Statute of Limitations
A statute of limitations sets the deadline by which a claimant must file suit or forever be barred from seeking compensation. This is often a moving target. But in the context of construction litigation, the statute of limitations is surprisingly forgiving. Too many contractors abandon payment claims that are still timely.
How Long Does a Contractor Have to File a Payment Claim?
Let's start with the longest statute of limitations. Six years. In Colorado, a claim to "recover a liquidated debt or an unliquidated, determinable amount of money due to the person bringing the action" "shall be commenced within six years after the cause of action accrues." C.R.S. 13-80-103.5. Most payment claims fall within this category. Even if there is an asserted back charge or offset of some sort, the claim for payment for work performed constitutes a debt governed by the six year statute of limitations. If the contractor sent an invoice, the claim is a liquidated debt. Even if the contractor did not send an invoice, the debt could be "an unliquidated determinable amount of money due." These two categories combine to encompass most payment claims in the construction context.
What are the Deadlines Related to Mechanic's Liens?
While payment claims seem to be viable for an interminable amount of time, the deadlines for mechanic's liens are tight and unforgiveable. The deadline to record a mechanic's lien is four months from the date of last work by the claimant. C.R.S. 38-22-109(5). However, before a contractor or supplier can record a lien, they must submit a notice of intent to record the lien at least ten days prior. C.R.S. 38-22-109(3). Accordingly, the deadline to take action is really four months minus ten days.
Then the claimant has to foreclose no later than six months from the date of last work on the project by any contractor. The claimant also has to record a lis pendens with the clerk and recorder within that same time limitation notifying the public that the title of the property is in dispute. More detail on these deadlines here.
Failure to adhere to these strict deadlines will render the lien invalid. However, even if the lien is invalid, contractors can still pursue payment claims for up to six years or a claim for breach of contract for three years, discussed next.
Breach of Contract Statute of Limitations.
A payment claim is fundamentally a claim for breach of contract. The contract required payment for work performed. The purchaser of the construction services breached the contract by failing to provide payment. In Colorado, the statute of limitations for a breach of contract claim is three years. C.R.S. 13-80-101(1)(a). This does not add much as the statute of limitations for debt collection is six years.
However, what if it is more complicated than a simple payment claim? For instance, what if the contractor was wrongfully terminated. The claim for payment for work performed is certainly a payment claim subject to the six year statute of limitations. But what about the claim for consequential damages resulting from the breach? (More on that here.) Those claims must be asserted within three years of the date of the breach.
Is There a Deadline to File a Claim for Unjust Enrichment?
What if there is no contract? More often than most would expect or advise, contactors perform work without any sort of agreement. Do they have any ability to seek compensation. If so, what deadlines apply?
The answer to the first question is yes. Even if there is no contract, contractors who perform work can often recover through the equitable claim unjust enrichment. More on that here. The answer to the second question is more complicated. Equitable claims do not have a statute of limitations. Instead, the doctrine of laches applies. Laches is an affirmative defense that will bar a claim where the claimant delayed the enforcement of its rights for an unconscionable amount of time resulting in prejudice (harm) to the defendant. Courts will often look to similar legal claims for guidance in determining whether the delay is unconscionable, but such guidance is persuasive only. Fundamentally, the burden shifts to the defendant to demonstrate that they were somehow harmed by the claimant's delay in bringing the action, which is often difficult to do. Accordingly, a claim for unjust enrichment might be viable beyond the applicable statute of limitations for collection and breach of contract claims.
The bottom line is this: there are a number of creative claims and arguments that can be asserted to breathe life into payment claims contractors abandoned long ago. That being said, there is almost never a penalty for filing early and these fights are best avoided.