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and funds they had previously advanced to the corporation were in
peril.
Second, petitioners have not shown that HPD could have obtained
financing from an outside lender. That HPD had to look to
petitioners in order to survive is evidence that the advances were
capital contributions and not loans. HPD’s financial situation grew
worse, and yet petitioners continued to advance funds. HPD did not
seek funds elsewhere. The only apparent means of obtaining
financing for HPD was that utilized herein. We conclude that an
independent commercial lender would not have lent funds to HPD under
these circumstances.
Third, the documentary evidence regarding the purported loans
is sparse. Other than the $310,000 promissory note7 referenced in
the October 15, 1987, board of directors meeting minutes, HPD did
not execute any notes, or issue to petitioners any negotiable
instruments, evidencing an obligation to repay amounts petitioners
advanced to the corporation. The absence of notes or other
7 Petitioner testified that in addition to the $310,000
note in evidence, all other advances petitioners made to HPD were
memorialized in promissory notes; however, petitioners failed to
offer them into evidence. In such situations, we have noted:
The rule is well established that the failure of a
party to introduce evidence within his possession and
which, if true, would be favorable to him, gives rise
to the presumption that if produced it would be
unfavorable. [Citations omitted.] This is especially
true where, as here, the party failing to produce the
evidence has the burden of proof * * *
Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165
(1946), affd. 162 F.2d 513 (10th Cir. 1947).
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