Chapter 10 - § 10.4 • STATUTORY RIGHTS, DUTIES, AND RESPONSIBILITIES
| Jurisdiction | Colorado |
§ 10.4.1-Trust Fund Statute
Colorado's mechanics' lien statute includes a section that provides that all funds disbursed to any contractor or subcontractor for the payment of any subcontractor, material supplier, or laborer must be held in trust for the payment of the subcontractors, material suppliers, or laborers who may have a lien against the property, or who may have a claim against a principal or surety.75 This section does not apply to any contractor who has furnished a performance or payment bond, or if the owner of the property has executed a written release to the contractor.76 This section also does not require a contractor who has furnished a bond to hold funds in trust if the contractor has a good-faith belief that the lien or claim is not valid, or if the contractor in good faith claims a setoff, to the extent of the setoff.77 The contractor is required to maintain separate accounting records for each project or contract, but is not required to maintain separate bank accounts.78
In rejecting a claim that the trust fund statute applies to voluntary injections of capital into a construction company, the Colorado Supreme Court addressed the general function of the statute as follows:
Although this provision provides assurances of payment to subcontractors, laborers, and suppliers, the general assembly's "primary concern" in enacting it was "the protection of property owners against unscrupulous contractors." In re Regan, 151 P.3d at 1286. The trust obligation protects owners from having to pay for labor or materials twice in an effort to avoid mechanics' liens if a dishonest contractor collects an initial payment from the owner but fails to pay a subcontractor, laborer, or supplier, thereby leaving the owner with little choice other than to make a second payment directly to the unpaid potential lienholder. Section 38-22-127(1) effectuates this purpose by requiring contractors and subcontractors to hold certain funds in trust for the payment of subcontractors, laborers, and suppliers - namely, all funds "disbursed to any contractor or subcontractor under any building, construction, or remodeling contract or on any construction project."79
The Colorado trust fund statute has been held to be a statutory trust,80 as well as a constructive trust.81 Pursuant to the trust obligations imposed by C.R.S. § 38-22-127, a corporate officer can be held personally liable for the corporation's breach of trust to pay its subcontractors and suppliers from the funds it receives.82 An unsecured subcontractor or supplier claiming an interest under this section takes priority over a perfected security interest in all present and future accounts receivable and proceeds of accounts.83 Similarly, under the Colorado public projects lien statute,84 a bank has no security interest in that portion of the funds due from the construction contract until such time as all suppliers of labor and materials have been paid.85 Finally, the provision for 12 percent interest in C.R.S. § 38-22-101(5) applies only to mechanics' lien claims, and does not apply to the trust lien statute, which is a separate and distinct theory of relief.86
Any person who violates the provisions of subsections (1) and (2) of the trust fund statute commits theft, as defined in C.R.S. § 18-4-401.87 "The trust lien statute is a strictly civil provision which cannot itself serve as the basis for a criminal action. The state may choose to treat the actions of the contractor as a criminal matter, but any such prosecution must be charged and proved under the theft statute."88 Each of the essential elements of theft as set forth in C.R.S. § 18-4-401 must be proven beyond a reasonable doubt, including specific intent.89 This requirement of proof of all the elements of theft for conviction prevents the lien statute from violating the constitutional prohibition against imprisonment for debt.90 Due to the elements of proof required, the theft provisions of the trust fund statute are often difficult to use.91 However, in the context of theft of construction trust funds, it is not necessary to have a conscious objective to deprive another of the funds.92 It is only necessary for "the offender to be aware that his manner of using the trust funds is practically certain to result in depriving another person of the use or benefit of the funds."93 Moreover, in an action for theft, the rightful owner of the funds may recover up to three times the amount of actual damages sustained by him or her, as well as costs and reasonable attorney fees.94 See § 19.5.
§ 10.4.2-Premises Liability Statute
The premises liability statute, codified at C.R.S. § 13-21-115, establishes the exclusive remedy against a landowner by a person who is injured on the landowner's property.95 The definition of "landowner" under the statute encompasses contractors while in possession and control of a jobsite, and responsible for the activities and conditions on the property.
For the purposes of [the premises liability statute], "landowner" includes, without limitation, an authorized agent or a person in possession of real property and a person legally responsible for the condition of real property or for the activities conducted or circumstances existing on real property.96
Therefore, the duties that a contractor owes to persons (non-employees) coming onto the contractor's jobsite are governed by the premises liability statute. A "contractor is subject to the same liability, and enjoys the same freedom from liability, as the possessor of land, for physical harm to others entering the land, caused by a dangerous condition while the work is in his charge."97 However, a contractor's liability is not unlimited in this regard. In order to be responsible under the premises liability statute, the contractor must actually be in control at the time of the alleged injury. Thus, in Collard v. Vista Paving Corp., a motorist who was injured after colliding with a median was found not to have any premises liability claim against the contractor who allegedly created unsafe conditions at the site where "the City had fully reassumed responsibility for the conditions and activities at the site, as well as physical control of the medians at the time of the accident; accordingly, [the contractor] no longer qualified as a landowner under the [Premises Liability] Act."98 In Mile High Fence Co. v. Radovich,99 a fence contractor was found to be negligent for leaving post holes unprotected on private property adjacent to a public alley. The contractor should have reasonably foreseen the probability that someone using the alley might inadvertently step into the post holes and injure himself or herself. Under the circumstances, the law imposes a duty on the contractor "to warn or protect those using the public way from the dangerous condition."100 Similarly, a janitorial company has been held to be a "landowner" with respect to a building it was responsible for maintaining.101 In 2009, the Colorado Supreme Court held that even when liability is established under the premises liability statute, damages may still be apportioned in accordance with comparative fault principles.102
An independent contractor engaged in highway repair or construction has a duty to exercise ordinary care and prudence to protect motorists from injury as a result of the construction work and to warn the traveling public if the highway is closed. When a "contractor is actively engaged in repairing or rebuilding a section of road, and is in control of the work and the section of road under construction, he is chargeable with knowledge of the condition of that road and of any defects which might occur by virtue of the work he is performing on it."103
In Lindauer v. LDB Drainlaying, Inc.,104 a contractor installed an underground pipe, which had not been properly backfilled and compacted. Even though the work was not completed, the contractor left the work unfinished for three months. A racehorse fell into a muddy trench and was injured. Ordinarily, after an owner accepts the work, a contractor who has completed a project is not responsible for maintaining the property, or liable for damage resulting from using the property in its defective condition. However, a person is liable for injuries caused by his or her actions when that person makes the premises unsafe and dangerous, and then leaves the premises in that condition.
History of the Premises Liability Statute
Until 1971, a landowner's liability in Colorado continued to be based exclusively on whether the injured party was classified as an invitee, a licensee, or a trespasser, and on the corresponding common law duties owed to each.105 However, the application of the common law rules often resulted in harsh decisions, and in 1971 in Mile High Fence Co. v. Radovich,106 the Colorado Supreme Court formally rejected the use of the common law classifications as the sole factor for determining the duty a landowner owed to a person coming onto his or her land.107 Applying general negligence principles, the court stated that a person's status as an invitee, a licensee, or a trespasser was only one factor that the court could consider in determining the landowner's liability for injuries to a person upon his or her premises.
In 1986, the General Assembly enacted C.R.S. § 13-21-115, to statutorily govern premises liability and to resurrect the common law classifications that Mile High Fence Co. had dismissed.108 However, in 1989, Gallegos v. Phipps held that the premises liability statute enacted in 1986 violated federal and state guarantees of equal protection by affording more protections to licensees than to invitees, and because responsibility for a trespasser's injuries was unfairly shifted from the trespasser to the landowner.109 The General Assembly subsequently amended § 13-21-115 in 1990 to address the inequities identified by the supreme court.110
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