Case+Problem+1-1 - CASE PROBLEM #1 In 1984, our friends...

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CASE PROBLEM #1 In 1984, our friends Lloyd and Kathy contacted me and my wife Carolyn about investing in a business venture being assembled by their friends Jo and Glen. Jo and Glen were residents of Texas and Illinois, respectively, and were soliciting investors to put up a $100,000 down payment on a mobile home park in San Marcos that they would hold for awhile and then sell; at that time, real estate prices were rising rapidly, so this seemed a sound investment. As described to us, the plan was for Jo and Glen to put up $40,000 and get the other $60,000 from investors in blocks of $5,000; each block would give the investor 5% of the rental and sale profits. The rest of the purchase price would be financed by promissory notes. The investors were to be limited partners. Unlike a general partnership, in which all partners are jointly and severally liable for all debts accrued by the partnership, limited partners have no liability beyond the amount of their investment. Lloyd and Kathy put up $25,000 and Carolyn and I put up $15,000; four other investors put up $5,000 each. On April 24, 1984, Carolyn, I, Lloyd and Kathy met with Glen and Jo to sign the papers. We did not know the other investors. Things seemed fine until November, 1988, when I came home after refereeing a Houston-Rice football game to find a registered demand letter sent by an attorney representing three people I never heard of. They had bought promissory notes on the mobile home park property and, because Glen and Jo had not paid on the notes for months, were looking to the other investors for payment. Not knowing what was going on, I contacted John McGee, on our BLAW faculty, and we went to the Hays County courthouse (no computer records then) where we learned that Glen and Jo had actually bought the property in 1983, financing it through a small down payment and three promissory notes; pocketed the $60,000 alleged down payment from us investors; and then sold the promissory notes to the three men whose attorney was now contacting us. Jo was still in Austin, but Glen had disappeared. We also found that the paperwork needed to create a limited partnership had never been filed with the Texas Secretary of State, so we eight investors were general partners. The other four investors were a high school teacher, a bead maker/club musician, and a Texas State MBA student, all of whom pleaded poverty, and a construction company owner who said he would file for bankruptcy
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This note was uploaded on 09/30/2011 for the course PHYSICS 1410 taught by Professor Falco during the Spring '08 term at Texas State.

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Case+Problem+1-1 - CASE PROBLEM #1 In 1984, our friends...

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