Facts
- Prosser owned a valuable watch that was stolen by Thurlow.
- Thurlow sold the watch to Keeton, representing it as his own and claiming he needed money due to his mother’s illness.
- Keeton and Thurlow had a minor church connection; Keeton reasonably believed Thurlow owned the watch.
- Keeton paid $500, approximately the watch’s value, and Thurlow disappeared soon after the sale.
- About a month later, Prosser saw Keeton wearing the watch, identified it by a secret mark, and demanded its return.
- Keeton refused to return the watch, asserting he paid for it.
- Prosser sued Keeton for conversion; the trial court held Keeton liable despite good faith and ordered return of the watch or payment of its value.
- Keeton appealed; the appellate panel produced a majority opinion reversing, a concurrence in the result, and a dissent.
Issues
- Whether a good-faith purchaser who pays fair value and reasonably believes the seller has title is liable for conversion when the seller was a thief.
- When both the original owner and purchaser are innocent and the thief is unavailable, which party should bear the loss.
- Whether social policy favoring commercial transactions justifies protecting good-faith purchasers despite traditional rules that a thief cannot convey title.
Decision
- The appellate majority reversed the trial court and held Keeton was not liable for conversion.
- The majority concluded Keeton took good title “by operation of law,” allocating the loss to Prosser as between two innocent parties.
- A concurring judge agreed with the judgment for Keeton, relying primarily on broad commercial policy rather than fairness between the two parties.
- A dissent would have affirmed the trial court, reasoning that a thief cannot transfer title and the purchaser’s good faith does not prevent conversion liability.
Legal Principles
- Traditional rule (nemo dat): a thief acquires no title and ordinarily cannot transfer title; a buyer from a thief therefore obtains no right to the chattel and may be liable in conversion.
- Conversion focuses on exercising dominion or control over another’s chattel in a manner that seriously interferes with the owner’s rights, potentially requiring payment of the chattel’s full value.
- Competing allocation rule (majority): when the wrongdoer is unreachable and both parties are innocent, loss may be placed on the party better positioned to prevent the harm; under this approach, a good-faith purchaser may be treated as taking title by operation of law.
- Policy-based rationale (concurrence): even where bilateral fairness is indeterminate, protecting good-faith purchasers can be justified to reduce transaction costs and support routine commercial exchange.
Conclusion
The appellate majority treated the dispute as a loss-allocation problem between innocent parties and held that a good-faith purchaser who paid fair value took title by operation of law and was not liable for conversion, while a dissent would have applied the traditional rule that a thief cannot convey title and the purchaser must return the property or pay its value.