Tennessee Code Annotated
Tenn. Code Ann. § 66-11-138 (2026)
Contractor's misapplication of payments - Violation
✓ current as of May 2026
- (a)
- (1) Any prime contractor or remote contractor who, with intent to defraud, uses the proceeds of any payment made to that contractor on account of improving certain real property for any purpose other than to pay for labor performed on, or materials, services, equipment, or machinery furnished by that contractor's order for the real property, and overhead and profit related thereto, while any amount for the labor, materials, services, equipment, machinery, overhead, or profit remains unpaid shall be liable to an injured party for any damages and actual expenses incurred, including attorneys' fees, if the damages and expenses incurred are the result of the misapplication of the payment.
- (2) A violation of subdivision (a)(1) is a Class E felony.
- (b) Notwithstanding subsection (a), there is no violation of this section when:
- (1) Funds are disbursed pursuant to written agreement; or
- (2) The use of funds received and deposited in a business account for use on multiple construction projects is based on the allocation of costs and profits in accordance with generally accepted accounting principles for construction projects.
Code 1932, § 7944 (Williams, § 7944a); T.C.A. (orig. ed.), § 64-1140; Acts 1989, ch. 591, § 89; 2004, ch. 688, § 1; 2007, ch. 189, § 37.
Notes of Decisions
Cited in 15
cases (2 in the last 5 years), 1983–2026 · leading case: Wilson v. Mettetal (In Re Mettetal), 41 B.R. 80 (Bankr. E.D. Tenn. 1984).
Wilson v. Mettetal (In Re Mettetal), 41 B.R. 80 (Bankr. E.D. Tenn. 1984). “II The theories asserted by both the plaintiffs Wilson and Paty are very similar.”
State v. Kendrick, 178 S.W.3d 734 (Tenn. Crim. App. 2005). “More importantly, the State has not proven the elements required under Tennessee Code Annotated section 66-11-138 which makes misapplication of contract funds a crime.”
Wilson v. Estes (In Re Wilson), 30 B.R. 91 (Bankr. E.D. Tenn. 1983). “BARE, Bankruptcy Judge, This case involves a request for an injunction 1 to prohibit continuation of criminal prosecution of plaintiff Wilson for alleged violations of Tenn.Code Ann. § 66-11-138 (1982). 2 Plaintiff insists the crimi *93 nal prosecution has been undertaken in bad…”
State v. Gene Ivan Amanns, 2 S.W.3d 241 (Tenn. Crim. App. 1999). “This statute is enacted upon the premise that funds which have been received by a contractor from the owner to pay laborers or material-men are trust funds.”
In Re Null's Serv., Inc., 109 B.R. 301 (Bankr. W.D. Tenn. 1990). “McCain argues that under Tenn.Code Ann. § 66-11-138, a trust arises from the benefit of the suppliers to support its position.”
Dickenson v. Hacker Bros. (In Re LaFollette Sheet Metal, Inc.), 35 B.R. 634 (Bankr. E.D. Tenn. 1983). “In Tennessee, Tenn.Code Ann. § 66-11-138 (1982) (Misapplication of contract payments— Felony — ) does not create a statutory trust.”
Alside Supply Ctr. v. Vinson, 802 S.W.2d 632 (Tenn. Ct. App. 1990). “In interpreting the provisions of Tenn.Code Ann. §§ 66-11-138 to -140, the Court held that any furnisher of materials and supplies to a contractor must act in good faith, and if a supplier falsifies accounts or connives with the contractor to defraud the owner, he loses his…”
Lancaster v. Morristown Block & Concrete Prods. (In Re Compton), 55 B.R. 180 (Bankr. E.D. Tenn. 1985). “’’) See generally Tenn.Code Ann. § 66-11-138 (1982) (it is felony for contractor, with intent to defraud, to use proceeds of payment made to him on account of improving certain real property for purpose other than to pay for labor or material furnished by his order for that…”
Lail v. Weaver (In Re Weaver), 174 B.R. 85 (Bankr. E.D. Tenn. 1994). “The Plaintiffs also assert that the partners’ use of the line of credit for other Shur-Bilt projects was a felonious misapplication of contract proceeds under Tenn.Code Ann. § 66-11-138 (1993). Here, the alleged commission of a felony is also a future act which does not…”
Burleson Constr. Co. v. White (In re White), 106 B.R. 501 (Bankr. E.D. Tenn. 1989). “The plaintiff contends that under Tenn.Code Ann. § 66-11-138 the payments it made to the defendant were impressed with a trust such that the defendant had a fiduciary obligation to see to it the funds were used to pay Andrews for the supplies furnished in connection with the Oak…”
Clarksville Towers, LLC v. John Straussberger (Tenn. Ct. App. 2021). “” Although no legal basis was set forth in the motion, in its accompanying memorandum of law, Clarksville Towers explained that it based its motion on its interpretation of the “Tennessee Trust Fund Statute,” codified at Tennessee Code Annotated § 66-11-138; the Prompt Pay Act…”
State of Tennessee v. Michele Lee Ridgeway (Tenn. Crim. App. 2026). “2005) (concluding that the proof did not establish a violation when “the State has not proven the elements required under Tennessee Code Annotated section 66-11-138 which makes misapplication of contract funds a crime”).”
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