Court Opinion

ID: 4479215
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:32.365172+00
Date Added: 2024-06-11T14:53:57.373694
License: Public Domain

MulRONet, J., dissenting: Under section 166(f), I.B.C. 1954, the guarantor has the burden of showing the borrower “used” the proceeds of the loan in his “trade or business.” I think he would satisfy his burden if he showed the proceeds of the loan were the funds used by the borrower to start up in the cafe business, acquire an existing cafe business, or, as here, buy out the business interest of his remaining partner in the cafe. The statute requires the guarantor to do no more than trace the loan proceeds to the borrower’s cafe business. The majority holds that before the statute applies the guarantor must show that the loan proceeds were “directly employed in carrying on the borrower’s trade or business.” I see no reason for such a. construction, but if it is warranted it would seem to me the borrowed funds, which were used to buy the interest of the borrower’s partner in the assets of the cafe business, were directly employed in carrying on the borrower’s sole proprietorship. Admittedly, if the funds were used by the borrower to purchase merchandise and fixtures for use in his cafe, the borrowed funds would be “used in the trade or business of the borrower.” I see no difference when the funds are used to buy out another’s one-half interest in the merchandise and fixtures that are to be used in the borrower’s cafe business. I would hold for the petitioner. FoReesteR and Fat, JJ., agree with this dissent.