In
a prior blog post, we summarized
the Court of Appeals decision in the case of AC Excavating, Inc. v. Yale,
___ P. 3d. ___, 2010 WL 3432219 (Colo. App. Sept. 2, 2010) which provided an
interpretation of the Colorado Mechanic’s Lien Trust Fund Statute, C.R.S. §
38-22-127 (hereafter “the Trust Fund Statute”).
A divided Court of Appeals reversed the trial court, and held that
capital loans infused into a limited liability company which performed
construction could be subject to the provisions of the Trust Fund Statute.
The
Court of Appeals reasoned that this determination was necessary because the statute
was considered applicable to “all funds disbursed on a construction project.” Additionally,
the Court of Appeals held that the intent of the provider of funds was not
relevant, and that the statute applied “irrespective of the [originator of the
funds]’s intended use of the funds.”
This
decision was reviewed by the Colorado Supreme Court in an opinion released on
February 4, 2013, and it reversed the Court of Appeals’ decision. See, Yale v. AC Excavating, Inc.,
___ P. 3d. ___, 2013 WL 441895 (Colo. Feb. 4, 2013). The Supreme Court strongly
disagreed that loaned or infused capital funds which were obtained by the
general contractor entity were “funds disbursed on a construction project,”
simply because some of the infused monies were used for operational purposes to
pay down specific project obligations.
The Supreme Court held, contrary to the Court of Appeals, that only
certain funds were subject to the constraints of the Trust Fund Statute and
that capital loans were not included among such funds and sources of funds.
The
Supreme Court’s decision was one of statutory construction applied to largely
undisputed facts. In holding that
capital funds received or loaned to a contactor entity were not subject to
statutory claims under C.R.S. § 38-22-127,
the Court stated that the Trust Fund Statute requires that contractors
and subcontractors hold only certain funds in trust for payment of
subcontractors, laborers, and suppliers.
The funds held in trust for those purposes are limited to all funds
disbursed to any contractor or subcontractor under any building, construction,
or remodeling contract on any construction project.
This
applied interpretation of the statute necessarily excluded any funds that were
received to fund general operations of a construction company, as distinct from
funds received in the usual course of payment for work performed in connection
with construction. The Supreme Court
also held that the testimony of a company manager for the construction company
concerning the purpose and source of the funds in question was proper evidence
to be heard by the trial court. The
Court further held that a construction business does not hold all funds in
trust, even where the company is generally in the construction business, has
only a single project, and has only a single bank account for that project.

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