What term describes the illegal use of money received on behalf of the principal?

The correct term that describes the illegal use of money received on behalf of the principal is misappropriation. Misappropriation refers to an agent or representative taking funds that belong to another party and using them for unauthorized purposes, often for personal gain. This illegal act undermines trust in the principal-agent relationship and can lead to serious legal repercussions.

Conversion, while it also involves the wrongful control or use of someone else's property, is more comprehensive and can refer to any unauthorized taking of property, not specifically related to financial transactions. Exaction typically pertains to the unfair or illegal demand for payment or service, and fraud encompasses a broader range of deceptive practices intended for personal gain, which may not specifically refer to financial mishandling.

Understanding the distinction between these terms is crucial, particularly in real estate and similar fields where fiduciary responsibility and financial integrity are vital.