When non-compliant or defective work issues arise on a project, payment is often disrupted. If only partial payments are made to a contractor, some subcontractors may not be fully paid and litigation results. Savvy legal counsel may pursue a misapplication of trust funds claim as a means of recovering unpaid amounts. If one is pursuing the claim or defending against it, a claim for misapplication of trust funds can be a powerful weapon or an aggravating, although serious, nuisance.
Under Chapter 162 of the Texas Property Code, payments made under a construction contract are generally considered trust funds. The contractor, subcontractor or owner who receives the funds is considered a trustee. Laborers, subcontractors, material providers, et al, are beneficiaries of trust funds.