VICTORY, J.
We granted this writ application to resolve a split in the courts of appeal regarding whether the fourth category of the doctrine of contra non valentem, i.e., the discovery rule, is applicable to suspend prescription of a conversion claim against a payor under La. R.S. 10:3-420(f). After reviewing the record and the applicable law, we find that the discovery rule cannot suspend the one-year prescriptive period of La. R.S. 10:3-420(f). Therefore, we affirm the judgment of the court of appeal.
On August 26, 2010, Specialized Loan Servicing, L.L.C. ("Specialized") filed a petition asserting a claim for damages against Assurant Specialty Property ("Assurant"), American Security Insurance Company ("American Security"), Donyelle January ("January"), and Capital One Bank ("Capital One"). According to the petition, Specialized was the servicer of a note and mortgage agreement executed by January and affecting January's property located at 400 Missouri Street, New Iberia, Louisiana. Specialized was the primary insured on a policy covering the property issued by Assurant and its subsidiary and underwriter, American Security. January was the secondary insured. The petition alleges that following a fire on June 8, 2009, American Security issued a check on June 26, 2009, in the amount of $142,242.33, with January and Specialized named as payees. The check was forwarded by American Security to Assurant, who subsequently forwarded the check to January in conformance with the insurance policy. Along with the check, Assurant included information explaining the procedures to January for endorsing the check and returning it to Specialized. The petition alleges that "[u]nbeknownst to [Specialized], January negotiated the check to Capital One Bank in New Iberia, on or around July 15, 2009" and that "Capital One Bank cashed the check in favor of January without any endorsement by [Specialized]." The petition states that before discovering January had cashed the check, Specialized contacted January and requested a return of the endorsed check. Upon discovering that January had negotiated the check, Specialized contacted Assurant who told them that the check was made payable to "Specialized Loan Servicing and Donyelle M. January." However, Assurant claimed that the check had been altered by somebody erasing the word "and" on the check. Based on these claims, Specialized filed a claim with Capital One, asserting that the check cashed by Capital One contained a fraudulent alteration. On February 8, 2010, Capital One rejected the fraud claim. Specialized then filed this lawsuit claiming damages in the amount of $142,242.33, with interest, attorney fees and other damages. The petition alleged that Capital One was liable for
Capital One filed a peremptory exception of prescription, alleging that the claim against it was a claim of conversion under the La. U.C.C., specifically La. R.S. 10:3-420, which claim prescribes one year from the date of negotiation of the check. As the check was negotiated on July 15, 2009, and suit was not filed until August 26, 2010, Capital One argued that Specialized's claim against it had prescribed. Specialized opposed the exception by arguing that the doctrine of contra non valentem applied to suspend prescription until Specialized had knowledge that the check had been negotiated, which did not occur until August 27, 2009. The district court overruled the exception, but the court of appeal granted Capital One's writ and reversed. Specialized Loan Servicing, L.L.C. v. January, 12-1145 (La.App. 4 Cir. 9/18/12) (unpublished writ action). The court of appeal found that the claim was prescribed on the face of the petition, and thus the burden shifted to Specialized to prove that the claim was not prescribed. Id. While Specialized attached exhibits to its opposition purporting to show that it did not have knowledge that January had cashed the check until August 27, 2009, Specialized failed to introduce these exhibits into the record and thus they could not be considered. Id. Therefore, the court of appeal found that Specialized failed to meet its burden of proving that its claim against Capital One for conversion was not prescribed. Id.
While the court of appeal found that the doctrine of contra non valentem did not suspend prescription in this case, its discussion of Specialized's attempt to offer exhibits to prove its lack of knowledge implies that the court believed the doctrine could apply in conversion cases on satisfactory proof. We granted Capital One's writ application to decide the narrow legal issue of whether the fourth category of contra non valentem can apply to suspend prescription of a conversion claim under La. R.S. 10:3-420. Specialized Loan Servicing, L.L.C. v. January, 12-2668 (La.2/22/13), 108 So.3d 759.
When prescription is raised by peremptory exception, with evidence being introduced at the hearing on the exception, the trial court's findings of fact on the issue of prescription are subject to the manifest error-clearly wrong standard of review. London Towne Condominium Homeowner's Ass'n v. London Towne Co., 06-401 (La.10/17/06), 939 So.2d 1227, 1231 (cites omitted). However, the sole issue before us is the proper interpretation of La. R.S. 10:3-420. Thus, the case presents a question of law which is reviewed by this court under a de novo standard of review. City of Bossier City v. Vernon, 12-0078 (La.10/16/12), 100 So.3d 301; First Nat. Bank, USA v. DDS Const., LLC, 11-1418 (La.1/24/12), 91 So.3d 944, 951-952; Louisiana Municipal Association v. State, 04-0227 (La.1/19/05), 893 So.2d 809, 835. A de novo review means the court will render judgment after its consideration of the legislative provision at issue, the law and the record, without deference to the legal conclusions of the tribunals below. City of Bossier City, supra at 303.
La. U.C.C.'s conversion statute, La. R.S. 10:3-420, was enacted as part of the state's 1992 revision to Chapter 3 of Title 10 governing Negotiable Instruments. La. R.S. 10:3-420 applies to circumstances where a payee on a check alleges that a bank paid the check to someone else not entitled to enforce the instrument, providing in pertinent part:
Here, Specialized alleges that Capital One made payment with respect to the check to January, a person not entitled to receive payment.
Although La. C.C. art. 3467 provides that "prescription runs against all persons unless exception is established by legislation," this Court has applied the jurisprudential doctrine of contra non valentem as an exception to this statutory rule. See e.g., Wimberly v. Gatch, 93-2361 (La.4/11/94), 635 So.2d 206, 211. The doctrine of contra non valentem applies as an exception to the statutory prescriptive period where in fact and for good cause a plaintiff is unable to exercise his cause of action when it accrues. The Court has recognized four instances where contra non valentem can apply: (1) where there was some legal cause which prevented the courts or their officers from taking cognizance of or acting on the plaintiff's actions; (2) where there was some condition coupled with a contract or connected with the proceedings which prevented the creditor from suing or acting; (3) where the debtor himself has done some act effectively to prevent the creditor from availing himself of his cause of action; or (4) where some cause of action is not known or reasonably knowable by the plaintiff, even though his ignorance is not induced by the defendant. Wimberly, supra at 211. However, the doctrine of contra non valentem only applies in "exceptional circumstances." La. C.C. art. 3467, Official Revision Comment (d); State Through Div. of Admin. v. McInnis Bros. Const., 97-0742 (La.10/21/97), 701 So.2d 937, 940; Renfroe v. State ex rel. Dept. of Transp. and Development, 01-1646 (La.2/26/02), 809 So.2d 947, 953.
Here, Specialized argues that the fourth category of contra non valentem applies to suspend prescription because Specialized did not know and could not have known that January improperly cashed the insurance check until American Security informed it of that fact on August
Our courts of appeal are split on the issue of whether the discovery rule can suspend prescription of a conversion claim under La. R.S. 10:3-420. The First and Second Circuits have held that the doctrine of contra non valentem cannot be applied to suspend prescription of a cause of action for conversion of a negotiable instrument under La. R.S. 10:3-420(f), except in the event of fraudulent concealment by the defendant asserting prescription. ASP Enterprises, Inc. v. Guillory, 08-2235 (La.App. 1 Cir. 9/11/09), 22 So.3d 964, writ denied, 09-2464 (La.1/29/10), 25 So.3d 834; Peak Performance Physical Therapy & Fitness, LLC v. Hibernia Corp., 07-2206 (La.App. 1 Cir. 6/6/08), 992 So.2d 527, writ denied, 08-1478 (La. 10/3/08), 992 So.2d 1018; Costello v. Citibank (South Dakota), N.A., 45,518 (La. App. 2 Cir. 9/29/10), 48 So.3d 1108. The Third Circuit applies the doctrine of contra non valentem to conversion cases on a case by case basis. In LaCombe v. Bank One Corp., 06-1374 (La.App. 3 Cir. 3/7/07), 953 So.2d 161, writ denied, 07-746 (La.6/1/07), 957 So.2d 177, the court held that prescription was suspended where an employer had no reason to suspect that his employee was forging his endorsement and depositing the checks into her own account. In Metro Elec. & Maintenance, Inc. v. Bank One Corp., 05-1045 (La.App. 3 Cir. 3/1/06), 924 So.2d 446, the court refused to apply the discovery rule to suspend prescription because the plaintiff could easily have discovered the conversion had he examined his bank statements. Likewise, in this case, the Fourth Circuit apparently would have applied the discovery rule to suspend prescription had the plaintiff introduced sufficient evidence into the record to prove its lack of knowledge of the conversion. Specialized Loan Servicing, supra.
Specialized cites to other court of appeal cases holding that contra non valentem applies in conversion cases on a case by case basis. See Robinson v. Whitney National Bank, 96-0628 (La.App. 4 Cir. 10/23/96), 683 So.2d 847 (acknowledging the applicability of the doctrine but refusing to apply it where the plaintiff could have discovered the cause of action by examining her bank statements), writ denied, 96-2807 (La.1/6/97), 685 So.2d 120; Chapital v. Guaranty Sav. & Homestead Ass'n, 96-0244 (La.App. 4 Cir. 10/2/96), 681 So.2d 1307 (applying doctrine to suspend prescription until plaintiff became aware that forged check had been deposited), writ denied, 96-2639 (La. 12/13/96), 692 So.2d 1068; Johnson v. Concordia Bank & Trust Co., 95-1187 (La.App. 3 Cir. 3/27/96), 671 So.2d 1093 (applying doctrine to suspend prescription on suit against bank for wrongfully dispersing interest to tutor); Riceacres, Inc. v. Hayes, 93-310 (La.App. 3 Cir. 2/2/94), 631 So.2d 703 (applying doctrine to suspend prescription where bank paid cashier's checks over forged endorsement); Black v. Whitney National Bank, 618 So.2d 509, 516 (La.App. 4 Cir.1993) (acknowledging the applicability of the doctrine but refusing to apply it where plaintiff should have discovered forged checks at some point during a nine-year period). However, these cases were decided based on the applicable law prior to the
Effective January 1, 1994, former La. R.S. 10:3-419 was amended and reenacted as La. R.S. 10:3-420. Former La. R.S. 10:3-419 was silent on the nature of the action for conversion and contained no prescriptive period.
Thus, the res nova issue before us is whether the discovery rule can interrupt the one-year prescriptive period contained in La. R.S. 10:3-420. In making this determination, we must look first to the purpose behind Louisiana's enactment of its version of the U.C.C. La. R.S. 10:1-103 provides:
The U.C.C. Comment following this statute explains the interaction between this statutory law and other bodies of law, as follows:
La. R.S. 10:1-103, Official Commercial Code Comment 2.
We also look to the jurisprudence of other states that utilize similar U.C.C. conversion statutes. Cromwell v. Commerce & Energy Bank of Lafayette, 464 So.2d 721, 730 (La.1985) (as "[t]he U.C.C. was adopted in Louisiana in an effort to harmonize the commercial law of Louisiana with that of the other states," "[w]e should... examine the jurisprudence of other states" interpreting our corollary statutes). After examining the jurisprudence of other states, it is evident that the overwhelming majority of jurisdictions addressing this specific issue have refused to apply the discovery doctrine to toll the statute of limitations on U.C.C. conversion claims. See e.g., Metz v. Unizan Bank, 649 F.3d 492, 496-99 (6th Cir.2011) (applying Ohio law); Rodrigue v. Olin Emps. Credit Union, 406 F.3d 434, 444-47 (7th Cir.2005) (applying Illinois law); John Hancock Financial Services, Inc. v. Old Kent Bank, 346 F.3d 727, 733-34 (6th Cir.2003) (applying Michigan law); Menichini v. Grant, 995 F.2d 1224, 1229-32 (3rd Cir.1993) (applying Pennsylvania law); Kuwait Airways Corp. v. AmericanSec. Bank, N.A., 890 F.2d 456, 460-63 (D.C.Cir.1989) (applying District of Columbia law); Advance Dental Care, Inc. v. SunTrust Bank, 906 F.Supp.2d 442 (D.Md.2012); Calex Exp., Inc. v. Bank of America, 401 F.Supp.2d 407 (M.D.Pa.2005); Gress v. PNC Bank, National Assoc., 100 F.Supp.2d 289 (E.D.Pa.2000); First Investors Corp. v. Citizens Bank, Inc., 757 F.Supp. 687, 690 (W.D.N.C.1991) (applying North Carolina law), aff'd, 956 F.2d 263 (4th Cir.1992); AmerUS Life Ins. Co. v. Bank of America, N.A., 143 Cal.App.4th 631, 49 Cal.Rptr.3d 493, 500 (Cal.App. 2 Dist.2006); Hawkins v. Nalick, 2012 IL App (5th) 110553, 363 Ill.Dec. 767, 975 N.E.2d 793, 797-99 (2012); Kidney Cancer Ass'n v. North Shore Community Bank and Trust Co., 373 Ill.App.3d 396, 311 Ill.Dec. 512, 869 N.E.2d 186 (Ill.App. 1 Dist.2007); Haddad's of
A small number of courts have applied the discovery rule to toll the statute of limitations for conversion of negotiable instruments. See DeHart v. First Fidelity Bank, N.A./South Jersey, 67 B.R. 740, 745 (D.N.J.1986); Stjernholm v. Life Ins. Co. Of N.A., 782 P.2d 810, 811-12 (Colo.Ct. App.1989); Branford State Bank v. Hackney Tractor Co., 455 So.2d 541, 542 (Fla. Dist.Ct.App.1984); UNR-Rohn, Inc. v. Summit Bank of Clinton County, 687 N.E.2d 235, 240-41 (Ind.Ct.App.1997); Gallagher v. Santa Fe Federal Employees Federal Credit Union, 132 N.M. 552, 52 P.3d 412, 416-17 (2002).
In applying the majority rule, courts enforce the U.C.C.'s purpose of promoting swift resolution of commercial disputes. Mandolfo, supra, 281 Neb. 443, 451, 796 N.W.2d 603. The reasoning is that a "discovery rule would be inimical to the underlying purposes of the [U.C.C.], including the goals of certainty of liability, finality, predictability, uniformity, and efficiency in commercial transactions." Id. (citing Rodrigue, supra at 445-46). Further, these courts conclude that "[t]he finality of transactions promoted by an ascertainable definite period of liability is essential to the free negotiability of instruments on which commercial welfare so heavily depends." Id. (citing Haddad's of Illinois, supra (quoting Fuscellaro, supra)). Further, in rejecting the discovery rule, "many courts reason that the victim of conversion is often in the best position to prevent or detect the loss." Id. at 452, 796 N.W.2d 603; Haddad's of Illinois, supra. "Watchful victims of conversion should be able to quickly realize when they have been wronged." Id. Courts applying such a rationale believe that "the public would be poorly served by a rule that effectively shifts the responsibility for careful bookkeeping away from those in the best position to monitor accounts and employees." Id. (citing Husker News Co., supra, 460 N.W.2d at 479).
In siding with the majority rule that the "discovery rule" is inapplicable to toll the statute of limitations on an action for conversion of negotiable instruments, the Tennessee Supreme Court emphasized two
Id. at 624.
We agree with the majority view that the discovery rule does not apply in La. U.C.C. conversion cases. The adoption of the majority view fosters uniformity, which is a fundamental objective of the U.C.C. and the La. U.C.C. See La. R.S. 10:1-103(a)(3). We reject Specialized's argument that because other states have a three-year statute of limitations for conversion claims, adoption of the discovery rule would make Louisiana's conversion more uniform with the other states. The uniformity among the states that should be fostered is the clear-cut rule that the prescriptive period (or statute of limitations) for conversion claims begins to run on the date of the conversion.
Even without regarding other states' positions on the matter, our own laws lead to the conclusion that the discovery rule cannot suspend prescription on a conversion claim. First, as we have stated, the discovery rule applies only in "exceptional circumstances." There is nothing exceptional about conversion cases that would necessitate the application of the discovery rule, because, absent fraud on the part of the defendant,
Finally, examination of other La. U.C.C. provisions indicates that had the legislature intended the prescriptive period of La. R.S. 10:3-420 to be suspended by the discovery rule, it would have said so. Other La. U.C.C. statutes with prescriptive periods for negotiable instruments transactions have the discovery rule built in. For instance, La. R.S. 10:3-416, regarding transfer warranties, provides that "a cause of action for breach of warranty under this Section accrues when the claimant has reason to know of the breach." Further, both La. R.S. 10:3-208 and 10:3-417 regarding presentment warranties provide that "a cause of action for breach of warranty under this Section accrues when the claimant has reason to know of the breach." Had the legislature intended for the discovery rule to likewise apply in cases alleging conversion of negotiable instruments they would have stated so in La. R.S. 10:3-420.
A claim for conversion under the La. U.C.C., specifically La. R.S. 10:3-420, prescribes one year from the date of the conversion. We agree with the majority view of other states that the discovery rule does not apply to suspend the prescriptive period. Refusing to apply the discovery rule best serves the underlying purposes of the U.C.C. and the La. U.C.C. of certainty of liability, finality, predictability, uniformity, and efficiency in commercial transactions, and places the burden of diligence on the party in the best position to detect the conversion. Further, conversion cases do not present the type of "exceptional circumstances" that would merit the application of the jurisprudentially created discovery rule to suspend the strict one-year prescriptive period created by the legislature.
For the reasons stated herein, the judgment of the court of appeal is affirmed.
KNOLL, J., dissents and assigns reasons.
HUGHES, J., concurs with the result.
KNOLL, J., dissenting.
With all due respect, I dissent. This Court has repeatedly applied the discovery rule to toll the prescriptive period where the plaintiff's cause of action is not known or reasonably knowable by the plaintiff. There is no provision of either the Uniform Commercial Code ("U.C.C.") or the Louisiana U.C.C. which precludes the application of the discovery rule to the instant case.
In Daube v. Bruno, 493 So.2d 606, 609 (1986), this Court held a conversion claim under the Louisiana U.C.C. constitutes a delictual action. Louisiana courts have consistently applied the discovery rule to a wide variety of tort claims,
While the present case presents a claim under the Louisiana U.C.C., this fact alone does not mandate a different outcome. The U.C.C. provides "[u]nless displaced by the particular provisions of [the U.C.C.], the principles of law and equity ... shall supplement its provisions." U.C.C. § 1-103. Similarly, La.Rev.Stat. § 10:1-103(b), titled "applicability of supplemental principles of law," states "[u]nless displaced by the particular provisions of this Title, the other laws of Louisiana supplement its provisions." Further, the official comments to U.C.C. § 3-118, which provides the prescriptive period for conversion claims, note "the circumstances under which the running of a limitations period may be tolled is left to other law pursuant to Section 1-103." U.C.C. § 3-118, cmt. 1. Therefore, the U.C.C. expressly permits courts to toll the prescriptive period for a conversion claim in accordance with state law. See Paul J. Jaskot, Recent Decision, Menichini v. Grant, 995 F.2d 1224 (3d Cir.1993), 67 TEMP. L.REV. 417, 434 (1994) ("the drafters of the U.C.C. never prohibited individual states from applying equitable principles to toll an applicable statute of limitations.").
As there is no provision of the U.C.C. or the Louisiana U.C.C. which specifically prohibits the application of the discovery rule to U.C.C. conversion claims, the discovery rule may be applied to the instant case, provided its application would comply with Louisiana law. See DeHart, 67 B.R. at 745; Stjernholm v. Life Ins. Co. of N. Am., 782 P.2d 810, 811-12 (Colo.Ct.App. 1989); Jaskot, supra, at 430 ("Absent an explicit provision, the discovery rule's inherently equitable application should be denied only where its use does not comport with the [state] courts' use of the rule.").
While a majority of courts have held the discovery rule does not apply to U.C.C. conversion claims, a significant number of courts have reached the opposite conclusion.
Significantly, the policy reasons cited by courts prohibiting the discovery rule are inapplicable to the present case. These courts, like the majority in the present case, have noted (1) the need for finality and certainty in transactions involving negotiable instruments; (2) the need for uniformity; and (3) the presumption that victims of conversion are in the best position to detect the loss. See, e.g., Menichini v. Grant, 995 F.2d 1224, 1229 (3d Cir.1993); Pero's Steak & Spaghetti House v. Lee, 90 S.W.3d 614, 623-24 (Tenn.2002); Husker News, 460 N.W.2d at 478.
The need for finality and certainty favors the strict application of prescriptive periods in all cases, not just U.C.C. conversion claims. See Husker News, 460 N.W.2d at 479 (Larson, J., dissenting). It has not been our jurisprudence, however, to strictly and mechanically apply prescriptive periods in all cases. Rather, this Court has applied the doctrine of contra non valentem "[t]o soften the occasional harshness of prescriptive statutes." Carter v. Haygood, 04-0646, p. 11 (La.1/19/05); 892 So.2d 1261, 1268. Indeed, we have noted contra non valentem is "notably at odds with the public policy favoring certainty underlying the doctrine of prescription." Jenkins v. Starns, 11-1170, p. 18 (La.1/24/12); 85 So.3d 612, 623. Yet, we have repeatedly subordinated the need for finality and certainty in the interest of fairness. See Wells v. Zadeck, 11-1232, p. 9 (La.3/30/13); 89 So.3d 1145, 1150 ("The courts [] weigh the `equitable nature of the circumstances in each individual case' to determine whether prescription will be tolled.") (quoting Plaquemines Parish Comm'n Council v. Delta Dev. Co., Inc., 502 So.2d 1034, 1056 n. 52 (La.1987)).
Additionally, permitting the discovery rule in the instant case would not impede commerce in any way. Specialized's litigation does not concern the finality of a commercial transaction. Rather, Specialized's claims simply allege negligence by Capital One in cashing the check. Permitting Specialized to pursue its claims does not alter the finality of a commercial transaction. As the check has been negotiated, the transaction is final.
While establishing uniformity in commercial law among various jurisdictions is an overarching goal of the U.C.C., the U.C.C. by its own terms leaves open the possibility that a state could apply its own law to toll the prescriptive period on a conversion claim. U.C.C. § 1-103(a) & (b); U.C.C. § 3-118 cmt. 1. Additionally, almost every other state has adopted the three-year prescriptive period of U.C.C. § 3-118 for conversion claims, while La. Rev.Stat. § 10:3-420 provides only one-year. Specialized's claim against Capital One would be timely in every other state, but not Louisiana. Thus, the U.C.C.'s goal of uniformity would not be achieved if the discovery rule is prohibited in the instant
Further, a number of courts which have rejected the discovery rule have reasoned the limitations period of three years provides sufficient time for a plaintiff to discover the conversion and bring suit, even without the benefit of the discovery rule. See Kuwait Airways Corp. v. American Sec. Bank, N.A., 890 F.2d 456, 461 (D.C.Cir.1989) ("[A]n ordinary business could have detected the siphoning off of funds within a three-year period of their conversion."); Pero's, 90 S.W.3d at 624 ("[T]hree years should be more than ample time for a plaintiff to discover a conversion claim."); Palmer Mfg. & Supply, Inc. v. BancOhio Nat'l Bank, 93 Ohio App.3d 17, 22, 637 N.E.2d 386, 389-91 (1994) ("[F]our years is ample time for a prudent business or individual, exercising due diligence, to discover a forgery and bring an action for conversion."). Effectively, the U.C.C. and the commercial law of the other forty-nine states provide a "built-in" discovery period to provide sufficient time for victims of conversion to detect the loss and bring their claims. This reasoning is inapplicable to the instant case as Louisiana provides only a one-year prescriptive period.
Finally, we cannot presume Specialized was in the best position to detect the loss in the instant case. Specialized did not issue the check and was not the depository bank; it had no authority to monitor or control the finances of January, American Security, or Assurant. As the check was not drawn on Specialized's account, it could not have learned of the conversion simply by checking its own bank accounts. Under these circumstances, Capital One was in a better position to detect the conversion.
Consequently, under our jurisprudence, the discovery rule should apply to toll the one-year prescriptive period in the present case. Specialized did not have a reasonable basis to pursue a claim against Capital One until August 27, 2009, when American Security notified Specialized January had cashed the insurance check. See Jordan v. Employee Transfer Corp., 509 So.2d 420, 424 (La. 1987) (prescription begins to run "when plaintiff has reasonable basis to pursue claim against specific defendant."). As noted above, Specialized did not issue the check, it did not possess the check, the check was not drawn on its account, and Specialized had no power to monitor defendants' finances. Although Capital One argues Specialized was aware January possessed the check prior to the conversion and had no intention to relinquish control, the mere apprehension something could be wrong is insufficient to begin the running of prescription. In re Medical Review Panel of Howard, 573 So.2d 472, 474 (La.1991). Accordingly, contra non valentem should apply to toll prescription until August 27, 2009, the date of discovery.
The majority's holding unnecessarily contradicts our long-standing jurisprudence that has applied the discovery rule to tort claims where the cause of action is
