Page v. Structural Wood Components, Inc.
Page v. Structural Wood Components, Inc.
Opinion of the Court
delivered the opinion of the Court,
Chapter 53 of the Property Code permits a construction subcontractor to claim a hen on funds retained by the owner if the subcontractor “(1) sends the notices required by this chapter in the time and manner required; and (2) files an affidavit claiming a hen not later than the 30th day after the work is completed.” Tex. PROP. Code § 53.103. In this case, the owner terminated the general contractor and hired other contractors to complete the project. The question before us is when, in fulfilling the affidavit requirement of the statute, “work” is completed. The subcontractor here filed its affidavit thirty-one days after the original contract was terminated but well before subsequent contractors finished the project. The court of appeals held that work is completed when the requirements of the initial contract are finished, either by the first contractor or by subsequent contractors. 57 S.W.3d 524. Because we conclude that work must be defined in relation to a particular contract, and that the work under that contract was completed when the contract was terminated, we hold that the affidavit was not timely filed. Consequently, we reverse the court of appeals’ judgment and render judgment that the subcontractor take nothing.
I
In 1997, Herman C. Page hired Mark Sepolio as general contractor on a $300,000 remodeling and expansion project for a building that Page owned in Houston. Se-polio in turn hired several subcontractors, including Structural Wood Components, Inc. (Structural Wood), to provide labor and materials. Structural Wood completed its portion of the job in mid-March, 1998. As work progressed on the construction, Page made periodic payments to Sepolio totaling $270,000. Before the project was finished, however, Page and Sepo-lio quarreled over the work, and Sepolio requested additional funds to finish the project. Page refused, and on April 14, 1998, he terminated Sepolio’s contract. Page then hired six new contractors to finish the construction. Without hiring additional subcontractors, the new contractors completed the project on July 21, 1998, for a total payment of $27,074.43.
Meanwhile, because Sepolio failed to pay in full for its labor and materials, Structural Wood filed an affidavit claiming a lien on the property on May 15, 1998, thirty-one days after Page terminated the contract with Sepolio. Structural Wood subsequently filed suit to foreclose on its lien. After a bench trial, the trial court concluded that the work was completed on July 21, 1998, when the replacement contractors finished the project. The trial court held Sepolio and Page jointly and severally liable to Structural Wood for $11,861 in actual damages plus pre- and post-judgment interest and costs. The court further ordered foreclosure of the lien on Page’s property and held Page individually
II
The Texas Property Code requires owners to retain either “10 percent of the contract price of the work to the owner” or “10 percent of the value of the work ... using the contract price or, if there is no contract price, using the reasonable value of the completed work” for “30 days after the work is completed.” Tex. Prop.Code § 53.101. These retained funds “secure the payment of artisans and mechanics who perform labor or service,” including subcontractors such as Structural Wood. Id. § 53.102. A subcontractor or other claimant who wants to make a claim on that retainage must properly give notice and file “an affidavit claiming a lien not later than the 30th day after the work is completed.” Id. § 53.103. The period during which a claimant can and must file a lien affidavit under section 53.103 is therefore the same period that an owner can and must hold retainage under section 53.101— thirty days after the completion of work. It is consequently in the best interest of all construction participants to know when the thirty-day period terminates — the owner so that it can release the remaining funds, the original contractor so that it can budget for its final payment, and the claimant so that it can file the lien affidavit before that date.
To determine when the thirty-day period ends, we look to the statutory definitions of “work” and “completion of an original contract.” The Property Code provides that “ ‘[cjompletion’ 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....” Tex. Prop.Code § 53.001(15).
Page focuses on the phrase “under an original contract”
Structural Wood focuses on the word “contemplated” and counters that because the statute requires “actual completion of the work ... reasonably required or contemplated under the original contract,” a court should determine completion based on when all the work initially contemplated under the original contract is finished. In this case, the original contract contemplated the remodeling and expansion of the building, so the lien affidavit could be filed at any time within thirty days of the project’s completion. In accepting this interpretation, the court of appeals noted that the statute did not “specify that the work only be done by the contractor who started it, as opposed to a substitute contractor.” 57 S.W.3d at 531. Structural Wood argues that the alternative interpretation urged by Page works a hardship on subcontractors, who must file their lien affidavits in a shorter time and who may not know if an owner has terminated the general contractor. Structural Wood posits that only its approach comports with the requirement that courts interpret the mechanic’s lien statute liberally in order to protect hen claimants. See, e.g., First Nat’l Bank v. Sledge, 653 S.W.2d 283, 288 (Tex. 1983).
Although there are strong arguments supporting both interpretations, we conclude that the greater weight of authority supports Page’s contention that the work ends when a contract is terminated. The history of the mechanic’s lien statute demonstrates the Legislature’s intent to make retainage requirements dependent on individual contracts. A previous version of the mechanic’s lien statute phrased the retain-age requirement as:
ten per cent (10%) of the contract price to the owner ... of such work, or ten per cent (10%) of the value of same, measured by the proportion that the work done bears to the work to be done, using the contract price or, if none, the reasonable value of the completed work as a basis of computing value.
Act of June 17, 1961, 57th Leg., ch. 382, § 9, 1961 Tex. Gen. Laws 869 (repealed 1983) (current version at Tex. Prop.Code § 53.101). In Hayek v. Western Steel Co., 478 S.W.2d 786, 792 (Tex. 1972), the Court interpreted this language to mean that the owner must retain ten percent of the project’s cost regardless of how many individual construction contracts were awarded. Therefore, we held that a subcontractor who had supplied steel and concrete to the foundation contractor could bring a retain-age claim not just for ten percent of the value of the foundation contract, but rather
The Court’s decision in Hayek focused on protecting hen claimants who might need to share in the retainage fund, based on the Legislature’s “broad extension of protection and sharing in this fund to a new class of persons (materialmen).” Id. at 793. However, the Legislature determined that Hayek placed too great a burden on owners and original contractors by creating “an unreasonable retainage requirement on owners who enter into original contracts.” Act of May 16, 1973, 63rd Leg., ch. 96, § 3, 1973 Tex. Gen. Laws 215 (repealed 1983) (current version at Tex. Prop.Code § 53.001). In response, the Legislature amended the statute at its next regular session. The bill analysis stated that the “original intent of the legislation was for the 10% retainage requirement to apply to each individual contract, not the total cost of the job” and that the bill’s purpose was to “carry out the intent of the original legislation which created the 10% retainage requirement by limiting the 10% to each individual contract.... ” House Comm. on Judiciary, Bill Analysis, Tex. H.B. 1059, 63rd Leg., R.S. (1973). The new language added references to “an original contract” in the definitions of “work” and “contract price.” “Work” was defined as “any construction or repair ... which is performed pursuant to an original contract,” and “contract price” was defined as “the cost to the owner for any construction or repair ... which is performed pursuant to an original contract.” Act of May 16, 1973, 63rd Leg., ch. 96, § 2(d), 1973 Tex. Gen. Laws 214 (repealed 1983) (current version at Tex. Prop.Code § 53.001).
Focusing on the work initially contemplated may give a subcontractor more time to perfect a lien, but it may also greatly delay payment for contractors in general. As Justice WalkeR pointed out in his Hayek dissent, focusing on the entire project instead of the individual contracts means that a contractor “who has fully performed by constructing the foundation of the building ... cannot be paid in full until 30 days after the painting contractor has finally completed the last work on the building. This may be several years after the work of the foundation contractor was completed.” Hayek, 478 S.W.2d at 797 (Walker, J., dissenting). Under Structural Wood’s interpretation of the current statute, an owner who terminated a general contract before the construction project was completely finished would not have to release the ten percent retainage until thirty days after all the new contractors finished the job. Even if an economic downturn postponed completion for years, the terminated general contractor could not claim its final payment until the project was later completed. Such an indefinite delay in payment is, we believe, exactly what the Legislature was trying to prevent when it added references to “an original contract” in its definitions of “contract price” and “work.” See Tex. Prop.Code § 53.001(1), (14).
Hardship caused by the possibility of such delay would not be limited just to general contractors, but would also affect lien claimants generally. A longer retain-age period would give potential lien claimants a longer time in which to file their affidavits, but would also delay a lien claimant’s ability to enforce a lien on the owner’s retainage. A subcontractor who had finished its work early — for example, the subcontractor who laid the foundation for a building — would take little comfort in having an extended period in which to claim a hen on the owner’s retained funds if those funds were retained for many months or years.
Nor do we agree with Structural Wood’s contention that subcontractors need to be
Finally, the dissent emphasizes that the Legislature’s “definition of ‘completion’ does not include any reference to whether a contract is abandoned or terminated [but] simply defines ‘completion’ as ‘actual completion.’ ” 102 S.W.3d at 728. However, the Legislature did not define the word “completion” by itself; rather, it defined the phrase “ ‘completion’ of an original contract.” Tex. Prop.Code § 53.001(15). Moreover, the Legislature specified that the term “includ[es] any extras or change orders reasonably required or contemplated” by the contract. Id. Thus, if the parties add additional work to the contract, the original contract will not be completed until that work is also completed. Likewise, if the parties scale back a project, the original contract will be completed when the reduced work is completed. If the owner or the contractor terminates the contract, then no additional work can be contemplated under that original contract.
The mechanic’s hen statute recognizes that construction contracts often change as a project progresses. As one commentator has observed, the retainage requirement is calculated “upon the contract price, as the same may be adjusted from time to time.” 1 Eldon L. Youngblood, Youngblood on Texas Mechanics’ Liens, § 803.1[b] at 8-20 (2d ed. 1999). While the retainage may be adjusted upward if additional work is added to the contract, the price may also be adjusted downward. Further, the commentator recognizes that terminated contracts are not uncommon; he writes that “[o]ne eventuality that usually adjusts the contract price and, commensurately, the amount of required re-tainage, is the abandonment of the work by the original contractor.” Id.
Texas courts have long recognized that contract modifications — including termination — can change the amount of funds required to be retained under the contract. See, e.g., McKalip v. Smith Bldg. & Masonry Supply, Inc., 599 S.W.2d 884, 885-87 (Tex.Civ.App.-Waco 1980, writ refd n.r.e.); Dowdy v. Hale Supply Co., 498 S.W.2d 716, 721-22 (Tex.Civ.App.-Fort Worth 1973, no writ). It is therefore consistent to say that contract modifications can also
Finally, we note that the Legislature has recently mandated that contractors provide a “disclosure statement” to homeowners engaging in residential construction projects. Tex. Prop.Code § 53.255. The disclosure statement is not applicable in this case, as Page hired Seoplio for a commercial, not a residential, project. Nevertheless, the disclosure statement offers guidance because it provides a plain-English description of an owner’s retain-age duties under the mechanic’s hen statute, and these duties are the same in both residential projects and commercial projects. See Tex. PROp.Code § 53.101. The disclosure statement informs the owner that: “During construction and for 30 days after final completion, termination, or abandonment of the contract ... 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.’” Tex. PROp.Code § 53.255(b). The Legislature’s description of the statutory retainage requirement indicates that the Legislature did not intend to require an owner to hold on to the statutory retainage for more than thirty days after the contract’s termination.
Ill
We conclude that the construction contract and the work performed thereunder are complete at the time that the contract is terminated or abandoned, so that the lien affidavit must therefore be filed within thirty days of the contract’s termination. Thus, we hold that Structural Wood’s affidavit was not timely filed in this case, as it was filed thirty-one days after Page terminated Sepolio’s construction contract. We accordingly reverse the court of appeals’ judgment and render judgment that Structural Wood take nothing against Page.
. At the time this dispute arose, this definition was found in 53.106(e). The statute was amended in 1997 to move the definition of ‘completion’ of an original contract” to Property Code § 53.001(15). For clarity, we refer to the current section 53.001(15).
. The dissent is premised on the notion that "Sepolio’s contract was the original contract and that all the work done was work contemplated under that contract....” 102 S.W.3d at 730. "Original contract” does not mean the contract as originally written, however. Rather, the Property Code defines "original contract” as "an agreement to which an owner is a party either directly or by implication of law.” Tex. Prop.Code § 53.001(6). An amended contract can therefore be an "original contract” under the statute, and the owner may enter into a number of "original contracts” with different contractors. In this case, Page had at least seven original contracts: one with Sepolio and at least six with the replacement contractors.
. The dissent observes that "[w]e must not forget that the mechanic’s and materialman’s lien statutes are meant to protect the subcontractor, not the general contractor.” 102 S.W.3d at 731 (emphasis in original). However, the statute is not designed to protect only subcontractors. Rather, we have held that "the mechanic’s and materialman’s lien statutes of this State will be liberally construed for the purpose of protecting laborers and materialmen.” First Nat’l Bank v. Whirlpool Corp., 517 S.W.2d 262, 269 (Tex. 1974). Although the lien claimant in this particular case is a subcontractor, general contractors may also provide labor and materials. Consequently, we cannot ignore the effect of our interpretation on general contractors: we must consider the statute as it applies to all laborers and suppliers of material.
Dissenting Opinion
filed a dissenting opinion, in which Justice JEFFERSON joined.
Because I agree with the court of appeals that Structural Wood was not required to file its lien until thirty days after the work contemplated under the original Sepolio contract was actually completed, I respectfully dissent.
I
Structural Wood Components, Inc. was a subcontractor who provided supplies to Mark Sepolio. Sepolio was a general contractor who agreed to do some remodeling work for Herman C. Page. Following a payment disagreement, Page terminated Sepolio’s contract on April 14, 1998, and hired other contractors to finish the work he had originally contracted with Sepolio to do. The work was finally completed on July 21, 1998. Because Sepolio never paid Structural Wood for the materials and labor it provided, Structural Wood filed a mechanic’s and materialman’s lien on May 15, 1998. In compliance with statutory
II
The Texas Property Code requires that an owner retain ten percent of the contract amount during the time the work contemplated under an original contract is in progress, and for thirty days after the completion of the work.
The statute defines “work” as “any part of construction or repair performed under an original contract.”
When called upon to interpret the Texas mechanic’s and materialman’s hen statutes, recognizing that they “are not exactly a model of clarity,”
Page argues that the Legislature’s “definition of “work’ clearly mandates that work under an original contract is completed when that original contract is abandoned or terminated,” but he offers no authority to support this “clear” mandate. Instead, he cites statutory language that reads as follows:
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 stating that the original contract has been terminat*728 ed; or (2) on the last day of the month in which the original contract has been completed, finally settled, or abandoned.11
This provision does not in any way refer to when work is completed; it merely establishes the point in time from which the owner’s indebtedness to the original contractor accrues. The provision is not definitional. Furthermore, the mechanic’s and materialman’s lien statute does provide a definition of completion of work contemplated under a contract. And the Legislature’s definition of “completion” does not include any reference to whether a contract is abandoned or terminated. It simply defines “completion” as “actual completion.”
The Eleventh Court of Appeals considered this same issue — when work is considered completed for purposes of perfecting a retainage hen — in TDIndustries, Inc. v. NCNB Texas National Bank.
The Eleventh Court of Appeals’ reasoning is persuasive. Defining “actual completion” to mean “actual completion” is the only way to ensure that every subcontractor under an original construction contract is protected:
If, for example, the subcontractor who had installed the pocket door were [sic] not paid for his work, he should be entitled to the security of a ten percent retainage fund measured by the full contract price of the original contract. Yet, if the time for filing his lien affidavit had already run at the time when he completed his work, he would have been divested of his rights ... through no fault of his own. There is no escaping the conclusion that “completion” means the performance of the last item of com-pensable and lienable work that is contemplated by the original contract.17
The statute requires actual completion of the work, work being “any part of construction or repair performed under an original contract.”
The original contractor, Sepolio, never completed the work required under the original contract. That work had to be finished by others. The other contractors were not doing warranty work, and they did not replace or repair the work Sepolio had already performed. They merely finished the job originally contemplated under Sepolio’s contract. The work was not actually completed when Page terminated Sepolio’s contract on April 14. The work was actually completed on July 21. Structural Wood timely filed its lien.
Ill
The Court points out that legislative history “demonstrates the Legislature’s intent to make retainage requirements dependent on individual contracts.”
The Court states that “Texas courts have long recognized that contract modifications — including termination — can change the amount of funds required to be retained under the contract. It is therefore consistent to say that contract modifications can also change the work contemplated by the contract, and, by implication, the retainage period.”
The only thing that is affected by termination or abandonment is the amount the owner is required to retain:
The owner may use unearned funds not yet paid to an original contractor in order to complete construction after the original contractor’s abandonment ... But he is not relieved of his duties regarding statutory retainage. An owner cannot disregard a subcontractor’s right that he retain ... merely because of the abandonment or default of the original contractor.28
It is not difficult to understand that the amount would necessarily be adjusted because the agreed-to work is never completed.
IV
The Texas mechanic’s and materialman’s lien statutes do not focus on who does the work; they focus on whether and when the work is actually completed. The Court asserts that “[fjocusing on the work initially contemplated may give a subcontractor more time to perfect a lien,” but that doing so creates hardship for both the general contractor and other lien claimants because it might delay payment for a long
The Court gives as an example the foundation contractor who cannot get paid until the painting contractor finishes the painting. In the worst case scenario, if the foundation contractor and the painting contractor each had their own original contract, they would both be an original contractor, and would be entitled to their own rights and remedies.
If, on the other hand, the foundation contractor and painting contractor were sub contractors, hired by a general contractor, then they would both have thirty days from actual completion of the contract to file their hens if the general contractor did not pay them, just as the retainage statute contemplates. It is difficult to envision a scenario where the general contractor would be paid in full in any event before he completely finishes the work he agreed to do under the original contract. And once that work is actually completed, the general contractor only has to wait thirty days before he is paid in full — and that will happen as long as he has paid his subcontractors, and there are no outstanding retainage hens. Again, the retainage hen statute was enacted to protect the unpaid sub contractor, not the general contractor.
The Court’s concern over owners’ and original contractors’ hardship is misplaced, or at the very least, skewed in the wrong direction, considering the purpose of the statute. Requiring a subcontractor to know if the particular original contract under which he has been supplying materials or labor has been terminated or aban
Moreover, particularly because the owner is in the best position to know the status of his or her own contract, placing the burden of risk on the subcontractor to know if the contract has been terminated creates the potential for an unscrupulous owner to terminate the contract without notice to the subcontractor, let the thirty days run, and then contract the work out to someone else to finish, thereby relieving himself of the otherwise valid encumbrance. As we pointed out above, the purpose of the mechanic’s and materialman’s hen statute is to protect laborers and ma-terialmen, not to increase their burden and risk.
The Court suggests that a subcontractor can best protect himself by filing a hen affidavit within thirty days of the completion of his own work.
Finally, it is ironic that the Court justifies its position — that “completion” implicitly includes “non-completion” — by pointing to additional and express statutory language used in a separate legislative enactment covering residential construction contracts.
Because the Texas mechanic’s and mate-rialman’s lien statute requires retainage lien claimants to file their lien affidavits
. Tex. Prop.Code §§ 53.055, 53.056.
. See id. § 53.101.
. Id.
. Id. § 53.102.
. Id. § 53.103.
. Id. § 53.001(14).
. Id. § 53.001(15).
. First Nat’l Bank v. Sledge, 653 S.W.2d 283, 286 (Tex. 1983).
. See Indus. Indem. Co. v. Zack Burkett Co., 677 S.W.2d 493, 495 (Tex. 1984) (per curiam): First Nat’l Bank, 653 S.W.2d at 288.
. See State v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002).
. Tex. Prop.Code § 53.053(b).
. Id. § 53.001(15).
. 837 S.W.2d 270 (Tex.App.-Eastland 1992, no writ).
. Id. at 272.
. Id.
. Id.
. 1 Eldon L. Youngblood, Youngblood on Texas Mechanics’ Liens, § 803.6[a] (1996) (emphasis added).
. Tex. Prop.Code § 53.001(14).
. See Ryan v. Travelers Ins. Co., 715 S.W.2d 172, 175 (Tex.App.-Houston [1st Dist.] 1986, writ ref’d n.r.e.) (stating that when a statute substantially modifies common law rights, the statute entirely controls the rights and obligations of the parties to an action brought under that statute).
. Conn, Sherrod & Co. v. Tri-Elec. Supply Co., 535 S.W.2d 31, 34 (Tex.Civ.App.-Tyler 1976, writ ref d n.r.e.).
. See 102 S.W.3d at 725.
. See Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 549 (Tex. 2001); Kerrville State Hosp. v. Clark, 923 S.W.2d 582, 584 (Tex. 1996); Salcedo v. El Paso Hosp. Dist., 659 S.W.2d 30, 32 (Tex. 1983); Lowe v. Tex. Tech Univ., 540 S.W.2d 297, 301 (Tex. 1976) (Greenhill, C.J., concurring); see also Chief Justice Thomas Phillips, State of the Judiciary Address (March 4, 2003), available at http:// www. supreme.courts.state.tx.us/Adviso-ry/SOJ.pdf.
. 102 S.W.3d at 723.
. 478 S.W.2d 786, 793 (Tex. 1972).
. See House Comm. on Judiciary, Bill Analysis, Tex. H.B. 1059, 63rd Leg., R.S. (1973); see also McKalip v. Smith Bldg. & Masonry Supply, Inc., 599 S.W.2d 884, 889 (Tex.Civ.App.-Waco 1980, writ ref’d n.r.e.) ("In our opinion the Legislature’s Amendment of [the statute] was intended to and does have the effect of
. Tex. Prop.Code § 53.101.
. 102 S.W.3d at 725-26 (citations omitted).
. Youngblood, supra, § 803.1 [b].
. Id.
. Id.
. 102 S.W.3d at 724.
. See Eldon L. Youngblood, Mechanics’ and Materialmen’s Liens in Texas, 26 Sw. LJ. 665, 670-71 (1972).
. See, e.g., Tex. Prop.Code § 53.056 (notice requirements for derivative claimant to original contractor or owner); § 53.057 (derivative claimant’s notice for contractual retainage lien); § 53.024 (limitation on subcontractor’s lien).
. Youngblood, supra, at 671 (citations omitted).
. See, e.g., Tex. Prop.Code § 53.053 (accrual of indebtedness to original contractor).
. Youngblood, supra, at 671 (citations omitted).
. See supra notes 29-33 and accompanying text.
. See Tex. Prop.Code § 53.106.
. 102 S.W.3d at 725.
. 102 S.W.3d at 726.
. See Tex. Prop.Code § 53.001.
. See id. § 53.101.
Reference
- Full Case Name
- Herman C. PAGE, Petitioner, v. STRUCTURAL WOOD COMPONENTS, INC., Respondent
- Cited By
- 25 cases
- Status
- Published