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Bond claims and lien rights in Puerto Rico

I am a lender providing factoring in Puerto Rico for the Hurricane recovery work in PR. I would like to know what rights the laborers have vs my right as a secured creditor. Additionally, do I have rights to make a claim on a bond where the General Contractor who posted the bond has a contracting obligation to pay me for work specifically related to the bonded job. A short phone call would be easier to explain. We are doing about $690k a week in billings down there and we want to be protected.

1 reply

Aug 10, 2018

That's a good question - and lien and bond rights can get confusing in a hurry in Puerto Rico. First, I'd like to mention that zlien put out some very helpful information on this topic last fall that may be helpful: How to Get Paid on Construction Projects in Puerto Rico and the USVI.

Anyway - regarding the rights of laborers, Puerto Rico seems to protect the rights of laborers pretty fervently. Regarding a the preference of a laborer's lien to other debt securities, under 29 L.P.R.A. § 186 (titled Mechanic's lien - Preference), "With the exceptions provided by law, the said lien shall have preference as to payment over all other debts of the property owner." Regarding the payment of wages under 29 L.P.R.A. § 197(b) "The salaries earned by the workers employed in the work shall enjoy absolute preference, as to payment, over all other debts of the contractor, with the exception of mortgage credits on certain real or personal property or property rights of the debtor, recorded in the registry of property prior to the date on which the salary has been earned". Thus, if a lender's debt is secured by mortgage credits and that was recorded prior to the salary being earned, the laborers' right to payment will not supersede a lender's right to payment. Otherwise, salaries earned and owed will take preference over other debtors.

Now, let's look at whether a lender is entitled to recovery under a contractor's bond. Under 29 L.P.R.A. § 196, a contractor's bond must be posted "for the payment to the contractor’s laborers and employees of the wages earned by them in the work." Further, 29 L.P.R.A. § 197(c) lays out some rules for making a bond claim. It states "Any person who has been employed in any work, building or construction as to which the bond required by this chapter has been posted and to whom his salary has not been paid in whole or in part, as required by this chapter, in the form and terms established by law, shall be entitled to bring judicial action, without previous notice or demand, against the contractor, the bond of the contractor, the sureties of the contractor, or against any of them, to recover the sum due him for such reason." The section seems to contemplate bond claims of those performing work on the project, but it does not identify a lender as a potential bond claimant. For more clarity on Puerto Rico's lien and bond laws, which veer pretty drastically from much of the rest of U.S. lien law, reaching out to an experienced construction attorney in Puerto Rico should be helpful - especially considering the amounts involved.

For further analysis, the mechanics lien laws and bond laws of Puerto Rico can be found here on Lexis Nexis.

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