Chapter 19 - § 19.4 • NOTICE TO DISBURSER

• Jurisdiction: Colorado

§ 19.4 • NOTICE TO DISBURSER

Colorado's mechanics' lien statute provides an additional useful remedy to claimants to secure payment: the notice to disburser. A sample notice to disburser can be found at Exhibit 19E. This mechanism provides to those entitled to a lien an additional avenue to payment, and, potentially, an additional liable party should a lawsuit be required.

Any person or entity entitled to a mechanics' lien may serve on a "disburser" a notice identifying itself by name, address, and telephone number, describing the property, the person with whom he or she has contracted, and a general statement of his or her contract.¹⁵⁶ If a disburser receives such notice, then the disburser, prior to disbursing any contract funds, must ascertain the amount due the claimant on any disbursement date, and "pay such amount directly to the claimant out of any undisbursed funds available for and due to said person designated in said notice on such date . . . ."¹⁵⁷ If there is a dispute concerning the claimant's entitlement to payment, then the disburser may impound said funds until the dispute is settled by agreement or a final judicial determination.¹⁵⁸

If the disburser fails to comply with its duty to either pay the claimant directly or to impound the requested funds, then the disburser can be held personally liable to the claimant for the amount that the disburser should have paid to the claimant.¹⁵⁹ So a failure on the part of the disburser (i.e., a project owner or lender) to pay the claimant (such as a subcontractor) directly after receiving a notice to disburser can open up the door to a direct claim by the claimant against the disburser.

Although the statutory definition of disburser is broad enough to protect prime contractors,¹⁶⁰ the intent of the disburser statute is to "impose[] duties on a disburser to see that subcontractors receive payment for their labor and materials."¹⁶¹ And the statute can open up a statutory avenue for a subcontractor to claim directly against the project owner or lender.

For example, in Crissey Fowler Lumber Co. v. First Community Industrial Bank, certain suppliers submitted notices to disburser to the construction lender.¹⁶² But, the construction lender neither paid the claimants directly nor impounded the funds.¹⁶³ Although the original prime contractor walked off the project, the construction loan was still active. Following receipt of the notices, the construction lender made draws to pay both the original prime...