Colorado § 38-22-102 - Payments - effect.

§ 38-22-102. Payments - effect.

(1) No part of the contract price, by the terms of any such contract, shall be made payable, nor shall the same, or any part thereof, be paid in advance of the commencement of the work, but the contract price, by the terms of the contract, shall be made payable in installments, or upon estimates, at specified times after the commencement of the work, or on the completion of the whole work; but at least the following percentages of the total contract price shall be made payable at least thirty-five days after the final completion of the contract:

(a) Fifteen percent of the first two hundred fifty thousand dollars of the contract price;

(b) Ten percent of the contract price in excess of two hundred fifty thousand dollars up to and including five hundred thousand dollars;

(c) Five percent of the contract price in excess of five hundred thousand dollars up to and including seven hundred fifty thousand dollars;

(d) Two percent of the contract price in excess of seven hundred fifty thousand dollars.

(2) No payment made prior to the time when the same is due, under the terms and conditions of the contract, shall be valid for the purpose of defeating, diminishing, or discharging any lien in favor of any person, except the contractor or other person to or for whom the payment is made, but as to such liens, such payment shall be deemed as if not made and shall be applicable to such liens, notwithstanding that the contractor or other person to or for whom it was paid may thereafter abandon his contract, or be or become indebted to the reputed owner in any amount for damages or otherwise or for nonperformance of his contract or otherwise.

(3) As to all liens, except those of principal contractors, the whole contract price shall be payable in money, and shall not be diminished by any prior or subsequent indebtedness, offset, or counterclaim in favor of the reputed owner and against the principal contractor, and no alteration of such contract shall affect any lien acquired under the provisions of this article. In case such contracts and alterations thereof do not conform substantially to the provisions of this section, the labor done and laborers or materials furnished by all persons other than the principal contractor shall be deemed to have been done and furnished at the personal instance and request of the person who contracted with the principal contractor, they shall have a lien for the value thereof.

(3.5) Any provisions of this section to the contrary notwithstanding, it shall be an affirmative defense in any action to enforce a lien pursuant to this article that the owner or some person acting on the owner's behalf has paid an amount sufficient to satisfy the contractual and legal obligations of the owner, including the initial purchase price or contract amount plus any additions or change orders, to the principal contractor or any subcontractor for the purpose of payment to the subcontractors or suppliers of laborers, materials, or services to the job, when:

(a) The property is an existing single-family dwelling unit;

(b) The property is a residence constructed by the owner or under a contract entered into by the owner prior to its occupancy as the owner's primary residence; or

(c) The property is a single-family, owner-occupied dwelling unit, including a residence constructed and sold for occupancy as a primary residence. This paragraph (c) shall not apply to a developer or builder of multiple residences except for the residence that is occupied as the primary residence of the developer or builder.

(4) Any of the persons mentioned in section 38-22-101, except a principal contractor, at any time may give to the owner, or reputed owner, or to the superintendent of construction, agent, architect, or to the financing institution or other person disbursing construction funds, a written notice that they have performed labor or furnished laborers or materials to or for a principal contractor, or any person acting by authority of the owner or reputed owner, or that they have agreed to and will do so, stating in general terms the kind of labor, laborers, or materials and the name of the person to or for whom the same was or is to be done, or performed, or both, and the estimated or agreed amount in value, as near as may be, of that already done or furnished, or both, and also of the whole agreed to be done or furnished, or both.

(5) Such notice may be given by delivering the same to the owner or reputed owner personally, or by leaving it at his residence or place of business with some person in charge; or by delivering it either to his superintendent of construction, agent, architect, or to the financing institution or other person disbursing construction funds, or by leaving it either at their residence or place of business with some person in charge. No such notice shall be invalid or insufficient by reason of any defect of form, provided it is sufficient to inform the owner or reputed owner of the substantial matters provided for in this section, or to put him upon inquiry as to such matters.

(6) Upon such notice being given, it is the duty of the person who contracted with the principal contractor to withhold from such principal contractor, or from any other person acting under such owner or reputed owner, and to whom, by said notice, the said labor, laborers, or materials, have been furnished or agreed to be furnished, sufficient money due or that may become due to said principal contractor, or other persons, to satisfy such claim and any lien that may be filed therefor for record under this article, including reasonable costs provided for in this article.

(7) The payment of any such lien, which has been acknowledged by such principal contractor, or other person acting under such owner or reputed owner in writing to be correct, or which has been established by judicial determination, shall be taken and allowed as an offset against any moneys which may be due from the owner, or reputed owner to such principal contractor, or the person for whom such work and labor was performed or furnished.

Source: L. 1899: p. 263, § 2. R.S. 08: § 4026. C.L. § 6443. CSA: C. 101, § 16. CRS 53: § 86-3-2. C.R.S. 1963: § 86-3-2. L. 65: p. 850, § 2. L. 69: p. 692, § 2. L. 87: (3.5) added, p. 1336, § 1, effective May 25. L. 2000: (3), IP(3.5), (3.5)(b), (4), (6), and (7) amended, p. 205, § 2, effective August 2.

ANNOTATION

I. General Consideration.

II. Notice.

I. GENERAL CONSIDERATION.

Law reviews. For article, "Property Law", see 32 Dicta 420 (1955). For article, "Mechanics' Liens Relative to Oil and Gas Operations — Part II", see 34 Dicta 373 (1957).

Section relates to manner of making payments. Hayutin v. Gibbons, 139 Colo. 262, 338 P.2d 1032 (1959).

Sections provide contract form between owner and principal contractor. This section and § 38-22-101 provide the form of a contract which may be entered into by the owner and the principal contractor to enable the latter to secure a lien for himself and to enable the former to confine the liabilities to which his property may be subjected to the contract price. Chicago Lumber Co. v. Newcomb, 19 Colo. App. 265, 74 P. 786 (1903).

Parties not prohibited from entering into different contract. This section and § 38-22-101, do not prohibit the parties from entering into another and different contract, and there is no interference with, or abridgment of, their right to contract as they may see fit. Chicago Lumber Co. v. Newcomb, 19 Colo. App. 265, 74 P. 786 (1903).

Agency of principal contractor limited. The agency of a principal contractor, under § 38-22-101 and this section, is a limited agency for the purpose of creating a lien only. Brannan Sand & Gravel Co. v. Santa Fe Land & Imp. Co., 138 Colo. 314, 332 P.2d 892 (1958).

Payment of debt constitutes bar to enforcement of lien. Where the debt for which a lien is claimed has been paid in a manner which is binding upon the party asserting the lien, payment of such debt constitutes a bar to the enforcement of the lien. Am. Irrigation Co. v. Fadenrecht, 30 Colo. App. 28, 489 P.2d 1060 (1971).

For purposes of this section, a lien arises on the date it was perfected rather than the date materials were provided. Wholesale Specialties v. Vill. Homes, 820 P.2d 1170 (Colo. App. 1991).

Regardless of contractor's status as an owner, payment of purchase price or contract amount by homeowner to contractor triggered a complete affirmative defense thereby barring enforcement of plumber's mechanic lien against the homeowner. Koch Plumbing and Heating v. Brown, 835 P.2d 610 (Colo. App. 1992).

Affirmative defense of payment does not require proof of a specific intent on the part of homeowners that the purchase price paid for homes be "for the purpose of payment to the subcontractors and new suppliers". Wholesale Specialties v. Vill. Homes, 820 P.2d 1170 (Colo. App. 1991).

Subsection (3.5) was enacted to protect homeowners from paying for their home twice simply because a general contractor had not paid its subcontractors, and once the homeowner pays the general contractor the full purchase price, the protections in subsection (3.5) immediately apply. Wholesale Specialties v. Vill. Homes, Ltd., 820 P.2d 1170 (Colo. App. 1991); Crissey Fowler Lumber v. FCIB, 8 P.3d 536 (Colo. App. 2000).

Under the plain language of subsection (3.5), where mechanics' liens are recorded prior to full payment by the homeowner, the homeowner cannot assert the defense of full payment because the initial purchase price had not been paid prior to recordation of the liens. Crissey Fowler Lumber v. FCIB, 8 P.3d 536 (Colo. App. 2000).

Because the homeowners had paid their original contractor only part of the purchase price before the liens were recorded, the circumstances did not trigger the intended protection of subsection (3.5) against liens filed after the payment of the full purchase price. Crissey Fowler Lumber v. FCIB, 8 P.3d 536 (Colo. App. 2000).

Applied in Ditto v. Jackson, 3 Colo. App. 281, 33 P. 81 (1893); Aste v. Wilson, 14 Colo. App. 323, 59 P. 846 (1900); Great W. Sugar Co. v. Gilcrest Lumber Co., 25 Colo. App. 1, 136 P. 553 (1913); First Com. Corp. v. First Nat'l Bancorporation, Inc., 572 F. Supp. 1430 (D. Colo. 1983).

II. NOTICE.

Notice provision of subsection (4) deemed permissive. Subsection (4) which provides for giving personal notice to the owner of claims against the principal contractor is not a mandatory, but it is a permissive, provision. Armour & Co. v. McPhee & McGinnity Co., 85 Colo. 262, 275 P. 12 (1929).