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Suppose B "converted" money entrusted to him by A. B then turns around and buys goods, say a car, from C using the converted funds.

A can sue B for conversion, of course. But can A sue C as the recipient of converted funds. Or can C (who didn't know that the funds were converted) use as a defense, I sold B a car for the money, your remedy is the car owned by B?

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Normal rules are that you cannot have good title to a thing if, somewhere down the line, there was a thief who had converted that thing from its rightful owner.

There are exceptions, the relevant one here is a negotiable instrument, which includes cheques (unless marked "Not negotiable" - now you know what it means), stocks, bonds and ... money. The legal owner of a negotiable instrument is the person who has it, provided that person gained possession of it lawfully.

In your example, C gained possession of the money in a lawful transaction with B; A has no recourse against C. Contrast this where B stole the car from A and sold it to C: a car is not a negotiable instrument so C does not have good title, they must return the car to A and try to get their money back from B.

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