Chapter 288

2007 -- H 5732 AS AMENDED

Enacted 07/06/07

A N A C T

RELATING TO PROPERTY - LABOR AND LABOR RELATIONS - CONSTRUCTION TRUST

Introduced By: Representative Donald J. Lally

Date Introduced: February 28, 2007

It is enacted by the General Assembly as follows:

     SECTION 1. Title 34 of the General Laws entitled "PROPERTY" is hereby amended by

adding thereto the following chapter:

CHAPTER 27.2

THE RHODE ISLAND CONSTRUCTION TRUST ACT

34-27.2-1. Short title. -- This chapter shall be known and may be cited as "The Rhode

Island Construction Trust Act."

34-27.2-2. Legislative findings. -- The general assembly finds and declares that the

uniqueness of the construction industry requires a special system to ensure that payment is

received by those businesses, contractors and owners who expend materials and/or labor prior to

the completion of a construction project, but then must wait to be made financially compensated

for the materials and/or labor. The general assembly also recognizes that once the materials and

labor are placed into the building, or other construction project, it is impossible to reclaim the

goods or services so that the only means of compensation is to receive monetary payment. In

addition, the general assembly finds that the comprehensive bankruptcy reform act of 2005

expanded section 523(a) of the Uniform Code of chapter 13, and created a new section known as

UC Bankruptcy Code 1328 that gives building material suppliers recourse when a contractor,

"commits fraud or defalcation while acting in a fiduciary capacity." Under the new UC

Bankruptcy Code 1328, if any person commits fraud or defalcation while acting in a fiduciary

capacity, embezzlement, or larceny the debt is nondischargeable under chapter 7 (liquidation),

chapter 11 (adjustment of debt) or chapter 13 (reorganization).

34-27.2-3. Definitions. -- The following definitions apply in the interpretations of the

provisions of this chapter, unless the context requires another meaning:

(1) "Express Trust" means funds that have been paid by an owner, for or in connection

with materials used in an improvement of real property, which are to be held by a contractor or

subcontractor, in express trust, for material men. Any such contractor or subcontractor who

accepts money from any owner or contractor shall become the trustee of the express trust that is

created under this act. The amounts received by such contractor or subcontractor under or in

connection with each building project shall be a separate trust and the contractor or subcontractor,

or any successor and/or assign of such contractor or subcontractor that hold such trust funds, shall

be a trustee thereof. These funds are not required to be held in any separate account by a

contractor or subcontractor. Such trust shall be effective against and shall have priority over any

interest of a party seeking payment from such contractor or subcontractor for claims other than

those that are due and owing by reason of the specific building project for which the trust was

created, whether such creditors are foreign attachment or other judicial lien creditors, a trustee in

bankruptcy or similar creditors or representatives or creditors of the contractor or subcontractor.

(2) "Material men" means those retailers of lumber who are engaged in the business

primarily of selling lumber and building materials to contractors, subcontractors, or repairmen to

be used for the construction, erection, alteration, or repairing a building or other structure or in

the making of any other improvements on land or the preparation thereof, and whose lumber and

building material sales comprise of at least fifty percent (50%) of their total sales as defined in

section 44-19-41.

34-27.2-4. Funds held in trust. -- (a) Any moneys paid under a contract by an owner to a

contractor, or by the owner or contractor to a subcontractor, for work done for or about a building

by any subcontractor shall be held in express trust by the contractor or subcontractor, as trustee,

for those subcontractors who did work for or about the building, for purposes of paying those

subcontractors or any successor and/or assign of such contractor or subcontractor that hold such

funds.

(b) Any money paid under a contract by an owner to a contractor, or by the owner or

contractor to a subcontractor, for supplies provided by materialmen in contract for the

construction, repair, remodeling, improvement or renovation of any building or structure shall be

held in an express trust by the contractor or subcontractor for the materialmen or any successor

and/or assign of such contractor or subcontractors that holds such trust funds.

(c) Nothing contained in this chapter shall be construed as requiring moneys held in

express trust by a contractor or subcontractor under subsection (a) or (b) of this section to be

placed in a separate account.

(d) The existence of trust funds shall not prohibit the filing or enforcement of a labor,

mechanic or material men's lien against the affected real property by any lien claimant, nor shall

the filing of such a lien release the holder of the funds from the obligations created under Rhode

Island law.

SECTION 2. No Express Trust shall be required for a federal, state or municipal project.

     SECTION 3. This act shall take effect upon passage.

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LC02227/3

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