EXAM TICKET NO. _________________
 
 

Commercial Transactions
Georgetown University Law Center
Prof. Avery Katz

Quiz #1
February 10, 1995

Instructions:  You have one hour to complete the quiz and return it to the proctor.  You must keep your own time.  You may use your textbook, class notes, statute book, and any other written  material.

Write your exam ticket number at the top of this sheet, and on the computer-graded sheet.  The questions are all in true/false format.  For each statement below, indicate on the answer sheet whether it is true or false, using a #2 pencil.  If the statement is true, fill in the circle marked "A"; if it is false, fill in the circle marked "B".  Be sure to fill in completely the circle corresponding to your answer.

If either "true" or "false" seems plausible, or if neither answer seems exactly right, choose the answer  that appears best on balance.

NOTE: To receive credit for the quiz, you must return these questions to the proctor.
 

                                        Questions 1-8 are based on the following facts.

Farmer Fred sold cattle to Pennypacker.  Their oral contract anticipated immediate payment, but Pennypacker knowingly paid Fred for cattle using bad checks that were later dishonored. Pennypacker had given a security interest in its inventory, including any after-acquired inventory, to Banker.  Pennypacker sold some of the slaughtered carcasses to Swift, a regular customer, for cash, which it used to buy more cattle from Nabors.  Fred and Banker are disputing the priority in the carcasses on Pennypacker's premises.

1.   Fred has a security interest in the remaining carcasses on Pennypacker's premises.

2.   Banker has a security interest in the carcasses on Pennypacker's premises, including the ones purchased from Nabors.

3.   Pennypacker had voidable title to the cattle it bought from Fred

4.   Banker is a good faith purchaser of the cattle.

5.   Banker would have priority in the carcasses over Fred under either 2-403(1) or 2-403(2).

6.   Swift would have priority over Fred under either 2-403(1) or 2-403(2).

7.   Pennypacker is a buyer in ordinary course with respect to the cattle it bought from Fred.

8.   Suppose that the cattle sold by Fred included some from Nabors' herd, who had without Nabors' knowledge wandered over onto Fred's property.  Nabors will nonetheless lose priority in the cattle under 2-403.
 
 
 

                                    Questions 9-16 are based on the following fact pattern.
 

Lane Lumber, Inc.,  an close corporation owned entirely by Lori Lane and doing business in Baltimore, was indebted to Bank on a promissory note in the amount of $120,000, payable on demand.  Bank became worried about its loan and threatened to call the note unless it got a security interest in Lane Lumber's inventory and equipment; Lane agreed to this.  Bank prepared a new contract to this effect, mistakenly listing the debtor as "Lori Lane."  Lane, who had never agreed to assume personal responsibility on the contract, signed it as "Lane Lumber, Inc., by Lori Lane, President."  Bank filed the contract in the Baltimore county record office under the name of Lori Lane.  It never filed under the name of Lane Lumber, Inc.  Okun, another creditor of Lane's, was later unable to find  a copy of the financing statement in the records, even though he knew about the contract at the time it was arranged.

9.   Bank never gave new value, and so failed to comply with 9-203.

10.  Apart from any issue of value, Bank's security interest attached as soon as Lori Lane signed the contract.

11.  Bank's filing under the name of Lori Lane complied with the requirements of 9-402(1) [Revised 9-502].

12.  Bank did not file its financing statement in the right place or places.

13.  If Lane Lumber goes bankrupt, Bank will lose the protection of its security interest and will have to share pro rata as an unsecured creditor.

14.  If Bank refiles under the name of Lane Lumber, Inc., this filing will be effective against Okun.

15.  So long as Lane stays out of bankruptcy, Bank will have priority over any unsecured creditors.

16.  If Bank refiles under the name of Lane Lumber, Inc, Bank will have priority over anyone who buys lumber from Lane.
 
 

                                    Questions 17-24 are based on the following fact pattern.

Bunsen Marine Sales sold a new sailboat to Conrad, a professional fisherman, on Monday, September 1 and took back a security interest and promissory note.  Because of a clerical error, Bunsen did not immediately file, as was its ordinary practice.  After a weekend on the bay, Conrad decided he did not like the feel of the boat and sold the sailboat to Mathilde, a sports enthusiast, who found no recorded interest when she searched the records at the Secretary of State's.  This took place on Monday, September 8.  The next day, Bunsen discovered its clerical error and filed.  Still later, Mathilde discovered hang-gliding and sold the sailboat to Carbuncle, a used boat dealer.

17.  Bunsen was unperfected when Conrad sold the boat to Mathilde.

18.  Mathilde will have priority in the boat over Bunsen.

19.  A lien creditor who levied on the boat on September 5 would have had priority in the boat over Bunsen.

20.  Bunsen will have priority in the boat over Carbuncle, since it bought after Bunsen filed.

21.   Had Mathilde been a professional fisherman, as opposed to a sports enthusiast, Bunsen would have priority in the boat over Mathilde.

22.  Had Conrad been a sports enthusiast, as opposed to a professional fisherman, Bunsen would have been perfected all along.

23.  Had Conrad been a sports enthusiast, as opposed to a professional fisherman, Bunsen would have priority in the boat over Mathilde.

24.  Had Bunsen simply retained title to the sailboat pending full payment, instead of taking a security interest, it would not have had to worry about filing its interest.
 
 

                                    Questions 25-32 are based on the following fact pattern.

Ajax Credit Association lent $30,000 against two tractors in the possession of King Construction, and filed a financing statement on February 1.  The tractors had been purchased last year from John Deere Co. for 50% cash and the other 50% on a purchase money security interest.  John Deere, however, filed its financing statement in the wrong place.  On March 1, the tractors were seized by Gravel, one of King's many unpaid subcontractors, under a valid judgment lien.  On April 1, Ajax lent King an additional $25,000 pursuant to a future advance clause in their original contract.  On May 1, Gravel held a sheriff's sale and sold the tractors to King's main competitor, Queen Construction.

25.  Ajax will have priority in the tractors over Gravel at least with respect to its original $30,000 loan.

26.  Ajax will have priority in the tractors over Queen at least with respect to its original $30,000 loan.

27.  King will have priority in the tractors over Queen.

28.  Deere did not need to file to be perfected.

29.  Deere will have priority in the tractors over Gravel.

30.  Ajax will have priority in the tractors over Gravel to the extent of the entire $55,000 it lent.

31.  Suppose that Ajax knew that Gravel had seized the tractors when it lent on April 1.   In this case,  Ajax will not have priority in the tractors over Gravel and Queen to the extent of the entire $55,000 it lent.

32.  Suppose that Ajax lent King the $25,000 on April 1 as part of a scheme to pay off Deere, and that Ajax subsequently received a $5000 kickback from Deere as part of the transaction.  In this case,  Ajax will not have priority in the tractors over Gravel and Queen to the extent of the entire $55,000 it lent.
 
 

                                    Questions 33-36 are based on the following fact pattern.
 

Cooke, a wine fancier, borrowed $10,000 from Haddon, another wine fancier, and for collateral turned over possession of ten cases of burgundy wine worth $20,000 that would not fully mature for two years.  Eventually Cooke's other creditors caught up to him, and Cooke agreed to relinquish all his rights to the burgundy to one of them, named Staff.  When Staff called on Haddon at his cellar with $10,000 in hand, however, he discovered that three-quarters of the bottles of burgundy had been consumed.

33.  Haddon had a security interest in the burgundy

34.  If Haddon ever had a security interest in the burgundy, it was never perfected.

35.  Staff was entitled to reclaim the burgundy from Haddon at the price of $10,000, plus any accrued interest.

36.   Now that the burgundy has been drunk, Staff is entitled to recover its value from Haddon, less $10,000 and any accrued interest.
 
 
 

 
 

 END OF QUIZ