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1985. In this opinion, we refer to these promissory notes
as investor notes or as capital contribution notes.
As security for the payment of the investor notes,
each investor was required to execute a security agreement
which gave the partnership a security interest in his or
her partnership interest. The partnership’s security
interest in each unit of limited partnership interest was
recorded by the filing of a Uniform Commercial Code
financing statement that was also executed by the investor.
The sale of units of limited partnership interest
in Dakotah Hills was preceded by the circulation of a
confidential private offering memorandum dated August 17,
1984 (private offering memorandum). The private offering
memorandum states that the partnership intended to use the
investor notes as collateral for a loan, the proceeds of
which would be used to acquire partnership property.
The private offering memorandum describes the intended use
of the investors’ notes, in part, as follows:
Leveraging. Immediately after the formation
of the partnership, the partnership intends
to obtain a loan from a bank, savings and loan
association and/or other institutional lender
in order to obtain the necessary funds with
which to purchase the partnership property.
The General Partners, based upon their past
financing experiences, believe that they will
be in a position to use the partnership property
and the promissory notes, to be executed by all
the Limited Partners, as collateral for a loan.
Also in accordance with their prior financing
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