UCC Article 9 and Passage of Title in Sales and Assignments of Contract Rights, Exams of Law

Download UCC Article 9 and Passage of Title in Sales and Assignments of Contract Rights and more Exams Law in PDF only on Docsity! 1 DEBTOR / CREDITOR Final Examination Professor Hurn Fall 2011 Instructions: This examination is for three hours. It is fully “open book,” meaning you may refer to any written materials that you may have brought with you. However, you may not work with or consult any other person about your answers. Answer the multiple-choice questions on the Scantron sheet provided and the short answers and essay in a Bluebook or through the Registrar’s exam software. Do not assume that familiar-looking questions are the same as those on old exams. Unless otherwise indicated, assume all transactions occur in the USA in states with the uniform codes and statutes printed in your statutory supplement, with typical versions of other sorts of statutes. If something appears missing or mistaken, plainly state a corrective assumption and proceed with your answer Remember to put your exam number on the answer forms and essays. Multiple Choice (35 questions, up to 100 minutes recommended) 1- 2. A thief stole Alberta’s valuable saxophone. The thief sold it for a fair price to an unsuspecting, reputable second-hand Dealer. Dealer then sold it for a fair price and in the ordinary course of business to an unsuspecting Musician, who presently has possession. 1. In an action by Alberta against the Dealer, Alberta a. May recover under theories of either replevin or conversion. b. May recover only under conversion. c. May recover only under replevin. d. Cannot recover because Dealer was a BFPV. 2. In an action by Alberta against the Musician, Alberta a. May recover under theories of either replevin or conversion. b. May recover only under conversion. c. May recover only under replevin. d. Cannot recover because Musician was a buyer in the ordinary course of business. 3. A crook persuaded a dealer to sell and deliver a valuable antique desk to the crook, paying with forged check. Before the forgery was discovered, the crook sold and delivered the desk to a second dealer who had no notice of any wrongdoing. In an action by the original owner to recover the desk from the second dealer 2 a. The original owner will win because one can get no title from a thief. b. The original owner will win because one can get no title from a forger. c. The second dealer will win because the crook took possession. d. The second dealer will win because the crook had voidable title. 4. In the sale of goods of a value of $5,000 or more, unless otherwise agreed between the parties, title passes: a. At the moment of contract formation. b. At the time of signing a written memorandum or confirmation sufficient under the statute of frauds. c. At the time of identification of the goods to the contract. d. At the time the seller completes his/her agreed duties with respect to delivery, if any. 5. Uncle Don was old and sick. He got the flu, which led to pneumonia. His doctor told him it was pretty likely he would die of it. Uncle Don called in his relatives and told them he had taken care of most things in his will. Then he called for his watch and chain. He took a key off the chain and handed it to Jennie, saying “this opens that gun case in the hall—everything in it is yours.” He then handed the watch and chain to Bobbie and said “this is yours.” Jennie and Bobbie took the guns and watch home with them than day. To everyone’s surprise, Uncle Don recovered and wants to go hunting. He wants his guns and watch back. a. He can recover neither. b. He can recover the guns (only). c. He can recover the watch (only). d. He can recover both. 6. Client, an art dealer, shipped a stone sculpture worth at least $2,500 to Customer by Confederate Express, a common carrier. Out of ignorance, Client’s clerk did not take the clearly expressed option to insure the package for an extra $2 per hundred valuation. This is a real option, often take by client in the past. With that section of the agreement left blank, the only provision for loss limited ConFed’s liability on the package to $50. ConFed’s delivery crew dropped the sculpture off the truck, destroying it. There is no dispute about the facts. In an action for the value of the sculpture a. Client’s recovery will be limited to $50. b. Client’s recovery will be for the full value if it can prove actual negligence. c. Client’s recovery will be for the full value based on the presumption of conversion. d. Client’s recovery will be for the full value because destruction is actual conversion. 7. The timing of the passage of title in a sale of goods automatically controls a. Who has an insurable interest in the goods. 5 c. Recover the full original quantity of goods deposited if, and only if, his/her deposit was among the earliest (first in, first out rule). d. Recover the full original quantity of goods deposited if, and only if, his/her deposit was among the latest (last in, first out rule). 15. Bank made annual loans to Farmer, secured by a properly perfected Article 9 lien on his soybean crop. Their arrangement had always been to put the beans in a warehouse and take negotiable receipts in their joint names, settling up later when the receipts were sold. This year, however, Farmer took advantage of a new manager and made no mention of the bank, taking a receipt in his sole name. He then endorsed and delivered it to Continental Grain, a processor unfamiliar with him or his bank. Farmer departed for Paraguay with the proceeds. On the same day Continental Grain presented its receipt the Bank demanded the beans. Warehouser filed interpleader against Bank and Processor to determine ownership of the beans. In this suit a. Bank will win unless it had some awareness of, or enabled, Farmer’s conduct. b. Bank will win because its rights are prior in time. c. Processor will win because due negotiation of a document of title cuts off personal defenses. d. Processor will win because title to the document gives title to the goods. 16. Buyer contracted to purchase a large shipment of woolen cloth from an overseas Seller, arranging to pay by letter of credit issued by its U.S. Bank. All the seller’s documents conformed to the letter of credit, so the Bank directed it’s overseas corresponding Bank to pay, which it did. The shipping company received and delivered the goods in sealed containers. When Buyer opened them the cloth was infested with moths and moth larvae and essentially worthless. Buyer’s best remedy is a. Against its Bank, who can sue up the warranty chain to the Seller. b. Against the shipping company, who can sue up the warranty chain to the Seller. c. Against the Seller and any inspectors who wrongly certified the condition of the shipment in documents required by the letter of credit. d. Buyer has no remedy unless it is carrying appropriate insurance. 17. You are counsel to a Bank that has issued a standby letter of credit to BigCorp Industries. The terms of the credit were that BigCorp would be paid $500, 000 on presentation of a draft and a written statement signed by its CFO declaring that your customer, SmallVendor, was in default on a major contract with BigCorp. An officer of the Bank tells you that the draft and statement have been tendered, but SmallVendor vigorously disputes that it is in default. The Bank a. May delay honoring the draft for any reasonable time to investigate the facts related to the alleged default. b. May decline to honor the draft, and will be free of liability if SmallVendor is correct. c. Must honor the draft within the normal deadline, leaving SmallVendor to deal with the dispute. 6 d. Must honor the draft within the normal deadline but may attempt thereafter to recover the money in a suit based on a warranty, or on subrogation to the rights of its customer. 18. Debtor is being sued for a large sum. Debtor had some valuable artwork worth about $15,000. Debtor went to a friend who had always admired the art, concealed his situation and said he would sell the art for $2,000, which he claimed was his original cost. Friend agreed. Debtor loses the lawsuit and no non-exempt property is found. If the transaction with Friend is discovered: a. Friend is liable to the judgment creditor for $15,000. b. Friend is liable to the judgment creditor for $13,000. c. Friend is liable to turn over the artwork to the judgment creditor. d. Friend is liable to turn over the artwork to the judgment creditor only if arrangements are made to return his $2,000. 19. Patentee sold and assigned his invention to James on January 1, 2010. Patentee sold and assigned the same invention to Larry on February 1, 2010. Neither assignee was aware of any impropriety. If Larry recorded in the PTO on March 1, 2010 and James recorded on March 2, 2010 the patent belongs to: a. James because he was the first assignee. b. James because his recording relates back to January 1. c. Larry because he was a BFPV who recorded first. d. Larry because his recording relates back to February 1. 20. Your client is about to make a loan to Hardwood Lumber Products, LLC, a New Hampshire Limited Liability Company. Hardwood does business in Vermont, New Hampshire, and Maine. Its headquarters moved to Maine some years ago. The collateral for this loan is going to be a portable saw mill (i.e. equipment, not a fixture) that is and has always been kept in Vermont. You should plan to file your financing statement in: a. New Hampshire b. Maine c. Vermont d. Delaware 21. Same facts as in prior question. If Hardwood later merges into a Delaware corporation, you should a. Not worry so long as the equipment has not been moved out of Vermont. b. Not worry so long as the headquarters has not been moved out of Maine. c. Not worry because the original classification of collateral controls filing without regard to subsequent changes. d. File a financing statement in Delaware. 7 22. Creditor #1 had a valid security agreement and took an accurate financing statement in proper form to the filing office. Creditor #1 paid the correct fee and the officer took the financing statement. Receipts and stamped copies prove this. However, due to a series of emergencies and power failures that day, the officers never indexed Creditor #1’s financing statement. Several months later Creditor #2 entered a valid security agreement on the same collateral and filed a proper financing statement which was in fact properly indexed. In a dispute between the two Creditors, which will have priority? a. Creditor #1 because it has satisfied the requirements for an effective filing. b. Creditor #1 because Creditor #2 was negligent in trusting the debtor. c. Creditor #2 because the attempted first filing was ineffective. d. Creditor #2 because Creditor #1 was negligent, having had sufficient time to confirm its filing and failing to do so. 23. Which of the following facts will defeat the claims of a person otherwise qualified as the holder in due course of a negotiable instrument under UCC Article 3? a. The original obligor was a minor. b. A necessary indorsement was forged. c. EITHER fact will defeat a person who would otherwise be a holder in due course. d. NEITHER fact will defeat a person who would otherwise be a holder in due course. 24. A local business has gone bankrupt. During its operations it generated a substantial stream of chattel paper from its customers (of the type which included promissory notes). A local bank held a security interest in the chattel paper, perfected by filing in the Article 9 registry. The customers have been paying, but the business has failed for other reasons. If the bank declares a default and forecloses on the chattel paper, it has the following rights: a. Immediate, full payment of the remaining balances of the customers’ notes. b. Immediate possession of the customers’ chattels. c. BOTH a. and b. d. NEITHER a. nor b. 25. Acme, Inc. had a commercial loan from Big Bank, secured by a security interest in all property that is subject to Article 9, perfected by filing in the correct Article 9 registry. It defaulted on the loan. As Acme was slow to agree to a voluntary surrender, Big Bank held a properly conducted public sale of the entire business as a going concern. Your client was the winning bidder and has operated the business since then. However, Good Faith Acquisitions, Inc. (GFA) has begun successfully competing with your client, claiming ownership of registered software copyrights originally owned by Acme and sold by Acme to GFA after your client bought the business from the Bank. Assuming GFA is a bona fide purchaser without notice and promptly recorded in the Copyright Office, who owns the Copyrights? 10 33. Assume an insolvent debtor lives in a house on which there is a first mortgage and a mechanics lien for roof repairs. After the recording of the mortgage and before the beginning of the roofing work, another creditor secured an attachment on the house. The property taxes are current (fully paid). There is a homestead right in a fixed amount. Of the following, who has the most senior claim to the real estate? a. The mortgagee to the extent of the mortgage. b. The mechanic to the extent of his/her lawful claim. c. The attaching creditor to the extent of the attachment. d. The debtor to the extent of his/her homestead. 34. Same facts as in previous question. Who has the second most senior claim? a. The mortgagee to the extent of the mortgage. b. The mechanic to the extent of his/her lawful claim. c. The attaching creditor to the extent of the attachment. d. The debtor to the extent of his/her homestead. 35. Same facts as in previous two questions. How has the third most senior claim? a. The mortgagee to the extent of the mortgage. b. The mechanic to the extent of his/her lawful claim. c. The attaching creditor to the extent of the attachment. d. The debtor to the extent of his/her homestead. Short Answers (up to 20 minutes recommended) 1. A correctly filed, complete Article 9 financing statement signed by a debtor and properly marked to indicate a lien on all the debtor’s accounts and chattel paper is not, by itself, sufficient to evidence an enforceable lien on them. Briefly explain why that is so. 2. Normally a creditor with an out of state judgment debt would use the Uniform Enforcement of Judgments Act to begin collection in New Hampshire. In class I explained one situation in which such a creditor would be wise to file a full lawsuit on the judgment debt rather than use the Act. What is that situation and what is the reason. 3. You represented wife in a divorce. The court awarded her the couple’s car. Before the divorce it was fully paid off and titled in the husband’s name. You have correctly sent a copy of the court order, application for new certificate, and fee to the DMV. You have the new certificate in wife’s name, but you don’t yet have possession of the vehicle. Is your client’s ownership as secure as it could be? Why or why not? 4. Most commercial bank loans are literally or practically demand loans. In class I explained reasons that, short of a general bankers’ panic, financially sound borrowers should not fear exploitation or damage by their lender. Briefly state two of them. 11 Essay (up to 60 minutes recommended) Frank was a jewelry designer who sold his own work through a wholly-owned corporation. At a time when the corporation was doing well and space was cheap he negotiated a very favorable lease that has several years to go. The corporation had a bank loan secured by a floating lien on all the categories of collateral covered by Article 9, including general intangibles. This lien was perfected by a financing statement recorded in the correct state’s Article 9 registry. Inventory was physically small, but valuable: gold, silver, and platinum wire and bars from a precious metals supplier, some small diamonds and other precious or semi- precious stones from a gem company. The metals were on credit, with a signed PMSI held by the supplier recorded in the ordinary way in the Article 9 registry ten days after the first delivery. The stones were supposedly “on loan,” but Frank had authority to mount and sell them, paying the wholesaler’s pre-set price, or to return them. Of course both metals and stones were intended to be worked into finished pieces of inventory. Shortly before the events leading to the company’s bankruptcy Frank also purchased some valuable appraisal and assaying equipment, on credit, with a properly made and immediately perfected security interest in the seller. Frank was a good designer (and had formally assigned copyrights on a few of his best wedding bands to the corporation). He sometimes did specially commissioned work. This got him into trouble. He took what was for him a very large commission for some custom pieces for a one-time friend named Nick and asked for only a small deposit. Nick was rumored to have suffered business reverses about the time Frank was finishing the work. Although he still seems to have plenty of money Nick refused to pay, claiming dissatisfaction with the final product. The designs included family crests in filigree, so the pieces cannot be sold to others and will probably have to be salvaged for metal and stones. While he was working on this commission Frank was bringing in little else. He made personal loans to the corporation to keep up with rent and the pay for his one assistant/clerk. A law student friend told him to at least have the corporation mortgage back the copyrights to him as security for these loans, which Frank did, but he waited another two months to file with the copyright office. Business slowed for all the luxury trades and Frank ran out of savings. Nick never paid on the custom job. There was quite a bit of other finished work unsold in the cases. Frank had some receivables for work sold on credit, but, although the customers paid on time, there was not enough cash flow to keep the corporation going. Five weeks after he recorded the copyright mortgages Frank’s corporation filed for bankruptcy. It owed his assistant nearly a month’s wages, and there are other substantial unsecured creditors. He was current on all his tax obligations. 12 Identify all potential claimants and assets. Explain what assets are available to satisfy the various claims, with what relative priorities among the claimants. End of Examination