Wisconsin Statutes & Annotations
Chapter 779 - Liens.
779.02 - Notice required to preserve lien rights; exceptions; saving clause; obligations of contractors.

779.02 Notice required to preserve lien rights; exceptions; saving clause; obligations of contractors.
(1) Exceptions to notice requirement. The notice required to be given by lien claimants under sub. (2) shall not be required to be given in the following cases only:
(a) By any laborer or mechanic employed by any prime contractor or subcontractor.
(b) By any lien claimant who has contracted directly with the owner for the labor, services, materials, plans, or specifications performed, furnished, or procured, unless the claimant is a prime contractor subject to the notice requirement of sub. (2) (a).
(c) By any lien claimant performing, furnishing, or procuring labor, services, materials, plans, or specifications for an improvement in any case where more than 4 family living units are to be provided or added by such work of improvement, if the improvement is wholly residential in character, or in any case where the improvement is partly or wholly nonresidential in character.
(d) By any prime contractor who is personally an owner of the land to be improved, by any corporate prime contractor of which an owner of the land is an officer or controlling shareholder, by any prime contractor who is an officer or controlling shareholder of a corporation which is an owner of the land or by any corporate prime contractor managed or controlled by substantially the same persons who manage or control a corporation which is an owner of the land.
(e) By any lien claimant, other than a prime contractor, who performs, furnishes, or procures labor, services, materials, plans, or specifications for an improvement on a project on which the prime contractor is not required to give notice under this section.
(2) Notice to owner, lender, and supplier.
(a) Every prime contractor who enters into a contract with the owner for a work of improvement on the owner's land and who has contracted or will contract with any subcontractors, suppliers, or service providers to perform, furnish, or procure labor, services, materials, plans, or specifications for the work of improvement shall include in any written contract with the owner the notice required by this paragraph, and shall provide the owner with a copy of the written contract. If no written contract for the work of improvement is entered into, the notice shall be prepared separately and served on the owner or authorized agent within 10 days after the first labor, services, materials, plans, or specifications are performed, furnished, or procured for the improvement by or pursuant to the authority of the prime contractor. The notice, whether included in a written contract or separately given, shall be in at least 8-point bold type, if printed, or in capital letters, if typewritten. It shall be in substantially the following language: “As required by the Wisconsin construction lien law, claimant hereby notifies owner that persons or companies performing, furnishing, or procuring labor, services, materials, plans, or specifications for the construction on owner's land may have lien rights on owner's land and buildings if not paid. Those entitled to lien rights, in addition to the undersigned claimant, are those who contract directly with the owner or those who give the owner notice within 60 days after they first perform, furnish, or procure labor, services, materials, plans or specifications for the construction. Accordingly, owner probably will receive notices from those who perform, furnish, or procure labor, services, materials, plans, or specifications for the construction, and should give a copy of each notice received to the mortgage lender, if any. Claimant agrees to cooperate with the owner and the owner's lender, if any, to see that all potential lien claimants are duly paid".
(b) Every person other than a prime contractor who performs, furnishes, or procures labor, materials, plans, or specifications for an improvement shall have the lien and remedy under this subchapter only if within 60 days after performing, furnishing, or procuring the first labor, services, materials, plans, or specifications the person serves a written notice, in 2 signed copies, on the owner or authorized agent at the last-known post-office address. The owner or agent shall provide a copy of the notice received, within 10 days after receipt, to any mortgage lender who is furnishing or is to furnish funds for construction of the improvement to which the notice relates. The notice to the owner shall be in substantially the following language, with blanks accurately filled in: “As a part of your construction contract, your prime contractor or claimant has already advised you that those who perform, furnish, or procure labor, services, materials, plans, or specifications for the work will be notifying you. The undersigned first performed, furnished, or procured labor, services, materials, plans, or specifications on .... (give date) for the improvement now under construction on your real estate at .... (give legal description, street address or other clear description). Please give your mortgage lender the extra copy of this notice within 10 days after you receive this, so your lender, too, will know that the undersigned is included in the job".
(c) If any prime contractor required to give the notice prescribed in par. (a) fails to give notice as required, the prime contractor does not have the lien and remedy provided by this subchapter unless the prime contractor pays all of the prime contractor's obligations to its subcontractors, suppliers, and service providers in respect to the work of improvement within the time periods under s. 779.06 and until the time for notice under par. (b) has elapsed and either none of its subcontractors, suppliers, or service providers gives notice as a lien claimant under par. (b) or all of its subcontractors, suppliers, and service providers have waived all lien rights in full under s. 779.05.
(d) Every mortgage lender making an improvement or construction loan shall make reasonable inquiry of the owner as to whether any notices required by this subsection have been given. A lender is not required to pay out any loan proceeds unless or until the prime contractor has given any notice required of the prime contractor by this subsection.
(e) If the owner or lender complains of any insufficiency of any notice, the burden of proof is upon the owner or lender to show that he or she has been misled or deceived by the insufficiency. If there is more than one owner, giving the notice required to any one owner or authorized agent is sufficient. In addition, every prime contractor and subcontractor, at the time of purchasing or contracting for any materials to be used in any of the cases enumerated in s. 779.01, shall upon request deliver to the supplier a description of the real estate upon which the materials are to be used and the name and post-office address of the owner and authorized agent, if any. Failure to receive such description and name and address does not relieve a supplier who asserts a lien from the requirement of giving timely notice.
(3) Failure to give notice; saving clause. Any lien claimant, other than the prime contractor, who fails to give a notice as required by sub. (2) (b) shall have no lien on the land or improvement to which the failure relates. Any claimant who serves a late but otherwise proper notice on the owner or authorized agent shall have the lien provided by s. 779.01 for any labor, services, materials, plans, or specifications performed, furnished, or procured after the late notice is actually received by the owner. The burden of proving that labor, services, materials, plans, or specifications for which a lien is claimed were furnished after that date is on the lien claimant.
(4) Notice and filing requirements in s. 779.06 unaffected. Nothing in this section shall be construed to relieve any lien claimant of the notice and filing requirements under s. 779.06.
(5) Theft by contractors. The proceeds of any mortgage on land paid to any prime contractor or any subcontractor for improvements upon the mortgaged premises, and all moneys paid to any prime contractor or subcontractor by any owner for improvements, constitute 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 used 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 does not create a civil cause of action against any person other than the prime contractor or subcontractor to whom such moneys are paid. 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.
(6) Prime contractors to defend lien actions. Where a lien is filed under this subchapter by any person other than the prime contractor, the prime contractor shall defend any action thereon at personal expense, and during the pendency of the action the owner may withhold from the prime contractor the amount for which the lien was filed and sufficient to defray the costs of the action. In case of judgment against the owner, the owner may deduct from any amount due to the prime contractor the amount of the judgment and if the judgment exceeds the amount due, the owner may recover the difference from the prime contractor. This subsection does not apply if the lien is the result of the failure of the owner to pay the prime contractor.
(7) Wrongful use of materials. Any prime contractor or any subcontractor furnishing materials who purchases materials on credit and represents at the time of making the purchase that the materials are to be used in a designated building or other improvement and thereafter uses or causes them to be used in the construction of any improvement other than that designated, without the written consent of the seller, may be fined not more than $300 or imprisoned not more than 3 months.
(8) Wage payments to laborer apply to earlier work. In any situation where a laborer or mechanic employed by any prime contractor or subcontractor has wage payments due and has worked on more than one improvement for the employer during the period for which the wages are due, and a payment of less than all wages due is made, the payment is deemed to apply to the unpaid work in chronological sequence starting with the earliest unpaid time, unless the laborer agrees in writing that the payment shall be applied in a different way.
History: 1973 c. 229, 231; 1975 c. 409; 1979 c. 32 ss. 57, 92 (9); 1979 c. 110 s. 60 (12); 1979 c. 176, 355; Stats. 1979 s. 779.02; 1983 a. 362; 1995 a. 395; 2005 a. 204.
It is not necessary to show that the defendant received benefits from a misappropriation of trust funds in order for the plaintiff to recover. A showing of wrongful intent is not required to establish civil liability under sub. (5). Burmeister Woodwork Co. v. Friedel, 65 Wis. 2d 293, 222 N.W.2d 647 (1974).
When the defendant lessor had not paid the lessee for improvements to the lessor's property by the lessee's contractor, the contractor had a claim for unjust enrichment against the defendant even though the contractor lost its lien rights against the defendant by failing to give the notice required under sub. (2) (a). S&M Rotogravure Service, Inc. v. Baer, 77 Wis. 2d 454, 252 N.W.2d 913 (1977).
Intent to defraud must be proved when criminal sanctions are sought under sub. (5). State v. Blaisdell, 85 Wis. 2d 172, 270 N.W.2d 69 (1978).
Because an entire project was covered by one contract, three buildings on three adjoining lots constituted a single improvement under sub. (1) (c). Cline-Hanson, Inc. v. Esselman, 107 Wis. 2d 381, 319 N.W.2d 829 (1982).
Sub. (5) does not require that payments be made directly from the owner to subcontractors for a trust to be created. Money deposited into a bank did not lose its trust fund status. Kraemer Bros. v. Pulaski State Bank, 138 Wis. 2d 395, 406 N.W.2d 379 (1987).
A trust fund under sub. (5) is created when an owner constructively pays an insolvent contractor by delivering money to the clerk of court seeking a declaratory judgment as to distribution. A subcontractor need not preserve lien rights. Wisconsin Dairies Cooperative v. Citizens Bank & Trust, 160 Wis. 2d 758, 467 N.W.2d 124 (1991).
A violation of sub. (5) may be found without showing that the prime contractor intended to permanently deprive laborers and suppliers of compensation. The intent required is to use the moneys subject to a trust inconsistent with the purpose of the trust. State v. Sobkowiak, 173 Wis. 2d 327, 496 N.W.2d 620 (Ct. App. 1992).
Under sub. (5), a corporate officer who had the power and authority to ensure that corporate affairs were properly managed and who did not receive a personal benefit may be personally responsible for a misappropriation. Capen Wholesale, Inc. v. Probst, 180 Wis. 2d 354, 509 N.W.2d 120 (Ct. App. 1993).
The prime contractor's duty under sub. (6) to defend the property owners against subcontractors' lien claims is not altered because the prime contractor is also owed money. Torke/Wirth/Pujara, Ltd. v. Lakeshore Towers of Racine, 192 Wis. 2d 481, 531 N.W.2d 419 (Ct. App. 1995).
The exemption under sub. (1) (c) to the notice requirement for improvements when more than four residential units are provided is not restricted to the actual provision of the dwellings, but also applies to improvements that facilitate providing the dwellings when the improvements are not provided to each living unit separately but are provided to a project as a whole. Riverwood Park, Inc. v. Central Ready-Mixed Concrete, Inc., 195 Wis. 2d 821, 536 N.W.2d 722 (Ct. App. 1995), 94-2413.
The test for a violation of sub. (5) is whether all the money received by the contractor was paid for labor and materials used for contracted improvements. It is not whether an individual subcontractor received its full billed amount. Capital City Sheet Metal, Inc. v. Voytovich, 217 Wis. 2d 683, 578 N.W.2d 643 (Ct. App. 1998), 97-1588.
When a lien claimant's work was essential to allow an improvement to be used for its intended purpose and the improved area exceeded 10,000 square feet, the work “provided" 10,000 square feet of space to the facility under former sub. (1) (c), 1995 stats., and the claimant was exempt from the sub. (2) lien notice requirement. United States Fire Protection, Wisconsin, Inc. v. St. Michael's Hospital of Franciscan Sisters, Milwaukee, Inc., 221 Wis. 2d 410, 585 N.W.2d 659 (Ct. App. 1998), 97-3426.
Under sub. (5), a misuse of contractor trust funds can form the basis of a prosecution for criminal theft by contractor under s. 943.20. Because s. 943.20 qualifies for treble damages under s. 895.80, treble damages are available for theft by contractor under sub. (5), provided that the elements of both the civil and the criminal statutes, including the specific criminal intent element required by s. 943.20, are proven to the civil preponderance burden of proof. Tri-Tech Corp. of America v. Americomp Services, Inc., 2002 WI 88, 254 Wis. 2d 418, 646 N.W.2d 822, 00-3195.
While money cannot be used for purposes outside of the project, that does not end contractors' responsibilities under the statute. Using the money to pay themselves in full while other subcontractors have not been paid proportionally constitutes using money for a non-statutory purpose. State v. Keyes, 2008 WI 54, 309 Wis. 2d 516, 750 N.W.2d 30, 04-1104.
Monies paid to the trustee in bankruptcy of an insolvent contractor are not trust funds. Wisconsin Furnace Supply Corp. v. Kroog, 322 F. Supp. 1161 (1971).
Wisconsin's Construction Trust Fund Statute: Protecting Against Theft by Contractor. Hinkston. Wis. Law. May 2005.

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