Embezzlement is defined as "the fraudulent conversion
of property of another by a person in lawful possession
of that property." Crimes of this nature generally have
involved a relationship of trust and confidence, such as
an agent, fiduciary, trustee, treasurer, consignee, or
attorney. New York State law (and the laws of many
other states), define an artist / dealer relationship
in exactly this way.
An art dealer who receives money for the sale of a
consigned artwork can not consider the money due the
artist as "money owed" in the same way that money may
be "owed" to a "creditor," like, say, the picture framer, the
phone company, or the mortgage holder. As a consignee,
an art dealer has a "fiduciary relationship" with the artist
whose work has been consigned, and the proceeds from
such sales are "trust funds" in the hands of the dealer, and
never the property of the dealer, not for one second.
If you are an artist who has consigned an artwork to an
art gallery in New York State, please take note. If your
dealer sells the work, the dealer may NOT retain the
money received to pay for gallery expenses, debts due to
another artist, personal expenses, etc. BEWARE of such
phrases as, "You will be paid CASH FLOW PERMITTING,"
or other such deceptions. Once the work is sold, the money
paid to the gallery is yours immediately. If the dealer should
retain your money for any reason, he or she – knowingly or
unknowingly – is comitting a crime of embezzlement.
If your art dealer is retaining monies due you - call a lawyer.
NOTES:
From: New York State Consolidated Laws
Arts and Cultural Affairs
ARTICLE 12
ARTIST-ART MERCHANT RELATIONSHIPS
Section 12.01. Artist-art merchant relationships.
Artist-art merchant relationships. 1. Notwithstanding any
custom, practice or usage of the trade, any provision of the uniform
commercial code or any other law, statute, requirement or rule, or any
agreement, note, memorandum or writing to the contrary:
(a) Whenever an artist or craftsperson, his heirs or personal
representatives, delivers or causes to be delivered a work of fine art,
craft or a print of his own creation to an art merchant for the purpose
of exhibition and/or sale on a commission, fee or other basis of
compensation, the delivery to and acceptance thereof by the art merchant
establishes a consignor/consignee relationship as between such artist or
craftsperson and such art merchant with respect to the said work, and:
(i) such consignee shall thereafter be deemed to be the agent of such
consignor with respect to the said work;
(ii) such work is trust property in the hands of the consignee for the
benefit of the consignor;
(iii) any proceeds from the sale of such work are trust funds in the
hands of the consignee for the benefit of the consignor;
(iv) such work shall remain trust property notwithstanding its
purchase by the consignee for his own account until the price is paid in
full to the consignor; provided that, if such work is resold to a bona
fide third party before the consignor has been paid in full, the resale
proceeds are trust funds in the hands of the consignee for the benefit
of the consignor to the extent necessary to pay any balance still due to
the consignor and such trusteeship shall continue until the fiduciary
obligation of the consignee with respect to such transaction is
discharged in full; . . .
The term "embezzlement" has been defined consistently
by the Supreme Court for more than 100 years. In 1887,
the Supreme Court said embezzlement had a "settled
technical meaning."
United States v. Northway, 120 U.S.
327, 334 (1887).
In 1895, the Supreme Court held, "[e]mbezzlement is the
fraudulent appropriation of property by a person to whom
such property has been intrusted, or into whose hands it
has lawfully come." Moore v. United States, 160 U.S. 268,
269 (1895); see also United States v. Petti, 459 F.2d 294,
295 (3d Cir. 1972). In 1902, the Supreme Court declared
"the word 'embezzled' itself implies fraudulent conduct
on the part of the person receiving the money. . . .
Indeed, it is impossible for a person to embezzle the
money of another without committing a fraud upon him."
Grin v. Shine, 187 U.S. 181, 189 (1902).
Later cases have articulated that the act of embezzlement
violates a relationship of trust and confidence.
"In embezzlement, breach of fiduciary duty is an inherent element
of the crime." United States v. Maurello, 76 F.3d 1304, 1310
(3d Cir. 1996); see also United States v. Sayklay, 542 F.2d 942,
944 (5th Cir. 1976) ("The essence of embezzlement lies in breach
of a fiduciary relationship deriving from the entrustment of money.").
In order to be convicted of embezzlement, the accused must be entrusted
with another's money or property or have lawful possession by virtue of
some office, employment, or position of trust.
"By the late 18th century, courts were less willing to expand common-
law definitions. Thus, when a bank clerk retained money given to him by
a customer rather than depositing it in the bank, he was not guilty of
larceny, for the bank had not been in possession of the money. Stautory
crimes such as embezzlement and obtaining property by false pretenses
. . . were created to fill this gap." Bell v. United States, 462 U.S. 356, 359
(1983) (citations omitted). See W. LaFave & A. Scott, Substantive
Criminal Law S 8.6 at 369 (1986) ("[E]mbezzlement . . . [was a] crime
created by the legislature for the specific purpose of plugging loopholes
left by the narrowness of the crime of larceny.").
See Black's Law Dictionary 522 (6th ed. 1990) (Embezzlement is
defined as "the fraudulent appropriation of property by one lawfully
entrusted with its possession."); W. LaFave & A. Scott, Substantive
Criminal Law S 8.6 at 368 (1986) (Embezzlement is defined as: "the
fraudulent conversion of the property of another by one who
is already in lawful possession of it" before converting it.
The Court of Appeals for the First
Circuit notes:
The notion of "fraudulent conversion," at the heart of
embezzlement, may sound obscure, but, in fact, it is
not. It essentially refers to, say, a bank teller, trustee,
or guardian using money entrusted to him by another
person for his own purposes or benefit and in a way
that he knows the "entruster" did not intend or
authorize.
United States v. Young, 955 F.2d 99, 102 (1st Cir. 1992).
"The crime of embezzlement builds on the concept of conversion, but
adds two further elements. First the embezzled property must have been
in the lawful possession of the defendant at the time of its appropriation.
Second, embezzlement requires knowledge that the appropriation is
contrary to the wishes of the owner of the property." United States v.
Stockton, 788 F.2d 210, 216-17 (4th Cir. 1986) (citations omitted).
"Fraud inherently involves some exploitation of trust." United States v.
Iannone, 184 F.3d 214, 231 (3d. Cir. 1999) (Becker, C.J., concurring)
(citing United States v. Koehn, 74 F.3d 199, 201 (10th Cir. 1996) ("In
every successful fraud the defendant will have created confidence and
trust in the victim . . . ."); United States v. Mullens, 65 F.3d 1560, 1567
(11th Cir. 1995) ("[T]here is a component of misplaced trust inherent in
the concept of fraud . . . ."); United States v. Hathcoat, 30 F.3d 913, 915
(7th Cir. 1994) ("By its definition, embezzlement requires a finding of a
breach of trust.")).
The essence of a fiduciary relationship is that the
fiduciary agrees to act as his principal's alter ego. . . .
Hence the principal is not armed with the usual
wariness that one has in dealing with strangers; he
trusts the fiduciary to deal with him as frankly as he
would deal with himself--he has bought candor.
United States v. Dial, 757 F.2d 163, 168 (7th Cir. 1985).
As the Court of Appeals for the First Circuit said:
An embezzler, like a thief or a swindler, may commit
the crime in any of a myriad of different ways. But, in
each instance, the embezzler will have acted for his
own purposes and contrary to authorization. He will
have "fraudulently converted" property entrusted to
him by another. (citations omitted).
Young, 955 F.2d at 103.
A crime involving fraud or deceit qualifies as an "Fraud in the
common law sense of deceit is committed by deliberately misleading
another by words, by acts, or, in some instances -- notably where
there is a fiduciary relationship, which creates a duty to disclose
all material facts -- by silence." Dial, 757 F.2d 163.
One basic source says "the mental state required for embezzlement
generally appears in the statutes in the form of the adverb 'fraudulently'
modifying the verb 'converts.' (If the statute should instead punish one
who 'embezzles,' it would not signify anything different, for 'embezzles'
means 'fraudulently converts.')"
W. LaFave & A. Scott, Substantive
Criminal Law S 8.6 at 379 (1986).
Another source defines "fraudulent conversion" as "[r]eceiving into
possession money or property of another and fraudulently withholding,
converting, or applying the same to or for one's own use and benefit,
or to [the] use and benefit of any person other than the one to whom
the money or property belongs." Black's Law Dictionary 662 (6th ed. 1990).
