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THE FEDERAL INSURANCE CO. v. SMITH

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conversion).2 Nor is this to say that FIC could not have pursued Myron Smith for converting the four original checks. The critical dis- tinction is that Susan Smith was never involved in the act of convert- ing the checks and did not benefit from Myron’s actions until after the documents supporting FIC’s intangible property right had been ful- filled and cancelled. Despite the lower court’s assiduous efforts to trace what was owed to FIC, once the AFBA checks were cashed, there ceased to be any meaningful way to treat the funds they once

2Bader v. Central Fidelity Bank, 427 S.E.2d 184 (Va. 1993), should not be read broadly for the proposition that "a wronged party can recover money converted . . . even if the money has changed forms." Majority Opinion, supra, p. 4. Rather, Bader specifically deals with a bank’s obli- gation to an account holder upon payment on a forged instrument and should not be extrapolated to cases such as this involving innocent third parties.

The nature of how funds are held in a bank account illustrates why they do not lend themselves to a conversion action. The Virginia Supreme Court has described the limitations on the means of identifying funds as a specific chattel in the comparable context of susceptibility to set off between funds made the subject of a special deposit with notice to a bank and those deposited into an unrestricted general account:

The general rule is that the relation between a general depositor and the bank in which his deposit is made is simply that of debtor and creditor. The moneys deposited immediately become the property of the bank, and the latter becomes debtor of the depositor . . . . Thus, the bank has a right of set off of any debt due it by the depositor against such deposit. However when funds are deposited for a special purpose with notice to the bank, the deposit does not become the property of the bank and the right of set-off does not exist.

Bernardini v. Cent. Nat’l Bank of Richmond, 290 S.E.2d 863, 864 (Va. 1982) (internal quotations and citations omitted). "By depositing the checks in a general account and commingling them with other nonex- empt money, the . . . funds lost whatever exemptions they may have had." Id. at 865. This characterization also holds true in the context of conversion. See Universal Mktg. and Entm’t, Inc. v. Bank One of Ari- zona, N.A., 53 P.3d 191, 194 (Ariz. 2002) (citing Bernardini for the proposition that funds in a bank account, unless segregated, should not be recoverable under a theory of conversion).

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