THE FEDERAL INSURANCE CO. v. SMITH
As my colleagues explain, there is no direct controlling precedent in Virginia allowing a conversion action against an innocent third party for whose benefit embezzled funds have been spent. Thus, we look to general principles of conversion law in Virginia and else- where. As the district court and my colleagues point out, the tort of conversion encompasses "[a]ny distinct act of dominion wrongfully exerted over the property of another, and in denial of his rights, or inconsistent therewith . . . irrespective of good or bad faith, care or negligence, knowledge or ignorance." Universal C.I.T. Credit Corp. v. Kaplan, 92 S.E.2d 359, 365 (Va. 1956); see also Hairston Motor Co. v. Newsome, 480 S.E.2d 741, 744 (Va. 1997). In my view, how- ever, Susan’s exercise of dominion or control is irrelevant. The prop- erty at issue cannot be recovered under a theory of conversion because the four AFBA checks were cashed, the cancelled checks were returned to AFBA, and the cash received in return lost its iden- tity when it was commingled with other funds.
Conversion descends from the common law action of trover. It "originated . . . as a remedy against the finder of lost goods who refused to return them to the owner but instead ‘converted’ them to his own use." Restatement (Second) of Torts § 222A cmt. a (1965). Whether property could be the subject of an action for conversion was assessed on the basis of the fiction of losing and finding, i.e., any tan- gible chattel that could be lost and found could be converted. See W. Page Keeton, et al., Prosser & Keeton on the Law of Torts, § 15, pp. 90-92 (5th ed. 1984). Initially, it was held that money could not be converted unless it was contained within a bag or chest. See Holiday v. Hicks (1598) 2 Cro. Eliz. 638, 661. However, subsequent cases in England held that specific money could be the basis of an action for conversion if there was an obligation to pay or deliver money as it had been initially identified or segregated. This treatment has per- sisted and many jurisdictions still require that money be identified or segregated in the manner that a specific chattel can be. See, e.g., Allied Inv. Corp. v. Jasen, 731 A.2d 957, 966 (Md. 1999); SSI Med. Servs., Inc. v. Cox, 392 S.E.2d 789, 792 (S.C. 1990); Johnson v. Life Ins. Co. of Alabama, 581 So.2d 438, 442-43 (Ala. 1991); Taylor v. Powertel, Inc., 551 S.E.2d 765, 769-70 (Ga. Ct. App. 2001); DeChris- tofaro v. Machala, 685 A.2d 258, 263 (R.I. 1996).
The limitation on the tort of conversion to tangible property has been gradually relaxed so that some courts have also come to permit