Clarification of Larceny by Conversion in Construction Deposits: Title and Possession Principles

Introduction

This commentary examines the Michigan Supreme Court’s decision in People of the State of Michigan v. Christopher Robert Clinton, decided May 7, 2025. The case arose from a dispute over a $5,500 down payment made by Ben Clowers to HVAC contractor Christopher Robert Clinton. After Clowers terminated the contract and demanded repayment or materials equivalent to the deposit, Clinton refused, prompting criminal charges for larceny by conversion under MCL 750.362. Following a bench trial conviction and an affirmance by the Court of Appeals, the Michigan Supreme Court reversed, holding that no crime occurred when a contractor receives deposit funds without an express agreement limiting their use. This decision clarifies the application of larceny by conversion in construction-contract contexts.

Summary of the Judgment

The Supreme Court in lieu of granting leave to appeal reversed the Court of Appeals and remanded for entry of an acquittal and discharge. The Court held that:

The statute for larceny by conversion (MCL 750.362) is meant to criminalize wrongful conversion of property or funds when title remains with the victim.
As a general rule, a deposit or down payment under a construction contract passes both title and possession to the contractor unless there is an express agreement to hold the funds in trust or to apply them to specific items.
No record evidence showed that Clowers and Clinton agreed the deposit would only be used for specified equipment or services, so title to the $5,500 passed to Clinton upon payment.
Without retained title to the deposit funds, there can be no larceny by conversion.

Analysis

Precedents Cited

The Court relied principally on People v. Christenson, 412 Mich 81 (1981), which held that “if an owner intends to part with title as well as possession, there can be no crime of larceny.” Christenson involved construction-payment disputes and established that progress payments to a builder are not the subject of conversion when title passes on payment. The Supreme Court distinguished—and declined to extend—the line of cases such as People v. Franz, 321 Mich 379 (1948), People v. O’Shea, 149 Mich App 268 (1986), and People v. Mason, 247 Mich App 64 (2001). Those cases involved the purchase of identified goods (iron, fabric, mobile homes) with an agreed designated purpose for the funds and are thus inapplicable to general contracting services without specific earmarking of payment.

Legal Reasoning

Under MCL 750.362, larceny by conversion applies only when someone embezzles or fraudulently converts property “of another.” At common law, larceny is a crime against possession, not title, and conversion requires that the defendant holds property on behalf of the owner. The Court reaffirmed that:

If the parties agree that the payor retains title until certain conditions are met (for example, purchase of a specific item or completion of work), the payor’s funds remain “property of another” and misuse can constitute conversion.
In standard construction contracts, a deposit or down payment is understood to fund the contractor’s materials and labor generally, with no requirement to hold the funds in a separate trust or escrow.
Absent an express trust or earmarking agreement, title passes to the contractor immediately, precluding a criminal conversion charge.

The Court found no evidence that Clinton ever agreed to hold the deposit for a defined purpose or return it if unspent on a particular furnace, ductwork, or A/C unit. Thus, the conviction could not stand.

Impact

This ruling has substantial implications for future cases:

Construction and general contracting disputes over deposits remain primarily civil matters unless the parties expressly create a trust or escrow for funds.
Prosecutors must show an agreement limiting the use of funds or proof that the payor retained title to the money at all times.
Contractors can accept deposits without fear of criminal conversion charges so long as that deposit is not contractually earmarked for specific goods or held in trust.
Legislatures or courts elsewhere might follow Michigan’s lead in distinguishing civil breach-of-contract remedies from criminal conversion actions in the construction context.

Complex Concepts Simplified

Larceny vs. Conversion: Larceny is the wrongful taking of property; conversion is the wrongful exercise of control over property belonging to another.
Title vs. Possession: Title is legal ownership; possession is physical control. Criminal conversion protects possessory interests only if title remains with the victim.
Deposit vs. Down Payment: In construction contracts, a deposit or down payment generally funds the entire project and passes title to the contractor unless otherwise agreed.
Trust/Earmarking Agreement: An express contract provision stating how funds must be used or held (e.g., in a separate account) preserves the payor’s title and can give rise to conversion liability if breached.

Conclusion

The Michigan Supreme Court’s decision in People v. Clinton reaffirms that criminal larceny by conversion cannot be used as a surrogate for civil breach-of-contract claims in the construction industry. By emphasizing the title-passing rule from Christenson, the Court protects contractors from criminal exposure when they receive and use down payments in the ordinary course of business, absent a specific trust agreement. This clarification preserves the distinction between civil remedies for unpaid work and the limited scope of criminal conversion.