tax opinion, and the lease agreement when making his investment
in Encore.
The Encore lease agreement contains a 7-year lease term and
provides that petitioner did not have an option to purchase the
master recording or to renew the lease agreement at the end of
the lease term. Encore uses a standard master recording lease
agreement which it included in all its promotional materials.
Petitioner did not modify any of the terms of the lease agreement
which he signed. From Encore’s product catalogue, petitioner
chose the master recording “Unity” by the Kingcannon family.
Before signing the lease agreement, petitioner did not listen to
the master recording, was not acquainted with the artists who
recorded the master, and had not previously listened to any of
the artists’ recordings. At no time did petitioner obtain an
independent written appraisal of the subject master recording,
nor did he obtain an independent written opinion with respect to
the profitability of entering into the Encore lease agreement.
Encore did provide petitioner with a 1-1/2-page written appraisal
dated June 24, 1985. The appraisal lists the subject master’s
value at $500,000.
Encore purchased the subject master from the Kingcannon
family through the artists’ agent, Gabriel Records. The purchase
price for the subject master was $496,000. Encore issued a check
to Gabriel Records on December 31, 1984, in the amount of $5,208
and executed a promissory note for the balance of $490,792. The
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