Mr. and Mrs. Smith own a corporation that has been very lucrative for them. Recently, they went to their banker and arranged for a large loan to expand their business. They provided the banker some plans and drawings and a copy of their most recent business plan. They also showed the banker pictures of the building that was already under construction, asking the bank to give them all of the loan proceeds so that they could pay the contractor for the work already done. The banker gives them the money, but instead of having the corporation pay the contractor, the Smiths paid the money to themselves. Soon after, the corporation files for bankruptcy.

Can the bank recover their loan proceeds? If so, under what theory could the bank recover and what would the bank need to show to recover?