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

• Court: Court of Appeals of Texas
• Decided: October 19, 2017
• Docket: 09-16-00333-CV
• Status: Published

Opinion

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.

1 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,

2 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.

3 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

4 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

5 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

6 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

7 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. 8 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 9 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

10 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 11 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 12 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

13 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

14 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.