Opinion ID: 6313
Heading Depth: 1
Heading Rank: 3

Heading: Conversion As a Matter of Law

Text: 19 The district court found that the unauthorized sublease, resulting in the confiscation, was a conversion as a matter of law. Texas law defines conversion as the unauthorized and unlawful exercise of dominion and control over property inconsistent with or to the exclusion of another's superior rights in that property. Vickery v. Texas Carpet Co., 792 S.W.2d 759, 762 (Tex.App.--Houston [14th Dist.] 1990, writ denied); Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 446 (Tex.1971). Under Texas law, wrongful intent is not an element of conversion. Killian v. Trans Union Leasing Corp., 657 S.W.2d 189 (Tex.App.--San Antonio 1983, writ ref'd n.r.e.). GECC and AVEMCO claim that because Care Flight's conduct breached its lease contract, such conduct cannot as a matter of law constitute the tort of conversion. 20 Texas law has long distinguished tort liability from contract liability as between the parties to a contract, seeking to avoid the availability of both tort and contract liability for the same conduct and the same kind of harm or loss. See Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493 (Tex.1991); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex.1986); Mid-Continent Aircraft Corp. v. Curry County Spraying Service Inc., 572 S.W.2d 308, 312 (Tex.1978). However, the Texas cases also recognize that when certain legal relationships exist between contracting parties, the law may impose affirmative duties that are separate and apart from the contractual promises made between those parties. To determine whether conduct that breaches a contract can also be a tort, Texas law requires a court to look to the origin of the duty owed and the nature of the resulting injury. 809 S.W.2d at 494-95. 21 In Southwestern Bell Telephone Co. v. DeLanney, the Texas Supreme Court described the relevant inquiry into the origin of the duties owed, as follows: 22 As one prominent authority has explained: Tort obligations are in general obligations that are imposed by law--apart from and independent of promises made and therefore apart from the manifested intention of the parties--to avoid injury to others. W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton On the Law of Torts Sec. 92 at 655 (5th Ed.1984).... If the defendant's conduct--such as negligently burning down a house--would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff's claim may also sound in tort. Conversely, if the defendant's conduct--such as failing to publish an advertisement--would give rise to liability only because it breaches the parties' agreement, the plaintiff's claim ordinarily sounds only in contract. 23 809 S.W.2d at 494. 24 In Southwestern Bell v. DeLanney, the plaintiff sued over Southwestern Bell's breach of its promise to print plaintiff's advertising in the yellow pages. The Texas Supreme Court examined the origin of the duties between the parties and found that the only duty breached arose from the contract itself. The court held that the plaintiff therefore had no tort claim. 25 In this case, Care Flight owed GECC a contractual duty not to sublease the aircraft without GECC's consent. However, under the Texas law of bailment, Care Flight also owed GECC a tort-based duty not to exercise unauthorized dominion and control over the leased plane inconsistent with, or to the exclusion of, GECC's superior rights in the plane. Vickery, 792 S.W.2d at 762. Care Flight's unauthorized sublease of the plane to Coltharp was admittedly a breach of the contract. The issue is whether it also breached Care Flight's separate and independent obligation originating under the Texas tort law of conversion. 26 Texas courts have specifically recognized that because the law of conversion and bailment imposes legal duties outside any contractual agreements, separate causes of action for breach of contract and conversion may arise from the same facts. For example, in Vickery, 792 S.W.2d at 762-63, the court held that a breach of contract and a conversion claim both arose when the defendants failed to pay an invoice for goods delivered and kept the goods. Similarly, in Allied Bank of Texas v. Plaza DeVille Assoc., 733 S.W.2d 566 (Tex.App.--San Antonio 1987, writ ref'd n.r.e.), the court held that the defendant's wrongful withholding of rental proceeds constituted a conversion; in High Plains Wire Line Services Inc. v. Hysell Wire Line Service, Inc., 802 S.W.2d 406, 410 (Tex.App.--Amarillo 1991, no writ), the court found for conversion arising out of an alleged breach of a purchase agreement; and in Virgil T. Walker Const. Co., Inc. v. Flores, 710 S.W.2d 159 (Tex.App.--Corpus Christi 1986, no writ), the court found a claim for conversion and a claim for breach of contract from a failure to relinquish control over construction machinery after a sale. 27 Appellants do not dispute that under Texas law, a claim for breach of contract and the tort of conversion can arise from the same facts. Appellants argue that there cannot be a separate tort here because the lease between GECC and Care Flight abrogated the rights and duties arising under the common law of conversion and bailment. 28 Appellants cite Anchor Casualty Co. v. Robertson Transport Co., 389 S.W.2d 135, 138 (Tex.Civ.App.--Corpus Christi 1965, writ ref'd n.r.e.), for the proposition that parties may, by express contract, enlarge, abridge, qualify or supersede the obligations which otherwise would arise from the bailment by implication of the law. Id. (citations omitted). Anchor Casualty involved collision insurance for the protection of a leased truck. The parties to that lease agreed that the lessee would not be liable for any loss to the truck, and the court relied on the parties' mutual understanding of the lease agreement in denying subrogation rights. 389 S.W.2d at 139. By contrast, the lease in this case expressly placed the entire risk of loss on Care Flight, the lessee, (III R. 153), and provided that [n]o remedy referred to herein is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity, (III R. 156) (emphasis added). Rather than expressly abrogating the rules of tort liability, or the duties imposed through the law of bailment, the lease at issue here retained the lessor's right to assert all common law remedies. 29 In addition to looking to the origin of the duties, the Texas courts also look to the nature of the injury to determine whether a claim is for contract, tort, or both. The general rule is that where a defendant's conduct breaches an agreement between the parties and does not breach an affirmative duty imposed outside the contract, the plaintiff ordinarily may not recover on a tort claim if the damages are economic losses to the subject matter of the contract. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex.1986). 30 GECC and AVEMCO assert that the conduct here not only violated duties imposed outside the contract, but also caused injuries that go beyond economic losses to the subject matter of the contract. They point to the loss of use of the aircraft for over three years, well beyond the four-month lease term, and the repair costs for the damage the aircraft received during the unauthorized sublease and confiscation. 31 The Texas cases clearly hold that a plaintiff asserting negligent failure to perform a contract does not have a tort cause of action when the only injury is economic harm to the subject of the contract itself. Jim Walter Homes, 711 S.W.2d at 618. 1 By contrast, the Texas courts have consistently found claims for both conversion and breach of contract based on a single set of facts and a single injury. See Vickery, 792 S.W.2d at 762; Plaza National Bank v. Walker, 767 S.W.2d 276 (Tex.App.--Beaumont 1989, writ denied); Allied Bank, 733 S.W.2d at 566; see also, Ames v. Great Southern Bank, 672 S.W.2d 447 (Tex.1984); Prewitt v. Branham, 643 S.W.2d 122 (Tex.1982). The Texas courts have not held that in order to allege both a breach of contract and the tort of conversion, the conversion damages must be separate and distinct from the contract damages. 32 Given the record before this court and the Texas law, the district court correctly found that the fact that Care Flight breached its lease contract did not preclude a finding that Care Flight also committed the tort of conversion. 33 The district court was also correct in holding that Care Flight's initial lawful possession of the plane by Care Flight did not preclude a finding of conversion. One who is authorized to make a particular use of a chattel, and uses it in a manner exceeding the authorization, is subject to liability for conversion to another whose right to control the use of the chattel is thereby seriously violated. Restatement (Second) of Torts Sec. 228 (1965). Texas generally follows the elements of conversion as stated in the Restatement, which provides that [t]he limits of the permitted use ordinarily are determined by the terms, express or reasonably implied, of the contract or other agreement between the parties, and the question becomes one of whether there is a material breach of the agreement. Id. at Cmt. C. 34 The district court correctly determined that the unauthorized sublease of the aircraft was a material breach. Texas law recognizes the distinction between serious violations of another's right of control, which constitute conversion, and minor or technical violations insufficient in degree of interference to constitute conversion. 35 The several reported cases on point are all consistent with this result. In Swish Mfg. Southeast v. Manhattan Fire & Marine Ins., 675 F.2d 1218 (11th Cir.1982), the Eleventh Circuit held that a conversion exclusion in an insurance policy precluded coverage where a leased aircraft was used to transport marijuana, in violation of the lease agreement, and was subsequently confiscated by the Bahamian government. 675 F.2d at 1219. Relying on Sec. 228 of the Restatement, the court concluded that, under Georgia law, the conversion exclusion applied. Id. at 1220. The applicable Georgia law was the same in relevant respects as Texas conversion law. See also, National Union Fire Ins. Co. v. Carib Aviation, Inc., 759 F.2d 873 (11th Cir.1985); Gelder v. Puritan Ins. Co., 100 N.M. 240, 241, 668 P.2d 1117, 1118 (1983). 36 Appellants' assertion that there could be no conversion because National Union made no formal demand is not supported by Texas law. Formal demand and refusal are not necessary if demand would be useless, or if the possessor's acts amount to a clear repudiation of the owner's rights. Bures v. First National Bank, Port Lavaca, 806 S.W.2d 935 (Tex.App.--Corpus Christi 1991); see also Permian Petroleum Co. v. Petroleos Mexicanos, 934 F.2d 635, 651 (5th Cir.1991). Demand and refusal are not necessary if other proof demonstrates a conversion. Presley v. Cooper, 155 Tex. 168, 284 S.W.2d 138, 141 (1955). 37 It is undisputed that the aircraft at issue was confiscated by the government of Colombia. GECC's formal demand to Care Flight to return the aircraft would have been useless. Moreover, there was other proof that a conversion occurred so that demand and release were not necessary as a matter of law. Presley, 284 S.W.2d at 141. 38 The district court's summary judgment that Care Flight converted the aircraft is affirmed.