Construction law – collections and Colorado Trust Fund Statute

Posted by: Dec 16, 2013By Brian Stutheit

Section 127 of the

Colorado Mechanics Lien Act

is sometimes called the Trust Fund Statute.  Section 127 specifies that funds paid to contractors must be held in trust for payment to subcontractors, laborers and materials suppliers, and others who may have lien rights because of work on a property.  The general contractor holding the funds as trustee for his subcontractors has a duty to pay the subcontractors and not divert the money to his own purposes, or other jobs.  A person who violates section 127 and thereby breaches the trust commits theft, as defined in section 18-4-401 of the Colorado Revised Statutes.  A person commits theft when he or she knowingly obtains, retains, or exercises control over anything of value of another without authorization or by deception; and intends to deprive the other person permanently of the use or benefit of the thing of value. Law enforcement officials are sometimes willing to prosecute individuals under these theft provisions, so we often advise our unpaid subcontractors or suppliers to go to the police and file a complaint.  This works wonders in getting a contractor’s attention. Unfortunately, law enforcement is not always willing to investigate such complaints.
In addition, breach of trust may make the contractor personally responsible for failure to pay, rather than letting the individual hide behind a corporation.  If the corporation goes broke or out of business, the individual is still responsible. The individual contractor who takes bankruptcy may not be allowed to discharge the debt because the debt results from abusing one’s position as trustee for another.