John P. Maguire & Co. v. Herzog
| Decision Date | 19 January 1970 |
| Docket Number | No. 27945.,27945. |
| Parties | JOHN P. MAGUIRE & CO., Inc., Plaintiff-Appellee, v. Richard B. HERZOG, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Paul L. Hanes, Joseph Lefkoff, Heyman & Sizemore, Atlanta, Ga., for appellant.
G. William Thackston, Jr., Harmon & Thackston, Atlanta, Ga., for appellee.
Before BELL, AINSWORTH and CARSWELL, Circuit Judges.
This is an appeal by a corporate officer from a judgment of the District Court holding him liable for a corporate debt under Section 17(a) (4) of the Bankruptcy Act, 11 U.S.C.A. § 35(a) (4), despite his personal discharge in bankruptcy.
While the facts of this case are somewhat complicated, this Court is called upon to determine a narrow issue of law which may be stated as follows: Does the direction and use of proceeds, derived from the sale of goods acquired under a floorplan arrangement prior to the bankruptcy of the corporation, by a corporate officer for payment of certain corporate creditors to whom he is secondarily liable constitute a debt created by "misappropriation" within § 17(a) (4) of the Bankruptcy Act, so as to prevent its discharge when the officer is personally adjudged a bankrupt? The District Court answered this question affirmatively. Not finding this decision to be clearly erroneous, we affirm the judgment below.
Appellant Herzog was the president, director and chief managing officer, as well as the owner of seventy-nine percent of the stock, of Home Furniture Company which operated three retail stores in Atlanta. In February or March of 1965, a representative of American Furniture Company of Martinsville, Inc., negotiated a floor plan financing arrangement with Herzog as president of Home. Under this arrangement, Home would order furniture from American, and the furniture would be shipped directly to Home with the original invoices going to appellee, John P. Maguire and Company, Inc. Maguire would then pay the amount of each invoice directly to American for Home's account, and send a note, chattel mortgage or trust receipt, and copies of the invoice to Home. As each article of furniture was sold, the amounts included in the invoice and notes were to be remitted to Maguire by Home on a weekly basis.
At the time appellant executed the financing arrangement with Maguire on behalf of Home Furniture Company, Home's receivables were factored with James Talcott Company. Two bank accounts were maintained by Home — one designated as the regular account and the other designated as the Talcott account. All cash receipts from sales, including those derived from sales of American furniture, were placed in the regular account, while all payments by customers on the Talcott factored accounts were placed in the Talcott account and remitted to Talcott. No special account was maintained for proceeds of the Maguire floorplan sales. Such payments as were made to Maguire were made from the regular account.
Subsequent to the bankruptcy of Home, it had some 175 creditors, at least seven of which had required the personal endorsement or guaranty of appellant Herzog. The cash position of Home was extremely tight and, as a result Herzog, having the sole authority for such decisions and directions, applied the available cash from the regular account to the payment of creditors with the loudest demands and complaints, including those to whom appellant was secondarily liable. Thus, almost from the beginning, the proceeds of the Maguire floorplan sales were applied to the debts of other creditors.
Maguire conducted periodic field audits of its dealers. On November 2, 1965, Maguire's third audit of items held by Home revealed an unaccounted shortage of some $1,200.00. Payment in the near future was promised by appellant. The fourth audit occurred on February 1, 1966, when a shortage of some $6,800.00 appeared. For the first time, appellant informed Maguire that Home simply could not pay. On February 11, 1966, Home filed its Chapter XI bankruptcy petition and on the 16th, Maguire exercised its default repossession rights on the American furniture.
From June 1965 through February 1966, American made shipments to Home under the financing arrangements totalling $47,126.37, against which payments of $8,591.49, credits of $1,881.50, and repossession credits of $28,139.74 were applied, leaving a stipulated principal balance of $8,513.64 due Maguire from Home. Maguire made demands on appellant for payment, but appellant refused to pay.
Appellant's personal discharge in bankruptcy was granted on April 19, 1968. Plaintiff below and appellee herein filed a complaint...
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In re Guy
...may not be a `fraud\', or an `embezzlement\', or perhaps not even a `misappropriation\'." Id. at 512. The case of John P. Maguire and Co. v. Herzog, 421 F.2d 419 (5th Cir.1970) is somewhat analogous to the case at bar. Herzog was decided under § 17a(4) of the Bankruptcy Act which created an......
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In re Krause
...121 (6th Cir.1985), and Matter of Whitlock, 449 F.Supp. 1383 (W.D.Mo.1978). The Long court also noted the case of John P. Maguire Co. v. Herzog, 421 F.2d 419 (5th Cir.1970), where it was held that draining off a corporation's assets for the benefit of an officer may create a bar to discharg......
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Helvetia Asset Recovery, Inc. v. Kahn (In re Kahn)
...defalcation within the meaning of § 523(a)(4). In re Jackson, 141 B.R. 909, 918–19 (Bankr.W.D.Tex.1992) (citing John P. Maguire & Co. v. Herzog, 421 F.2d 419, 422 (5th Cir.1970) ). “Once it is established that specific money or property has been obtained by fraud, ... ‘any debt’ arising the......
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In re Snyder
...98 F.2d 703 (2d Cir.), cert. denied, 305 U.S. 646, 59 S.Ct. 149, 83 L.Ed. 418 (1938). Id. at 457-58. See also John P. Maguire & Co. v. Herzog, 421 F.2d 419 (5th Cir.1970) (managing officer's use of corporate office to obtain a personal benefit at the expense of corporate creditors caused cr......