Opinion ID: 1059022
Heading Depth: 1
Heading Rank: 6

Heading: Common Law Conversion [6]

Text: 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, 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 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. 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: 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 in Stone & Webster Engineering Corp. v. First National Bank & Trust Co., 345 Mass. 1, 184 N.E.2d 358 (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]