The Battle for Chattel: Understanding the Tort of Conversion

Denis Grigoras

Denis is a lawyer who draws on his background in complex legal disputes and transactions to problem-solve for his clients.

The tort of conversion primarily deals with the unlawful interference of another person’s movable personal property, known as chattels. In contrast to trespass to goods, conversion demands more than just a simple invasion of the plaintiff’s possessory rights; it necessitates an interference that denies the plaintiff’s title.

Tort of Conversion

Overview of Conversion in Tort Law

The tort of conversion primarily deals with the unlawful interference of another person’s movable personal property, known as chattels. In contrast to trespass to goods, conversion demands more than just a simple invasion of the plaintiff’s possessory rights; it necessitates an interference that denies the plaintiff’s title. It is an intentional tort where ignorance or mistake offer no defence, and the usual remedy is damages equivalent to the chattel’s value at the time of conversion.

The Scope of Conversion: Chattels

The term “chattels” refers to movable personal property and is distinct from the term “goods” found in provincial legislation on the sale of goods. Conversion does not apply to land or items sufficiently attached to land, such as fixtures. Statutory definitions exclude shares, stock, cheques, insurance policies, and guarantees; however, when these instruments are given a physical form, the tort of conversion can protect them.

The ability of intangible assets, like a chose in action, to be the subject matter of conversion remains a live issue in Canada. In the United Kingdom, the majority of the House of Lords in OBG Ltd. v. Allan clarified that conversion is limited to tangible objects. Canadian courts, on the other hand, have shown more openness to tort protection for intangible assets, and some have signaled their willingness to allow conversion actions for interference with a business’s goodwill.

The Role of Intent in Conversion Cases

The intention element in conversion, like in other intentional torts, encompasses the physical consequences of the defendant’s actions rather than the legal consequences. For example, if one breaks a vase believing it is theirs, but it belongs to someone else, the physical consequence—breaking the vase—was intended and may be enough to establish a conversion claim, even if the legal consequence was neither desired nor known. To be held liable, the defendant must have intended to cause the wrongful interference with another’s goods, such as taking, using, or destroying these goods in a manner inconsistent with the owner’s right of possession.

Characterizing Actions that Constitute Conversion

Conversion necessitates “a positive wrongful act or dealing with the goods in a manner, and with an intention, inconsistent with the owner’s rights.” The requirement of a positive act implies that passive negligence is insufficient. The determination of whether a defendant’s conduct constitutes conversion is a question of fact closely tied to the nature of the chattel. Generally, the less trivial the act in terms of duration, harm caused, and extent of dominion, the more likely a conversion finding will result. Acts typically found inconsistent with an owner’s title and thus amounting to conversion include transfer, destruction or damage, significant alteration, seizure coupled with a refusal to return, and improper use. Mere use or temporary possession does not constitute conversion.

Establishing the Plaintiff’s Standing to Bring a Conversion Claim

In a conversion action, the plaintiff is typically the owner or co-owner of the goods. A finder or even an unlawful possessor of the goods may bring an action for conversion against another person, except for the true owner or someone acting on their behalf. Situations involving finders become complicated when the owner of land, premises, or other chattels is unaware of the chattel’s presence. An owner out of possession may sue for conversion if the defendant’s act destroys the owner’s title, making it impossible for the owner to recover ownership (and possession) of the goods in the future.

Potential Defenses in Conversion Cases

Conversion is a strict liability tort, and a defendant’s mistaken belief that the goods belong to them or that they are entitled to handle them on behalf of another is not a defence. Even a bona fide purchaser of goods from a seller without title or not authorized by the true owner to sell will be liable in conversion. Under common law and statutes like those dealing with the sale of goods and mercantile agents, a bona fide purchaser for value without notice may be protected from liability to the true owner in certain circumstances. Much depends on how the seller obtained the goods, for example, through a contract induced by mistake, by fraud, or from an agent of the owner acting without authority but in circumstances giving rise to estoppel against the true owner. The defendant’s position may thus depend on facts they were unaware of and could not reasonably be expected to know.

If the plaintiff is the owner, the defendant cannot plead jus tertii—that is, that the goods belong to a third party. Jus tertii cannot be raised against a plaintiff who was in possession of the goods or had an immediate right to possession at the time of the conversion, as possession or the right to possess are sufficient grounds for a conversion action. A lawful possessor, such as a bailee, cannot plead jus tertii in a conversion action brought by the bailor, unless the bailee has been dispossessed by the true owner or is defending the action on behalf of the true owner.

If the owner consented to the interference or abandoned the goods, these defences can be used to challenge a conversion claim.

Available Legal Remedies for Conversion

Damages are the standard remedy for conversion, and the measure of these damages is the value of the goods at the time of conversion. Assessing damages based on the date of the wrongful act may be problematic if the goods’ value has changed since the conversion. Courts will award damages at the highest possible rate for converters who acted in bad faith and will not allow defendants to argue that they added value to the goods or that the goods are not as valuable as when they were converted. Conversely, an innocent but technically liable converter may be given credit for improvements made to the goods, and the owner may be required to compensate the defendant for these improvements.

Once the plaintiff obtains judgment for the value of the goods and that judgment has been satisfied by payment of damages, the judgment effectually transfers the title in the goods from the plaintiff to the defendant, amounting to a forced judicial sale of the goods. The defendant may prefer to return the goods to the plaintiff rather than be forced to buy them at a court-stipulated value. Alternatively, the plaintiff may prefer to claim their return. Specific restitution of converted goods is a matter of judicial discretion and is typically not granted unless the goods are of unique and irreplaceable value.

Extra-judicial responses to conversion include the remedies of replevin or recaption. Replevin is a form of interlocutory relief provided by the relevant provincial rules of court. A replevin action has two parts: first, the provisional seizure of the goods and their redelivery to the person claiming to be the owner; and second, the plaintiff’s expeditious prosecution of the action to determine the issue of ownership or the right to possession. Replevin does not require the plaintiff to establish irreparable harm, but only prima facie or substantial grounds to support their alleged right of possession.

Recaption is a common law self-help remedy allowing a plaintiff to retake their goods, provided doing so does not breach the peace. A plaintiff can enter another’s land to reclaim their chattel if it came onto the land accidentally or was left there by a wrongdoer. If an innocent party picks up a chattel belonging to another, the owner must request its return before using any force to retake it. A plaintiff may also attempt to regain possession of their chattel from a wrongdoer if their attempt is immediate or they are in “hot pursuit” of the thief.

The Significance of Conversion in Protecting Property Rights

The tort of conversion is an essential legal mechanism for addressing wrongful interference with another’s movable personal property or chattels. It serves as a means to protect individuals’ rights to their property by providing recourse when another party intentionally interferes with or denies the owner’s title to their goods. The tort of conversion, however, does not apply to temporary or trivial interferences or intangible assets without physical form. It requires a defendant’s intentional act that is inconsistent with the owner’s rights.

Understanding the requirements and defences associated with the tort of conversion is crucial for both plaintiffs and defendants in navigating disputes surrounding chattel ownership and possession. Moreover, being aware of the available remedies, such as damages or specific restitution, helps ensure that the aggrieved party can seek appropriate compensation for the wrongful interference with their goods.

In conclusion, the tort of conversion plays a vital role in safeguarding the rights of individuals to their personal property, providing a legal avenue for seeking redress when those rights have been violated. As a complex area of law, it is essential for parties involved in disputes over chattel ownership and possession to seek legal advice to better understand their rights and obligations.

Example

In the case of Canada Trustco Mortgage Co. v. Cerilli Group Inc., the court granted summary judgment in favour of Canada Trustco. The case centred around a lease between Cerilli Inc. and GauDes Foods, where GauDes secured a line of credit from Canada Trustco and provided the lender with security over its assets. Canada Trustco registered a financing statement to perfect its security interests.

When GauDes failed to repay the loan and also defaulted on realty taxes, Cerilli Inc. obtained a default judgment and a writ of seizure and sale. An agreement was made for GauDes to transfer its business and equipment to Cerilli Inc. in exchange for a release under the judgment, but the agreement never closed. Subsequently, the GauDes Dairy Queen franchise and equipment were sold without Canada Trustco’s consent, with the proceeds covering outstanding tax arrears, benefiting Cerilli.

Although Canada Trustco discharged its registration under the Personal Property Securities Act to allow the transaction to close, it did not discharge its security interest. Cerilli Inc. claimed it had the right to distrain and was thus entitled to act as it did. However, the court found that there was no genuine issue for trial, as Cerilli Inc. had not taken the necessary steps to distrain, and therefore, Canada Trustco’s security interest was not displaced.

The court concluded that the sale of GauDes equipment interfered with Canada Trustco’s property rights and that Cerilli Inc.’s actions amounted to conversion. The sale would not have been possible without Cerilli Inc.’s involvement, and the sale was inconsistent with Canada Trustco’s right of possession.

Believe your movable personal property has been wrongfully taken or interfered with? Or have you been accused of unlawfully handling someone else's chattels? Don't navigate the complexities of a conversion lawsuit alone. Ensure your rights are protected in court.

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