Michael Sark operated a logging business as a sole proprietorship. To acquire equipment for the business, Sark and his wife, Paula, borrowed funds from Quality Car & Truck Leasing, Inc. When his business encountered financial difficulties, Sark became unable to pay his creditors, including Quality. The Sarks sold their house (valued at $ 203,500) to their son, Michael, Jr., for one dollar but continued to live in it. Three months later, Quality obtained a judgment in an Ohio state court against the Sarks for $ 150,481.85 and then filed a claim to set aside the transfer of the house to Michael, Jr., as a fraudulent conveyance. From a decision in Quality’s favor, the Sarks appealed, arguing that they did not intend to defraud Quality and that they were not actually Quality’s debtors.

THE Economic DIMENSION What might the Sarks have done to avoid this dispute, as well as the loss of their home and their apparently declining business?

THE Ethical DIMENSION

Why did the Sarks take the unethical step of fraudulently conveying their home to their son? What should they have done instead?