Plaintiff Nordberg, the Creditor Trustee of Chapter 11 debtor Chase & Sanborn Corporation ("Chase & Sanborn"),1 appeals from the district court's affirmance of the bankruptcy court's decision denying the Creditor Trustee's fraudulent conveyance and voidable preference claims against defendant Arab Banking Corporation ("ABC").2

This case originates from one individual's "desperate, and ultimately unsuccessful, efforts to keep both his own and his family's overextended business empires afloat financially ... efforts [which] included obtaining falsely collateralized loans and engaging in insider bank fraud." United States v. Castro [and Duque, et al.], 829 F.2d 1038, 1039 (11th Cir.1987), withdrawn in nonrelevant part and reh'g denied, 837 F.2d 441 (11th Cir.1988). The result has been "a series of related financial transactions accurately described by the bankruptcy court as 'bewildering.' " In re Chase & Sanborn Corp. (Nordberg v. Sanchez), 813 F.2d 1177, 1179 (11th Cir.1987). The central character in this litigious brouhaha, which has by now produced its own extensive body of caselaw at every level of the federal judiciary,3 is a rather remarkable man by the name of Alberto Duque Rodriguez ("Duque"), a citizen of Colombia who developed a group of Miami-based enterprises revolving around the importation of coffee from his native land to the United States.

In the spring of 1982, Duque, then-owner of Chase & Sanborn and several other companies, and Camilo Bautista, then-president of Chase & Sanborn and an associate of Duque who held his power of attorney, sought a $22 million loan for Duque from ABC. They provided false financial statements to ABC in order to obtain the loan. During the loan negotiations, the senior official at ABC's New York City branch office, Samir Kaldawy, learned that Duque's business empire was in far more desperate straits than Duque alleged. Kaldawy thereafter accepted bribes totalling more than half a million dollars from Duque in return for recommending approval of the loan.4 ABC loaned the $22 million to Duque in June 1982. The loan was secured by Duque's stock in City National Bank of Miami, which was then valued in excess of $22 million; the loan was also guaranteed by four companies controlled by Duque, including Chase & Sanborn. Chase & Sanborn received $369,288 in loan proceeds in return for its guarantee. Duque also opened a checking account at ABC, on which ABC frequently honored checks despite large overdrafts, thus effectively loaning Duque additional funds. After Duque failed to make the first loan payment as scheduled, Chase & Sanborn and other Duque-owned companies paid a total of $5 million on the $22 million principal through March 1983, but no further payments were made. Nevertheless, ABC loaned an additional $3.3 million to another Duque-owned company on March 21, 1983, and another $5 million directly to Duque on May 9, 1983. No payment on this latter total of $8.3 million was ever made.

On May 18, 1983, Chase & Sanborn filed for bankruptcy under Chapter 11 of the Bankruptcy Code, 11 U.S.C.A. Secs. 1101-1174. Duque and Duque's other companies filed separately for bankruptcy at the same time. In 1984, the bankruptcy court denied a motion by several creditors for consolidation of the cases. Duque was later convicted of 62 fraud-related counts in connection with his financial dealings, and is currently imprisoned.5 At issue in this case are Chase & Sanborn's June 1, 1982 guarantee of ABC's $22 million loan to Duque, and ten transfers from Chase & Sanborn to ABC, four involving payments applied to principal or interest on Duque's loan, and six involving payments applied to overdrafts which Duque incurred on his checking account with ABC. The four loan payments were as follows:

The six overdraft payments were as follows:

1. October 8, 1982    $  440,212
2.  October 22, 1982      200,000
3.  December 15, 1982     685,745
4.  February 2, 1983      909,000
5.  February 15, 1983   1,000,000
6.  March 3, 1983          48,543

The Creditor Trustee alleges that the loan guarantee and all of the above transfers are voidable as fraudulent conveyances under 11 U.S.C.A. Sec. 548(a)(2), because Chase & Sanborn received no "reasonably equivalent value in exchange."6 The Creditor Trustee also alleges that the last two loan transfers, which occurred within 90 days of Chase & Sanborn's bankruptcy petition, are voidable preferences under 11 U.S.C.A. Sec. 547.

The bankruptcy court dismissed the Creditor Trustee's complaint on September 19, 1986. In re Chase & Sanborn Corp. (Nordberg v. Arab Banking Corp.), No. 86-0493-BKC-TCB-A (Bkr.S.D.Fla. Sept. 19, 1986) (hereafter "Bkr.Ct.Op."). The court found that Chase & Sanborn was insolvent at all relevant times during the June 1982-March 1983 period, a necessary prerequisite for recovery under either the fraudulent conveyance or voidable preference theory. See Bkr.Ct.Op. at 2; 11 U.S.C.A. Secs. 547(b)(3), 548(a)(2)(B)(i). As to the fraudulent conveyance issue, the court found that Chase & Sanborn had received "reasonably equivalent value" for the overdraft payments and for the loan guarantee. Bkr.Ct.Op. at 7, 11-12. As to the voidable preference issue, the court found that although the Creditor Trustee had otherwise established the statutory elements,7 the transfers were not voidable because they were "contemporaneous exchange[s] for new value" under section 547(c)(1). Id. at 4, 10-11. Finally, the court found that even if the transfers were voidable under either theory, Chase & Sanborn could not recover them from ABC because ABC was neither an "initial transferee" under 11 U.S.C.A. Sec. 550(a)(1), nor a bad-faith "mediate transferee" under 11 U.S.C.A. Sec. 550(a)(2), (b)(1). Id. at 4-5, 10-11.

The Creditor Trustee appealed to the district court, which affirmed the judgment of the bankruptcy court on December 29, 1988. In re Chase & Sanborn Corp. (Nordberg v. Arab Banking Corp.), No. 86-2575-Civ-Scott (S.D.Fla. Dec. 29, 1988) (hereafter "Dist.Ct.Op.").8 The Creditor Trustee appeals to this Court. ABC, while urging affirmance of the judgments below on the grounds relied on by the courts below, also contends that the Creditor Trustee's complaint should be dismissed on two alternative grounds asserted before the bankruptcy court and preserved on appeal before the district court and this Court. These alternative grounds for affirmance are discussed in Part II(D) below.9

This case raises a number of important, if somewhat technical, questions concerning the interpretation and application of the Bankruptcy Code.10 This Court's standard of review as to such issues of law is de novo; as to the bankruptcy court's findings of fact, "clearly erroneous" review applies. In re Sublett, 895 F.2d 1381, 1383 (11th Cir.1990). The bankruptcy court must make all necessary findings of fact; if the bankruptcy court's findings are "silent or ambiguous as to an outcome determinative factual question," remand to the bankruptcy court is required. See id. at 1384, citing Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir.1987).

It has long been established that "[w]hether fair consideration has been given for a transfer is 'largely a question of fact, as to which considerable latitude must be allowed to the trier of the facts.' " Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823, 829-30 (5th Cir.1959) (Wisdom, J.), cert. denied, 362 U.S. 962, 80 S. Ct. 878, 4 L. Ed. 2d 877 (1960).11 The burden of proving lack of "reasonably equivalent value" under 11 U.S.C.A. Sec. 548(a)(2)(A) rests on the trustee challenging the transfer. In re Duque Rodriguez (General Electric Credit Corp. v. Murphy), 895 F.2d 725, 726 n. 1 (11th Cir.1990). The bankruptcy court found that most of the transfers from Chase & Sanborn to ABC paying off Duque's overdrafts were preceded, a few days before, by payments from Duque's account to Chase & Sanborn and other Duque-owned companies which created those overdrafts in the first place. While the Creditor Trustee disputes whether each individual overdraft transfer was balanced by a precisely equivalent prior transfer to Chase & Sanborn, there is evidence that the overall amount transferred to Chase & Sanborn from overdrafts on Duque's ABC account exceeded the amount transferred to the account by Chase & Sanborn in exchange. Under these circumstances, we find that the bankruptcy court's factual conclusion that the overdraft transfers were made for "reasonably equivalent value" is not clearly erroneous.12

As to Chase & Sanborn's guarantee of ABC's loan to Duque, the Creditor Trustee contends that the $369,288 in loan proceeds received by Chase & Sanborn in exchange for the guarantee did not constitute "reasonably equivalent value." The Creditor Trustee argues principally that this amount was far less than the loan principal and the amounts actually paid by Chase & Sanborn on the loan. It is well established, however, that a contingent liability cannot be valued at its potential face amount; rather, "it is necessary to discount it by the probability that the contingency will occur and the liability become real." Matter of Xonics Photochemical, Inc., 841 F.2d 198, 200 (7th Cir.1988). The bankruptcy court found that, in view of the fact that the loan was more than adequately secured by Duque's City National Bank stock, and that the loan was co-guaranteed by other Duque-owned entities, the $369,288 payment to Chase & Sanborn was, at the time, a reasonably discounted equivalent to Chase & Sanborn's contingent liability. See Bkr.Ct.Op. at 11-12. This factual finding is not clearly erroneous.13

For these reasons, we conclude that there is no basis for reversing the judgments below on the fraudulent conveyance issue.

As noted above in Part I, the bankruptcy court found that the Creditor Trustee had established the statutory elements under section 547(b) as to the two loan payments which the Creditor Trustee contends are voidable. See Bkr.Ct.Op. at 4, 10-11. This finding was affirmed by the district court. See Dist.Ct.Op. at 12-13 & n. 8. ABC argues, however, that Chase & Sanborn's loan payments were not "for or on account of an antecedent debt" under section 547(b)(2) because Chase & Sanborn's guarantee obligation to ABC was contingent upon Duque's default and had not "matured" at the time the payments were made.14 This contention is frivolous. It is established that "debt" is to be given a broad and expansive reading for purposes of the Bankruptcy Code, and that "when a creditor has a claim against a debtor--even if the claim is unliquidated, unfixed, or contingent --the debtor has incurred a debt to the creditor." In re Energy Cooperative, Inc., 832 F.2d 997, 1001 (7th Cir.1987) (emphasis added). Chase & Sanborn's payments on Duque's loan were obviously made in anticipatory satisfaction of its contingent obligation to ABC under the guarantee agreement; that the payments were clearly intended to help prevent Duque from defaulting and thereby forestall "maturation" of the guarantee obligation does not render them any less "for or on account of" that debt.

The bankruptcy court found that Chase & Sanborn's payments on Duque's loan obligation were nevertheless not voidable under 11 U.S.C.A. Sec. 547(c)(1), because Chase & Sanborn received contemporaneous "new value" in exchange for the payments, in the form of partial satisfaction of Chase & Sanborn's guarantee obligation.15 The bankruptcy court held, without discussion or analysis, that "[n]ew value includes credit toward an outstanding and nonavoidable account." Bkr.Ct.Op. at 4 (citing 11 U.S.C.A. Sec. 547(a)(2)). This holding is erroneous as a matter of law, and suggests a fundamental misconception of the nature and purpose of the Bankruptcy Code's prohibition on preferential pre-petition transfers. "New value" is defined as

money or money's worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation[.]

11 U.S.C.A. Sec. 547(a)(2) (West Supp.1990). "Credit toward an outstanding and nonavoidable account" does not fall within this definition. That a payment be "for or on account of an antecedent debt" is one of the necessary elements for voidability of a transfer under section 547. See 11 U.S.C.A. Sec. 547(b)(2). If "new value" included credit toward such debts, thus rendering such transfers categorically nonavoidable, section 547 would be rendered a tautological nullity. See, e.g., In re Air Conditioning, Inc. of Stuart, 845 F.2d 293, 298 (11th Cir.), cert. denied, --- U.S. ----, 109 S. Ct. 557, 102 L. Ed. 2d 584 (1988); Energy Cooperative, 832 F.2d at 1002-03.

The district court reached the same conclusion as the bankruptcy court on the basis of In re Dick Henley, Inc. (LaRose v. Crosby & Son Towing, Inc.), 38 B.R. 210 (Bkr.M.D.La.1984) ("LaRose "). See Dist.Ct.Op. at 13-14; see also Matter of Advanced Contractors (Cooley v. General Elevator Corp.), 44 B.R. 239 (Bkr.M.D.Fla.1984) ("Cooley ") (following LaRose ). LaRose and Cooley each involved debtor-contractors who made preferential pre-petition payments to subcontractors on debts arising from construction contracts. The subcontractors in each case had perfected liens on the properties of the third-party owners of the construction sites, and the owners in turn had unsecured rights of indemnification regarding such liens against the debtor-contractors. LaRose and Cooley found the debtor-contractors' payments to the subcontractors to be exchanged for "new value" in the form of the subcontractors' release of the liens against the owners and the consequent "constructive release" of the owners' rights of indemnification against the debtor-contractors. See LaRose, 38 B.R. at 213-14; Cooley, 44 B.R. at 241-42.

We find the analogy to LaRose rather weak.16 In any event, it is apparent that LaRose 's reasoning constitutes a circular and ill-founded evasion of the policy against preferential transfers. If the debtor-contractors in LaRose and Cooley had not made the payments to the subcontractors, the subcontractors would presumably have foreclosed their liens on the owners and the owners would then have asserted their unsecured rights of indemnification against the debtor-contractors. Thus, by making the payments, the debtor-contractors gained nothing more than release of a contingent obligation--an antecedent debt--owed to an unsecured creditor. For reasons discussed above, such a release cannot constitute "new value" under section 547. The present Fifth Circuit recognized the infirmity of LaRose in Matter of Fuel Oil Supply & Terminaling, Inc. (Gulf Oil Corp. v. Fuel Oil Supply & Terminaling, Inc.), 837 F.2d 224, 230 (5th Cir.1988) ("Gulf Oil "). Gulf Oil held that "the principle underlying Sec. 547(c)(1) was offended by the [LaRose ] court's holding because the released right of indemnity provided nothing of tangible value to the debtor's estate. Therefore, the estate was depleted by the debtor's payment to the detriment of the unsecured creditors." Id. The court noted that

[LaRose ] essentially held that any time a debtor makes a pre-bankruptcy transfer to a creditor whose debt is guaranteed by a third party, there is no preference because the release of the debtor from contingent liability to the guarantor would constitute new value. This holding vitiates the purpose of the preference section.

Id. at 230 n. 17. We agree fully with the Fifth Circuit's reasoning in Gulf Oil on this issue, and we therefore reject LaRose and Cooley.17

Finally, the district court held, and ABC argues, that Chase & Sanborn received "new value" for the loan payments in the form of certain rights of subrogation, reimbursement, indemnification, and contribution which Chase & Sanborn possessed under the guarantee agreement and which matured upon Chase & Sanborn's partial payment of Duque's debt.18 While such contingent rights may have value, however, see, e.g., Matter of Ollag Construction Equipment Corp., 578 F.2d 904, 908 (2d Cir.1978), they could not be said to constitute new value received in exchange for Chase & Sanborn's loan payments. Any rights existing under the guarantee agreement were part and parcel of that agreement from the outset. They came into existence as contingent rights at the same time as did the contingent obligation represented by the guarantee itself; thus, they simply defined the nature and extent of that obligation. Treating the maturation of such contingent rights as "new value" would disserve the policies underlying section 547, because a debtor's preferential payment of actual monetary value to a creditor under a guarantee agreement, in return for nothing more than the pre-existing right to assert a claim for reimbursement against the party whose debt was guaranteed,19 depletes the tangible assets of the estate to the detriment of the other creditors.20

For the foregoing reasons, we conclude that the March 3 and March 31, 1983 loan payments by Chase & Sanborn are voidable preferences under section 547.

The courts below found that even if any of the disputed transfers were avoidable, they were not recoverable from ABC because ABC was not "the initial transferee of such transfer or the entity for whose benefit such transfer was made." 11 U.S.C.A. Sec. 550(a)(1). They concluded that Duque, not ABC, was the "initial transferee" because of Duque's control over Chase & Sanborn's actions in transferring the payments to ABC. See Dist.Ct.Op. at 14-17.21 The district court's reasoning on the initial transferee issue constitutes a misapplication of the governing "control test" enunciated by this Court in In re Chase & Sanborn Corp. (Nordberg v. Societe Generale), 848 F.2d 1196 (11th Cir.1988) ("Societe Generale ").22

The term "control test" and the "general framework for analysis" adopted by Societe Generale are taken from this Court's opinion in In re Chase & Sanborn (Nordberg v. Sanchez), 813 F.2d 1177 (11th Cir.1987) ("Sanchez ").23 See Societe Generale, 848 F.2d at 1199. It is important to emphasize, however, that Sanchez dealt with an issue different from that addressed in Societe Generale. Sanchez applied its "control test" to analyze whether certain funds transferred by Chase & Sanborn to the defendant in that case were in fact "property of the debtor" under 11 U.S.C.A. Sec. 548(a), or were under the actual control of Duque. On the facts of Sanchez, involving a "two-day layover" of funds in a Chase & Sanborn account which had only recently been opened and was closed soon thereafter, this Court found that "Duque, not Chase & Sanborn, controlled the transfer at issue." Sanchez, 813 F.2d at 1182.

In this case, by contrast, both courts below either explicitly or implicitly found, and ABC does not contest on appeal, that Chase & Sanborn exercised sufficient control over the transferred funds at issue to satisfy the "property of the debtor" prerequisites of both sections 547(b) and 548(a). Thus, while Sanchez involved the degree of "control" over transferred funds exercised by the transferor, Societe Generale addressed the distinct issue of the transferee 's control over such funds. See Societe Generale, 848 F.2d at 1199 ("[T]he general approach outlined in [Sanchez ] applies regardless of whether a court is attempting to determine whether a debtor controlled the transferred funds it transferred to a defendant or a defendant gained control over the funds transferred to it.") (emphasis in original). Thus, the extent of Duque's control over Chase & Sanborn generally, and over Chase & Sanborn's actions in transferring the disputed funds to ABC in particular, is entirely irrelevant to the "initial transferee" issue. The relevant issue is ABC 's control over the funds, vis-a-vis Duque, Chase & Sanborn, or anyone else, when they arrived at ABC. See Societe Generale, 848 F.2d at 1200 (stating issue as "whether the banks actually controlled the funds or merely served as conduits, holding money that was in fact controlled by either the transferor or the real transferee") (emphasis added); see also In re Columbia Data Products, Inc., 892 F.2d 26, 28 (4th Cir.1989) ("a party cannot be an initial transferee if he is a mere conduit for the party who had a direct business relationship with the debtor"). We suggest that Societe Generale 's test might better be labeled a "conduit test" in order to distinguish it from the "control test" as applied in Sanchez.

where a bank receives money from a debtor to pay off a debt owed to the bank, courts have found that the bank gained control of the funds and have allowed recovery against the bank. When banks receive money for the sole purpose of depositing it into a customer's account, on the other hand, the bank never has actual control of the funds and is not a section 550 initial transferee.

Id. (citations omitted); see also Columbia Data, 892 F.2d at 28 ("When a creditor receives money from its debtor to pay a debt, the creditor is not a mere conduit."). Societe Generale relied in part on Judge Easterbrook's scholarly opinion for the Seventh Circuit in Bonded Financial Services, Inc. v. European American Bank, 838 F.2d 890 (7th Cir.1988), in which the court declined to find a bank an initial transferee where the bank deposited a check into a party's account and the party, ten days later, authorized the bank to debit the account to pay a pre-existing debt owed by the party to the bank. See Bonded, 838 F.2d at 893-94. Bonded held, however, that if the check had been specifically earmarked for immediate use in paying the party's debt to the bank, the bank would have been the initial transferee. Bonded, 838 F.2d at 892; see also Societe Generale, 848 F.2d at 1200 (citing Bonded on this point). Societe Generale held that if the one-day "paper overdraft"24 at issue in that case had

constituted a debt owed to [the bank] ... then the money wired to [the bank]--for the express purpose of paying off the overdraft--would actually have been sent to [the bank]. If [that were] the case, then [the bank] had actual control of the funds when it received the money from Chase & Sanborn, and [Creditor Trustee] Nordberg can recover the money from the bank.

Id. at 1200-01 (emphasis in original).

Applying these principles to the facts of this case, it is clear that ABC was the initial transferee of Chase & Sanborn's last two loan payments. The bankruptcy court found that the March 3, 1983 transfer was sent directly to ABC with specific instructions to apply the $400,000 to Duque's loan principal, and that ABC followed those instructions.25 Bkr.Ct.Op. at 10. The bankruptcy court found that the March 31, 1983 transfer was wired "from an account of [Chase & Sanborn] to Duque's account [at ABC] with directions that it be applied to Duque's $22 million note. The directions were followed." Bkr.Ct.Op. at 11.26 Thus, ABC exercised control over the funds immediately upon receiving them, and applied them to reduce a debt owed to ABC; neither Duque nor any other party exercised any control over the funds after they left Chase & Sanborn. There was no interregnum, as in Bonded, during which the funds sat in Duque's account subject to his use or control; indeed, the two transfers at issue did not pass even momentarily through Duque's account. See notes 25 & 26, supra. Substituting the names of the relevant parties in this case for the equivalent parties involved in Bonded, the Seventh Circuit in Bonded held:

If the note accompanying [Chase & Sanborn's] check had said: "use this check to reduce [Duque's] loan" instead of "deposit this check into [Duque's] account," Sec. 550(a)(1) would provide a ready answer. [ABC] would be the "initial transferee" and [Duque] would be the "entity for whose benefit [the] transfer was made."27 The [Creditor Trustee] could recover the [transfer] from [ABC], [Duque], or both, subject to the rule of Sec. 550(c) that there may be but one recovery.

Bonded, 838 F.2d at 892 (footnote added). This case is thus precisely analogous to the hypothetical envisioned by Bonded; just as in Societe Generale, the transfers at issue here were sent "for the express purpose of paying off" part of Duque's debt. See Societe Generale, 848 F.2d at 1200-01.28

For these reasons, we conclude that the March 3 and March 31, 1983 loan payments by Chase & Sanborn are both voidable and recoverable from ABC.

Regardless of the foregoing conclusions, ABC contends that the Creditor Trustee's recovery claims must be dismissed, and the judgments below affirmed, on the ground that Chase & Sanborn was not in fact insolvent during the relevant time period, as required by 11 U.S.C.A. Secs. 547(b)(3) and 548(a)(2)(B)(i). This contention lacks merit. The bankruptcy court's contrary factual conclusion, see Bkr.Ct.Op. at 2, is more than amply supported by the record and is therefore not clearly erroneous. ABC also contends that any recovery by the Creditor Trustee is equitably barred because of fraudulent conduct by Chase & Sanborn toward ABC, in concert with Duque. This contention also lacks merit. The Creditor Trustee represents the creditors of Chase & Sanborn, and his claims are brought for their benefit; those claims cannot be barred because of any pre-bankruptcy frauds committed by Chase & Sanborn. See In re Davis, 785 F.2d 926, 927 (11th Cir.1986).

For the foregoing reasons, we AFFIRM the judgment of the district court on the fraudulent conveyance issue, although for the reasons stated by the bankruptcy court and not those stated by the district court. See note 12, supra. As to the March 3 and March 31, 1983 loan payments, with regard to the voidable preference and initial transferee issues, we REVERSE and REMAND with instructions to REVERSE the judgment of the bankruptcy court on those issues and REMAND the case for further proceedings consistent with this opinion.