Misapplication of Property in New York
What Does it Mean to “Misapply Property?”
An individual will “misapply property” if they are allowed to have temporary possession of another’s property and that individual uses or burdens that property in such a way that might prevent that property from being returned to the owner.
In simpler terms, a person will misapply property if they are borrowing or renting a property and does not allow that property to return to the rightful owner.
Here are some ways that an individual will misapply property:
- A person rents commercial equipment and takes out a personal loan using the rented equipment as collateral.
- A person borrows a car from a family friend and lists it as collateral in an auto loan.
- A firm that handles multiple escrow accounts uses the funds to create a security interest to the firm’s creditors.
- A person has rented wedding decorations and equipment and does not return the items.
- A person rents a furnished apartment and loans some of the furniture to friends.
- A person rents several pieces of equipment that perform poorly. This person refuses to return the items unless he is given a full refund.
These are just some of the examples of how an individual may misapply property.
If you or a loved one has been charged with misapplication of property, please call one of our law offices today.
What does New York law say about the misapplication of property?
New York enacted the misapplication of property statute in 1995 to penalize individuals for not returning the property of another. This often arises in rental situations. They did not want this law to apply to all rental situations and wanted to make sure individuals that rented property were given ample notice to understand that failure to return rental property could result in criminal charges.
Misapplication of property
This law addresses two separate types of actions that would be considered misapplication of property.
Part 1 – The Use of the Property
The first part states that if a person is in possession of the property of another and uses that property in such a way that puts that property at risk of not being returned to the original owner, then it will be considered misapplication of property. The risk needs to be more than mere speculation.
Rita owns Rita’s Rentals, a business that rents a variety of construction equipment. Jake rents a variety of construction equipment, including a jackhammer for several months. Jake uses the equipment and returns most of the equipment after they have been used. He thinks he can use the jackhammer again before his rental agreement terminates. He stores the jackhammer at a local storage unit.
Jake has not been making payments to the owners of the storage unit and has received a notice indicating that Jake has ten days to pay for the storage unit or the unit and all items therein will be seized. Jake ignores this notice because he feels it is an empty threat since the storage unit facility had many open compartments.
However, the facility owners seize the unit and auction off all the items in the storage unit, including the jackhammer. Jake has committed misapplication of the property since he was aware of the risk that the jackhammer could be seized from the storage unit for his failure to make timely payments.
Part 2 – Refusing to Return Property
The second part of this law states that an individual that refuses to return the rental property back to the owner pursuant to the rental agreement, and the rented item is worth over 100 dollars, it is also misapplication of property. Also, the notice that an individual may face criminal charges for failing to return rental items must be clear.
Ray owns a remodeling company. One project is taking place in the middle of the summer. Due to the heat, Ray rents several high-end air conditioning units to help cool off the workspace. The rental agreement and the office clearly indicate that a failure to rental equipment could result in criminal charges.
The air conditioning units perform poorly or don’t work at all. He returns the equipment and receives new units that do not fare any better. Ray is upset and wants a refund on the equipment that did not work. The rental company refuses to refund Ray. Ray tells the rental company that he will not return the air conditioning units until he is fully refunded.
The rental company sends Ray a notice stating that if he does not return the air conditioning units that criminal charges may be filed against him. Ray ignores this notice since he thinks it is an empty threat. Ray has committed misapplication of property.
Defenses to Charges of Misapplication of Property
An individual who has been charged with misapplication of property can raise several defenses. The statute identifies three possible defenses to misapplication of property.
- The owner has received their property back before any prosecution has commenced, and the owner has not suffered any material economic loss.
- The item has been accidentally destroyed or stolen.
- The owner and rental agreement have not complied with specific provisions of the business law.
Posted Signs Are Required
More specifically, this law requires renters to provide notice about criminal violations in several places. First, it requires a large sign that is easy to see that informs individuals that it is a class A misdemeanor with associated penalties if the rented item is not returned.
Language of Rental Agreement
The same language must also be in the rental agreement. If an item is not returned, written notice must be sent to the center that contains the same language and when the rental item was due.
Item Was Less Than $100
Another defense that could be raised is that the rental item is worth less than 100 dollars. This law was not meant to criminalize situations where an individual fails to return low-cost items such as DVDs.
One other possible defense is that the rental agreement was a rental-purchase agreement. To put it more simply, the agreement, was a rent to own contract where the rented item was intended to be purchased or retained by the customer at the end of the rental.
It has been determined by the New York courts that rental-purchase agreements are not in the purview of the misapplication of property statute. Along these lines, the prosecution must also present evidence that the rental agreement was not a rental-purchase agreement.
Risk is Too “Speculative.”
It is also possible to defend against misapplication of the property if the risk is too “speculative.” However, the risk does not need to be likely, or probably, it just needs to be more than a “farfetched” risk.
There are more defenses that can be raised, depending on the circumstances. If you have questions about other defenses, please call our offices today. One of our attorneys would be glad to assist you in understanding what defenses are available in your situation.
Violations of the misapplication of property statute are considered a class A misdemeanor. The penalties associated with this are a maximum fine of 1,000 dollars and up to one year in jail.
It is also important to note that individuals who fail to return the property of another may be subject to additional criminal and civil liabilities, including breach of contract.
New York law criminalizes certain behaviors that do not allow the property to return to the rightful owner. A person who misapplies property may face a fine of 1,000 dollars and up to one year in jail.
If I have been charged with misapplication of property, can I be charged with something else?
Yes. Depending on the circumstances of your case, you may also be facing other criminal charges. An individual may face a charge of larceny and embezzlement, scheme to defraud, criminal mischief, criminal tampering, or even reckless endangerment of property.
There are numerous federal laws that prevent misapplication of the property of another. These will usually arise if the property is public; the person holding the property is in a position of trust or a public employee.
Depending on the circumstances of the crime, an individual may face additional state and federal charges.
What have the Courts said about the misapplication of property?
The Courts have addressed a variety of issues with misapplying property. Here are a few court cases that have discussed these issues.
- In People v. Stevens, a New York court determined that the prosecution must provide evidence that the rental contract was not a rental-purchase agreement.
The defendant, Mary Stevens, had failed to return several items to Rentway. She was eventually arrested and charged with misapplication of property. Stevens contended that the prosecution did not have a case against her since the prosecution did not produce the rental agreements and did not show that the contract was a rental agreement and not a rental-purchase agreement.
And since the contract could be a rental-purchase agreement, the misapplication of property statute does not apply. The prosecution countered and said that producing the rental agreement was not necessary, and they did not need to prove every exemption did not apply. The Court agreed with the defense and prosecution in part.
The court stated that the prosecution does not need to have evidence that every exemption to the charge does not apply. Since most laws have a series of exemptions and defenses, it would be unduly burdensome to force the prosecution to show that every exemption does not apply.
However, if the defense insists that an exemption applies, and that exemption is part of the statute, then the prosecution needs to produce evidence that the exemption does not apply in the present case. Since the prosecution did not produce the rental agreements and showed that the contract was not a rental-purchase agreement, the case against the defendant was dismissed.
To read the court opinion in full, please click here. Or copy the following.
- In People v. Sagesse, a New York court determined that a rental lease-purchase agreement is not a contract addressed within the misapplication of property statutes and the applicable general business law.
The defendant, Tara A. Sagesse, entered into a rental lease-purchase agreement with North Country Rent-To-Own. Sagesse failed to return the rented property after a demand was issued. Sagesse was charged with misapplication of property. The defense alleges that the prosecution’s evidence is insufficient to charge Sagesse with misapplication of property. The Court did not examine this issue further.
The Court stated that the insufficiency of evidence allegation is moot since rental lease-purchase agreements are not a part of the business law that relates to the misapplication of property.
The Court analyzed the legislative intent of the law and the plain language of the laws and determined that rental-purchase agreements and rental lease-purchase agreements are contracts that the legislature wanted to leave out of the misapplication of property statute and the related business law. Therefore, the Court dismissed the case against Sagesse.
To read this court opinion in full, please click here. Or copy and paste the following.
- In People v. Jennings, the New York Court of Appeals determined that gaining interest on the money of another, even if in violation of the contract is not the misapplication of property. The Court also determined that the risk for misapplication of property needs to be more than mere speculation.
The defendants, all officers and employees of Sentry Armored Courier Corp. (Sentry) were subject to investigation after several unusual practices were discovered in an unrelated investigation. The Sentry had entered into a contract with Chemical Bank (Bank) to count bulk deposits.
The contract stated that the deposits had to be returned to Bank within 72 hours. Sentry discovered that it only took 24 hours to count the money. After the money had been counted, they would deposit the money into another account that would earn interest for the additional 48 hours.
The Sentry would then return the full amount of the bulk deposit to Bank before the 72-hour period ended. Bank became aware of this practice and demanded that the Sentry desists in this practice. Sentry continued this practice regardless until Bank determined it could count its deposits on its own.
Also, during this time, two defendants had taken 100,000 dollars of a “rolling coin deposit” (another contract Sentry had with Bank) and placed it in another account. This account was owned by a creditor of Sentry. This indirectly was to appease the creditor that Sentry was able to back up its loan obligations to a creditor, even though there was no security interest placed on the account.
However, after some events, the creditor demanded its contract in full, and seized the account and approximately 97,000 dollars of Bank’s money was lost. The defendants were all charged with misapplication of property. The defendants stated that misapplication of property did not occur since they returned all of the bulk deposits to Bank on time. The defendants asserted that keeping the interest is a common industrial practice and that it was not disallowed by the contract terms. Also, that depositing with the two accounts did not constitute an actual risk. The Court agreed mostly with the defendants.
The Court stated that even though acting outside of the contract terms is unethical and may have civil liability implications; it will only be considered a misapplication of the property if it creates a risk of loss of the property. The risk cannot be “speculative” or “far-fetched.”
Also, the deprivation of the property has to cause a material economic loss. Since the contract allowed Sentry to have the bulk deposits for 72 hours and it was a common industrial practice to invest the monies in their possession for the time allotted, it will not be a material economic loss. If the contract stated otherwise, it might have been considered a material economic loss.
The Court agreed that the way the bulk deposits were transferred to the first account did not constitute any risk since the way that it was transferred and received was very secure. However, the Court disagreed that placing funds into an account controlled by a creditor does create a risk. It is possible to see that a creditor would seize the funds of a debtor, even if it was without authority to seize those funds.
The Court dismissed the misapplication of property charges concerning the first account but reinstated the charges for misapplication of the property concerning the second account.
To read the full court opinion, click here. Or copy and paste the following.
Who investigates misapplication of property?
Violations of the misapplication of a property will be investigated by the New York Police Department. If the violation also concerns federal law, the investigation could include federal agencies, such as the Federal Bureau of Investigation.
I have been charged with misapplication of property, what should I do?
A charge of misapplication of property can cause many problems. These charges can affect your career, personal life, reputation, finances, and usually take substantial amounts of your time. Even if a charge is dismissed, it still can exact a heavy toll. The circumstances surrounding misapplication of property often carry civil liabilities as well.
This is why it is paramount that you have a legal team who knows the law and will take the time to understand your situation. Our team of attorneys has the proper skills and experience to represent you and your best interests best . We are happy to talk with you about your situation and will let you know what options are available to you.
Call us for a free legal consultation!
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