Yes, it can happen, but an unfinished job or a missed deadline is not a crime by itself. California’s diversion-of-construction-funds law requires proof that the contractor willfully failed to finish the work or pay for it and wrongfully diverted the money to another use, and a separate home improvement law makes certain deposit and billing violations misdemeanors. Unless the facts fit one of these laws or another theft theory, the dispute is a civil contract matter.

Diversion of construction funds

Penal Code section 484b applies when someone receives money for the purpose of obtaining or paying for services, labor, materials, or equipment, and willfully fails to use it for that purpose, either by willfully failing to complete the improvements the money was provided for or by willfully failing to pay for the services, labor, materials, or equipment provided for the construction, and wrongfully diverts the money to a use other than the one it was received for. The jury instruction lists these as separate elements the prosecution must prove (CALCRIM No. 1810), and its authority notes cite a decision requiring that the money have been given for a specific, dedicated purpose.

This is not a fraud-at-the-start theory. The instruction defines acting willfully as acting willingly or on purpose, and says the person does not have to intend to break the law, hurt someone else, or gain any advantage (CALCRIM No. 1810). So the prosecution does not have to show the contractor never meant to do the work. It does have to show a willful failure to complete or pay and a wrongful diversion of money received for that purpose.

The penalty depends on the amount diverted, using a dollar line written into this statute. If $2,350 or less was diverted, the offense is a misdemeanor. If more than $2,350 was diverted, it is punishable by a fine of up to $10,000, up to a year in county jail, a felony term under Penal Code section 1170(h), or both the fine and a jail or felony term (Penal Code section 484b). The $2,350 figure is specific to section 484b. It is not the $950 line that generally separates petty theft from grand theft (Penal Code section 490.2).

The instruction’s bench notes also describe a split among appellate decisions on causation. Some hold that proving the wrongful diversion is enough; another held that the statute is not violated unless the wrongful diversion was a cause of the failure to complete the project or pay its expenses. If the trial court follows that second view, the jury must also find that the diversion caused the failure (CALCRIM No. 1810). Which view the court applies can matter on a given set of facts.

Deposit and billing rules for home improvement contracts

Apart from what happened to the money afterward, California regulates how a home improvement contract with a licensed contractor, or one required to be licensed, is set up. The contract must be in writing and state the contract amount. A down payment may not exceed $1,000 or 10 percent of the contract amount, whichever is less. Apart from the down payment, the contractor may not request or accept payment that exceeds the value of the work performed or material delivered (Business and Professions Code section 7159.5(a)(1), (a)(3), (a)(5)). A contractor that furnishes a qualifying performance and payment bond, lien and completion bond, bond equivalent, or joint control approved by the registrar is exempt from the down payment and progress payment limits (section 7159.5(a)(8)).

Violating the written-contract requirement, the down payment cap, or the overbilling limit is a misdemeanor punishable by a fine of $100 to $5,000, up to a year in county jail, or both, and the court must impose the maximum fine if the violation occurred in an area damaged by a natural disaster for which a state or federal emergency was declared (section 7159.5(b)(1)). This is a separate offense from diversion under Penal Code section 484b. A prosecution under section 7159.5 must be brought within 2 years if the contractor was licensed, or 4 years if the contractor was unlicensed but required to be licensed, counted from the contract date or, if the contract was never put in writing, from the buyer’s first payment (section 7159.5(b)(2)).

These two laws answer different questions. Penal Code 484b asks what happened to the money after it was paid. Business and Professions Code 7159.5 asks whether the contract, the deposit, and the payment schedule were set up lawfully to begin with. A given case can involve one of these laws, both, or neither.

Records that decide which law fits

Before assuming either statute applies, gather and review with a lawyer:

  • The written contract, including the exact deposit amount and the total contract price.
  • Every payment record and its date, matched against what work had actually been completed at that point.
  • Any evidence of what the deposit was specifically given to pay for.
  • Communications about delays, why the work stopped, and where the money went.
  • The contractor’s license status, any bond or joint control, and whether the contract was in writing at all.

Theft by false pretenses is a different theory. It can rest on a promise made without intending to keep it, but the instruction cautions that a failure to perform as promised is not enough, by itself, to prove the defendant did not intend to perform (CALCRIM No. 1804). One set of facts can support more than one theory, or none.

If you took a deposit and could not finish the job, or you paid a deposit and the work never happened, the Law Offices of David S. Chesley can review the contract, the payment history, and what the money was actually used for before you talk to the other side. Call (800) 755-5174 to discuss your case.