Owner Paid Contractor but He Did Not Pay Subcontractor - The Texas Construction Trust Fund Remedy
The Texas Construction Trust Fund Act, Chapter 162 of the Texas Property Code, protects subcontractors and suppliers on a construction project. The Trust Fund Act is separate and apart from the mechanic's lien provisions of the Texas Property Code, and applies whether or not the claimant properly exercised its mechanic's lien rights. The Trust Fund Act requires that the money which an owner pays to the general contractor for the labor or materials furnished by a subcontractor or supplier be held in trust for the subcontractor or supplier. Those funds are deemed to be trust funds by the Trust Fund Act.
The unpaid subcontractor or supplier are classified as beneficiaries entitled to be paid the trust funds. The contractor and those individuals within the contractor with check writing authority, and the power to determine to whom the contractor will make payment, are held to be trustees for such trust funds. If the contractor misappropriates the money, the individuals classified as trustees can be personally liable to the subcontractor for not passing along the money. The Trust Fund Act is especially valuable when the subcontractor or supplier misses its mechanic's lien deadlines, or the contractor is insolvent.
The contractor and the trustees do, however, have defenses. It is a defense if the contractor's costs exceeded the amount it was paid. The contractor may also assert a back charge for defective or deficient labor or materials. The Trust Fund Act does not apply to lenders or sureties or title companies.