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Theft - Embezzlement

property mitchneck money larceny

In the eighteenth and nineteenth centuries the pressures to extend theft law beyond the "trespass" limits of common larceny became irresistible. An offense had to be created to penalize the defalcations of bailees, trustees, and the like who clearly did not wrongfully infringe on the possession of others, since they had themselves been put in possession either by the owners or by authority of law, as where an executor, administrator, or trustee took property under a will subject to a fiduciary obligation to administer for the benefit of heirs. Embezzlement is, then, misappropriation of the property of another when that property is already in possession of the embezzler. The law expanded cautiously, as might be expected, since the objections to an expansive theft law, which had been felt in connection with larceny, did not evaporate. Initially only a few of the numerous classes of potential embezzlers, such as fiduciaries and haulers, were named in the statutes. Eventually the coverage of the embezzlement statutes was enlarged to cover anyone who had property of another in his own possession.

One of the objections to expanding theft law—the harshness of larceny penalties—was met by providing milder although still heavy sanctions for embezzlement, thus introducing the somewhat surprising phenomenon that different forms of theft would be treated with varying degrees of severity depending on the historic moment when a particular expansion of theft law was effectuated. A major peculation by a trustee or bank official might carry a lesser penalty than a minor trespassory larceny, although many would consider that the former was the more heinous and harmful behavior. Over a period of time the severity of larceny penalties gradually moderated; and ultimately, when various forms of theft were consolidated into a single offense, the same statutory maximum would become applicable to both larceny and embezzlement.

Misappropriation."Misappropriation" is the criminal act that characterizes embezzlement, just as "taking" characterizes larceny. It is generally more difficult to decide whether misappropriation occurred than to decide whether property was unlawfully taken. A real estate broker or a lawyer, for example, may receive the proceeds of a sale or property or money recovered in a lawsuit. It is easy to say that such monies are misappropriated if the broker or lawyer pockets the whole fund and spends it for his personal needs. But what if the broker deposits the buyer's check in the broker's personal bank account, meaning to write a check later payable to the client for the amount of the proceeds less commission? That way of handling the transaction may violate standards of professional behavior which explicitly require clients' funds to be deposited and held in separate accounts; but it would be a harsh rule that transformed every violation of prophylactic professional regulations into a severely punishable theft. Ethical codes of the professions generally provide lesser sanctions, such as reprimand or suspension from practice, and no ethics committee of a professional association should have the power to redefine crime by changing its rules of ethics. On the other hand, the mere fact that an act violates professional standards should not immunize professional misbehavior from criminal sanctions that apply to identical conduct engaged in by nonprofessionals.

Perhaps the resolution of this dilemma lies in the proposition that identical acts have different significance in different circumstances. If I give my friend $1,000 with which to pay my bills while I am on a long journey, and he deposits the money in his own account to avoid the inconvenience of opening a separate account, it would be unreasonable to conclude that he is misappropriating my property. However, if I give money to my lawyer to pay a judgment against me and the lawyer deposits it in his own account, quite different implications may arise. For the lawyer, having a separate account for clients' funds is no temporary or occasional need but part of the normal way of doing business, explicitly mandated by codes of professional ethics. Accordingly, the commingling of client funds with personal funds ordinarily represents not merely a lazy avoidance of minor inconvenience, but rather a significant and, for the professional, unusual choice among available accounts. In short, the lawyer appears to have taken the first step toward applying the client's money to his own private use. One could call that preparation or attempt to misappropriate the money, the offense becoming complete later when the lawyer draws checks on the account to pay his personal bills. However, the law chooses to treat the initial deposit in the lawyer's account as already an exercise of hostile dominion over the entrusted fund. Just as has been seen above in the case of larceny, the logical distinction between attempted and completed theft is not always maintained.

The ambiguity of "misappropriation" is further illustrated by cases where an agent has been convicted of misappropriating a check made out to his principal even though he deposits that check in his principal's account. This result has been reached in situations where the agent, owing the principal money on account of earlier transactions, covers up the shortage by depositing current checks with vouchers falsely attributing them to the earlier transactions. Because of the false accounting, the agent is seen as having applied the current checks to his own purposes, squaring himself with the company, and thus misappropriating.

An extreme and dubious extension of the concept of misappropriation is expressed in some statutes that make any shortage in the accounts of a public official a basis for convicting him of embezzlement. The reasoning goes as follows. There is proof that the official received X amount, as tax collector. He has on hand only X minus Y. Thus he must have misappropriated Y, or at least failed to exercise proper care in collecting, conserving, or disbursing tax monies. Such reasoning and legislation confound theft with negligence, or, even more at variance with Anglo-American traditions, seeks to facilitate convicting an official of a presumed embezzlement by eliminating the necessity of proving misappropriation.

Property of another. The embezzlement statutes transcended the difficulties experienced in larceny law over the kinds of property covered. One can embezzle real as well as personal property, negotiable instruments and securities as well as tangible physical goods. But limiting embezzlement to "property" plays an important role in one class of situations, namely, where it may be necessary to decide whether a defendant exerted control over property belonging to another or whether instead he merely failed to pay a contracted debt owed to the other. The distinction is of constitutional importance where imprisonment for debt is constitutionally forbidden. It is, in any event, important from a policy viewpoint because putting the force of the criminal law behind fulfillment of contracts would have immense social and economic implications. Department stores, banks, credit card agencies, and other creditors would then be able to call upon prosecuting attorneys to aid in collections, the threat of jail for defaulting debtors would be legitimated, and creditors, especially of the poor, would be partially relieved of the necessity of carefully screening their extensions of credit.

Distinguishing property from contract obligations is not always easy. One tends to think of "having" money in a bank, whereas the true relationship is that depositing money "in" one's bank account, unlike stashing it in a safe-deposit box, is in effect a transfer of ownership to the bank. Thereafter the bank merely owes money to the depositor. That means that the banker may, the moment he has the depositor's cash in hand, use that cash as he will. He does not misappropriate it even though he proceeds forthwith to the racetrack, where he loses it all at the betting windows. That may violate certain banking laws; it is not theft.

The niceties to which the distinctions between property and contract can give rise are illustrated by Commonwealth v. Mitchneck, 130 Pa. Super. 433, 198 A. 463 (1938). Mitchneck operated a small coal mine during the Depression of the 1930s. He had an arrangement with the miners whereby they could obtain groceries from a storekeeper on credit. Mitchneck would pay the grocer and deduct the amount from the miners' paychecks. At some point, Mitchneck found himself unable to pay the grocer, although he had deducted the grocery bills from the wage payments. That is to say, the cash withheld from wages had gone either into Mitchneck's pocket or to pay some of Mitchneck's more pressing bills. The theory of the prosecution was that the defendant had misappropriated money belonging to the miners. The prosecution failed because Mitchneck never had any of the miners' money; he had merely paid them less than was owed in wages, and continued to owe the balance. He had only broken his contract with his employees to pay their grocery bills. So also vis-à-vis the grocer: Mitchneck had merely violated his agreement to pay the grocer if the grocer extended credit to the miners. By reflecting on the different result that would have been reached if there were a slight change in the facts, one can see how close this decision was to the line.

If the arrangement at the office of Mitchneck's paymaster had been that the employees filed past two windows, receiving full wages at the first and paying their grocery bills at the second, an embezzlement conviction would have been possible because payments at the second window would have put money belonging to the miners in Mitchneck's hands. Whether an embezzlement conviction would actually have been sustained would depend on analysis of the transaction at the second window. If the understanding was that Mitchneck would hold these monies in a special drawer or account reserved for the grocer, his dipping into that drawer or account would have been embezzlement. But if the understanding went no farther than Mitchneck's undertaking a contractual obligation to pay the grocer, the miners' payments to him would have given rise only to an indebtedness by Mitchneck. Failure to pay a debt is not embezzlement.

Intention and motives. The statutory definitions of embezzlement include no express requirement that the culprit means to deprive the owner permanently. Accordingly, unauthorized "borrowing" of trust funds by a trustee or of a customer's securities by his broker is embezzlement. It will be observed, however, that these examples involve valuable liquid assets that are jeopardized by deviation from propriety in handling them. The cases thus resemble larceny cases where, despite a professional intention to deprive the owner only temporarily, the borrower disposes of the property in a way that creates a high risk that it will not be restored. Moreover, cash or fungible securities "temporarily" borrowed are unlikely to be literally returned; the borrower intends to return equivalent money or securities, which is to say that the intent is to pay at some time in the future for what is presently taken. The kind of trivial borrowing that escapes punishment as larceny might also be excluded from embezzlement by finding that no "appropriation" had occurred. The executor of an estate who lets his daughter take a ride on a bicycle that is part of the estate is not only unlikely to be indicted, as a matter of the prosecutor's discretion, but also is probably immune under the law of embezzlement.

Beneficent motives. Beneficent motives do not bar prosecution for theft, whether by larceny or embezzlement. Such ameliorating circumstances are considered only by the prosecutor in determining whether to lodge charges, or by the sentencing judge. Thus, stealing for charity or out of necessity is as criminal as stealing out of greed. A mother who "steals" narcotics from an errant son in the hope of saving him from addiction is theoretically guilty of larceny. A trustee holding property subject to restrictions in a will that forbid investment in anything but first mortgages of government bonds is guilty of embezzlement if he invests instead in gold or oil, hoping thus to multiply the return for the benefit of the charity named in the will or the testator's grandchildren. Some embezzlement laws expressly state that appropriation is covered whether the appropriation is for the use and benefit of the trustee or "for the use of another." Even without such explicit provision, the courts would hold that improper disposition of property by a fiduciary, however kindly intended, was an unlawful assertion of dominion by the fiduciary and an appropriation for his own psychic satisfaction.

We have come a long way from the core concept of thievery to a kind of penal sanction against violation of codes of good behavior for fiduciaries. Perhaps a completely rational—that is, ahistorical—theft law would be cut back to the old common law notion of lucri causa. That is, theft would be limited to acquisitive behavior for the sake of gain. But doing this would entail creating additional penal offenses, outside of or auxiliary to the theft legislation, to deal with specific property offenses not for the purpose of gain: compare the traditional "malicious mischief " law.

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