Cause of Action for Conversion
of Property
The common law cause of action for conversion of property.
Developing this legal protection of property rights to combat
oppressive conduct.
Conversion of Property
Under Texas law, stock is personal property. Minority shareholder rights are based
ultimately on fundamental rights of property ownership.
Common Law Protection of Property Rights
The common law cause of action that protects personal property rights is the tort of
conversion of property. “The Texas action for the tort called conversion is descended
from several common law forms of action, each of which addressed a particular injury to
personal property and provided a separate remedy for that injury; the modern action,
without being fettered by the strict procedural rules of the forms of action, encompasses
the elements and remedies of each of these actions and applies them as appropriate to
the particular case.” Prior to the advent of the shareholder oppression doctrine, Texas
jurisprudence had a relatively well-developed body of law applying the conversion
cause of action to protect property rights of minority shareholders in closely-held
corporations. Texas courts have held: “Once a presentment of the stock and
reasonable request for change of ownership, coupled with some proof of ownership,
then the unreasonable refusal to transfer is a conversion of the stock.” “A refusual of a
corporation to transfer record ownership of corporate stock may, under appropriate
circumstances, result in liability of the corporation for damages as a corporation for
damages as a conversion of the stock.” In eliminating the shareholder oppression
doctrine from Texas law, the Texas Supreme Court in Ritchie v. Rupe, specifically
pointed to the conversion cause of action as one of the “common-law causes of action
[that] already exist[s] to address misconduct by corporate directors and officers.” A
claim that stock conversion “is a personal cause of action and a personal injury” and
may be asserted directly by the shareholder.
Tort Claim for Conversion of Property
At common law when a defendant unlawfully detained property, the owner might sue
him either in detinue, to recover his property together with damages for its unlawful
detention, or in “trover,” to treat the detention as a conversion of the property by
defendant, whereby the title would pass to defendant as of the time of the conversion,
and to recover the value of the property at the time it was converted. The modern tort
claim for conversion merges the two common law causes of action into a single claim
with an election of remedies. The tort for conversion of property may be thought of as a
civil cause of action for theft, but the tort covers a broader range of interference with
property rights than just loss of physical possession.
Property Subject to Conversion
Common law conversion applies only to ownership or possessory interests in personal
property. Only property that is personal, as opposed to real property, and tangible or
physical may be converted. Generally, intangible property cannot be converted unless
the underlying intangible right has been merged into a document that has may
be converted. The “merger doctrine” departed from the common law, which restricted
conversion claims to tangible property. The merger doctrine allowed conversion “to
encompass a different class of property, such as shares of stock [and] was motivated by
society’s growing dependence on intangibles.” Under this doctrine a legal instrument,
such as a certificate of title, can be converted, but a trade name cannot. An bank
account cannot be converted but a specific fund of money (or pile of dollar bills) can be
converted
Elements
To establish a claim for conversion of property, a plaintiff must prove that (1) the plaintiff
owned or had possession of the property or entitlement to possession; (2) the defendant
unlawfully and without authorization assumed and exercised dominion or control over
the property to the exclusion of, or inconsistent with, the plaintiff's rights as an owner;
(3) the plaintiff demanded return of the property; (4) the defendant refused to return the
property; and (5) the plaintiff was injured by the conversion. The demand and refusal
elements are established as a matter of law and are not submitted to the jury if the
property was initially taken wrongfully without the owner’s consent, or when the actions
of the defendant amount to a clear repudiation of the plaintiff’s rights such that demand
would be useless.
Ownership or Possession
The plaintiff must prove either ownership, legal possession, or the right to immediate
possession of the property at the time of conversion. The plaintiff may introduce
testimony or other evidence that the property was acquired by purchase or otherwise.
Dominion or Control
The defendant must exercise dominion or control over the property in a manner
inconsistent with the plaintiff’s ownership rights. Any act that interferes with the owner’s
right to the property and deprives the owner of its free use and enjoyment constitutes
dominion and control. There is no requirement of a physical taking, and the
interference may be temporary, but the act of control or dominion must be positive and
affirmative, mere non-feasance is insufficient.
If the property was initially taken lawfully, then conversion of the property occurs when
the plaintiff demands its return, and the defendant refuses, but demand and refusal are
unnecessary if the circumstances indicate that the defendant has clearly repudiated the
plaintiff’s right or that a demand would be futile. Demand and refusal are also not
necessary if the defendant took possession without the plaintiff’s consent.
Remedy for Conversion of Property
The remedy for conversion of property is generally either (1) the lost value of the
personal property converted or (2) return of the property plus special damages for loss
of use during the period of wrongful detention. The plaintiff must make the election
before the case is submitted to the jury and may not change it after submission. The
usual measure of damages is fair market value at the time and place of the conversion.
