No larceny-by-conversion for contractor deposits absent specific earmarking or trust: People v. Clinton (Mich. 2025)

Introduction

In People of the State of Michigan v. Christopher Robert Clinton, the Michigan Supreme Court reversed a criminal conviction for larceny by conversion arising out of a residential HVAC contract dispute and remanded for entry of an acquittal and discharge. The decision re-centers Michigan larceny-by-conversion law on a foundational distinction: crimes of conversion protect possession, not title. As a result, when an owner transfers a deposit or progress payment to a contractor without an agreement to earmark, segregate, or otherwise retain title to those funds for a specific purpose, title passes to the contractor. Without retained title, there can be no larceny by conversion under MCL 750.362.

The case arose from an $8,500 HVAC project estimate for a carriage house. The homeowner (complainant) paid a $5,500 “deposit” or “down payment,” after which performance issues and disagreements ensued. The homeowner terminated the relationship and demanded a refund or equipment; the contractor refused, asserting he had already performed work and incurred costs. Following a bench trial, the court convicted the contractor of larceny by conversion for failing to deliver the specified equipment or return the deposit. The Court of Appeals affirmed. The Supreme Court, however, reversed, holding that the record lacked any agreement that the deposit was to be used for a designated, specific purpose or held in trust and, therefore, title passed to the contractor upon payment. The Court concluded the dispute sounded in civil law, not criminal law.

The core legal questions were:

When do funds transferred under a construction or contracting agreement remain the property of the payor (i.e., title retained), such that larceny by conversion is possible?
How does Michigan’s leading case, People v. Christenson, apply to deposits in construction or services contracts?
What distinguishes cases involving earmarked payments for specific goods (e.g., Franz, O’Shea, Mason) from general contractor deposits?

Summary of the Opinion

In a per curiam order issued in lieu of granting leave (MCR 7.305(H)(1)), the Supreme Court reversed the Court of Appeals and remanded for entry of an order of acquittal and discharge. The Court held:

Larceny by conversion (MCL 750.362) is a crime against possession, not title; one cannot convert one’s own funds.
Absent an agreement that a deposit be applied to a specific, designated purpose or be segregated (e.g., in a trust or escrow), title to the funds passes to the contractor upon payment.
There was no record evidence that the homeowner retained title to the $5,500 deposit or that the parties agreed upon a specific, designated use for it; thus, title passed to the contractor.
Christenson controls; the prosecution’s reliance on Franz, O’Shea, and Mason was misplaced because those cases involved designated-purpose payments for specific goods, not general construction services.
Although civil remedies may be available to the homeowner, the facts do not support a criminal conviction for larceny by conversion.

The Court emphasized that allowing larceny-by-conversion prosecutions to police ordinary disagreements over contractor performance would dangerously collapse the civil-criminal divide, effectively converting commonplace breach-of-contract disputes into felonies.

Analysis

Precedents Cited and Their Role in the Decision

1) People v. Christenson, 412 Mich 81 (1981) — The controlling authority

Christenson anchors the Court’s analysis. There, homeowners made progress payments to a modular-home contractor who later used some of those funds to pay other debts. The Court reversed a larceny-by-conversion conviction because there was no evidence the homeowners intended to retain title to the payments; title and possession passed upon payment. As the Court reiterated here, if the owner intends to part with both possession and title, larceny by conversion cannot be committed. That controlling principle applies with full force in construction contexts where deposits and progress payments are standard and are not, absent explicit agreement, held in trust or for a designated purpose.

2) People v. Franz, 321 Mich 379 (1948); People v. O’Shea, 149 Mich App 268 (1986); People v. Mason, 247 Mich App 64 (2001) — Distinguishable “specific goods” cases

The prosecution leaned on this trio to argue that failing to use funds for an agreed purpose and failing to refund the money supports larceny by conversion. The Supreme Court, citing People v. Spencer, 320 Mich App 692 (2017), recognized those decisions as establishing that larceny by conversion can occur when funds are delivered for a designated purpose to purchase identifiable goods or property and are not used as agreed, with no refund provided.

But the Court distinguished them on multiple grounds:

They concern the acquisition of specific goods (iron in Franz; fabric in O’Shea; prebuilt mobile homes in Mason), not labor or construction services.
In those cases, the parties had agreed to apply specific funds for a particular, designated purpose; here, there was no such agreement.
In Clinton (as in Christenson), the contractor actually began performing and purchasing some materials; the lack of performance in the “specific goods” cases is a different fact pattern (though the Court did not treat that difference as dispositive).

3) People v. Spencer, 320 Mich App 692 (2017)

Spencer distills the rule underlying Franz/O’Shea/Mason: the offense may be committed when the defendant fails to use money delivered for an agreed-upon designated purpose to purchase goods or property and fails to refund it. The Supreme Court relied on Spencer’s framing to cabin those precedents to their facts and to emphasize that Clinton falls squarely within Christenson’s construction-contract paradigm.

4) People v. Al-Shara (unpublished, July 23, 2015)

Al-Shara cautions against criminalizing contract disputes merely because parties have competing interpretations of a contract. The Court invoked the same concern here: if every contested contractor deposit could be prosecuted, nearly every breach of contract could become a felony, a result incompatible with the purpose and scope of MCL 750.362.

5) Leger v. Image Data Services (On Rehearing) (unpublished, July 5, 2002) and Head v. Phillips Camper Sales & Rental, Inc., 234 Mich App 94 (1999)

These tort conversion cases underscore a parallel principle: conversion of money lies only where there is an obligation to return specific, identifiable funds entrusted to the defendant. General debts are not convertible. The Court cited this line to reinforce the requirement that funds be earmarked or held subject to a specific obligation to return the very same funds (or their segregated equivalent) for conversion theories to apply.

6) Other jurisdictions

The Court noted that most courts confronting similar issues have declined to criminalize contractor possession of down payments under construction contracts as “property of another,” and have rejected embezzlement theories when contractors fail to complete work. This cross-jurisdictional consensus strengthens Christenson’s rationale in the construction context.

Legal Reasoning

The larceny-by-conversion statute, MCL 750.362, targets situations where the defendant lawfully obtains possession of another’s property and later embezzles or fraudulently converts it. The statute does not reach disputes where title to the property has passed. The Court’s reasoning proceeds in three steps:

Statutory focus on possession, not title. The offense protects possessory interests in another’s property. If the payor intended to part with both title and possession—i.e., to pay over the money as the other party’s property—then the recipient cannot “convert” his own funds. Christenson is dispositive on this point.
No evidence of earmarking or segregation. The record here contained no agreement that the $5,500 be applied to a specific, designated purpose or held in a segregated or trust account. The trial court’s factual finding that the deposit was “to be used towards purchasing the equipment and to complete the work contained in the original agreement” lacked record support. And even if the parties had such a generalized understanding, it would not amount to earmarking funds for a specific purpose in the way that would preserve the homeowner’s title. Simply funding the project in general is not the same as restricting the use of funds to a particular purchase or requiring segregation.
Goods-versus-services distinction. The Court distinguished—and confined—the “specific goods” cases (Franz, O’Shea, Mason) because they involved payments earmarked for the acquisition of particular goods. Construction and general contracting projects, by contrast, involve blended inputs (labor, planning, materials, mobilization) and progress payments that, absent an explicit agreement to the contrary, pass title to the contractor. This structural difference makes Christenson the controlling template for contractor deposits.

Against this backdrop, two additional considerations reinforced the outcome:

The contractor began performance and purchased some materials; the homeowner terminated the contract. Whether the contractor would ultimately have completed performance is unknowable on this record, but the point is immaterial to the title analysis.
There was no requirement that the contractor maintain a separate trust account for the deposit. In the absence of an agreement to segregate funds, the law presumes title passes.

Accordingly, the Court concluded that while the homeowner may pursue civil remedies (e.g., breach of contract), the criminal conviction cannot stand. It directed entry of an acquittal, thereby fully resolving the prosecution.

Potential Impact and Practical Implications

For prosecutors

Clinton reaffirms that larceny-by-conversion prosecutions in construction or service-contract settings require proof that the payor retained title to the funds—typically by showing an agreement to earmark, segregate, or hold funds for a specific, designated purpose.
Absent such proof, disagreements over performance, delays, cost overruns, or refusal to refund are quintessentially civil matters.
When the transaction concerns identifiable goods and the funds are earmarked for those goods, Franz/O’Shea/Mason remain available; but their use must be tightly confined to designated-purpose payments.

For contractors and owners

Contractors: General deposits and progress payments are ordinarily your property upon receipt, unless you agree to use them for a designated purpose or to hold them in a segregated account. That does not immunize misconduct, but it removes ordinary nonperformance disputes from criminal conversion.
Owners: If you want funds to remain your property until certain goods are procured or milestones are met, contract for it. Use express earmarking language, escrow/trust arrangements, or segregation requirements. Without such terms, title will likely pass upon payment.

For courts

Clinton instructs trial courts to scrutinize the record for actual, specific agreements to earmark funds and to avoid unsupported factual findings about the purpose of deposits.
Bench and jury instructions in larceny-by-conversion cases should emphasize the title-versus-possession distinction and require proof that the money remained “property of another.”

For the law of contracts and torts

The decision fortifies the boundary between civil and criminal law, channeling ordinary contractor-owner disputes to civil remedies.
It harmonizes criminal conversion with civil conversion principles requiring identifiable, entrusted funds for monetary conversion claims.
It clarifies the continuing vitality of Christenson and narrows the reach of the “specific goods” line to its facts.

Complex Concepts Simplified

Larceny by conversion: A crime that occurs when someone lawfully receives another’s property and later wrongfully converts it to their own use. It fills a gap left by traditional larceny, which required trespassory taking. Crucially, the property must remain the “property of another.”
Title versus possession: “Title” refers to ownership; “possession” refers to control. Larceny by conversion protects the owner’s possessory interest. If the payor parted with both title and possession, the recipient can’t convert what he owns.
Designated-purpose or earmarked funds: Money paid for a specific, agreed purpose (e.g., to purchase a particular item) or placed in a segregated account. Such arrangements can preserve the payor’s title and support conversion if the funds are misused.
Trust/escrow or segregated account: Mechanisms to keep funds separate from the recipient’s general assets, evidencing that the funds remain the payor’s property for a defined purpose. Without such arrangements, ordinary deposits typically pass title.
Goods versus services: Payments to buy specific goods (e.g., a particular mobile home or commodity) are more likely to be treated as designated-purpose funds. Payments for services or construction (with blended labor/materials) are ordinarily general deposits unless expressly earmarked.
Bench trial: A trial decided by a judge rather than a jury. Here, the conviction followed a bench trial, and the Supreme Court found key factual findings (about the deposit’s purpose) lacked record support.

Conclusion

People v. Clinton firmly reaffirms Christenson’s core teaching: in contractor and construction contexts, a deposit or progress payment ordinarily passes title to the contractor upon receipt unless the parties expressly agree to earmark or segregate the funds for a specific, designated purpose. Without retained title, larceny by conversion is not available, and ordinary performance disputes must be resolved through civil remedies. The Court distinguishes the “specific goods” cases (Franz, O’Shea, Mason) and cautions against the sweeping criminalization of contractual disagreements. By ordering an acquittal, the Court sends a clear message: prosecutors must prove that the money remained the “property of another,” not merely that the defendant failed to perform or refund.

Key takeaways:

Title controls: no retained title, no larceny by conversion.
Construction deposits are not “property of another” absent specific earmarking or trust/segregation.
Franz/O’Shea/Mason are confined to designated-purpose payments for specific goods.
Civil, not criminal, law governs most contractor-owner payment disputes.
Contracting parties who wish to preserve ownership of funds should use explicit earmarking or escrow/trust instruments.

Clinton thus clarifies Michigan law at the civil-criminal boundary and provides a practical roadmap for drafting, litigating, and charging decisions in payment disputes tied to construction and service contracts.