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Under the agreements, the partnerships were to purchase the
sheep by issuing promissory notes to Barnes Ranches. The notes
were then personally assumed by the partners of the partnership
under an assumption agreement signed by Hoyt. The promissory
notes that the sheep partnerships issued for the purchase of the
sheep did not represent bona fide recourse debt. The security
interests granted to Barnes Ranches by the partnerships to secure
payment on the partnership promissory notes were not valid.
Barnes Ranches never requested payment from the partnerships or
the individual partners on the promissory notes, and the
partnerships were not obligated to pay their promissory notes.
The individual partners of the partnerships were not personally
liable for the promissory notes to Barnes Ranches and never
directly paid Barnes Ranches on the notes. The assumption
agreements that Hoyt signed on behalf of individual partners with
respect to the partnerships’ promissory notes were not legally
enforceable against the individual partners. Consequently, the
promissory notes were not bona fide recourse debt, were not valid
indebtedness, and were illusory, having no practical economic
effect.
The purchase price of the flock purportedly sold to each
partnership exceeded the value of each partnership’s flock, and
many of the sheep purportedly sold did not exist. The bills of
sale that Barnes Ranches issued the sheep partnerships listed
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Last modified: November 10, 2007