13 Conversion
A. Definition
Conversion is a tort action,1 an action at law.2 It is the unauthorized assumption and exercise of the right of ownership over the goods or personal chattels of another, to the alteration of the condition or the exclusion of the owner's rights.3 Conversion is the illegal use, misuse, or detention of another's chattel to the exclusion of the owner's rights.4 It cannot arise from a defendant's exercise of a legal right over property,5 or from a relationship of creditor and debtor, or where real property is at issue.6 Conversion will not lie solely for the goodwill of a business because it is inseparable from the business and its assets. Therefore goodwill can only be the subject of an action for conversion where the business or its assets are also at issue.7 Money may be the subject of conversion where it is capable of being identified.8 In the case of negotiable instruments, the action is governed by S.C. Code § 36-3-419.9
The South Carolina Supreme Court addressed the question of whether intangible rights may be the subject of an action for conversion.10 The plaintiff was the widow of a lawyer. After his death the firm retained his name. The personal representative of the decedent's estate brought an action against the firm contending it continued to use and profit from his name without the consent of the estate and without making compensation for its use. One cause of action in the complaint was for conversion. The widow was assigned the rights to the claims arising under the complaint. The court noted that courts do recognize that certain intangible rights may properly be the object of an action for conversion, but often limit claims to instances where the rights "have some documented basis to support them." The general rule in South Carolina has been that intangible rights are normally not the proper subject of a conversion claim which ordinarily lies only for personal property that is tangible or is represented by or connected with something that is tangible. The court was reluctant to expand the action as it relates to intangible property. It concluded that a claim should be limited to intangible property rights identified with "some document." Since the plaintiff widow sought to enforce alleged property right that was intangible without documentation evidencing the right, the property was not properly subject to a claim for conversion.
B. Elements
To recover in an action for conversion, the plaintiff must show:
(1) an interest by the plaintiff in the thing converted
(2) the defendant converted the property to his or her own use
(3) the use was without the plaintiff's permission.11
Fraud is not an element of conversion.12 Demand and refusal are unnecessary where the conversion resulted from the defendant securing the property illegally, tortiously, by fraud, or other wrongful conduct.13 Although, where property for which the defendant was rightfully in possession is retained, demand and refusal are required.14
C. Elements Defined
1. An Interest by the Plaintiff in the Thing Converted
To establish the tort of conversion, it is essential that the plaintiff show either title or right to the possession of the personal property.15 For example, where online sellers of hotel accommodations collected more in accommodations taxes from purchasers than they remitted to the municipalities that levied the taxes, a federal court said that if the sellers had an obligation to deliver the taxes to the municipalities, then the municipalities had a right to possession and, thus, an action for conversion.16 Failure to award a contest prize has been held not to be a basis for a cause of action in conversion.17 When the defendant has an interest in the property that is superior to that of the plaintiff, the plaintiff cannot maintain an action for conversion.18 Where the appellant pledged a certificate of deposit she owned as collateral on a loan, she had no right to possession, the lender had a right to liquidate it once the balance on the loan was due and payable and an action against the lender for conversion would not lie.19
The issue is whether the defendant exercised unauthorized control over the plaintiff's personal property. Thus, while ownership of the real property where the personal property is located may be relevant, a conversion action does not depend on who owns that real property.20
2. The Defendant Converted the Property to His or Her Own Use
The defendant must exercise some control over the property for the second element to be satisfied.21 The illegal use or misuse or illegal detention of another's chattel may give rise to a cause of action for conversion.22 For example, an action for conversion has been permitted where a stock certificate or the payment of the stock's value has been wrongfully retained.23 It must, of course, have been the defendant who converted the property to his own use.24 Thus, where an employee made use of property allegedly converted by his corporate employer and did so in his capacity as a surveyor for his employer, he was not liable for any conversion by the corporation.25 In Moore v. Weinberg,26 an attorney's client borrowed money from the plaintiff and assigned to the plaintiff his interest in funds held in escrow with the clerk of court pending resolution of unrelated litigation. Even though the attorney prepared the written assignment, when the funds in escrow were transferred to him, he disbursed most of the money to his client and retained some of it as his fee. The plaintiff sued the attorney for conversion, alleging he owned an interest in the proceeds from the litigation pursuant to the assignment, that the defendant attorney was aware of his interest in the proceeds, and that the attorney wrongfully disbursed those proceeds. The South Carolina Supreme Court said that the trial court erred in granting summary judgment for the defendant on the conversion claim.
A property owner cannot convert his or her own property. In American Credit of Sumter, Inc. v. Nationwide Mut. Ins. Co.,27 a car on which the appellant was the lienholder was insured by the appellee. The car was damaged in an accident and the owner received compensation from the insurer of the at-fault driver. However, she did not use the funds to repair the car. It was subsequently repossessed by the appellant — in the damaged condition — who then sued the appellee insurer for the diminution in value. The court decided that the insured's failure to use the insurance proceeds to repair the car was not a conversion. The insured owned the car at the time she retained the funds, had not defaulted on the installment contract, and the car had not been repossessed. Thus, she was still the owner.
In Jenkins v. Few,28 the defendant paid a third party to put sugar in the gas tank of the plaintiff's truck. The plaintiff argued the damage to his truck so altered its condition that the defendant "wrongfully assumed and exercised the right of ownership." The court noted that under the Restatement of Torts intentionally destroying a chattel or materially altering its physical condition so as to change its identity or character may constitute conversion,29but said no South Carolina case has adopted that view of conversion. It held that since the plaintiff presented no evidence the defendant wrongfully assumed and exercised the right of ownership or illegally used or misused the truck, the trial court erred in denying the defendant's motion for a directed verdict on conversion.
3. The Use Was Without the Plaintiff's Permission
That the defendant gained control and possession of the plaintiff's property without the plaintiff's permission has been considered an element of the tort.30 A claim for conversion may be based on an unauthorized detention of property after a demand for possession.31
D. Defenses
Defenses to an action for conversion include equitable estoppel,32 intentional abandonment by the plaintiff of ownership and right of possession of the property,33 consent of the plaintiff,34 an illegal act or possession by the plaintiff,35 authorization or privilege, and preemption.36 It is also a defense that the plaintiff's possession was gained from the defendant by fraudulent means.
The applicable statute of limitations for conversion is six years for actions arising prior to April 15, 1988, and three years for those arising on or after that date.37 Conversion occurs:
... as of the date of illegal possession, but in the case of lawful possession and lawful disposition, conversion occurs at the disposition, and in the case of a lawful possession with no disposition, conversion occurs after a demand has been made for the property, and there is a refusal to surrender such property.38
Contributory negligence is not a defense to an action for conversion.39
E. Damages
Generally, the measure of damages for conversion of personal property is the value of the property with interest.40 Where money has been converted, the measure of damages is its amount with legal interest from the date of the conversion.41 Even where no actual loss has occurred, there may be nominal damages if a technical conversion can be shown.42 For an "innocent" conversion, where property is converted by mistake or under a bona fide belief or right, the measure of damages is the value of the property at the time and place of conversion with the owner not entitled to any additions or improvements.43 In the case of a willful and intentional taking, the damages are the highest market value of the property with interest up to the time of trial,44 including additions or improvements.45 Punitive damages may be awarded where the plaintiff shows the conversion was accomplished recklessly and with conscious indifference to his or her rights.46
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Notes:
[1] Castell v. Stephenson Finance Co., 244 S.C. 45, 135 S.E.2d 311 (1964); Steele v. Victory Savings Bank, 295 S.C. 290, 368 S.E.2d 91 (Ct. App. 1988). See also Williams-Garrett v. Murphy, 106...
