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August 18, 2017

Using Loan Money for an Improper Purpose can be Conversion, Even if Money is Legally Acquired

In People v Spencer, No.  337045, the Michigan Court of Appeals reversed the Kent Circuit Court and found probable cause that the defendant committed larceny by conversion when he misused loan funds. The defendant entered into a loan agreement with the complainant through his company, promising to use a $241,000 loan to purchase and rehabilitate six Grand Rapids properties. It was discovered that he used $20,000 of that loan for personal use. The defendant was charged with obtaining money by false pretenses, embezzlement, and larceny by conversion.
 
After conducting a preliminary examination, the District Court bound over only the false pretenses and embezzlement charges for trial in Circuit Court, effectively dropping the larceny charge and finding it unviable based on the facts of the case. The prosecution filed a motion in Circuit Court to reinstate the larceny charge, which the Circuit Court denied.
 
The Michigan Court of Appeals, however, held that the Circuit Court erred when it denied the prosecutor’s motion to reinstate the larceny charge. The appeals court said, “The offense of larceny by conversion may be committed when a defendant fails to use money delivered by a complainant for an agreed-upon designated purpose in the context of the complainant’s purchase of goods or property, with the defendant also failing to refund the money to the complainant.”
 
The Court clarified that legal title to loan money does not pass to the borrower if the borrower does not use the money for its intended purpose. In this case, because the complainant’s loan was made with a specific intention—i.e. the purchase and rehabilitation of property—and the defendant used the money for other purposes, there was probable cause that the defendant committed larceny by conversion. The Court also determined that, because the defendant had a preliminary examination on the larceny charge, he would not be unfairly surprised or prejudiced by allowing the charge to be reinstated.

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