Builders and Contractors Exchange
Weekly Bulletin: 25 Sept 2006
Criminal Liability For Failing To Pay Subcontractors
By: Trey Kelleter
Failing to pay money owed on a contract can lead to costly lawsuits and civil damages, but it usually is not a crime. In most cases it is not a crime even when a debtor uses money he previously earmarked for one creditor to pay an unrelated, more demanding, creditor (so long as the debtor intended in good faith to pay each creditor when first entering into his contracts). Thus, contractors in a bind often are tempted to use new receipts to pay off old debts, all the while keeping new creditors, such as subcontractors, at bay with promises of soon-to-be-made payments. Unfortunately, Virginia Code §43-13 can turn what is simply a bad business practice into an outright crime.
§43-13 makes it a crime for a contractor who has received money from the owner of a construction project to fail to pass the payment on to a subcontractor who is rightfully owed for his work on the project. The statute requires proof of intent to defraud by the contractor, but also states that any use of the owner’s money other than to pay a subcontractor the amounts rightfully due for work performed on the project is proof of an intent to defraud the subcontractor.
Thus, contractors must always keep this statute in mind when disputes arise with subs (and subs, of course, should always be mindful of their rights under the statute.). Contractors need to maintain accurate records of payments from owners and subsequent payments to subs, especially if portions are withheld for any reason.
Contractors also need to be aware of what §43-13 does not say, especially when faced with a sub that uses the statute as a club to demand payment – or else. §43-13 does not override the provisions of any subcontract. It criminalizes a failure to pass through the owner’s payment to a sub only so long as the sub is rightfully owed the money pursuant to its subcontract. Thus, a contractor that relies in good faith upon provisions of the subcontract to withhold certain payments has not committed a crime. In effect, §43-13 criminalizes a civil dispute over payment only when the contractor withholds payment to a sub knowing (or turning a blind eye to the fact) that money is rightfully due the subcontractor on his contract.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.