Chapter 13 CONVERSION

• Jurisdiction: North Carolina

13 CONVERSION

A. Definition

Conversion is the unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, or the alteration of their condition to the exclusion of an owner's rights.¹

The essence of an action for conversion is not the acquisition of property by the wrongdoer, but a wrongful deprivation of it from the owner. The general rule is that there is no conversion until some act is done that is a denial or violation of the plaintiff's dominion over or rights in the property.²

B. Elements

In order to establish an action for conversion, a plaintiff must show that:

(1) Until the time the defendant came into possession of the property in question, the plaintiff was its lawful owner and was entitled to its immediate possession; and
(2) The defendant wrongfully converted the property in question to his own use.³

C. Elements Defined

1. Personal Property of Plaintiff

If the plaintiff was not the lawful owner of the property at issue and was not entitled to its possession at the time the defendant came into its possession, there is no claim for conversion.⁴ An action for conversion applies only to goods and personal property, and not to real property, or to intangible interests such as business opportunities and expectancy interests.⁵ The value of the property is immaterial to the right of action for conversion, and it is of no consequence if the defendant derived no benefit from the act.⁶

It is possible for one co-tenant of property to be liable for conversion of the interest of the other co-tenant if the former withholds the common property from the latter, or wrests it from him or her and exercises a dominion over it, either in direct denial of or inconsistent with the rights of the latter.⁷

Money may be the subject of an action for conversion.⁸ Traditionally, a claim for conversion of money was only actionable when the money was capable of being identified and described. The North Carolina Supreme Court has decided that funds transferred electronically may be sufficiently identified by the specific source, specific amount, and specific destination of those funds.⁹

2. Defendant Converted the Property

Conversion may be described as follows: the unauthorized exercise of a right of ownership over personal property belonging to another,¹⁰ the unauthorized alteration of the condition of personal property belonging to another,¹¹ the unauthorized exclusion of an owner from exercising his rights of ownership over his own personal property,¹² or the unauthorized retention of personal property after the owner has made a demand for its return.¹³ Where there has been no wrongful taking of the property in question, but rather, the defendant has rightfully come into possession of the property, then a demand by the plaintiff and refusal by the defendant are necessary to the existence of the tort.¹⁴ When the plaintiff makes his demand, but the defendant makes an absolute, unqualified refusal to surrender the property, placing the plaintiff in the position where he must bring a lawsuit to recover the property, a conversion exists.¹⁵

The second element can be met when there has been a wrongful failure of a defendant to hold property as required by law after the defendant lawfully came into possession of it.¹⁶

When a landowner takes possession of a tenant's personal property in accord with statutorily mandated procedures following a foreclosure, the landlord does not convert that property.¹⁷

D. Defenses

The statute of limitations for conversion is three years.¹⁸ Good faith, honest intentions and innocence are not defenses to conversion. If the defendant purchased or received personal property from someone who converted it, the defendant is nonetheless liable to the lawful owner, even though the defendant purchased/received the property innocently, in good faith and after paying good value for it.¹⁹ Nonetheless, in instances where the plaintiff abandoned the property,²⁰ or sold the property to the defendant, or gave the property to the defendant as a gift, the defendant may have a viable defense to the conversion claim.²¹

The "economic loss rule" can bar a claim for conversion. Under the rule, a tort action does not lie against a party to a contract who breaches that contract and has committed no other independent tort.²²

There is some authority in North Carolina for a defense that the defendant is a bona fide purchaser for value.²³ Assuming the defense exists, it would appear to require only that the defendant purchased the converted property for value, in good faith, without notice, constructive or actual, that the property has been converted.²⁴

A conversion claim is preempted by the federal Copyright Act if the plaintiff alleges only unlawful retention of intellectual property rights and not of a tangible object embodying the work.²⁵

E. Damages

By statute, in an action to recover possession of personal property, the plaintiff can obtain a judgment for possession, or for the value of the property if delivery cannot be had, and damages for the detention.²⁶ Damages for conversion consists of the fair market value of the property at the time of conversion, plus interest.²⁷ Actual damages are not an essential element of a conversion claim and, therefore, if a plaintiff fails to prove actual damages, he or she can still recover nominal damages.²⁸ Punitive damages may be available under circumstance of wanton, reckless, malicious or oppressive character of the acts.²⁹

An act of tortious conversion can satisfy the elements of a statutory unfair and deceptive trade practice claim,³⁰ under which the plaintiff may be awarded treble damages and attorney's fees.³¹

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Notes:

^[1] Spinks v. Taylor, 303 N.C. 256, 278 S.E.2d 501 (1981); Se. Shelter Corp. v. BTU,Inc., 154 N.C. App. 321, 572 S.E.2d 200 (2002); Hill v. Hill, 142 N.C. App. 524, 545 S.E.2d 442, rev'd on other grounds, 553 S.E.2d 679 (2001); Norman v. Nash Johnson & Sons Farms, Inc., 140 N.C. App. 390, 537 S.E.2d 248 (2000), review denied, 353 N.C. 378, 547 S.E.2d 13 (2001). Note that a bailor or a bailee can bring an action for conversion against a third party with regard to bailed property. Peed v. Burleson's, Inc., 242 N.C. 628, 89 S.E.2d 256 (1955).

^[2] State ex rel. Pilard v. Beringer, 154 N.C. App. 45, 571...