Legal Definitions - de facto court

Defalcation refers to:

• 1. The misappropriation of funds or property by someone entrusted with their care.

  This often involves a breach of fiduciary duty, where an individual in a position of trust unlawfully takes money or assets that belong to others for their own benefit. It is essentially a form of embezzlement.

  • Example 1: A senior accountant for a large corporation was responsible for managing the company's payroll. Over several years, they secretly diverted small amounts from employee paychecks into a hidden personal account, accumulating a substantial sum.

    Explanation: This is a clear case of defalcation because the accountant, entrusted with the company's funds, misappropriated them for personal gain, breaching their duty of trust.

  • Example 2: The treasurer of a local community sports club was responsible for collecting membership fees and managing the club's bank accounts. Instead of depositing all the funds, they regularly used a portion of the cash fees to pay for their personal groceries and entertainment.

    Explanation: Here, the treasurer engaged in defalcation by taking money entrusted to them for the club's benefit and using it for their own expenses, violating their position of trust.

• 2. (Loosely) A failure to meet a financial obligation or duty, particularly one that is not fraudulent.

  In this broader sense, it refers to a default or non-performance of a financial responsibility, where there is no intent to deceive or steal, but simply an inability or negligence in fulfilling the obligation.

  • Example 1: A trustee managing a deceased person's estate was required to invest the funds prudently for the beneficiaries. Due to a lack of financial expertise and oversight, the trustee made several poor, high-risk investments that resulted in significant losses to the estate, though they did not personally profit from these decisions.

    Explanation: While not involving theft, the trustee's failure to manage the estate's assets responsibly and meet their fiduciary obligation, leading to losses, can be loosely described as a defalcation of their duty.

  • Example 2: A small business owner received a government grant intended for specific operational improvements. Due to unexpected market downturns and poor business planning, they were unable to complete the improvements as stipulated in the grant agreement and could not repay the unused portion, without any intent to defraud the government.

    Explanation: This situation represents a defalcation in the sense of failing to fulfill a financial obligation (completing the project and potentially repaying funds) without the element of intentional fraud or embezzlement.