Vol. 78, No. 5, May
Wisconsin's Construction Trust Fund Statute: Protecting
Against Theft by Contractor
Money paid by a property owner to a
contractor on a construction project constitutes a trust fund until all
legitimate claims for labor and materials are paid. Misappropriation of
the funds is theft by contractor, exposing the contractor to criminal
penalties and civil claims by property owners and unpaid subcontractors
Mark R. Hinkston
ne expects a prime contractor to pay laborers and material
suppliers from construction project funds. Yet some contractors fail to
do so. Some spend the money for personal reasons. Some juggle the funds
between projects or pay debts from the last project. For others,
diverting funds may be a last desperate act to stave off insolvency, as
they use the money to keep their business afloat.
Construction fund misappropriation affects all project participants.
A phone call or lien notice from an unpaid subcontractor may be the
first red flag signaling to the owner a prime contractor's construction
fund misappropriation. Angry unpaid suppliers also may call. The unhappy
owner, already stung by the prime contractor's diversion of funds, is
faced with the prospect of having to pay twice to satisfy potential lien
Typically, unpaid subcontractors and suppliers can pursue lien claims
or file suit for breach of contract against the prime contractor. Yet
some may have waived or lost their lien rights. As for litigation, there
is little solace in the Pyrrhic victory of getting a breach of contract
judgment against an insolvent contractor, just to have it discharged
through bankruptcy. Fortunately, Wisconsin law affords leverage to
misappropriation victims above and beyond liens and breach of contract
Mark R. Hinkston, Creighton 1988 cum laude,
practices business litigation with Knuteson, Powers & Quinn S.C.,
Wisconsin's Construction Trust Fund Statute (trust fund statute), set
forth in the construction lien law as Wis. Stat. section 779.02(5),
safeguards against contractor misappropriation in private construction
projects by creating trust funds for the benefit of owners, laborers,
and suppliers. (A similar trust fund statute, not the subject of this
article, applies to public improvement projects).1 A contractor's use of the trust funds for any
reason other than to pay for labor and materials on the particular
project constitutes theft by contractor.
This article gives an overview of the trust fund statute, explores
the remedies available to its beneficiaries, and offers practical
considerations to project participants who deal with construction trust
When Wisconsin's construction lien statutes were promulgated in 1849,
they contained no restrictions on a contractor's project funds
expenditure. Yet it was generally accepted that a contractor had a duty
to use project funds to pay its subcontractors and suppliers.2 The problem was that a contractor could ignore the
duty, squander the money, and incur no criminal liability. In 1913 the
Wisconsin Legislature enacted the trust fund statute to stem the
injustice caused when subcontractors and suppliers went unpaid. The
statute codified the moral obligation, extending to both the owner and
to those whose material or labor has entered into the structure, that
the compensation paid therefore by the owner should not be
The Trust Fund Statute: Section 779.02(5). The main purpose of
the trust fund statute is to ensure payment to labor and material
suppliers, thereby protecting the owner from having to pay twice for
improvements.4 The statute provides that any
mortgage proceeds or moneys paid by an owner to a prime contractor or
subcontractor for improvements constitute a trust fund in the hands of
the prime contractor or subcontractor for payment of all claims due or
to become due for labor and materials used on a project. The use of the
funds for any other purpose until all bona fide claims have been paid is
theft by contractor and punishable under Wis. Stat. section 943.20
(entitled "Theft"). If the prime contractor or subcontractor is a
corporation, the misappropriation is deemed theft by the officers,
directors, or agents of the corporation who are responsible for the
Although sometimes referred to as the civil theft by contractor
statute, the trust fund statute is a criminal statute that affords a
civil cause of action.5 It creates the crime
of theft by contractor, once called the "sophisticated cousin or
ordinary embezzlement,"6 and is to be
harmonized with section 943.20, which is the conduit through which the
crime of theft by contractor is prosecuted.
The Criminal Conduit: Section 943.20. Section 943.20, "Theft,"
penalizes a person who as trustee, having possession or custody of the
money of another, intentionally uses, transfers, conceals, or retains
possession of such money without the owner's consent, contrary to the
trustee's authority, and with intent to convert the money to the
trustee's own use or to the use of any other person except the owner. A
refusal to deliver the money on demand of the person entitled to receive
it, or as required by law, is prima facie evidence of an intent to
convert to the trustee's own use. Depending on the amount of
misappropriated funds, penalties include fines, imprisonment, or
The Trust Fund. Funds do not attain trust fund status until
they are actually paid to a prime contractor or a subcontractor.8 The funds are not trust funds in anyone else's
hands (such as, for example, second-tier subcontractors). It is not
necessary for a first-tier subcontractor to receive funds directly from
the owner for trust fund duties to be imposed on the subcontractor,
because the prime contractor is normally the conduit for payments from
an owner to a subcontractor.9 Subcontractors
and suppliers do not lose their status as trust fund statute
beneficiaries if they fail to exercise their lien rights. A party need
not have a viable lien claim to qualify as a trust fund
When a prime contractor or first-tier subcontractor receives trust
funds, a fiduciary relationship is created.11 In its role as a fiduciary, the contractor acts
as a conduit to facilitate payment to parties providing labor and
materials on the project. Until the claims for labor and materials have
been paid (except those that are the subject of a bona fide dispute),
the contractor must preserve the trust fund. This means that it cannot
use the funds for any purpose other than the payment of claims related
to the project. The contractor's personal creditors or creditors on
other projects also have no right to the funds. Until all claims are
paid, the funds are not subject to creditors' claims12 and are not part of the contractor's estate
in bankruptcy proceedings.13
Once the trust fund exists, the funds are to be preserved for claims
that are due or will become due. There are no exceptions to the trust
fund statute's "hands off" mandate. Because the contractor receiving
project funds does not own those funds, the funds are not on loan to the
contractor to spend at whim. This means that the contractor cannot use a
progress payment from a current project to pay debts from a prior
project or to launch a new project.14
However, a contractor may reimburse itself from trust funds for payments
the contractor makes for labor and materials on the project that is the
source of the funds.15
If the money is misappropriated, it is not a defense that the
contractor did not personally benefit from the expenditure or that it
was spent for business purposes if the business expenditure was
unrelated to the project at hand.16 The
fact that a contractor is in dire financial straits and needs the money
to stay in business also is not an excuse.17 In assessing the propriety of an expense, a
court will not delve into a contractor's motives or good faith.18 Even the most charitable or altruistic
expenditures are improper if they are unrelated to the project.19 Regardless of the most optimistic (and likely
unannounced) intention to ultimately repay the money, a contractor's
repayment of or making of other arrangements with the trust fund
beneficiaries will not "cure" the theft.20
Remedies for Theft by Contractor
Construction trust fund beneficiaries have turned to various remedies
when the trust fund statute has been violated: 1) civil causes of action
against parties responsible for the misappropriation; 2) recoupment
claims against corporate shareholders; 3) claims for treble damages
premised on Wis. Stat. section 895.80; 4) objections to a debtor's
discharge; and 5) restitution in criminal proceedings. A different
standard is used in each context to judge the defendant's actions and
the amount of recovery.
Civil Cause of Action: Conversion of Trust Funds. The civil
cause of action afforded by section 779.02 essentially is one for breach
of fiduciary duty, although it also has been referred to as a "civil
action for conversion of trust funds."21 A
plaintiff must prove by a preponderance of the evidence that: 1) the
owner purchased labor or materials; 2) the labor or materials were
provided; 3) the defendant was paid for the labor or materials by the
owner or mortgagee; and 4) the defendant used the trust fund money for a
purpose other than to pay for the labor or materials provided.22
Although the trust fund statute is in essence a criminal statute that
provides a civil remedy, it is not necessary to prove criminal intent or
intent to defraud to succeed on a claim for misappropriation under the
trust fund statute.23 Because intent and
motive are irrelevant, it is not a defense that the defendant acted in
good faith or made a mistake. However, if the prime contractor has good
cause to refuse to pay, such as if a claim is the subject of a bona fide
dispute, there is no breach of fiduciary duty.24
When the contractor is a corporation, then corporate officers,
directors, and agents responsible for the misappropriation may be
included as defendants. To be considered responsible, it is not
necessary that an officer or director be the person who actually takes
the affirmative act of misappropriating the funds. Responsibility also
can be premised on a failure to act, because an officer or director is
presumed to have knowledge of the company's accounting procedures and
financial records and has the power and authority to ensure the proper
use of funds.25 An officer, director, or
agent can be held liable even if he or she received no personal benefit
from the misappropriation.26
Recovery on a breach of fiduciary duty claim is limited to the amount
of misappropriated funds. Punitive damages may be available in a case of
breach of fiduciary duty if the defendant's conduct is egregious or
outrageous.27 There is no provision in the
statute for the award of attorney fees.
Shareholder Recoupment. Under the trust fund statute, any
interested party may bring an action to recover from a corporate
contractor's shareholders, and restore to the trust fund, the amount of
"such misappropriated moneys which have been received as salary,
dividend, loan repayment, capital distribution or otherwise" by the
shareholders, regardless of whether the shareholders are responsible for
the misappropriation. The statute does not afford a right to recoup
wages from a contractor's employees even if the wages were paid from the
trust funds for work the employees performed on other projects.
Treble Damages Under Section 895.80. Because breach of
fiduciary duty and shareholder recoupment claims under the trust fund
statute limit recovery to the amount of misappropriated funds,
plaintiffs have turned to broader remedies under other statutes,
including Wis. Stat. section 895.80, enacted in 1995. Section 895.80
provides treble damages and attorney fees for those who suffer damage
due to certain intentional crimes against property. Theft as referenced
in section 943.20 is one of the enumerated crimes.
In 2002, the Wisconsin Supreme Court held in Tri-Tech Corp. of
America v. Americomp Services Inc.28
that the section 895.80 treble damages remedy applies to a civil theft
by contractor claim, because a contractor's misappropriation in
violation of the trust fund statute can form the basis of a prosecution
for criminal theft by contractor under section 943.20. The court held
that to obtain treble damages, a plaintiff must prove both the elements
of a civil cause of action under the trust fund statute and the elements
of a criminal offense under section 943.20(1)(b), including the
requisite criminal intent. However, the civil burden of proof
(preponderance of the evidence) applies.
The elements of criminal theft by contractor as laid out by the court
are that the defendant: 1) acted as a prime contractor; 2) received
money from an owner or mortgagee for an improvement; 3) intentionally
used the money for purposes other than paying bona fide claims for labor
or materials before paying those claims; 4) had no authority or consent
to so use the funds; 5) knew the use was without consent and contrary to
the defendant's authority; and 6) used the money with the intent to
convert it to the defendant's own use or the use of another.29
The court noted that the intent required for conviction of the crime
of theft by contractor, and thus for the section 895.80 treble damages
remedy, is an intent to defraud, described as an "intent to convert such
funds to his own use or the use of another."30 The court also noted that section 943.20
provides that a refusal to deliver any money held by a trustee "upon
demand of the person entitled to receive it, or as required by law, is
prima facie evidence of an intent to convert to his or her own use
within the meaning of this paragraph."31
The Tri-Tech court held that the plaintiff failed to meet its
burden, neglecting to even use the statutorily prescribed method of
"proof of refusal to pay contractor funds on demand."32
Some confusion exists as to criminal "intent" in the theft by
contractor context. For example, in 1991 the Wisconsin Criminal Jury
Instructions Committee deleted the sixth element from the theft by
contractor jury instruction (that the defendant must act with an intent
to convert the funds to his or her own personal use). The committee
believed the sixth element was redundant of the third element (the
defendant intentionally used the money for purposes other than the
payment of bona fide claims), because to use trust fund money for any
purpose other than paying off claimants is "personal use."33 The deletion also seemed necessary to erase
confusion over the inclusion of the phrase "personal use," because one
does not have to use the funds for personal reasons or personally
benefit from the funds to be convicted of theft by contractor.34 Although the supreme court in Tri-Tech
referenced the sixth element in its analysis, it did not specifically
address that element's deletion from the criminal jury instruction,
presumably because it was not asked to do so and did not need to do so
because of the plaintiff's total lack of proof.
In claims under section 895.80, if a plaintiff presents evidence of
"refusal after demand" - prima facie evidence of the requisite intent -
a court will not have to grapple with the somewhat amorphous concepts of
"criminal intent" or "intent to defraud." In other cases in which that
prima facie evidence is lacking, it is likely that courts will need to
clarify the exact intent standard necessary to prove the crime of theft
Bankruptcy: Defalcation. Trust fund misappropriation often
goes hand-in-hand with contractor insolvency, requiring a claimant to
fight in bankruptcy court to save its theft by contractor claim from
discharge. Under section 523(a)(4) of the U.S. Bankruptcy Code, a debt
may be excepted from discharge if the debt arose out of defalcation in
the context of a fiduciary relationship. To establish a section
523(a)(4) defalcation exception, a creditor must prove by a
preponderance of the evidence that there is a trust, the debtor was a
fiduciary under the trust, and the debtor engaged in fraud or
defalcation while acting as a fiduciary.35
Although there is no specific definition of defalcation as applied to
the construction trust fund context, the Seventh Circuit Court of
Appeals has stated that more than mere negligence, but less than fraud,
is required.36 Thus, a mere negligent
violation of the trust fund statute would not be per se
defalcation.37 This has been interpreted to
mean that the violation must entail either bad faith or affirmative
misconduct.38 A contractor's knowledge of
the trust fund statute and his or her duties under the statute is
material in determining whether there has been defalcation.39
Restitution. In criminal proceedings involving a
misappropriating contractor, restitution is another avenue of recovery
for persons who lose money due to theft by contractor. Generally,
restitution is limited to special damages that could be recovered in a
civil action against the defendant for the criminal conduct. In a theft
by contractor conviction, this will usually involve the actual trust
fund amounts misappropriated. Attorney fees recoverable in a civil
action under a statutory cost-shifting statute (such as section 895.80)
are not an awardable restitution item because they are not "special
damages."40 A restitution award is not
guaranteed, because the burden is on the victim, not the state, to prove
his or her loss.41 Still, restitution
should not be overlooked as a potential remedy, primarily because of the
strong likelihood that the defendant will make good on the restitution
amount ordered by the court.
Practical Considerations for Project Participants
Prime Contractors. Construction fund misappropriation often
results from the confluence of three factors: undercapitalization, poor
bookkeeping, and a failure to recognize the significance of the trust
fund statute. The obvious solution to the financial trap is for the
contractor to have sufficient funds or financing to launch the project
and then to maintain a sufficient reserve to handle unforeseen
Some contractors maintain one general business account. All payments
from owners go into the account, and all payments to creditors go out of
the account. The mere commingling of funds is not theft by contractor,
because the statute does not require that the funds be maintained in a
separate bank account. As long as the trust funds can be traced from the
owner into the hands of the trustee, commingling does not cause the
funds to lose their trust fund status.42
Nonetheless, use of a separate trust account is advisable.
Although there also is no requirement that separate journals or
ledgers be maintained to account for project funds, a contractor
obviously should have an appropriate, well-organized bookkeeping system.
Payments should not be based on whatever subcontractor complains the
most.43 A contractor also should keep on
top of subcontractor invoices. Failure to timely object to a disputable
claim (or paying a portion of it without objection) may result in a
finding that there is an account stated, depriving the contractor of a
potential bona fide dispute defense.44
Worse yet, the failure to respond to an invoice could be considered a
refusal after demand for payment, which is prima facie evidence of
theft. The presumption of theft may arise even if a contractor does not
expressly refuse to pay. Silence or inaction in the face of a demand
Claimant Subcontractors. Prime contractors sometimes will ask
subcontractors or suppliers to execute lien waivers on the assurance
that payment will be forthcoming once the prime contractor gets paid.
Subcontractors should be aware that they are not required to sign a lien
waiver before getting paid.46 If they do,
however, the waiver is valid, and lien rights are lost.47 Although as a practical matter it may be common
to sign a waiver without getting paid, a subcontractor's refusal to do
so is a good stopgap measure to avoid a contractor's misuse of the
funds, since lenders generally will not disburse funds if the requisite
waivers have not been made.
Claimant Suppliers. Many contractors maintain open accounts
with suppliers. An open account generally is an ongoing account based on
"running or concurrent dealing between the parties which has not been
closed, settled, or stated, and which is kept unclosed with the
expectation of further transactions."48
Usually, in an open account situation, a payment is applied to one or
more debts as the debtor directs. If the debtor gives no directive, the
creditor may choose how to apply the payment.49 When suppliers are aware that a payment relates
to a particular project, they should apply the payment to the debt
related to that project. If they do not, they will lose their right to
contend that they were victims of theft by contractor.50 The prime contractor or a subcontractor using
suppliers also has a vested interest in making sure that its payments
are allocated to specific projects, because if a supplier receives no
directive and applies the payment to the oldest projects, the contractor
is exposed to liability for theft by contractor by other trust fund
beneficiaries.51 Claimants in General:
The Importance of Demand and Tracing. Although in most cases of
nonpayment due to misappropriation a claimant will make a demand, there
will be cases (such as in Tri-Tech) in which a plaintiff fails to
recognize the evidentiary value of such a demand. A claimant should
always remember that a contractor's refusal to turn over trust funds
after demand from a beneficiary is prima facie evidence of an intent to
convert.52 It is wise to make the demand in
writing, although there is no requirement to do so.
To succeed on a theft by contractor claim, a plaintiff must trace
payment by an owner to the contractor or subcontractor.53 A plaintiff must first trace the allegedly
misappropriated funds from the owner (or mortgagee) to the defendant
contractor's hands. The plaintiff must then trace the funds as they
leave the contractor's hands to prove the funds were used for purposes
unrelated to the project. For owners, it is not enough to base a theft
by contractor claim on a hunch that theft occurred because unpaid
subcontractors and suppliers remain, even though the owners made full
payment of the construction funds.54 For
unpaid subcontractors or suppliers, it is not enough to assume that,
because other subcontractors got paid, theft must have taken
A plaintiff's task of tracing the funds and showing their
misappropriation often is difficult. Before litigation, a defendant
contractor's financial records and records of the owner or mortgagee
usually are not readily available to the plaintiff. The plaintiff still
has the burden to prove the misappropriation.
Owners. In many cases, especially with large projects, an
owner's mortgage lender will be monitoring the project and disbursing
project funds from an escrow account. The Uniform Fiduciaries Act
(UFA)56 applies to situations involving
contractors receiving construction trust funds from an owner. Under the
UFA an owner and its lender are not responsible for ensuring that the
prime contractor properly appropriates or applies the entrusted
It is common practice for lenders or title companies that disburse
construction funds to require lien waivers as a condition precedent to
disbursing funds. Yet lien waivers alone do not guarantee that all
potential lien claimants have indeed been paid, because subcontractors
often will sign lien waivers (even though they are not required to do
so) when they have not actually been paid.
An owner and its lender or escrow agent may take other actions to
minimize the chance that the owner and other trust fund statute
beneficiaries do not fall victim to theft by contractor. For example,
they should: 1) notify the prime contractor in writing of the
contractor's responsibilities under the trust fund statute; 2) review
all subcontractor and supplier invoices before payment; 3) demand proof
that subcontractors or suppliers signing lien waivers have actually been
paid; and 4) request an accounting of how funds on the project have been
When holding funds, an owner should be careful not to allow funds
earmarked for a project to be attached by or paid to creditors of any
prime contractor or subcontractor on the proposed project. Under
Wisconsin law an owner is not required to pay contract funds to a
contractor's creditors until claims of subcontractors, laborers, or
suppliers on the project "have either been paid in full, matured by
notice and filing or expired."59 If liens
are filed, an owner is compelled to pay a creditor "only what remains
due in excess of such liens."60
Mortgagees. Construction lenders are protected by a separate
trust fund statute that applies to construction mortgage proceeds. The
proceeds are a trust fund in the hands of the owner or any contractor or
subcontractor receiving such proceeds until all claims for "lienable
labor and materials" have been paid.61 The
use of the funds by any of these parties for any other purpose is theft
by such owner, contractor, or subcontractor. The statute allows any
party aggrieved by such theft to file a complaint with the district
attorney in the county in which the premises are located to seek
prosecution of the misappropriating party.
Depository Banks. Under the UFA, in dealing with a contractor
customer in transactions involving construction trust funds, a bank is
not required to inquire whether the contractor is breaching its
fiduciary duty.62 If there is
misappropriation, the bank is not liable to the trust fund beneficiaries
for contractor misappropriation unless it has actual knowledge that
there is a breach of the contractor's fiduciary duty.63 However, the bank should exercise caution in
receiving payment from a contractor fiduciary for any of the
contractor's personal debts to the bank, because the bank could face
liability if the payment is a breach of the contractor's fiduciary
Third-party Creditors. Because the trust fund statute's trust
obligations expressly apply to only prime contractors or subcontractors
receiving funds from the owner, a third party that receives payment in
good faith from trust funds has no fiduciary duties as to the funds,
which lose their trust fund status on payment to the third party from
the prime contractor or subcontractor. Thus, the third party generally
will not have to disgorge the funds to the rightful
beneficiaries.65 However, under the UFA, if
the payment is from trust funds and for the contractor debtor's personal
debt, the third-party creditor could be liable to the trust fund
beneficiaries if it had knowledge that the payment was for the debtor's
Practical Considerations for Attorneys
Attorneys have ethical obligations when representing contractor
clients who seek advice in situations involving the disposition of
construction trust funds. If an attorney knows that a client is not
treating construction funds as trust funds and is commingling those
funds with other receipts, the attorney has a duty to investigate the
status of the trust funds and the client's appropriation of those funds
before giving legal advice as to creditors' claims and business
planning. An attorney must explain to a contractor client the
ramifications (such as criminal prosecution) of using project trust
funds for unrelated expenses without paying subcontractors or other
Attorneys also may be affected by theft by contractor when they
receive payment from a prime contractor client for their fees. An
attorney who represents a contractor facing theft by contractor
allegations and, in the course of the representation, becomes aware of
the contractor's juggling of project funds and propensity for spending
project funds for unrelated purposes, may reasonably presume that the
money used to pay the attorney fees is coming from the construction
trust funds. An attorney, as a personal creditor of the fiduciary
contractor, could in fact face liability under the UFA to the trust fund
beneficiaries if the client pays the fees with trust funds, because in
making the payment the contractor is breaching its fiduciary
duties.68 In view of this, it is clearly
unwise and unethical to accept a fee payment knowing that the funds are
the fruits of the crime of theft by contractor.69
The Construction Trust Fund Statute "creates an express fiduciary
relationship and delineates clear duties, and Wisconsin contractors are
charged with knowledge of the law in this area."70 Attorneys representing construction project
participants should be charged with knowledge of the law as well.
Although attorneys cannot always prevent clients from imprudently
conducting business, attorneys should not ignore their duty to properly
advise their contractor clients as to the ramifications of construction
fund misappropriation when presented with red flags signaling that the
client may have violated the trust fund statute.
Understanding the many facets of the statute and the theft by
contractor concept is essential for attorneys representing construction
fund fiduciaries to help prevent theft by contractor claims. A working
knowledge of the law also aids attorneys who represent owners and
project claimants to help clients be made whole if they fall victim to
construction fund misappropriation.
1Wis. Stat. § 779.16.
2Pauly v. Keebler, 175 Wis.
428, 435, 185 N.W. 554 (1921).
4Kraemer Bros. v. Pulaski State
Bank, 138 Wis. 2d 395, 402-03, 406 N.W.2d 379 (1987).
5State v. Wolter, 85 Wis.
2d 353, 362, 270 N.W.2d 230 (Ct. App. 1978).
6Wis. JI-Criminal 1443 (Theft by
Contractor), Comment, note 1.
7Wis. Stat. §§ 943.20(3),
939.50(3), 939.51(3). Punishment may range from a fine of $10,000 or
less and imprisonment up to nine months (or both) (for a Class A
misdemeanor) to a fine up to $25,000 or imprisonment not to exceed 10
years (or both) (for a Class G felony, if the amount at issue exceeds
8Visser v. Koenders, 6 Wis.
2d 535, 537, 95 N.W.2d 363 (1959).
9Kraemer Bros., 138 Wis.
2d at 402.
10Wisconsin Dairies Coop. v.
Citizens Bank, 160 Wis. 2d 758, 772, 467 N.W.2d 124 (1991).
11Loehrke v. Wanta Builders
Inc., 151 Wis. 2d 695, 702-03, n.2, 445 N.W.2d 717 (Ct. App.
12Wis. Stat. section 779.02(5)
provides in part: "Until all claims are paid in full, have matured by
notice and filing or have expired, such proceeds and moneys shall not be
subject to garnishment, execution, levy or attachment."
13See In re Marrs-Winn
Co., 103 F.3d 584, 589 (7th Cir. 1996).
14See State v. Blaisdell,
85 Wis. 2d 172, 178, 270 N.W.2d 69 (1978) (quoting Prof. Walter
Raushenbush: "If a contractor is building several houses and uses a
progress payment on the most recent one to pay off the subs on a
previous one, that is larceny").
15See State v. Sobkowiak,
173 Wis. 2d 327, 335, 496 N.W.2d 620 (Ct. App. 1992).
16See Burmeister Woodwork Co.
v. Friedel, 65 Wis. 2d 293, 298, 222 N.W.2d 647 (1974) (stating
there is "no requirement that the corporate officer responsible for the
misappropriation of the funds must receive a benefit from his acts
before he may be held personally liable").
17Id. at 299 (observing
the trial court's remark that the trust fund statute "is not concerned
with the financial problems of corporations").
18W.H. Major & Sons Inc.
v. Krueger, 124 Wis. 2d 284, 294, n.1, 369 N.W.2d 400 (Ct.
19See, e.g., State v.
Stepniewski, 105 Wis. 2d 261, 314 N.W.2d 98 (1982) (admission
that contractor used trust funds to make a contribution to the Boy
Scouts was sufficient to sustain conviction for theft by
20See Sobkowiak, 173
Wis. 2d at 336 (stating defendant "could not cure his theft by
ultimately repaying the funds diverted to his personal use or by
satisfying the claims of the laborers and materialmen after his offense
21Burmeister, 65 Wis. 2d
22Paulsen Lumber Inc. v.
Anderson, 91 Wis. 2d 692, 695, 283 N.W.2d 580 (1979).
23Burmeister, 65 Wis. 2d
24See Loehrke, 151 Wis. 2d
25See Capen Wholesale Inc. v.
Probst, 180 Wis. 2d 354, 369-70, 509 N.W.2d 120 (Ct. App. 1993)
(concluding that corporate officer's "acts of omission as well as
commission rendered him responsible for the misappropriation").
26Id. at 364.
27See Loehrke, 151 Wis. 2d
282002 WI 88, 254 Wis. 2d 418,
646 N.W.2d 822.
29Id. at ¶¶
30Id. at ¶ 28.
31Id. at ¶ 18.
32Id. at ¶ 32.
33See Wis. JI-Criminal
1443 (1994), Comment, note 7.
34In 1996, in Sobkowiak,
the court of appeals agreed that the sixth element was redundant and
that the third element as specified in the jury instruction is the
correct intent element. 173 Wis. 2d at 338. The court concluded that "to
establish a violation of sec. 779.02(5), Stats., it is not necessary
that the state show beyond a reasonable doubt that the prime contractor
intended to permanently deprive laborers and materialmen of
compensation. The intent establishing the violation is the intent to use
moneys subject to a trust for purposes inconsistent with the trust."
Id. at 339.
35In re Eisenberg, 189
B.R. 725, 730 (E.D. Wis. 1995).
36Meyer v. Rigdon, 36 F.3d
1375, 1382-85 (7th Cir. 1994).
38In re Koch, 197 B.R. 654
(E.D. Wis. 1996).
40State v. Longmire, 2004
WI App 90, ¶ 34, 272 Wis. 2d 759, 681 N.W.2d 534.
41The victim of a crime must
prove by a preponderance of the evidence "the amount of loss sustained
by a victim as a result of a crime." Wis. Stat. §
42See Simonson v. Mc
Invaille, 42 Wis. 2d 346, 352, 166 N.W.2d 155 (1969) (stating "[i]n
Wisconsin it is well established that when trust funds are commingled
with other funds, the trust may be enforced against any part of the
commingled fund which can be traced into the hands of a trustee").
43See, e.g., State v.
Hess, 99 Wis. 2d 22, 36, 298 N.W.2d 111 (Ct. App. 1980) (defendant
testified that "the order of payment to the subcontractors was
determined by `whoever was screaming the loudest'").
44See, e.g., Loss Prevention
Sys. v. Alpha Omega, No. 98-2286-FT (Wis. Ct. App. July 6, 1999)
45See Hess, 99 Wis. 2d at
36 (stating "[w]e do not agree that such an express refusal to pay is
necessary. The jury could reasonably infer from the repeated requests
for payment and defendant's failure to follow through on his promises to
pay, that the payment was not only intentionally, but wrongfully
46See Wis. Stat. §
779.05(1) (entitling a potential lien claimant "to refuse to furnish a
waiver unless paid in full for the work or material to which the waiver
relates"); Wis. Stat. § 779.135 (prohibiting in construction
contracts "provisions requiring a contractor, subcontractor or material
supplier to waive his or her right to a construction lien or to a claim
against a payment bond before he or she has been paid for the labor or
materials or both that he or she furnished").
Mechanical Inc. v. Northland College, 2004 WI App 100, ¶ 9,
273 Wis. 2d 471, 681 N.W.2d 302 (stating subcontractor
"submitted a construction lien waiver before being paid
notwithstanding the void contract waiver provision. In light of §
779.05(1), [the subcontractor's] construction lien waiver is
48State v. J.C. Penney
Co., 48 Wis. 2d 125, 146, 179 N.W.2d 641 (1970).
49Lyman Lumber Inc. v.
Thompson, 138 Wis. 2d 124, 127, 405 N.W.2d 708 (Ct. App.
50Id. at 129 (stating
"[w]hen the source of the funds is known, the identical property rule
requires the creditor to apply payments against the debt related to the
source of such funds. When payments are made at a job site
contemporaneous with the delivery of materials, it is reasonable to
infer that the funds were derived from the owner of the project").
51See State v. Blaisdell,
85 Wis. 2d 172, 181, 270 N.W.2d 69 (1978) (the defendants did not
designate payment for the particular job and the "jury was entitled to
believe that the defendants knew they had a right to designate payment
for a specific project, but that they allowed [the trust fund money] to
be applied to other obligations that they owed to [the supplier]").
52Wis. Stat. §
53See W.H. Major &
Sons Inc., 124 Wis. 2d at 290.
54See Capital City
Sheet Metal Inc. v. Voytovich, 217 Wis. 2d 683, 689-90, 578
N.W.2d 643 (Ct. App. 1998) (stating "[i]t is true that Capital City
did not get paid the full amount of its invoice, but that is not the
test under the statute").
55See W.H. Major &
Sons Inc., 124 Wis. 2d at 292.
56Wis. Stat. § 112.01(1)(b)
("Fiduciary" includes a "prime contractor or subcontractor who is a
trustee under ch. 779").
57Wis. Stat. §
58Although the trust fund statute
does not require such an accounting, note that on home improvement
projects, a homeowner under certain circumstances may "[d]emand a
written accounting" of all payments made to the contractor, detailing
how all the payments were used. Wis. Admin. Code § ATCP
59Wis. Stat. §
61Wis. Stat. §
62Wis. Stat. § 112.01(6),
64Wis. Stat. § 112.01(6),
65Kraemer Bros., 138 Wis.
2d at 407.
66Wis. Stat. §
67In a situation in which the
attorney did not do so, he was publicly reprimanded. See Disciplinary
Proceedings Against Winkel, 217 Wis. 2d 339, 577 N.W.2d 9
68Wis. Stat. §
69See SCR 20:1.2(d) (a
lawyer shall not assist a client "in conduct that the lawyer knows is
criminal or fraudulent").
70In re Koch, 197 B.R. at