THE FEDERAL INSURANCE CO. v. SMITH
theft and never exercised dominion and control over the funds. There is no directly applicable law in Virginia regarding a conversion action against an innocent person for whose benefit embezzled funds have been spent. This requires that we consider general principles of con- version law in Virginia and elsewhere.
Virginia law defines conversion as any distinct act of dominion or control wrongfully exerted over the property of another, either incon- sistent with, or in denial of, the owner’s rights. Hairston Motor Co. v. Newsome, 253 Va. 129, 135, 480 S.E.2d 741, 744 (1997). A plain- tiff seeking recovery on a claim of conversion must prove that the defendant converted it by "any" wrongful exercise of dominion or control that deprived the plaintiff of his rightful possession. See, e.g., Universal C.I.T. Credit Corp. v. Kaplan, 198 Va. 67, 75-76, 92 S.E.2d 359, 365 (1956), citing 19 Michie’s Jurisprudence, Trover and Con- version, § 4 at 27. The Virginia Supreme Court, in Universal C.I.T., provided the following description of conversion:
Any distinct act of dominion wrongfully exerted over the property of another, and in denial of his rights, or inconsis- tent therewith, may be treated as a conversion and it is not necessary that the wrongdoer apply the property to his own use. And when such conversion is proved, the plaintiff is entitled to recover, irrespective of good or bad faith, care or negligence, knowledge or ignorance.
Id. at 76.
As a rule, a wronged party can recover money converted if the pos- sessor did not receive it in good faith or for valuable consideration, even if the money has changed forms. See, e.g., Bader v. Central Fid. Bank, 245 Va. 286, 427 S.E.2d 184 (where the plaintiff’s bank paid on a forged instrument, the plaintiff could bring suit against the bank for conversion of the instruments). See also In re Whitacre Sunbelt, Inc., 211 B.R. 411, 417-18 (Bankr. N.D. Ga. 1997), Restatement (Second) of Torts § 229 cmt. d (1965). In order to recover in conver- sion for money that has changed forms, however, the proceeds must be traceable to the original conversion. Central Nat’l Bank v. Con- necticut Mut. Life Ins. Co., 104 U.S. 54, 66-68 (1881) ("[money’s] character is not changed by being placed to [a holder’s] credit in his