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the costs of completion, but UPE did not have sufficient capital
to finance the initial costs of labor and equipment.
Under Stewart’s direction, petitioner requested and received
three separate loans from Grocers and, in turn, petitioner
advanced the proceeds to UPE. Grocers made each of its loans to
petitioner with the knowledge that UPE would receive the
proceeds. The loans were structured this way because of Grocers’
concerns about collateral and UPE’s ongoing ability to service
the indebtedness. Petitioner did not attempt to obtain any of
its loans from a source other than Grocers. In addition to the
advances from petitioner, UPE obtained its own separate loan from
Grocers. UPE did not attempt to obtain its loan from any source
other than Grocers.
On March 7, 1990, the first loan, in the amount of $250,000,
was extended from Grocers to petitioner and was secured by
petitioner’s inventory, cash, checks, and receivables. The loan
was designated for UPE’s use as working capital. The proceeds,
in turn, were advanced to UPE without promissory notes from UPE
to petitioner. On August 30, 1990, UPE paid off the balance of
the $250,000 loan from Grocers.
Stewart was optimistic about UPE’s future, and he believed
that the Formosa job would be a quick fix to UPE’s cashflow
problems. UPE’s recurring losses and related problems caused
Vernor and Busch to disagree with Stewart, and they were not
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