## Facts

- The defendant controlled a small-loan company (Surety Finance Corporation) and a separate collection agency (Clallam Adjustment Corporation) in the same city.
- A borrower owed Surety Finance about $90 on a prior loan and had multiple creditors seeking payment.
- The borrower and the defendant arranged a new $200 loan secured by the borrower’s ring, with an understanding that the proceeds would (1) retire the prior $90 balance, (2) cover loan expenses/interest, (3) provide $7 cash to the borrower, and (4) be distributed as partial payments to five listed creditors.
- At the defendant’s suggestion, he would distribute the creditor payments rather than the borrower.
- Surety Finance retained amounts for the prior balance and loan charges, paid the borrower $7, and made partial payments to three creditors.
- For the remaining two creditor accounts (about $57.50 total), the defendant caused Surety Finance to issue a check to his collection agency noting it was for those accounts.
- Without disclosing that he already controlled funds sufficient to satisfy the two accounts or that the borrower had directed only partial payments and no discount, the defendant solicited those two creditors’ business for his collection agency and took the accounts “for collection” on a fee basis.
- The two creditors were ultimately paid in full, less collection fees retained by the collection agency, and the borrower did not suffer a net financial loss.
- The borrower later learned the two creditors had been turned over to the collection agency and confronted the defendant; he stated they had been paid but did not disclose the collection fee arrangement.

## Issues

1. Whether the defendant’s use of loan proceeds to route payment through his collection agency and retain a collection fee constituted larceny/embezzlement under Washington’s larceny statute requiring wrongful appropriation of the “property of another” with intent to deprive or defraud.
2. Whether the transaction created a trust/bailment relationship supporting criminal misappropriation, or only a debtor–creditor relationship supporting civil remedies.

## Decision

- The Supreme Court of Washington reversed the petit larceny conviction.
- The court held the evidence did not establish larceny or embezzlement because the funds at issue were not the borrower’s property in the statutory sense.
- The court concluded the parties’ relationship concerning the loan proceeds was debtor–creditor, not trustee/beneficiary or bailee.
- The defendant’s conduct could constitute a breach of the parties’ agreement or other civil wrong, but it was not theft under the statute.

## Legal Principles

- A theft/embezzlement conviction under a consolidated larceny statute requires proof of wrongful appropriation of the “property of another” with the required intent.
- When a transaction creates only a debtor–creditor relationship, misapplication of money contrary to an agreement generally supports civil liability rather than criminal larceny/embezzlement.
- Characterizing the underlying relationship (trust/bailment versus debt) can be dispositive of whether money is “property of another” for theft purposes.
- Courts avoid construing theft statutes to convert ordinary commercial breaches of payment obligations into criminal offenses absent clear statutory elements.

## Conclusion

The court set aside the conviction because the loan proceeds remained the lender’s funds and the borrower held only a contractual expectation of how they would be applied; the defendant’s self-interested handling of the distribution, even if deceptive, did not satisfy the statutory requirement that he wrongfully appropriate the property of another.


State v. Polzin, 85 P.2d 1057 (Wash. 1939)