§708-874 Misapplication of entrusted property. (1) A person commits the offense of misapplication of entrusted property if, with knowledge that he is misapplying property and that the misapplication involves substantial risk of loss or detriment to the owner of the property or to a person for whose benefit the property was entrusted, he misapplies or disposes of property that has been entrusted to him as a fiduciary or that is property of the government or a financial institution.

(2) "Fiduciary" includes a trustee, guardian, personal representative, receiver, or any other person acting in a fiduciary capacity, or any person carrying on fiduciary functions on behalf of a corporation or other organization which is a fiduciary.

(3) To "misapply property" means to deal with the property contrary to law or governmental regulation relating to the custody or disposition of that property; "governmental regulation" includes administrative and judicial rules and orders as well as statutes and ordinances.

(4) Misapplication of property is a misdemeanor. [L 1972, c 9, pt of §1; am L 1976, c 200, pt of §1]

COMMENTARY ON §708-874

This section is intended to discourage both knowing violation of fiduciary obligations and knowing misapplication of property belonging either to the government or to a financial institution. In this context the misapplication is in terms of improper and reckless investment or handling of assets, rather than of outright theft. For purposes of this section, a fiduciary includes any person (including a corporation) acting in a fiduciary capacity for another person, and a person acting in a fiduciary capacity on behalf of a corporation or organization which is itself a fiduciary. The requirement of knowledge extends to the substantial risk of loss or detriment to the owner.

Misapplication in this context is not theft; there is no intent permanently to deprive the owner of the owner's property. Moreover, the actor does not misappropriate funds, unless there is a specific duty to make payment to someone else. The danger envisioned is the risk "that one who administers or controls the property may deliberately depart from the legal rules applicable to his control of the property in question and may gamble with the property at considerable known risk to the safety of the property in question."[1]

Existing law provides that a trust company that violates, neglects, or refuses to comply with statutory requirements relating to trusts, and an officer, manager, director, or employee who knowingly participates in such violation, commits a misdemeanor if it or he, as the case may be, fails to desist from the practice within seven days following notification by the Director of the Department of Regulatory Agencies.2 The provision is designed to accomplish certain regulatory ends. The Penal Code does not propose to abolish the regulatory provision; it will, however, in aggravated cases, provide for a direct, unconditional penalty. Where (1) the actor acts knowingly (as opposed to negligently), and (2) the violation of a statutory or administrative requirement amounts to a misapplication of entrusted property (as opposed to violating some other requirement related to trust administration), the warning period is eliminated. There is no need for a warning period if criminal liability is not strictly imposed or predicated on negligence.

Law Journals and Reviews

Student Symposium: Legal Malpractice, 14 HBJ, no. 1, at 3 (1978).

Case Notes

No private right of action exists under this section; therefore, plaintiffs cannot state a claim under the section. 131 H. 62, 315 P.3d 213 (2013).

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§708-874 Commentary:

1. Prop. Mich. Rev. Cr. Code, comments at 302.

2. H.R.S. §406-61.