SW Legal studies in Business

Innocent Recipient of Money Obtained by Fraud Liable for Conversion

Appeals court held that parents given large sums of money by their daughter who engaged in fraud to obtain the money were liable to the financial institutions that were the rightful owners of the money.

Topic Torts
Key Words

Conversion; Bank; Fraud

C A S E   S U M M A R Y

Davis and others conspired to obtain millions of dollars through fraudulent mortgage applications. A sham buyer would make an offer on multi-million dollar homes. The paperwork would be changed to a higher price than the price paid to the seller and the conspirators, who operated at every step of the transaction, would collect the difference. Davis collected $2.8 million as her share of the fraudulently obtained funds. She was sentenced to 12 years in prison and others were also convicted. While this was going on, Davis passed on large sums of money to her parents deposited in bank accounts held in trust for her. Lehman Brothers, the victim of the scam, and its insurer and title companies sued Davis’ parents for conversion. The parents did not deny that they had the money, but contended they were innocent as they had no idea the funds were obtained by fraud. The trial court held that the parents were liable for conversion. They appealed.


Affirmed. The crux of conversion is wrongful exercise of dominion or control over property of another without authorization and to the exclusion of the owner’s rights in that property. Conversion does not require that defendant have an intent to harm the rightful owner, or know that the money belongs to another. The victim of the fraud has a superior right to the return of the money than the recipient has to keep it, even if the recipient had no knowledge of the fraud. The recipient of the gift, the parents, have benefited from an unearned windfall from a wrongdoer who had no right to confer the benefit, and has no greater right to keep money wrongfully obtained than if a pickpocket stole a watch and gave it as a gift to a friend.


Chicago Title Insurance Co. v. Ellis and MS Financial Services, ---A.2d--- (2009 WL 2145988, App. Div., N.J., 2009)

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