Don't Bet the Business

There are some aspects of the law that lawyers repeatedly get wrong. Conversion of money is one of those things. 

Conversion claims are raised fairly often in business litigation, particularly in transactions involving personal property. Similarly, in quite a number of business transaction contexts where money changes hands, the possibility of a conversion claim is present.  It is not a particularly complex notion, but it is one that is frequently misunderstood.

Generally, conversion is defined as “any distinct act of dominion wrongfully exerted over another's personal property in denial of or inconsistent with his rights therein.”  Put simply, if you give me your personal property to hold, and I don’t give it back when you ask for it, I have converted your property.

Conversion of money adds a bit of a twist to the analysis because money, by its nature, is fungible.  Accordingly, the law of conversion as applicable to money requires a legal obligation to return specific money entrusted to another. 

For example, if I ask you to hold $500 in cash with the expectation that this money will be returned to me when I ask for it and it is not, a claim for conversion of money arises. If, however, I give you a check for $500 to pay you for services to be performed and to cover expenses you may incur when performing those services, and you breach the contract by failing to perform all of the required services, your refusal to return my money most certainly will be sought as damages in a breach of contract action but you have not committed a tort. 

Indeed, by your actions you have not converted my money because by commingling the funds in a single check for more than one purpose (i.e, compensation and expense reimbursement), there is no way to trace specific funds that you would have a legal obligation to return to me, particularly since you will claim that some of the money was actually earned.

This is by no means groundbreaking stuff, but when conversion as a cause of action is misapplied it’s irritating. Conversion of money certainly does happen, but it’s going to be the rare case.

Conversion claims often are thrown into a complaint as a “belt and suspenders” effort when a claim for breach of contract is really all that is needed.  Mucking up a commercial contract claim with an inappropriate tort claim for conversion should not happen for many reasons, not the least of which is that it simply is wrong as a matter of law.