Peggy Hartman D/B/A Hartman Homes v. P. J. Norman ( 2017 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-16-00333-CV
____________________
PEGGY HARTMAN D/B/A HARTMAN HOMES, Appellant
V.
P.J. NORMAN, Appellee
__________________________________________________________________
On Appeal from the 136th District Court
Jefferson County, Texas
Trial Cause No. D-191,942
__________________________________________________________________
MEMORANDUM OPINION
After conducting a bench trial in a breach of contract case concerning a
residential construction contract, the trial court made findings of fact and
conclusions of law and rendered judgment in favor of appellee, P.J. Norman. In a
single issue, appellant, Peggy Hartman d/b/a Hartman Homes, complains that the
trial court erred in concluding that the Texas Construction Trust Fund Act (“CTRA”)
imposed a duty on Hartman to provide an accounting to Norman. We affirm the trial
court’s judgment.
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BACKGROUND
In April 2011, Norman contracted with Hartman to remodel and construct
additions to her existing home for a fixed contract amount of $250,000. Norman’s
counsel introduced into evidence a copy of the construction contract, which did not
include Hartman’s signature. The contract provides that the purchase price of the
project shall be set at $250,000, “subject to additions and deductions pursuant to
authorized change orders and allowances.” The contract specifies that all change
orders to the original plan “need to be agreed upon, including cost, additional time
considerations, approximate dates when the work will begin and be completed, a
legal description of the location where the work will be done and signed by both
parties.” The contract provides that “[t]he Owner will make payments to the
contractor pursuant to the attached construction draw schedule as work required by
said schedule is satisfactorily completed.” The contract further provides that if
“payment is not received by the Contractor within (3 days) . . . after delivery of
payment demand for work satisfactorily completed, contractor shall have the right
to stop work or terminate the contract at his option.”
In February 2012, Norman filed suit against Hartman, alleging that Hartman
had breached the contract by failing to complete the renovations as provided in the
contract. Specifically, Norman alleged that after she paid Hartman over $200,000,
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Hartman had only completed a small portion of the renovations they agreed upon.
Norman requested that Hartman provide an accounting of the monies spent on the
renovations. Norman pleaded that Hartman never provided an accounting and failed
to finish the renovations, so Norman was forced to hire a new contractor to finish
the project. Norman sought actual damages and attorney’s fees. Hartman filed an
answer denying Norman’s allegations and a counter-petition alleging that Norman
breached the contract by failing to abide by its terms, thereby prohibiting Hartman
from completing the project.
During trial, Norman testified that the construction project included adding
approximately 5500 square feet to her current home, and that the scope of the work
included building a three-car garage, a garage for a forty-foot motorhome, and a pool
house, as well as adding two bedrooms and two bathrooms, remodeling a bathroom,
and knocking out a wall. Norman testified that she provided Hartman with two sets
of plans that showed the work that needed to be done, and Hartman gave her a
contract indicating that Hartman could complete the job for $250,000. According to
Norman, Hartman’s bid included both sets of plans, and while the second set of plans
included additional square footage, Norman maintained that she did not significantly
change the square footage of the job after receiving Hartman’s bid.
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Norman testified that she paid a $50,000 deposit before Hartman began
construction, and that the deposit was part of the purchase price of the project.
Norman explained that although Hartman did not present her with a construction
draw schedule indicating when payments were to be paid, Norman paid Hartman an
additional $150,000. Norman testified that she paid Hartman a total of $200,000
without ever seeing a draw schedule indicating the percentage of work that Hartman
had completed. Norman also testified that she did not question Hartman because
they were friends and she thought Hartman was honest.
Norman explained that during construction, she had made a few changes to
the original plans. Concerning the bathroom remodel, Norman’s changes included
painting the bathroom, upgrading to a Jacuzzi tub, and updating the bathroom light
fixtures. Norman’s other changes included extending her closet out to the end of the
garage, switching to French doors in the breakfast room, and constructing a fence,
an outdoor fireplace, and a brick wall to cover the pool equipment. Norman testified
that she and Hartman never discussed the cost of the change orders or put them in
writing, but Norman estimated that the value of those changes was approximately
$6000.
Norman testified that after she paid Hartman $200,000, Hartman requested an
additional $50,000, and at that point, Norman asked Hartman to provide an
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accounting. According to Norman, before signing the contract, Hartman had assured
her that Hartman could provide an accounting at any point during construction.
Norman explained that she asked for the accounting because, based on the work that
had been completed, she did not believe that Hartman had spent $200,000 on her
home. Norman testified that she interpreted the phrase “satisfactorily completed” to
mean that she needed to be satisfied with the work that had been done before she
released the final payment. Norman explained that she withheld the final payment
because, based on the progress of the job, she did not believe that Hartman had done
enough work. According to Norman, in asking for an accounting, she was requesting
that Hartman provide her with the construction draw schedule so she could
determine what percentage of work had actually been completed.
Norman maintained that she complied with the contract when she requested
an accounting. Norman testified that Hartman never provided an accounting of
invoices for the $200,000; instead, Hartman provided an invoice for add-ons, some
of which Norman disputed. Norman also testified that she never agreed to verbally
make change orders under the contract. Norman explained that after she and
Hartman argued over the accounting, she refused to give Hartman more money, and
Hartman walked off and never finished the job. Norman maintained that she wanted
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Hartman to finish the job, but she had to pay other contractors to complete the
project.
Norman presented evidence showing that it cost her $236,677.51 to finish the
job after Hartman left, and she testified that other than some changes to the cabinetry
in the master bathroom, she finished the project just as Hartman would have.
Norman sought damages amounting to the difference between the amount she paid
contractors to finish the job and the amount she would have paid Hartman under the
contract.
Hartman testified that she bid the project on the first set of plans, which did
not include a shop or the garage for the motorhome. Hartman explained that she had
the second set of plans before she started the build, but the cost of the changes was
to be in addition to the original contract price. According to Hartman, the changes
added approximately 1700 square feet to the project. Hartman explained that she
told Norman that the changes were going to be additional, and Norman told her that
she would take care of it at the end of the job.
Hartman testified that the original copy of her contract with Norman, which
was not admitted into evidence, included an additional written provision called
“Verbalizations of Agreement[]” that allowed Norman to verbally make change
orders during the course of construction. Hartman testified that the original contract
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did not contain a provision requiring change orders to be in writing, and Norman
made verbal change orders that modified the contract. According to Hartman,
Norman verbally agreed to pay for the changes, which Hartman estimated as costing
an additional $50,000. Hartman testified that she trusted Norman because they had
a verbal agreement and because they had worked together on other projects.
Hartman testified that when she asked Norman for the final $50,000 under the
contract, Norman told Hartman that she would have to pay for the construction out
of her own pocket. According to Hartman, she told Norman that it was not part of
the deal and that she was unable to do so. Hartman testified that when Norman asked
for an accounting, Hartman presented Norman with an invoice for the extra changes.
Hartman explained that she had no obligation to provide Norman with an accounting
and show Norman her invoices, because the job was a flat bid and not based on a
percentage.
Hartman testified that she left the job after Norman refused to pay her the final
$50,000 under the contract. Hartman explained that a construction draw schedule
was never written, and she believed the contract term “satisfactorily completed”
applied to her as well as Norman in regard to whether the subcontractors had finished
their jobs and been paid. Hartman agreed that she left the project before it was
completed and voided the contract and that she did not spend more than $200,000
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on the work that she completed. Hartman submitted an accounting after the lawsuit
was filed showing that she had spent approximately $188,000 of the $200,000 she
had been paid on the job. Hartman testified that she could have finished the job for
$300,000.
The trial court issued findings of fact and conclusions of law. The trial court
made the following findings of fact:
1. On April 6, 2011, the plaintiff and defendant entered into a
written, fixed price construction contract for remodeling the
plaintiff’s residence and building certain additions.
2. The agreed price for the construction was $250,000.00.
3. The contract called for an initial $50,000.00 payment prior to
commencement of construction which the plaintiff complied
with.
4. The contract further provided for progress payments to be made
pursuant to a draw schedule upon “satisfactory completion[.”]
No draw schedule was ever created, however.
5. Pursuant to the contract any change orders were to be in writing
and signed by the parties.
6. Both the plaintiff and defendant acknowledged that there were
changes made to the project plans after construction began[] but,
contrary to the contract, were not reduced to writing.
7. By July 2011, the defendant had been paid $200,000.00 out of
the original contract price of $250,000.00. At or near that time,
the defendant told the plaintiff that, due to the additional work
and materials, she could not finish the project and requested
payment of the remaining $50,000.00.
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8. In response to defendant’s request, the plaintiff asked for an
accounting.
9. The defendant refused to provide plaintiff with an accounting,
taking the position that she was not required to do so for a fixed
price contract.
10. When plaintiff failed to release the final $50,000.00, the
defendant abandoned the project.
11. As a result of the defendant terminating work, the plaintiff hired
another contractor and completed the project.
12. In the defendant’s opinion, the total cost for the project, including
changes, would have been $300,000.00.
13. At the time the defendant terminated the project, there were no
outstanding balances owed to any subcontractors or material
suppliers.
14. In order to complete the project, the plaintiff spent $236,667.51.
15. Based on the defendant’s completion cost figure, the plaintiff
incurred $136,667.51 in additional costs.
....
Concerning the duty to provide an accounting, the trial court made the following
conclusions of law:
1. The defendant had a duty to provide plaintiff with an accounting[].
2. In the absence of an accounting, there was no demonstration that
portions of the contract had been “satisfactorily completed[.”]
3. As a result of the defendant’s refusal to provide an accounting
demonstrating “satisfactory completion[,”] the plaintiff was under
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no duty to release any funds and was, therefore, justified in
withholding the last remaining funds.
4. The plaintiff, having rightly withheld the remaining construction
funds, the defendant breached the contract by abandoning the
project.
5. As a result of the defendant’s breach, the plaintiff should have
recovery in the amount of $136,667.51.
The trial court entered a final judgment awarding Norman $136,667.51 in damages
due to Hartman’s breach of contract. This appeal followed.
ANALYSIS
In a single issue, Hartman contends the trial court erred by concluding that
she had a duty to provide Norman with an accounting because the parties signed a
fixed-price residential construction contract that did not include any accounting
provisions. According to Hartman, the trial court incorrectly applied the CTFA by
finding that the act imposed a duty on the contractor to provide the owner with an
accounting prior to the release of additional construction funds when no such duty
is found in the plain text of the statute. Hartman maintains that she was not the
breaching party because she had no duty to provide Norman with an accounting and
that she was justified under the terms of the contract in stopping work due to
Norman’s refusal to make a requested payment. Norman argues that the trial court’s
interpretation is correct because the CTFA clearly requires Hartman to keep and
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maintain an accounting and the contract requires construction draws to be paid only
on proof that the work has been “satisfactorily completed,” and there is no way to
determine the “satisfactorily completed” portion of the contract without Hartman
providing an accounting.
We review a trial court’s conclusions of law de novo. See BMC Software
Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002). We evaluate the trial
court’s legal conclusions to determine whether the trial court correctly drew the legal
conclusions from the facts. Id. We will uphold the trial court’s conclusions of law if
the judgment can be sustained on any legal theory supported by the evidence. Kenny
v. Portfolio Recovery Assocs., LLC, 464 S.W.3d 29, 32 (Tex. App. Houston [1st
Dist.] 2015, no pet.). We also review a trial court’s interpretation of a statute de novo.
City of Houston v. Bates, 406 S.W.3d 539, 543 (Tex. 2013). In interpreting a statute,
a court’s primary objective is to give effect to the Legislature’s intent. Id.Hartman challenges the trial court’s first conclusion of law which states that
“[t]he defendant had a duty to provide plaintiff with an accounting[].” The trial court
included the following footnote that included the provisions of the Property Code
that supported its first conclusion of law:
Tex. Prop. Code §162.006 (contractor entering into a written contract
for improvement to residential property in excess of $5,000.00 must
deposit funds in a construction account at a financial institution);
§162.007 (contractor must maintain record of deposits and
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dates/amounts/receipts of disbursements; contractor must retain
invoices/supporting documents relating to disbursements); §162.003
(property owner for residential construction is a beneficiary of
provisions of §162 Tex. Prop. Code).
Under the CTFA, construction payments made to a contractor under a construction
contract for the improvement of specific real property are considered trust funds.
Tex. Prop. Code Ann. § 162.001(a) (West 2014). A contractor who receives trust
funds is a trustee of the trust funds. Id. § 162.002 (West 2014). “A contractor who
enters into a written contract with a property owner to construct improvements to a
residential homestead for an amount exceeding $5,000 shall deposit the trust funds
in a construction account in a financial institution.” Id. § 162.006(a) (West 2014). A
property owner is a beneficiary of trust funds in connection with a residential
construction contract, including funds deposited into a construction account. Id. §
162.003(b) (West 2014).
A contractor who is required to maintain a construction account under the
CTFA shall maintain an account record for the construction account that provides
information concerning the source and amount of funds in the account and the date
they were deposited, the date and amount of each disbursement from the account
and the person to whom the funds were disbursed, and the current balance of the
account. Id. § 162.007(a) (West 2014). The contractor’s duty to maintain an account
record for the construction project includes keeping all invoices and other supporting
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documentation concerning the disbursement of funds from the construction account.
Id. § 162.007(b), (c) (West 2014). The trust fund scheme’s intent is to ensure that
funds paid for a construction project reach the people or companies providing labor
and materials for the project; a property owner is also a beneficiary of the trust funds.
See id. §§ 162.003(a), (b), 162.031; see also Direct Value, L.L.C. v. Stock Bldg.
Supply, L.L.C., 388 S.W.3d 386, 391 (Tex. App.—Amarillo 2012, no pet.).
While the parties’ written contract is a fixed price contract, the record shows
that Norman verbally made changes to the contract during the course of construction,
increasing the cost of construction. The record shows that the parties disagree
concerning the extent of the changes made to the contract and the cost of those
changes, and although required by the contract, the parties did not agree upon the
cost of the proposed changes or on the dates those changes were to be completed
prior to making the change orders. The parties also did not have a construction draw
schedule, as required by the contract, to show when Norman was to make payments
for work that had been satisfactorily completed or to show the scope of the work that
had been satisfactorily completed.
Because of the parties’ course of conduct during the project, which included
making change orders that increased the fixed contract amount to an amount that
was disputed by the parties, the trial court properly concluded that without an
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accounting, there was no way for Hartman to demonstrate which portions of the
contract had been satisfactorily completed. Under the contract, Norman was required
to make progress payments as work required by the construction draw schedule was
satisfactorily completed. Although Norman testified that she had made $200,000 in
payments without seeing a draw schedule, Norman testified that when Hartman
asked her to pay the final $50,000 payment under the contract without providing a
draw schedule showing the work that had been satisfactorily completed, Norman
disputed whether the scope of the work that Hartman had completed justified her
releasing the final payment.
Under the CTFA, Hartman had a duty to deposit the trust funds she received
from Norman in a construction account, and Hartman remained a beneficiary of the
deposited trust funds. See Tex. Prop. Code Ann. §§ 162.003(b), 162.006(a). Because
the CTFA’s intent is to ensure that construction trust funds are paid to the people
and companies providing labor and materials to the project, as a beneficiary of those
trust funds, Norman had an interest in ensuring that Hartman was utilizing the funds
for her construction project. See id. §§ 162.003(a), (b), 162.031; see also Direct
Value, L.L.C., 388 S.W.3d at 391. Norman testified that based on the work
completed when Hartman requested additional payment under the contract, she did
not believe that Harman had spent the funds on her project, and Norman testified
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that she disputed some of the add-ons included in Hartman’s invoice, claiming that
some of the work had been done at her sister’s home. See Weinberger v. Longer, 222
S.W.3d 557, 563-65 (Tex. App.—Houston [14th Dist.] 2007, pet. denied) (finding
that contractor failed to perform the contract as promised and had charged
homeowner for unrelated labor and materials after considering evidence from the
contractor’s accounting that was provided at homeowner’s request).
Based on the record, the trial court properly concluded that Norman was
justified in withholding the last remaining funds due to Hartman’s refusal to provide
an accounting demonstrating satisfactory completion. We conclude the evidence
supports the trial court’s conclusion that Hartman had a duty to provide Norman with
an accounting. We overrule Hartman’s sole issue and affirm the trial court’s
judgment.
AFFIRMED.
______________________________
STEVE McKEITHEN
Chief Justice
Submitted on August 9, 2017
Opinion Delivered October 19, 2017
Before McKeithen, C.J., Horton and Johnson, JJ.
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