2023 Wisconsin Statutes & Annotations › Chapter 779 - Liens. › 779.16 - Theft by contractors.

779.16
Theft by contractors.
All moneys, bonds or warrants paid or to become due to any prime contractor or subcontractor for public improvements are a trust fund only in the hands of the prime contractor or subcontractor to the amount of all claims due or to become due or owing from the prime contractor or subcontractor for labor, services, materials, plans, and specifications performed, furnished, or procured for the improvements, until all the claims have been paid, and shall not be a trust fund in the hands of any other person. The use of any such moneys by any prime contractor or subcontractor for any other purpose until all claims, except those which are the subject of a bona fide dispute and then only to the extent of the amount actually in dispute, have been paid in full or proportionally in cases of a deficiency, is theft by the prime contractor or subcontractor of moneys so misappropriated and is punishable under s. 943.20. If the prime contractor or subcontractor is a corporation, limited liability company, or other legal entity other than a sole proprietorship, such misappropriation also shall be deemed theft by any officers, directors, members, partners, or agents responsible for the misappropriation. Any of such misappropriated moneys which have been received as salary, dividend, loan repayment, capital distribution or otherwise by any shareholder, member, or partner not responsible for the misappropriation shall be a civil liability of that person and may be recovered and restored to the trust fund specified in this subsection by action brought by any interested party for that purpose. Except as provided in this subsection, this section shall not create a civil cause of action against any person other than the prime contractor or subcontractor to whom such moneys are paid or become due. Until all claims are paid in full, have matured by notice and filing or have expired, such money, bonds and warrants shall not be subject to garnishment, execution, levy or attachment.
History:  1973 c. 231; 1975 c. 409; 1979 c. 32 s. 57; Stats. 1979 s. 779.16; 2005 a. 204.
A fiduciary relationship exists between a prime contractor and subcontractor when the prime contractor has received payment for a public improvement. Loehrke v. Wanta Builders, Inc., 151 Wis. 2d 695, 445 N.W.2d 717 (Ct. App. 1989).
In this case, the court's determination that the subcontractor did not prove its theft-by-contractor claim because the prime contractor was “solvent and always able to pay" was incorrect as a matter of law when the evidence unquestionably showed that the prime contractor retained and used the money it owed to the subcontractor to support the prime contractor's general account for payment of its own business obligations. The fact that the prime contractor, almost a year after it refused the subcontractor's first demand for payment and after the subcontractor's second demand, placed the entire contract amount into the trust account of the prime contractor's attorney amounted to little more than a continued refusal to pay the amount owed. Century Fence Co. v. American Sewer Services, Inc., 2021 WI App 75, 399 Wis. 2d 742, 967 N.W.2d 32, 19-2432.
In this case, when the subcontractor undisputedly completed the job as the contract required, a question about how much work was necessary to complete the job was irrelevant to the question of what was owed to the subcontractor under the contract. The prime contractor had no legitimate ground for withholding payment simply because it, after-the-fact, may have regretted not negotiating the contract differently. There was no “bona fide" dispute. Century Fence Co. v. American Sewer Services, Inc., 2021 WI App 75, 399 Wis. 2d 742, 967 N.W.2d 32, 19-2432.
A prime contractor cannot cure its theft once the crime is completed. Century Fence Co. v. American Sewer Services, Inc., 2021 WI App 75, 399 Wis. 2d 742, 967 N.W.2d 32, 19-2432.
Misappropriation of funds under this section was a nondischargeable debt in bankruptcy. In re Thomas, 729 F.2d 502 (1984).