Law Changes: Mandate Attorney’s Fees in Foreclosure Actions and Higher Interest in Contract Claims Against Local Government

Over the last several months I have written about several of the law changes that were produced by the 82nd Texas Congressional Session.  First was the change in the contract indemnification laws, I then wrote about the changes involving lien waivers and retainage notices.  Well these last two involve two relatively small changes to the Texas Property Code.  However, these “small” changes could possibly have large implications with regards to obtaining your attorney’s fees and interest in some construction litigation.  These are TX SB 539 and TX HB 345.

With regards to SB 539, there was a one word substitution from may to shall that now requires a court to award costs and attorney fees in any proceeding to foreclose a lien or to enforce a claim against a bond on a municipal project.  As far as I’m concerned the less wiggle room you give to a judge on what the Court “may” award, the better.  Additionally, I have already found that this new law has been helpful in settling mechanic’s lien and bond claims because I tell them “look, if we foreclose on our suit we are automatically going to get our attorney’s fees.”  That has much more weight than “a Judge might award us attorney’s fees.”

Again with HB 345, the law was changed to clarify how the interest should be calculated on breach of contract lawsuits against local governments.  It now uses the same interest calculation used under the prompt pay statute, which is eighteen percent per annum.

If you have ever talked to a non-construction law attorney who tries to figure out the mechanic’s lien/bond claim statutes in the Texas Property Code, they will usually tell you they are confusing and vague.  Well I believe these two new additions, in addition to the other ones we have already covered this year, are a step forward in clarifying and adding weight to the Statutes.  It is important to note that both of these laws are already in effect and have been in effect since September 1, 2011.

How to Bond Around a Mechanic’s Lien

I received an email the other day asking if there was a standard form for bonding around a mechanic’s lien, so I thought it would be a good topic to write out how you actually go about bonding around a lien.  I think the first step is looking at all the options that are available to you.  This really isn’t in the scope of this article since every situation is different, but if you decide that this is the best way to proceed then the next step would be to find an insurance provider for the bond.

We really recommend going with a provider that does this in their normal course of business.  Yes, you may be able to get one of your current insurance agents to get you a bond, but in my experience, the understanding of the process and the time it takes for them to complete the process isn’t worth the trouble.  We know of a couple of local companies that we usually refer clients to, and I imagine most other construction attorneys have someone that they know is experienced with the bond process.

The next step would be to draft the Bond Affidavit.  The State of Texas does not have a bond form, but only has guidelines as to the amount of the bond and what has to be included in the bond.  Specifically, the Texas Property Code Sec. 53.172, Bond Requirements, states:

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.

After the bond is drafted and sworn to, it is filed in the county where the property in question is located.

While this process is not necessarily difficult, having a construction attorney and bond company that has repeatedly done this process can save you time and headaches, especially if your contracts require you to indemnify a person or entity by bonding around a lien and time becomes of the essence.  

Mechanic’s Lien Research to Protect Yourself

Have you ever gotten into a job and started hearing some bad rumors; such as, you might not get paid for your work? Or the GC on this job doesn’t pay retainage? Well a couple years ago I wrote this article:  Are you going to get paid ask a construction Lawyer to show that Attorneys can be used pro-actively instead of re-actively (which is the more expensive way). I’d like do a quick overview of something you can do yourself to pro-actively protect your business from trouble. Specifically, you can do your own research to determine if the person you are working for is having liens being filed against them currently.

As you might know, almost all larger counties have an online database you can search for deed records. However, you might not know that those same databases keep track of the lien affidavit filings as well. Here are links to the research databases around the DFW area:

Denton County Deed Record Search: https://www.dentoncounty.com/dept/county_clerk/recordsearch.asp

Dallas County Deed Record Search: http://roamdallaspropertyrecords.com/ailis/search.do

Tarrant County Deed Record Search: https://ccrecordse.tarrantcountytx.gov/RealEstate/SearchEntry.aspx

Collin County Deed Record Search: http://countyclerkrecords.co.collin.tx.us/webinquiry/

Each one works a bit differently but usually you can search for the name of the company in some form or fashion (sometimes it takes a little trial and error). Here is a search of somebody you may want to think twice before doing work for:


You will note that we put in the persons first and last name (you could have also put in a corporate name under the last name), and checked, land records. You will get results that look something like this:

As far as looking for Mechanic’s Liens that is the first highlighted area M/L AFDT, depending on the county it may say something different. It gets more interesting with the next two highlighted boxes. Abst Jdgmt means that they have lost in court and have a judgment against them and the abstract is in place to help the prevailing party secure their judgment on any real property owned by that person in that county, and I think we all know what it means when “USA” has a Fed Tax LN on someone.

This is just a quick example on how anyone can use public information to help protect their business. Obviously, if this is you and you are entering into business with someone who’s reputation you don’t know or may be a little dubious, it really pays to do your homework on the front end. If you would rather not do this yourself, then this is an example of what KMDA can do for you for all surrounding counties. We usually provide a report to our client that goes through the various businesses owned by that individual and tells you what type of Judgments and liens they might have against them.

Good Luck and Happy Researching!

Law Changes: Lien Waivers and Retainage Notices

In addition to the new indemnification laws that we discussed during the last blog post, there are other laws and bills that were passed that greatly affect the construction industry.  One of them is HB 1456 the other is HB 1390 you can find the full text of the new laws here: TX HB 1456 and TX HB 1390.

HB 1456 Goes into effect January 1st and pertains to Lien waivers.  You may recall it was just a few months ago I went over some of the pit falls of lien waivers in the blog post Lien Releases: Look Before You Leap.  Well HB 1456 changes how lien waivers are handled.  It provides standard forms for conditional and unconditional lien waivers.  It also fixes something that has plagued the building industry, trying to force sub-contractors to sign an unconditional waiver before payment has been made in full for the invoice or work in question.

Here is the text from the law that fixes that issue:

“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.”

One other item the new law provides are conditional and unconditional waiver forms that must be substantially complied withto be valid.

The law that arose from  HB 1390 pertains to how retainage notices were to be handled since September 1, 2011.  Back in 2009 (view it here: retainage claims) I wrote about when Retainage notices are due.  HB 1390 now allows the notices to be given at the end of the project instead of requiring the contractors and/or subcontractors to give Retainage Notices at the beginning of the project.  This is important because I very rarely saw the retainage notices being timely sent, if at all.

I am VERY excited about the changes in these laws.  These go so far in protecting the Texas Contractors and takes care of many of these issues that have come up in my legal practice almost daily in the past few years.  Again, the lawmakers have gone a long way to strengthen some of the loopholes that have been used time and time again by the unsavory.

Beware of the Changes in the Contractual Indemnification Laws in Texas

On January 1, 2012, a new law will go into effect that is known as the Anti-indemnification Bill (HB 2093).  This will affect most construction contracts that are currently being used.

Currently, most contracts that the General Contractor requires sub-contractors to sign have an indemnification clause that limits the GC’s own liability and holds it squarely in the hands of the sub-contractor.  The great news is that those parts of any contract signed after January 1, 2012 will be void (with a few exceptions of course).

Here is a more thorough breakdown of how this law will change the way contracts need to be written:

  • A GC can no longer require a subcontractor to indemnify the GC of their own sole or partial negligence.  Indemnity clauses violating this prohibition will be void and unenforceable.
  • Unless you enter into a “Joint Defense Agreement” after a claim has been asserted, a GC’s contract can no longer require a subcontractor to defend the GC from claims based on the GC’s own negligence.
  • Additional Insured endorsements to a subcontractor’s liability insurance policy that purport to provide coverage for the GC’s sole or partial negligence, so long as the claim arises from the Subcontractor’s work, are also no longer enforceable.  It is very likely that ISO specific Additional Insured endorsement forms will be prepared to cover this in Texas (but see below).
  • NOTE:  These restrictions on indemnification (both with regard to claims and defense of claims) and on Additional Insured endorsements do NOT apply to on-the-job employee personal injury claims.  Accordingly, a GC can still make a Subcontractor defend and indemnify the GC for the Subcontractor’s own sole or partial negligence for a personal injury claim by an employee of the GC (or even other subcontractors of the GC).   This means that the current broad form intermediate or additional insured endorsements will still be enforceable in situations where personal injuries occur on the job in Texas.

The good news is that, so far, it looks like the lawmakers got it right this time.  They finally put some laws in place to give equal bargaining power to general contractors and subcontractors.  If you are a General Contractor and you are depending on these provisions to protect yourself, as of January 1st, you need to think again.  And as for Subcontractors, you no longer have to sign contracts with these provisions in them.

Valid Eviction: Basics to the Eviction of Renters in Texas

What is an eviction suit?

In Texas, a suit to evict a tenant is known a suit for forcible detainer.  If you have a tenant in a property you own who is not willing to vacate the premises voluntarily, the only legal means of removing such tenant is through an eviction proceeding in a court of appropriate jurisdiction. For Texas, the court of appropriate jurisdiction is the justice of the peace for the precinct in which the tenant to be evicted resides. This article addresses eviction procedures for a tenant.  Please note that if the person to be evicted was residing at the property prior to a foreclosure, the requirements for eviction will vary from those described in the article.  In addition, evicting a tenant who receives federal housing assistance will have additional requirement not addressed in this article.

Of course, to obtain an eviction, you must have a legal basis for the eviction.  The purpose of a suit for forcible detainer is to determine who has a greater right of possession of the property.  A breach of the lease agreement is the typical legal basis for eviction.  If a tenant breaches its lease agreement, then the landlord has a greater right of possession in property because it was the lease which gave the tenant its right of possession.  In addition to failing to pay rent, and depending on the lease agreement, criminal activity, disturbing neighbors, damaging the property, having unapproved guests or residents, or failing to abide by any other requirement of the lease agreement can be a breach of the lease contract. However, maintaining possession of a property after the expiration of a lease agreement can also subject a tenant to an eviction.

Do I need an attorney?

It is not always necessary to have an attorney represent the landlord or property owner at an eviction trial.  Eviction trials in the justice of peace courts are informal and routine.  In addition, the relaxed rules of the justice of peace court allow persons other than the owner of the property to present the eviction case without an attorney.  However, in complex circumstances, it may be advisable to either have an attorney represent you at a justice of the peace eviction or at least obtain advice from an attorney.

Regardless of the outcome, tenants have a right to appeal a justice of the peace court eviction to a County Court at Law.  While there may be a bond required for tenant to appeal its case to the County Court at Law, if the tenant files a pauper’s affidavit, a sworn statement that the tenant cannot afford to pay a bond, the tenant can appeal without a bond.  In my experience, it is common for tenant’s to appeal an eviction to the County Court at Law, either because they don’t understand the eviction laws or they want to buy more time before they are forced to leave the property.

If a case is appealed to the County Court at Law, is very important to hire an attorney to handle the eviction case.  Unlike the relaxed rules of the justice of peace courts, all of the formalities of the Rules of Civil Procedure and Rules of Evidence apply and failure to strictly adhere to the requirements of such rules can result in losing the case.  In addition, under many circumstances, a landlord may not be allowed to argue a case on his own behalf in the County Courts at Law.  If a corporation or LLC owns the property made the basis of the eviction, the landlord is required to be represented by an attorney because in Texas only individuals can represent themselves in County and District courts. Moreover, a representative of an owner, such as a management company, apartment manager or an employee, cannot represent the landlord because individuals who are not attorneys can not represent others in County and District courts.

Provide a notice to vacate.

If the tenant is subject to a rental agreement, before filing the eviction suit, the landlord must provide the tenant with at least 3 days notice unless the written lease contract specifies a notice requirement which is shorter or longer.  For instance, if the lease requires a 10 day notice, the landlords must provide the tenant with a notice to vacate at least 10 days before filing a suit for eviction.  If the lease states that the landlord must only provide 24 hours notice, as many leases do, then the landlord is not required to provide more than 24 hours notice, although 3 days notice may still be advisable to provide time for the tenant to vacate without the need to file an eviction suit.  If the lease is silent as to a notice to vacate, then the statutory 3 days notice is required.  The notice period is calculated from the day on which the notice is delivered.  If the required notice is not provided, the case may be dismissed and the landlord would have to re-file after providing the required notice.

The notice to vacate the premises must be delivered in one of three ways.  The landlord can hand deliver the notice to the tenant or a person over the age of 16 who resides at the premises.  Another method is to affix the notice to the inside of the front door to the premises.  If the landlord cannot obtain access to the inside of the front door, the landlord may securely affix the notice to the outside of the main entry door.  However, leaving the notice of the outside of the door is not recommended unless the landlord provides the notice by one of the other methods as well.  It is too easy for the tenant to claim that they never received the notice to vacate.  The third method, and the best, is to mail the notice.  Sending the notice by certified mail, return receipt requested is the best method, because it is the easiest method by which to prove proper service of the notice.  The landlord should be sure to keep a copy of the notice.  In addition, if the notice is hand delivered, the person who hand delivered the notice should be present at the eviction trial to testify that they hand delivered the notice.

The notice to vacate, as well as the eviction suit itself, should identify all individuals who are responsible for the payment of the lease as well “and all occupants.”  It will not do the landlord any good to evict one person on the lease only to the have another tenant argue that they do not have to vacate because the notice to vacate and/or the eviction suit does not mention them specifically.  Even if the landlord believes that there is only one person residing at the premises, always include “and all occupants” because there may be unknown persons residing at the premises.

Suit for Forcible Detainer.

Once the notice requirements expire, the landlord can file its eviction suit at the appropriate justice of the peace precinct.  The court will have forms that a landlord can fill out for the suit.  Be sure to identify the specific reason for the eviction (ie. failure to pay rent or the facts that establish that the lease agreement was violated).  If the Landlord is also seeking damages other than past due rents, the landlord can specify the basis and the amounts of such additional damages.  For instance, if the landlord is seeking damages to the property, the landlord should state what the damages are and how much the damages were calculated.

After the eviction suit is filed by the landlord, a constable will serve the tenant with a copy of the eviction suit and notice of the date and time for the eviction trial.  Be sure to appear for the eviction trial.  If the landlord does not appear at the justice of the peace court at the time of the eviction trial, the case will be dismissed.  The landlord must be sure to bring the following items in order to prove its case:

1)      The landlord must bring an executed copy of the lease;

2)      The landlord should bring a copy of the notice to vacate and proof that the tenant was provided with the notice;

3)      If the case is for non-payment of rent, the landlord should bring a copy of the ledger to establish the rents which have not been paid;

4)      If the case is based on a breach of the agreement other than failure to pay rent, the landlord should bring evidence of such breach or witnesses who have personal knowledge of the breach; and

5)      If the landlord is seeking damages other than past due rent, the landlord should bring witnesses who can testify as to the amount of the damages and any documents which support such damages including invoices and photos of the damage.

After the Suit.

Once a court has rendered a judgment, either party has five days to appeal.  Once the five days to appeal have expired, the landlord can obtain a writ a possession from the clerk for the court where the judgment was obtained.  A writ of possession will allow a county constable to force the occupants to vacate.  Typically, if a constable is forced to remove a tenant who is unwilling to vacate the premises voluntarily, the constable will request that the landlord provide labor to move the tenant’s property from the inside of the property to the outside.  The tenant’s property can be moved outside and left so long as it is not raining at the time.

Should the tenant file a pauper’s affidavit to allow the tenant to appeal the eviction without a bond, the landlord can challenge such pauper’s affidavit to prove that the tenant in not indigent and should pay a bond.  However, the landlord should take into consideration that challenging the pauper’s affidavit often increases the amount of time and the cost of obtaining the eviction judgment.  Appeals of an eviction are given a priority setting in the county courts by statute.  However, the challenge of a pauper’s affidavit requires a hearing prior to the appeal being heard.  Therefore, a challenge of a pauper’s affidavit requires an additional court appearance and because of the short time for an eviction appeal may result in a postponement of the appeal trial itself.

Lien Releases: Look Before You Leap – Part 2

Last time I started to talk about the pitfalls that may arise from not reading lien releases more carefully. You can read it here: Lien Release – Part 1. This time I continue to expand on more issues that might arise from lien releases.

Prohibiting yourself from collecting on additional work performed was one of the concerns raised in the Addicks case disussed last time due to a release or waiver with broad language. Another concern can be other disputes that you may have regarding a project. For example, I represented a client who contracted to remove stone veneer from an apartment complex and install new stone veneer. Problems arose and my client was terminated from the project and believed that he was entitled to breach of contract damages including lost profits. However, in an effort to mitigate his damages, he sold the stone and installation materials to the subsequent contractor that was hired to perform such work. At the end of the job, the owner requested that the subsequent contractor obtain a waiver for final payment from my client and provided the subsequent contractor with the waiver. The waiver was presented to my client as simply a waiver of liens in exchange for final payment for the material my client had provided to the subsequent contractor. However, after reading the waiver closely, my client realized that such waiver stated that he was agreeing to release any and all claims that he had against the owner and the property. Such waiver may have barred my client’s claims for lost profits against the owner. It is likely that the owner intended to sneak this waiver by my client to protect itself from the claims which it expected my client to file.

It is also important to consider whether the waiver or release is conditional or unconditional. A conditional waiver or release means the waiver or release is conditioned upon some additional requirement being met before the waiver or release is effective to waive or release a contractor’s rights. Typically, the “condition” in a conditional release is payment. For instance, the waiver from the Addicks case, quoted above, is a conditional release because it states, “This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment…”. The document does not constitute a representation of full payment until payment is received. This is an important distinction. An unconditional release does not contain a condition and, therefore, is effective upon execution. If a contractor were to execute an unconditional release with a payment application and then never receive payment (or the payment bounced), the contractor may be stopped from later trying to collect on the payment because he unconditionally released his or her rights. Another scenario in which an unconditional release can create problems is when additional work, not contemplated by the original contract, has not been billed or paid. However, this can also be a problem with a conditional lien as discussed above.

It is extremely important that you understand any waivers or releases that you execute. Make sure that that you understand exactly what is being waived or released. The best rule of thumb is that if there is any work which has been performed or goods which have been provided which are not a part of a particular payment, make sure that you specify in writing on the same document (and on each and every waiver that you subsequently sign) that the waiver or release does not cover such goods or services. If you are in doubt, consult an attorney regarding the language of the waiver or release. The short time that it takes to discuss the waiver or release may pale in comparison to the costs of claims you may inadvertently waive or release.

The Importance of Following Corporate Formalities

In some of my daily reading I ran across a post by Christopher G. Hill, a construction attorney in Virginia. It hit home because it feels like I’m continually working with clients helping them understand the importance  of how they run certain aspects of their business, and this is an area that often times gets ignored.

One of the things I do when I have a new client come to me, if they are in a lawsuit, is ask to see their corporate books.  I do this to make sure that they have been following the customary corporate formalities.  Most clients are always shocked as to why I would want to see them:  to see how exposed they may or may not be at being held personally liable in the suit they are in. I talked generally about it in this article: Online Corporate Formation You Get What You Pay For focusing on how you may not be getting all the knowledge you need to protect yourself personally with online corporate formation.

Well Mr. Hill in Virginia has a nice post on this topic with a real world example of an Engineering company’s owner who didn’t follow the corporate formalities and paid the ultimate price with a judgment that he is now personally liable for.  Here is an excerpt of his post:

“Under most circumstances, even in a case such as this where fraud could have been alleged, the claims against the principal of the company would not have worked out for the plaintiff.  However, in a somewhat unusual decision, the Henrico, VA court found that, aside from failing to keep separate corporate and personal books and failing to maintain the “corporate formalities” required for the basic protections,”
You can read the full article here: Incorporation May Not Be a Shield if You’re not Careful

In previous years, simply not having a corporate book and having yearly meetings was enough to obtain personal liability against a corporate principle.  While, Texas has modified these decisions some requiring more than one formality not being followed, most people think just forming a corporation is enough.  That could not be further from the truth.  Not following the corporate formalities essentially negates even having a corporation.   This is why forming a relationship with a good attorney and CPA can help you in the long run protect not just your business but your family’s assets.

Lien Releases: Look Before You Leap – Part 1

In the construction industry, acknowledging payment for goods and services is common. Such acknowledgments come in many forms. They may be referred to as a waiver of lien, release of lien, or they may refer to a release or waiver of claims. They may be conditional or unconditional. They may be partial or final. Many contractors sign them in exchange for payment without really taking the time to read or understand the language contained in such documents. This can be a costly mistake. Be wary of what you are agreeing to in signing any type of waiver or release.

Pay attention to what it is that you are waiving or releasing. Some waivers or releases state that you are only waiving or releasing your right to claim a lien or file a bond to the extent that you are being paid a certain amount in connection with such release or waiver. This is what many contractors assume they are agreeing to in executing a release or waiver in connection with payment. However, some language in waivers or releases go further. They may specify that you are waiving or releasing any and all claims for payment for work performed or goods provided through a certain date. Some final releases go even farther by specifying that you are waiving or releasing any and all claims of every kind against the owner, the project, the property and other contractors. Note the differences between what is being released and/or waived.

These releases can be become a problem when the person making the payment and the person signing the waiver have different ideas about what is being paid and one of the parties isn’t paying attention to the specific language in the waiver or release. As an example, consider Addicks Services, Inc. v. GGP-Bridgeland, L.P., 596 F.3d 286 (5th Cir. 2010). In such case, the contractor found after starting the project, that numerous issues arose including requests for additional work, delays due to inclement weather, and site accessibility problems. In accordance with the contract for the project, the contractor made written requests for information regarding the work, extensions of time, and change orders. However, while the requests were pending, the contractor submitted applications for payment and with such payments executed waivers for each payment received which stated:

This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment for all work performed, and all costs or expenses incurred (including by not limited to costs for supervision, field office overhead, home office overhead, interest on capital, profit, and general conditions costs) relative to the work or improvements at the Project as of the date of this waiver, except payment of retainage. [Contractor] specifically waives, quitclaims and releases any claim for damages due to delay, hindrance,

 

Despite the blank space for exclusions, the contractor merely signed the waivers in exchange for payment without identifying any of the pending change orders. After the project ended the contractor sued the owner for payment of additional unpaid costs. The court found the unambiguous language of the waiver barred not only the contractor’s right to lien the project, but also the contractor’s right to sue for breach of contract!!

Here is Part 2: Lien Releases: Look Before You Leap – Part 2

CHANGE ORDERS – The Good, The Bad, and The Ugly – Part 2

So last time, we answered some of the most common questions we hear regarding the change order process.  This week, I want to concentrate on various cases that have come down in Texas that relate to construction change orders and specifically discuss how these cases affect you the contractor.  If you read nothing else in the article at least skip down to the last question and answer for practical advice. 

Ok, I didn’t get a written change order and now the owner is disputing payment for the work, what should I do?
While obtaining written change orders prior to performing change order work is always the best practice, should a contractor perform change orders without a written change order, there is still an opportunity to collect on such change orders in some circumstances.  In Buxani v. Nussbaum, the owner and contractor entered into a construction contract which stated, “Any alteration or deviation from above specifications involving extra costs will be executed only upon written change orders, and will become an extra charge over and above the estimate.”   The evidence in such case showed that the owner of the project ordered the extra work orally and that the owner accepted such extra work.   When the contractor sued the owners for the unpaid amounts, the owners counter-sued for breach of the original contract requiring change orders to be in writing.   Does this factual scenario sound familiar?  I know you’ve all been there.  It might make you feel better to know that the trial court found that an oral contract existed for the goods and services which were not contemplated by the written contract.  The owner argued that mutual assent (a requirement for a contract, whether oral or written) could not be implied when an express contract covering the subject matter already existed.   In response the court stated, “The Buxanis, however, fail to take into account the differences between their written contracts and the oral agreement.  The extra items and services were above and beyond what was included in their written contract with Nussbaum.”   The appellate court held that the parties entered into an additional oral agreement that did not breach the original contract.

Will a promissory note to pay out the change orders protect me from the Owners’ later denying payment?
Another consideration in attempting to enforce a change order which was not executed in writing can be whether the owner later ratifies an oral agreement regarding a change order.  ”A ratification rests upon a person’s assent to a prior act or an act of another.”   Such ratification can be expressed or it can be implied from one’s conduct.   “Ratification of a contract occurs when a party recognizes the validity of the contract by acting under the contract, performing under the contract, or affirmatively acknowledging the contract.”  A party cannot withdraw the ratification and avoid the agreement, once the agreement has been ratified.   Also, when a party’s actions are inconstant with an intent to avoid an agreement, such actions have the effect of ratifying the agreement.   The Court used this reasoning to hold that an owner could ratify an oral request, acceptance and promise to pay for such services, by later confirming its promise to pay or by partially paying for such services.  When faced with this situation, it is advisable that Contractors who are owed money by an Owner, obtain verification, in writing, in the form of a promissory note so that the evidence does not come down solely to a he said she said situation.

My contract requires change orders to be in writing, however, I complied with a request from the owner for an on-the-job change without getting prior written approval.  Can the owner’s now deny paying me by arguing that I can’t enforce our agreement because it was not in writing?
Another consideration in attempting to collect on a change order which was not approved in writing prior to the performance of such change order is whether a contractual provision requiring written change orders was waived by the owner. “Waiver, the voluntary relinquishment of a known right, is sometimes spoken of as intentional conduct inconsistent with assertion of a known right.”   “Silence or inaction, for so long a period of time as to show an intention to yield the known right, is enough to prove waiver.”

In Travis-Williamson County Water Control and Imp. Dist. v. Page, the construction contract at issue specified that no claim for extra work would be allowed unless ordered in writing.   The evidence in the case showed that the owner of the project ordered the extra work orally and that the owner accepted such extra work.   The court held that such evidence constituted waiver as a matter of law.   By orally requesting, accepting and promising to pay for goods and services from a contractor, which were not contemplated by the written contract on the project, without requiring that such additional agreements be reduced to writing, an owner can be considered to have engaged in voluntary and intentional actions which were inconsistent with an assertion of a contractual provision that requires written change orders.

Courts throughout Texas have held that a change order provisions in construction contracts can be waived: Generally, a provision in a construction contract providing that any alterations or deviations must be executed in writing is binding, and there can be no recovery unless the writing requirement is met. State v. Martin Bros., 138 Tex. 505, 160 S.W.2d 58 (1942); D. H. Overmyer Co. v. Harbison, 453 S.W.2d 368 (Tex.Civ.App. El Paso 1970, no writ); Stave v. F & C Engineering Company, 438 S.W.2d 647 (Tex.Civ.App. Houston (14th Dist.) 1969, writ ref’d n.r.e.). However, such a provision can be waived by the actions and conduct of the parties. Mood v. Methodist Episcopal Church South, of Cisco, 296 S.W. 506 (Tex.Comm’n App.1927, holding approved); Travis-Williamson County Water C. & I. Dist. v. Page, 358 S.W.2d 158 (Tex.Civ.App. Austin 1962), rev’d in part on other grounds, 367 S.W.2d 307 (Tex.Sup.1963); Housing Authority of City of Dallas v. Hubbell, 325 S.W.2d 880 (Tex.Civ.App. Dallas 1959, writ ref’d n.r.e.).  The court went on to hold that an award of costs of extra goods and services was warranted under the theory that the written change order provision had been waived and that recovery was proper under the theory of quantum meruit.

Are there any practical hints you can provide me to help me collect monies owed on my change orders?
Despite the fact that a contractor may be able to collect on change orders which were not executed in writing prior to the performance of such change orders, there are some things that contractors should consider in such circumstances.  When a contractor performed a change without a prior written change order, the contractor should invoice such changes as soon as possible.  A contractor should not wait until the end of a project to request payment for a change order.  Moreover, when a change order is performed without a change order, it is also important for the contractor to carefully examine any lien releases which it executes pursuant to a payment on the project.  If the contractor is asked to sign a lien release which states that the contractor has been fully paid up to a particular date, the contractor must not sign such lien release unless the payments include all change orders performed as of the date indicated in the release, as well a contractual work, or the lien release specifically excludes change orders.