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John requested, whenever he requested it. In exchange, John
agreed to pay Jack Rice's mortgage and the past due property
taxes. He also forgave a $9,340 debt of petitioners. An
addendum to the Exchange Agreement, which is inconsistent with
the Exchange Agreement itself, provided that petitioners were to
continue indefinitely to be the vested owners, to collect the
rent, and to take the tax benefits of Chancery Court.
Although the addendum gave the rents to petitioners, John
had already promised the rents to Larry in the Westlake
Agreement. The agreement gave Larry possession of Chancery Court
as of September 1, 1987. As part of his duties, he was to
collect the rents and from them recoup his investment in
Westlake. Notwithstanding the addendum, which was fabricated by
John, petitioners had no interest in the rents after August 25,
1987. Petitioners reported no rent from Chancery Court on their
1988 income tax return.
Not only was the "Exchange Agreement" a sale of Chancery
Court to John, but he also subsequently treated it as his own,
arranging for its title to be recorded under another's name as
collateral, and afterward, having that title holder deed it
directly back to him rather than to petitioners. This deeding
and redeeding took place as the Westlake deal evolved.
After John arranged for Larry's security and successfully
evaded Jack Rice's acceleration clause, he took other partners
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