Legal Definitions - fraudulent conversion

Fraudulent conversion occurs when an individual intentionally and wrongfully takes or uses another person's property as their own, with the specific purpose of depriving the rightful owner of that property, often for their own benefit, and knowing they have no right to do so. It is a civil wrong (a tort) that involves both the unauthorized taking of property (known as "conversion" in legal terms) and a dishonest intent to defraud or deceive the owner.

Here are some examples to illustrate this concept:

• Example 1: Misappropriation by a Contractor

  A homeowner hires a contractor to build an extension and pays a significant deposit, specifically earmarked for purchasing specialized building materials. Instead of using the funds for the intended purpose, the contractor diverts the entire deposit to pay off personal gambling debts, knowing full well that this will leave the homeowner without the materials and their money gone, with no intention of completing the work as agreed.

  How it illustrates fraudulent conversion: The contractor *converted* the homeowner's money (property) by using it for an unauthorized personal purpose. This action was *fraudulent* because it was done intentionally, without the homeowner's consent, with the clear intent to deprive the homeowner of their funds and benefit personally from the deception.

• Example 2: Employee Embezzlement of Company Funds

  A trusted office manager is responsible for managing the petty cash fund for a small business, which is meant for minor operational expenses. Over several months, the manager systematically takes small amounts from the fund for personal expenses like groceries and entertainment, falsifying the expense log to make it appear as though the money was spent on legitimate office supplies. The manager intends to keep the money and hide the unauthorized withdrawals from the company.

  How it illustrates fraudulent conversion: The office manager *converted* the company's petty cash (property) for personal use. This was *fraudulent* because it involved intentional deception (falsifying records) to conceal the unauthorized taking and deprive the company of its rightful funds.

• Example 3: Misuse of Consigned Goods

  An antique dealer agrees to sell a valuable painting on consignment for an artist. The agreement states that the dealer will receive a 20% commission, and the remaining 80% of the sale price will go to the artist. After selling the painting for a substantial sum, the dealer keeps the entire amount, falsely informing the artist that the painting was never sold or was sold for a much lower price than its actual value, intending to keep the artist's share.

  How it illustrates fraudulent conversion: The antique dealer *converted* the artist's share of the sale proceeds (property) to their own use. This was *fraudulent* because it involved intentional misrepresentation and deception to deprive the artist of their rightful money from the sale.