Georgetown University Law Center
Examination in Commercial Law: Sales and Secured Transactions
(3 Hours)
Professor Avery Wiener Katz
Final Examination
December 10, 1999
1:30 pm — 4:30 pm
Instructions:
1. This examination consists of 5 pages, including this cover page. Please check to ensure
your copy is complete.
2. This is an open book examination; any written materials may be consulted. You are
encouraged to use your casebook, class notes, and especially your statute book.
3. There are three questions, each carrying weight in the grading proportional to the time
allocated. I recommend that you spend a significant portion of the suggested time for each
question planning and organizing your answer. If you feel that any of your answers depend
on facts not provided in the question, you should state clearly any additional assumptions
you are making.
4. If possible, please begin your answer to each question in a new examination book, so
that I can grade each answer separately and independently.
5. Please write legibly; this will ensure that you receive due credit for your entire
answer. If possible, please also write on alternate lines of the examination book, as this
makes your answer much easier to read. I will make reasonable efforts to read material
that appears on the scrap paper if you indicate in your examination book that you wish me
to, but not otherwise. If you type or use Examsoft, please use reasonable line spacing,
fonts, and margins.
6. Good luck on the exam; and for those of you graduating at the end of the term, best
wishes. I will post grades on the class website as soon as they are ready, and will post a
feedback memo as soon as possible after that.
Please do not turn the page until the proctor gives the signal.
Georgetown University Law Center
Examination in Commercial Law: Sales and Secured Transactions
(3 Hours)
Professor Katz
December 10, 1999
Question 1 (60 minutes)
Joseph and Claudia Vogt owned and operated Shady Stables, a horse barn in Maumee County,
Ohio. They were experienced in horse training, breeding, boarding, selling, and showing.
In 1996, the Buehls, novices in the equine industry, decided to begin raising horses. In
April 1997, Ferdinand Buehl began visiting Shady Stables regularly to learn how to ride
and handle horses. Before long, a friendship developed between the Vogts and Buehls, and
Ferdinand Buehl began spending three to four days each week at the Vogts' barn helping
Joseph Vogt with the horses.
In late 1997, the Buehls decided they wanted to start a breeding program by purchasing a
stallion to breed with a mare they owned. At first, they were interested in purchasing
Prolix, a stallion owned by a third party. After talking to Mr. Vogt about Prolix, the
Buehls decided not to buy him. The Vogts then offered the Buehls a one-half interest in
Damask, a stallion that the Vogts owned.
In January 1998, the Buehls and Vogts entered into a contract of sale for a one-half
interest in Damask for $16,000. This contract, which Mr. Vogt obtained from the Ohio Horse
Breeders Association, a trade organization to which he belonged, contained a standard term
disclaiming all warranties express or implied, except the warranty of title. The parties
also signed a partnership agreement that provided that Damask would continue to board at
Shady Stables, but that the parties would share equally in the expenses and profits
arising from their joint ownership of Damask.
By July 1998, the Buehls were dissatisfied with the partnership and indicated to the Vogts
that they wanted either a refund of their money or a remedy for their concerns. In March
1999, the mortality insurance on Damask lapsed when neither the Buehls nor the Vogts paid
the insurance premium. Then, in September 1999, Damask died from stomach ulcer
complications. Since neither party had renewed the insurance, Damask was uninsured.
The Buehls have come to you for legal advice. They are prepared to testify that before
they agreed to invest in Damask, Mr. Vogt made a number of statements, such as: Damask was
a national top ten champion in three categories; he was an all-around winning stallion; he
earns $20,000.00 per year in stud fees; he is capable of attaining national show titles
again; and his foals were selling for $6,000 to $10,000 each. In fact, prior to January
1998, Damask had been treated for lameness on several occasions, and was suffering a
chronic lameness condition in his right rear and fore fetlocks. Mr. Vogt, however, did not
disclose this information to the Buehls.
What is your advice?
Question 2 (75 minutes)
In June 1997, Lana Gramm purchased a used Sarasota Country Coach motor home (the Coach)
from a dealership in Florida. Deere Credit, Inc. (Deere), provided the financing for
Gramm. Gramm executed a written consumer loan contract and security agreement wherein she
promised to pay Deere approximately $144,000. Deere did not file any financing statement
against Gramm, but it instead arranged to have its name appear as lienholder on the
Coach's certificate of title, pursuant to Florida's certificate of title statute, which
provides in pertinent part: "A security interest in a vehicle other than one held as
inventory by a manufacturer or a dealer and for which a certificate of ownership is
required is perfected only by compliance with the requirements of this section."
On November 1, 1998, Gramm entered into a written agreement with Sunshine Motors, whereby
Gramm was to purchase a new Monaco motor home from Sunshine Motors. Sunshine Motors was to
take the Coach as a trade-in, in partial payment of the down payment on the Monaco motor
home. On November 14, Gramm delivered the Coach to Sunshine Motors so that it could be
shown to prospective buyers.
On November 20, 1998, Sunshine Motors executed a conditional sales contract with Robert
Norman for purchase of the Coach. Norman took possession three days later, on November 23.
Financing for Norman's purchase was arranged by Lenders Capital Corporation. Lenders paid
all of the financing proceeds directly to Sunshine Motors, without investigating whether a
prior lender had a security interest in the Coach.
Sunshine Motors failed to pay off Deere's lien on the Coach. Neither did it pay off its
own inventory lender, Citrus State Bank, which had in 1996 obtained a security interest in
and filed a financing statement against Sunshine's current and after-acquired stock of
motor homes. Instead, Sunshine used the money it received from Lenders to repay an
unsecured loan from its controlling shareholder, and subsequently filed for bankruptcy.
Norman never received title to the Coach from the Department of Motor Vehicles. Deere
continues to be the registered lienholder of the Coach. It has never made any attempt to
recover from Sunshine Motors, even though it learned of the sale to Norman on November 24,
the day after he took possession.
Who has priority in what? [A hint: consult §9-302(3)(b) before answering. For extra
credit: would it make any difference if the delivery of the Coach to Sunshine were
characterized not as a purchase, but as a consignment (i.e., a bailment and agency for
purposes of resale).]
Question 3 (45 minutes)
You are assistant general counsel at a small credit union that lends to consumers
purchasing durable goods such as cars and large appliances, and also to small businesses
for a variety of purposes including acquisition of inventory and equipment. This morning
you received a memo from your superior, captioned "Urgent — Immediate
Attention." The memo reads:
"I have been so swamped dealing with the banking and financial regulation issues
raised by the Y2K crisis that I completely forgot about the Article 9 aspect of the
problem. Namely, the official registries of Article 9 filings in our jurisdiction are now
computerized. What happens if the filing registry is corrupted or knocked out of service
by computer failures occasioned by the year 2000? How can we make sure that we get
perfected security interests on the loans we write this month and next, if the filing
office temporarily goes out of operation? Will all our existing security interests become
unperfected? And even if the Article 9 registry stays in service, there are still problems
if the software used to search the registry malfunctions. Our standard operating procedure
is to do a UCC search against anyone who applies for credit. How will we know whether some
other lender has a prior security interest, if the search software thinks it is 1900? Can
we lose priority to a later lender who searches against our debtor, and fails to find our
financing statement for this reason?"
"There are other problems as well. What if some of our customers fail to make
required loan payments because of liquidity problems caused by the crisis, or because
their records are in disarray? Should we, and can we, declare them in technical default
and call their loans? Should we just call the loans of debtors who are already on our
‘watch list,' for marginal financial condition or otherwise? It will be difficult if
not impossible to tell whether such excuses for late payment are genuine or fabricated,
and if we wait too long, the available assets may be gone or substantially
dissipated."
"Unfortunately, I need a memo on this by the end of the day. If you think of any
other Article 9 problems raised by this crisis, or any practical solutions to these
problems, be sure to discuss them."
Write the memo. In your answer, however, you should ignore the effect of any federal or
state legislation specially dealing with Y2K liability, including the federal Y2K act that
became law this past July. Similarly, do not spend your time talking about Article 2
issues such as warranty or disclaimers, except as they are directly relevant to issues
arising under Article 9.
END OF EXAM
WRITE NOTHING AFTER TIME IS CALLED