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By a letter dated October 22, 1979, Riviera informed
petitioners that:
Due to a downturn in the economy, Riviera Boats of
Arizona, Inc. is unable at this time to repay the loans
evidenced by the promissory notes referred to in your
letter of October 9, 1979.
Although Riviera Boats fully intended to repay the
amounts borrowed, an unfortunate series of events in
the last months now makes it impossible to do so at
this time. * * *
Petitioner husband signed this letter as president of Riviera.
By a letter dated October 24, 1979, petitioners informed
Riviera that "Under the circumstances, we will have to assert our
rights to take possession of the collateral that secured
repayment of our loans to Riviera Boats." In a subsequent letter
dated October 31, 1979, petitioners informed Riviera:
We have assessed the value of the collateral and have
decided to retain the collateral in satisfaction of the
obligations owed by Riviera Boats of Arizona, Inc. to
us. This letter shall constitute written notice of our
proposal to retain the collateral in satisfaction of
the debts owed us by Riviera Boats.
Petitioners did not introduce evidence of the specific
property they received from Riviera in the October 1979
transaction. Petitioner husband testified generally that the
collateral consisted of "[boat] molds, the inventory and all the
equipment." Petitioner husband believed the value of the boat
molds was equal to the value of the notes to Riviera. He also
testified that the replacement cost of the molds was "probably
two to $300,000 if you were buying what somebody else made.
Because we made them, our labor was cheap. So basically all we
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