Colorado § 38-22-106 - Priority of lien - attachments.

§ 38-22-106. Priority of lien - attachments.

(1) All liens established by virtue of this article shall relate back to the time of the commencement of work under the contract between the owner and the first contractor, or, if said contract is not in writing, then such liens shall relate back to and take effect as of the time of the commencement of the work upon the structure or improvement, and shall have priority over any lien or encumbrance subsequently intervening, or which may have been created prior thereto but which was not then recorded and of which the lienor, under this article, did not have actual notice. Nothing contained in this section, however, shall be construed as impairing any valid encumbrance upon any such land duly made and recorded prior to the signing of such contract or the commencement of work upon such improvements or structure.

(2) No attachment, garnishment, or levy under an execution upon any money due or to become due to a contractor from the owner or reputed owner of any such property subject to any such lien shall be valid as against such lien of a subcontractor or materialmen, and no such attachment, garnishment, or levy upon any money due to a subcontractor or materialmen of the second class, as provided in section 38-22-108 (1)(b), from the contractor shall be valid as against any lien of a laborer employed by the day or piece, who does not furnish any material as classified in this article.

Source: L. 1899: p. 268, § 6. R.S. 08: § 4030. C.L. § 6447. CSA: C. 101, § 20. CRS 53: § 86-3-6. C.R.S. 1963: § 86-3-6.

ANNOTATION

I. General Consideration.

II. Time When Lien Attaches.

III. Priority of Liens.

I. GENERAL CONSIDERATION.

Law reviews. For article, "The Perennial Problem of Security Priority and Recordation", see 24 Rocky Mt. L. Rev. 180 (1952). For note, "Real Property Relative Priority of Liens — Federal Tax Lien Priority: A Judicial Frankenstein", see 34 Dicta 186 (1957). For article, "One Year Review of Property", see 37 Dicta 89 (1960).

Lien for paving of streets may not relate back prior to dedication and acceptance of streets by city. Section does not abrogate common law rule that public property not subject to foreclosure. City of Westminster v. Brannan Sand & Gravel Co., 940 P.2d 393 (Colo. 1997).

Mechanics' lien laws are designed for the benefit and protection of mechanics and materialmen and should be construed in favor of lien claimants. Darien v. Hudson, 134 Colo. 213, 302 P.2d 519 (1956).

Lien on building and improvements is given preference over any prior lien or encumbrance upon the land on which it is erected. Kennicott-Patterson Transf. Co. v. Modern Smelting & Ref. Co., 26 Colo. App. 135, 141 P. 144 (1914); Darien v. Hudson, 134 Colo. 213, 302 P.2d 519 (1956).

Liens or encumbrances subject to recording act. This section subjects every lien or encumbrance to the effect of the recording act, except such of which the mechanic lienors had actual notice as of the date of the commencement of the work, and they are rendered noneffective as against such lienors and are subordinate to their rights. Credit Fin. Corp. v. Hale & Perry, Inc., 66 F.2d 357 (10th Cir. 1933).

Rule of caveat emptor applies against mechanic as well as in the case of a vendee. Tritch v. Norton, 10 Colo. 337, 15 P. 680 (1887).

Contractor must ascertain interest of other contracting party. If a contractor proposes to erect a building or to put labor or materials on a piece of ground, it behooves him to assure himself of the fact that the person with whom he contemplates making his contract, or for whose benefit he is about to employ means or labor, has such an interest or title unincumbered as will enable him to avail himself of a valid lien. Tritch v. Norton, 10 Colo. 337, 15 P. 680 (1887).

Effect of garnishment. This section does not say that a garnishment of money due a contractor shall be invalid as against the claim of a subcontractor, but only as against the lien of a subcontractor, and when a subcontractor's lien is perfected, a garnishment made while the lien was still inchoate would become invalid by reason of the relation back of the perfected lien; but, if there should never be a perfected lien, the garnishment would be effectual. Schradsky v. Dunklee, 9 Colo. App. 394, 48 P. 666 (1897).

Applied in Small v. Foley, 8 Colo. App. 435, 47 P. 64 (1896); Chicago Lumber Co. v. Dillon, 13 Colo. App. 196, 56 P. 989 (1899); State Bank v. Plummer, 54 Colo. 144, 129 P. 819 (1912); Park Lane Props. v. Fisher, 89 Colo. 591, 5 P.2d 577 (1931); 3190 Corp. v. Gould, 163 Colo. 356, 431 P.2d 466 (1967); Lew Hammer, Inc. v. Dash, Inc., 42 Colo. App. 414, 599 P.2d 948 (1979); Trustees of Mtg. Trust of Am. v. District Court, 621 P.2d 310 (Colo. 1980); Boulder Lumber Co. v. Alpine of Nederland, Inc., 626 P.2d 724 (Colo. App. 1981).

II. TIME WHEN LIEN ATTACHES.

When lien begins. The lien of the mechanic or materialman begins with the commencement of the work or furnishing of the material under an express or implied contract with the employer and attaches upon whatever estate the latter may have at the commencement of such work or the furnishing of such materials. Tritch v. Norton, 10 Colo. 337, 15 P. 680 (1887); Chain O'Mines v. Lewison, 100 Colo. 186, 66 P.2d 802 (1937); Sontag v. Abbott, 140 Colo. 351, 344 P.2d 961 (1959).

Lien relates to date first item furnished. Where it is fairly inferable from the evidence that supplies furnished for the operation of a mine, at different times during a series of months, were furnished under a single contract, the transaction will be regarded as a single one, and the lien allowed therefor will relate to the date of the first item furnished. Int'l Trust Co. v. Clark Hdwe. Co., 66 Colo. 210, 180 P. 300 (1919); Sontag v. Abbott, 140 Colo. 351, 344 P.2d 961 (1959).

Architect's lien relates back to time of commencement of his work on his plans and drawings for the proposed building and is not limited to the time of commencement of actual work on a structure. Sontag v. Abbott, 140 Colo. 351, 344 P.2d 961 (1959).

The services of an architectural firm and an engineering firm in preparing preliminary plans and drawings for a project and in performing engineering work, respectively, constituted "commencement of the work upon the structure or improvement" under subsection (1). Bankers Trust Co. v. El Paso Pre-Cast Co., 192 Colo. 468, 560 P.2d 457 (1977); Weather Eng'g & Mfg., Inc. v. Pinon Springs Condos., Inc., 192 Colo. 495, 563 P.2d 346 (1977).

Mechanics' lien not avoided under federal bankruptcy code section which allows the trustee to avoid a lien not perfected or enforceable on the date the petition is filed since, under this section, a mechanics' lien, once perfected, relates back to time of commencement of work. In re Cantrup, 38 B.R. 148 (Bankr. D. Colo. 1984).

Mechanics' lien relates back to the commencement of the work which in this case was the date on which the subcontractor received notice that it won the contract and began performance. Gen. Growth Dev. v. A & P Steel, Inc., 678 F. Supp. 243 (D. Colo. 1988).

Failure to perfect lien relates back. As a perfected lien has relation backward and holds the land from the time of the commencement of the work, so a failure to perfect the lien also relates back; and, if there is finally no lien, there was none from the beginning. Schradsky v. Dunklee, 9 Colo. App. 394, 48 P. 666 (1897).

The term "owner" as used in this section cannot be interpreted to mean only a current owner because that would mean that mechanics' liens could never relate back to work done for prior owners. Landowners could avoid mechanics' liens simply by transferring the property during construction and contend that work the original landowner commissioned from contractors was not lienable because it was not done at the behest of the current owner. Ferguson Enters. v. Keybuild Solutions, 275 P.3d 741 (Colo. App. 2011).

Statute presupposes the existence of either a written or oral communication between the first contractor and the owner or lessee in order for a lien to attach. Printz Servs. Corp. v. Main Elect., Ltd., 949 P.2d 77 (Colo. App. 1997).

Whether one is "first contractor" depends on time contract entered. Whether one is a "first contractor" does not depend upon whether the contract is in writing, but rather, at what time the contract, either express or implied, is entered into with the owner. Bankers Trust Co. v. El Paso Pre-Cast Co., 192 Colo. 468, 560 P.2d 457 (1977).

III. PRIORITY OF LIENS.

Priority provisions strictly construed. Priority relates to perfection of the lien, not to the remedial portions of the mechanics' lien statute, and therefore, the statute's provisions governing priority should be strictly construed. Powder Mtn. Painting v. Peregrine Joint Venture, 899 P.2d 279 (Colo. App. 1994).

This section makes subsequent mortgages junior to valid prior mechanics' liens. Howard v. Fisher, 86 Colo. 493, 283 P. 1042 (1929).

Mechanics' liens subordinate to prior deed of trust on land. Mechanics' liens are junior and subordinate to an existing deed of trust on the land occupied by the building. Darien v. Hudson, 134 Colo. 213, 302 P.2d 519 (1956).

A deed or mortgage, recorded before a contract to perform labor was made, or work commenced thereunder, would take precedence over a mechanic's lien. Folsom v. Cragen, 11 Colo. 205, 17 P. 515 (1887); Tritch v. Norton, 10 Colo. 337, 15 P. 680 (1887).

Mechanics' liens subordinate to prior deed of trust on land and future building. Where a deed of trust was given for a loan with the understanding that the loan was to be used for the construction of a building, and the deed of trust expressly covered the building to be erected, and where it was recorded before work on the building was begun, the lien of the deed of trust took priority over mechanics' liens to the extent that the money advanced under the deed was actually applied to payment of labor and materials used in the construction of the building. Joralmon v. McPhee, 31 Colo. 26, 71 P. 419 (1903).

Purchase money lien is not entitled to preference over those asserted by mechanics' lien claimants. Sontag v. Abbott, 140 Colo. 351, 344 P.2d 961 (1959).

Priority of federal tax liens. United States v. Vorreiter, 134 Colo. 543, 307 P.2d 475, rev'd, 355 U.S. 15 (1957).

Purchaser's title paramount to later encumbrances upon property. The title of a purchaser at a sale foreclosing a mechanic's lien is paramount to all encumbrances upon the property after the commencement of the building. Cornell v. Conine-Eaton Lumber Co., 9 Colo. App. 225, 47 P. 912 (1897).

Plaintiff must prove encumbrance is inferior to lien. Where the complaint alleged that an encumbrance was subject to and inferior to the rights and lien of plaintiff, it was necessary for plaintiff to prove that the encumbrance was inferior to its lien. Kennicott-Patterson Transf. Co. v. Modern Smelting & Ref. Co., 26 Colo. App. 135, 141 P. 144 (1914).

"Actual notice" defined. "Actual notice", as used in subsection (1), is such notice as is positively proved to have been given to a party directly and personally, or such as the party is presumed to have received personally because the evidence within the party's knowledge was sufficient to put the party upon inquiry. Powder Mtn. Painting v. Peregrine Joint Venture, 899 P.2d 279 (Colo. App. 1994).