J.P. Morgan Chase Bank, N.A. Ex Rel. Bank One, N.A. v. Texas Contract Carpet, Inc.
302 S.W.3d 515 | Texas Court of Appeals, 3rd District (Austin) | 2009
What This Case Means for Subcontractors
Subcontractors sued a bank lender (JP Morgan) for withholding construction funds and misapplying trust money owed to them. The trial court ruled against the bank, but the appeals court reversed the decision. The court held that banks are exempt from Texas's Construction Trust Fund Act and cannot be sued by subcontractors for mishandling construction funds, even when the bank controls the money.
Key Takeaways
- •Banks that lend money for construction projects are legally exempt from Texas trust fund laws—you cannot sue them directly for withheld or misapplied funds
- •Focus your claims on the general contractor and project owner instead, as they remain liable for trust fund violations
- •Get clear written agreements about fund release procedures before work starts, since the lender's control over money is legally protected
The Act does not apply to a bank, savings and loan, or other lender.
Frequently Asked Question
Can I sue the bank if the general contractor doesn't pay me from construction loan funds?
No. Texas law exempts banks and lenders from construction trust fund liability. You must pursue claims against the general contractor, owner, or other parties who actually misused the funds. Banks have legal immunity even when they control the money.
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