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14

THE FEDERAL INSURANCE CO. v. SMITH

represented as having been segregated according to the common law requirements necessary to sustain an action for conversion.3

This much of the fiction of losing and finding associated with the tort must remain intact, else the concept of conversion itself loses its distinct character. If this were simply a matter of holding on to a "hoary limitation," there might be no cause for concern. Prosser & Keeton, supra, § 15 at 91. However, the dangers of conversion losing such a distinguishing quality are readily apparent. Susan’s debts were settled by payments made directly out of the USAA account on her behalf or by payment of checks into and out of her jointly-held NWFCU account by Myron. Under the theory advanced by the dis- trict court and affirmed here, if money is paid out of an account that contains some portion of funds "traceable" to a prior act of conver- sion, then any innocent third party receiving the benefit of that "trace- able" money might be liable for conversion and compelled to pay it back. Such a principle sets no practical limit on the extent to which a court may pursue and authorize the repossession of funds.

There is a solution in this case, however, that makes a revision of the concept of conversion unnecessary. It is outlined in the alternative holding of the district court and in the language used by my colleague to describe Susan’s culpability:

In this case, Susan Smith gave no consideration for the funds that were used to enrich her financial position by pay- ing off her debts, and FIC’s rights to the funds continued through the time the funds were used to pay those debts, at which point Susan Smith’s creditors gave valuable consider- ation for the funds. . . . When the debt was paid, the value of her estate . . . was increased in the amount of the pay- ment.

3Even if a Virginia court were to permit this case to proceed on a the- ory of conversion, I do not believe there is any way Susan could be held to have exerted dominion or control over the $57,261.52 in checks (the Category 1 funds) that Myron himself wrote directly out of the USAA account.

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