Also known as:defalcate · defalcates · defalcated · defalcating · defalcator · defalk · embezzlement · misappropriation
Written by attorneys — see sources below.
A fraudulent conversion of property by a person entrusted with it. The conversion occurs after lawful acquisition or possession and requires intent to defraud, distinguishing it from a mere failure to repay a debt or an initial trespassory taking.
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How its tested
Common Examples
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Lawful Possession Then Conversion
Dominic Drake, a warehouse supervisor, received weekly cash deposits from customers to hold for his employer. After several months he began using portions of the cash to pay personal bills instead of depositing them. Because Drake initially held the funds lawfully, his later personal use constituted defalcation rather than larceny.
Unauthorized Commercial Use Of Identity
Daphne Doyle discovered that a marketing firm had published her childhood photographs and life story in an advertising campaign without permission. The firm profited from the association while Doyle received nothing. The unauthorized exploitation of her identity for commercial gain amounted to defalcation of her property right in her likeness.
Dylan Duffy, an associate at a firm, learned that a partner had withdrawn client settlement proceeds for personal use. The partner had received the money lawfully as escrow but converted it. Duffy's knowledge triggered a duty to report the defalcation despite the client's request for silence.
Trust Account Misuse Leads To Disbarment
Delilah Duran, a solo practitioner, transferred client retainers from her trust account to cover office expenses. She intended to replace the money later but never did. The knowing conversion of entrusted funds constituted defalcation and resulted in disbarment regardless of her repayment intentions or clean record.
Court Clerk Converts Filing Fees
Diane Dawson, a court clerk, collected filing fees that litigants paid to obtain hearings. Instead of remitting the fees to the state treasury she deposited them into a personal account. The conversion of funds she held only in her official capacity constituted defalcation.
Boddie v. Connecticut401 U.S. 371 (1971)
Appellants, welfare recipients residing in the State of Connecticut, brought this action in the Federal District Court for the District of Connecticut on behalf of themselves and others similarly situated. The action concerned state procedures for the commencement of litigation, including requirements for payment of court fees and costs for service of process, in connection with efforts to bring divorce actions.
The average cost to a litigant for bringing an action for divorce is sixty dollars. Section 52-259 of the Connecticut General Statutes provides that there shall be paid to the clerks of the supreme court or the superior court, for entering each civil cause, forty-five dollars. An additional fifteen dollars is usually required for the service of process by the sheriff.
There is no dispute as to the inability of the named appellants to pay either the court fees required by statute or the cost incurred for the service of process. The affidavits in the record establish that appellants' welfare income in each instance barely suffices to meet the costs of the daily essentials of life. It includes no allotment that could be budgeted for the expense to gain access to the courts. The clerk of the Superior Court returned their papers on the ground that he could not accept them until an entry fee had been paid. Subsequent efforts to obtain a judicial waiver of the fee requirement and to have the court effect service of process were to no avail.
Appellants sought a judgment declaring that the fee requirements were unconstitutional as applied to them and an injunction ordering the appropriate officials to permit them to proceed with their divorce actions without payment of fees and costs. A three-judge court was convened pursuant to twenty-eight United States Code section 2281. On July sixteen, nineteen sixty-eight, that court issued its decision. The Supreme Court noted probable jurisdiction in nineteen sixty-nine. The case was heard at the nineteen sixty-nine term and thereafter was set for reargument at the present term.
Diego Duarte, a prison commissary officer, received inmate wage deposits that he was required to hold for their benefit. He used a portion of the deposits to purchase personal supplies. Because Duarte held the money lawfully as custodian, his personal expenditures amounted to defalcation.
Weems v. United States217 U.S. 349, 30 S.Ct. 544, 54 L.Ed. 793 (1910)
Paul Weems served as a disbursing officer of the Bureau of Coast Guard and Transportation in the Philippine Islands. He was prosecuted for falsifying a public cash book. The complaint charged that he entered sums of 208 pesos and 408 pesos as wages paid for lighthouse service at Capul and Matabriga when those amounts had not been disbursed. The complaint described Weems as an official of the United States Government of the Philippine Islands and alleged that the falsification was committed corruptly with intent to deceive that government.
A demurrer to the complaint was overruled. Weems was convicted after trial. The trial court imposed a sentence of fifteen years of cadena temporal together with a fine of four thousand pesetas and the accessory penalties of civil interdiction, perpetual absolute disqualification, and subjection to surveillance for life. The sentence required service at hard and painful labor while carrying a chain at the ankle hanging from the wrists and with no assistance from outside the penal institution.
The Supreme Court of the Philippine Islands affirmed the conviction and sentence. Weems obtained a writ of error from the United States Supreme Court. The assignments of error challenged the sufficiency of the complaint based on the governmental description used. They also claimed that the punishment was cruel and unusual, although that contention had not been presented to the Philippine courts. The record before the Supreme Court contained no trial evidence.
The penalty of cadena temporal included not only the term of imprisonment but also perpetual accessories that continued after release. Those accessories encompassed disqualification from exercising parental or marital authority, loss of rights to vote or hold office, and the requirement to notify authorities of any change in domicile while remaining under their inspection.
Defalcation requires that the defendant first acquire the property lawfully and then convert it while in lawful possession. Larceny instead requires a trespassory taking at the moment of acquisition.
Supporting sources
What intent is required for defalcation?
The defendant must act with intent to defraud. An intent to return identical property negates the offense, but an intent to return only similar property satisfies the fraudulent intent element.
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Does a claim of right defense apply to defalcation?
Yes. A defendant who converts property under a bona fide belief that he is entitled to it as payment for a debt does not commit defalcation.
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Can real property be the subject of defalcation?
No. Traditional embezzlement statutes limit the offense to property that may be the subject of larceny, which excludes real property and services.
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295 U.S. 495 (1935)
…Hanover Milling Co. v. Metcalf , 240 U.S. 403, 413. In recent years, its scope has been extended. It has been held to apply to misappropriation as well as misrepresentation, to the selling of another's goods as one's own, — to misappropriation of what equitably belongs to a competitor. International News Service v. Associated…