Professor Jamar Sales Exam Fall 1989 pl Problem | 60 minutes Betty Buyer called Sam Seller and ordered a truckload of avocado-colored ‘Maymark washing machines. One week later, a small, fully loaded CrossCity (a common carrier) truck carrying 20 washing machines from Sam Seller arrived at Betty Buyer's ‘warchouse. In the past three years when Betty had ordered a truckload she had received 24 machines (they were delivered on a larger truck). In the appliance industry a “truckload” ‘has no standard meaning. ‘Sam Seller always shipped on credit with payment to be made in 30 days. The invoice for each shipment always was sent a few days after delivery. The invoice always included the costs of shipping. Sam had a contract with CrossCity under which he was billed monthly for all deliveries it made for him. Betty Buyer always paid the invoices Within 45 days, and normally within 30 days. There were no written agreements between ‘Beny and Sam conceming shipping. ‘Two of the boxes in which the machines were shipped (one machine per box) were obviously tom and dented. (Later investigation revealed that the two boxes were damaged when they fell off of CrossCity’s truck when it had an accident while traveling to Betty Buyer’s warehouse.) Betty Buyer's warehouse staff did not notice the condition of the boxes. They were very busy at the time with other trucks and had the CrossCity driver unload his own truck. Three weeks later, without having opened the boxes, Betty Buyer entered into a contract to seil 24 avocado-colored washing machines to Alice’s Apartments, Inc. The only washing machines Betty Buyer had in stock were those delivered three weeks before from Sam Seller. Betty’s inventory listed 24 avocado-colored Maymark washing machines, when in fact she only had 20. Betty Buyer delivered the 20 machines to Alice on Betty's own truck. ‘When Alice unpacked the washing machines to install in the laundromat which she ‘was building to serve her apartment complex which was nearing full occupancy, she discovered that they were of various colors, and only 12 were avocado-colored. Furthermore, two of the machines (not the avocado-colored ones) were dented and scratched, but otherwise were in proper working order. Immediately after discovering the problem, Alice called Bewy and said, “I ordered 24 machines, and only got 20. I wanted all one-color, but now I have a rainbow in here. ‘And to top it all off, two are dented and scratched, What do you expect me to do with all these Maymarks? Ihave to get my business up and running this week!” Betty said, “I'l get back to you.” ‘A. Betty now calls you, her attorney, and asks what are her legal position with respect to Sam Seller. Please advise her. Explain how you reached your conclusions. B. She also wants some advice on what to tell Alice when she calls her back. Explain her legal status to her with respect to Alice and advise her on what to tell Alice and what to do next.Professor Jamar Sales Exam Fall 1989 p.2 Problem2 60 Minutes Warren Warrant makes calculators in Taiwan. He sells them worldwide, but mostly in the United States. The WW Scientific Calculator is an exact copy in every way of a calculator made by Louisiana Logic. Louisiana Logic has the exclusive rights to the logic circuits and programming used in the calculator and has not licensed the use of the rights to anyone. In anticipation of the annual Christmas boom on calculator sales, Pam Purchaser of Tech Town has ordered 1000 of the WW Scientific Calculators which sell for $20.00 each and 400 of the same type of calculator from Louisiana Logie (some customers prefer name-brands) which sell for $25.00 each. Since WW stole the technology from Louisiana Logic, the calculators are identical in every way. The cost to Tech Town of WW plato $8.00 cach including sipping, ‘The cost to Tech Town of LL calculators is $15.00 including shippin; In the contract between Warren Warrant and Tech Town, the following term sppzre inte fewag seme mie of te beck of te pied, form |. The exclusive warranty is that the| j || products are warranted to be free from defects for 30 days after receipt by| ||the Dealer. If the calculator is defective, the only remedy is for the Dealer to| i receive a credit ageinst future orders from WW. ‘The other paragraphs were numbered, were of the same type size and typeface, but were not outlined in a box. The contract provided no other remedy and had no other clause relating to remedies. HOW calculators artived on October 25, Payment was then made through ‘Tech Town sold 200 of them by November 24. Between Gusober 31 and Novenbes 24 10 of the 200 WW were because they did not work reliably. ‘would work fine , but occasionally, when the They user pushed the buttons or keys to enter numbers or functions. nothing would happen. Porthermore, sometimes the calculators just shut themselves off for no apparent resson. (This wos, needles 0 say, abit amoying when doing a large numberof calculations as balancing a checkbook or taking an engineering exam.) Tech Town replaced them, free a charge, ith Louana Logiceaculao wich Tech Town had in stock The caters ‘were not interested in getting WW calculators as replacements. (On December 1, Lousiana Logic obtained on injunction againat Tech Town seing any WW calculators. {Ta injunetion was propery Caray im infringing upon protected tellectual rights, ‘an addition: cuialRors were sold the tal sld by Decatber 1 wes 300 The remaining 700 were removed from the shelves. Tech Town then purchased 1000 more Louisiana Logic ‘Scientific Calculators to meet the anticipated demand.Professor Jamar Sales Exam Fall 1989 p.3 In the second week in December, 40 WW calculators were: calculators were returned with the same problems. All were replaced by Tech Town with Louisiana Logic calculators free of charge. No Louisiana Logic calculators have failed. (The: failure rate of Louisiana Logic scientific calculators and for scientific calculators manufactured by others which reach consumers is less than 1 in 1000.) On February 2, Pam Purchaser of Tech Town comes to you for advice. What are Tech Town’s rights, including the amount of damages to which Tech Town would be entiied against WW, if any? Explain your analysis.Professor Jamar Sales Exam Fall 1989 p.4 Problem 3 30 minutes ‘An enterprising Idaho potato farmer had a bumper crop. He needed a new market, So he invented a new beer-like alcoholic beverage which he dubbed “Spud Lite.” He noticed that the beverage had a distinct greenish tinge to it, so he thought he would do his initial marketing of it around St. Patrick’s Day. O'Brien's pub in Seattle ordered 20 kegs of “Spud Lite” to be delivered on March 13 with payment to be made by March 19. The ‘kegs were duly delivered. On March 20, the Idaho farmer, Dutch Hogen, called O'Brien's number to inquire about payment. He received a recorded message that the number was disconnected. Dutch called around and discovered that O’Brien’s had not been paying bills for a month and all regular suppliers had been providing goods only on a cash basis. Dutch drove to Seattle that night. The next day he went to O'Brien's and saw that it was closed and boarded up. He could see into the storage area and saw his 20 kegs. He did not know whether they were full or empty. Each filled keg sells for $40.00 plus a $10.00 deposit for the keg. Dutch ships the kegs with the understanding that the empty kegs will be returned to him. The remainder of that day, March 21, he attempted to find Dutch, but could not. ‘That night Dutch stayed in the Cheapo Sleepo Motel. The next day, March 22, he hired Sally Sleuth, a private investigator. At 4:30 pm she reported to Dutch that O’Brien hhad taken al of his (C'Brien's) money and left the country for Singapore on March 18. ‘At 4:55 pm on that same day, March 22, Dutch enters your office and asks you ‘what his options are and what course of action you recommend he pursue. Tell him and explain why you recommend what you recommend.Sales Exam Grading Sheet Prof. Jamar Fall 1989 UofB Q.1A Washing Machines: Buyer's Rights with respect to Seller: Acceptance, Rejection, Revocation Risk of Loss (70 pts.) 1. Statute of Limitations (5 pts.) invoice as writing indefiniteness as to quantity course of dealing invoice completed performance 2. Risk of Loss (15 pts.) Initial risk on Buyer under shipment contract 2-509(1)(a) Shipment contract No contract term with Beuy regarding shipment Sam had contract with Cross City for shipment Betty paid for shipping (does not change shipment contract into destination, contract) Casualty loss occurred during shipment-fell off of truck enroute Breach to shift risk back to seller: 2-601; 2-510 shipment of 20 instead of 24 (course of dealing to set amount) ordered all avocado-colored and received variety of colors Effect of acceptance on damage occurring before acceptance while risk on seller 2- Risk still on seller, but buyer must act to preserve rights under 2-607 3. Acceptance, Rejection, Inspection (30 pts.) Acceptance by Buyer Received goods Failed to reject after time to inspect Exercised domumon: sold and delivered to another (Note Buyer has not signified to the seller that Buyer will take them 2- #06(1)@) InspectionSales Exam Grading Key Prof. Jamar Fall 1989 Uot B p. 2 Reasonable opportunity, time obvious damage to boxes in warehouse for three weeks shipped by own staff, own truck to Alice but in prior dealing Sam always conformed (maybe) Rejection Nota perfect tender nonconforming color nonconforming quantity (course of dealing) But waiver of right by untimely rejection after reasonable opportunity to inspect Act inconsistent with seller’s rights Revocation (15 pts.) Substantial impairment not clear from facts as to color and quantity damaged goods Effect of failure to discover non-conformity not induced by seller not difficult unless boxes mismarked - if boxes mismarked, then maybe revoke on grounds of wrong color Effect of delivery to another General discussiowadviee (10 pls.) For quality of discussion. Depth of understanding ‘Clarity uf organization Discussion of miscellaneous and side points, e.g., warranty, remedies, cure Q. IB Advice to Betry regarding Alice: Rejection; Practical Advice (30 pts.) Rejection and remedies generally (15 pts.) Alice told Betty of insufficient quantity and wrong colors and two dented and scratched ones. Done within reasonable time and seller told seasonably. May reject a few (commercial units of one cach) But does express language mean “take them away?” or does it merely give a right to remedy by giving the 2-607 notice of problems?Sales Exam Grading Key Prof. Jamar Fall 1989 Uof Bp. 3 Right to cure 2. Practical advice: (15 pts.) Call suppliers to determine availability of other machines to replace the non- conforming ones. Sec if Alice will accept the wrong-colored ones. See if she will accept the damaged ones with a substantial discount See how much time she will give you to obtain proper/additional machines. ‘Check with Sam to find out what he will do for her. Pick up the non-conforming. Extend time for payment. Do not suggest suit, etSales Exam Grading Key Prof. Jamar Fall 1989 Uof B p. 4 Problem 2 Calculators: Warranty; Damages (100 pts.) 1. Warranty of Title 2-312 (15 pts.) cannot be by general disclaimer _2-312(2) not an implied warranty under UCC scheme clearly violated by infringement resulting in injunction; stolen technology 2. Warranty of Merchantability 2-314 (15 pts.) Breach not fit for ordinary purposes _2-314(1)(c) pass without objection in the trace under the contract description 2-312(1)(a) Disclaimer must be conspicuous and mention merchantability 2-316(2) in backside of preprinted form same typesize and style butin a box 3. Express Warranty 2-313 (15 pts.) Not free from defects did not work properly Limited to 30 days after receipt by dealer duty to inspect unconscionable no recovery for calculators after Nov. 24 based upon express warranty 4. Fraud (5 pts.) Maybe, but code may provide exclusive remedy for breach of warranty of title 5. Remedy limitation 2-719 (25 pts.) Validity provides a remedy, but may fail of essential purpose may be unconscionable to lock into future orders, especially given injunction / Limitation is only with respect to defectiveness warranty, not for merchantability (arguable) and not with respect to warranty of tile 6. Revocation of Acceptance (10 pts.) Non-conformity (don't work) substantially impairs (cannot be resold) Discovery difficult (testing not customary or effective)Sales Exam Grading Key Prof. Jamar Fall 1989 Uot B p. 3 8 9. Reasonable time ? January? All or just remaining 700 or 700 + returned 150? Damages (25 pts.) Cover for revocation of acceptance.(7 pts.) 2-712 Cover $15 (LL. cost) - $8 (TT cost) = $7 perunit ($7000) plus $8 per unit because already paid for useless goods: $15,000 $25(LL price) - $20(TT price) = $Sperunit ($5000) $12(TT markup) - $10 (LL markup) = $2perunit (82000) 2-714 Warranty Damages (8 pts.) $8 (value as warranted) - $0 (value as received) for 1000 units = $8,000.00 (or maybe for 850 units (but note: all users could return them)) 2-714 Acwal loss: (10 pts.) Sold Units 300 units sold @ $20; units cost TT $8 + $15; so out-of-pocket loss of $23- $20 = $3 per unit and lost profit of $12 ($20-$8); so damages of $15 per unit for 300 sold so lost $4500 on sold units. Unsold Units Remaining 700 units will be sold but for $10 profit rather than $12 profit. Plus cost of useless goods = $8 per unit tor $10 per unit for additional $7000 for unsold and unsalable calculators. Total actual loss is $11,500.00 including lost profits Profit if warranted less profit actually made: If 1000 WW as warranted: makes $12,000 Because goods not as warranted: Income = 20 * 300 = $6000 plus 25 * 700 = $17,500 for $23,500. Costs = 8 * 1000 = $8000 plus $15,000 for $23,000. So total income less total cost = $23,500 - $23,000 = $500. profit as warranted, $12,000, less profit made, $500, eyuals $11,500. General Discussion (10 pts.) UN Convention on Contracts fur International Sales of Goods (instructed in class not to consider)Sales Exam Grading Key Prof. Jamar Fall 1989 Uof B p. 6 Q3 “Spud Lite" Reclamation within 10 days (50 pts.) 1. 2-702(2) Credit sale Buyer insolvent when buyer teveived the goods May not have been insolvent, just not paying bills and skipping out Insolvency definition under UCC Demand for goods made within 10 days after buyer's receipt Make demand by mail to last known address; post at building: other Go to court immediately to attach Self help, possible breach of peace problem Election to reclaim means no other remedies 2. Fraud in inducement action possible 3. Practical considerations: Kegs: not sold, just bailment (possibly lease), title remains in Dutch so right to get them back even if sues for damages otherwise. General creditors have no Tights to kegs superior to his. Kegs cost more than $10.00. Cost more than total damages of $1000. So getting kegs back is most important. If kegs full, then maybe perishable or not valuable; but may be able to resell Difficulty of collecting, service, etc. Sale was of Spud Lite which was the goods: reclamation would be as to those ‘goods, not kegs Primary goal is to get kegs hack. Most certain way is to get 2-702 as to everything, 4. Action for the price 2-709 of goods accepted plus incidental damages 5, 2-706; resale: cannot resell without possession, can only get possession (of beer) ‘through 2-702Professor Jamar ‘Commercial Transactions Exam Spring 1990p. 1 INSTRUCTIONS Abilities/competencies being tested: &. Your knowiedge of the law; b. Your ability to spot issues; ©. Your ability to analyze problems and to organize your responses (especially in problem 1); 4. Your ability to apply law to the facts; and e. Your ability to provide practical legal advice. General informational instructions: a, This exam consists of 5 pages, including this one (but excluding the school’s cover sheet) b. The time allowed for this exam is three (3) hours. ¢. Outside material permitted: course book, statute book, outlines, ueatises, hombooks, notes, any ‘There are three problems. The first is worth 120 points and you should] allot 90 minutes for it, The second is worth 80 points and you should allot 60 minutes to it. The third is worth 40 points and you should allot 30| minutes to it. You may want to adjust these times. I think the sccond and| lems are substantially easier than the first. Apply the UCC without regard to state law variations. Answers without explanations are valueless, No credit will be given for irrelevant discussions. (No points will be deducted cither.) 4. Thorough discussion of the issues is more important than the correctness of the answer. Nonetheless, do reach a conclusion on each issue. ¢. Ifyou fee! that insufficient factual information has been supplied, identify the additional facts you would need to have and explain why they are material. If necessary to answer the question, make reasonable assumptions of omitted facts. f. Read each question carefully. Pay particular attention to the relationships of the parties. You may find a diagram helpful in preparing your answer. Normally (but not necessarily always) dates are material. &. Citation’ to code sections is neither expected nor required. If you do cite to specific code sections, be careful not to use those citations as a substitute for accurate statements of the relevant law and full legal analysis. Knowing which code section applies is important. Knowing what it means and how to apply itis more important. h. Spelling and grammar count. If you have correct spelling and grammar, no points will be deducted. If there are significant spelling and grammatical errors, points may well be deducted. Do not abbreviate (except PMSI). i. Write legibly. Mlegible writing may result in my mistaking your meaning. oopProfessor Jamar Commercial Transactions Exam ‘Spring 1990 Uof Bp.2 PROBLEM 1. (90 minutes) (120 points) Les Det signed a valid security agreement with Cathy Credit on June 1, 1987. The security agreement covered “all equipment now owned or hereafter acquired and the proceeds therefrom.” A financing statement containing the same description was filed on June 7, 1987. On July 15, 1987, Det borrowed $250,000 from Cathy under their agreement, The agreement required Cathy Credit’s agreement for any transfer of the collateral. On August 1, 1987, Det leased some industrial space from Lance Landlord. On August 5, 1987, Det entered into a business deal with Hilary Tek under which Hilary Hi" for short) provided equipment and a license to manufacture a product Hilary had invented. Det paid Hilary a monthly fee ($8000) for the equipment, know-how, and the license. Det did not have an option to purchase either the equipment or the rights to the invention. Certain documents were signed to prohibit disclosure of information concerning the equipment and other trade secrets. The value of the equipment was $100,000. Nothing was filed anywhere regarding the transaction between Tek and Det. Hilary Tek also agreed to sell raw materials necessary to make the product. The raw material sales were for cash or on open credit (net 30 days). On August 30, 1987, Det purchased additional supplies and equipment he needed from Sam Supplier. The equipment he purchased was valued at $120,000. Business prospered. On June 1, 1988, Det needed larger, more efficient equipment. Therefore, he purchased $175,000 worth of new equipment from ‘Sam Supplier. He paid for the equipment as follows: a. @ $20,000 check from his general business bank account; b. a promissory note payable in 60 days in the amount of $35,000; and ¢. the trade-in of the $120,000 worth of equipment he had purchased on August 30, 1987 (which was still worth $120,000). ‘Sam Supplier required Det to sign a security agreement specifically describing the equipment Det purchased from him. Sam Suppller filed nis financing statement describing the equipment on June 9, 1988. On July 1, 1988, a major company announced that it had developed a new product which would compete directly with that manufactured by Les Det,Professor Jamar ‘Commercial Transactions Il Exam Spring 1990 UofBp.3 and because of a technological breakthrough, it would sell the product for less than half the price Det had been charging. By July 15, 1988, most of his customers cancelled their orders. By August 1, 1988, Det was unable to pay all of his debts as they came due. At that time he owed $200,000 to Cathy Credit. Throughout August and September Det tried to find a new line of products to make, but to no avail. He kept a minimal cash flow by completing some orders which were not cancelled. In October, Det sold the $175,000 of equipment to Ben Byer, a buyer in the ordinary course, who paid substantially contemporaneously with the delivery of the equipment. At Det's request, Byer paid by two certified checks in the amounts of $25,000 and $150,000 payable to Det. Det negotiated (by endorsement and delivery) the $150,000 check ta Cathy Credit who knew that the check was proceeds of the equipment. Det negotiated (by endorsement and delivery) the $25,000 check to Lance Landlord for rent for August and September. (Lance had also not been paid for October.) Lance also knew that the check was proceeds of the equipment. Det filed tor bankruptcy on November 1, 1988. On that date Det nad In his possession the equipment from Hilary Tek valued at $100,000, raw materials and partially finished and finished goods valued at $10,000 (all of which had been paid for by Det), and nothing else. Det owed two months worth of payments to Hilary Tek, was one month delinquent on his rent to Lance (after the payment of two months rent tHé out of the proceeds of the equipment), owed ‘$50,000 to Cathy Credit (after the $150,000 payment from the proceeds of the sale Of the equipment), owed $35,000 to Sam Supplier, and owed lesser amounts to a number of other creditors, all of whom were unsecured. At the first meeting of the creditors, all of the parties want to keep what they had received, and get more from someone else. The trustee in bankruptcy wants to get whatever he can for the general creditors. Byer wants to keep the equipment without paying for it twice. You are the bankruptcy judge. Who gets what? Explain why. Be sure to consider all of the parties and ull of the property.Professor Jamar (Commercial Transactions i! Exam Spring 1990 UotBp.4 PROBLEM 2. (60 minutes) (80 points) Debby Draper purchased some roasted peanuts from Peter Pathos for $700.00 for use at her restaurant. Debby gave Peter a check, drawn on Xtract Bank, payable to Peter's order in the amount of $700.00. Peter indorsed the check in blank, and gave it, together with other checks to be deposited. to his clerk. The clerk dropped the bundle of checks. This particular $700.00 check fluttered under the receptionist’s desk and the clerk failed to find it. That night, Zelda Zona, the night janitor for the building (not an employee of Peter), discovered the check and stole it. The next day she delivered it to ‘Amold’s Deep Discount Electronic Emporium in exchange for a color console TV set she had wanted for some time. (Amold does not ask many questions ‘about where the money comes from. Nor does he ask for proof of ownership of the used electronic goods he sells.) Arnold acquired the check without notice of any defect. He deposited it in his bank. Zelda did not endorse the check. In the meantime, Debby discovered that the peanuts were rotten. Therefore, she immediately ordered the Xtract Bank to stop payment on the check. Xtract Bank mistakenly paid contrary to the stop payment order when the check was presented three days later. Xtract Bank then charged Debby's account. Two days atter she received her bank statement Debby demanded orally and in writing that Xtract Bank recredit her account. The bank refused to do so Debby then sued the bank. Xtract Bank has come to you for advice. Explain all reasonable options to the bank, and advise the bank on which route to take and why that option is best.Professor Jamar Commercial Transactions I! Exam ‘Spring 1990 UotBp.5 PRoBLEM3. (30 minutes) (40 points) Dan Droop issued a $2000.00 check drawn on the Xavier Bank payable to the order of Patty Patton for a printer sold by Patty to Dan some three weeks before. He had purchased the printer from Patty on open credit. When the check arrived at Patty's in the mail, Patty’s mail clerk, Fred Fumble, opened the letter, stole the check, forged Patty's indorsement, presented the check to Xavier Bank, and absconded with the funds to Burma, Where, in due course and without notice, he was robbed of all his money. ‘The bank, in the ordinary course of its business, charged Dan’s account. Dan asked that It be recredited. While the bank was considering Dan's request, Patty has come to you to ask you what she should do or whether she is just out the money. She does not really want to push Dan for the money since he is now nearly insolvent and on the brink of bankruptcy and probably could not pay anyway. But if seeking payment from Dan is her only or best recourse, she will do what she can to get paid. Advise her of what her options are, what her legal rights are, and what your recommended course of action is. Who is the ‘ultimate stuckee"? Explain briefly.Prof. Jamar Exam Grading Key: Commercial Transactions I Spring 1990 p. 1 Problem 1. 120 points 1, Thesale toByer. (10 pts. ~ buyer in ordinary course) ‘The sale of the equipment purchased on June 1, 1988 to Byer isa sale in the ordinary course under 9-307 and so Byer gets the equipment. The transfer was a simple sale, a ‘contemporaneous exchange s0 it would not be avoidable preference. (547(c)(1)). It was not for an antecedent debi, and there was no preference in fact. (547(b)).. 2. Credit’s interest in the $150,000 proceeds from the sale. (40 pts. - attachment, perfection, preferences, priorities) Credit had a valid SI which attached and perfected when Det bought the $120,000 equipment from Supply on Aug. 30, 1987. (10 pls. ~ ining) (Credit had a perfected SI in the $175,000 equipment purchased from Supply ou June 1, 1988 (after acquired property clause, previously filed FS). (also, from tracing proceeds (wade-in of $120,000 equipment) (5 pts.) Credit had a perfected SI in the proceeds from the sale to Byer in October 1988. The $150,000 check negotiated to Credit by Debtor is clearly identifiable proceeds, being a certified check received on the sale of the collateral. (twas also subject to the floating lien or after-acquired property security interest of Credit since it was equipment. $120,000 was proceeds of proceeds and the other $55,000 was after-acquired property.) (5 pts. - tracing proceeds) ‘The transfers took place as follows: Perfection in the $120,000 worth of equipment on ‘August 30, 1987. Perfection in the $175,000 worth of equipment on June 1, 1988 when the debtor (Det) acquired interests in the property. June 1, 1988 is more than 90 days before bankruptcy on November 1, 1988. So not a $47(b) voidable transfer. (If purchase took place in August, then 547 (b) transfer, saved to extent of $120,000 by 547 (c)(1).) (10 pts. - preferences) Preference. Transfer from SI in equipment to SI in check occured in October. Saved by 547(c)(1). Transfer from SI in check into cash in October. 547(c)(1), also, no preference in fact, no improvement in position of Credit by transfer. Exhcange of collateral concept. (10 pts. - contemporancous exchange of SI for SI; transfer occurs on perfection) ‘So Cathy Credit has a perfected security interest in the $150,000.00 which is not voidable by the trustee in bankruptcy. Credit also has $25,000 perfected SI in the equipment’ other proceeds traceable to the LL and would win over LL depending on state law. But what is her priority with respect to the perfected PMSI of Supplier? She is second to extent that he secured the debt for $35,000 in the collateral by PMSI evidenced by P-Note. So of $175,000, Sam Supplier gets the first $35,000 and Credit gets $140,000, 3. Sam Supplier (20 pts. - PMSI, priority)Prof. Jamar Exam Grading Key: Commercial Transactions II Spring 1990 p. 2 Has a PMSI to extent of $35,000 in the equipment and the identifiable proceeds. He can trace to Credit and can probably recover from her since she received traceable proceeds. He has priority (20 pis - PMSI, priority in equipment, proceeds, bankruptcy same as for Cathy Credit) ‘Sam Supplier has a PMSI in the equipment to the extent of $35,000. There is a S/A, perfected by filing within 10 days after acquisition of the goods by the buyer, held by seller from buyer. All events, perfection especially, occurred before 90 days before bankruptcy sonota voidable preference. PMSI takes precedence even over prior perfected security interest of Credit which attached on June 1, 1988 when Det got the equipment because the PMSI is deemed to have attached atthe time of the transaction as long as the filing took place within 10 days, which it did. Then the $25,000 check becomes proceeds in which there is an automatically perfected security interest and the 547(c)(1) (contemporaneous exchange) works to prevent it from being a voidable preference transfer. So Supplier should get the $25,000 check. 4. The $25,000 check given to Lance Landlord. (15 pis. - priority, bankruptcy) However, the $25,000 check went to Lance Landlord. This is clearly a voidable preference since it was for past due rent (antecedent debts). (See also, 545 voiding liens) So the trustee should get it back. But who gets it as between Supplier and trustee? Should be Supplier since itis traceable proceeds. But maybe not since it became commingled cash in the hands of Lance. ‘Gps. - subtle issue of what happens on recovery from LL) 5. Tek’sequipment. (15 pts. - true lease) This is a lease of equipment to Det. It is not a disguised security interest and Tek gets the equipment back, not subject to the trustee or claims of creditors. 6. Remaining inventory (10 pts. ~ general assets) ‘The remaining inventory is not subject to any security interest, perfected or unperfected and so lays wie tstee fo pay olf he eredlns oe mires apes, 7. Summary results Creditor Debt Payment Remaining Claim Credit $200,000 $140,000 $60,000 Seppe $35,000 $35,000 0 Tek(equip) $100,000 $100,000 0 Tekilease) $16,000 0 $16,000 Lance $37,500 oO $37,500 8. General, overall style, organization 10 pts.Prof. Jamar Exam Grading Key: Commercial Transactions 1 Spring 1990 p. 3 Problem 2. 80 points Bank is client, so explanation should focus on bank’s options and give practical/legal advice (loss of points for irrelevancies discussed) (10 pts) ‘The bank paid in contravention of the order of its customer and is therefore liable and must recredit (10 pts) Unless it can establish that the drawer would be liable anyway because there was a holder in due course along the path using subrogation of lack of loss by drawer. So, Drawer Debby has suffered no loss on the check and so she cannot complain, because she would have been lable on the istrument anyway. Le, even if ithad been dishonored on presentment, Arnold could have forced her to pay. (25 pis) Zelda, the thief, cannot be a holder, since she is a thet and did not take by negotiation. (pts) However, Zelda is in possession of bearer paper because it was signed in blank by the payee, Peter, So she can transfer good title by negotiation to another who thereby becomes a holder. Here, it was negotiated by delivery to Amold who is a holder. Amold takes without notice and in good faith and for Value and is therefore a holder in duc course and therefore the defenses of Debby as against Amold would be cutoff. (10 pts) ‘Action by bank on warranties against Arnold's bank and Amold. No breach of warranty of good tite since bearer paper. So no recovery on warranties. (But my presentation of this to class may have been weak/confused so everyone gets the full points) (10 pts) Bank need not worry about conversion action by Peter because not paid on a forged indorsement 3-419 General quality of discussion. (10 points)Prot. Jamar Exam Grading Key: Commercial Transactions If Spring 1990 p. 4 Problem 3. 40 points ‘This is a straightforward conversion problem. The bank paid money to a thief which ‘belonged to Patty. The bank paid on a forged indorsement so paid an instrument which was not properly payable. 3-419(1)(c). The bank should pay Patty. It gets to charge Dan once, but pay twice. Panty v. Dan under 3-804 (ost or stolen instrument) (5 pts) CS OS Pany v. Dan under 3-802 (underlying obligation) (5 pts) Patty v. Bank under 3-419 (conversion) (i; / » (10 pts) Ultimate Suuckee . (10 pis) Advice w Patty, overall quality of discussion (10 pts)