Construction Law in Colorado

Contractor Cannot Avoid Contractual Limitation To Fee By Filing Lien For "Value" Of Work

In Byerly v. Bank of Colorado, et al., 2013 COA 35, a division of the Colorado Court of Appeals held that the value of a general contractor's mechanic's lien is always limited to the contract price, even where the owner has not filed the contract with the clerk and recorder's office.  Thus, the language in C.R.S. § 38-22-101(3) providing that "such persons shall have a lien for the value thereof" when the contract is not filed applies only to subcontractors and material suppliers.  As such, the general contractor's mecanics' lien recorded for the "value" of the general contractor's work instead of the amount allowed under its contract was excessive.

Court of Appeals Recognizes Limitations to Relation-Back Doctrine

Before a potential developer purchases property for a new project, it needs to secure financing.  Before the lender will agree to finance the project, it wants to be satisfied that the project has or will be granted the requisite entitlements.  And before the requisite entitlements can be obtained, preliminary design work must be performed.  As a result, design professionals often perform site planning and other design work before the developer even purchases the real property.  A somewhat-similar scenario happened in Oz Architecture of Denver, Inc. v. V3 Companies of Colorado, Ltd. (Colo. App. April 19, 2012) (not published pursuant to C.A.R. 35(f)).

Court of Appeals defines the scope of the relation-back doctrine in light of intervening conveyances

In Ferguson Enterprises, Inc. v. Keybuild Solutions, Inc. et al., (Colo. App. Dec. 22, 2011), the Court of Appeals had to address the priorities when mechanics' liens and multiple deed-of-trust foreclosures collide.  While reaffirming and compiling several previously-established propositions of law in this area, the Court also addressed some novel issues.

Including accrued interest in lien statement does not render it void as excessive

In Honnen Equipment Company, Inc. v. Never Summer Backhoe Service, Inc. (Colo. App. July 7, 2011), a division of the Colorado Court of Appeals held that the inclusion of interest in a lien statement does not render the lien void as an excessive lien.  In doing so, the Court had to distinguish prior Supreme Court precedent holding that a mechanics' lien may not include late charges.

Arbitrator decides amount of lien while court decides its procedural validity

In Sure-Shock Electric v. Diamond Lofts Venture (Colo. App. June 23, 2011), a division of the Court of Appeals held that, on confirmation of an arbitration award, the district court retains jurisdiction to decide the procedural validity of a mechanic's lien even after the arbitration award confirms the claimant's right to a lien under the mechanic's lien statute.

Governor signs bill remedying lis pendens problem with Weize Company, LLC v. Martz Supply Co.

Earlier this month, the Governor signed into law Senate Bill 11-264.  The purpose of SB 11-264 is to abrogate the part of Weize Company, LLC v. Martz Supply Co. holding that a lis pendens must be recorded in a claim against a lien substitution bond.  The new law amends various sections of Colorado's mechanics' lien statute to clarify that a lis pendens or a notice of commencement of action shall not be recorded in cases where a mechanics' lien has been properly bonded over.  The new law takes effect July 1, 2011.

GC's President Not Personally Liable For Excessive Lien

In JW Construction Co., Inc. v. Elliot, (Colo. App. Mar. 17, 2011), the Colorado Court of Appeals held, among other things, that a general contractor's president cannot be held personally liable when the corporation records a knowingly-excessive mechanics' lien.

Capital Infusions Are Now Trust Funds Too

NOTE:  The Supreme Court of Colorado reversed the Court of Appeals' decision in AC Excavating, Inc. v. Yale.  See here.

 

In AC Excavating, Inc. v. Yale (Colo. App. Sept. 2, 2010), the Colorado Court of Appeals held that money loaned to an LLC by its manager qualifies as a disbursement, and can be the basis of a trust fund violation and theft claim against the manager if the funds are not used to pay subcontractors and suppliers.  As the dissent notes, "[a] lawyer familiar with today's holding likely would advise the manager not to recapitalize the company if there was any doubt as to the project's ultimate success."

Lis Pendens Still Required, Even If Mechanics' Lien Is Bonded

[EDIT - The Colorado Legislature has since passed, and the Governor has signed, Senate Bill 11-264, which abrogates the holding in Weize for lawsuits brought after July 1, 2011.  See here for details.]

Today, in Weize Company, LLC v. Martz Supply Co., 09CA1369 (Colo. App. June 10, 2010), a division of the Colorado Court of Appeals held that a subcontractor suing to enforce its rights to a mechanics' lien that has been substituted by a bond and thus discharged must still record a lis pendens.  So, according to the Court of Appeals, bonding over a mechanics' lien will not clear title, despite the clear language of the statute.

Court of Appeals Addresses Unjust Enrichment Claims by Subcontractors and Suppliers

Redd Iron, Inc. v. Int'l Sales and Service Corp. (Colo. App. Dec. 24, 2008).

In DCB Construction Co., Inc., v. Central City Development Co., 965 P.2d 115 (Colo. 1998), the Supreme Court of Colorado held that, in order for a property owner to be liable under a theory of unjust enrichment to a tenant's contractor, the contractor must show some type of improper, misleading, or deceitful conduct by the owner.  Now in Redd Iron, Inc., a division of the Colorado Court of Appeals held that the requisite showing of improper, misleading, or deceitful conduct by the owner is not a required element outside the context of a claim against a landlord by a party working at the tenant's behest, and that malfeasance need not invariably be shown to establish unjust enrichment.