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FIRST CAPITAL CORP. v. COUNTRY FRUIT

September 1, 1998

FIRST CAPITAL CORPORATION, Plaintiff,
v.
COUNTRY FRUIT, INC., ALFREDO VERGARA, INVERSIONES VEZCO, LTDA, and DANIEL H. KOLBACH, Defendants.



The opinion of the court was delivered by: KATZ

MEMORANDUM AND ORDER

 Factual Background

 In this case, plaintiff First Capital Corporation (FCC) seeks to recoup its losses from the collapse of an international produce company, Country Fruit--a collapse which was evidently hastened along by defendants' willful misuse of funds and invoices. On April 7, 1997, defendants Vergara, the President of Country Fruit, and Kolbach, the Secretary of Country Fruit, signed various documents to obtain a line of credit for Country Fruit from plaintiff FCC in the amount of $ 800,000. See Pl. Mot. for Summ. Judg. Ex. A. In addition to the loan agreement, defendants signed a revolving Credit Note, an Accounts Receivable Financing Agreement, and Corporate and Personal Guarantees. See id. Ex. A. Defendant Kolbach also signed a Trustee and Custodian Agreement, as did Vergara, in favor of First Capital, in which he agreed to undertake the following duties on behalf of First Capital:

 
i) concurrently with each sale of goods or services by Country Fruit, make or cause to made a record of each sale and creation of a receivable;
 
ii) daily receive all mail addressed to Country Fruit, and remove from FCC's post office box all mail addressed to Country Fruit;
 
iii) receive and take possession of all cash, checks, or other instruments for the payment of money from customers of Country Fruit, maintain and safely keep proper records of such payments, and promptly deliver to FCC all such payments in the identical form received;
 
iv) report promptly to FCC any dispute or claim relating to any receivable and all pertinent facts in connection with any such dispute or claim;
 
v) maintain and safely keep possession and control of supporting evidence for receivables in the form of invoice copies, bills of lading, shipping and delivery receipts, and like documents and forward the same to FCC upon request;
 
vi) notify FCC promptly and earmark, segregate, and hold returned goods as FCC's property whenever any goods which have been sold shall be returned to Country Fruit; and
 
vii) perform such other services relative to any of the foregoing as FCC may from time to time request.
 
See id. Ex. A.

 Kolbach failed to maintain accurate invoices for Country Fruit's receivables, and instead submitted sales documentation to FCC representing $ 329,018.60 in Country Fruit sales that had never occurred. See id. Ex. A; Pl. Mot. for Recons. Exs. A, B. Nor did Kolbach forward payments received by Country Fruit on receivables to FCC, but rather $ 49,787.50 in receivables were collected directly and retained by Country Fruit. See Pl. Mot. for Summ Judg. Exs. A, E. FCC was unaware that the documentation provided by Kolbach was false, and advanced funds to Country Fruit. See id. Ex. C. FCC has not recovered any of the $ 49,787.50 in receivables that Kolbach failed to forward to it, nor has it ever received any documentation to support the alleged $ 329,018.60 of sales. See id. Ex. E.

 In an interview with Thomas Cloud, a private investigator, Kolbach admitted the following:

 
Kolbach: Well, Alfredo, he give checks to growers, and in Chile, the law of checks is very, very strict. If you give a check that ...

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