Opinion
No. 78 B 886
May 15, 1979
Discharge of Debts — False Representations — Fraud
The bankrupt knowingly and recklessly made a false representation which induced the creditor to advance money such that the advance was not discharged in bankruptcy under Section 17a(2) when he accepted funds from the creditor to purchase a boat for her and instead deposited the funds in his corporation's tax escrow account.
The creditor signed a contract with the bankrupt, agreeing to purchase a boat, and advanced the purchase price to the bankrupt on his representation that the money she advanced would be sent immediately to the boat manufacturer. The bankrupt then deposited the moneys received in the tax escrow account of his corporation. The creditor never received delivery of her boat nor did she receive any portion of the funds advanced. The bankrupt and his corporation subsequently filed voluntary petitions in bankruptcy and were adjudicated bankrupts.
That the bankrupt intended ultimately to attempt to complete the creditor's purchase and obtain a boat for her is immaterial. The bankrupt's misrepresentation caused the creditor to lose her money and the boat. Under New York law, a corporate president can be liable personally for his fraud and deceit in the course of his corporation's business. See Lippman Packing Corp. v. Rose, 203 Misc. 1041, 120 N.Y.S.2d 416 (1953). Having perpetrated a fraud, it is irrelevant that the fraud was for the benefit of the corporation and the bankrupt personally received no portion of the fraudulently procured funds. "Section 17a(2) of the Bankruptcy Act applies with equal vigor where the funds were obtained for the bankrupt's corporation." Therefore, the liability for obtaining money by false pretenses or false representations is not dischargeable within the meaning of Section 17a(2) of the Bankruptcy Act. See Sec. 17a(2) at ¶ 2145 and Sec. 523(a)(2) at ¶ 9228.