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On August 22, 1978, by special warranty deed, the City of
Grand Forks conveyed lot 15 in block 32 in Grand Forks, North
Dakota, to petitioner and Mr. Moosbrugger, doing business as Mack
& Moosbrugger, a partnership (the Mack & Moosbrugger
partnership).
On August 29, 1978, the Mack & Moosbrugger partnership
borrowed the principal amount of $125,000 from First National
Bank, which was secured by granting a mortgage on lots 14 and 15
of the Third Street property. The mortgage was executed by
petitioner and Mr. Moosbrugger as partners of the Mack &
Moosbrugger partnership. This mortgage was satisfied on
December 31, 1987.
On August 29, 1978, when the Mack & Moosbrugger partnership
borrowed the $125,000 and granted First National Bank a mortgage
on lot 14 of the Third Street property, the property was actually
owned by the corporation. In this mortgage, petitioner and Mr.
Moosbrugger represented that the Mack & Moosbrugger partnership
was lawfully seized of the real estate and had the right to
mortgage the property.
As president and secretary of the corporation, respectively,
petitioner and Mr. Moosbrugger conveyed the Third Street property
to the Mack & Moosbrugger partnership on September 29, 1978. The
deed was recorded on November 1, 1978.
On December 5, 1980, the Mack & Moosbrugger partnership
executed a mortgage in favor of First National Bank on the Third
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