Construction Law

First Lien on Funds Rule; Subcontractors, Laborers, and Material Suppliers May Place a Lien on a Contractor's Funds

By Ryan McCabe

S.C. Code Ann. § 29-7-10 establishes certain rules regarding general contractors? payments to laborers (including private security guards), subcontractors, and materialmen. Once the general contractor receives a payment from the property owner, the general contractor must pay all his laborers, subcontractors, and materialmen for their work on that particular job from the money he has just received. This payment requirement, which also requires a subcontractor to pay his laborers, subcontractors, and materialmen upon receiving payment from the general contractor, applies in the erection, alteration, and repair of buildings in South Carolina.

The laborers, subcontractors, and materialmen have a legal right to this money. If the general contractor fails to issue payment, the laborers, subcontractors, and materialmen to whom he should have made payment will have a first lien on the money. In other words, the amount due to them takes priority over anyone else?s claim to the money. Until the general contractor satisfies this payment obligation, he cannot use that money for any other purpose.

However, this legal right of the laborers, subcontractors, and materialmen does not apply to the building, its owner, or to the amount still owed by the owner to the contractor. It applies only to the money that the general contractor has actually received from the owner. Thus, if the work has been performed, but the owner has not yet paid the general contractor, this statutory right to a lien on the money would not yet apply.

As a practical matter, it is almost impossible to use this statute to collect money.  It is difficult to place a lien on money.  Money exchanges quickly and a general contractor with financial problems is not likely to hold it in one place long enough for a subcontractor, laborer, or material supplier to locate the funds and place a lien on them. 

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

Full post as published by The South Carolina Construction Law Blog on February 19, 2007 (boomark / email).