Chapter 19 - § 19.5 • TRUST FUNDS

• Jurisdiction: Colorado

§ 19.5 • TRUST FUNDS

C.R.S. § 38-22-127(1) provides, "All funds disbursed to any contractor or subcontractor under any building, construction, or remodeling contract or on any construction project shall be held in trust for the payment of the subcontractors, laborer or material suppliers, or laborers who have furnished laborers, materials, services, or labor . . . ."

This means that a contractor or subcontractor cannot use money paid to him or her for one project to pay laborers and materialmen from some other job or for any other purpose, such as regular office overhead. The contractor or subcontractor cannot use that money for any purpose that would leave laborers or materialmen on the present construction project unpaid. Using the money held "in trust" for any purpose other than the payment of subcontractors, laborers, and materialmen constitutes "theft" under this law. A lien claimant who is "cheated" in such a situation can file a criminal complaint in the county where the theft occurs.¹⁷¹ It does not matter if the violator later pays off the claimant. Later reconciling does not change the fact that the violator used money that it was required to hold in trust for other purposes in violation of the trust fund statute.¹⁷² In addition to potential criminal liability under the trust fund statute, anyone who signs a lien waiver in exchange for payment pursuant to a construction loan and knowingly fails to timely pay any undisputed debts covered by the waiver commits a misdemeanor.¹⁷³

In addition to criminal liability, the trust fund statute, coupled with the criminal code, also provides a civil remedy for the theft, thus providing a vehicle for the possible recovery of treble damages, costs, and attorney fees. Because violation of the trust fund statute constitutes theft under C.R.S. § 18-4-401,¹⁷⁴ the victim can seek to enforce the civil remedies available under C.R.S. § 18-4-405.

It should be noted that trust fund claims can be assigned, but the treble damages component cannot.¹⁷⁵

Applicability of the trust fund statute also opens up alternative avenues of payment. For instance, any corporate officer who controls the finances of a corporation that violates the trust fund statute can be held personally liable for violating the statute.¹⁷⁶ And it is not just the unpaid subcontractor or subcontractors who benefit. Property owners and general contractors can also have standing to sue under the statute if the facts warrant.¹⁷⁷

In fact, a project owner can have standing to sue the general contractor for violation of the trust fund statute, even if the owner has not paid any of the unpaid subcontractors, laborers, or suppliers.¹⁷⁸ But when an owner recovers against a general contractor for violation of the trust fund statute and the subcontractors and suppliers remain unpaid, then the owner is only entitled to judgment for a constructive trust on the funds.¹⁷⁹ Thus, the owner becomes the constructive trustee of any funds collected, and must...