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This is not a good. Although it is movable and tangible, it is a thing in action, which means that the only way to recover money owed to you is to bring an action or claim for the money you are entitled to. (b) The sale of real property? The sale of a house apart from the realty? This is not a good, but the sale of a house is a good under 2-107. (c) The sale of building materials as part of a construction project? This is a hybrid sale and will be discussed in the following cases. (d) The sale of standing timber? Or crops? This is a good under 2-107.(2) (e) A defective spinal plate given a patient in a hospital operating room? The preparation of false teeth by a dentist? The injection of a drug (for which the patient was separately billed) into a patient’s eye as part of an operation? The court said the first two are not goods, but services provided. However, the court said that an injection of a drug, which patient was separately billed, into a patient’s eye as part of an operation is a good. (f) The sale of membership in a health spa? This is not a good, its a service. (g) The sale of the entire assets of a clothing store? Even though Article 6 applies because this is a bulk sale, Article 2 also applies because these are goods. (h) The sale of electricity? This is a good. Problem 2 Portia Moot, a third year law student, sold her car to a fellow student. Does Article 2 of the UCC apply to this transaction? Would §2-314 apply to the sale? Article 2 applies because this is a good; it is irrelevant that she is not a merchant. Article 2 applies to consumers also. However, §2-314 doesn’t apply because Portia is not a merchant in goods of this kind; this was a one-time sale. Problem 3: Are the following persons merchants? (a) Amanda, who quit her teaching job on Friday and on Monday opened a hat store? Yes, there is no grace period. On Monday she is b/c she satisfies the 1st part of 2-104 (b) Tom Tiller, a farmer selling his produce to a wholesaler? Produce is a good, if this is something that the farmer usually does, always sells produce, and then he is a merchant. CONTRACT FORMATION Problem 6: On Dec 10, Ross, president of Ross Ice Cream, phoned Scott, president of Amundsen Ice Company, and negotiated the purchase of two tons of ice from Amundsen at $256/ton. As they talked on the phone, Scott picked up a memo pad enscribed “Amundsen Ice Company From the Desk of the President,” wrote on it “2 tons Ross Co.,” and then scribbled his initials on it. When the parties hung up the phones, Scott placed the memo on a spindle marked “Orders.” Ross wrote Scott a letter beginning “Dear Bob: this is to confirm our ice purchase deal . . . ,” which described their transaction completely. Scott received the letter on Dec 14.
On Jan 17, Scott phoned Ross and denied the existence of the contract and detailed in the Ross letter. Answer these questions: (a) Does the memo pad note satisfy §2-201(1)? Yes, it is a writing indicating the contract and signed (initials = signature) by Scott, the party against whom the enforcement is sought. . (b) What legal effect did the Dec 14 letter have? Same result if Ross’s letter failed to mention the quantity? Even if the letter satisfies the SOF, is it conclusive as to the existence and terms of the contract? It is a written confirmation under §2-201(2) and binds Scott because he didn’t object in writing within 10 days of receipt. If the confirmation didn’t mention quantity, it wouldn’t be effective because it doesn’t satisfy §2-201(1). No, satisfying the SOF just allows you to go to trial, it doesn’t prove your case. (c) Did Scott’s denial of the terms contained in Ross’s letter avoid the operation of §2-201(2)? Suppose Scott had immediately written Ross a letter stating, “You haven’t stated the terms correctly. We only agreed to sell you 1.5 tons.” Would that letter be sufficient notice of objection? No, he had to deny in writing. If he wrote a letter it would be a valid objection to the quantity, not the contract. (d) If there had been no confirmation letter, suppose Ross files suit and Amundsen responds with a demurrer, may the trial court judge dismiss on the pleadings? If Scott admits the K formation in a deposition, would §2-201(3)(b) be satisfied? Does §2-201(3)(b) always require the judge to permit the matter to go to trial? No, because there is still the spindle order form initialed by Scott to evidence the formation of a contract, this should satisfy the SOF. If Scott admits the K, §2-201(3)(b) would be satisfied. STATUTE OF FRAUDS Problem 7: The city manager of Thebes, Utah, which is world-famous for its beautiful desert golf course, orally ordered a huge water tank to be made in the shape of a golf ball on a tee from Tanks of America. The price was agreed to be $30,000, and the city sent Tanks a down payment check of $3000, signed by the city comptroller and market “Tank” on the memo line. Tanks of America built the tank and were in the process of painting “City of Thebes” on the side when a representative of a newly elected city administration called and said that the new administration considered the K unenforceable. (a) Does the check satisfy §2-201(1)? Where is the quantity? By putting “tank” on the memo line, this evidences the existence of a contract. If a quantity isn’t stated, the court presumes (on checks) that the quantity is one. So this satisfies §2-201(1). (b) What legal argument can Tanks make based on §2-201(3)(a) and 2-201(3)(c)? Does the City of Thebes have a good response to the §2-201(3)(c) argument? Under 2-201(3)(a) the contract is still enforceable because the Tank is a one of a kind specially created for the buyer and not suitable for others in the ordinary course of seller’s business and the seller has partially performed already. Under §2-201(3)(c) they could argue that they have accepted payment already, Thebes can’t really argue that they didn’t give a full payment to get out of §2-201(3)(c) because a court will usually enforce the contract when one payment is made on the sale of one item. (c) If the city had promised to sign a written contract but had never gotten around to doing so, can promissory estoppel or equitable estppel be used to circumvent §2-201? Yes, the code says unless it is specifically excluded from §2-201. Problem 8: Tomorrow, computer company, and Systems Unlimited, company specializing in advising other companies how to maximize their computer operations, entered into a written joint venture K by which Tomorrow promised to design and sell to Systems software that would enable the latter’s customers to receive engineering drawings by phone. The parties agreed that their arrangement was “non-exclusive” (meaning
either was allowed to deal with other buyers and sellers of the same product). The K described the obligations of the parties in some detail and stated that the K would terminate after 2 years unless renewed. In fact, after working with Tomorrow for only 6 months, Systems decided it could develop its own software cheaper than buying it from Tomorrow, so it faxed a letter to the latter stating that their K was at an end. Systems declined to purchase any further software. Tomorrow, which had incurred substantial startup costs in developing the software for this K, was astounded and promptly filed suit. Systems sought refuge in the SOF, arguing that the K signed by the parties stated no quantity. Does §2-201(1) always require a specific quantity? The K is not insufficient because it doesn’t state a quantity; §2-201 only says that if it had stated a quantity, the K wouldn’t be enforceable beyond that quantity. (This applies when the quantity needed is unknown.) PAROL EVIDENCE RULE Problem 9: Lawyers for Swinging Singles Magazine negotiated for an entire year with Space Age Aircraft to obtain a K for the construction of a special Swinging Singles airplane. (The plane was to be black and silver, with the Swinging Singles emblem painted on the tail; it was to contain a living room, a bed chamber, a swimming pool and hot tubs, and a dance floor.) The resulting 30 page K also contained a merger clause, stating that all prior negotiations were merged into the written K that contained all the terms of the agreement. Both parties signed the K. Does §2-202 bar the introduction of evidence of the following? (a) An alleged pre-contract agreement that Space Age would provide free flying lessons to Hi Handsome, president of Swinging Singles? The K says nothing about this. This may not have been certainly included in the written contract; therefore, there is not total integration. So because this evidence doesn’t contradict the K, only supplements the K, the court would allow it in. (b) An alleged pre-contract agreement that Swinging Singles could use the plane for 2 months, and if they didn’t like it, they could return it for a full refund? This would not be allowed under §2-202 because it certainly would have been included in the contract, so this contract is already totally integrated. OFFER AND ACCEPTANCE Problem 10: Mastervoice TV ordered 20,000 fuses from GE, the order stating “reply by return mail.” Instead of a formal reply, GE immediately shipped the fuses. When the fuses arrived, they were found to be defective. Mastervoice, which had to procure substitute goods elsewhere to meet its production schedule, sued GE for breach of warranty. At what moment was the K formed? Formed upon shipment. Can GE make this defense: “There was never any K since our alleged act of acceptance (the shipment of defective goods) did not comply with requirements of Mastervoice’s offer (which contemplated only shipment of good fuses)”? No, this is not a defense b/c 2-206 says that there can be an acceptance even with non-conforming goods. (If ship non-conforming goods then there is an acceptance, but if ship green dolls instead of blue dolls this is a counteroffer not an automatic acceptance.) GE should have sent a note to Mastervoice so there would be no automatic acceptance. Instead of the above, assume that when GE received the order it discovered that it no longer manufactured the type of fuses Mastervoice wanted, but that it did carry a very similar type of fuse that it believed would suit Mastervoice’s needs. The shipping manager for GE was unable to get through to the relevant people at
Mastervoice, so in the end GE shipped the slightly different fuses along with a cover note saying, “These are similar to the fuses you ordered but may not be right for you. If they are not suitable, we will gladly take them back without charge.” Is GE now in breach b/c it shipped non-conforming goods? See 2-206(1) (b) No, GE is not in breach b/c they sent the letter along with it which constitutes a counteroffer. This leaves it in Mastervoice’s hands now. Problem 11: For years P Dreamer had wanted a Rolls Royce Silver Shadow with burgundy-colored trim. He saw one on the lot of Posh Motors. After Dreamer had dickered loud and long with Paula Posh, president of Posh Motors, they finally agreed on a price. Dreamer said he wanted to clear the deal with his wife before signing anything, so Posh promised she would hold the car for Dreamers until the next day at noon. When Mr. and Mrs. Dreamer arrived at the dealership the next day, and the car was gone. Posh made a better deal with another buyer. Do the Dreamers have a good cause of action? See §2-205. Does §1-103 help? There is no good COA here, b/c a signed writing is missing, a requirement for 2-205 (firm offer rule). 1-103 doesn’t help b/c there is no writing.
BATTLE OF THE FORMS Problem 12:
The Magic Carpet Co. had a long and profitable business relationship with Alibaba Carpet Manufacturers of Baghdad, Illinois. 55 times Alibaba had sold carpets to Magic carpet. Each sale was carried out in the following manner. A partner of magic carpet called Alibaba’s order department and ordered a certain quantity of carpet at the price listed in the catalogue. After each oral order was made, the credit department was consulted to determine if Magic was paid up. Then, if the credit was okay, the order department of Alibaba typed the information from the order on one of its printed acknowledgement forms, each of which had the following information on its face: The acceptance of your order is subject to all of the terms and conditions on the face and reverse side hereof, all of which are accepted by buyer; it supersedes buyer order’s form, if any. It shall become a contract either (a) when signed and delivered by buyer to seller and accepted in writing by seller, or (b) at seller’s option, when buyer shall have given to seller specification of assortments, delivery dates, etc…, or when buyer has received delivery of the whole or any part thereof, or when buyer has otherwise assented to the terms and conditions hereof. The provisions on the reverse side of the form provided, among other things, that the seller disclaimed all warranties, express or implied, each form was signed by an employee of Alibaba and mailed to Magic. Shortly thereafter, the carpet was shipped. Magic always received the acknowledgement before the carpet. They placed each form on a file, accepted delivery of the carpet and paid for it promptly. On the 56th sale, the accepted and paid-for carpet proved to be non-conforming. Magic sued Alibaba for breach of warranty. Alibaba replied that its form disclaimed all warranties. a. Was a K formed between Magic Carpet and Alibaba? See 2-207. Yes, b/c there is definite and seasonable expression of acceptance by Magic Carpet. b. Was the disclaimer of warranties part of that contract? See 2-207(2). No, b/c it is a material alteration to disclaim general warranties (Comment 4 to 2-207). Although merchants are involved here (define) the term doesn’t become part of the contract. Problem 13: Humpty Dumpty Corp. (HDC) was a company that demolished old buildings to clear sites for new construction. HDC proposed to sell a large quantity of used bricks to the Kings Horses Company on the condition that Kings Horses would pick up the bricks and haul them away. The seller made a formal written offer, stating the quantity (2.5 tons), the price (22,000) and a delivery date of June 15. Kings Horses accepted, enclosed a check for 22,000, and changed the delivery date to July 20. The president of HDC calls you and asks if Kings has breached the K if it does not pick up the bricks on June 15. What do you advise him? See 2-207(3) and official comment 6. See also 2-309. Changing of the delivery date was a widely divergent or critical term. So there is no K b/c there was not a seasonable expression of acceptance. Then go to 2-207(3). Did the parties act if they had a K? Yes. So then all terms which are not the same are knocked out.
• How does a seller in MM position protect itself? Do not act as if there is a K when the buyer disputes a term of the contract. what is the underlying principle behind 2-207? One of the principles underlying §2-207 is neutrality. then there is no material alteration. which disclaimed all warranties and contained this clause: “THIS IS NOT AN ACCEPTANCE UNLESS BUYER ASSENTS TO ALL CHANGES MADE BY THIS ACKNOWLEDGEMENT FORM. does §2207 still apply? Yes. • What if neither party introduces evidence of material alteration? Then the term will be included in the K. under the circumstances. Is there a contract? See 2-207(3). • In determining whether the buyer assented to the proviso. Plastic Furniture Mart sent a purchase order for 100 tables to the Ersatz Manufacturing Co. and why did the court reject it? MM argued that Krack assented to the disclaimer when it continued to accept the tubing and pay for it once MM indicated that it was willing to sell tubing only if its warranty and liability was limited. To carry the burden of showing surprise. Problem 14: Would the following clause in the seller’s acknowledgement to the buyer’s order form be a material alteration under 2-207(2)(b): “Any disputes concerning this contract shall be subject to binding arbitration”? Yes. • What is MM argument. MM’s argument was outweighed by public policy. the section should be interpreted so as to give neither party to a K an advantage simply b/c it happened to send the first or in some cases the last term. §2-207 still applies. • What are the two elements if surprise. • If cannot find surprise or hardship. when do courts find that hardship materially alters a contract? Typically. a party must establish that. an arbitration clause is treated as a material alteration in most jurisdictions. • Who carries the burden of proving the additional or different term is a material alteration? The person who is opposing the inclusion of the additional term under 2-207(2). • Is 2-207(3) disadvantageous to either party? 2-207(3) will often work to the disadvantage of the seller b/c he will wish to undertake less responsibility for the quality of his goods than the Code imposes or else with to limit his damages liability more narrowly than the Code would.” (1) Subjective (what the party actually knew) or (2) Objective (what the party should have known). behavior is not enough to assent to proviso language. Delivery date will then be a reasonable time. On May 6. the purchase order also stated. • Typically. Delivery date is knocked out (b/c the forms didn’t agree) and 2-209 comes in. (This disposes of the common law Last Shot Rule. If this happens don’t ship the goods b/c the disputed disclaimer will be thrown out. Ersatz shipped the tables. and on May 3 it sent back its own acknowledgement form. • If the partners discuss the terms of the documents AFTER they exchange forms. courts that have relied on hardship to find that an additional term materially alters a K have done so when the term is one that creates or allocates an open-ended and prolonged liability.) • Have proviso clause. Did Ersatz make a warranty as to the conditions of . it cannot be presumed that a reasonable merchant would have consented to the additional term. So then land in paragraph 3. If possible. “BUYER OBJECTS IN ADVANCE TO ANY TERMS PROPSED BY SELLER THAT DIFFERS IN ANY WAY FROM THE TERMS OF THIS PURCHASE ORDER. Problem 16: On April 25. Did they assent? No b/c need to come forward and express your assent. In addition to the usual boilerplate language. and how does a party establish that? A material alteration is one that would “result in surprise or hardship if incorporated without express awareness by the other party.” Neither party read the details of the other’s form.” Ersatz received the order.
whereas “mint condition” is more of an express warranty. b. was there a K? Get to paragraph 3 b/c there is proviso clause. and they told him the following story. The Salesman at the lot of Smiles Pre-owned Vehicles told the woman buying the car that it was in “A-1 shape. a vinyl wallpaper selling at $25 a roll. and Portia quickly grew to hate it.” He said that it “would look wonderful” and moreover. When the farmer looked over the young chickens he was contemplating purchasing from the poultry company. Andrew Loner hung out his shingle and waited. Paper and Paste and inquired about vinyl wallpaper for their dining room. instead she relied on her own mechanic to purchase the car. The salesman explained that that was b/c they were on half-feed and that when they were placed in full-feed. a better . When the car broke down a few days later. the salesman assured them that Expensopaper “goes up easily. Is he right? Is this a question of law or of fact for the jury? This is an express warranty. fell down on drying). Expenso-Paper. so when she went to buy a used car. but he only made 2 statements about the car she bought: “This is a great car!” and “You’re going to love it!” In fact. straighten up.) Upon complaining to Paper and Paste. Portia was suspicious about the reliability of the car and before she bought it. a 3 year law student. b/c she didn’t rely on the car dealerships mechanic. there was no conduct yet indicating there was a contract. due to its heavy weight. c. but it broke down the next day.” The farmer purchased the chickens. d. claiming breach of an express warranty. It tore easily and refused to stay flat on the wall (it either bubbled or.” She bought the car. He showed them a sample book. When the paper arrived the next week. and Mrs. They were also told that Expenso-Paper was an inferior brand and that next time they should buy Super Wall. the Consumers discovered that Mary Magic did not own a home (she lived in hotels. She didn’t buy the car until her mechanic cleared it as fine.the tables? See 2-314. the Consumers were told by the manager that Expenso-Paper needs a special brand of paste.” However. he complained that they looked pretty scruffy. but if it were a written statement then the judge would decided it as a matter of law. The smarmy salesman was quite friendly. and dries immediately. the car broke down a great deal. In addition. There is a contract under 2-207(3) b/c the parties performed as if they had a contract. that Expenso-Paper “was used by Mary Magic. and fly right. she decided to bring suit on the express warranty. in her dining room. Does she have a COA here? This is mere puffing b/c this is an opinion. Consumer were his first clients. she took it to her own favorite mechanic for an inspection. had taken the course in sales. The salesman told them that the “finest” wallpaper in the store was Expenso-Paper. and they picked out a pattern they liked and ordered 10 rolls. they would “bloom out.” the famous movie star. Problem 22: Upon graduation from law school. stranding her in the country. it was dyed a darker color than the version of the pattern in the sample book. Was this oral statement mere puffing? Is it an easier case if the seller tells the buyer that the used car is in “mint condition”? o This is mere puffing. If it this were a gray area and an oral statement then they jury would decide it. WARRANTIES Problem 21: a. The final result was that the Consumers’ dining room looked terrible. What defense will the car dealership raise? There was no reliance. Mr. Assume that the car salesman told Portia that the used car she was contemplating purchasing had been thoroughly inspected by the car dealership’s crack repair department and was “mechanically in perfect condition. it proved to be very stiff and hard to work with. To top it off. Portia Moot. On May 3. There was an implied warranty of merchantability. The farmer sued.” and they would “do a good job in your chicken house. 2 weeks earlier they has visited a wallpaper store. When he learned that the Consumers had never before put up wallpaper. No. and 2 months later they starting dying in droves. to wit. can be put on with any paste. she listened very carefully to the sales pitch.
Courts are reluctant to say that cig manufactures breach the implied warranty of merchantability b/c this would open the floodgates for all manufacturers of similar products. 1-203. sold his family car to his next-door neighbor. Natty sued the car manufacturer. Inc.. On checking back. Can be put on with any paste? This is an express warranty. more so than an express warranty. Goes up easily? This is an express warranty. (Puffing) 2. then it would not be fit for the ordinary purpose b/c getting cancer is not the ordinary purpose. telling her it was a “good car. b/c the court will look at public policy to help decided that the company can handle the risk more than the consumer can. he is not a merchant with respect to goods of this kind. (Puffing) b. while thumbing through a newspaper. Would look wonderful? This is an opinion. He did not do anything about it until one day.” would that create an express warranty? Are these fit for their ordinary purpose? If you can prove that the ordinary purpose is to get some high and to be pleasurable. Problem 23: Balding Paul bought a wig from Hair. Official Comment 3 to 2-314. Has Krupke breached the implied warranty of merchantability? See 2-104(1). b. it was falling apart and blew up the first time she drove it. the Mohican Motor Co. His . arising as it did after the K was signed? See 2-209(1). d. So this did not become part of the basis of the bargain. His major injuries came from his sudden contact with the inside of the driver’s door. Loner (and you) have to answer these questions: 1. Finest? This is an opinion. Should §2-314 be extended so that the warranty is made by all sellers? No. Official Comment 7 to 2313. for breach of the warranty of merchantability.” In fact. where he smashed up against sharp points on the door handle. He swerved to avoid it and ran into a tree. The Consumers told Loner that they signed the K without reading it and that the statement about Mary Magic’s dining room was made after they signed the agreement. Is this admission fatal on his theory of recovery on a theory of express warranty? No. the window lever. On the witness stand Paul confesses that he never saw the as until a year after his purchase of the wig. Some affirmations after the fact can be considered to become the basis of the bargain. Dries immediately? This is an express warranty. Precise time when affirmation is made is not material (comment 7). so there is no implied warranty of merchantability. but courts are skeptical about this. Problem 23: Natty Bumpo was driving through upstate NY when a deer ran in front of his car. Which of the salesman’s representations amount to express warranties? a. Do you see any other express warranties? Is the Mary Magic statement part of the basis of the bargain. a NY police officer by profession. Are cigarettes that cause lung cancer merchantable if used over a period of years? If the seller’s advertisements stated that the cigs were “mild. e. He sues. He became annoyed when the wig changed colors slightly from season to season. Problem 22: Consider the following: a. c. Officer Krupke. Inc. he noticed an ad for Hair. he discovered that Hair has run an identical ad during the week prior to his purchase of the wig. Maria.product that the store carried. that claimed that their wigs did not shrink or change color. and an ashtray..
5 percent of the population had this allergic reaction.p. which the clerk promptly mixed and sold to him. He replied that it would get “between 30 and 35 m. Parker Pillsbury. In your opinion is there any way around these clauses? (1) “This is the entire contract.. which the store mixed on the premises from various pigments. cars should be created for more than just driving. Inc. Is there a COA under either 2-314 or 2-315? • If you used the reasonable expectation test. it worked perfectly. Nation was allergic. • Is there a breach of implied warranty of merchantability? No b/c the heater is doing what it is intended to do (heating) but it is just not heating the whole room. Harold finished the painting and then noticed 2 things: (1) the dried paint gave off an offensive odor and (2) the paint from the second can did not match the first. the basic defense was that only 0. but it simply did not have the capacity to heat the room.” Delighted. to which Ms. What causes of action does he have? • He has an action for a breach of an implied warranty of merchantability b/c the paint smells and it is not for its ordinary use. When he bit into the olive. There is a breach of implied warranty of fitness for a particular purpose for the wrong paint color b/c the paint store knew what color he had already purchased and he relied on them to give him the same color. Unfortunately the product contained the alcohol. Harold used the paint on his dining room walls. The manufacturer’s defense was that the car was fit for ordinary purpose and that Natty has misused it. Problem 29: Carry Nation.p. He told the clerk that he was only half done with the job and needed another cam. but due to a miscalculation on his part. the car would get) so it . even in highway driving..) Problem 25: Harold Thumbs went to the Easy Paint Store and bought a can of green paint. He saw an ad for the A-1 Hotblast Heater. May Wren sue Jones for breach of either 2-314 or 2-315? See Comment 5 to 2-315. which seemed to be what he needed. he ran out when he was half finished.” o First. This contract said nothing about miles per gallon of gas. the dealership pointed out the following three clauses in the contract she had signed that it relied on to avoid liability. Is there a breach of implied warranty of fitness for a particular purpose? Yes. he had helped build it. b/c the seller knew why the goods were being purchased and he relied on his friend’s skill. The very best the car ever did. Is this a good defense? • The implied warranty of merchantability would kick in here b/c this hair dye was to be used for its “ordinary purpose. there would be no breach of implied warranty of fitness for a particular purpose b/c olives in martinis are not supposed to be pitted. When the heater arrived. she asked the salesman how many miles to the gallon it would get. on the advice of her beautician. A good friend of Wren’s named Inigo Jones ran a nearby appliance store. Jones knew the room well.theory was that the manufacturer should have designed a much safer car. (Although this may go both ways.g. and Portia was upset. was 27 m. Wren went there and told Jones that he wanted the heater for the new room.g. and there are no other matters agreed to by the parties that are not contained herein. When she sued the manufacturer. This statement does not contradict the writing (b/c the writing was silent on how many m. They should predict for foreseeable accidents. he cracked his new $2000 dentures on a pit. He took the empty paint can back to the store.g. must consider the Parol Evidence Rule.” The courts are struggling with whether ordinary purpose means for the “ordinary purpose without regard for the extraordinary purpose” or the other way? DISCLAIMERS AND LIMITATIONS ON WARRANTIES Problem 30 When Portia went to buy a new car. and she suffered considerable burn damage to her scalp and ears. Harper’s Hair Products. When she threatened a lawsuit. he wanted a heater for it. bought a hair due names “Intoxicating Fragrance” and proceeded to use it in accordance with the instructions on the package. Problem 28: Donald Souse ordered a martini at the Tired Executives Club. in the city and 40 to 45 on the highway. she bought the car. How should this come out? Natty should win.p. Problem 26: When Christopher Wren finished building a recreation room in his basement.
In order to disclaim the implied warranty of fitness for a particular purpose under 2-316(2). Second. look at implied warranties. Courts struggle with this issue and there are inconsistent answers for this issue. He signed a purchase order on August 1. this doesn’t disclaim either the implied warranty of merchantability or the implied warranty of fitness for a particular purpose. doesn’t draw attention to it). Under 2-316(1) courts are not likely to let you disclaim express warranties.would be permitted in to supplement the K. under §2-316(3)(c) says that implied warranties are excluded by course of dealing or course of trade. (b) The words “as is” are written with soap in large letters across the front windshield of the used car. (3) “No salesperson has the authority to give express warranties other than those contained herein. The express warranties are hardly ever disclaimed. (3) What changes would you make in the physical appearance of the clause in the contract? Is it all right to put the disclaimer in a clause labeled “Warranty?” o Change the color. Problem 33: . so it is ineffective as to the implied warranty of merchantability. This is a statement of agency law. and the car was delivered two weeks later. Is this effective to disclaim implied warranties? Express warranties? Must the “as is” language be conspicuous? o Implied Warranties: 2-316(3)(a) all implied warranties would be disclaimed by “as is” language.” o This is not a disclaimer of warranties by itself.” o First. (Make sure do a separate analysis for both of these on exam) (2) If the car dealership asks you to redraft this clause so as to comply with the Code. This clause is not enforceable. what changes would you make in the language? o Add the special words and make it conspicuous. Is he bound by the written warranty’s terms? What argument can he make? o This goes to the timing of when drawn to attention of disclaimer. This language is probably not considered a demand. the size. font. look at express warranties. Answer is dependant on which case the court adopts (Bowdoin = not effective or Rinaldi or Pro CD). etc… Don’t only put it in Bold. This is in writing but it is not conspicuous (not in bold. relying on the seller’s extravagant claims about the car’s superior qualities. “Would you like to examine the car?” and the buyer. a warranty of quality is a separate question. In order to disclaim or limit the implied warranty of merchantability under 2-316(2) it must mention merchantability and must be conspicuous. (d) Remember Ted Traveler (Problem 18). (c) The car salesman asks the buyer.” Effective disclaimer? o Official comment 8 under §2-2-316 says that it is not sufficient that the goods are available for examination. However. there must be a demand by seller to inspect the goods. who is in a hurry says. Are there implied warranties in this sale? o No. (2) “There are no other express or implied warranties except those contained herein. the exclusion must be in writing and be conspicuous. Problem 31: (a) A statement buried in the fine print of a used car purchase agreement states that “There are no express or implied warranties that are part of this sale. In the glove compartment he found the warranty booklet and on reading it was dismayed to learn that the actual written warranty was very limited in coverage. Problem 32: Joe College bought a new car from Flash Motors. This disclaimer does neither. who walked into the men’s room of the bus depot and bought an expensive watch? We decided there was no warranty of title in that transaction. “No.” (1) Are the implied warranties effectively disclaimed? o No. (4) Can the car dealer win the legal dispute by arguing that usage of trade (§1-205) permits the burial of warranty disclaimers in the fine print? o Comment 4 in §1-205 says that it is very difficult to allow you to say that usage of trade will trump out an established code provision.
bringing only $1. How should this suit come out? o Jack should recover for all losses except the camera under §2-719(3). which cost $1. incurred hospital expenses of $2. without inspecting the apples. who the same day sold them on the market. As to the lack of formal notice of breach in the January letter. Icarus pointed to Official Comment 4 to §2-607 (which tells us that content of the notice must let the seller know there is trouble with the transaction and should be watched). The loss of the camera is a commercial loss for a consumer good and therefore is not allowed under §2-719(3).” Moreover.50 per bushel. but that. The machine. Dave refused to pay. but said that the bulk of the apples had less color and were one fifth smaller in size than the samples. in the event of breach. King Cold defended on the ground that its liability was limited to the cost of repair or replacement. Jack of Portland. claiming some $24 million in damages caused by the delayed deliveries. delivered them 10 days later to his commission merchant.” Pearl agreed to do so. a farmer. he had to rent a snowmobile for $40 a week until spring (16 weeks – spring is very late in Maine = $640). and lost pay of $1. §2719. exhibited to Dave samples of her apples. Sixty days later Pearl billed Dave in the amount of $450 for the 150 bushels of apples. such size apples are worth $3 a bushel. telling Pearl that the apples hadn’t measured up to the contract. immediately upon making the sale. the contract conspicuously stated that the seller was not responsible for “any consequential damages. Moreover. On January 30 the president of Icarus wrote Daedalus that “We are very disappointed by your late shipment. At trial. 20 were to be delivered on May 8 and the rest on November 10. He took the machine back to the King Cold service department. when he did return to work. Jack noticed a strange rumble in the engine. Jack argued that the remedy limitation was “unconscionable” and failed of its “essential purpose.500. Dave was disgusted and decided to wait until Pearl billed him for the apples. These apples were not as good.” 3 months later Icarus sued. Dave said. as the samples and were one third smaller in size than the samples were. bought a snowmobile from King Cold Recreationland. so these are recoverable b/c limitations of those remedies would be per se unconscionable. The second came on January 12 of the next year. which makes the reasonable time a lot shorter than it would be for other goods.600. but Icarus didn’t complain. Icarus did not give notice of the .” One week after he received the snowmobile. and I will pay you that for them. (a) As the trial court judge. The commission merchant. was destroyed. a $350 camera he was carrying was also destroyed. Jack should also recover the loss of the snowmobile b/c it “failed its essential purpose” under §2-719(2). Dave contends that Pearl breached an express warranty under the UCC since a contract of sale by sample was involved. All other losses are as a result of the personal bodily injury. Dave. “Bring your apples to my warehouse. Jack brought suit against King Cold. DEFENSES IN WARRANTY ACTIONS Problem 34: Pearl. Dave did not give Pearl a reasonable notice within a reasonable period of time so he is barred from making a claim b/c he remained silent.” All the parties pointed to §2-316(4). The machine was returned to him in three days allegedly repaired. In its answer Daedalus responded by stating that it had received no notice of the breach as to the first shipment and that the notice concerning the second shipment was defective because it didn’t announce Icarus’s intention to claim a breach as a result of the late delivery. Icarus countered by stating that no notice is required where. Maine. What result? We are dealing with apples here and they are perishable goods.On November 1. Jack was seriously injured when it blew upwhile he was riding. The first shipment actually came on September 9. Pearl sues Dave. The next day Pearl delivered 150 bushels of apples to Dave’s warehouse. which has caused us much expense and inconvenience. how would you rule on the notice issues? The code requires in §2-607(3)(a) the buyer must within a reasonable time notify the seller of the breach or be barred from any remedy. Problem 35: Icarus Airlines ordered 40 new airplanes from the Daedalus Aircraft Company. on an average. Jack used the snowmobile to get to work during the week in the winter and for fun on the weekends. These events repeated themselves three times over the next three weeks. as here. called Dave and informed him of the price brought by the apples. “the buyer’s remedy was limited solely to repair or replacement of defective parts. the breach is obvious to the seller. at which time he would give her a piece of his mind. and §2-715. The contract that he signed stated that the seller warranted that the vehicle was merchantable. Jack temporarily lost the use of his left arm. In addition.200. Four weeks after he bought the snowmobile. §2-302.
Who can sue. It proved to be laced with poisonous chemical. Even mailman can recover for injuries to dog (property damage). who borrowed it one day to compute the distance he walked on his route. When he was discharged. eagerly licked his hand and promptly dropped dead of lead poisoning. He in turn gave it to his wife as a birthday gift. Gauss’s case. In vertical privity only to the retailer (department store) o B: Mailman would be able to sue (foreseeability). Girard sold the calculators to the retailer. Alonso would still have to give notice. but only Sancho drank enough to have a serious reaction: it put him in the hospital for 8 months. medical expenses. The courts typically allow Sancho in this situation to get around the notice issue here under Comment 5. Leibnitz Department Store. would that preserve his rights against the manufacturer.breach but only gave notice of the facts of the breach. PRIVITY Problem 37: The Girard Instruments Corporation manufactured a pocket calculator called the Descartes 1000. your child and the guest can sue if reasonable they . as did the Cayley children (for homework) and even Mr. After this last use. and cuts your fence and flies over to the neighbor’s yard and injures them. brought suit for their pain and suffering. Usually end users escape notice requirements. Alonso purchased the wine from the seller (who purchased it from La Mancha) and gave it to Sancho. (b) What if on January 30 Icarus had filed suit against Daedalus rather than waiting 3 months? Would the notice requirement have been satisfied? No. on recovery. so Icarus is barred from any remedy. All the Cayleys and Mr. It turned out that the paint used on Descartes 1000 had an extraordinarily high lead content. He cannot recover for his dog. Mr. Gauss went home. In mowing the lawn the first time. Diophantus. Carrasco Liquors. Gauss. it tips over and the blade flies out and hits your child. the beneficiary gets a reasonable time to give notice. Home Depot is going to bring in the United Steel. Alternative A: You can sue. La Mancha Vineyards? Comment 5 says that various beneficiaries can collect for a seller’s breach. It bought the paint used on the machine from the Hamilton Paint Company. a lawsuit is not sufficient notice. Also prove for the guest that it was reasonable that they would be affected by the product. Hypo: What is the outcome under each of the alternatives? You are a buyer and purchase a lawn mower. in Mr. the value of his dog. Alternative B: You can sue. Joan Cayley used it all the time. Cannot recover for the property damage. Problem 36 Alonso invited his good friend Sancho to dinner and served him a pheasant for the meal. o C: Everyone can sue. which sold a calculator to Sylvester Cayley. Whom should they sue? o A: Suit looks like. Can go after the retailer (Home Depot). which defended on the lack of notice required by §2-607(3)(a). he hired an attorney and filed suit against La Mancha Vineyards. Joan can sue (member of household reasonably affected by product). How should this come out? If the person who had been injured had been Alonso and if he had given notice of breach to the retail seller. the mailman. Sylvester can sue. Mailman would not be considered a guest and would not meet the reasonable standard. and. lost wages. Depends on who talking about. Gauss became ill and. a household guest. The Descartes 1000 was a popular gift. Injury to mailman’s dog not be able to recover (must have bodily injury. The children can sue assuming meet the same standard as Joan. not recover for the property damage here. your child can sue (if expected that they were likely to be affected by the goods. where his dog. The wine specially uncorked for the meal had been bottled by La Mancha Vineyards. Can go all the way to the manufacturer under vertical privity.
The company told him that Type B was selling for $30 a case. “April Fool!” and hung up? Is this a definite repudiation? See §2-610. If this were an international sale of goods under the CISG. Drake agreed. Drake said. Neighbor can sue if can show that was foreseeable that they would be affected by product. but due to a Middle East oil situation. 2-311(2) tells us that it is the buyer’s option to pick how many of type A and type B are needed. §402A. The usual price for Type A has been $50 a case. Thumbs. What action can the oil company take to clear up Drake’s ambiguous statement? Read §2-609 and its Official Comment. As Thumb’s attorney. Alternative C: Can go all the way up the chain. §402A: Special Liability of Seller of Product for Physical Harm to User or Consumer: (1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer. On April 1. . he always has ordered 100 cases and has taken 50 to 65 percent in Type A and the rest in Type B. and (b) the user or consumer has not bought the product from or entered into any contractual relation with the seller. some cases to be Type A (the expensive oil) and some to be Type B (a cheaper kind). but now the courts are more willing. §1-205. or to his property.” and hung up the phone. killing him instantly. The parties signed a written K for the delivery of 100 cases. In C. “April Fool! I’m not taking any. In products don’t need either. Could not say need all of Type A b/c that wouldn’t be commercially reasonable. • 2-311 tells us there must be commercial reasonable.would be affected by the product. TERMS OF THE K—FILLING IN THE GAPS Problem 41: Edwin Drake wrote to the Watsons Flat Motor Oil Company and said that he wanted to buy 100 cases of its motor oil. but that since the price of Type A was fluctuating. if (a) the seller is engaged in the business of selling such a product. What should the company do? See § 2-305. for advice. Python’s car skidded across the median and ran into a hitchhiker. But there prior conduct would come into to dictate how many of each they would need. In K also have to worry about the type of jurisdiction you are in. In B jurisdiction can go to the manufacturer (foreseeability test). In the past dealings that it has with Drake. Problem 38: The axle on Python’s new car snapped in two while he was driving at a high rate of speed on the interstate. The company calls you. or §2-314? o If sue in (K) warranty need privity and notice. the sale price would have to be set by the company at the time of delivery. which was set for April 8. He said he would let the company know later how much he wanted of each type. This matters b/c then the buyer could ask for assurance. types to be specified by Drake one week prior to the delivery date. so it is easier to sue under. the price has now jumped to $125 a case. what result? See Article 65. its attorney. (2) The rule stated in subsection (1) applies although (a) the seller has exercised all possible care in the preparation and sale of his product. §2-311. §2611. and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold. the agent of the oil company called Drake and to ask how much would he take of each type. Can recover the property damage and everybody can sue. decide which is the best cause of action: negligence. What if Drake had simply said. If the essential terms of the K are not agreed upon at common law the courts were reluctant to fill in those terms. and it is harder to get around. 2-305 tells us that a reasonable price would be set at the time of delivery taking into consideration the market price. • This is not a definite repudiation b/c it is not clear or specific enough. stronger alternative.
• 2-609 tells us that you have a right to send a demand letter (in writing) demanding reassurance. When half are broken this is a substantial impairment of that shipment.” o Yes. Instead. agreeing to take 12 shipments of 20 statues each over the coming year. but this is probably not at this point a substantial impairment to the entire K. she test drove each of them and then returned 2 of the cars. the engine blew up without warning. 1-201(3). Does §2-612 permit rejection for this reason? Assume that Ersatz replaced the broken statues within a week. She rejected the 2 cars b/c the audio system did not work in one of them (she was a great music lover) and the carpeting in the trunk of the other one was ripping. but the engine was destroyed. but they may not agree with it when they hear it. See Official Comment 2 to §2-106. the doctrine does survive §2-601(some courts says this). Suppose Swank can demonstrate that it is common for car seller to correct small defects. Princip Motors told the Ferdinands that the car was ready. Princip offered to take the engine out of a car of the same model and install it in the . and half of them were broken. If the cars were delivered after then Swank Motors right to cure is already up. b. A seller has a right to cure in some circumstances. in spite of the tiny defects. The car was scheduled for delivery “no later than September 1” (it had special accessories that had to be installed at the factory). Swank Motors offered to repair both defects. When Speculator refused to permit the repair. Princip made the following responses: a. a wealthy investor. There is no bright line rule. c. signed a K with Swank Motors to buy five new cars. When the cars arrived.000. If they do not respond to the letter then this can be treated as a repudiation and you can sue immediately. Does the common law doctrine de minimis non curat lex (“the law does not notice small defects”) survive §2-601? If so. Answer the following questions: a. The next month the statues were again package upside down. The first month all of the statues arrived upside down in their cartons. All 5 were to be delivered on October 1. its attorney. This would go to the courts. On being informed that the Ferdinands wanted their money back. but that the next month the shipment contained no statues at all. and likely that this substantially impairs the value of the entire K b/c this is the third time they screwed up out of 12 times. so they picked it up. saying she would keep the other three. On August 15. Is this section of use to Swank motors? o Must first make sure if the goods were delivered within the time for performance. Problem 52: Stella Speculator. Comment 2 to §2106 says that cannot reject for tiny defects. Halfway home (3 miles from the dealership). The manager of Travis Galleries was amazed that most had survived the trip in this condition. The Gindy case said “some defects do not justify rejection by the buyer but can be cured by replacement or repair. See §2-508. It ordered monthly shipments of the statues from Ersatz Imports. Only one was broken. the cars would be conforming. Travis Galleries called you. Can reject the shipment when didn’t get any of the right statues. Swank sued. the parties have impliedly agreed that a §2-601 perfect tender is not required? See §§1-102(3). 1-102(4). May it reject this shipment? Under what theory? May it now cancel the remainder of the Ersatz contract? • §2-612 doesn’t permit rejection b/c of the broken statues b/c this does not substantially impair the value of the statues. CURE Problem 53: On August 8. and a phone call to Ersatz Imports resulted in a promise to ship a replacement at once. Francis and Sophie Ferdinand ordered a new car from Princip Motors for $22. Ersatz had mistakenly shipped Travis poor copies of 20 French Impressionist paintings. Will Swank succeed if it argued that such correction is a usage of trade (§1-205) and thus either that the goods are conforming of that b/c of this usage of trade. PERFORMANCE—INSTALLMENT K’S Problem 51: Travis Galleries developed a market in copies of famous statues. The Ferdinands (neither were nor hurt). o This is a valid argument (the court will not throw this out).
b. a vehicle loses not only its real value but becomes an instrument whose integrity is substantially impaired and whose operation is fraught with apprehension. o In resolving this problem. Courts are not uniform in what cure actually means. Midwestern decided. 2-606. Is the seller’s failure to notify Midwestern of the shipment a ground for rejection? See §2-504 (above). Give notice. “the court should be willing to take judicial notice of what all modern day consumers ‘know’ “things that do not work well at the start are not likely to work well in the future unless the original defect is minor in nature. ME failed to notify Midwestern Seafoods of the date of the flight until 2 days later. is this allowed? See §2602(2)(a). If Midwestern rejects the goods. §§2-601. 2-503. developed in a similar situation by the court in a leading case. He then made a few calls and located the lobsters in Des Moines. Reasonable time. How quickly must Midwestern act if it wishes to reject? What technical steps is it required to take? See §2-602. If Midwestern gives a valid notice of rejection within a reasonable period of time after . But under §2-601 they must give seasonable notice to the seller and a reasonable time to cure the defect. then you waive your right to object to that.” REJECTION AND ACCEPTANCE Problem 54: Midwestern Seafoods. Under §2-504 these are grounds for rejection only if it is a material delay. headquartered in Iowa. “FOB Portland. Put one way. 2-604. Midwestern signed a receipt and picked the lobsters up. What does cure mean? Some courts say that seller may not have the right to cure if the buyer’s faith is shaken. May Midwestern reject b/c of the 20 defective lobsters? See §§ 2-601. This is typically a question of fact for the jury. where they had been sitting for a day. Does §2-508 require the Ferdinands to accept either of these cure offers? o It can be argued that §2-508 does not require the Ferdinands to accept the cure b/c cure is not defined in the code. once a person’s faith is shaken. 2-509(1). it may help you to know about the Shaken Faith Doctrine. It depends on the facts and circumstances. Midwestern is a merchant buyer. Princip refused to refund the money. ordered 50 live lobsters from Maine Exports. Must Midwestern reship the goods to ME if the latter offers to pay the freight? See §2602(2) and its Official Comment 2. §2-603. Under §2-605(1) if they reject the goods they do have to give their reasons in their notice. must it give its reasons in the notice of rejection? What penalty is there for not doing so? See §2-605 and its Official Comment 2. instead. from where they were flown to Boston and then to Des Moines. 2-510(1). Maine Exports (ME) loaded the lobsters on board an airplane in Portland.original automobile (which was otherwise undamaged).” On September 1. 2-105(6). Put another way. Must comply with reasonable instructions and these are reasonable here. that it wanted none of the lobsters. o No time problem here and notice was given. it claimed a right to give the Ferdinands a new car to be delivered fresh from the factory on August 20. 20 of them were clearly dying (15 due to bad handling by ME before they were handed over to the airline and 5 due to damage in transit). If they do not put in their notice. for reasons that are unclear. the other 30 were fine. 1-201(26). 1-204. cf. when Midwestern’s purchasing agent called to inquire. §2-510(1) tells us that if they failed to conform to the contract the burden stays on the seller until it is cured. Under §2-603(1) B/c of that they must reship them if ME offers to pay the freight. Midwestern can accept part of a commercial unit and reject the rest. Yes under §2-601. If Midwestern decides to keep 30 of the lobsters for resale.
When the horse was put together. The car dealer did a nice job repainting the car. He decided to erect a statue of a giant horse near the entrance to the ranch as a tourist attraction. • The tail didn’t conform to the model so there is a breach of an express warranty. Epeius sues. which is inconsistent with his ownership. and the fender gave her no more trouble. Pretend she is sitting in your office expecting an immediate answer. the first time it rained all the paint washed off her car. He painted the horse. May she revoke now? • Yes. The car had to be towed to the car dealer. Courts won’t allow you to get a new car b/c it would be a windfall. Sinon removed the tail and substituted one of his own design. She has missed enough work to worry about hurting her career. What do you advise? Is §2-609 of use to her? Is she decided to revoke acceptance and if the court agrees that this is allowed. Problem 59 . The next day she took the car back to have the fender repaired. Sinon took it down and shipped it back to Epeius with a letter of rejection that stated the problem with the tail made the horse unattractive and unusable. or can she revoke? • She can revoke. Under §2-607(3) must give the seller reasonable notice of the breach. Must she permit them to fix it.some courts say yes and some courts say no. Now Alice is back in your office. One commercial unit= the horse. The horse failed to attract new business to the ranch. and the scale model Sinon had seen when he decided to buy the horse had had a different tail. The horse was specially manufactured by Epeius of Paris and arrived in six boxes to be assembled by Sinon. 2-515. the right rear fender fell off. The car dealer fixed the engine. This gives the seller the right to cure. Technical acceptance doesn’t preclude him from a breach of warranty suit b/c the perfect tender rule doesn’t discuss remedies. does that fact preclude a suit for breach of warranty? See §2-607(2). However. May she use §2-608 or must she give the car dealer a right to cure? • Can argue she hasn’t even accepted the car b/c no reasonable time to inspect. and Alice missed an important sales meeting. The bumper falling off possibly substantially impairs the value to her. Under §2-602(2) (the risk of loss remains on the seller) it says must take care of those lobsters. is that a ground for rejection? See §2-601. What reasons lie behind the notice requirement? See §2-508. would it also permit her to recover for the cost of the rental car used as a substitute transportation while she was attempting to purchase a new car? If she goes out and buys a new car. Bring up the Shaken Faith Doctrine. glance at §2-608 and decided. Can revoke acceptance if substantially impairs the value to her. The horse has been designed by Epeius. can she make the first car dealer pay for it? See §2-712.the lobsters are delivered. more likely substantial impairment to her. this suggests acceptance. 2 weeks later the engine quit on her when she was in the middle lane of a superhighway at rush hour. May be able to deduct the value b/w the two cars. Sinon painted the rest of the horse black (in the delivered state it was white) and used it extensively in advertising for the ranch. what should it then do with the lobsters? See §2-602(2). Colorado. After three months of display. She’s also concerned that the car is going to keep breaking down right through and past the warranty period. • The rental car. The car’s trunk will not open. Problem 55: Ulysses Sinon ran a dude ranch in Troy. He returned the original to Epeius along with a letter of rejection. She took the car back to the dealer when the rain stopped and rode the bus to work (late again). If Sinon had made a technical acceptance. REVOCATION OF ACCEPTANCE Problem 58 The day after Alice Bluegown bought her new car. Sinon was displeased with the appearance of the tail. Did Sinon make a rejection or acceptance? If the tail did not conform to the model. Can he accept the body of the horse and reject the tail> (§2-508)…This horse in not a commercial unit. What steps should Sinon take to preserve his legal rights? See §2-607(3)(a). so he cannot reject the tail and just accept the body of the horse. this made her late for work. The dealer fixed it. In the meantime.
o No b/c the clause doesn’t kick in until the goods have been accepted. 2A. Inc.” but the majority of courts reads its subjectively (like it says). Arthur sent a notice of revocation of acceptance to ION. and . stating that the #745 brought back childhood memories that kept him from wanting the computer. WEEK 5 Risk of Loss: No Breach Problem 46 William College (non-merchant buyer) bought a car from Honest John.Suppose in the last Problem the K b/w the dealer and Bluegown explicitly limits the remedy for breach to repair or replacement of defective parts. Inc..” the buyer. this is a substantial impairment to him subjectively. Does §2-608 permit him to revoke for this reason? See Official Comment 2. Problem 61 After his car had broken down with the same defect six times Zack Taylor decided to revoke acceptance and return the car to Fillmore Motors. o No b/c most likely still going to have to pay them come hell or highwater. and Honest John promised delivery on the next Monday. when he began to use it. Arthur has witnessed the accident as a child. • There is a split among jurisdictions. but becomes upset when they constantly break down. Problem 63 Ambiance Hotel decided to acquire 10 horse-drawn carriages to be specially designed to carry its guests around the tourist areas of the scenic city in which it is located. However. It had the plans for the carriages transmitted to Buggies.) See §2A-407(1). Assume that this transaction qualifies as a finance lease. which assured Ambiance that there would be no problem with the creation of the carriages. the car was ready. See §2-719(2). he liked it and wrote them a letter of acceptance. he discovered that Fillmore Motors had gone bankrupt and was out of business. Arthur Author’s father had lost a finger when he reached under a machine to activate it. Zack is now in your office with this issue: may he revoke acceptance against the manufacturer of the car (which had covered its product with a limited warranty?) Note that the Magnuson-Moss Warranty Act might help consumers in this situation. but the buyer can get around this if the remedy fails its essential purpose. Ambiance financed this transaction by having Octopus National Bank purchase the carriages from Buggies. the dealership that had sold him the vehicle but that had been unable to repair it. Section 110(d) of the Act allows civil action against the warrantor that includes both legal and equitable relief. If the hotel accepts the carriages. the friendly car dealer. b. a newer and better version of the machine he had ordered. To Zack’s dismay. See §2A-103(1)(g).. ION sent him model # 745. can it revoke its acceptance and refuse to pay the lessor? See §§2A-407. Yes. 2A-515. the seller is allowed to limit the remedy. 2A-516 and its Official Comment. at the same price. On Monday. Problem 60 Arthur Author ordered an expensive computer (the ION # 740) from ION Business Machines. Is this really right? Some courts will struggle even though the comment says “to him. If the carriages are delivered to the hotel and Ambiance rejects them b/c they are the wrong color. The dealer argues that all defects have been promptly and successfully repaired and that the remedy of revocation of acceptance is therefore unavailable to Bluegown. must decide if this substantially impairs the value “to him. Is §2-508(2) relevant? How would you advise ION to respond to Arthur Author’s letter? • First. a carriage manufacturer. enclosing a check in payment. • Yes. He paid the price in full. and then lease them to Ambiance for a 10-year period. When he saw the computer. must Ambiance pay the lease amounts to Octopus National Bank? (You may assume that the finance lease contained a “hell or highwater” clause. he was horrified to learn that the computer was turned on by a hidden switch under the front panel. a.
When the term is F.O. Terms (1) Unless otherwise agreed the term F. is the same but without the buyer’s agreeing to pay insurance.” College said he was busy and that he would pick it up the next day. or b.. • Delivery terms: merchants have created a shorthand method of stating whether the sale calls for a shipment or a destination K by using abbreviations. Thus. Under §2-503. means the price stated includes the cost of the item. 2.O. offered Junk $200 for her piano. no breach. C. Junk said to Bargain. and F. Barbara Bargain.B. and the piano was destroyed. C. what result? See §2-709(1)(a). Delivery Terms • Shipment Contracts: a sales K where the seller need only get the goods to the carrier and then the buyer will take on the risk of loss. When talk about a piano they will need some time to move it. the buyer has not received the goods which means the risk of loss is still on the seller. if the named place is the seller’s warehouse. • Destination Contracts: where the parties agree that the carrier must deliver the goods before the risk passes from seller to buyer. & F. F.S. her neighbor.A. (which means. such as (F.cost and freight. These are not only delivery terms but also price terms and inform the buyer that the price quoted includes freight paid to the point indicated.B. the F. & F. F. Might Honest John claim he was a bailee so that §2-509(2) applies? (Risk of loss.B.O. insurance.S. even though used only in connection with the stated price.I. “Take it away. a destination contract results. to which Honest John agreed. Who had the risk of loss? See §2-509(3) and Official Comment 3. §2-319: F. which was a huge success. and C.” Bargain replied that she would come get it the next day with four strong friends and a truck.I. and Ex-ship are delivery terms used in connection with ships. C. Did the buyer receive the goods? No.O. is a delivery term under which a. It’s yours. freight. and the freight charge. That night Junk’s home burned to the ground.B.Honest John phoned College and said. the risk of loss will remain with the seller here b/c it hasn’t been a reasonable time for the risk of loss to pass over to the buyer.O. term calls for a shipment K.S. Read §2-319(2) and §2-322. o Under §2-509(3) for a non-merchant seller the risk of loss will pass to the buyer when the seller tenders delivery. The risk of loss passes at the named place. but we just don’t know when the time is where the seller can assume the buyer is never coming to pick up the goods.B.A.B..B. and use them in answering Problem 47 below. indicate a shipment K. C. “Take it away. can indicate either a shipment or a destination contract. If Bargain never picked up the piano and if it was destroyed in a fire 6 months after the sale.O. if it is the buyer’s store. typically this presumption will come into play. and the 2 women shook hands. Did the risk of loss pass from Junk to Bargain? See §2-503.free along side.O. In a K it is always followed by a named place (like F.B. F.F. the place of shipment. the place of destination. In the course of the sale. When a K is silent on risk of loss. and ex-ship-off the ship). When the term is F. the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier.O. 3. 1. Pittsburgh). the insurance premium.F.free on board.cost. Problem 47 Janice Junk (non-merchant) decided to hold a garage sale to clean up her home and get some extra cash. the seller must at his .§2-509) o Seller is a merchant so risk of loss passes to buyer when the buyer receives the goods says §2-509(3). • Official Comment 5 to §2-503: Article 2 makes a presumption in favor of a shipment K. & F.A. o Clearly 6 months is reasonable time to pick up the piano. who had taken reasonable precautions against such a thing. CIF. That night the car was stolen from the lot due to no fault of Honest John.. "free on board") at a named place.
vessel (which means.S. • Under §2-322. the requirements were met so the risk of loss shifts over to the buyer.C. as a matter of international law. Birmingham” (See §2-320) o Not a definitive answer here. vessel.O.O. If nothing is said about the subject. is a delivery term under which the seller must a. Seaworthy. a hurricane destroyed all 5 boxcars and their contents. Who had the risk of loss if (a) The K said. The Code is ambiguous. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323).S. and here they were not. which they did here.S. so the ROL is on the seller. Problem 50 The dispatcher for Perfect Pineapples. (b) The contract said. o Official Comment 2 to §2-509 tells us that once the goods are afloat the seller must identify the goods in order for the risk of loss to pass over to the buyer. but before he could do so. “F. If the parties had been negotiating for the purchase of this equipment but had not gotten around to signing the contract until the goods were . Under §2-319(2) must buyer pay the $1. Who bears the risk of loss? See Official Comment 2 to §2-509. Assume lightning strikes. so this would have to be litigated. (c) The contract said. destroying the vehicles after the carrier has received them but before they are loaded on board the railroad car that was to take them to Birmingham. in San Jose. had just finished loading five boxcars of the company’s product on board the cars of an independent railroad carrier when he received a notice from PPI’s sales department that the company had agreed to sell one boxcar load to Grocery King Food Stores “F. the requirements are met.” and the boxes had been properly unloaded just before the dock collapsed? Would §2-322 make the buyer pay? • Under §2-319(2).B. “C. AL. Savannah. Seaworthy and received a bill of lading from the ship as a receipt. GA.” Seller delivered the 80 boxes to the dock alongside the S.. “F. Seaworthy. Problem 49 Seller in Detroit. S. c.S. Inc.O.Y.O.O.own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503).S. even though used only in connection with the stated price. the dock collapsed. Problem 51 The University of Beijing in China ordered video equipment to be shipped from Applied Technology.800 F. Obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading. CA. seller’s processing plant. railroad cars Detroit” (See §2-319(1)(c)). When under either (a) or (b) the term is also F. the seller must in addition at his own expense and risk load the goods on board. o The risk of loss is going to pass to the buyer after the seller duly delivers them.B. None of the box cars were identified so the ROL did not pass to the buyer here. and b. If the term is F.800 anyway? What if the delivery term had been “Ex-ship S. Before the boxes could be loaded.I. everything thereon disappeared into the water. or o The risk of loss is not going to pass until the seller actually loads the goods onto the carrier. (2) Unless otherwise agreed the term F. MI contracted to sell and ship 50 automobiles to buyer in Birmingham. Detroit” See §2-319(1)(a)).B. Inc. N. will this create a shipment of a destination contract? See CISG Articles 67 and 69.A. car or other vehicle.F.B. The delivery term was “$1.B. At his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer.” The dispatcher agreed to divert one of the boxcars to Grocery King. "free alongside") at a named port. Problem 48 Seller in NYC contracted to sell 80 boxes if clothing to buyer in Savannah. so the buyer passes over to the buyer.A.
if the parties fail to agree a destination K will result. two things happened: the museum burned to the ground. The centaur? The buyer breached and the seller is protesting the breach. Before Empusa could respond. Titanic term. She also discovered that the gargoyle’s condition was such that it could not survive the exposure to sea air. The gargoyle arrived in good condition. presupposes that neither of the parties is in breach of their agreement at the moment when the risk would normally pass. Empusa protested the cancellation. Empusa Exports received a call from Griffin canceling the purchase of the centaur statue. As he was leaving the rental car lot. and the centaur statue was stolen from Empusa’s warehouse (through no fault of Empusa. The buyer is the one at fault. S. an Old World gargoyle. Dime-A-Minute demanded that Armstrong look to his insurance to replace the car. This would be litigated. and an Etruscan statue of a centaur. Would §1-207 have helped Empusa? What should it have done to use this section? Under §2-106(4). Problem 52 Dime-A-Minute Rent-A-Car rented a new sports car to Joseph Armstrong. which was not negligent in guarding it). Risk of Loss: Breach Problem 64 The Lamia Museum’s director Mandrake Griffin. b. If this is not true (for instance. §1-207 would have helped Empusa. A week later Griffin learned that the gargoyle was not from the “Old World” but instead had been cast in Hoboken many years ago and had somehow found its way to Europe. did Empusa waive its right to sue for the repudiation? See §2-106(4). Note In risk of loss. insurance becomes important. and Griffin wrote a letter to Empusa accepting the gargoyle and enclosing the museum’s check.A. but agreed to ship the other two pieces.already on board an airplane crossing the Pacific Ocean. • There is a strong presumption the ROL would remain on the lessor in a situation such as this. The relevant section is §2-510 (§2A-220 for leases and Articles 66 and 70 for the CISG). when the seller is in breach b/c the goods do not conform to the warranties made in the K). • The question would be is this or is this not unconscionable. but kept her mouth shut and shipped it anyway. Answer these questions: a. Which party took the risk of loss on 1. • Under the CISG. Empusa’s manager discovered that the sphinx was phony. Under §2-510. All were to be shipped “F. By shipping the other two objects after the museum refused to take the centaur statue. does the buyer have the risk of loss only from the moment of the signing of the K or from the delivery of the equipment to the air carrier? See Article 68. by shipping the other two and rejecting the other one this is probably enough.S. the answer is probably not. which was located in NJ. taking the sphinx with it. There are no deficiencies in sellers .A. §2-509 does NOT apply. the car was struck by a city bus due to no fault of Armstrong (who was not hurt). He sent Empusa a letter demanding that the museum’s money be returned and stating that he canceled the sale. both the UCC and the CISG. Both the museum and Empusa were fully insured. This decision proved wise since the Titanic encountered an obstacle on its sea voyage and foundered. The parties agreed that NJ law would apply. Did he have the risk of loss here? See §2A-219. The sports car was totaled. would that agreement be valid? See §§1-102(3) and 2A-108. on their way to the museum. but here the seller and the buyer are fully insured. These objets d’art were purchased under separate contracts from Empusa Exports of London. so she decided to send it by air in spit of the K’s F. If he had signed a rental agreement making him responsible for the car. ordered three new pieces for the museum: an Egyptian sphinx. • From the signing of the K.S.S. England. Titanic” on or about April 9. The ROL is on the buyer to the extent to any deficiencies in the seller’s insurance. Prior to April 9. Due to a snafu at the rental office. Armstrong did not sign a rental agreement.
Westinghouse agreed to sell 27 utility companies 80 million pounds of uranium over the next 20 years. It would have to be required. The other stated that the policy should not be deemed to provide protection for any claim where the risk of loss rested with another person.” Then the earthquake occurred. §2-615 would apply here b/c the goods are not yet identified (that this particular sun dail goes to this particular person). no he can allocate how he is going to deliver them as long as it is fair and reasonable. and he ordered one for $250 from Horology. and miraculously only V’s sundial was destroyed. Horology comes to you. 3. Will that section excuse them? • §2-613 only applies when the goods have been identified and they have not been identified here so this will not excuse Horology. §2-615 tells us that no it must not let V pick out a sundial. The sphinx? Seller ships phony sphinx. The other 11 sundials. §2-614(1) tells us that where the manner of shipment becomes impracticable reasonable substitute should be used and must be accepted. and all but three were smashed. c. The ROL is on the seller over and above B’s insurance. Under §2-510(1) the ROL is on the seller b/c the seller did not make a perfect tender (did not conform to the K). V. Impossibility of Performance Problem 65 V had always wanted a sundial for his garden. When V demanded his sundial. Horology pleaded §2-613. on being informed of the problem. one of their salespersons immediately put a red tag on one of the sundials. The Lamia Museum’s insurance policy with the Pegasus Insurance Company contains two clauses relevant to §2-510. It said. Insurance companies cannot get around there obligations by inserting provisions like these.insurance (the sellers insurance will cover everything) so there is nothing for the buyer’s insurance to cover. They are not effective. When Horology received V’s order. The gargoyle? Under §2-510(2) the buyer rightfully revokes acceptance. or can it simply cancel without fear or legal liability? For the test for impossibility of performance in international sales. They can’t object and say that you didn’t give a perfect tender b/c it was impracticable to ship it by sea. For §2-613 to apply the K language must specify that that the goods must be identified. possibly at a reduced price due to the damage. By the mid- . were undamaged. The average sale price per pound was $10. When Westinghouse made the sale. it actually owned only 15 million pounds of uranium. One provided that on payment of a claim the insurance company was subrogated to any claim its insured had against any other person. This is a bad argument. all exactly like V’s. When Empusa shipped the gargoyle by air instead of by sea could Lamia have treated this as an imperfect tender and rejected the gargoyle for that reason? See §2-614. What is the effect of these provisions? See Official Comment 3 to §2-510. 2. The latter had 12 sundials of the type V ordered in its storage room when an earthquake shook the building. using the basic facts of the last Problem. Is §2-613 or §2-615 relevant? Must it let V pick out a sundial. Problem 67 In the mid-1960s. All 12 fell over. “Hold for V. and must if offer to let him purchase at a reduced price. The remaining three were slightly damaged. Buyers insurance is going to cover all of this. Problem 66 Suppose the following. see CISG Article 79. he must act in a fair and reasonable manner. d. insisted on the right to look over the three remaining sundials and to select one for his purchase. He cannot be arbitrary. in an effort to boost sales of its nuclear reactors.
She contracted to sell 80 neon light fixtures to Signs. D also refused to make any more car payments. On March 5. they will get the remedy under §2-706 because they violated the code by not giving adequate notice to the buyer and the court will not reward them with the higher . The argument that the cost has risen to high that the K is impracticable is almost always a loser. (d) Does Light have the choice between the §2-706 (Resale) computation and the §2-708 (Repudiation) computation? o No. In late 1975. The Corporation claimed that the price rise was unforeseeable and that the contracts were excused under §2-615 as “commercially impracticable. The seller may recover the price under §2-709. the price or uranium had risen to $40 a pound. No. Problem 70 Lannie was the sole proprietor of Light’s. How should the dispute be resolved? If you could advise Westinghouse on how to avoid this problem in the future. because requires commercially reasonable notification to the buyer which was not done here. (c) If Light’s damages are measured under §2-708(1). Light sold Carl the goods and took payment. what would you suggest? • This dispute should be resolved in favor of the utilities. Westinghouse blamed the 1973 oil embargo and worldwide price fixing for the “unpredictable” price rises. either way he needs a commercially reasonable reason to revoke or reject. She tells you that on March 5 the fixtures were selling on the open market at $800 for 80 and that on March 15 the price for 80 fixtures was $900 in Austin and $800 in San Antonio. Westinghouse argued that the best evidence in the late 1960s and early 1970 syndicated uranium prices would be stable over the long term.” In particular. stating that 80 of the fixtures would be sold to the person making the best offer. The buyer has the risk of loss here because he took possession and did not have the right to revoke. The utilities sued. (b) Was the resale proper? No. He accepted the car and drove it for a month.$900(market price at place of tender)) under §2-708(1). The price was $1500 “FOB Austin” and the shipment date was to be March 15. the car disappeared and has never been found. so the resale was not proper. Answer these questions: (a) Does the UCC permit Light to select goods from the warehouse after the buyer repudiates? Yes under §2-704(1)(a) because it allows the seller to identify the conforming goods because they were still in his possession. WEEK 6: Remedies Seller’s Remedies Problem 69 B Auto sold a new blue sports car to D on credit. whereas under §2-706 she would get $500 ($1500(contract price) . but Lannie refused to agree to a cancellation. May the seller recover the price under §2-709? Who had the risk of loss? Would it make a difference if D had rejected the goods for the same reason? o The goods were accepted here and there was not a proper revocation because you have no right to revoke because the goods clash with your garage. a lighting fixtures business in Austin. She went to her warehouse and picked 80 of the fixtures from her large stock. He then sent B Auto a notice of revocation of acceptance and gave as his reason the recent repainting of his garage in a color that clashed with the blue car. The notice stated that D had parked the car down the block from his home (away from the clashing garage) and that B Auto should come and get it. Carl (who was always buying these types of items) saw the sign and offered Light $1000 for the fixtures. what amount may she collect? What amount under §2-706? She would get $600 ($1500(contract price) .1970s. Now Light comes to you. Texas. Then she posted a notice on the bulletin board near the cash register in her store.$1000(resale price)). Three days after B Auto received the notice. Signs phoned Light and told her that the deal was off. Westinghouse announced that it would not honor its contract. a firm in San Antonio.
Portia wasn’t there at the time. On the other hand. and Fun wants to sue. retailing for $2000. o If they complete manufacture and can’t resell after a good faith effort to do so. the seller can complete manufacture. it will cost CCC $9000 to complete the computer. . Machines sent a goon to her office to repossess the computer. The drafters meant for §2-708(2) to rescue such a seller from this dilemma. Milo states that as scrap the computer and its components are now worth $5000. after a good faith effort. Now Milo phones your law office for advice. but her struggling practice made it difficult for her to make the lease payments on time. Swimmer has now repudiated the contract. o It is only valid if there was no breach of peace. Its president comes to your law office with this problem. Here they can complete manufacture if it is commercially reasonable. and if the computer is finished.000 FOB CCC’s plant in Atlanta. they might by enticed to buy it at a price between $15. but not if it would clearly increase the damages from breach. sales agent for CCC. but the actual mechanics of the operation of the section aren’t clear. The assembly process costs the seller $400. can it made Plantation pay for the finished product? See §2-709(1)(b) and Official Comment 1 to §2-704. To help in your decision. The price was $20. and Portia found it most satisfactory.000. Problem 71 Fun sells swimming pools.damage amount after such a violation. there was a breach of peace here. negotiated a contract whereby his company was to design and manufacture a special computer that would regulate the timing of subway trains for the City of Plantation. After she had missed two payments in a row. they lose the profit they would have made from the sale to the second customer.” they could have sold 2 pools instead of just 1 but for the breach. we would probably want to know if the other cities are likely to purchase this computer or not to determine if completion is commercially reasonable. Problem 73 Lawyer Portia decided to rent a computer from Machines and use it in her office. When the computer was half completed. Machines sued Portia for $1200. A seller in such a position is called a lost volume seller. Does it have damages? How are they measured? o Under §2-708(2) they should still get $2000.000 and $20. is unable to find a new buyer for the computer. and the new city leaders decided to dump the subway renovations. They phoned CCC and canceled the computer order. the City of Plantation underwent a change of administration. The lease still had a year to run.” which contains accounting terms having no fixed legal meaning. with payments of $100 due each month. The computer arrived. (a) Should CCC stop the manufacture of the computer and sell it for scrap or complete manufacture and then try to resell it? See §2-704 and Official Comment 2. Fun is sure it can find another buyer at that price if it resells the pool. the buyer will have to pay for the finished product. but her loyal secretary protested mightily when the good grabbed the machine – at one point blocking the door with her body – but she was shoved aside and the computer was taken. o Under §2-704 Comment 2. A customer named Esther ordered one of the standard above-ground pools. Problem 72 Milo. The current market price is $2000 for such a pool. (b) If CCC completes manufactures and then. because they are considered a “lost volume seller. The pool’s components are purchased by Fun at a wholesale price of $800 and are assembled into the finished product. The problem with the sellers in Fun’s position (sellers having an unlimited supply of goods) is that if the law forces them to measure the damages under §2-706 or §2-708(1). The problem arises in part from the undefined phrase “profit (including reasonable overhead). Milo has heard that three other cities have subway systems similar to Plantation’s. (a) Was Machines repossession valid? What remedy does Portia have if it was not? See 2A-525.
even if that was entered in the contract. The cord was defective and broke during her first trick. Mort sold her one for $1. $750. 2-602(2)(b). (b) Which. Is it relevant here? • No. she filed suit against Mort asking for $50. Recently he decided to experiment with some new sounds. On learning that the piano had done this to him. Possibly depending on the actual language of the contract. Problem 75 Sheila Spin made it to the finals of the USA Yo-Yo Championship. Therefore. where she was widely thought to be a cinch to win the $10.000 a year giving concerts.50 (he put it on her bill) and wished her luck.so repossession is not valid. thus eliminating her from the competition. because he isn’t entitled to any consequential damages because he didn’t cover. (d) The §2-715(2)(a) test of consequential damages with its “reason to know” language is a restatement of our old friend Hadley v. Sibermann Electronic Music defended by (1) denying that it had warranted the piano in any way and (2) proving that the whine was harmless to everybody in the world except Cristofori. is the lessor required to try to mitigate damages by re-leasing the machine? See §2a-529. if any. we don’t look at this person’s special circumstances. The cause was a high-pitched whine (above the level of human perception) emanating from the electric piano. (b) Assuming there was no problem with the repossession. he brought suit against the piano company for breach of warranty. $2. no consequential damages. $500 was paid to experts to examine the piano and determine if it was the cause of the ear problem. Because he could have resold the piano for the market price he is only entitled to incidental damages. it would not be valid. Mort defended on two grounds: (1) merely knowing about the intended use of the yo-yo in the competition wasn’t enough to impose liability on him unless the parties had agreed to put this risk on him.000 first prize.000 was lost income for the next 15 years.000 was the doctor’s fees. did the Silbermann Company breach? Does the company’s care in manufacturing the piano or the freakishness of the injury keep the warranty from being breached? • There was a warranty of merchantability. Sheila refused to pay it. if any. He purchased an electric piano for $3. The purchase was negotiated orally. (c) Which. and (2) her damages were too speculative. Cristofori took an axe and chopped the piano into unrecognizable bits. Portia can seek an action for replevin.000 was the value of Cristofori’s hearing.) Answer these questions: (a) What warranty. His damages were claimed as $1. This was not breached because the piano was fit for its ordinary purpose. Answer these questions: . he noticed a strange ringing in his ears. When the bill came from the drug store. $1. (This action ended his ability to revoke his acceptance. Every expert witness who testified stated that Sheila’s ability with the yoyo was the greatest in the world.000 consequential damages. Subsequent medical examination revealed that Cristofori was going deaf.000 from the Silbermann Electronic Music Company. In fact. of the items claimed are incidental damages under §2-715(1)? • Only the $500 for the payment to the expert. Baxendale. (The company proved that the accident occurred to him only because of the bone structure of his skull coupled with the fact that he had a metal plate installed in his head as a result of an auto accident in his youth. based on the following elements: $3.000 was the cost of the piano. (c) Could the lessor avoid any possible duty to mitigate by so stipulating in the lease agreement? See §1102(3) No. The day of the competition she went into the Smalltime Drug Store owned by her Uncle Mort and told him that she wanted to buy a four-foot nylon yo-yo cord to use in the competition.000. Buyer’s Remedies Problem 74 The world famous pianist Cristofori made $50. and $5 was for the axe.) When he calmed down. §§2-608(3). After three months of arduous practice.755. of Cristofori’s damaged are recoverable under §2-714? • Damages for any non-conformity. if any. there was no written contract.505. Cristofori practiced day and night to master the new instrument. That she didn’t have.
The SBA ordered the wine from Classy Caterers. The fact that the car they covered with always sells for $2000 more means that they can only recover $4500 because the trailer they received instead was worth $2000 more than the original. or is the company protected by the disclaimer of consequential damages? See §2-719(3). Therefore.(a) Does the UCC permit Sheila to refuse to pay the bill? See §2-717 • Yes. Classy Caterers was able to find identical wine in its own city for . the risk was on him even without his agreement to assume this risk. Home on Wheels defended by offering to show that (a) the Behemoth was selling for $10. and (b) the Behemoth always sells for $2. this has been rejected by a majority of courts. • No. The Transients planned on spending an additional $500 to build a foundational that the Blocklong trailer had to have for maximum utility. faculty.000 from another dealer. under the UCC this disclaimer doesn’t eliminate incidental damages.000. Classy Caterers ordered the wine from Grapes Vineyards in California. and on May 10 Home on Wheels informed the Transients that the deal was off. The Behemoth was larger than the Blocklong model (it had a basement and a laundry room). The Transients then brought suit. this disclaimer would eliminate incidental damages as well because they are a subset of consequential damages. they can get the difference between cost of cover and the contract price. Must Rambo Trucks pay the storage charges. (c) Is knowledge of the possible consequential damages alone sufficient to impose liability on a seller? Or is Mort right in saying that the liability for consequential damages attaches only if the seller has agreed (expressly or impliedly) to assume the risk? See Official Comment 2 to §2-715. and alumni. “FOB San Francisco” for $750. 2-715(1). The first day on the job. which charged it $50 a day for storage.and cheesetasting party for the students. if they cash the check. they saved $500 from cover for not having to build a basement.000 from the Home on Wheels Sales Corporation. but Grapes Vineyards when bankrupt on March 25.000 up to September 5 when the price rose to $15. and Mrs. • Storage costs are incidental damages. staff. delivery to be made on May 20. this wasn’t too speculative because she was likely to have won this competition according to all the experts. §2-717 says that Sheila can refuse to pay the bill if the warranty has been breached and notice is given of the non-conformity. However. therefore. but it didn’t require a foundation. so now they can only recover $6500. so Hercules Moving Company revoked its acceptance of the truck. It claimed a security interest in the truck pursuant to §2-711(3) and pending sale stored it at a truck depot. the wine to be delivered on March 30. • Under §2-712. the truck proved incapable of climbing even small hills. Problem 78 The Student Bar Association of the Gilberts Law School decided to hold a mammoth wine. What damages can the Transients get under §2-712? See Official Comment 2. Due to widespread industry strikes. They should write “payment in full” for it. so $7000.000 more than the Blocklong since the former is a snazzier trailer. Unaccepted Goods Problem 77 Mr. They agreed to pay $1. (b) Are the consequential damages for which Sheila asked too speculative? See Official Comment 4 to §2715. Under common law. • The Uncle’s argument is the “tacit agreement” test. the price of trailers rose dramatically in the early spring. the day of the party. but only consequential damages. Transient ordered a 2002 Blocklong model mobile home for $8. Problem 76 Rambo Trucks sold Hercules Moving Company a large moving van.000 for it. The contract of sale limited the buyer’s remedy for breach of warranty to replacement or repair only and clearly disclaimed liability for consequential damages. this is acceptance of that payment only. The Transients shopped around and on September 25 bought a 2003 Behemoth model mobile home for $15.
By October 8 the price had risen to $8000. the agreed price to be $5000. so $0.$750. As general counsel for the Army. promising each week that it would be repaired. At the end of that period. and Hawaiian Cattle repudiated the contract on July10. she was killed. would the four-year period on the manufacturer’s implied warranty start running on the date of delivery to the dealership or on the date of the sale to the ultimate consumer? Would we reach the same result on an express warranty given by the manufacturer? • The implied warranty goes back to the date the manufacturer delivers it to the dealership. Now do it under §2-713. The courts have said go with the “commercially reasonable” time.” Three years and 358 days after Jane purchased the car. on Oct 8. the dealer told her to come and get the car. and it bought the wine on March 25 for that amount. • Under §2-712. The SBA paid Classy Caterers $1. the price of beef rose sharply. even though §2-713 says at the time when buyer learned of the breach. The SOL accrued somewhere between the 358th day and the day she was killed. You are the attorney for her estate. (c) If the manufacturer of a vehicle sold it to the dealership. Answer these questions: (a) When did the COA accrue with regard to the effective steering wheel? With the delivery of the car? On the 358th day of the fourth year? On the day of the fatal accident? • Not with the delivery of the car b/c of the express extension of the SOL. Does it help to reconcile these sections to know that the drafters of §2-713 were thinking of a buyer who learns of the repudiation after the date set for the original performance. not (as in this Problem) before the due date? • Damages would be the difference between the contract price and the market price at the time of repudiation. This time Jane was not lucky. Classy Caterers filed claims for damages in the bankruptcy proceeding of its defaulting supplier. She had the car towed to the dealer’s place that same day. they could get cover minus contract price. Under §2-713. Compute the damages due Classy for the failure to deliver the wine under §2-712. when the price was $6000. so $50. Shortly thereafter. but if looking at express then the courts say the date is the dealership delivers the car to the purchaser. On March 25. and both she and the car were uninjured. the price of similar wine in San Francisco to the site of the party would have been $100.000 for the wine. and §2-723(1). Read §2-610. and the dealership then resold the vehicle to a consumer. they could get market price when buyer learned of breach minus contract price. Here the commercially reasonable time is at the time of the repudiation. Luckily she was able to brake in time. of beef. On the way home the steering wheel again came off in her hands. The Army’s procurement officer scrambled around and on July 15 discovered it was possible to cover by buying similar cattle from Texas at a cost of $7000. Delivery was set 6 mo. the steering wheel came off in her hands. less expenses saved. The dealer kept the car for three months. 2002. later. The written warranty that came with the car read: “The manufacturer will replace any part found to be defective in the first five years. The Army decided not to cover at all and instead served the troops beans. §2-713. (d) Should the courts draw a distinction as to when the COA accrues based on whether the injury is to person or to property? Code sections week 7: . advise the Army of the amount it can recover from Hawaiian Cattle. the Army sent Hawaiian Cattle a telegram stating that it didn’t accept or recognize the repudiation and expected performance on October 8. Anticipatory Repudiation Problem 80 The US Army contracted with the Hawaiian Cattle Company for the purchase of 1000 lbs. (b) Was the statute tolled during the three months that the car was in the shop? • The courts split on this. Instead. See Official Comment 5 to §2-713. The Statute of Limitations Problem 82 Jane bought a new car on April 1.
” Is such an instrument technically negotiable? o This is a conditional promise. Problem 89 The promissory note stated that the rate of interest was “2% above the prime rate as of the date of . What is the name that the Code gives to Portia in this situation? See §3-103(a)(11).” Does this clause destroy the negotiability? See §3-106(b)(i) and its OC 1. Article 3 still applies. the seller told her he refused to take her personal check. 3rd paragraph. Can the bank treat the checks as if Walter had signed his own name? See §3-401(b). see the security agreement signed this day creating the security interest. The bank gave the check to Portia. or by a word. mortgage or loan agreement for that accompanying statement. He signs all of the store’s checks by writing “Capitalist Company” on the drawer’s line. Problem 85 Walter Capitalist is the sole proprietor of the Capitalist Company. for rights duties on default. It depends where you practice. but the checks are drawn of his personal checking account at the Octopus National Bank. so No.• Courts have different positions. Negotiability Problem 83 When law student Portia Moot went to buy a used car from a man who sold it through the newspaper. §1-201(39) tells us that as long as the symbol was executed or adopted by the party with the present intention to authenticate the writing the symbol will be fine. Are his checks negotiable? See §1-201(39). • Yes b/c §3-104(b) says that a signature may be made (ii) by the use of any name. or symbol executed or adopted by a person with the present intention to authenticate a writing. and the bank then issued the cashier’s check. but rather refer to a security agreement. but the instrument no longer meets the technical definition of a check (which requires that the drawee be a bank). with Portia’s car seller being named as payee. prepayment. §3-106(b)(i) allows a reference to the appropriate writing for a statement of these rights. the Adhesion Insurance Company marks it “Void after 90 days. Problem 84 Texas millionaire Howard Chaps signs all of his checks with a small branding iron that prints a fancy X on the signature line. Problem 88 The promissory note contained this clause: “ The collateral for this note is a security interest in the maker’s art collection. Problem 87 Whenever it mails out a check. The official comment tells us that in some cases it may be convenient not to include a statement concerning collateral. • A negotiable instrument containing a promise to pay money is a note and one containing an order to pay money is a draft. demanding instead a cashier’s check payable to his order. • Portia is considered the remitter by the Code. Portia went to Octopus National Bank and paid the bank the amount required. and she in turn handed it over to the payee. o This does not destroy its negotiability. mark. or acceleration. Notes • If the drawee on a draft is not a bank. his checks are negotiable. Official comment 39. including a trade or assumed name. • Yes.
who will then supply additional collateral in an amount and kind to be specified by the holder. 20__. and the remaining installments on the same date of each month thereafter until paid.03 thereafter.”§1-208. “Maker hereby grants the payee a security interest in the collateral described below. So its okay here. Yes. blanks left in contemplation refer to 3-108(b). acceleration clause okay if follow definite time or on demand. “Maker agrees that signing of this note also indicates acceptance of the contact of sale for which it is given.” This means that the instrument must not be burdened with anything other then the simple and clean unconditional promise or order. under 3-104(a)(3)(i) this doesn’t destroy negotiability. .92 each and in a final payment of $2.” Yes. b/c it carries another obligation. §3-104(a)(3) contains a few exceptions. If the maker of a note adds any additional promises to it. Problem 90 Do the following clauses in an otherwise negotiable promissory note destroy negotiability? a. Does the fact that the holder of the note has to consult sources outside of the instrument in order to calculate the interest due destroy negotiability? See §3-112 o No. Problem 91 Do the following clauses in a promissory note destroy negotiability? a. at any time the holder directs. but the holder may demand payment at any time prior thereto if he deems himself insecure. this is an instruction in addition to the payment of money which isn’t allowed. 2002. it cannot be made to truck around other legal obligations. “Maker agrees to let the holder select and attorney for the maker. under 3-104(a)(3)(ii) allows this.maturity. Yes.414. c. §3-112 tells us that the amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument. the note becomes non-negotiable b/c the prospective holder is then given notice that the note is or may be conditioned on the performance of the other promise. he may so inform the maker. E.” 3-108(b). c. but §3-311 regulates the contractual result of such a restriction. d.” The revised version of Article 3 drops any discussion of the effect of this language on negotiability. “Payable 30 days after sight. not 3-108(a). so No b. “Payable in 11 successive monthly installments of $2. made on January 24.” No.” No. e. the payee agrees that the drawer has made payment in full of the debt drawer owed to payee as a result of the purchase of a 2002 Ford. 2010. The first installment being payable on the ___ day of ___.” No. On the front of a check: “By cashing this check. “Courier Without Luggage” Requirement PA Justice Gibson once said that a negotiable instrument must be a “courier without luggage. under §3-104(a)(3)(i) says you can mention additional collateral.415. b. “Payable on November 8.” The prime rate is the interest charged by banks to their best customer and can be ascertained by reference to financial publications. said attorney is hereby given the authority to confess judgment against the maker in any appropriate court.” Yes. “Maker agrees and promises that if the holder of this note deems himself insecure at any time.
“Payable on my next birthday. e. Problem 92 Do the following clauses in a promissory note create bearer paper? a.” See Official comment 2 to §3-109.” o Yes. “Pay to bearer. (No idea when he is going to die. i. o Yes. “Payable on November 8. h. 2010.” o Yes. c.” See §3-115 and OC 2.” See §3-110(c)(2)(i). so no definite time. f. “Pay to the order of John Smith or bearer. The drawer of a check drew a line through the words “the order of” that were printed on the check prior to the space for the payee’s name. If the drawer of a check or the maker of a promissory note wants to destroy negotiability. This is not order paper b/c this is not paid to the order of John Smith. §3-109(a)(3). “Pay to John Smith. but if my potato crop fails that year. So no.” o Yes. so this is an acceleration clause which is allowed. it shall become payable 10 days after distribution of his estate to his heirs. “Pay to the order of Cash. if dated it’s okay. this would be considered bearer paper b/c this is definitely not an identified person. “Pay to a Merry Christmas. o Non-negotiable b/c no order or bearer paper used. so yes.” Such notes are called post-obituary notes. d. “Pay to John Doe’s estate. so must go to the common law. §3-109(a)(1).” (This is a definite time. extension to a further definite time.” Yes. g. “Payable 100 years from today. This is non-negotiable. Problem 93 Do the following clauses create order or bearer paper.d. e. To destroy negotiability they should write “non-negotiable” on it . not really ascertainable. “Pay to the order of the President of the US. payment shall be extended until November 8 of the following year. Bearer trumps order language if both listed. b. b. o Order paper d.” No. “Payable on November 8. negotiable? See §3-104(c). what should be done? See §3-104(d). then its order paper. Why would this ever be desirable? o It’s okay. but the maker hereby reserves the option to extend the time of payment until he can pay without serious financial hardship. “Payable when the sun comes up tomorrow. c. as altered. but if my rich uncle Al dies before this note is due. or do they make the instrument non-negotiable for failure to create either? a. Is the check. this still means the check is payable to bearer.” No under 3-108(b)(iv).” o No. Comment 2 to §3-109. under 3-108(b)(iv).” See §3-110(c)(2)(iv). to indefinite time. “Payable 120 days after my rich uncle Al dies. Acceleration clauses are allowed.) Second portion will occur 1st.” If undated you wouldn’t know when its due. “Pay to the order or (blank). o Bearer paper until filled in.) Date isn’t definite. 2010.
drawee: Mechanical National Bank. To which parties should these labels be attached: drawer. Speed delivered the check to the bank. payee: William Egger. ONB. Bearer Paper 1. AND The delivery of the instrument to the transferee (who thereupon qualifies as a Holder) Note: An indorsement is a signature placed on an instrument by the payee or any later transferees. who wrote his name on the back of the check. Cynthia. Billy Speed. even if not endorsed. (Do not need “pay to the order of” here). CG. the manager gave the check to him for delivery to the Octopus National Bank. Special Indorsement: to preserve the “order” character. Bank: ONB b. even against HDC. and Mechanical National Bank (drawers and drawees aren’t holders) c. H. Order Paper: when a payee wants to transfer it to another person. ONB then forwarded the check to the MNB. where the grocery store had an account. He gave the check to Egger. but simply deposited it in his account with ONB. a. payee. the drawee bank will require the payee’s indorsement. Desirable to protect drawer or maker… allows them to use defenses down the road. the manager of CG. if put in payee’s account (4-205) . the Check Collection Services’ messenger. 2. Did the following people qualify as holders: David Hansen. The manager paid Cynthia $50 and then took the check and wrote “Pay to CG” just above Egger’s signature. o Yes. drawee. Egger. Egger gave the check to his wife Cynthia. depository banks are holders.inconspicuously. 3. If Egger had failed to indorse the check. Needs no indorsement Delivery of the instrument to the transferee (who thereupon qualifies as a Holder) Special and Blank Indorsement 1. 2. and MNB? o All holders except: David Hansen. or depository bank? o Drawer: David Hansen. Blank Indorsement: when the payee simple signs the back of the instrument. Negotiability is not affected by the language written on the instrument during the course of negotiation. the original payee may specify a new payee by writing “Pay (name. came by. using one of the checks MNB furnished him when he opened his account. who took it down to the Cornucopia Grocery (CG) and asked the manger to cash it. Order Paper Indorsed by the proper person (who thereby becomes the Indorser). where the bank’s check processing machine merely stamped the words “ONB” on the back of the check. §3-501(b)(2)(iii). would the bank have been a holder? See §4-205. Hansen owed 50 to Egger and decided to pay him by writing out a check for $50.” The new payee becomes a holder as soon as the instrument is delivered. Consumer Notes How do you negotiate the paper? §3-201 1. Dep. Legal effect? It converts the paper into bearer paper. When Billy Speed. 4. Problem 94 David Hansen banked with the Mechanical National Bank (MNB).
so anyone in possession is a holder. o Bank should have her endorse the way written on check and the correct way (3204(d)) Problem 97 Desert Paradise. When the latter tried to cash the check at the drawee bank. stapling is affixed. sold them in bulk to ONB. the bank’s attorney. o William Egger and manager of the Grocery Store and ONB (3-204) Problem 95 A check was made payable to “Mary and Donald Colpitts. . and asked the manager to cash it for him. o Yes. Laura’s father. made payable to her order. e. Is ONB even a holder? See §3-204(a) and the OC 1 (last paragraph). Rather than indorsing its name hundreds of times of each of the notes. Laura had signed her name to the back of the instrument. initiated a scam in which hundreds of middle-class people signed promissory notes in order to invest in the supposed development of a retirement community to be built in the Southwest. which it then folded into each note. she was annoyed to discover that it was made out to “Portia Mort. the bank alerted Laura. Can she retrieve the check from the Grocery? See §3-306.” Problem 96 When Portia Moot received her 1st paycheck from the law firm that recently hired her. and when they tried to raise defenses of breach of K and fraud. What was the legal effect of the language written on the check by the grocery store manager? o It made the bearer paper into order paper (3-205(c)). Grocery. Desert Paradise. Which of the parties are properly called indorsers? See §3-204. The manager made Harry indorse the instrument (reason: to make Harry contractually liable thereon (§3-415(a)). Harry. she mentioned the problem to the bank clerk. this was bearer paper. Problem 99 Assume that on receiving her paycheck. Cornocopia is not a holder. and she arrived at the bank immediately. ONB claimed to be a holder in due course. (DP). what if it simply is payable to “Mary Colpitts. Is the Grocery a holder? o Yes. o Both parties must endorse to negotiate the instrument. which was then blown out a window and landed at the feet of a criminal. forgery is not effective to negotiate the instrument.” When she took the check to her bank to cash it. Donald Colpitts” with no connecting word? Are 2 indorsements needed here? See §3-110(d) and OC 4. The thief who stole the briefcase forged her name to the back of the check and transferred it to an innocent party. it contained her monthly paycheck from the law firm for which she worked. the payee on all of these notes. not connecting it and any way other then the fold. DP had its indorsement printed on a separate sheet of paper.d. and the last sentence of §3-204(a) says that it must be affixed to the instrument.” Must both payees indorse it in order to negotiate the instrument? What if the check were payable to “Mary or Donald Colpitts”? Must both payees indorse now? Finally. Harry took the check to the Grocery and told the manager that he was Lance lawyer. Problem 98 When Laura Lawyer’s briefcase was stolen. What does “affixed” mean? Would a paper clip do the trick? A staple? o ONB is not a holder b/c folding and paper clipping does not mean affixed. it’s considered “or. Then only one needs to endorse the instrument when nothing is specified. who promptly called you. so as to take free of these defenses. A separate paper used for indorsements is called an allonge. so Harry wrote “Lance Lawyer” under Laura’s name. (3-306). DP’s officials absconded with the money and left the desert untouched. Inc. She has not indorsed it. What steps would you suggest the bank follow in this situation? See §3-204(d) and its OC 3. ONB demanded payment from the makers of the notes.
a $200 discount. Her mother needed some reason to hold onto the check for a week before cashing it. under 3-205(c). so on the back she wrote “Pay to Lilly Lawyer” and then signed her own name. The same rule applies to missing indorsments of the payee of special indorsee. but by the time it got there Mrs. Is Last National Bank a HDC? This question will be important if Tom has skipped town and Last National decides to sue Mrs. Thus indorsed. It depends on whether they have had to give money out of their own pocket.000 or $22. she simply wrote her name on the back and mailed the check to her mother. so Cornocopia is not a holder. Holders in Due Course (HDC) Problem 103 Zach bought a car for his business from Fillmore. forgery is not effective to negotiate. Last National Bank sent the check to First County Bank for payment. if he withdrew $750. . and Harry found it.000 and gave her the note with the understanding that the extra $2000 was a Mother’s Day gift. the owner of Fillmore. The check for $1000 was drawn on her bank. Is the Grocery a holder? See §3-205(a). Fillmore sold the note to the Pierce Financing Company for $22. Later that afternoon he withdraws $500. holder can make bearer paper into order paper. Lilly had to endorse first. would the mother be a HDC for the full amount? The Finance company is a HDC for the $23. since valid indorsements are not required to negotiate bearer paper (§3-201(b)). Tom took the check to his bank. signing a promissory note for $23. If the bank permitted Tom to get the money before the check was cleared through the drawee bank. First County Bank.000. BUT once an instrument becomes bearer paper. Nodding under §3-414.800. they aren’t out of pocket anything. the account contains $500. Has the check now become order paper requiring the mother’s indorsement for further negotiation? See §3-205(c)? o Yes.800? If Millard Fillmore. the instrument was blown out the window. the bank would be a HDC for the $250. so when she received her paycheck. Problem 105 Same situation as Problem 104 except that when Tom deposits the $1000 check in his account. and Zach refused to pay. Millard would be a HDC for only the $21. However. Is the finance company (assuming good faith and lack of notice) a HDC for the $23. Problem 104 Tom tricked old Mrs. Rule: The rule here is that ay unauthorized indorsement of the payee’s name or any special indorsee’s name is not a valid negotiation and gives subsequent transferees no legal rights in the instrument no matter how innocent they are or how far removed from the forgery.000 because she gave no value for the other $2000.Problem 100 Assume that Laura wanted to indorse the instrument over to her mother. later possessors of the instrument do not qualify as holders. the Last National Bank would be a HDC because they would have to pay out of their pocket. The car fell apart. and there is not $1000 in Tom’s account. First out. o No. subsequent unauthorized signatures have no effect on the holder status of later takers. put it in his checking account. He indorsed “Lilly Lawyer” under Laura’s name and transferred the check to Grocery. so she wrote “Pay to Lilly lawyer” above Laura’s indorsement. Nodding into writing a check payable to Tom (she thought he was the agent for a local charity).000 payable to Fillmore. and after indorsing it. Problem 101 Laura never had a course in commercial paper.) What result if he withdraws $750? The bank is not a HDC because they have failed to give value themselves. Nodding had stopped payment so that the check was dishonored and returned to Last National. owed his mother $21. Is the bank a HDC for any amount? See §4-210(b) (the FIFO rule: First in. Last National Bank.
the date was on the check.) Harold. was not amenable to this suit. making the check out to “Amerex Corp. as such. The bank now demands payment. Is it? No. Under §3-304(b). Problem 107 Fred wrote a check on Jan 5. his dentist. he did it every month for two years. Paine then indorsed the check over to his local grocery store on August 31. claiming to be a HDC. the head cashier at the bank. The abbreviation of their name was allowed by the court because several people actually pay their bills this way with this abbreviation. so finally he decided to embark on a life of crime. for $80. Problem 111 Giant bought some machinery from Tractors. NY 10003” (the actual address of American Express). Paine. Problem 109 Dan Drawer wrote a check dated April 30 to Dr. On the corporate check requisition form he wrote a phony explanation that this check represented shipping expenses. and. The UCC does seem to retain the “forgotten notice doctrine” under §1-201(25). he did it himself. Can anyone become a HDC of this instrument? Something is only an alteration if it is an unauthorized change. Paine was not aware that the check fell to the floor behind his desk. Dr. Harold said he had forgotten the request not to pay. and in payment executed a promissory note payable to the . when the janitor found it. took Ellen’s phone call and promised not to pay the note when it was presented. and it bounced on Sept 3. Ace sold the note at a discount to Big Town Bank. 2008. On its face the note calls for John to make 12 monthly interest payments before the note matures. in big letters. a missed interest payment is not the same as a missed principal payment. a penciled notation. The note stated that it was “payable at Busy State Bank” (which in this case means that the bank would pay the note when presented and then expect reimbursement from the maker. only when principal payments are missed and the holder is put on notice can they lose HDC status. Under §3-304(c). “Missed Paying First Installment. but mistakenly put down 2007 as the year.Problem 106 The corporate treasurer of the Business Corporation was having major troubles paying his personal bills. Problem 108 Ace Finance Company was the payee on a promissory note signed by John Maker. NY. in payment for services rendered. This caused no suspicions at Business Corporation and. American Express replied that it was a HDC of these checks and. when the drawee bank informed the manager of the grocery store that Dan had stopped payment because the dental work had been done badly. so this is not considered an alteration and someone can become a HDC. 770 Broadway. Problem 108 involves the “forgotten notice doctrine. she was furious and decided not to pay the promissory note she was furious and decided not to pay the promissory note she had signed. but the courts don’t like this doctrine at all. Is the grocery store a HDC? No. Four months went by. crossed out the last digit. the bank paid the note by accident. He saw his error. When Business Corporation finally figured out what had happened. thus encouraged.” which permitted a holder to forget notice and thus become a HDC if sufficient time passed between the notice and the acquisition of the instrument. Here he authorized the change. Business Corporation pointed to the suspicion circumstances and to UCC §3-302(a) and 3-307 (arguing that the corporate treasurer was a fiduciary). If the note has written on it. and wrote 8 above it. How should this be resolved? American Express is a HDC because they have given value up front. on one hectic afternoon. it sued American Express in quasi-contract for all the money it had received in this fashion. so the grocery store was clearly on notice that the check was overdue because more than 90 days had passed since it was issued. Dr.” can Big Town Bank ever qualify as a HDC? Yes. where it lay until the end of August. expecting to get a payment back in return.. Problem 110 When Ellen found out that the computer she had purchased didn’t work. He used a corporate check to pay his American Express bill.
May Stephen assert his damages against the father’s demand for payment? Same result if the boat never sank. Tractors sold the note without indorsement to the Friendly Finance Company for $1500. who paid him $1700 and took the note without knowledge of the underlying transaction. he sold it for $1800 to Portia. and the day before the lawsuit was filed. a con man. Reason why father cannot lock this defense in recoupment is b/c the seller who is HDC cannot shield himself from a claim in recoupment.000 cash as a down payment and signed a promissory note. Simon negotiated the note to a finance company. the actual HDC will win out. Mere knowledge of the problems wouldn’t strip him of his HDC rights. When Ronald discovered that Simon lacked title to the bridge.order of Tractors for $2000. is Alfred liable to Lorenzo? See §3-305(a)(2) and 3-303. knows of Manny’s problems with the car? If Manny won’t pay. taking in payment a promissory note for $2000 made payable to the order of Happy. Does the shelter rule give him Portia’s HDC rights? Does Alfred reacquire his original HDC status when he gets the instrument back? Could he sue Jessica or Lorenzo? She is an actual HDC. Alfred’s daughter Jessica had a birthday shortly thereafter. stating that the machinery didn’t operate properly. Alfred was a HDC and Lorenzo has rights of a HDC. May she recover from Alfred? See §3-305(b). She had no notice of problems with the instrument. When she presented it to Manny for payment. Friendly decided to sue Giant. and offered to sell it to him for $2. the used car salesman. and Stephen incurred $100 in medical bills as a consequence? Yes. and his father presented it to Stephen for payment at maturity. prior to the gift.000 (described as a bargain). Lorenzo. so Alfred indorsed the note in blank and gave it to her as a present. He had Tractors’ president specially indorse the note over to Friendly right away. and it cost Stephen $300 to have it dredged from the bottom and restored. Does he have a real defense of fraud here? . Friendly’s lawyer noticed that the note had never been indorsed by Tractors. moved to NYC. This is not a valid claim to reduce the amount owed on the note. Problem 114 After Lorenzo (from the last Problem) acquired the note. of course). sold Manny a lemon car. a local attorney. No. he refused to pay the note. Problem 113 If in the above Problem Jessica had thereafter made a gift of the note to her husband. he refused to pay and instead filed for bankruptcy.000. This proved to be untrue when the sailboat went down in the first storm that came along. Manny refused to pay it to Jessica. Problem 116 When Ronald. would Lorenzo have HDC rights? Does it matter if Lorenzo. Lorenzo would also have rights of a HDC under the shelter rule. he gets his own rights back. paying $500 down and signing a $1000 promissory note for the balance due. Is Friendly a HDC? Friendly had notice before the indorsement so they are not a HDC. even though he has no value (and is not a HDC) the father has an argument to enforce it under the shelter rule… He would take shelter under Jack as a HDC. but she has the rights of a HDC because Alfred was a HDC. payable to Simon. not hers. Stephen loved everything about the boat except the color. told Ronald that he was the owner of the bridge (a lie. but Jack’s dog bit Stephen on the leg one week after the delivery of the sailboat. Jack had given the promissory note to his father as a birthday gift. so yes. (2nd part)… this is setoff and Stephen cannot use setoff here. he was impressed by the Brooklyn Bridge when he first saw it. Simon. If she does and prevails Alfred will reacquire the instrument. Prior to the sale Jack had told Stephen that the boat was constructed so that it wouldn’t sink even in the roughest weather. and he promptly repainted it his favorite color black. which claimed to be a HDC. When the note matured. a local licensed money broker. Is Jessica a HDC? She is not an actual HDC. In the meantime. newly rich. Ronald paid $20. for the rest. Problem 112 Happy. Happy discounted the note with Alfred. Problem 115 Stephen bought a sailboat from Jack. and then the suit was filed. the car had fallen apart and he felt that he shouldn’t have to pay for a pile of junk. The maker of the note refused to pay the note when it matured.
000 to the Orsino Finance Company. No. which was evidenced by a promissory note she had signed. The payee endorsed the note over to Big National Bank for $725. He asked for the note back. worried. Problem 118 Childe. When the fist payment came due. Problem 117 A child prodigy. Who wins? The kid wins b/c he is an infant and under 3-305(a) this is a real defense which is valid against a HDC. But if the bank isn’t a HDC the bank doesn’t take free of the claim to the instrument and the childe can get the check book. Problem 121 . The company was unaware of Thomas’ age. He looked much older than he 17 years. which claimed quite convincingly to be a HDC. and handed it over to the salesman. In due course the bankruptcy proceeding culminated in the judge’s ordering that Elsie be discharged from all her scheduled debts. Thomas. if the bank is HDC. A week later Malvolio received a note from the Olivia Finance Company saying that his note had been assigned to them and that he should direct his payments to their office. asking the court to restrain the bank from presenting the check to the drawee and to order replevin of the check. Does Malvolio have remedies outside the Code? Think back to Contracts. which is required to be good against a HDC. Byron Auto indorsed the check on the back and cashed it at its own bank the Crusaders National Bank. had been playing the piano since he was 3 and making professional tours of the world since he was 12. Must Elsie pay? See §3-305(a)(1) and (b). they made HDC noises and became quite nasty. planning a tour with it. Thomas refused to pay. received a check for $1000 from his employer and decided to use it to buy a car from Byron Auto. Malvolio. Two years later. and §3-306. under 3-305(a)(1)(4) which says discharge of the obligor in insolvency proceedings. and this is not good against a HDC. Problem 120 Malvolio. This is personal defense. they take free of the claim to the instrument and the child won’t get the check book.This is fraud but just not essential fraud. Should have gotten the actual note back b/c if it gets in the hands of a HDC then the fact that you already paid it is not a real defense against a HDC and you may have to pay on it again. When the bank refused to return the check to Childe. He signed a promissory note for $800 payable to the order of Mercy Music Company as payment for a piano. When Malvolio protested. He picked out the car he wanted. he filed suit. but Orsino was evasive. The payee discounted the note for $16. §3-305(a) and (b). He told the bank to come pick up the piano – he was disaffirming the sale. signing a note for $18. so he returned the car to the dealer and asked for the check back. This is a real defense that would be good against a HDC. 17. What should he do? See §3-501(b)(2). the promissory note surfaced in the possession of Shadbolt State Bank. a used car dealership. which notified Malvolio that he should make all future payments to them. Personal defense her (discharge by payment). Childe called up the bank and informed it of his rescission of the K. Elsie knew that she had no choice but bankruptcy. Problem 119 When she heard her creditors fighting over priorities on her doorstep. Before this bank could present the check to the drawee bank. Childe decided to buy a horse instead of a car. bought a new car from Valentine Auto.000. a traveling salesman. but does it take subject to a claim to the instrument based on infancy? See §3-202. Malvolio immediately sent them a check for the outstanding balance (he had come into some money when his aunt died). Informed that the bank had it. How should the court rule? It is clear that a HDC takes subject to the defense of infancy. indorsed the check in blank. comes to you for advice. Under 3-306. Discharging bankruptcy is always a real defense. Among the debts that she reported to the bankruptcy court was the loan she had taken from Point National Bank. read §3-601 and 3-602.
May he defend on the basis that Anderson should have sued all three of them. went into John’s and told John. that he was Money. So this an effective defense b/c the party never signed the document. it is perfectly ok to sue one of the three makers. They are jointly and severally liable. The common law doctrine of merger stated that once an instrument was offered and accepted in satisfaction of an underlying obligation. Problem 127 Winkin. Anderson sued only Winkin. Problem 126 When Aunt Fran told Simon that she was not liable for the rent as long as the note was outstanding. what result? She is going to argue that she made a mistake. the obligation merged with the instrument. since the note contains the words “we promise to pay”? If Anderson wins. the note to be due in 3 months in the future. The check was drawn by ONB on itself (the very definition of a cashier’s check – see §3-104(g)). an expert con man. notice of dishonor. 3-309. He returned to Aunt Fran and demanded the rent money. John was too awed to ask for identification. When the note matured. Wilbur Winkin Barney Blinkin Harry Nod Grimms National Bank indorsed the note in blank and discounted it to Anderson Finance Co. the owner. Blinkin. Some courts would allow him to say that this wasn’t an intentional act. so she asked the LL. 2010 $3000 On or after 6 months from date. the sum of three thousand dollars ($3000). and protest. demanding the entire amount. along with all sureties and subsequent endorsers. We. Under 3-305(a) there is no party to pay the instrument b/c this was an unauthorized signature. Slick skipped town with the jewelry. When the note matured. He never signed the document himself. the Tenth National Bank (a HDC to whom John has negotiated the paper) presented it to Money for payment. No. May he now sue her for the rent even though the note has not yet matured? See §3-604. and all parties hereto agree to any extension of time granted by the holder to the makers. If the cancellation had been a clerical error.Slick. to accept instead a promissory note from her to him for the amount of the rent. This is not an effective authorized signature under 3-403. can Winkin sue Blinkin for $2000? $1000? See §3-116. Her obligation is gone so she should tell him to take a hike. he got it back from the bank and tore it up. Simon. and Nod signed the following promissory note: Oct. What should she tell him? See §3-310(a). May Money refuse to pay a HDC? Yes. the richest man in town. Slick then picked out several very expensive pieces of jewelry and signed Money’s name to a promissory note to pay for them. Anderson can . Can she defend by saying that the note somehow suspended his right to sue on the underlying obligation? Yes. and until the instrument was dishonored the underlying obligation was suspended (unavailable as a cause of action). 3-310(b)(4). A week later (an before the note matured). 1. we promise to pay to the order of Grimms National Bank. The Underlying Obligation Problem 124 Aunt Fran was unable to pay the annual rent on her hat shop. Simon took the check down to ONB and was dismayed to discover that the bank had failed and was now closed. Problem 125 Suppose in the last Problem Aunt Fran had paid her rent by giving a cashier’s check to Simon. Simon took the note and immediately discounted it with a local bank. Simon brought suit against Aunt Fran for non-payment of the rent (the underlying obligation being the lease agreement). waive all rights to presentment.
This is an example of excuse. and protest . Fortune thought better of the whole transaction so he contacted Deuces. when he was stopped by a creditor. that is effective. Holdit. the Creditors National. The check was returned to Jordan State Bank. Probably yes. sued Fortune on his indorser’s obligation. Drug Store then indorsed the check and deposited it in its account at Jordan State Bank. (e) says you are entitled to 2 things as the drawee before you have to pay: presentment and dishonor. saying “I will never put my name on any check Grosvenor has touched. but loophole if the drawee bank causes the problem itself.” If the bank declines to pay the check. This bank also indorsed the check and then presented it to the drawee bank. notice of dishonor. which dishonored it whereupon Creditors National reclaimed its money from Mr. Problem 144 Fortune was walking along the street. which dishonored it because Billy had no money in his account. Fortune was named as payee on the check. and Fortune was glad to indorse over to him a check for that amount that Fortune had won from Deuces. The waiver would be effective. Holdit demanded payment of a long-due $50 obligation. “All parties to this note hereby waive all rights to presentment. . and cashed it. Problem 142 When Grosvenor gave Bunthorne a check to pay off an old debt. Snow cashed the check at Drug Store.sue (according to the agreement that they were equally liable) Winkin for$ 1000. If one is insolvent and you paid the entire $3000 then you can go after the other one (split amongst 2) for $1500. is Bunthorne still liable to the drugstore? See §3415(e). §3-504 doesn’t say anything about where the waiver must be located. Problem 128 Billy wrote out a check payable to the order of Snow to pay for some carnival equipment. Holdit. and it calls you with three questions: . Problem 141 Grosvenor finally paid off an old debt to Bunthorne by giving him a check drawn on the Patience National Bank. but negotiability is not destroyed. This may be important because Grosvenor’s §3-414 obligation is conditional on a dishonor. and he can no longer be sued on the underlying obligation that is suspended until dishonor by §3-310.” Is a clause like this buried in the fine print on the front side of a note sufficient to deprive indorsers of their right to notice of dishonor? See §3-504(a)(iv) and (b)(ii). . After giving the check to Holdit. When the check is presented the bank can return the check for failure to sign under §3-501. The bank it was drawn on refused to pay it because it was suspiciously old (§4-404). but Bunthorne refused. so this would be considered a waiver. marking it NSF. Is Grosvenor still liable on this check? See §3-414(f). Creditors National presented the check to the drawee bank. Yes. 3501(b)(2)(iii). Bunthorne negligently lost it behind the sofa and didn’t find it for 8 months. Was the presentment delay excused within the meaning of §3504(a)(iv)? Normally answer if yes. Would he be if the drawee bank had folded 5 months after the check was written but before it was presented? If Bunthorne had indorsed the check the day after it was issued to him and then cashed it at the corner drugstore and the drugstore mislaid it for 5 months before the drawee bank dishonored it. his pockets stuffed with money and checks he had won with a dazzling display of his prowess in the game of stud poker. Rodgers National Bank. Was Fortune discharged by the delay in presentment? See §3-415(e). The bank asked him to sign his name on the back. one Mr. indorsing his name on the back. . the next day and persuaded him to stop payment on the check. but under these facts the answer is no b/c of his urging to stop payment he doesn’t have a right to expect that the instrument would be paid in the first place. Bunthorne took the check to the bank and demanded payment. Problem 143 A promissory note contains a clause stating. Holdit held onto the check for 6 weeks and then took it to his bank. which is not a technical dishonor. Holdit. You are the bank’s attorney. now very mad. the drawer. has a technical dishonor occurred? See §3-501(b)(3)(i). §3-504(a)(iv).
d. it is a personal defense. Friendly Finance sued both Melody and the Ivory Keys Music Company. a. on what theory? Read §3-415(a). may he raise his defenses (say. Is she right? §3-415 tells us that she is not right b/c she is contracted to pay that full amount. under the indorser obligation. If Jordan State Bank sues Snow.) §3-119 tells us yes. 2. Friendly Finance has no COA against the music company. was a moral but not a financial success. If she pays $10. but demanded payment of Peppermint Patty alone. Ivory Keys Music Company (Without Recourse). If Charlie Brown comes back into the chips. When the note came due. If she is sued. Charlie had Peppermint Patty sign her name. will he have to pay the whole amount or do the indorsers divide up the indorsement liability and share it proportionately? See §3-116. Yes. Schroeder. She resisted. who not only signed. however. that the Drug Store had failed to pay him any money when he indorsed it over to them). This will be governed by the way in which they signed the agreement. Finally. What is its cause of action against each? What defenses can each defendant raise? The lawsuit against Melody is based on §3-412 (issuer’s liability) and she could raise the defense of failure of consideration (personal defense). she can sue under the issuer’s liability which is part of the maker’s liability under §3-412 and an accommodation party under §3-419(e). indorsing the back. If the bank does recover from Snow. so if it is against a HDC will not be effective. can she sue him? On what theory? Yes. at which point he took the note back to the bank.000 from the Peanuts National Bank. 3. Can Jordan State Bank sue Snow and. The lawsuit against music company is based on qualified indorsement and they can not base liability on the music company b/c it said without recourse (which means will not incur indorser’s liability. or is the indorser liability found in §3-415 strict liability? Not Strict Liability. claiming she was liable at most for only ¼ of the amount ($2. Charlie explained his problem to his friend Lucy. §3-116 tells us that she is only able to sue for the proportionate amount. he may raise such a defense. Problem 130 Melody. and it loaned him the money.500). As an indorser she made her self liable to the full amount. Charlie then took the note to another friend. if so. The Peanuts National Bank gave notice of dishonor to all four indorsers. and Melody refused to pay the note when it came due. the music company discounted the note to the Friendly Loan Company for $2700. . He had used the money in a business venture that. but also persuaded his friend Pig Pen to add his name below Schroeder’s. He may or may not get contribution depending on how he signed the agreement. 3205(d). Problem 129 Charlie Brown wanted to borrow $10. but the bank told him that it wouldn’t loan him the money unless his note was indorsed by four responsible people. “Pay to Friendly Loan Company. b.000. The day after the piano was delivered. 3-205(d). she can bring the others into the lawsuit. Problem 131 Frank Family wanted to move out of his apartment and into his dream house.Drug Store has suddenly gone out of business and there is no money in its account. can she sue Pig Pen for the entire amount or only for part? See §3116. a professional pianist. and so he was unable to pay the note (a dishonor). can she bring the other indorsers into the lawsuit? See §3-119 (explaining the so called “vouching in” notice. Will be entitled to the full amount from him. the bank made a presentment of it to Charlie and demanded payment. signing a promissory note payable to the company for $3000. He hired Quickie Contractor 1. and she signed her name to the back of the instrument.” The piano fell apart. See §3-415. predictably enough. c. 3-116 allows for Joint and several liability which allows for contribution but only where indorser signs the agreement with the other indorsers. bought a piano from the Ivory Keys Music Company.
Quickie got Big bank to issue the bond guaranteeing these matters. Cather refused. and Goodwin demanded that Cather pay the initial amount due plus interest for the extra month. just b/c you have notice is not going to prevent someone from becoming a HDC. however. On the due date Saul went to Goodwin and offered to pay. The way George signed this note would put everyone who reads this note that he has signed this as a surety. “Let’s give poor Saul a chance to pay it off himself.” A month later Saul went bankrupt. May Generous defend on the basis that he received no consideration for his undertaking? See §3-419(b) and its OC 2. He is an accommodation maker. May Generous establish his status as surety against a holder in due course? See §3419(c) with its OC 3. promise to pay $4. §3-419(b) tells us that it doesn’t matter whether he received consideration. requiring Quickie to get a performance and payment bond guaranteeing that Quickie would do the work and pay its laborer and suppliers. knowing that Saul Panzer. but he will not be liable for any additional interest since he tendered payment and was refused. was in financial trouble and wanting to stop the running of interest. if anything? See §3-603(c)’s first sentence. The third K is b/w Quickie and Big Bank. Mary Maker. the maker. but that it failed to give notice of dishonor—a right that indorsers have but makers do not—to George Generous.” A month later Saul went bankrupt. He would have liability as a maker. The first K is b/w Family and Quickie. To what is he entitled. §3-603(c) tells us that he is still going to be liable for the initial amount due. a. and Family called on Big Bank to finish the work. went to Archie Goodwin. Saul talked Orrin Cather into signing Saul’s promissory note as co-maker. but he could have liability as a maker but will have protection as a surety.to build the house on land Family had purchased. 2012. he tried to pay. b. the current holder. who loaned Saul the $10K and took the note in return for the money. b. Can Goodwin now recover from Cather? From Stout. 3-605(h). Big bank is the surety. his friend Rex Stout agreed to loan him $10. Is George an accommodation maker or an accommodation indorser? See §§3-116(a). Goodwin replied. 3204(a). Quickie went bankrupt half-way through the job. The note was payable to the order of Rex Stout. Which of these parties is the surety? Which is the principal? Which is the creditor? Identify the three contracts. 2010 I.000 if Saul could get a co-signor. Orrin Cather. and offered to pay the note. I know you need money for your other bill—pay me next month. The creditor is Family. B tells us that it doesn’t matter.) /s/ Mary Maker BACK: Pay to Ace Finance /s/ Paul Payee Ace Finance. but Goodwin said. Problem 135 When Saul Panzer needed to borrow money. “Look. §§3-205. On the date the note matured. Rex indorsed the note and sold it as a discount to Archie Goodwin. the co-signor. No.000 to the order of Paul Payee on December 25. comes to you early in 2013 and tells you that the note is in default. planning to seek reimbursement from Saul. and Goodwin sued. with interest at 8% per annum from date. Problem 132 Consider the following promissory note: FRONT: December 23. c. a. §3-603(b) tells us no. The principal is Quickie. adding a claim for attorney’s fees. /s/ George Generous (He is an accommodation maker. The second K is b/w Big Bank and Family. they wouldn’t take his money and both parties . the payee/indorser? See §3603(b).
Is Stout. Martha is not discharged b/c she has not suffered any harm. to which Goodwin made the same reply. it will depend on whether he had the money to . No one notified Shadbolt of this extension. Unfortunately. both signing a promissory note for the amount borrowed. §3-605(e) doesn’t apply to George. Was Shadbolt discharged by the bank’s actions? Would your answer change depending on whether or not Point ever had the money to pay the note at any relevant period? §3-605(c) and its OC 4. and then signed an agreement with Point excusing him from having to pay the rest of the debt. but the vineyard was still lost when the state seized it b/c she hadn’t paid her taxes. he is a maker. but failed to file its mortgage in the proper place. Yes. and Orrin Cather filed for bankruptcy at the same time. but also demanded that the inventory of Butch’s feed store stand as collateral. The effect was that Arnold is discharged of his liability up to the value of the collateral that is lost. have ignored it. a mere 5K.would be discharged b/c they wouldn’t take his tender. Martha filed for bankruptcy. and then sued Point for reimbursement? Shadbolt would be discharged if he could show some harm by extending that particular time. Does Shadbolt owe it? §3-605(b). Point talked his good friend Wilfred Shadbolt into signing as an accommodation maker. liable to Goodwin? No. he can still seek reimbursement from Point (but this is tough b/c Point is about to file bankruptcy. has he known of the extension agreement. see OC 7 to §3-605. Before the note matured. The burden would be on him. Problem 138 When Jack Point borrowed 75K from Yeomen National Bank to start up his carnival business. Who has the burden of proof on the issues? Could Shadbolt. c. Point filed for bankruptcy instead of paying the note. Butch talked his brother Arnold into signing the promissory note as a guarantor and signed the necessary papers for the bank to get an Article 9 security interest in the inventory. it only applies to an indorser or an accommodation party. the refusal of Cathers tender discharged Stout’s obligation to pay. is she discharged by the bank’s failure to perfect its interest in the vineyard? As to all this. Point told Yeomen that his business had gone bust and that he was thinking about filing a bankruptcy petition. other creditors prevailed over the bank’s attempt to claim the inventory. Problem 137 George and Martha Washington borrowed 10K from the Mt. and the bankruptcy creditors were able to get the vineyard free and clear of the bank’s mortgage. assume that on the maturity date Orrin Cather went to Goodwin and offered to pay the debt. this is different from the common law. The bank did this. the bank failed to file the Article 9 financing statement in the correct place. Instead of the above. or may the latter still seek complete reimbursement from Point? §3-419(e) and OC 3 to §3-605. b. A month later Saul went bankrupt. Worried that it would get nothing in the bankruptcy distribution. Does the accord and satisfaction agreement b/w the bank and Point also bind Shadbolt. To secure the note. the bank took a mortgage on Martha’s Vineyard. Under §3-605(f) George is discharged in to his extent of his contribution that is prejudiced by his impairment of that particular collateral. At the end of the 6 month period. When the note matured. so when Butch had financial difficulties. Problem 136 When Butch Byrd borrowed $10K from ONB. He would be liable for the entire 70K remaining. Vernon Finance Co. Assume instead that when the note matured Point went to the bank and asked for more time in which to pay. Yeomen persuaded him to pay all he could. the payee/indorser. The bank them demanded that Shadbolt pay the amount still due. Is Shadbolt discharged by any of the following agreements between Yeomen National and Point? a. the bank not only made him get a surety. The inventory was worth $6K. the bank made him sign a promissory note in its favor and get a surety. Is George discharged in whole or in part by §3-605(e)? By §3-605(f)? If Martha had not filed for bankruptcy. paid the note. Yes. giving Point an extra 6 months. Yes. What is the effect of the bank’s Article 9 difficulties on Arnold’s liabilities? §3-605(e) and (g).
which Marty sold. can Kent sue on the first note. 2012. 2012. Sue. A week later Dogfish transferred the note for value to the Hammerhead Loan Company. (b) If Lear does not pay the 2nd note when it matures. At a time when his bank balance greatly exceeded that amount. The Kent Corp. He used the proceeds to finance a bad day at the races. Sam wrote an alimony check for 3K and gave it to his ex-wife. informing her that Sam’s business was no longer welcome at ONB and that it refused to pay any more . 2012? Under §3-310(b)(2). The Burden of proof has shifted. Has Shadbolt nonetheless been discharged? Who has the burden of proof here? §3-605(d) and OF 5. he signed a new promissory note dated January 11. Problem 139 In 2009 Rex Lear borrowed 5K from the Kent Lending Corp. then Kent can sue on note 1. Before the note matured Point went to the Bank and asked to have the stock back. No that first note is suspended during that particular time. Problem 140 Sam was the surety on a promissory note that Marty Make had given to the Dogfish Loan Company along with a pledge of 100 shares of Titanic Telephone stock to secure the loan for $800. 2012 for the same amount but with additional collateral. If they will allow that. which we don’t know here. attorney Sam Ambulance made the mistake of continuing to bank at ONB. and the collateral became worthless during the same period.. (impairment of the collateral). The original not contained a clause by which the surety automatically agreed in advance to any impairment of the collateral. d. Dogfish gave him back the stock. The bank returned the stocks to him. Is there a simple way that the bank could have avoided all these issues ab initio? §3605(i) and OC 2. it is on the bank to show that it doesn’t cause him harm otherwise the higher interest rate will discharge him. Cordelia never signed the second note. payable to the company September 25. B/c similar checks had bounced in the past. The teller who took the check alerted the bank’s manager who laughed evilly as he threw it back across the counter at Sue. 2 issues here: impairment of the collateral and the higher interest rate.pay the note. The Drawee’s Obligation Problem 143 After he brought a successful Truth in Lending action against ONB. Shortly after receiving the loan. Assume instead that when the note was signed the bank also made Point put up 100 shares of stock as collateral for the debt. or has it been paid and discharged by the second note? If note 2 is dishonored. Rex had his daughter Cordelia sign as accommodation maker. 2012. he could sue Point for reimbursement. kept the first note as security for the payment of the second. Have waiver clauses in agreement and then all these issues become moot c. Yes. (a) Can the payee sue on the first note prior to September 25. Sue hurriedly walked the check directly into the bank and presented it across the counter. and gave them his promissory note due June 8. (c) Assume that Cordelia can prove that the failure of the lender to enforce its rights on the 1st note caused her major damages in that Lear’s financial situation deteriorated drastically b/w January 11 and September 25. but made him agree to pay a higher rate of interest. Marty asked for the stock back. Is Cordelia still liable on the first note? §3-605(c) tells us that she will be discharged b/c taking that second note worked to an extension of time b/c she it caused her severe damages. Is he still liable to Hammerhead? This is a personal defense. so if Hammerhead is a HDC then Sam is still liable to Hammerhead unless he had notice of the impairment of the collateral . Assume that Sam has been discharged under §3-605(e). a bona fide purchaser. Early in 2012 Rex defaulted on the installment payments and in return for mercy by the lending company. saying that he wanted to sell it and buy other stock that he would repledge as collateral. saying he needed to take advantage of a stock split the issuing corporation was offering.
President. Biggley wanted to borrow money for a business venture. saying that its practice was never to certify gift checks. the church didn’t want contributors to be able to back out and stop payment either. (2) This depends on whether the court says that John has unambiguously signed in an agency capacity. Problem 147 The president of Money Corporation was John Smith. He signed three corporate promissory notes as follows: 1. §3-408. Undisclosed principals are bound by the agent’s signature whether clearly identified or not. Problem 146 George Generous gave a check for 5K to the Grapes of Wrath Church as part of the church’s drive to get money for a planned new building. Agent. J. This. Problem 146 In the last problem would Finch himself be liable to a HDC? To Wickets National Bank? Yes. If Wickens wasn’t a HDC. the agent was probably not enough to unambiguously show that he was signing for someone else. so he is not personally liable. that is not a dishonor. c. 3-414(c) tells us that they could not sue him on the drawer’s obligation if they accepted it. Pierpont Finch. Is that a dishonor so that the church should give George notice of dishonor? See §3409(d) and OC 4. Same result is George had donated a certified check that the bank later dishonored? See OC 3 to §3-414. The church treasurer took George’s check down to the drawee bank and asked to have it certified. The drawee bank refused. . No. Yes. Is Biggley bound to this note? See §3-402 and OC 1.” In each case is he personally liable to a HDC of the instrument? He is liable and so is Money if he was authorized to sign for them. You are the attorney who handled Sue’s divorce. a presentment for acceptance. 3-401(a). If the bank had certified the check but later refused to pay it.B.” Money Corporation was not mentioned in the note. the lawyer knew. On the other hand. John Smith. It doesn’t matter whether he has been identified on the instrument.of his checks. incurs no contractual obligation (though it may still be liable to the drawer under §4-402.” 3. They certified it when the accepted it. he had his agent. is not liable on it. The drawee. he simply wrote his name as “J. even thought there was money in the account sufficient to meet the check. The drawee. “John Smith. b. not having signed the draft. Signature by an Agent Problem 145 When tycoon J. 2. 4-402. “Money Corporation. (3) This is clear that he is an agent of Money. a. so the church’s lawyer advised the church directors to have all large checks certified. would have the effect of making the certifying bank primarily liable on the check (§3-413(a)). could the church sue George on his drawer’s obligation? See §3-414(c).” and failed to mention the name of his principal Biggley. he can defend by arguing that he was not expected or intended to be liable for this. so she calls you and asks what she should do. John Smith. The church did not want to cash any checks it received until it had at least 20K worth of pledges. Pierpont Finch. When Finch signed the promissory note payable to the bank. having signed nothing. so no need to give notice of a dishonor. negotiate the loan from Wicket’s National Bank. What should the church’s lawyer advise it to do now? Cash a gift check immediately. 3414. “Money Corporation.
.Problem 150 Kit Fielding was the corporate president of Francis Racing Stables. If the check is negotiated to a HDC and then dishonored by the drawee bank. may the HDC successfully impose personal liability on Fielding? See §3-402(c) and OC 3. No. so long as the check has the name of the corporation at the top of it. then and only then the signature on the drawer line (assuming its authorized) wouldn’t impose personal liability. he simply signed his name and did not sign the name of the company or in any way indicate that he was signing as an agent. but when Fielding went to sign the checks on the drawer’s line. The corporate checks had the words “Francis Racing Stables” printed prominently in the upper left-hand corner of the checks.
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