Herbert C. Elliot - Page 4

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          tracts of his land to secure EPC's obligation under the Loan.               
          Petitioner's Note contained a legend that stated:                           
               This note is secured by a Deed of Trust of even date,                  
               and this note and Deed of Trust are given to secure the                
               makers obligation under a note dated August 12, 1983,                  
               given by makers to Kansas American Bank for the benefit                
               of Herbert Elliott, a/ka Herbert E. Elliott, a/k/a                     
               Herbert C. Elliott; together with and including any                    
               other obligations of the Makers to Kansas American Bank                
               whether now existing or originating hereafter and this                 
               note does not create an additional indebtedness of its                 
               makers to said Bank.[1]                                                
          EPC used $317,051 of the $500,000 in Loan proceeds to pay off a             
          debt owed to the Bank, and EPC used the rest of the proceeds for            
          working capital.  Petitioner expected EPC's business to prosper             
          as a result of the Loan, and he expected that the value of his              
          EPC stock would increase.  Among other things, EPC's receipt of             
          the Loan proceeds allowed it to secure larger jobs.                         
               The Loan went into default sometime in 1984.  Before then,             
          EPC had made all payments on the Loan directly to the Bank.  On             
          March 29, 1985, when the balance of the Loan was approximately              
          $481,467, the Bank assigned the Loan (including the related                 
          security and guaranties) to the SBA.2  The SBA foreclosed on the            
          mortgage of petitioner in which it held a security interest, and,           
          in October 1991, the SBA accepted an offer by petitioner to                 

          1 Petitioner's Note does not define the term "makers" in                    
          either the small or capital case.                                           
          2 On Mar. 12, 1985, EPC owed $478,380 on the Loan (principal                
          of $447,910 and interest of $30,470), and interest continued to             
          accrue at 13 percent per annum.  We do not find that any payments           
          were made on the Loan between Mar. 12 and Mar. 29, 1985.                    




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