2023 Texas Statutes › Business and Commerce Code › Title 4 - Business Opportunities and Agreements › Chapter 56 - Agreement for Payment of Construction Subcontractor › Subchapter B. Contingent Payment Clause › Section 56.054. Enforcement of Clause Prohibited if Unconscionable

Sec. 56.054.  ENFORCEMENT OF CLAUSE PROHIBITED IF UNCONSCIONABLE.  (a)  A contingent payor or its surety may not enforce a contingent payment clause if the enforcement would be unconscionable.  The party asserting that a contingent payment clause is unconscionable has the burden of proving that the clause is unconscionable.
(b)  The enforcement of a contingent payment clause is not unconscionable if the contingent payor:
(1)  proves that the contingent payor has exercised diligence in ascertaining and communicating in writing to the contingent payee, before the contract in which the contingent payment clause has been asserted becomes enforceable against the contingent payee, the financial viability of the primary obligor and the existence of adequate financial arrangements to pay for the improvements; and
(2)  has done the following:
(A)  made reasonable efforts to collect the amount owed to the contingent payor; or
(B)  made or offered to make, at a reasonable time, an assignment by the contingent payor to the contingent payee of a cause of action against the obligor for the amounts owed to the contingent payee by the contingent payor and offered reasonable cooperation to the contingent payee's collection efforts, if the assigned cause of action is not subject to defenses caused by the contingent payor's action or failure to act.
(c)  A cause of action brought on an assignment made under Subsection (b)(2)(B) is enforceable by a contingent payee against an obligor or a primary obligor.
(d)  A contingent payor is considered to have exercised diligence for purposes of Subsection (b)(1) under a contract for a private project governed by Chapter 53, Property Code, if the contingent payee receives in writing from the contingent payor:
(1)  the name, address, and business telephone number of the primary obligor;
(2)  a description, legally sufficient for identification, of the property on which the improvements are being constructed;
(3)  the name and address of the surety on any payment bond provided under Subchapter I, Chapter 53, Property Code, to which any notice of claim should be sent;
(4)  if a loan has been obtained for the construction of improvements:
(A)  a statement, furnished by the primary obligor and supported by reasonable and credible evidence from all applicable lenders, of the amount of the loan;
(B)  a summary of the terms of the loan;
(C)  a statement of whether there is foreseeable default of the primary obligor; and
(D)  the name, address, and business telephone number of the borrowers and lenders; and
(5)  a statement, furnished by the primary obligor and supported by reasonable and credible evidence from all applicable banks or other depository institutions, of the amount, source, and location of funds available to pay the balance of the contract amount if there is no loan or the loan is not sufficient to pay for all of the construction of the improvements.
(e)  A contingent payor is considered to have exercised diligence for purposes of Subsection (b)(1) under a contract for a public project governed by Chapter 2253, Government Code, if the contingent payee receives in writing from the contingent payor:
(1)  the name, address, and primary business telephone number of the primary obligor;
(2)  the name and address of the surety on the payment bond provided to the primary obligor to which any notice of claim should be sent; and
(3)  a statement from the primary obligor that funds are available and have been authorized for the full contract amount for the construction of the improvements.
(f)  A contingent payor is considered to have exercised diligence for purposes of Subsection (b)(1) under a contract for a public project governed by 40 U.S.C. Section 3131 if the contingent payee receives in writing from the contingent payor:
(1)  the name, address, and primary business telephone number of the primary obligor;
(2)  the name and address of the surety on the payment bond provided to the primary obligor; and
(3)  the name of the contracting officer, if known at the time of the execution of the contract.
(g)  A primary obligor shall furnish the information described by Subsection (d) or (e), as applicable, to the contingent payor not later than the 30th day after the date the primary obligor receives a written request for the information.  If the primary obligor fails to provide the information under the written request, the contingent payor, the contingent payee, and their sureties are relieved of the obligation to initiate or continue performance of the construction contracts of the contingent payor and contingent payee.
Added by Acts 2009, 81st Leg., R.S., Ch. 87 (S.B. 1969), Sec. 4.001(a), eff. September 1, 2009.