Dorothy Wright Nelson

“ Once the check was issued, Arlynn no longer had legal control over the funds, even if he retained physical control over them. Arlynn therefore did not have the right to use the money for any other purpose than to give it to Hilton. Hilton maintains that Arlynn had dominion over the $ 65,000 because he was Video Depot's principal and, in that capacity, directed Video Depot to purchase the cashier's check.
The bankruptcy courts are split on the question of whether the principal of a debtor corporation necessarily is the initial transferee of corporate funds used to satisfy a personal obligation. ”

“ Thus, Hilton's receipt of a cashier's check clearly purchased by Video Depot subjects it to a burden of inquiry that it may not have had upon receipt of a check from Jeffrey Arlynn's personal account.
Moreover, the rule advocated by Hilton would have the anomalous result that every agent or principal of a corporation would be deemed the initial transferee when he or she effected a transfer of property in his or her representative capacity. See Bowers, 99 F.3d at 156. Such a rule "gives too much power to an unscrupulous insider to effect a fraudulent transfer . ”

“ The purpose of this scheme is to protect creditors "from last-minute diminutions of the pool of assets in which they have interests," while at the same time to guard against "the waste that would be created if people either had to inquire how their transferors obtained their property or to accept a risk that a commercial deal would be reversed for no reason they could perceive at the time." ”