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Home > Journals > Michigan Law Review > MLR > Volume 31 > Issue 7 (1933)

 

Abstract

H was president of corporations A, B, and C. Through his control of B and C he secured personal advances approximating $600,000. This money he loaned as personal funds to A which through its directors and officers, in their official capacities, was aware of the source of the funds though not of the exact amounts nor of the fact of unlawful diversion. F bank held certain matured promissory notes of B upon which H had become obligated as guarantor. B and H were in financial difficulties and F bank threatened to throw H into bankruptcy.A thereupon, and within four months of the filing of a petition in bankruptcy, purchased these notes and the guaranty obligation from F bank knowing them to be of doubtful value and assigned as the consideration part of its claim against P, purchaser of substantially all of A's assets. F bank retained the notes and guaranty obligation as security, and it knew of the sale by A to P. P paid the money into court and the present action is between the trustee in bankruptcy of A and F bank. A, B, C, and H have all been declared bankrupt. Held, A by using the unlawfully diverted funds under the circumstances became the debtor of B (arrangements between H and A as to repayment for such loans notwithstanding). A therefore was in fact insolvent at the time of the purchase and assignment and must have intended the reasonable mid probable consequences of its act which were to hinder, delay, and defraud creditors. And under sec. 67 (e) of the Bankruptcy Act, F bank had not sustained the burden of proving itself to be a purchaser bona fide and for a present fair consideration. Edward Hines Western Pine Co. v. First Nat. Bank of Chicago et al., (C. C. A. 7th, 1932) 61 F. (2d) 503.

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