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B. Seattle Pump Company, Inc.
1. Sale to Petitioners
Petitioner’s brother, Thomas Malone, is an attorney who
represented Helene Voier (Voier), the owner of Seattle Pump. She
wanted to sell her Seattle Pump stock. Petitioner studied
Seattle Pump’s books and records. He concluded that it had been
profitable and that he could earn wages of $70,000 per year from
it.
On December 19, 1986, petitioners bought all of the Seattle
Pump stock from Voier. Petitioners agreed to pay $362,000 to
Voier as follows: (a) $50,000 by January 1, 1987; (b) $50,000 by
January 2, 1987; and (c) $262,000 by January 1, 1989, with 9
percent interest. Seattle Pump's records of accounts receivable
and payable were not very accurate. Petitioners agreed to
increase the purchase price of Voier’s stock later based on the
accounts receivable and payable.
Voier agreed to finance the sale if petitioners gave
security other than Seattle Pump stock. On December 19, 1986,
petitioners signed a $312,000 promissory note payable to Voier.
The note required petitioners to pay $50,000 by January 2, 1987,
and to make monthly payments of $2,500. The balance was payable
by January 1, 1989, with interest at 9 percent. On December 19,
1986, petitioners borrowed $50,000 from Seattle Pump’s cash
reserves to make a downpayment to Voier.
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