## Facts

- Halifax Corporation’s comptroller, Mary K. Adams, embezzled about $15.4 million from August 1995 to February 1999.
- Adams wrote over 300 checks drawn on Halifax’s account at its drawee bank using a facsimile signature stamp and made them payable to herself, her entities, or cash.
- Adams deposited the checks into accounts she maintained at a depositary bank (Central Fidelity Bank and its successor, Wachovia Bank), sometimes receiving cash back.
- After discovering the scheme, Halifax sued Wachovia under UCC-based negligence theories, common-law conversion, and aiding and abetting Adams’ breach of fiduciary duty.
- The circuit court granted Wachovia summary judgment, concluding (among other grounds) that UCC § 3-406 does not create an affirmative cause of action, common-law conversion is displaced by UCC § 3-420, and the aiding-and-abetting allegations were insufficient.

## Issues

1. Whether Va. Code § 8.3A-406 (UCC 3-406) provides an affirmative cause of action against a depositary bank for negligence, gross negligence, or bad faith in taking checks associated with unauthorized signatures or endorsements.
2. Whether Halifax’s common-law conversion claim is displaced by Va. Code § 8.3A-420(a) (UCC 3-420) governing conversion of instruments.
3. Whether Halifax alleged sufficient facts to state a claim that Wachovia aided and abetted Adams’ breach of fiduciary duty (assuming the cause of action exists).

## Decision

- The Supreme Court of Virginia affirmed summary judgment for Wachovia.
- Va. Code § 8.3A-406 was construed as a defensive, loss-allocation rule and not a statute creating an independent negligence claim against a bank.
- Halifax’s common-law conversion claim was displaced by the statutory conversion framework in Va. Code § 8.3A-420(a).
- Halifax failed to plead facts sufficient to state an aiding-and-abetting breach of fiduciary duty claim, even assuming such a claim is cognizable in Virginia.

## Legal Principles

- Va. Code § 8.3A-406 operates to preclude or limit a party’s ability to assert a forged or unauthorized signature (or alteration) when that party’s lack of ordinary care substantially contributed to the fraud; it does not create an affirmative cause of action for damages.
- The UCC’s instrument-conversion provision, Va. Code § 8.3A-420(a), supplies the controlling framework for conversion of checks and displaces inconsistent common-law conversion theories for the same conduct.
- A claim for aiding and abetting breach of fiduciary duty requires specific factual allegations showing knowing and substantial assistance; allegations that a bank should have detected suspicious activity are insufficient without more.

## Conclusion

The court upheld judgment for the depositary bank, holding that UCC § 3-406 provides a defensive loss-allocation rule rather than an affirmative negligence claim, UCC § 3-420 displaces common-law conversion for checks, and the complaint did not allege facts sufficient to support aiding and abetting a fiduciary breach.


Halifax Corp. v. Wachovia Bank, 604 S.E.2d 403 (Va. 2004)