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On December 19, 1986, the bank lent petitioner $1,570,000
(loan No. 10398/111752). The bank applied $102,155 to pay off
loan No. 10398/105886, the balance owed on the unsecured line of
credit ($97,779 principal and $4,376 interest). The bank applied
$168,978 to pay off loan No. 10626/68956, an outstanding loan to
Out of Bounds, Inc. The bank disbursed $30,000 to petitioner,
and the bank charged petitioner $681 in fees. Finally,
$1,154,545 was applied to pay off loan No. 10398/102971
($1,107,123 for principal and $47,422 for interest). The
remaining available balance of the note was to be used as a
reserve for future interest accruals.
On September 8, 1987, the bank renewed loan No. 10398/111752
in the amount of $1,750,000. The increase of $180,000 was desig-
nated to satisfy accrued interest.
On August 15, 1988, the bank renewed loan No. 10398/111752,
in the amount of $2 million with a maturity date of August 15,
1989. Again, the increase in the amount of the note represents
accrued interest on the note. The note was secured by 160,000
shares of PMI stock.
By August 23, 1989, the bank began demanding payment of the
$2 million note of August 15, 1988. As of March 22, 1990, the
amount due on the note was $2,204,210, inclusive of principal and
interest. On March 28, 1990, petitioner and the bank entered
into a settlement agreement. Pursuant to the agreement, peti-
tioner agreed to pay the bank $1,800,000 in full satisfaction of
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