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Gulf Constr. Co. v. Self - 676 S.W.2d 624 (Tex. App. 1984)

Rule:

The risk of non-payment by the owner on a construction contract is not shifted from the contractor to the subcontractor unless there is a clear, unequivocal and expressed agreement between the parties to do so.

Facts:

Appellant Gulf Construction Company, Inc., as general contractor, entered into two contracts with Good Hope Chemical Corporation, as owner, for the construction of various buildings to be located at Good Hope Chemical's plant site near Ingleside in San Patricio County. A performance and payment bond was executed by appellant Mid Continent Casualty as surety for Gulf Construction. Appellant Gulf Construction then entered into three separate subcontracts with each of the appellees, Shaw Plumbing Company and Calvin Self, individually and d/b/a Industrial Electric Company. During the construction of the project, the owner, Good Hope Chemical, encountered financial problems and directed that all work at the plant site cease. After they were ordered to stop their work, the subcontractors each demanded that Gulf Construction pay the balance owed for the work performed. After they each made their demands, the subcontractors filed mechanic's and materialman's liens after giving the appropriate notice. When the general contractor, Gulf Construction, refused and failed to pay the balance owed to each of the subcontractors, the subcontractors, Shaw Plumbing and Self, filed suit. Appellants defended against the subcontractors’ claim on the basis of the ninth paragraph of the subcontracts which stipulated that when the owner or his representative advanced or paid the general contractor, the general contractor shall be liable for and obligated to pay the subcontractor. The trial court ruled in favor of Shaw Plumbing and Self.

Issue:

Could Shaw Plumbing and Self recover payment for labor and materials furnished by them to Gulf Construction Company, the general contractors?

Answer:

Yes.

Conclusion:

The Court affirmed separate judgments rendered by the trial court against appellants in favor of each appellee, holding that the contracts between the parties merely included a covenant dealing with "terms of payment," rather than a condition precedent. Therefore, the Court held, appellants could not shift the risk of non-payment by the owner to appellees. The Court found that the risk of non-payment by the owner on a construction contract was not shifted from the contractor to the subcontractor unless there was a clear, unequivocal and expressed agreement between the parties to do so. The Court also ruled that the parties' written stipulations were a binding contract between the parties and between the parties and the court, and that the trial court did not err by sustaining appellees' objection to evidence offered by appellants which was contrary to the stipulations. The Court also found that there was no error where the trial court awarded prejudgment interest to appellees as damages under equitable principles.

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