Case Title: Halifax Corporation v. Wachovia Bank

Citation: 

Docket Number: 032444

State: virginia

Court: Virginia Supreme Court

Date: 2004-11-05T00:00:00Z

Document:
Present: Hassell, C.J., Kinser and Lemons, JJ., and Carrico 
and Russell, S.JJ. 
 
HALIFAX CORPORATION 
 
 
 
OPINION BY 
v.  Record No. 032444 
SENIOR JUSTICE HARRY L. CARRICO 
 
 
 
November 5, 2004 
WACHOVIA BANK 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Leslie M. Alden, Judge 
 
Introduction 
 
In the period from August 1995 to February 1999, Mary K. 
Adams embezzled approximately $15.4 million while serving as 
comptroller for companies that are now known as Halifax 
Corporation (Halifax).1  Adams accomplished the embezzlement by 
writing more than 300 checks on Halifax’s account with Signet 
Bank and its successor, First Union National Bank 
(collectively, First Union).  Adams used a stamp bearing the 
facsimile signature of Halifax’s president and, in her own 
handwriting, made the checks payable to herself, to companies 
she had formed, or to cash.  She deposited the checks in 
several accounts she maintained with Central Fidelity Bank and 
its successor, Wachovia Bank (collectively, Wachovia), 
receiving cash from some of the checks. 
                     
 
1 Halifax Corporation is a Virginia corporation and is 
successor-in-interest to a former wholly owned subsidiary, 
Halifax Technology Services Company, previously known as CMS 
Automation, Inc.  Hereinafter, we will refer to the three 
entities collectively as Halifax. 
 
2
Procedural Background 
 
Upon discovery of the embezzlement, Halifax brought an 
action against First Union as the drawee bank and Wachovia as 
the depositary bank.  (Halifax I.)  The trial court granted 
summary judgment in favor of First Union.  Halifax then took a 
nonsuit of the action against Wachovia and appealed to this 
Court from the order dismissing First Union.  We affirmed the 
dismissal, holding that Halifax’s claim was barred pursuant to 
Code § 8.4-406(f), part of the Uniform Commercial Code 
(hereinafter, UCC), for Halifax’s failure to notify First 
Union of the unauthorized signatures within one year after the 
bank’s statement covering the checks in question was made 
available to Halifax.  Halifax Corp. v. First Union Nat’l 
Bank, 262 Va. 91, 104, 546 S.E.2d 696, 704 (2001). 
 
While the appeal to this Court was pending, Halifax filed 
in the court below a three-count motion for judgment asserting 
that Wachovia and First Union were liable to Halifax for the 
amounts embezzled by Adams.  (Halifax II.)  Count I alleged 
negligence, gross negligence, and bad faith on the part of 
Wachovia in violation of Code §§ 8.3A-404, -405, and –406.  
Count II alleged common law conversion by Wachovia and First 
Union.  Count III alleged that Wachovia and First Union aided 
and abetted Adams’ breach of fiduciary duty. 
 
3
 
The trial court dismissed the claims against First Union 
on the ground of res judicata.  This Court refused Halifax’s 
petition for appeal from that dismissal.  Halifax Corp. v. 
First Union Nat’l Bank, March 5, 2002 (Record No. 012582). 
 
Wachovia moved for summary judgment on Halifax’s claims 
against it.  The trial court granted the motion, holding, 
contrary to Halifax’s contention, that Code § 8.3A-406 does 
not create an affirmative cause of action, that Halifax’s 
common law claim for conversion had been displaced by Code 
§ 8.3A-420(a), and that Halifax had failed to allege 
sufficient facts to state a cause of action for aiding and 
abetting Adams’ breach of fiduciary duty, assuming such an 
action exists.  From the final order embodying these holdings 
and granting final judgment in favor of Wachovia, we awarded 
Halifax this appeal. 
Factual Background 
 
Since the trial court disposed of the case by granting 
Wachovia’s motion for summary judgment, we will adopt those 
inferences from the facts that are most favorable to Halifax, 
the nonmoving party, unless the inferences are strained, 
forced, or contrary to reason.  Carson v. LeBlanc, 245 Va. 
135, 139-40, 427 S.E.2d 189, 192 (1993).  The facts as alleged 
in Halifax’s motion for judgment show that Mary Adams, also 
known as Mary Collins, became comptroller at Halifax’s 
 
4
Richmond office in August 1995 and continued in that position 
until March 1999.  She maintained four personal and two 
commercial accounts with Wachovia.  One of the commercial 
accounts was styled “Collins Racing, Inc.” and the other 
“Collins Ostrich Ranch.” 
 
When Adams first began embezzling money from Halifax in 
August 1995, she deposited in her personal accounts with 
Wachovia several checks each month for over $5,000.00.  The 
amounts of the checks soon increased to between $10,000.00 and 
$15,000.00 each and before long to amounts ranging from 
$50,000.00 to $150,000.00 each, and deposits were made 
multiple times a day or week.  For example, in July 1997, 
Adams deposited on July 9 a check for $95,550.00, on July 14, 
one check for $55,000.00 and another for $99,300.00, on July 
16, a check for $93,500.00, on July 21, a check for 
$80,600.00, and, on July 30, a check for $149,305.00, totaling 
$573,255.00.  In all, Adams drew 328 checks totaling 
$15,429,665.42 on Halifax’s account with First Union. 
 
Adams was “one of the best and largest individual 
customers” of Wachovia’s branch where she did business.  
Managers and tellers saw Adams “ ‘a lot,’ and she stood out 
because of her large checks and banking activity.”  The entire 
branch was curious about her “because of her large checks,” 
the likes of which “none of the tellers had ever seen . . . 
 
5
before.”  Some tellers claimed “to have believed or assumed 
that Adams ‘was at least part owner’ of the corporate drawer.” 
 
Wachovia “repeatedly accepted such huge handwritten 
checks drawn on the account of Adams’ employer despite the 
gross disparity with Adams payroll amount [of about $1,000.00 
per pay period] shown on each teller and manager screen.”  The 
tellers “had concerns about individual checks or the check 
activity, or both.”  Bank officials knew Adams was Halifax’s 
comptroller and understood that “such transactions by a 
financial officer, or even a part owner, present[ed] a serious 
potential for fraud.”  Yet, branch “[m]anagers and supervisors 
told the tellers to do whatever Adams wanted.” 
Discussion 
Negligence, Gross Negligence, and Bad Faith 
 
Halifax contends that Code § 8.3A-406, when read in light 
of Code §§ 8.3A-404 and –405, gives rise to an affirmative 
cause of action for the negligence of a depositary bank with 
respect to the alteration of an instrument or the making of a 
forged signature.  These sections were part of the General 
Assembly’s 1992 revision of the UCC.  1992 Acts Ch. 693. 
 
It should be noted at this point, however, that the trial 
court stated in a footnote to its order granting Wachovia’s 
motion for summary judgment that Halifax did “not contest 
Wachovia’s motion as to Halifax’s claims under Va. Code 8.3A-
 
6
404 and 405,” and Halifax does not now press those claims.  
Hence, we will consider Code §§ 8.3A-404 and –405 only in the 
context of Halifax’s argument that they are pertinent to the 
question whether Code § 8.3A-406 creates an affirmative cause 
of action for the negligence of a depositary bank under the 
circumstances of this case. 
 
Code § 8.3A-406 provides as follows: 
Negligence, contributing to forged signature or 
alteration of instrument. — (a) A person whose failure to 
exercise ordinary care substantially contributes to an 
alteration of an instrument or to the making of a forged 
signature on an instrument is precluded from asserting 
the alteration or the forgery against a person who, in 
good faith, pays the instrument or takes it for value or 
for collection. 
 
 
(b) Under subsection (a), if the person asserting 
the preclusion fails to exercise ordinary care in paying 
or taking the instrument and that failure substantially 
contributes to loss, the loss is allocated between the 
person precluded and the person asserting the preclusion 
according to the extent to which the failure of each to 
exercise ordinary care contributed to the loss. 
 
 
(c) Under subsection (a), the burden of proving 
failure to exercise ordinary care is on the person 
asserting the preclusion.  Under subsection (b), the 
burden of proving failure to exercise ordinary care is on 
the person precluded. 
 
 
Code § 8.3A-404(a) deals with an instrument issued to an 
impostor or to a person acting in concert with the impostor.  
Subsection (b) deals with an instrument whose payee is 
fictitious or not the person intended to have an interest in 
the instrument by the person determining to whom the 
 
7
instrument is payable.  Both subsections provide that the 
indorsement of such an instrument by any person in the name of 
the payee is effective as the indorsement of the payee in 
favor of a person who, in good faith, pays the instrument or 
takes it for value or for collection. 
 
Code § 8.3A-405 deals with the situation where an 
employer entrusts an employee with responsibility with respect 
to an instrument and the employee or a person acting in 
concert with the employee makes a fraudulent indorsement of 
the instrument.  For a person who, in good faith, pays an 
instrument or takes it for value or for collection, the 
indorsement is effective as the indorsement of the person to 
whom the instrument is payable if it is made in the name of 
that person. 
 
Both Code § 8.3A-404 and Code § 8.3A-405 contain an 
important provision.  In Code § 8.3A-404, the provision is 
expressed in this language: 
[I]f a person paying the instrument or taking it for 
value or for collection fails to exercise ordinary care 
in paying or taking the instrument and that failure 
substantially contributes to loss resulting from payment 
of the instrument, the person bearing the loss may 
recover from the person failing to exercise ordinary care 
to the extent the failure to exercise ordinary care 
contributed to the loss. 
 
(Emphasis added.)  The language of Code § 8.3A-405 is 
identical, except that the words “the fraud” are substituted 
 
8
for the words “payment of the instrument” following the words 
“loss resulting from” in the foregoing quotation. 
 
In support of its contention that Code § 8.3A-406 creates 
an affirmative cause of action, Halifax cites our decision in 
Gina Chin & Assoc., Inc. v. First Union Bank, 256 Va. 59, 500 
S.E.2d 516 (1998).  That case involved both forged signatures 
of the drawer and forged indorsements of the payee.  The 
drawer sought recovery from the depositary bank.  The latter 
claimed it was liable under Code §§ 8.3A-404 and –405 only for 
forged indorsements and not where both the payee’s 
indorsements and the drawer’s signatures are forged. 
 
We disagreed.  We stated that the depositary bank was 
erroneous in “its conclusion that §§ 8.3A-404 and –405 cannot 
be utilized by a drawer against the depositary bank in a 
double forgery situation,” 256 Va. at 61, 500 S.E.2d at 517, 
and that the drawer “was not precluded from asserting a cause 
of action against [the depositary bank] pursuant to §§ 8.3 A-
404 or -405.”  Id. at 63, 500 S.E.2d at 518. 
 
Halifax quotes a passage from the Gina Chin opinion where 
we stated that the “concept of comparative negligence 
introduced in the revised sections reflects a determination 
that all participants in the process have a duty to exercise 
ordinary care . . . and that the failure to exercise that duty 
will result in liability to the person sustaining the loss.”  
 
9
Id. at 62, 500 S.E.2d at 517-18.  Halifax argues that Code 
§ 8.3A-406 also creates a duty of care and, therefore, that 
“there exists [under Code § 3A-406] a right of action, as 
expressly recognized in Gina Chin.” 
 
It is plain, however, that the language quoted from Gina 
Chin has reference solely to Code §§ 8.3A-404 and -405.  
Indeed, the sentence immediately preceding the quotation 
states that “[t]he revisions to §§ 8.3A-404 and –405 changed 
the previous law by allowing ‘the person bearing the loss’ to 
seek recovery for a loss caused by the negligence of any 
person paying the instrument or taking it for value based on 
comparative negligence principles.”  Gina Chin, 256 Va. at 62, 
500 S.E.2d at 517.  Code § 8.3A-406 simply was not an issue in 
the case in any manner.  Gina Chin, therefore, does not serve 
as authority for Halifax’s contention that Code § 8.3A-406 
creates an affirmative cause of action. 
 
Next, Halifax cites Official Comment 4 to Code § 8.3A-
406, which reads as follows: 
Subsection (b) . . . adopts a concept of comparative 
negligence.  If the person precluded under subsection (a) 
proves that the person asserting the preclusion failed to 
exercise ordinary care and that failure substantially 
contributed to the loss, the loss may be allocated 
between the two parties on a comparative negligence 
basis. 
 
 
Halifax then says “[l]eading commentators recognize that 
the concept of comparative negligence, duty, and loss 
 
10
allocation provided in 3-406, like that in 3-404 and 3-405, 
creates a cause of action.”  Halifax quotes 2 James J. White & 
Robert S. Summers, Uniform Commercial Code § 19-3 (4th ed. 
1995) (hereinafter, White & Summers) to this effect: 
“3-406 and the accompanying sections carry with them 
something that did not exist under the old Code, namely, 
a new cause of action.”  Id. at 247.  “This mechanism is 
an affirmative cause of action for negligence under 3-
406(b)(and similar causes of action under 3-404, 3-405, 
and 3-406) under which the depositor-employer recovers a 
part of its loss by affirmative proof that the negligent 
behavior of the defendant bank caused a portion of it.”  
Id.  “3-406(b) gives an affirmative cause of action.”  
Id. at 248.  “[T]he 1990 changes in 3-406, and the 
analogous changes having to do with comparative 
negligence in the other sections . . . are likely to 
cause significant but subtle changes in the allocation of 
civil liability.”  Id. at 253. 
 
According to Halifax, another White & Summers quotation 
explains the “significance of the subtle language changes in 
revised § 8.3A-406”: 
[The] allocation of liability based on comparative 
negligence is new, incorporated into the Code as part of 
the 1990 amendments to Article[s] 3 and 4.  Before the 
1990 amendments, “preclusion” cases were standard 
contributory negligence cases.  A bank might first argue 
that the customer was negligent, and the customer would 
respond that the bank was contributorily negligent.  If 
both claims were proven, negligence would disappear from 
the case and the bank would be barred from asserting the 
customer’s negligence. 
 
 
One consequence of adopting a comparative negligence 
standard is that there will have to be wider recognition 
of negligence as a basis not merely for defense 
(preclusion), but also as a basis for asserting an 
affirmative claim.  For example, in section 3-406(a), a 
depositor may be precluded from asserting alteration if 
the depositor’s failure to exercise ordinary care 
 
11
substantially contributed to the alteration.  Under 3-
406(b), the “loss is allocated” between the two parties 
if the bank also failed to exercise ordinary care.  
Although it does not say so in terms, the “loss 
allocated” language in 3-406(b) must be interpreted to 
grant an affirmative cause of action to the depositor in 
our hypothetical case as a means of recovering for that 
part of the loss which the bank should bear.  As the 
statute is written, the bank’s negligence no longer lifts 
the preclusion of 3-406(a), as it did before 1990.  
Rather, the bank’s negligence gives other parties a cause 
of action to recover an appropriate share under 3-406(b).  
In that respect, the 1990 revisions state a subtle 
modification of the theories of recovery, and not merely 
a readjustment of the identity of those who bear losses. 
 
White & Summers, § 19-1 at 239 (emphasis added) (footnotes 
omitted).2 
 
 
The views of White & Summers, however, are just not 
compatible with Virginia law.  They say that Code § 3A-406(b) 
“must be interpreted” to create a cause of action.  § 19-1 at 
239.  However, the rule in Virginia is that, unless the 
language of a legislative enactment is ambiguous, “ ‘there is 
no room for interpretation or construction; the plain meaning 
and intent of the [enactment] must be given it.’ ” City of 
Emporia Bd. of Zoning Appeals v. Mangum, 263 Va. 38, 41, 556 
S.E.2d 779, 781 (2002) (quoting Board of Zoning Appeals of the 
County of York v. 852 L.L.C., 257 Va. 485, 489, 514 S.E.2d 
767, 769 (1999)). 
                     
 
2 Halifax also cites 1 Henry J. Bailey & Richard B. 
Hagedorn, Brady on Bank Checks ¶ 1.27 at 1-81 (Rev. ed. 2004) 
for the proposition that “[t]he allocation-of-loss or 
comparative-negligence principle [contained in Code § 8.3A-
406] is new to commercial law and introduces a tort concept.” 
 
12
 
“ ‘Language is ambiguous when it may be understood in 
more than one way, or simultaneously refers to two or more 
things.’ ”  Supinger v. Stakes, 255 Va. 198, 205, 495 S.E.2d 
813, 817 (1998) (quoting Lee-Warren v. School Bd. of 
Cumberland County, 241 Va. 442, 445, 403 S.E.2d 691, 692 
(1991)).  For Code § 8.3A-406 to be declared ambiguous, its 
language must lend itself to being understood in one way as 
creating a cause of action and in another way as not creating 
a cause of action.  In our opinion, the statute cannot be 
understood as creating a cause of action for several reasons. 
 
In the first place, the term “cause of action” or  “may 
recover” or anything remotely resembling either term nowhere 
appears in Code § 8.3A-406.  And this Court cannot supply the 
language that would have created an affirmative cause of 
action under the circumstances of this case.  “[C]ourts are 
not permitted to rewrite statutes.  This is a legislative 
function.  The manifest intention of the legislature, clearly 
disclosed by its language, must be applied.  There can be no 
departure from the words used where the intention is clear.”  
Supinger, 255 Va. at 206, 495 S.E.2d at 817 (quoting Anderson 
v. Commonwealth, 182 Va. 560, 566, 29 S.E.2d 838, 841 (1944)). 
 
Second, Official Comment 1 to Code § 8.3A-406 states that 
subsection (a) “adopts the doctrine” that a “drawer who so 
negligently draws an instrument as to facilitate its material 
 
13
alteration [or its forgery] is liable to a drawee who pays the 
altered [or forged] instrument in good faith.”  (Emphasis 
added.)   But statutory language making a drawer liable to a 
drawee cannot possibly be taken as showing an intention to 
create a cause of action in favor of a drawer against a 
depositary bank. 
 
Third, Official Comment 1 further states: “Section 3-406 
does not make the negligent party liable in tort for damages 
resulting from the alteration.  If the negligent party is 
estopped from asserting the alteration the person taking the 
instrument is fully protected because the taker can treat the 
instrument as having been issued in the altered form.”  We 
will assume Halifax is correct in saying the comment means “3-
406 is not intended to make the negligent drawer subject to 
preclusion liable in tort.”  But Halifax is incorrect in 
saying “the comment shows the converse was intended, that 3-
406 makes the bank liable in tort.”  This is not only a non 
sequitur but it is also contrary to the provision in the very 
next sentence of the Comment, which states that “the person 
taking the instrument is fully protected because the taker can 
treat the instrument as having been issued in the altered [or 
forged] form.”  It is difficult to imagine how something that 
is designed to protect the taker can logically be turned on 
 
14
its head and used to create a cause of action against the 
taker. 
 
Finally, and of overriding importance, we follow the rule 
in Virginia that “when the General Assembly includes specific 
language in one section of a statute, but omits that language 
from another section of the statute, we must presume that the 
exclusion of the language was intentional.”  Halifax I, 262 
Va. at 100, 546 S.E.2d at 702.  Strikingly absent from Code 
§ 8.3A-406 is the specific language contained in Code §§ 8.3A-
404 and –405 that “the person bearing the loss may recover 
from the person failing to exercise ordinary care.”  The 
General Assembly knows how to create a cause of action when 
that is its intention, and the omission of the “may recover” 
or similar language from Code § 8.3A-406 represents an 
unambiguous manifestation of a contrary intention. 
 
Halifax cites several out-of-state decisions in support 
of its contention that “revised 3-406 provides a cause of 
action, in favor of a drawer against a depositary bank.” Cited 
are National Union Fire Ins. Co. v. Hibernia Nat’l Bank, 258 
F.Supp.2d 490 (W.D. La. 2003); National Union Fire Ins. Co. v. 
Allfirst Bank, 282 F.Supp.2d 339 (D. Md. 2003); Delta Textiles 
New York, Ltd. v. Diaz, Docket No. BER-L-10648-01 (N.J. Super. 
Ct. Oct. 24, 2003); Nat’l Union Fire Ins. Co. of Pittsburgh, 
PA v. Sun Nat’l Bank, Docket No. MER-L-2894-03 (N.J. Super. 
 
15
Ct. April 2, 2004); Atlantic Mutual Ins. Co. v. The Provident 
Bank, 669 N.E.2d 901 (Oh. Mun. Ct. 1996).  These are all trial 
court decisions; we find them unpersuasive.3  
 
One appellate decision cited by Halifax, Micro Experts, 
Inc. v. Edison Tech., Inc., 701 N.E.2d 1033 (Oh. Ct. App. 
1997), involved an Ohio statute that is the equivalent of our 
Code § 8.3A-406.  The court stated that “[o]rdinarily this 
statute is used as a defense, rather than in support of a 
claim.”  Id. at 1039.4  But, the court continued, “[a]ssuming 
arguendo that the statute may be raised” by the drawer of the 
checks involved, the drawer still lost because it did not 
“demonstrate that [the bank] failed to exercise ordinary 
care.”  Id.  Halifax can take little comfort from this 
decision. 
 
Nor can Halifax find comfort in another appellate court 
case it cites.  In Wachovia Bank, N.A. v. Fed. Reserve Bank of 
Richmond, 338 F. 3rd 318 (4th Cir. 2003), the court stated:  
“U.C.C. § 8.3-406 . . . provides for a defense but does not 
expressly create a cause of action.  To the extent that such a 
                     
 
3 Delta Textiles and Sun Nat’l Bank are especially 
unpersuasive.  Both cases are still pending in the trial 
courts where they were brought and both involve only pretrial 
orders which may be subject to reversal upon reconsideration 
by those courts or upon appeal.  So, for the time being at 
least, the two cases are of doubtful precedential value. 
 
4 The court cited Fifth Third Bank of Toledo, N.A. v. 
Dziersk, 12 F.3d 600 (6th Cir. 1993), as authority for the 
quoted statement. 
 
16
cause of action is cognizable, which we do not hold, we 
conclude that summary judgment in favor of [the drawer] was 
properly granted [because it was not shown] that the asserted 
negligence of the [drawer] substantially contributed to the 
alteration of the check.”   Id. at 325. 
 
Finally, Halifax cites a work of another of its “leading 
commentators,” where it is stated that  “[the] preclusion 
provision [of Code § 8.3A-406] seems to be purely defensive in 
nature, although conceivably [it] could constitute grounds for 
affirmative action.”  2A Frederick M. Hart & William F. 
Willier, Negotiable Instruments Under the Uniform Commercial 
Code § 12.37 at 12-234 (2001).  (Emphasis added.)5  This hardly 
provides support for Halifax’s claim that Code § 8.3A-406 
creates an affirmative cause of action for the negligence of a 
depositary bank. 
 
We conclude that the trial court did not err in its 
holding that Code § 8.3A-406 does not create an affirmative 
cause of action and in awarding summary judgment to Wachovia 
with respect to that claim. 
Common Law Conversion6 
                     
 
5 This quotation also appears in White Sands Forest 
Prods., Inc. v. First National Bank of Alamogordo, 50 P.3d 
202, 206 (N.M. App. 2002), where the court held that UCC § 3-
406 does not create an affirmative cause of action. 
 
6 Count II of Halifax’s motion for judgment is labeled as 
a claim for “COMMON LAW CONVERSION” and Count III is labeled 
 
17
 
Code § 8.3A-420(a) provides as follows: 
(a) The law applicable to conversion of personal 
property applies to instruments.  An instrument 
is also converted if it is taken by transfer, 
other than a negotiation, from a person not 
entitled to enforce the instrument or a bank 
makes or obtains payment with respect to the 
instrument for a person not entitled to enforce 
the instrument or receive payment. An action 
for conversion of an instrument may not be 
brought by (i) the issuer or acceptor of the 
instrument or (ii) a payee or indorsee who did 
not receive delivery of the instrument either 
directly or through delivery to an agent or a 
co-payee. 
 
(Emphasis added.) 
 
 
The term “instrument” means a negotiable instrument and 
includes a check.  Code § 8.3A-104(b) and (f).  The term 
“issuer” means a maker or drawer of an instrument.  Code 
§ 8.3A-105(c).  The term “drawer” means a person who signs or 
is identified in a draft as a person ordering payment.  Code 
§ 8.3A-103(3). 
 
Under these statutory definitions and the facts as 
alleged in Halifax’s motion for judgment, Halifax was the 
issuer of the checks in question.  It would appear, therefore, 
                                                                
as a claim for “AIDING AND ABETTING BREACH OF FIDUCIARY DUTY.”  
Halifax now employs the unfamiliar label on its claim for 
conversion as a “COMMON LAW CLAIM FOR CONVERSION FACILITATING 
A BREACH OF FIDUCIARY DUTY” and otherwise intermingles its 
argument on its claim for conversion with its argument on its 
claim for aiding and abetting a breach of fiduciary duty.  
These are separate claims, and we will treat them as such.  
The claim for aiding and abetting will be discussed infra.   
 
18
that Code § 8.3A-420(a)(i) would bar Halifax’s claim for 
conversion. 
 
Halifax contends, however, that Code § 8.3A-420 does not 
displace a common law claim for conversion.  In support of 
this contention, Halifax cites Stefano v. First Union Nat’l 
Bank of Virginia, 981 F.Supp. 417 (E.D. Va. 1997), where it is 
stated: 
Analysis properly begins with the terms of Virginia Code 
§ 8.1-103,[7] which sets the standard for Code 
displacement of the common law.  This section provides 
that “unless displaced by the particular provisions of 
[the UCC], the principles of law and equity, including 
the law merchant . . . supplement its provisions.”  The 
teaching of this section is plain:  The common law action 
for conversion is displaced by the Code only in 
circumstances where Virginia Code § 8.3A-420 applies.  In 
other circumstances, common law conversion survives. 
 
Id. at 420.  Halifax then says that the drawer preclusion 
contained in Code § 8.3A-420(a)(i) applies only to statutory 
conversion and not to common law conversion. 
 
We agree with the Stefano court’s “standard for Code 
displacement of the common law,” but we disagree with 
                     
 
7 Code § 8.1-103 provides that “[u]nless displaced by the 
particular provisions of [the UCC], the principles of law and 
equity, including the law merchant and the law relative to 
capacity to contract, principal and agent, estoppel, fraud, 
misrepresentation, duress, coercion, mistake, bankruptcy, or 
other validating or invalidating clause shall supplement its 
provisions.”  Although this statute was repealed in July of 
2003, its successor, Code § 8.1A-103(b), features language 
virtually identical to that just quoted here. 
 
19
Halifax’s assertion that the drawer preclusion of Code § 8.3A-
420(a)(i) applies only to an action for statutory conversion. 
 
In the first place, the language of Code § 8.3A-420(a)(i) 
is unambiguous.  In clear and unmistakable terms, in keeping 
with Code § 8.1-103 and its successor, Code § 8.1A-103, it 
specifically precludes a drawer of a check from bringing an 
“action for conversion,” and there is no language in Code 
§ 8.3A-420 that can possibly be read as limiting the 
preclusion to an action for statutory conversion. 
 
Furthermore, contrary to what Halifax would like us to 
believe, Stefano does not support its position.  The plaintiff 
there, unlike Halifax here, was a co-payee of instruments that 
were accepted by the bank without the plaintiff’s endorsement 
and were deposited into an account in the sole name of the 
other payee.  The plaintiff asserted two claims against the 
bank for conversion, one under Code § 8.3A-420 and another 
under the common law.  While the court made the statement 
quoted above concerning the standard to be applied “for Code 
displacement of the common law,” it actually held that the 
plaintiff’s common law claim for conversion was displaced by 
the provision in the second sentence of Code § 8.3A-420 
allowing “an action for conversion where a ‘bank makes or 
obtains payment with respect to a negotiable instrument for a 
person not entitled to enforce the instrument.’ ”  Id. at 420.  
 
20
The court made this statement, which is equally applicable 
here: 
Plaintiff’s reliance on the first sentence of § 8.3A-420, 
which states that “the law applicable to conversion of 
personal property applies to instruments,” is misplaced.  
This sentence merely states the general rule that where a 
claim for conversion of a negotiable instrument is not 
specifically covered by § 8.3A-420, then the claim will 
be governed by the common law of conversion as it applies 
generally to personal property.  See Virginia Code § 8.1-
103.  It does not disrupt, as plaintiff suggests, the 
Code’s stated design that particular provisions of the 
act may displace a cause of action under the common law.  
See Id.  In sum, then, § 8.3A-420 is plaintiff’s sole 
conversion remedy. 
 
Stefano, 981 F. Supp. at 421. 
 
Once again, Halifax relies upon White & Summers to 
support its argument that its claim for conversion has not 
been displaced by Code 8.3A-420.  Citing and quoting in part 
from White & Summers, Halifax states that “this could not be a 
clearer case where common law ‘make[s] one guilty of 
conversion for dealing with an instrument in ways not 
described by the statutory definition (second sentence)’ and 
of ‘liability under the common law introduced into Article 3 
by the first sentence of 3-420.’  2 White & Summers § 18-4 at 
216.” 
 
But the full quotation from White & Summers indicates 
that the case is not as clear as Halifax would like.  The full 
quotation is as follows: 
 
21
 
Section 3-420’s opening sentence incorporates common 
law conversion:  “The law applicable to conversion of 
personal property applies to instruments.”  It is 
conceivable, therefore, that the law of Minnesota or New 
York or Florida might make one guilty of conversion for 
dealing with an instrument in ways not described by the 
statutory definition (second sentence).  When that is so, 
there will be liability under the common law introduced 
into Article 3 by the first sentence of 3-420. 
 
Id. (emphasis added).  We need not speculate about what might 
conceivably be the result if an instrument is dealt with in 
some unidentified way not described by the statutory 
definition.  We know for certain what the result must be when 
an instrument with a forged signature is the subject of a 
claim for conversion brought by the issuer thereof.  The 
result is the dismissal of the claim.  “An action for 
conversion of an instrument may not be brought by . . . the 
issuer . . . of the instrument.”  Code § 8.3A-420(a)(i). 
 
Halifax argues, however, that “as clearly explained in 
the comments to the revised Code, [the] preclusion is intended 
only to extend to claims for statutory conversion, namely 
those involving forged indorsements.”  Halifax then quotes 
Official Comment 1 to Code § 8.3A-420, as follows: 
Under former Article 3, the cases were divided on the 
issue of whether the drawer of a check with a forged 
indorsement can assert rights against a depositary bank 
that took the check.  The last sentence of Section 3-
420(a) resolves the conflict by following the rule stated 
 
22
in Stone & Webster Engineering Corp. v. First National 
Bank & Trust Co., 184 N.E.2d 358 (Mass. 1962).[8] 
 
 
But this does not say that the preclusion in the last 
sentence of Code § 8.3A-420(a) extends only to claims 
involving forged indorsements.  Nor does Code § 8.3A-420 
itself contain any such limiting language.  The statute 
clearly precludes a drawer from bringing an action for 
conversion of “an instrument,” and it does not differentiate 
between an instrument with a forged signature and one with a 
forged indorsement.  As noted in White & Summers, Code § 8.3A-
420 “denies the drawer a conversion cause of action where the 
drawer’s signature has been forged.”  White & Summers, § 19-5 
at 274. 
 
We conclude that the trial court did not err in its 
holding that Halifax does not have a claim for conversion and 
in awarding summary judgment to Wachovia with respect to that 
claim.9  
Aiding and Abetting Breach of Fiduciary Duty 
                     
 
8 Stone & Webster involved checks with forged 
indorsements.  The Supreme Judicial Court of Massachusetts 
held that the drawer of the checks had no “right of action” 
against the depositary bank, 184 N.E.2d at 362, because the 
drawer “had no valuable rights in them,” id. 
 
9 The views we have expressed with respect to the claim 
for conversion make it unnecessary to consider the trial 
court’s alternate holding that Halifax had no claim for 
conversion because “such a claim lies only where personal 
property . . . is converted,” and a “check represents an 
obligation of the drawer rather than property of the drawer.” 
 
23
 
With respect to this claim, the trial court assumed, 
“arguendo, that Virginia recognizes a cause of action for 
aiding and abetting a breach of fiduciary duty.”  The trial 
court concluded, however, that Halifax had “failed to allege 
sufficient facts to state such a claim.”  We will make the 
same assumption and reach the same conclusion. 
 
The dispute between the parties centers upon what Halifax 
needed to allege in its motion for judgment concerning (1) 
Wachovia’s knowledge of Adams’ breach of fiduciary duty, and 
(2) Wachovia’s participation in that breach.  We will discuss 
these matters seriatim. 
Wachovia’s Knowledge 
 
Halifax says that Code § 8.3A-307(b)(3) “expressly 
defines the meaning of ‘notice’ and ‘knowledge’ for purposes 
of bank liability under the common law,” and that, in its 
motion for judgment, it made the necessary allegations.  This 
Code section provides that “[i]f an instrument is issued by 
the represented person or the fiduciary as such, and made 
payable to the fiduciary personally, the taker does not have 
notice of the breach of fiduciary duty unless the taker knows 
of the breach of fiduciary duty.”  (Emphasis added.)10  In this 
                     
 
10 Halifax also cites Code § 8.3A-307(b)(2) and (4) which, 
as Wachovia points out, “on their face, do not apply to the 
checks at issue here.” 
 
24
scenario, Halifax is “the represented party,” Adams is “the 
fiduciary,” and Wachovia is “the taker.” 
 
All Halifax alleged, however, was that Wachovia had 
“actual knowledge of Adams’ fiduciary duty and actual . . . 
notice [of] Adam’s [sic] breach of duty.”  While this may be 
sufficient to allege Wachovia’s actual knowledge of Adams’ 
fiduciary duty, it is not sufficient to allege that Wachovia 
“[knew] of the breach of fiduciary duty,” in the words of Code 
§ 8.3A-307(b)(3).  Alleging actual knowledge of a fiduciary 
duty is not tantamount to alleging actual knowledge of a 
breach of the duty.  “Notice which does not amount to 
knowledge is not enough to cause Section 3-307 to apply.”  
Official Comment 2 to Code § 8.3A-307.  “A person ‘knows’ or 
has ‘knowledge’ of a fact when he has actual knowledge of it.  
‘Discover’ or ‘learn’ or a word or phrase of similar import 
refers to knowledge rather than to reason to know.”  Code 
§ 8.1-201(25).11  
 
Yet again, Halifax relies on White & Summers, this time 
for the proposition that Code § 8.3A-307(b)(3) is violated 
where “the person who received payment was known to be a 
                     
 
11 Code § 8.1-201 was repealed effective July 1, 2003, and 
was replaced by Code § 8.1A-202.  Subsection (b) of the new 
version states: “ ‘Knowledge’ means actual knowledge.  ‘Knows’ 
has a corresponding meaning.”  New subsection (c) states:  
“ ‘Discover,’ or ‘learn,’ or words of similar import refer to 
knowledge rather than to reason to know.” 
 
25
fiduciary by the taker . . . [and] the taker made the money 
available to the fiduciary personally by putting it in his or 
her account or otherwise in a transaction known to be for the 
embezzler’s personal use.”  White & Summers, § 19-5 at 276.  
But, here again, Halifax does not tell the whole story. 
 
The statement quoted from White & Summers has reference 
to a hypothetical case where “the embezzler, with authority to 
draw, draws a check payable to the order of the corporation, 
forges the corporate indorsement (he or she has no authority 
to indorse) and passes the check to a depositary bank.”  Id. 
at 275-76.   But the checks here were not payable to Halifax 
and they bore no forged indorsements, so the statement quoted 
from White & Summers is inapposite.  Furthermore, White & 
Summers did not say that the hypothetical represented a 
violation of Code § 8.3A-307(b)(3) as, indeed, they could not − 
the hypothetical checks were not covered by that section but 
by Code § 8:3A–307(b)(2); White & Summers merely said that 
“the owner of the account might strengthen this case by noting 
that he or she had carried the substantial burden by proving 
the conditions required under 3-307(b).”  § 19-5 at 276.  And, 
in the end, White & Summers say: “[W]e are uneasy about all of 
this.”  Id. 
 
Finally, Wachovia states on brief that Halifax “did not 
and could not allege that Wachovia had actual knowledge of the 
 
26
most relevant fact, i.e., that Adams did not have Halifax’s 
authority to draw the checks to herself (or to her companies 
or to cash).”  When asked during oral argument whether Halifax 
“alleged that,” counsel for Halifax responded by saying:  “We 
alleged [it] in the entire body of the long motion for 
judgment, we did not use, we concede, the two words actual 
knowledge with respect to . . . the second element, actual 
knowledge of the breach.” 
Wachovia’s Participation 
 
As the trial court noted in its final order, a plaintiff 
asserting a claim for breach of fiduciary duty is required to 
allege “more than mere knowledge that the breach of fiduciary 
duty has occurred.”  The Court stated that “[f]or a claim to 
survive, the plaintiff must assert that the defendant somehow 
recruited, enticed, or participated in the fiduciary’s breach 
of its duty,” yet Halifax had not alleged that Wachovia 
“recruited, enticed, encouraged, or benefited from Adams’ 
breach of fiduciary duty.” 
 
Halifax says that it alleged in its motion for judgment 
that Wachovia “‘participated’ in the breach of fiduciary 
duty,” and that this was sufficient to withstand Wachovia’s 
motion for summary judgment.  Halifax states that no 
allegation of “affirmative, conspiratorial aid is required.” 
 
27
 
Halifax cites Tysons Toyota, Inc. v. Globe Life Ins. Co., 
1994 U.S. App. LEXIS 36692 (4th Cir. Dec. 29, 1994) (per 
curiam), which involved a corporate officer’s diversion from 
the plaintiff corporation to the defendant insurance companies 
of a business opportunity belonging to the plaintiff.  The 
plaintiff claimed that the defendants “recruited and enticed 
[the corporate officer] to breach his fiduciary duty to [the 
corporation]” and alleged facts supporting that claim.  Id. at 
*4.  The court held that the plaintiff had “alleged sufficient 
participation by the defendants in [the corporate officer’s] 
breach of fiduciary duty.”  Id. at *13.  But Halifax made no 
allegation here that Wachovia recruited and enticed Adams to 
breach her fiduciary duty, and it alleged no facts that would 
have supported the allegation had it been made. 
 
Halifax also cites Patteson v. Horsley, 70 Va. (29 
Gratt.) 263 (1877).  There, a trustee, John Horsley, sold 
bonds for $9,000.00 he held in trust to G. A. Hancock, for 
which Hancock gave his bond for $8,280.00.  When that bond 
fell due in 1863, Hancock proposed to pay the bond in 
Confederate money, and Horsley accepted payment in that 
currency.  Upon a bill of complaint praying for the settlement 
of the accounts of Horsley, as trustee, the trial court ruled 
that neither Horsley nor Hancock was liable for any loss that 
had resulted to the trust fund.  On appeal, this Court 
 
28
reversed, holding that the transaction between Horsley and 
Hancock was a breach of trust by the former in which the 
latter had participated, “the same having been committed at 
[Hancock’s] instance and for his benefit.”  Id. at 270.  
Nothing in Halifax’s motion for judgment even comes close to 
an allegation that Adams’ breach of fiduciary duty was 
committed at Wachovia’s instance or for its benefit. 
 
Next, Halifax cites W. L. Chase & Co. v. Norfolk Nat’l 
Bank of Commerce & Trusts, 151 Va. 1040, 145 S.E. 725 (1928).  
There, Chase had an account with the Norfolk National Bank and 
another with a bank in Rocky Mount, North Carolina.  An 
employee of Chase, J. C. Custis, without authority, drew a 
check on the Rocky Mount bank payable to the Norfolk Bank.  
That bank allowed the check, endorsed by Custis, to be 
deposited in his personal account, which Custis then used to 
pay off a debt he owed the Norfolk Bank.  Chase brought an 
action in assumpsit, not aiding and abetting, against the 
Norfolk bank and was allowed to recover the amount of the 
check.  This Court held that by complying with the employee’s 
request to place the proceeds of the check in his personal 
account, the Norfolk Bank “manifestly allowed him to exceed 
his authority and so participated in the diversion of funds 
under [its] control.”  Id. at 1057, 145 S.E. at 730.  The 
dissimilarity between the present case and Chase is at once 
 
29
obvious.  Here, Halifax was not Wachovia’s customer, the 
checks in question were not made payable to Wachovia, and the 
proceeds from the checks were not used to pay an indebtedness 
due Wachovia.12 
 
Halifax also cites CaterCorp, Inc. v. Catering Concepts, 
Inc., 246 Va. 22, 431 S.E.2d 277 (1993).  One of the claims 
asserted in the case was for tortious interference with 
contracts.  We said that one of the elements of such a claim 
is “intentional interference inducing or causing a breach or 
termination of the relationship or expectancy,” and we held 
that the plaintiff had alleged the element of intentional 
interference with sufficient specificity.  Id. at 28, 431 
S.E.2d at 281 (emphasis added).  It is surprising that Halifax 
cites this case.  It certainly does not support Halifax’s 
argument, noted supra, that it was not required to allege 
“affirmative . . . aid” as an element of its claim for aiding 
and abetting. 
 
This brings us to the crux of the issue whether Halifax’s 
allegation that Wachovia “participated” in Adams’ bank 
                     
 
12 Halifax cites several cases similar to Chase.  All are 
inapposite.  Jones v. United States Fid. & Guar. Co., 165 Va. 
349, 182 S.E. 560 (1935); Trust Co. of Norfolk v. Snyder, 152 
Va. 572, 147 S.E. 234 (1929); Bank of Giles County v. Fidelity 
& Dep. Co. of Md., 84 F.2d 321 (4th Cir. 1936); Fidelity & 
Dep. Co. of Md. v. Bank of Smithfield, 11 F.Supp. 904 (E.D. 
Va. 1932); Scottsbluff Nat’l Bank v. Blue J Feeds, Inc., 54 
N.W.2d 392 (Neb. 1952); Wichita Royalty Co. v. City Nat’l Bank 
of Wichita Falls, 89 S.W.2d 394 (Tex. 1935). 
 
30
transactions is sufficient to state a claim of aiding and 
abetting.  Generally speaking, the word “participate,” 
standing alone, is of a neutral and innocuous nature, 
importing no wrongdoing of any kind.  See Black’s Law 
Dictionary 1141 (7th ed. 1999). However, its meaning can vary 
depending upon the context in which it is used.  On the other 
hand, the term “aiding and abetting” invariably imports 
purposeful conduct.  Id. at 69 (“aid given with mens rea is 
abetment”).  When the word “participate” is used in the 
phrase, “participate in aiding and abetting,” it sheds its 
neutral and innocuous nature and takes on the characteristic 
of affirmative participation inherent in the other words of 
the phrase.  The maxim noscitur a sociis “instructs that ‘the 
meaning of a word takes color and expression from the purport 
of the entire phrase of which it is a part, and it must be 
read in harmony with its context.’ ”  Andrews v. American 
Health & Life Ins. Co., 236 Va. 221, 225, 372 S.E.2d 399, 401 
(1988) (quoting Turner v. Commonwealth, 226 Va. 456, 460, 309 
S.E.2d 337, 339 (1983). 
 
A bank participates in numerous transactions every day 
involving the acceptance and deposit of checks.  Yet, unless 
it actually knows a breach of fiduciary duty is occurring and 
participates with mens rea in the consummation of the breach, 
 
31
it should not be held liable for aiding and abetting the 
breach. 
 
Halifax’s motion for judgment neither alleges affirmative 
participation by Wachovia nor states facts that would support 
such an allegation.  Rather, Halifax’s allegations are 
negative in nature, listing all the things Wachovia did not do 
that might have uncovered the embezzlement.  This is 
insufficient to overcome the lack of allegations of 
affirmative participation on the part of Wachovia. 
Leave to Amend 
 
Halifax states on brief that “[in] the event that the 
circuit court found [Halifax’s] allegations were not pled with 
sufficient particularity, Halifax was entitled to leave to 
amend.”  However, Halifax has a problem; it has not assigned 
error to the denial of leave to amend, and we will not notice 
the denial now.  Rule 5:17(c) (“[o]nly errors assigned in the 
petition for appeal will be noticed by this Court”). 
Conclusion 
 
Finding no error in the holdings of the trial court, we 
will affirm its judgment. 
Affirmed.