7
noted infra). A principal payment of $338,950.86 was due in the
first year, and principal payments of $445,711.80 were due in
each of years 2 through 5. No evidence shows the interest due on
the unpaid principal balance.
Micro-Bio never completed the purchase. Micro-Bio preferred
to lease the chlor-alkali system rather than purchase it. Murphy
saw this as an opportunity, and he formed Lone Star, a general
partnership, to purchase the chlor-alkali system from Eltech and
then lease the system to Electro Systems (Electro), a subsidiary
of Micro-Bio. Sands, Heller, Murphy, and two other individuals
not involved in these cases, Miller and Wiener, were partners in
Lone Star. Murphy managed Lone Star, and Lone Star intended to
profit from the venture. Each partner's distributive share of
income, gain, loss, deduction, or credit was made in accordance
with the partner's interest in the partnership.
On September 20, 1983, Micro-Bio and Lone Star entered into
an agreement (Micro-Bio/Lone Star agreement) whereby Micro-Bio
sold to Lone Star the contract rights to acquire the chlor-alkali
system from Eltech pursuant to the September 1983 agreement.
Lone Star paid Micro-Bio $500,000 for Micro-Bio's contract
rights, and Lone Star assumed Micro-Bio's obligations to Eltech.
The Micro-Bio/Lone Star agreement also provided that Micro-
Bio would lease the chlor-alkali system from Lone Star for 5
years (Micro-Bio/Lone Star lease agreement). Payments under the
Micro-Bio/Lone Star lease agreement consisted of $338,950.86 for
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