Do Texas construction trust fund rules require a contractor to collect payment affidavits from subcontractors?

Texas AG Opinion JM-945: Construction Trust Funds and Contractor Affidavits

Plain-English summary

When someone pays a builder to put up or repair a building in Texas, that money is not the builder's to spend however it likes. Chapter 162 of the Property Code treats construction payments and construction-loan proceeds as "trust funds." The builder holds them in trust for the subcontractors, laborers, and material suppliers who did the work, and diverting them before those people are paid can be a crime. Chapter 53 is the companion law, the state's mechanic's and materialman's lien statute.

In 1987 the legislature passed House Bill No. 1160, which reworked both chapters. Senator John T. Montford, chairman of the Senate State Affairs Committee, sent the Attorney General seven questions about how the amended statutes work. The Attorney General answered each one.

First, the amendments did not change the long-standing rule that chapter 162 does not apply to a bank, savings and loan, or other lender. That carve-out (section 162.004(a)(1)) was left untouched by the 1987 bill.

Second, when the statute lets a trustee use trust funds for "actual expenses directly related to the construction or repair," those expenses can include overhead, office rent, salaries, insurance, and similar costs, even if you cannot trace them to one specific job, as long as the expenses were genuinely incurred. The Attorney General leaned on a federal decision reading the earlier version of the statute and on floor debate showing the legislature swapped the old phrase "reasonable overhead" for "actual expenses" to head off a vagueness challenge that had surfaced in a criminal case.

Third, a contractor, subcontractor, or owner who becomes a trustee of the construction funds cannot also count as a beneficiary of those same funds. You cannot owe an obligation to yourself, so a trustee cannot pay himself as if he were one of the protected claimants.

Fourth, once the trustee has fully paid every current or past-due obligation to the beneficiaries, any money left in the fund is free. It can be spent on anything, related to the project or not. Legislative history showed lawmakers specifically did not intend to lock up a builder's profit until a project was finished.

Fifth, one of the affirmative defenses in section 162.031(b) comes with a notice requirement, but that notice requirement attaches only to the defense of "funds retained by the trustee." It does not apply to the separate defense of spending funds on actual, directly related expenses.

Sixth and seventh, both about section 53.085's payment affidavits: a contractor is entitled to ask a subcontractor or supplier for an all-bills-paid affidavit as a condition of final payment, but the statute does not require the contractor to obtain one. And because the contractor is not required to collect those affidavits, signing his own affidavit does not carry an implied representation that he gathered affidavits from everyone working under him.

Currency note

This opinion was issued in 1988. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Chapters 53 and 162 of the Property Code have been amended repeatedly since 1988, and the construction trust fund and lien rules, including the affidavit and affirmative-defense provisions discussed here, may read differently today. Anyone dealing with a construction-payment dispute, a trust fund diversion claim, or a lien question now should check the current Property Code and current case law rather than the 1987-era provisions this opinion construed.

Who this opinion affected (as of 1988)

General contractors and builders: The opinion told them that "actual expenses directly related" to a job could cover overhead they could not trace to one project, that leftover trust money was theirs once current and past-due obligations were paid, and that they could ask for payment affidavits without being obligated to collect them.

Subcontractors, laborers, and material suppliers: As the beneficiaries of chapter 162 trust funds, they were the people the statute protected. The opinion clarified that a trustee could not also treat himself as a beneficiary, which kept the protected pool intact for the workers below.

Lenders (banks and savings and loans): The opinion confirmed the 1987 amendments did not pull them into chapter 162; the lender carve-out in section 162.004(a)(1) still applied.

Prosecutors: The opinion walked through why the legislature rewrote section 162.031, changing "reasonable overhead" to "actual expenses" and making it an affirmative defense, in response to the difficulty of obtaining convictions and a vagueness concern the courts had raised.

Common questions

In Texas, does a contractor have to get lien-waiver or all-bills-paid affidavits from subcontractors?
Under this 1988 reading of section 53.085, no. The contractor is entitled to request an affidavit as a condition of final payment, but the statute does not require the contractor to request or obtain one.

Can a builder use construction trust funds to pay overhead like office rent and salaries?
The Attorney General concluded that "actual expenses directly related to the construction or repair" can include overhead and other expenses that are not readily traceable to a particular job, as long as the expenses were actually incurred. The test the opinion pointed to was whether the job could have been obtained or completed without the expense.

Can a contractor pay himself out of the trust fund as one of the beneficiaries?
No. The opinion concluded that a contractor, subcontractor, or owner who becomes a trustee of chapter 162 funds is not also a beneficiary of those funds. A person cannot incur an obligation to himself, so the trustee cannot pay himself on the same footing as the workers and suppliers the fund protects.

What happens to money left in the fund after everyone is paid?
Once the trustee has fully paid all current and past-due obligations to the beneficiaries, the opinion concluded the remaining trust funds can be used for any purpose, whether or not it relates to the project. Legislative history indicated lawmakers did not intend to freeze a builder's profit until completion.

Do the 1987 amendments make banks and lenders subject to the construction trust fund law?
No. The opinion concluded the amendments did not change prior law: section 162.004(a)(1), which says chapter 162 does not apply to a bank, savings and loan, or other lender, was not amended by House Bill No. 1160.

Background and statutory framework

House Bill No. 1160 (Acts 1987, 70th Leg., ch. 578, at 2283) made various provisions for the protection of subcontractors and other beneficiaries of funds paid or held under construction contracts, operating in conjunction with the Texas Mechanic's, Contractor's, or Materialman's Lien Law in chapter 53 of the Property Code. Chapter 162, as amended, provides that construction payments or loan receipts held to pay for improvements to real property are trust funds that the holder may not use or divert until those who furnished labor or materials have been paid. The Texas Trust Act (chapters 111 through 115) does not apply to a trust created under chapter 162.

On the first question, section 162.004(a)(1) provides that chapter 162 does not apply to a bank, savings and loan, or other lender. That provision, formerly part of article 5472e, V.T.C.S., was recodified in the Property Code without substantive change in 1983 and was not amended by House Bill No. 1160 in 1987, so prior law was unchanged (RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605 (Tex. 1985), considering section 162.004(a)(1) as formerly incorporated in article 5472e).

On the second question, the opinion read "actual expenses directly related to the construction or repair of the improvement" in section 162.031(b) to include overhead not readily traceable to a particular job. Construing the earlier "reasonable overhead directly related" language of former article 5472e, the federal court in North Texas Operating Engineers Health Benefit Fund v. Dixie Masonry, Inc., 544 F. Supp. 516 (N.D. Tex. 1982), held that expenses which cannot readily be traced to a particular project are nonetheless "directly related" if the job could not have been obtained or completed without them. The opinion also traced legislative history: House Bill No. 1160 changed "reasonable overhead" to "actual expenses," apparently to avoid a later judicial determination that the provision was void for vagueness, a concern raised by concurring judges in the Dallas Court of Appeals in McElroy v. State, 667 S.W.2d 856 (Tex. App. - Dallas 1984), and left unresolved by the Court of Criminal Appeals in McElroy v. State, 720 S.W.2d 490 (Tex. Crim. App. 1986). Floor and committee statements by the bill's sponsor confirmed the intent to let builders pay administrative and overhead expenses related to construction out of trust funds.

On the third question, the opinion concluded from the language of section 162.031(a), referring to "obligations incurred by the trustee to the beneficiaries," that a trustee of a chapter 162 fund is not also to be considered a beneficiary, because it would be anomalous to provide that a person could incur obligations to himself, and because the affirmative defense in subsection (b) would be unnecessary if a trustee's payment of his own expenses were already a lawful payment to a beneficiary under subsection (a).

On the fourth question, subsection (a) indicates that once a trustee has first fully paid all current or past-due obligations to the beneficiaries, he may retain, use, disburse, or otherwise divert the remaining money without misapplying the funds. Section 162.005(2) defines current or past-due obligations as those incurred for labor or materials furnished in the direct prosecution of the work before receipt of the trust funds and due no later than 30 days after receipt. House discussion confirmed that leftover profit could be used once current and past-due obligations were met.

On the fifth question, section 162.031(b) provides several affirmative defenses, but the notice-to-the-beneficiary clause modifies only "have been retained." The notice requirement does not apply to the defense that funds were used to pay actual expenses directly related to the project, or that funds were retained as authorized or required by chapter 53.

On the sixth and seventh questions, section 53.085 authorizes a person such as a contractor to request, as a condition of final payment, that any person who furnishes labor or materials provide an affidavit stating whether all subcontractors, laborers, or materialmen have been paid, and makes a false or misleading affidavit a Class A misdemeanor. But nothing in the statute requires a contractor to request or obtain such affidavits; the contractor is entitled, not required, to use the affidavit procedure. It follows that a contractor's own affidavit does not, by virtue of section 53.085, impliedly represent that it is based on affidavits from subcontractors or others working under him, though the opinion noted a contractor may choose to base his affidavit on affidavits he has obtained to guard against liability for a false or misleading statement.

Citations

Statutory authority:

• Chapter 162, Property Code (construction trust funds)
• Chapter 53, Property Code (Texas Mechanic's, Contractor's, or Materialman's Lien Law)
• Section 162.031, Property Code (misapplication of trust funds; affirmative defenses)
• Section 162.004(a)(1), Property Code (chapter inapplicable to banks, savings and loans, and other lenders)
• Section 53.085, Property Code (affidavit as a condition of final payment)
• Article 5472e, V.T.C.S. (former construction trust fund statute recodified into the Property Code)

Cases:

• RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605 (Tex. 1985) (Texas Supreme Court; lender exclusion under former article 5472e)
• McElroy v. State, 720 S.W.2d 490 (Tex. Crim. App. 1986) (Texas Court of Criminal Appeals; former section 162.031 required the state to plead and prove funds were not paid for reasonable overhead)
• McElroy v. State, 667 S.W.2d 856 (Tex. App. - Dallas 1984) (Texas appellate court; concurring opinion finding the "reasonable overhead" language vague)
• North Texas Operating Engineers Health Benefit Fund v. Dixie Masonry, Inc., 544 F. Supp. 516 (N.D. Tex. 1982) (federal district court; expenses "directly related" even if not readily traceable)
• Parks v. Libby-Owens-Ford Glass Co., 195 N.E. 616 (Ill. 1935) (Illinois Supreme Court; reasonableness varies among employers)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-945
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0945.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative.

August 24, 1988

Honorable John T. Montford
Chairman
State Affairs Committee
Texas State Senate
P. O. Box 12068
Austin, Texas 78711

Opinion No. JM-945

Re: Interpretation of 1987 amendments to chapter 162 of the Property Code regarding construction funds or trust funds (RQ-1402)

Dear Senator Montford:

You ask seven questions about the provisions of chapters 53 and 162 of the Property Code as amended by House Bill No. 1160 in 1987. Acts 1987, 70th Leg., ch. 578, at 2283. House Bill 1160 made various provisions for the protection of subcontractors and other beneficiaries of funds paid or held under construction contracts, and its provisions operate in conjunction with the overall scheme of Texas Mechanic's, Contractor's, or Materialman's Lien Law, chapter 53, Property Code.

Chapter 162, as amended by House Bill No. 1160, provides that construction payments or loan receipts held for the purpose of paying for improvements of real property, are "trust funds" which may not be used or diverted by the holder until those who have furnished labor or materials for such improvements have been paid.

Section 53.085, added by House Bill No. 1160, provides that a seller, or a person who has furnished labor or materials for an improvement shall, upon request and as a condition of final payment, furnish the purchaser an affidavit [1] stating that he has fully paid those who have furnished him labor or materials for the improvement. If he has not fully paid, the affidavit must state how much is owed for such labor or materials and to whom.

[1] Section 162.004(b) of the Property Code provides: The Texas Trust Act (chapters 111 through 115) does not apply to any trust created under this chapter, nor does this chapter affect any provision of the Texas Trust Act.

Your first question is:

Do the 1987 amendments to Chapter 162, Property Code, affect prior law concerning the applicability of that chapter to transactions involving banks, savings and loans, or other lenders. If so, in what ways do they change prior law?

We answer your first question in the negative. Section 162.004(a)(1) of the Property Code provides that chapter 162 of the code does not apply to "a bank, savings and loan, or other lender." This provision, formerly part of article 5472e, V.T.C.S., was recodified in the Property Code without substantive change in 1983. Acts 1983, 68th Leg., ch. 576, § 7 at 3730. Nor was section 162.004(a)(1) amended in 1987 by House Bill No. 1160. See RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605 (Tex. 1985) (considering section 162.004(a)(1) as formerly incorporated in article 5472e, V.T.C.S.).

Your second question is:

Do "expenses directly related to the construction or repair of the improvement" under Section 162.031(b), Property Code, include the trustee's overhead and other expenses which, though not readily traceable to a particular job, are necessary to obtaining or completing the job (e.g., office rent, employee salaries, workers' compensation insurance, liability insurance, communications bill, etc.)?

Section 162.031 was amended by House Bill No. 1160. Prior to that amendment section 162.031 read:

(a) Except as provided by Subsection (b), a trustee who, with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts trust funds without first fully paying all obligations incurred by the trustee to the beneficiaries of the trust funds, has misapplied the trust funds.

Section 162.031 now reads:

(a) A trustee who, intentionally, knowingly or with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries of the trust funds, has misapplied the trust funds.

(b) It is an affirmative defense to prosecution or other action brought under Subsection (a) that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee's actual expenses directly related to the construction or repair of the improvement or have been retained by the trustee, after notice to the beneficiary who has made a request for payment, as a result of the trustee's reasonable belief that the beneficiary is not entitled to such funds or have been retained as authorized or required by Chapter 53.

(c) It is also an affirmative defense to prosecution or other action brought under Subsection (a) that the trustee paid the beneficiaries all trust funds which they are entitled to receive no later than 30 days following written notice to the trustee of the filing of a criminal complaint or other notice of a pending criminal investigation. (Emphasis added.)

The bill analysis to House Bill No. 1160 indicates that section 162.031 was amended in response to the difficulties experienced by prosecutors in obtaining convictions.

In McElroy v. State, 720 S.W.2d 490 (Tex. Crim. App. 1986), the Court of Criminal Appeals affirmed the Dallas Appeals Court's reversal of a conviction under the provisions of section 162.031 as they appeared in former article 5472e, V.T.C.S. The Court of Criminal Appeals held that those provisions required the state to plead and prove that trust fund moneys had not been paid out for reasonable overhead expenses. The court declined to reach the issue of the constitutionality, for purposes of criminal prosecution, of the "reasonable overhead" language, which two concurring judges in the lower Dallas court had found "vague on its face and thus void and unenforceable." See McElroy v. State, 667 S.W.2d 856, 869 (Tex. App. - Dallas 1984) (concurring opinion). The concurring opinion relied on the reasoning in Parks v. Libby-Owens-Ford Glass Co., 195 N.E. 616, 622 (Ill. 1935): "[What is] deemed reasonable by one employer might well be considered unreasonable by another.")

House Bill No. 1160 changed the words of the provision from "reasonable overhead" to "actual expenses," apparently in an effort to avoid a later judicial determination that the provision was void for vagueness. House Bill No. 1160 also made the "actual expenses" provision an affirmative defense, placing on criminal defendants the burden of proving that expenditures were for "actual expenses" rather than requiring the state to prove that expenditures were not for actual expenses. The words "directly related," however, were not altered when the prior language "reasonable overhead directly related" was changed to "actual expenses directly related."

We do not believe that the requirement that expenses be "directly related" to the construction or repair of the improvement means that expenses must necessarily be readily traceable to the improvement. In considering the phrase "reasonable overhead directly related" in former article 5472e, V.T.C.S., the court in North Texas Operating Engineers Health Benefit Fund v. Dixie Masonry, Inc., 544 F. Supp. 516 (N.D. Tex. 1982) stated, at 520:

The expenses that cannot readily be traced to a particular project are nonetheless 'directly related' if the job could not have been obtained or completed without them.

. . . .

It only remains to be determined if the method used to allocate expenses to each job is proper.

The court did not further discuss what would be a proper method of allocating expenses, finding only that no evidence had been presented "that the method used was unreasonable or unfair . . . ." Id. at 520.

Discussions in both the House and Senate indicate the intended scope of the "actual expenses" language added by House Bill No. 1160.

Representative Robnett: Do you intend that it is o.k. for a builder to pay his superintendent, secretary, computer, pick-up truck, office or any administrative expenses and other similar expenses related to the construction of a home out of these trust funds?

Representative Parker: I think, yes, I certainly do and I [want to] direct your attention, Buzz -- I think it's important -- to that 'directly related' now. I think there has to be a -- maybe you might need to ask a 'but for' question. And 'but for' the construction would I need to spend this money. And if it's related to construction, I think it's exempted. I do not think it presents a problem. [2]

House Floor Debate (Point of Order - Tape 112, Side B, 5-30-87).

Mr. Johansen [Executive Vice President of Texas Association of Builders]: [W]hen you have a multiplicity of loans and a multiplicity of houses under construction it's almost impossible to track that money through and to prove that X draw was paid on X house when you have other on-going expenses and overhead -- overhead items that you need to pay.

Senator Parker: [Builders got in trouble under the old law] because they refused to keep decent records . . . what is so difficult about [it]. It ought not to be that hard to figure out some proportion of your overhead -- total overhead that goes to per day, per month, per man hour worked.

Senate Committee Hearing, Tapes 2 and 3, 5-19-87.

[2] Representative Parker was the sponsor of House Bill No. 1160.

In light of the foregoing, we conclude, in response to your second question, that the words of section 162.031, "actual expenses directly related to the construction or repair of the improvement," include overhead and other expenses which, though not readily traceable to a particular job, are necessary to obtaining or completing the job, so long as the expenses are "actual," i.e., have in fact been incurred.

Your third question is:

May a contractor, subcontractor or owner who becomes a trustee also be a beneficiary of the trust if he has furnished labor or materials: and, may he pay himself as a beneficiary on the same basis that he pays the other beneficiaries?

We refer again to the language of section 162.031, quoted in full above in the discussion of your second question. We believe that the language in subsection (a) of section 162.031 -- "obligations incurred by the trustee to the beneficiaries" -- indicates that for purposes of chapter 162, a trustee of a given trust fund is not also to be considered a beneficiary of the trust fund. It would be anomalous to provide that a person could "incur" obligations to himself. Moreover, if a trustee could also be a beneficiary of the trust fund he held, there would be no reason to provide in subsection (b) that a trustee may set up as an affirmative defense to an action for diversion of trust funds the fact that the funds were used to pay the trustee's actual expenses directly related to the construction or repair. If the trustee could be considered a beneficiary of the trust funds he held, his payment of his own actual expenses on the project from the trust fund would be a lawful payment to a beneficiary under subsection (a), and the provision of subsection (b) that such payment may be set up as an affirmative defense would be unnecessary. Thus, we conclude that the statutory scheme of chapter 162 does not contemplate that a trustee of funds thereunder might also be considered a beneficiary of such funds within the meaning of the chapter's provisions.

Your fourth question is:

If a trustee has paid all current or past due obligations to beneficiaries of trust funds, may remaining trust funds be used for any purpose, whether related or unrelated to the construction of the repair or improvement?

Subsection (a) of section 162.031, quoted in the discussion regarding your second question, indicates that if a trustee has "first fully [paid] all current or past due obligations incurred by the trustee to the beneficiaries," he may then retain, use, disperse or otherwise divert moneys in the fund without thereby misapplying the funds. The words "current or past due" were added to the section's provisions by House Bill No. 1160. [3]

[3] Section 162.005(2) defines current or past due obligations as "those obligations incurred or owed by the trustee for labor or materials furnished in the direct prosecution of the work under the construction contract prior to the receipt of the trust funds and which are due and payable by the trustee no later than 30 days following receipt of the trust funds."

In the House discussion on House Bill No. 1160 on May 30, 1987, the following exchange took place:

Representative Parker: I assume if you pay your current or past due obligations, then I assume that if the rest is profit, I assume that you can use that.

Representative Heflin: So there would be no way that a person would have to set aside the profit for a particular project until that project was absolutely complete, if he stayed current with his obligations.

Representative Parker: I can tell you absolutely that that is not the intent of the bill.

In response to your fourth question, it is apparent from the House discussion in connection with the added "current or past due obligations" language, and from the plain meaning of the provision itself, that money remaining in the fund after payment of current and past due obligations can lawfully be diverted to other purposes by the trustee.

Your fifth question is:

Does the notice requirement in Section 162.031(b), Property Code, apply only to the affirmative defense of funds retained by the trustee or does it also apply to the defense of use of funds to pay actual expenses directly related to the construction or repair?

Section 162.031(b) of the code states in part:

(b) It is an affirmative defense . . . that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee's actual expenses . . . or have been retained by the trustee, after notice to the beneficiary who has made a request for payment, as a result of the trustee's reasonable belief that the beneficiary is not entitled to such funds or have been retained as authorized or required by Chapter 53. (Emphasis added.)

Prop. Code § 162.031(b). The underlined phrase stating the notice requirement modifies only "have been retained." The notice requirement in section 162.031(b) does not apply to the other two affirmative defenses there provided for: that the funds were used to pay the trustee's actual expenses directly related to the project, or were retained under the provisions of chapter 53 of the Property Code.

Your sixth question is:

Does Section 53.085, Property Code, create a duty for a contractor to require affidavits from all persons who furnish labor or materials on a property?

Section 53.085, which was added by House Bill No. 1160, 1987, provides:

AFFIDAVIT REQUIRED. (a) Any person who furnishes labor or materials for the construction of improvements on real property shall, upon request and as a condition of final payment for such labor or materials, provide to the requesting party, or its agent, an affidavit stating that such person has paid each of his subcontractors, laborers, or materialmen in full for all labor and materials provided to him for the construction. In the event that the person has not paid each of his subcontractors, laborers, or materialmen in full, the person shall state in the affidavit the amount owed and the name of each subcontractor, laborer, or materialman to whom such payment is owed.

(b) The seller of any real property shall, upon request by the purchaser or its agent prior to closing of the purchase of such real property, provide to such purchaser or its agent, a written affidavit stating that the seller has paid each of his contractors, laborers, or materialmen in full for all labor and materials provided to the seller 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. In the event that the seller has not paid each of his contractors, laborers, or materialmen in full, the seller shall state in the affidavit the amount owed and the name of each contractor, laborer, or materialman to whom such payment is owed.

(c) 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 Class A misdemeanor.

Subsection (a) of section 53.085 authorizes a person such as a contractor to request, as a condition of final payment, that "any person who furnishes labor or materials" for a construction project furnish him an all-bills-paid affidavit or an affidavit stating which bills remain unpaid. There is no indication in the statutory language that a person such as a contractor is required to request or obtain such affidavits.

Before paying a subcontractor, for example, a contractor is entitled under section 53.085 to request that the subcontractor as a condition of final payment furnish such affidavit to the contractor, but the section does not require that the contractor request or obtain such affidavit.

Similarly, if the contractor is seeking payment from the owner, for example, the owner is entitled, but is not required, under section 53.085 to request such affidavit from the contractor as a condition of payment. In this case as well, there is nothing in section 53.085 to indicate that the request for the contractor's affidavit creates a duty for the contractor to in turn request affidavits from subcontractors, materialmen or others doing work under the contractor. He may, but is not required, to request such affidavits. We therefore answer your sixth question in the negative.

Your seventh, and last, question is:

In making an affidavit, does a contractor impliedly represent that it is based on receiving affidavits from each of the persons from whom such affidavits may be required?

We believe it follows from our discussion regarding your sixth question that the answer to your seventh question is "No." Since a contractor furnishing an affidavit on request to the owner, for example, is not required to request affidavits from subcontractors, etc., working under him, the contractor's affidavit cannot be read as impliedly representing that it is based on the affidavits of his subcontractors, etc. A contractor may make his affidavit based on information obtained through other means than the affidavit procedure which under section 53.085 he is entitled, but not required, to use. Of course, the contractor's affidavit may, if the contractor so chooses, expressly represent that it is based on the affidavits of those under the contractor whose affidavits he has obtained. It might, moreover, be wise for the contractor to obtain the affidavits of those under him and expressly base his affidavit on the affidavits he has obtained, so as to avoid a penalty under subsection (c) of section 53.085 for "intentionally, knowingly, or recklessly" making "a false or misleading statement." But again, there is nothing in the controlling statutory provisions which requires the contractor to obtain the affidavits of those under him, or which makes the contractor's affidavit a representation by implication that he has in fact obtained such other affidavits and has based his affidavit on them.

SUMMARY

The 1987 amendments to chapter 162 of the Property Code do not affect prior law concerning the applicability of that chapter to banks, savings and loans, or other lenders.

In section 162.031(b) of the Property Code "actual expenses directly related to the construction or repair of the improvement," include overhead and other expenses which, though not readily traceable to a particular job, are necessary to obtaining or completing the job, so long as such expenses are "actual," i.e., have in fact been incurred.

A contractor, subcontractor or owner who becomes a trustee of construction funds within the meaning of chapter 162 may not also be considered a beneficiary of such funds within the meaning of that chapter.

If a trustee has paid all current or past due obligations to beneficiaries of trust funds under Property Code section 162.031, he may use remaining trust funds for other lawful purposes whether related or unrelated to the project in connection with which the trust fund was created.

Section 162.031, subsection (b), requires notice to a beneficiary who has made a request for payment only where the trustee has retained funds as a result of the trustee's reasonable belief that the beneficiary is not entitled to such funds. The notice requirement in subsection (b) is not applicable to the other affirmative defenses provided for in that subsection.

Section 53.085 does not require, but only entitles, a contractor to request, as a condition of final payment, affidavits from all persons who have furnished labor or materials on the project.

In making an affidavit under section 53.085, a contractor does not, by virtue of that section, impliedly represent that his affidavit is based on affidavits from those persons from whom the contractor is entitled to request affidavits.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General