You most likely are well aware of the three most common legal
remedies you can employ when payment is not made: instituting a
legal claim for breach of contract; filing a mechanic's lien on
private projects; and making a claim on a labor and material
payment bond for public projects and bonded private projects.
However, another—and potentially potent—remedy may be
available: trust fund statutes.
Trust fund statutes have been enacted by state legislatures to
ensure payments made on construction projects are used to pay the
people and firms that provided labor and materials. At the same
time, trust fund statutes also are intended to benefit building
owners so compensation paid by an owner for a specific job will not
In states with trust fund statutes, money paid by a building
owner to a general contractor is considered a trust fund, which
must be held in trust for subcontractors and suppliers. When an
owner pays a general contractor, the general contractor is
considered the trustee and subcontractors and suppliers are
beneficiaries of the trust. As the trustee, the general contractor
cannot use a trust fund to reimburse himself or herself or pay for
other jobs or any person until beneficiaries have been paid.
Failure to abide by a trust fund statute can result in civil and,
in some states, personal and criminal liability for the officers
and representatives who...
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