The Statute of Limitations for Conversion of Personal Property - Articles

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Posted by: Donald Paine on Jan 29, 2009

Journal Issue Date: Feb 2009

A new client enters your law office to complain about conversion of personal property. After introductory pleasantries, you should ask "When?" The client may say, "Well, I found out on [a date more than three years ago]." Probably you will need to advise this soon-to-be-former client that the matter must be placed in the category of tough.

Does the discovery rule apply to conversion of personalty? Let's start with the statute, Tenn. Code Ann.  §28-3-105(2): "The following actions shall be commenced within three years from the accruing of the cause of action: ... actions for the ... conversion of personal property."

Then read three appellate opinions. The first was written by Chief Justice Alfred O. P. Nicholson in 1873. It is Million v. Medaris, 65 Tenn. 132. To be kind and respectful to the chief, his opinion is opaque. But the holding appears to be that William Medaris should have sued John Million and others within three years of the conversion of three horses rather than within three years of discovering the equine theft.

The second opinion is Willis v. Smith, 683 S.W.2d 682 (Tenn. Ct. App. 1984). Judge Hewitt Tomlin and his colleagues held that crooked widow Helen Sawyer fraudulently concealed her conversion of stock certificates. Consequently the three-year conversion statute of limitations did not bar the action.

The third and final opinion is Pero's Steak and Spaghetti House v. Lee, 90 S.W.3d 614 (Tenn. 2002), drafted by Chief Justice Frank Drowota. Restaurateurs Peroulas brothers were cheated by their accountant/bookkeeper, Elizabeth Hinkle Lee. She converted checks, as did First Tennessee Bank. The Peroulas family sued; only the bank appealed to the Supreme Court.

The precise question raised was: "Does the discovery rule apply to toll the statute of limitations when the cause of action alleged is conversion of a negotiable instrument?" In holding it does not apply, the Court relied on an additional statute found in the Uniform Commercial Code at Tenn. Code Ann.  §47-3-118(g). It reads in pertinent part: "[A]n action ... for conversion of an instrument ... must be commenced within three years after the cause of action accrues." The cause of action accrues when the instrument is negotiated, not when the plaintiff discovers that act.

In conclusion, the three-year limitations period begins to run at the time of defendant's conversion rather than the time of plaintiff's discovery unless the plaintiff can prove defendant's fraudulent concealment.

Donald F. Paine DONALD F. PAINE is a past president of the Tennessee Bar Association and is of counsel to the Knoxville firm of Paine, Tarwater, Bickers, and Tillman LLP. He lectures for the Tennessee Law Institute, BAR/BRI Bar Review, Tennessee Judicial Conference, and UT College of Law. He is reporter to the Supreme Court Advisory Commission on Rules of Practice and Procedure.