In secured transactions, what does "conversion" refer to?

In the context of secured transactions, "conversion" specifically refers to the wrongful disposal of collateral by a debtor. This legal concept arises when a debtor takes actions that significantly interfere with the secured party's rights in the collateral, effectively treating the collateral as their own, even though it does not belong to them.

For example, if a debtor sells or otherwise disposes of property that has been pledged as collateral without the consent of the secured party, this act constitutes conversion. The secured party could then assert a claim against the debtor for damages resulting from this unauthorized act, as the secured party has a legitimate interest in the collateral.

In contrast, verifying collateral value does not fit the definition of conversion; it's more about assessing worth than misappropriating property. A negotiated sale of collateral implies proper channels and agreements being followed, which fundamentally differs from the wrongful nature of conversion. Similarly, improvements made to collateral do not fall under conversion, as they usually involve enhancements and do not involve wrongful interference with the secured party's interests.