts of appeal in Texas have adopted what can be consider a formulaic definition of net worth. These courts have held that essentially net worth is calculated as the difference between total assets and total liabilities as determined by generally accepted accounting principles (GAAP). Newsome v. N. Tex. Neuro-Science Ctr., P.A., No. 08-09-00025-CV, 2009 Tex. App. LEXIS 8628, at *9 (Tex. App. El Paso Nov. 9, 2009, no pet.); In re Jacobs, 300 S.W.3d 35, 46 n.11 (Tex. App. Houston [14th Dist.] 2009, orig. proceeding); Enviropower, L.L.C. v. Bear, Stearns & Co., 265S.W.3d 1, 5 (Tex. App. Houston [1st Dist.] 2008, pet. denied) (en banc); G.M. Houser, Inc. v. Rodgers, 204 S.W.3d 836, 840 (Tex. App. Dallas 2006,
no pet.).
Texas trial courts can abuse their discretion if they fail to determination net worth, when required by the pleadings and evidence. In re Smith, 192 S.W.3d 564, 568 (Tex. 2006). The Texas statute says that there are six factors a jury should consider in determining the amount of an exemplary damage award. TEX. CIV. PRAC. & REM. CODE ANN. § 41.011(a)(1-6) (Vernon 2008):
Sec. 41.011. EVIDENCE RELATING TO AMOUNT OF EXEMPLARY DAMAGES. (a) In determining the amount of exemplary damages, the trier of fact shall consider evidence, if any, relating to:
(1) the nature of the wrong;
(2) the character of the conduct involved;
(3) the degree of culpability of the wrongdoer;
(4) the situation and sensibilities of the parties concerned;
(5) the extent to which such conduct offends a public sense of justice and propriety; and
(6) the net worth of the defendant.
(b) Evidence that is relevant only to the amount of exemplary damages that may be awarded is not admissible during the first phase of a bifurcated trial.
Added by Acts 1995, 74th Leg., ch. 19, Sec. 1, eff. Sept. 1, 1995.
LUNSFORD v. MORRIS
746 S.W.2d 471 (1988)
Garry LUNSFORD and Robert Dail, Relators, v. Hon. Joseph B. MORRIS, Judge, 101st District Court, Respondent.
Supreme Court of Texas.
Rehearing Denied March 30, 1988.
KILGARLIN, Justice.
At issue in this mandamus proceeding is whether a defendant’s net worth is subject to pre-trial discovery. We hold that such information is relevant to the issue of punitive or, as they are sometimes called, exemplary damages and therefore discoverable under Tex.R.Civ.P. 166b(2). Consequently, we conditionally grant relators’ petition for writ of mandamus.
In the underlying case, relators Lunsford and Dail sued their former employer and others alleging conspiracy and malicious defamation. Their suit sought both actual and punitive damages. In connection with the latter claim, Lunsford and Dail requested production of financial statements and other documents bearing on the defendants’ net worth. The trial court denied the requested discovery,1 and we granted leave to file a petition for writ of mandamus after denial by the court of appeals.
We first consider whether evidence of net worth is discoverable. In Texas, a party “may obtain discovery regarding any matter which is relevant to the subject matter” of a pending action. Tex.R.Civ.P. 166b(2)(a). Further, the same rule provides “it is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.”
Since the earliest Texas decisions, punitive damages have been allowed, among other things, to punish a wrongdoer. “[P]unitive damages are justified by [a] blending of the interests of society with those of the aggrieved individual, thus giving damages not only to recompense the sufferer, but to punish the offender.” Graham v. Roder, 5 Tex. 141, 149 (1849). In addition to punishment, punitive damages are allowed to deter the same or similar
[746 S.W.2d 472]
future conduct. Cole v. Tucker, 6 Tex. 266, 268 (1851). Our recent decisions have continued to recognize punishment and deterrence as co-purposes of punitive damages awards. See, e.g., Hofer v. Lavender,679 S.W.2d 470, 474-75 (Tex.1984); Pace v. State,650 S.W.2d 64, 65 (Tex.1983).At least forty-three states now allow evidence of net worth to be discovered and admitted for the limited purpose of assessing punitive damages.2 Substantial federal court authority also supports the proposition that net worth is admissible on punitive damages.3 The United States Supreme Court recognizes and adheres to the majority view. City of Newport v. Fact Concerts, Inc.,453 U.S. 247, 270, 101 S.Ct. 2748, 2761, 69 L.Ed.2d 616 (1981). Also, the Restatement view is in accord: “The wealth of the defendant is also relevant…; the degree of punishment or deterrence resulting from a judgment is to some extent in proportion to the means of the guilty person.” Restatement (Second) of Torts § 908 (comment e) (1977). See also, Prosser & Keeton, Prosser and Keeton on Torts § 2 at 15 (5th ed. 1984).
Texas has allowed neither discovery nor admission of evidence concerning a defendant’s net worth. One hundred years ago, this court determined that the injury inflicted, rather than the ability of a defendant to pay, was the more important consideration. Young v. Kuhn, 71 Tex. 645, 652, 9 S.W. 860, 862 (1888). This view has persisted to the present day despite overwhelming authority to the contrary. See Murphy v. Waldrip,692 S.W.2d 584, 588 (Tex.App.— Fort Worth 1985, no writ). A defendant’s “ability to pay” bears directly on the question of adequate punishment and deterrence. That which could be an enormous penalty to one may be but a mere annoyance to another. For example, one hundred dollars as a punitive award against a
[746 S.W.2d 473]
single mother of three small children may be a greater deterrent than one hundred thousand dollars awarded against a major corporation whose directors are shielded from the stark reality of harm done by the paneled walls and plush carpet of the corporate boardroom. We hold that in cases in which punitive or exemplary damages may be awarded, parties may discover and offer evidence of a defendant’s net worth.Although the issue in this case is one of discovery of net worth, cases involving admissibility of net worth into evidence are instructive. We therefore review briefly the positions taken in this and in other jurisdictions on discoverability and admissibility of net worth evidence. Just recently this court, in Birchfield v. Texarkana Memorial Hospital d/b/a Wadley Hospital,747 S.W.2d 361 (1987), held admissible evidence of the financial condition of the hospital to demonstrate the hospital’s ability to provide proper facilities. While it is true that this holding went to a gross negligence inquiry, it nevertheless demonstrates that we have previously permitted admission of evidence of the financial condition of a defendant.
Some states allowing discovery of net worth require a prima facie showing of entitlement to punitive damages before information about a defendant’s net worth may be sought. See, e.g., Curtis v. Partain, 272 Ark. 400, 614 S.W.2d 671 (1981). Other courts would make a plaintiff wait until trial, after the jury has heard evidence warranting punitive damages, before evidence of net worth is introduced. Ruiz v. Southern Pacific Transportation Co., 97 N.M. 194, 638 P.2d 406, 414 (N.M.Ct. App.1981). One state subjects a plaintiff to a show-cause hearing in which a prima facie right to punitive damages must be proved. Leidholt v. District Court,619 P.2d 768, 771 (Colo.1980). In Wyoming, a plaintiff must overcome two hurdles. First, the plaintiff must make a prima facie showing of entitlement to punitive damages before the trial court permits discovery of net worth. Then, a trial involving punitive damages is bifurcated: a jury must again find a plaintiff is entitled to punitive damages; and then the jury may consider evidence of net worth to determine damages. Campen v. Stone,635 P.2d 1121, 1132 (Wyo.1981); see also Annot., 32 A.L.R.4th 432 (1984).
Our rules of civil procedure and evidence do not require similar practices before net worth may be discovered. Absent a privilege or specifically enumerated exemption, our rules permit discovery of any “relevant” matter; thus, there is no evidentiary threshold a litigant must cross before seeking discovery. Tex.R.Civ.P. 166b(2)(a). Neither do the rules of evidence contemplate exclusion of otherwise relevant proof unless the evidence proffered is unfairly prejudicial, privileged, incompetent, or otherwise legally inadmissible. Tex.R.Civ. Evid. 401, 403, 501-10, 601. Accord, Coy v. Superior Court,58 Cal.2d 210, 373 P.2d 457, 23 Cal.Rptr. 393 (1962). We do not circumscribe, however, a trial judge’s authority to consider on motion whether a party’s discovery request involves unnecessary harassment or invasion of personal or property rights. See Tex.R.Civ.P. 166b(5) and compare Tex.R.Civ.P. 13.
Young v. Kuhn, 71 Tex. 645, 9 S.W. 860 (1888), predates both our rules of civil procedure and evidence and is no longer controlling. In a suit in which exemplary damages may be recovered, we hold the defendant’s net worth is “relevant” and therefore discoverable under Tex.R.Civ.P. 166b(2)(a).4 Because no privilege or other specific exemption has been shown, the trial court abused its discretion by refusing to permit the requested discovery. We are confident the trial judge will withdraw his order disallowing discovery of the defendants’ net worth; the writ of mandamus will issue only if he fails to do so. Relators’ request for a writ of prohibition is conditionally dismissed as moot.
CULVER, J., not sitting.
[746 S.W.2d 474]
ON MOTION FOR REHEARING
GONZALEZ, Justice, dissenting.
The court has glossed over the fact that this is a mandamus proceeding. Since the trial judge was following over 100 years of precedent, it is preposterous to conclude that he clearly abused his discretion. I would grant the motion for rehearing, and deny the writ. In the alternative, we should adopt some guidelines and/or make rule changes in order to avoid some of the practical problems that will arise as the bench and the bar struggle to implement this decision.
We have considered mandamus to be proper in some cases to compel a trial court to allow discovery. Jampole v. Touchy,673 S.W.2d 569, 572-573 (Tex.1984); Allen v. Humphreys,559 S.W.2d 798 (Tex.1977); Barker v. Dunham,551 S.W.2d 41 (Tex. 1977). In addition, mandamus has been issued to correct improper allowances of discovery by a trial court. See, e.g., General Motors Corp. v. Lawrence,651 S.W.2d 732 (Tex.1983); West v. Solito,563 S.W.2d 240 (Tex.1978); Crane v. Tunks, 160 Tex. 182, 328 S.W.2d 434 (1959). However, mandamus is an extraordinary writ that should be used only when there has been a violation of a clear right possessed by the relator. Neville v. Brewster, 163 Tex. 155, 352 S.W.2d 449, 452 (1961); See State Bar of Texas v. Heard,603 S.W.2d 829, 833 (Tex.1980).
Under Young v. Kuhn, 71 Tex. 645, 9 S.W. 860 (1886) and its progeny, the trial court in this case did not abuse its discretion in disallowing the discovery. Our most recent cases establish that a relator who attacks a trial court ruling as an abuse of discretion “labors under a heavy burden…. The relator must establish, under the circumstances of the case, that the facts and law permit the trial court to make but one decision.” Johnson v. Fourth Court of Appeals,700 S.W.2d 916, 917 (Tex.1985). In our case, the court had but one choice—to follow our pronouncements that a defendant’s net worth was neither discoverable nor admissible to prove punitive damages. It would have been an abuse of discretion for the trial court to grant the discovery request under the law as it existed at that time. Therefore, the mandamus should be denied.1
The majority opinion does not decide the question of admissibility of net worth evidence. Without guidelines and/or corresponding rule changes, we have needlessly planted the seeds of confusion that will result in years of litigation as practitioners and the bench strive to comply with this opinion.
In order for the benefits sought to be achieved by the court’s opinion to fully inure to the citizens of Texas, the procedure employed to offer evidence of net worth must allow the defendant’s conduct to be judged as much as possible in a prejudice-free atmosphere. It is clear that the ability of a defendant to pay has no relevance to the issues of liability or compensatory damages. Accordingly, there is no legitimate need for a jury to be made aware of a defendant’s net worth when determining these issues.
To preserve the right of all litigants to a fair trial, we should adopt procedural guidelines for cases where punitive damages may be awarded and pre-trial discovery and presentation of net worth evidence is permissible. The utilization of a bifurcated trial procedure would prevent net worth evidence from prejudicially impacting liability and compensatory damage findings when punitive damages are claimed. The idea of a bifurcated trial procedure to separately determine issues of liability and damages is not new. Federal
[746 S.W.2d 475]
district courts are empowered with discretionary authority to order a bifurcated trial for this purpose. Fed.R.Civ.P. 42(b); see 9 Wright & Miller, Federal Practice and Procedure §§ 2388-2390 (1971); see also Annotation, Propriety of Ordering Separate Trials as to Liability and Damages, Under Rule 42(b) of Federal Rules of Civil Procedure in Actions Involving Personal Injury, Death or Property Damage, 78 A.L.R.Fed. 890 (1986). This procedure has recently been upheld for use in Texas diversity actions. Rosales v. Honda Motor Co. Ltd.,726 F.2d 259, 260 (5th Cir.1984).The Supreme Court of Wyoming in Campen v. Stone,635 P.2d 1121, 1131 (Wyo. 1981) recently instituted a bifurcated trial procedure to remedy a situation similar to that which has been created by the majority opinion. The “Wyoming Plan,” which requires that plaintiffs make a prima facie showing that a viable issue exists for punitive damages before pre-trial discovery is permitted, provides a good model for Texas. A bifurcated trial procedure would work as follows:
1. The plaintiff would claim in his petition a right to punitive damages and then seek pre-trial discovery of defendant’s net worth.2. The defendant would move for a protective order requiring the plaintiff to make a prima facie showing to the trial court that a viable issue exists for punitive damages. Upon such a showing, the pretrial discovery would be allowed. If plaintiff’s claim for punitive damages is groundless and brought in bad faith, Tex.R.Civ.P. 13 authorizes the trial court to impose sanctions.3. At trial, if sufficient evidence is produced establishing a prima facie case for punitive damages, the jury charge would make provision for compensatory damages and additionally ask the jury whether punitive damages should or should not be awarded. However, no provision would be made for the jury to determine the amount of punitive damages to be awarded at that point.4. If the jury finds that punitive damages should be awarded, it would then hear evidence of the defendant’s net worth and return a separate verdict setting the amount of punitive damages.See Campen v. Stone, 635 P.2d at 1132; see also Annotation, Necessity of Determination or Showing of Liability for Punitive Damages Before Discovery or Reception of Evidence of Defendant’s Wealth, 32 A.L.R. 4th 432 (1984). Under this plan, the admission of net worth evidence would constitute reversible error only during the first stage of a bifurcated trial.
I am also concerned that the court’s opinion will create uncertainty regarding a number of other issues. The most apparent area of uncertainty is the failure to define the term “net worth”. No fewer than eighteen times does the court’s opinion refer to “net worth”. However, despite the repetitious use of this term, the court has failed to inform the bench and bar what “net worth” is or how it should be calculated. Is a single balance sheet sufficient to identify “net worth” or is additional financial information necessary? Since “net wealth” was what the petitioner actually requested to be discovered in this case, is this synonymous with “net worth?” How do we measure net worth? Do we prove “net worth” by profit and loss statements, income tax returns, cash liquidity, a Fortune 500 listing, Standard & Poor’s rating, and the like? “I know it when I see it” is not much of a standard. Without objective criteria, a case by case determination will undoubtedly yield a wide disparity of results. Perhaps we should refer all of these questions to our Rules of Procedure and/or Evidence committees for recommendations. In the absence of guidance, confusion will prevail as practitioners and judges attempt to ascertain the components of “net worth”.
Aside from definitional problems, the respondent raises many questions in his motion for rehearing. For example:
[746 S.W.2d 476]
Does a defendant’s net worth include the cash surrender value or the limits of liability of an insurance policy? Ifthe insurer is defending under a reservation of rights, would the insurance still be includable in the calculation of the assets? Likewise, would it make a difference if the defendant’s insurance policy did or did not provide coverage for exemplary damages?Assuming that a plaintiff attempts to offer net worth evidence that includes insurance coverage, the defendant should be able to keep this out pursuant to Tex.R.Civ. Evid. 411 which provides that liability insurance is inadmissible to prove negligent or otherwise wrongful conduct. Alternatively, such evidence could be kept out on the theory that the insurer’s duty to indemnify depends on a liability adjudication against the insured without respect to the insurer’s potential liability. The trial court judge would also have the discretion under Tex.R.Civ.Evid. 403 to exclude the evidence as misleading or unfairly prejudicial.
In an action against a corporate division or subsidiary should the net worth of the of the parent be considered? Would a different rule apply to a non-profit defendant?Once again, these questions involve considerations that properly should be balanced by the trial court judge pursuant to Tex.R.Civ.Evid. 403 when deciding the issue of admissibility.
Will a plaintiff be entitled to only an interrogatory answer stating what defendant’s net worth is, or will a plaintiff be entitled to all of the underlying financial data necessary to make his own calculations?During discovery a plaintiff should generally be entitled to copy, at his own expense, all of the relevant financial documents. However, this will be problematic since the components of “net worth” are unknown. Consequently, the trial court will need to determine exactly what constitutes “net worth” and then decide which documents are relevant to calculate “net worth”. As discussed previously, this situation is unsatisfactory and needs to be remedied by a clear definition of the term “net worth.”
At what point in time is a defendant’s net worth relevant? Should the jury receive evidence of net worth as of the time the conduct occurred or at the time of trial which may be several years later?Generally, assuming liability for punitive damages, evidence of defendant’s net worth at the time of the conduct, as well as subsequent gains and losses, is at least relevant and may be considered by a jury. However, since this issue also involves considerations of admissibility it would need be resolved by the trial court on a case by case basis. Tex.R.Civ.Evid. 611 provides that the trial court “shall exercise reasonable control over the mode and order of … presenting evidence as to (1) make the … presentation effective for the ascertainment of the truth….”
What safeguards exist to ensure that a relatively poor defendant in a multi-defendant case will not be unjustly punished by a jury on the basis of information of the other defendant’s ability to pay a large judgment?Recent tort reform legislation provides the answer to any possible problem in this area.
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.Tex.Civ.Prac. & Rem.Code § 41.005 (Vernon Supp.1988). This recently enacted statute codified what undoubtedly was the common law. It provided that no defendant should be subject to primary or contributory liability for exemplary damages based upon conduct attributable to another tortfeasor. Similarly, the financial resources of any one defendant should not be relevant to punitive damages awarded against another defendant. See also Tex. R.Civ.Evid. 105(a) (when evidence is admissible as to one party but not admissible as to another, the court, upon request, shall restrict the evidence to its proper scope and instruct the jury accordingly).
[746 S.W.2d 477]
In summary, I would grant the motion for rehearing and deny the writ. In the alternative, I would adopt the above guidelines.PHILLIPS, Chief Justice, dissenting.
ON MOTION FOR REHEARING
I join in that portion of Justice Gonzalez’s dissent which discusses the nature of the writ of mandamus. I do not believe the trial judge clearly abused his discretion in this case. The resolution of this issue, although important to the jurisprudence of the state, should properly await another day.
In light of that conclusion, I do not join in the remainder of Justice Gonzalez’s opinion. In particular, I disagree with the apparent suggestion that this court should mandate a bifurcated trial whenever punitive damages are to be awarded. I believe this is an unnecessarily cumbersome means of protecting the defendant’s legitimate interests against prejudice and the invasion of privacy. The trial court can more efficiently accomplish these objectives by placing limits on the scope and nature of discovery, issuing protective orders, and giving such jury instructions as may be appropriate.
I agree with Justice Gonzalez’s observation that most of the questions raised by respondent are properly left to the discretion of the trial court. The trial court is in the best position to determine how to balance the right to legitimate discovery with the right to avoid harassment or prejudice. The exact parameters of this new right to discovery, including those problems raised in the remainder of Justice Gonzalez’s dissent, should be resolved in subsequent litigation by the orderly development of case authority.
FootNotes
1. The order denying discovery was signed by Judge Craig T. Enoch, then judge of the 101st District Court. Relators originally named Judge Enoch as respondent in C-4407. While C-4407 was pending before our court, Judge Joseph B. Morris (the present respondent) succeeded Judge Enoch as judge of the 101st District Court. We abated our proceedings so that Judge Morris would have an opportunity to reconsider Judge Enoch’s order denying discovery. By an order signed on September 8, 1987, Judge Morris “affirmed and adopted” Judge Enoch’s prior order.In a separate cause numbered C-5649, relators petitioned this court to prohibit Judge Enoch (later Judge Morris) from proceeding to trial pending our disposition of the mandamus requested in C-4407.
2. Clary Ins. Agcy. v. Doyle,620 P.2d 194, 205 (Alaska 1980); Grant v. Arizona Public Service Co.,133 Ariz. 434, 652 P.2d 507, 522 (1982); Berkeley Pump Co. v. Reed-Joseph Land Co.,279 Ark. 384, 653 S.W.2d 128, 137 (1983); Coy v. Superior Court,58 Cal.2d 210, 373 P.2d 457, 23 Cal.Rptr. 393 (1962); Leidholt v. District Court,619 P.2d 768, 770 (Colo.1980); Bennett v. Hyde, 6 Conn. 24 (1825); Bryan v. Thos. Best & Sons, Inc.,453 A.2d 107, 108 (Del.Super.1982); Rinaldi v. Aaron,314 So.2d 762, 763 (Fla.1975); Wilson v. McLendon,225 Ga. 119, 166 S.E.2d 345, 346 (1969); Beerman v. Toro Mfg. Corp., 1 Haw.App. 111, 615 P.2d 749, 755 (1980); Cheney v. Palos Verdes Inv. Corp.,104 Idaho 897, 665 P.2d 661, 666-67 (1983); Moore v. Jewel Tea Co.,116 Ill.App.2d 109, 135, 253 N.E.2d 636, 648 (1969), aff’d,46 Ill.2d 288, 263 N.E.2d 103 (1970); Hibschman Pontiac, Inc. v. Batchelor, 266 Ind. 310, 362 N.E.2d 845 (1977); Hall v. Montgomery Ward & Co.,252 N.W.2d 421, 424 (Iowa 1977); Ettus v. Orkin Exterminating Co., Inc.,233 Kan. 555, 665 P.2d 730, 738 (1983); Hale v. Aetna Casualty & Surety Co.,273 So.2d 860, 863 (La. App.1973); Hanover Ins. Co. v. Hayward,464 A.2d 156, 158 (Me.1983); Heinze v. Murphy, 180 Md. 423, 24 A.2d 917 (1942); Pedersen v. Jirsa,267 Minn. 48, 125 N.W.2d 38, 41 (1963); Hunter v. Williams,230 Miss. 72, 92 So.2d 367, 369 (1957); Golston v. Lincoln Cemetery, Inc.,573 S.W.2d 700, 708 (Mo.1978); Edquest v. Tripp & Dragstedt Co., 93 Mont. 446, 19 P.2d 637, 640-41 (1933); Southern Pacific Co. v. Watkins, 83 Nev. 471, 435 P.2d 498, 513 (1967); Belknap v. Railroad, 49 N.H. 358 (1870); Gierman v. Toman,77 N.J.Super. 18, 185 A.2d 241, 245 (1962); Aragon v. General Electric Credit Corp.,89 N.M. 723, 557 P.2d 572, 575 (Ct.App.1976); Rupert v. Sellers,48 A.D.2d 265, 368 N.Y.S.2d 904, 910-13 (1975); Harvel’s Inc. v. Eggleston,268 N.C. 388, 150 S.E.2d 786, 790 (1966); King v. Hanson, 13 N.D. 85, 99 N.W. 1085, 1092 (1904); Wagner v. McDaniels,9 Ohio St.3d 184, 459 N.E.2d 561, 564 (1984); Smith v. Autry, 69 Okl. 28, 169 P. 623 (1918); Pelton v. General Motors Acceptance Corp., 139 Or. 198, 7 P.2d 263, 266 (1932); Aland v. Pyle, 263 Pa. 254, 106 A. 349 (1919); Hargraves v. Ballou, 47 R.I. 186, 131 A. 643, 646 (1926); Hicks v. Herring,246 S.C. 429, 144 S.E.2d 151, 154 (1965); Smith v. Weber, 70 S.D. 232, 16 N.W.2d 537, 540 (1944); Odom v. Gray,508 S.W.2d 526 (Tenn.1974); Wilson v. Oldroyd,1 Utah.2d 362, 267 P.2d 759, 766 (1954); Parker v. Hoefer, 118 Vt. 1, 100 A.2d 434, 446-47 (1953); Weatherford v. Birchett, 158 Va. 741, 164 S.E. 535, 537 (1932); Riddle v. McGinnis, 22 W.Va. 253 (1883); Wangen v. Ford Motor Co.,97 Wis.2d 260, 294 N.W.2d 437, 447 (1980); Town of Jackson v. Shaw,569 P.2d 1246, 1255 (Wyo. 1977).
3. Ramsey v. Culpepper,738 F.2d 1092, 1099 (10th Cir.1984); (New Mexico law); Brink’s Inc. v. City of New York,717 F.2d 700, 707 (2nd Cir.1983) (New York law); Spaeth v. Union Oil Co. of California,710 F.2d 1455, 1460 (10th Cir.1983), Malandris v. Merrill Lynch,703 F.2d 1152, 1177 (10th Cir.1981) (Colorado law); Harris v. Harvey,605 F.2d 330, 340-41 (7th Cir. 1979); Fury Imports, Inc. v. Shakespeare Co.,554 F.2d 1376, 1389 (5th Cir.1977) (New York law); Herman v. Hess Oil Virgin Islands Corp.,524 F.2d 767, 772 (3rd Cir.1975); Clark v. Bunker,453 F.2d 1006, 1012 (9th Cir.1972).
4. We view as unnecessary and ill-advised any attempt on the limited record before us to address admissibility concerns raised in the motions for rehearing. This includes matters pertaining to when net worth is admissible, how it will be admitted, or what it means.
1. It doesn’t make any sense to say that the purpose of punitive damages is to deter others and to punish wrongdoers and then keep evidence of wealth from the jury. So, generally, I agree with the court that a jury should be able to consider the financial condition of the defendant in order to determine exemplary damages. Thus, the question is not if this evidence is relevant but when it is relevant. However, the more basic question here is whether the writ of mandamus is a proper way or vehicle to make this substantive change in the law. I don’t think so. If we had intended to overrule Young v. Kuhn, and its progeny when Tex.R.Civ. P. 166b was changed, we certainly would have announced our intention.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
This Escrow Agreement is entered into at the same time as the above Seller and Buyer have entered into a Contract of Sale and Purchase of Real Estate. This Escrow Agreement is hereby placed together with the Contract for Sale and Purchase of Real Estate Contract.
The closing of the Real Estate Contract will take place on:
As per the Real Estate Contract, the Buyer has deposited with the above listed Escrow Agent a down payment in the amount of:
$_____________________________________
At the closing, the Escrow Agent will pay the amount that is deposited to the Seller or in accordance with the Seller’s instructions. At which time the Escrow Agent will make the necessary transfer of title to the said property to the Buyer.
If there is no closing according to the Real Estate Contract. The Escrow Agent will withhold all money that was deposited until he or she receives written instructions that are signed by both the Buyer and Seller regarding the handling of all deposited funds. If the Escrow Agent does not receive the proper instructions signed by both parties the Agent may either bring action or proceedings to determine the correct handling of the deposited funds or the Agent may continue to hold the deposited funds until further notice. The Agent is hereby under no obligation to bring action or proceeding to determine the handling of deposited funds.
The Escrow Agent hereby assumes only the liability of stakeholder. The Agent shall incur no liability whatsoever to anyone except for acts in bad faith and willful misconduct or gross negligence. All parties excuse and hereby release the Escrow Agent for all acts done or omitted in good faith.
Applicable Law
This contract shall be governed by the laws of the State of Texas in __________ County and any applicable Federal Law.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
PROPERTY CODE
TITLE 5. EXEMPT PROPERTY AND LIENS
SUBTITLE B. LIENS
CHAPTER 53. MECHANIC’S, CONTRACTOR’S, OR MATERIALMAN’S LIEN
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 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 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 1 OF 43
(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 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.
Acts 1983, 68th Leg., p. 3533, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1997, 75th
Leg., ch. 526, Sec. 2, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 889, Sec. 1, eff. Sept. 1, 1999.
**
Sec. 53.002. MORE THAN ONE ORIGINAL CONTRACTOR. On any work there may be
more than one original contractor for purposes of this chapter.
Acts 1983, 68th Leg., p. 3535, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3535, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1997, 75th
Leg., ch. 526, Sec. 3, eff. Sept. 1, 1997.
**
SUBCHAPTER B. PERSONS ENTITLED TO LIEN; SUBJECT PROPERTY
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 2 OF 43
Sec. 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;
(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, contractor, subcontractor,
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.
Acts 1983, 68th Leg., p. 3535, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 395, Sec. 1, eff. Sept. 1, 1989; Acts 1989, 71st Leg., ch. 1138, Sec. 1, eff. Sept. 1,
1989; Acts 1991, 72nd Leg., ch. 16, Sec. 16.01, eff. Aug. 26, 1991; Acts 1995, 74th Leg., ch.
851, Sec. 1, 6, eff. Sept. 1, 1995; Acts 1999, 76th Leg., ch. 896, Sec. 1, eff. Sept. 1, 1999; Acts
2003, 78th Leg., ch. 410, Sec. 1, eff. Sept. 1, 2003.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 1, eff. January 1, 2012.
**
Sec. 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 3 OF 43
Acts 1983, 68th Leg., p. 3536, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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).
Acts 1983, 68th Leg., p. 3536, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1995, 74th
Leg., ch. 851, Sec. 2, eff. Sept. 1, 1995.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3536, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3537, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 2, eff. Sept. 1, 1989.
**
Sec. 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;
(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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 4 OF 43
(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.
Acts 1983, 68th Leg., p. 3537, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 3, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 4, eff. Sept. 1,
1997.
**
SUBCHAPTER C. PROCEDURE FOR PERFECTING LIEN
Sec. 53.051. NECESSARY PROCEDURES. To perfect the lien, a person must comply with
this subchapter.
Acts 1983, 68th Leg., p. 3538, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3538, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 4, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 5, eff. Sept. 1,
1997.
**
Sec. 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:
(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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 5 OF 43
(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), who
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 of the subcontract under which the specially fabricated material was
furnished.
(e) A claim for retainage accrues on the earliest of 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, terminated, or abandoned.
Acts 1983, 68th Leg., p. 3539, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 5, eff. Sept. 1, 1989; Acts 1995, 74th Leg., ch. 851, Sec. 3, eff. Sept. 1,
1995.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 1, eff. September 1, 2011.
**
Sec. 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;
(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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 6 OF 43
Acts 1983, 68th Leg., p. 3540, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 6, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 6, eff. Sept. 1,
1997.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3540, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 7, eff. Sept. 1, 1989; Acts 1993, 73rd Leg., ch. 48, Sec. 7, eff. Sept. 1, 1993;
Acts 1997, 75th Leg., ch. 526, Sec. 7, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 889, Sec. 2,
eff. Sept. 1, 1999.
**
Sec. 53.056. DERIVATIVE CLAIMANT: NOTICE TO OWNER OR 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.
(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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 7 OF 43
Acts 1983, 68th Leg., p. 3540, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 8, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 8, eff. Sept. 1,
1997.
**
Sec. 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, or has labored, furnished labor or materials, or
specially fabricated 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 contractual retainage not later
than the earlier of:
(1) the 30th day after the date the claimant’s agreement providing for retainage is completed,
terminated, or abandoned; or
(2) the 30th day after the date the original contract is terminated or abandoned.
(b-1) If an agreement for contractual retainage is with a subcontractor, the claimant must also
give the notice of contractual retainage to the original contractor within the period prescribed by
Subsection (b).
(c) The notice must generally state the existence of a requirement for retainage and contain:
(1) the name and address of the claimant; and
(2) if the agreement is with a subcontractor, the name and address of the subcontractor.
(d) The notice must be sent to the last known business or residence address of the owner or
reputed owner or the original contractor, as applicable.
(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.
(f) A claimant has a lien on, and the owner is personally liable to the claimant for, the retained
funds under Subchapter E if the claimant:
(1) gives notice in accordance with this section and:
(A) complies with Subchapter E; or
(B) files an affidavit claiming a lien not later than the earliest of:
(i) the date required for filing an affidavit under Section 53.052;
(ii) the 40th day after the date stated in an affidavit of completion as the date of completion of
the work under the original contract, if the owner sent the claimant notice of an affidavit of
completion in the time and manner required;
(iii) the 40th day after the date of termination or abandonment of the original contract, if the
owner sent the claimant a notice of such termination or abandonment in the time and manner
required; or
(iv) the 30th day after the date the owner sent to the claimant to the claimant’s address provided
in the notice for contractual retainage, as required under Subsection (c), a written notice of
demand for the claimant to file the affidavit claiming a lien; and
(2) gives the notice of the filed affidavit as required by Section 53.055.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 8 OF 43
(g) The written demand under Subsection (f)(1)(B)(iv):
(1) must contain the owner’s name and address and a description, legally sufficient for
identification, of the real property on which the improvement is located;
(2) must state that the claimant must file the lien affidavit not later than the 30th day after the
date the demand is sent; and
(3) is effective only for the amount of contractual retainage earned by the claimant as of the day
the demand was sent.
Acts 1983, 68th Leg., p. 3541, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 9, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 9, eff. Sept. 1,
1997; Acts 1999, 76th Leg., ch. 889, Sec. 3, eff. Sept. 1, 1999.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 2, eff. September 1, 2011.
**
Sec. 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 the indebtedness is incurred by a person other than the original contractor, 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.
Acts 1983, 68th Leg., p. 3542, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 10, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 10, eff. Sept. 1,
1997.
**
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 9 OF 43
SUBCHAPTER D. FUNDS WITHHELD BY OWNER FOLLOWING NOTICE
Sec. 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.
(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.
Acts 1983, 68th Leg., p. 3543, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 12, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 11, eff. Sept. 1,
1997.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3544, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 13, eff. Sept. 1, 1989.
**
Sec. 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 10 OF 43
within which the claimant may secure the lien for the claim.
Acts 1983, 68th Leg., p. 3544, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3545, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1997, 75th
Leg., ch. 526, Sec. 12, eff. Sept. 1, 1997.
**
Sec. 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
materialmen 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
materialmen 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 materialman 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 materialmen 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 materialmen 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 materialman to whom
the payment is owed.
(c) The affidavit may include:
(1) a waiver or release of lien rights or payment bond claims by the affiant that is conditioned on
the receipt of actual payment or collection of funds when payment is made by check or draft, as
provided by Subchapter L;
(2) a warranty or representation that certain bills or classes of bills will be paid by the affiant
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 11 OF 43
from funds paid in reliance on the affidavit; and
(3) an 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.
Added by Acts 1987, 70th Leg., ch. 578, Sec. 1, eff. Aug. 31, 1987. Amended by Acts 1989,
71st Leg., ch. 1138, Sec. 14, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 13, eff. Sept.
1, 1997.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 2, eff. January 1, 2012.
**
SUBCHAPTER E. REQUIRED RETAINAGE FOR BENEFIT OF LIEN CLAIMANTS
Sec. 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.
Acts 1983, 68th Leg., p. 3545, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 15, eff. Sept. 1, 1989.
**
Sec. 53.102. PAYMENT SECURED BY RETAINAGE. The retained funds secure the
payment of artisans and mechanics who 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.
Acts 1983, 68th Leg., p. 3545, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 12 OF 43
Sec. 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) except as allowed by Section 53.057(f), files an affidavit claiming a lien not later than the
30th day after the earliest of the date:
(A) the work is completed;
(B) the original contract is terminated; or
(C) the original contractor abandons performance under the original contract.
Acts 1983, 68th Leg., p. 3545, ch. 576, Sec. 1, eff. Jan. 1, 1984.
Amended by:
Acts 2005, 79th Leg., Ch. 1003, Sec. 1, eff. September 1, 2005.
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 3, eff. September 1, 2011.
**
Sec. 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 who are entitled to a preference under Subsection
(a), other participating claimants share proportionately in the balance of the retained funds.
Acts 1983, 68th Leg., p. 3546, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 16, eff. Sept. 1, 1989.
Sec. 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 Subchapter C or this
subchapter 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.
Acts 1983, 68th Leg., p. 3546, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 2, Sec. 13.02, eff. Aug. 28, 1989; Acts 1989, 71st Leg., ch. 1138, Sec. 17, eff. Sept. 1,
1989.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 4, eff. September 1, 2011.
**
Sec. 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:
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 13 OF 43
(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;
(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 an affidavit claiming a lien not later than the 40th day after the date the work under
the original contract is completed.
(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 and Section 53.057.
If the affidavit is filed after the 10th day after the date of completion, the date of completion for
purposes of this subchapter and Section 53.057 is the date the affidavit is filed. This subsection
does not apply to a person to whom the affidavit was not sent as required by this section.
(e) Repealed by Acts 1999, 76th Leg., ch. 889, Sec. 12, eff. Sept. 1, 1999.
Added by Acts 1989, 71st Leg., ch. 1138, Sec. 18, eff. Sept. 1, 1989. Amended by Acts 1997,
75th Leg., ch. 526, Sec. 14, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 889, Sec. 12, eff. Sept.
1, 1999.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 5, eff. September 1, 2011.
**
Sec. 53.107. NOTICE RELATING TO TERMINATION OF WORK OR
ABANDONMENT OF PERFORMANCE BY ORIGINAL CONTRACTOR OR OWNER.
(a) Not later than the 10th day after the date an original contract is terminated or the original
contractor abandons performance under the original contract, the owner shall give notice to each
subcontractor who, before the date of termination or abandonment, has:
(1) given notice to the owner as provided by Section 53.056, 53.057, or 53.058; or
(2) sent to the owner by certified or registered mail a written request for notice of termination or
abandonment.
(b) The notice must contain:
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 14 OF 43
(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;
(4) a general description of the improvements agreed to be furnished under the original contract;
(5) a statement that the original contract has been terminated or that performance under the
contract has been abandoned;
(6) the date of the termination or abandonment; and
(7) a conspicuous statement that a claimant may not have a lien on the retained funds unless the
claimant files an affidavit claiming a lien not later than the 40th day after the date of the
termination or abandonment.
(c) A notice sent in compliance with this section on or before the 10th day after the date of
termination or abandonment is prima facie evidence of the date the original contract was
terminated or work was abandoned for purposes of this subchapter.
(d) If an owner is required to send a notice to a subcontractor under this section and fails to send
the notice, the subcontractor is not required to comply with Section 53.057 to claim retainage and
may claim a lien by filing a lien affidavit as prescribed by Section 53.052.
(e) This section does not apply to a residential construction project.
Added by Acts 2005, 79th Leg., Ch. 1003, Sec. 2, eff. September 1, 2005.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 6, eff. September 1, 2011.
**
SUBCHAPTER F. PRIORITIES AND PREFERENCES
Sec. 53.121. PREFERENCE OVER OTHER CREDITORS. All subcontractors, laborers,
and materialmen who have a mechanic’s lien have preference over other creditors of the original
contractor.
Acts 1983, 68th Leg., p. 3546, ch. 576, Sec. 1, eff. Jan. 1, 1984.
Sec. 53.122. EQUALITY OF MECHANIC’S LIENS. (a) Except as provided by Subchapter
E and Section 53.124(e), perfected mechanic’s liens are on equal footing without reference to the
date of filing the affidavit claiming the lien.
(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.
Acts 1983, 68th Leg., p. 3546, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1995, 74th
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 15 OF 43
Leg., ch. 851, Sec. 4, eff. Sept. 1, 1995.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3547, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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;
(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.
Acts 1983, 68th Leg., p. 3547, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 16 OF 43
Leg., ch. 1138, Sec. 19, eff. Sept. 1, 1989; Acts 1995, 74th Leg., ch. 851, Sec. 5, eff. Sept. 1,
1995; Acts 1999, 76th Leg., ch. 896, Sec. 2, eff. Sept. 1, 1999; Acts 2003, 78th Leg., ch. 410,
Sec. 2, eff. Sept. 1, 2003.
**
SUBCHAPTER G. RELEASE AND FORECLOSURE; ACTION ON CLAIM
Sec. 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, materialmen, 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.
Acts 1983, 68th Leg., p. 3548, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 20, eff. Sept. 1, 1989.
**
Sec. 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 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.
Acts 1983, 68th Leg., p. 3548, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 21, eff. Sept. 1, 1989.
**
Sec. 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 17 OF 43
Acts 1983, 68th Leg., p. 3548, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3549, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3549, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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 shall award costs
and reasonable attorney’s fees as are equitable and just. With respect to a lien or claim arising
out of a residential construction contract, the court is not required to order the property owner to
pay costs and attorney’s fees under this section.
Added by Acts 1984, 68th Leg., 2nd C.S., ch. 18, Sec. 4(a), eff. Oct. 2, 1984. Amended by Acts
1989, 71st Leg., ch. 1138, Sec. 22, eff. Sept. 1, 1989.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 51, Sec. 1, eff. September 1, 2011.
**
Sec. 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:
(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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 18 OF 43
Added by Acts 1989, 71st Leg., ch. 1138, Sec. 23, eff. Sept. 1, 1989. Amended by Acts 1997,
75th Leg., ch. 526, Sec. 15, eff. Sept. 1, 1997.
**
Sec. 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.
Added by Acts 1989, 71st Leg., ch. 1138, Sec. 23, eff. Sept. 1, 1989. Amended by Acts 1997,
75th Leg., ch. 526, Sec. 16, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 889, Sec. 4, eff. Sept. 1,
1999.
**
Sec. 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;
(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; and
(4) the date on which the original contract for the project was executed.
(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;
(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; and
(3) the date on which the original contract for the project was executed.
(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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 19 OF 43
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.
(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.
(g) A subcontractor who does not receive information requested under Subsection (a)(4) within
the period prescribed by Subsection (a) is not required to comply with Section 53.057 and may
perfect a lien for retainage by filing a lien affidavit under Section 53.052. This subsection
expires September 1, 2013.
Added by Acts 1989, 71st Leg., ch. 1138, Sec. 23, eff. Sept. 1, 1989.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 7, eff. September 1, 2011.
**
Sec. 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;
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 20 OF 43
(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 deadlines for perfecting a lien claim for retainage under this chapter have expired and 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 a notice regarding the retainage
have been deposited in the registry of the court and the owner has no additional liability to the
claimant;
(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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 17, eff. Sept. 1, 1997.
Amended by:
Acts 2011, 82nd Leg., R.S., Ch. 499, Sec. 8, eff. September 1, 2011.
**
Sec. 53.161. BOND REQUIREMENTS AFTER ORDER TO REMOVE. (a) In the order
removing a lien, the court shall set the amount of security that the claimant may provide in order
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 21 OF 43
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:
(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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 17, eff. Sept. 1, 1997.
**
Sec. 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 22 OF 43
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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 17, eff. Sept. 1, 1997.
**
SUBCHAPTER H. BOND TO INDEMNIFY AGAINST LIEN
Sec. 53.171. BOND. (a) If a lien, other than a lien granted by the owner in a written contract, is
fixed or is 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;
(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.
Acts 1983, 68th Leg., p. 3549, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 24, 39(1), eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 18, eff.
Sept. 1, 1997.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3549, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 23 OF 43
Leg., ch. 1138, Sec. 25, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 1132, Sec. 2, eff. Sept. 1,
1997.
**
Sec. 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 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.
Acts 1983, 68th Leg., p. 3550, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 26, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 19, eff. Sept. 1,
1997.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3550, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 27, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 20, eff. Sept. 1,
1997.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3550, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 28, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 526, Sec. 21, eff. Sept. 1,
1997.
**
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 24 OF 43
SUBCHAPTER I. BOND TO PAY LIENS OR CLAIMS
Sec. 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.
Acts 1983, 68th Leg., p. 3551, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1997, 75th
Leg., ch. 526, Sec. 22, eff. Sept. 1, 1997.
**
Sec. 53.202. BOND REQUIREMENTS. The bond must:
(1) be in a penal sum at least equal to the total of the original contract amount;
(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
Subchapter B, Chapter 521, 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.
Acts 1983, 68th Leg., p. 3551, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 29, eff. Sept. 1, 1989; Acts 1997, 75th Leg., ch. 1132, Sec. 2, eff. Sept. 1,
1997; Acts 2001, 77th Leg., ch. 380, Sec. 5, eff. Sept. 1, 2001.
Amended by:
Acts 2005, 79th Leg., Ch. 728, Sec. 11.158, eff. September 1, 2005.
**
Sec. 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 25 OF 43
(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.
(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.
Acts 1983, 68th Leg., p. 3551, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1987, 70th
Leg., ch. 683, Sec. 1, eff. Aug. 31, 1987; Acts 1989, 71st Leg., ch. 1138, Sec. 30, eff. Sept. 1,
1989.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3552, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 31, eff. Sept. 1, 1989.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3552, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1999, 76th
Leg., ch. 889, Sec. 5, eff. Sept. 1, 1999.
**
Sec. 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 26 OF 43
(b) To perfect a claim under this section, a person is not required to:
(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.
Acts 1983, 68th Leg., p. 3552, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 32, eff. Sept. 1, 1989; Acts 1999, 76th Leg., ch. 889, Sec. 6, eff. Sept. 1,
1999; Acts 2001, 77th Leg., ch. 380, Sec. 6, eff. Sept. 1, 2001.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3553, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1999, 76th
Leg., ch. 889, Sec. 7, eff. Sept. 1, 1999.
**
Sec. 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.
(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.
Acts 1983, 68th Leg., p. 3553, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 33, eff. Sept. 1, 1989.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 27 OF 43
Sec. 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.
Acts 1983, 68th Leg., p. 3553, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3554, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 34, eff. Sept. 1, 1989.
**
SUBCHAPTER J. LIEN ON MONEY DUE PUBLIC WORKS CONTRACTOR
Sec. 53.231. LIEN. (a) A person who furnishes material or labor to a contractor under a prime
contract with a governmental entity other than a municipality or a joint board created under
Subchapter D, Chapter 22, Transportation Code, 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.
(b) A person who furnishes material or labor to a contractor under a prime contract with a
municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code, that
does not exceed $50,000 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.
Acts 1983, 68th Leg., p. 3554, ch. 576, Sec. 1, eff. Jan. 1, 1984.
Amended by:
Acts 2009, 81st Leg., R.S., Ch. 1304, Sec. 2, eff. September 1, 2009.
**
Sec. 53.232. TO WHOM NOTICE GIVEN; MANNER. 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 28 OF 43
Acts 1983, 68th Leg., p. 3554, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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 labor 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.
Acts 1983, 68th Leg., p. 3554, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 35, eff. Sept. 1, 1989.
**
Sec. 53.234. TIME FOR NOTICE. The lien claimant must give notice not later than the 15th
day of the second month following the month in which the labor was performed or the material
furnished.
Acts 1983, 68th Leg., p. 3555, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 36, eff. Sept. 1, 1989.
Amended by:
Acts 2009, 81st Leg., R.S., Ch. 1304, Sec. 3, eff. September 1, 2009.
**
Sec. 53.235. OFFICIAL TO RETAIN FUNDS. 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.
Acts 1983, 68th Leg., p. 3555, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 29 OF 43
(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.
Acts 1983, 68th Leg., p. 3555, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3555, ch. 576, Sec. 1, eff. Jan. 1, 1984. Amended by Acts 1989, 71st
Leg., ch. 1138, Sec. 37, eff. Sept. 1, 1989.
**
Sec. 53.238. NOTICE OF BOND. 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.
Acts 1983, 68th Leg., p. 3556, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
Sec. 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.
Acts 1983, 68th Leg., p. 3556, ch. 576, Sec. 1, eff. Jan. 1, 1984.
**
SUBCHAPTER K. RESIDENTIAL CONSTRUCTION PROJECTS
Sec. 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 30 OF 43
this chapter to perfect a lien that arises from a claim resulting from a residential construction
project.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997.
**
Sec. 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.
(e) A copy of the statement or billing in the usual and customary form is sufficient as notice
under this section.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997.
**
Sec. 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 the indebtedness is incurred by a person other than the original contractor, 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 31 OF 43
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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997.
**
Sec. 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.
(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.”
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997.
**
Sec. 53.255. DISCLOSURE STATEMENT REQUIRED FOR RESIDENTIAL
CONSTRUCTION CONTRACT. (a) Before a residential construction contract is executed by
the owner, the original contractor shall deliver to the owner a disclosure statement described by
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 32 OF 43
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.
“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.
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 33 OF 43
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 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 34 OF 43
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 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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997. Amended by Acts 1999,
76th Leg., ch. 889, Sec. 8, eff. Sept. 1, 1999.
**
Sec. 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 35 OF 43
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:
“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.”
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997. Amended by Acts 1999,
76th Leg., ch. 889, Sec. 9, eff. Sept. 1, 1999.
**
Sec. 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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997.
**
Sec. 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 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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 36 OF 43
(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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997. Amended by Acts 1999,
76th Leg., ch. 889, Sec. 10, eff. Sept. 1, 1999.
**
Sec. 53.259. FINAL BILLS-PAID AFFIDAVIT REQUIRED. (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
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 37 OF 43
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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997.
**
Sec. 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.
Added by Acts 1997, 75th Leg., ch. 526, Sec. 23, eff. Sept. 1, 1997. Amended by Acts 1999,
76th Leg., ch. 889, Sec. 11, eff. Sept. 1, 1999.
**
SUBCHAPTER L. WAIVER AND RELEASE OF LIEN OR PAYMENT BOND CLAIM
Sec. 53.281. WAIVER AND RELEASE OF LIEN OR PAYMENT BOND CLAIM. (a)
Any waiver and release of a lien or payment bond claim under this chapter is unenforceable
unless a waiver and release is executed and delivered in accordance with this subchapter.
(b) A waiver and release is effective to release the owner, the owner’s property, the contractor,
and the surety on a payment bond from claims and liens only if:
(1) the waiver and release substantially complies with one of the forms prescribed by Section
53.284;
(2) the waiver and release is signed by the claimant or the claimant’s authorized agent and
notarized; and
(3) in the case of a conditional release, evidence of payment to the claimant exists.
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
**
Sec. 53.282. CONDITIONS FOR WAIVER, RELEASE, OR IMPAIRMENT OF LIEN OR
PAYMENT BOND CLAIM. (a) A statement purporting to waive, release, or otherwise
adversely affect a lien or payment bond claim is not enforceable and does not create an estoppel
or impairment of a lien or payment bond claim unless:
(1) the statement is in writing and substantially complies with a form prescribed by Section
53.284;
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 38 OF 43
(2) the claimant has actually received payment in good and sufficient funds in full for the lien or
payment bond claim; or
(3) the statement is:
(A) in a written original contract or subcontract for the construction, remodel, or repair of a
single-family house, townhouse, or duplex or for land development related to a single-family
house, townhouse, or duplex; and
(B) made before labor or materials are provided under the original contract or subcontract.
(b) The filing of a lien rendered unenforceable by a lien waiver under Subsection (a)(3) does not
violate Section 12.002, Civil Practice and Remedies Code, unless:
(1) an owner or original contractor sends a written explanation of the basis for nonpayment,
evidence of the contractual waiver of lien rights, and a notice of request for release of the lien to
the claimant at the claimant’s address stated in the lien affidavit; and
(2) the lien claimant does not release the filed lien affidavit on or before the 14th day after the
date the owner or the original contractor sends the items required by Subdivision (1).
(c) Subsection (a)(3) does not apply to a person who supplies only material, and not labor, for
the construction, remodel, or repair of a single-family house, townhouse, or duplex or for land
development related to a single-family house, townhouse, or duplex.
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
**
Sec. 53.283. UNCONDITIONAL WAIVER AND RELEASE: PAYMENT REQUIRED. A
person may not require a claimant or potential claimant to execute an unconditional waiver and
release for a progress payment or final payment amount unless the claimant or potential claimant
received payment in that amount in good and sufficient funds.
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
**
Sec. 53.284. FORMS FOR WAIVER AND RELEASE OF LIEN OR PAYMENT BOND
CLAIM. (a) A waiver and release given by a claimant or potential claimant is unenforceable
unless it substantially complies with the applicable form described by Subsections (b)-(e).
(b) If a claimant or potential claimant is required to execute a waiver and release in exchange for
or to induce the payment of a progress payment and is not paid in exchange for the waiver and
release or if a single payee check or joint payee check is given in exchange for the waiver and
release, the waiver and release must read:
“CONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT
“Project ___________________
“Job No. ___________________
“On receipt by the signer of this document of a check from ________________ (maker of check)
in the sum of $__________ payable to _____________________ (payee or payees of check) and
when the check has been properly endorsed and has been paid by the bank on which it is drawn,
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 39 OF 43
this document becomes effective to release any mechanic’s lien right, any right arising from a
payment bond that complies with a state or federal statute, any common law payment bond right,
any claim for payment, and any rights under any similar ordinance, rule, or statute related to
claim or payment rights for persons in the signer’s position that the signer has on the property of
________________ (owner) located at ______________________ (location) to the following
extent: ______________________ (job description).
“This release covers a progress payment for all labor, services, equipment, or materials furnished
to the property or to __________________ (person with whom signer contracted) as indicated in
the attached statement(s) or progress payment request(s), except for unpaid retention, pending
modifications and changes, or other items furnished.
“Before any recipient of this document relies on this document, the recipient should verify
evidence of payment to the signer.
“The signer warrants that the signer has already paid or will use the funds received from this
progress payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen,
and suppliers for all work, materials, equipment, or services provided for or to the above
referenced project in regard to the attached statement(s) or progress payment request(s).
“Date ____________________________
“_________________________________ (Company name)
“By ______________________________ (Signature)
“_________________________________ (Title)”
(c) If a claimant or potential claimant is required to execute an unconditional waiver and release
to prove the receipt of good and sufficient funds for a progress payment and the claimant or
potential claimant asserts in the waiver and release that the claimant or potential claimant has
been paid the progress payment, the waiver and release must:
(1) contain a notice at the top of the document, printed in bold type at least as large as the largest
type used in the document, but not smaller than 10-point type, that reads:
“NOTICE:
“This document waives rights unconditionally and states that you have been paid for giving up
those rights. It is prohibited for a person to require you to sign this document if you have not
been paid the payment amount set forth below. If you have not been paid, use a conditional
release form.”; and
(2) below the notice, read:
“UNCONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT
“Project ___________________
“Job No. ___________________
“The signer of this document has been paid and has received a progress payment in the sum of
$___________ for all labor, services, equipment, or materials furnished to the property or to
_____________________ (person with whom signer contracted) on the property of
_______________________ (owner) located at ______________________ (location) to the
following extent: ______________________ (job description). The signer therefore waives and
releases any mechanic’s lien right, any right arising from a payment bond that complies with a
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 40 OF 43
state or federal statute, any common law payment bond right, any claim for payment, and any
rights under any similar ordinance, rule, or statute related to claim or payment rights for persons
in the signer’s position that the signer has on the above referenced project to the following extent:
“This release covers a progress payment for all labor, services, equipment, or materials furnished
to the property or to __________________ (person with whom signer contracted) as indicated in
the attached statement(s) or progress payment request(s), except for unpaid retention, pending
modifications and changes, or other items furnished.
“The signer warrants that the signer has already paid or will use the funds received from this
progress payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen,
and suppliers for all work, materials, equipment, or services provided for or to the above
referenced project in regard to the attached statement(s) or progress payment request(s).
“Date ____________________________
“_________________________________ (Company name)
“By ______________________________ (Signature)
“_________________________________ (Title)”
(d) If a claimant or potential claimant is required to execute a waiver and release in exchange for
or to induce the payment of a final payment and is not paid in good and sufficient funds in
exchange for the waiver and release or if a single payee check or joint payee check is given in
exchange for the waiver and release, the waiver and release must read:
“CONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT
“Project ___________________
“Job No. ___________________
“On receipt by the signer of this document of a check from ________________ (maker of check)
in the sum of $____________ payable to _____________________ (payee or payees of check)
and when the check has been properly endorsed and has been paid by the bank on which it is
drawn, this document becomes effective to release any mechanic’s lien right, any right arising
from a payment bond that complies with a state or federal statute, any common law payment
bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute
related to claim or payment rights for persons in the signer’s position that the signer has on the
property of _____________________ (owner) located at ______________________ (location)
to the following extent: ______________________ (job description).
“This release covers the final payment to the signer for all labor, services, equipment, or
materials furnished to the property or to __________________ (person with whom signer
contracted).
“Before any recipient of this document relies on this document, the recipient should verify
evidence of payment to the signer.
“The signer warrants that the signer has already paid or will use the funds received from this final
payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen, and
suppliers for all work, materials, equipment, or services provided for or to the above referenced
project up to the date of this waiver and release.
“Date ____________________________
“_________________________________ (Company name)
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 41 OF 43
“By ______________________________ (Signature)
“_________________________________ (Title)”
(e) If a claimant or potential claimant is required to execute an unconditional waiver and release
to prove the receipt of good and sufficient funds for a final payment and the claimant or potential
claimant asserts in the waiver and release that the claimant or potential claimant has been paid
the final payment, the waiver and release must:
(1) contain a notice at the top of the document, printed in bold type at least as large as the largest
type used in the document, but not smaller than 10-point type, that reads:
“NOTICE:
“This document waives rights unconditionally and states that you have been paid for giving up
those rights. It is prohibited for a person to require you to sign this document if you have not
been paid the payment amount set forth below. If you have not been paid, use a conditional
release form.”; and
(2) below the notice, read:
“UNCONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT
“Project ___________________
“Job No. ___________________
“The signer of this document has been paid in full for all labor, services, equipment, or materials
furnished to the property or to ___________________ (person with whom signer contracted) on
the property of ______________________ (owner) located at ______________________
(location) to the following extent: ______________________ (job description). The signer
therefore waives and releases any mechanic’s lien right, any right arising from a payment bond
that complies with a state or federal statute, any common law payment bond right, any claim for
payment, and any rights under any similar ordinance, rule, or statute related to claim or payment
rights for persons in the signer’s position.
“The signer warrants that the signer has already paid or will use the funds received from this final
payment to promptly pay in full all of the signer’s laborers, subcontractors, materialmen, and
suppliers for all work, materials, equipment, or services provided for or to the above referenced
project up to the date of this waiver and release.
“Date ____________________________
“_________________________________ (Company name)
“By ______________________________ (Signature)
“_________________________________ (Title)”
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
For expiration of this section, see Subsection (c).
**
Sec. 53.285. ATTEMPTED COMPLIANCE. (a) A waiver or release shall be construed to
comply with this subchapter and is enforceable in the same manner as a waiver and release under
this subchapter if the waiver or release:
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 42 OF 43
(1) is furnished in attempted compliance with this subchapter; or
(2) evidences by its terms intent to comply with this subchapter.
(b) Any provision in any waiver or release furnished in attempted compliance with this
subchapter that expands or restricts the rights or liabilities provided under this subchapter shall
be disregarded and the provisions of this subchapter shall be read into that waiver or release.
(c) This section expires August 31, 2012.
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
**
Sec. 53.286. PUBLIC POLICY. Notwithstanding any other law and except as provided by
Section 53.282, any contract, agreement, or understanding purporting to waive the right to file or
enforce any lien or claim created under this chapter is void as against public policy.
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
**
Sec. 53.287. CERTAIN AGREEMENTS EXEMPT. This subchapter does not apply to a
written agreement to subordinate, release, waive, or satisfy all or part of a lien or bond claim in:
(1) an accord and satisfaction of an identified dispute;
(2) an agreement concerning an action pending in any court or arbitration proceeding; or
(3) an agreement that is executed after an affidavit claiming the lien has been filed or the bond
claim has been made.
Added by Acts 2011, 82nd Leg., R.S., Ch. 271, Sec. 3, eff. January 1, 2012.
**
TEXAS PROPERTY CODE CHAPTER 53 – PAGE 43 OF 43
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
PRIVATE FORM #9
REQUEST FOR INFORMATION FROM SUBCONTRACTOR
[ (1) Date]
(2) CERTIFIED MAIL:
____________________ RETURN RECEIPT REQUESTED
RE: (3)
The undersigned (4) the above-referenced project. Pursuant to Section 53.159(c) of the Texas
Property Code, we request that you provide us with the following information within 10 days after receipt of this request:
(1) The name and last known address of each person from whom you purchased labor or materials for the
project, other than those materials which were furnished by you from your own inventory.
(2) The name and last known address of each person to whom you furnished labor or materials for the
construction project.
(3) Whether a payment bond has been provided by or to you on this project, and if so, the name and last
known address of the surety and a copy of the bond.
In the event you fail to furnish the above-requested information, you may be liable for the undersigned’s
reasonable and necessary costs incurred in procuring the requested information.
(5)
By: (6)
* * * * *
(1) Date of request.
(2) Name and address of subcontractor.
(3) Project.
(4) Fill in as applicable:
(a) is the owner of
(b) is the original contractor on
(c) is the surety which bonded the original contractor for
(d) has furnished work under your subcontract on.
(5) Your company.
(6) Officer of your company.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
PRIVATE FORM #8
REQUEST FOR INFORMATION FROM ORIGINAL CONTRACTOR
[ (1) Date]
(2) CERTIFIED MAIL:
____________________ RETURN RECEIPT REQUESTED
____________________
RE: (3)
We have furnished labor and/or materials for the above-referenced project. Pursuant to Section 53.159(b)
of the Texas Property Code, we request that you provide us with the following information within 10 days after receipt
of this request:
(1) The name and last known address of the person to whom you furnished labor or materials for the
project.
(2) Whether a payment bond has been provided by or to you on this project, and if so, the name and
last known address of the surety(s) and a copy of the bond(s).
In the event you fail to furnish the above-requested information, you may be liable for the undersigned’s
reasonable and necessary costs incurred in procuring the requested information.
(4)
By: (5)
* * * * *
(1) Date of request.
(2) Name and address of original contractor.
(3) Project.
(4) Your company.
(5) Officer of your company.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
Private Form #7 – REQUEST FOR INFORMATION FROM OWNER
(1) , 20____
(2) CERTIFIED MAIL:
____________________ RETURN RECEIPT REQUESTED
____________________
Re: (3)
We are furnishing labor and/or materials for the above-referenced project. Pursuant to Section 53.159(a) of
the Texas Property Code, we request that you provide us with the following information within 10 days after receipt of
this request:
(1) A legal description of the real property upon which the above-referenced project is being
constructed.
(2) Whether a payment bond has been provided to you on this project, and if so, the name and last known
address of the surety and a copy of the bond.
(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 holder of the lien or security interest.
In the event you fail to furnish the above-requested information, you may be liable for the undersigned’s
reasonable and necessary costs incurred in procuring the requested information.
Also, we request you furnish our company with a copy of the affidavit of completion, if used, filed with the
county clerk for this project. Thank you for your attention to this request.
(4)
By: (5)
* * * * *
(1) Date of request.
(2) Name and address of owner.
(3) Project.
(4) Your Company.
(5) Officer of your Company.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
Private Form #6 – AFFIDAVIT CLAIMING LIEN
THE STATE OF TEXAS :
AFFIDAVIT CLAIMING LIEN
COUNTY OF (4) :
BEFORE ME, a notary public in and for the State of Texas, on this day personally appeared the undersigned,
who being by me duly sworn, on oath states:
1. My name is (1) . I am the (2) of (3) (“Claimant”) and am authorized
to make this affidavit on its behalf as the sworn statement of its claim.
2. Claimant furnished labor and/or materials for the improvement of the following described land in
(4) County, Texas:
(5)
3. The labor and/or material was furnished for such improvement to (6) . (7) .
4. (8) is the original contractor for such improvement.
5. (9) is the owner or reputed owner of the land and improvements thereon.
6. The kind of work done and/or material furnished by claimant is (10) and is made up of the
items shown on the attached Exhibit “A” which reflects the dates of Performance and/or delivery.
7. The amount unpaid for such furnishing and due and owing to claimant is $ (11) , which is true,
correct, and just, with all just and lawful offsets, payments, and credits known to affiant allowed.
8. Claimant’s address is (12) .
9. Claimant provided notices as required under Chapter 53 of the Texas Property Code on (13)
Claimant claims a lien against all the above described land and improvements thereon, including, without
limitation, removables, in the amount shown above pursuant to Chapter 53 of the Texas Property Code, [and/or the
Texas Constitution] and makes this sworn statement of claim in support thereof.
(3)
By: (1)
THE STATE OF TEXAS :
COUNTY OF ________ :
BEFORE ME, the undersigned authority, on this day personally appeared (1) , (2) of
(3) , known to me to be the person and officer whose name is subscribed to the foregoing instrument, who after
being by me duly sworn acknowledged that the statements contained above are true and correct and that he executed the
same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said
(14) .
Given under my hand and seal of office this ____ day of _________, 20___.
_____________________________________
Notary Public – State of Texas
______________________________________
Typed or Printed Name of Notary Public
My Commission Expires:
______________________
* * * * *
(1) Name of the person signing the affidavit.
(2) Position of the affiant with the claimant, such as credit manager, controller, owner, partner, president, etc.
(3) Name of claimant.
(4) County in which the land is located.
(5) Legal description of the land, e.g.:
(a) Lot 1, Block 2, Jones Subdivision of the City of Austin, per plat recorded in Volume ___, Page
_____, Plat Records, Travis County, Texas; or
(b) The 50 acres covered by the deed from Frederic N. Freeloader to Horace P. Homeowner, dated
________, recorded in Volume _____, Page _____, Deed Records, Travis County, Texas, which is
referred to for a more complete description.
(6) Name of the general contractor or subcontractor for whom work was done or material was furnished. If a
subcontractor, add “a subcontractor.”
(7) If the work or material was furnished under a written contract, it is preferable to attach the contract and
insert, “The labor and/or material was furnished under a written contract which is attached hereto and made
a part hereof.”
(8) Name of original (general) contractor.
(9) Name of property owner.
(10) General description of work done or materials supplied.
(11) Amount due, including retainage.
(12) Your business address.
(13) Dates of prior notices.
(14) e.g., partnership, corporation, etc.
Note: Original contractors (those contracting with the owner) also have a Texas Constitutional lien. If appropriate, you
may wish to claim such a lien.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
Private Form #5 – DEMAND FOR PAYMENT
[Date]
(1) Certified Mail
____________________ Return Receipt Requested
Dear Sir:
We have furnished (2) to (3) , (4) on the construction in progress on your property at
(5) . We have not been paid the amounts due us for the month of (6) in the amount of $ (7) .
Demand is hereby made for the payment of our claim from funds withheld by you as owner.
Should you have any question concerning our claim or this notice, please advise us. We will appreciate being
advised if there is a dispute as to our claim from the contractor.
Sincerely,
(8)
(9)
cc: (10)
(11)
* * * * *
(1) Letter addressed to the owner of the property being improved sent by Certified Mail
(2) Indicate generally what has been furnished.
(3) Name of the person to whom you furnished goods or labor.
(4) Indicate status of the person to whom you furnish, such as “contractor or “subcontractor”
(5) The address of the job, street, number and city.
(6) Indicate the month during which work was done for which payment has not been received.
(7) The amount due.
(8) Your company.
(9) Person signing letter and capacity.
(10) Send copy to general contractor.
(11) Send copy to your customer, if other than the general contractor.
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
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