6811_Sec_Trans_Fa04_Shapiro - Page 1 of 10 7 Shapiro 7...

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Unformatted text preview: Page 1 of 10 7 Shapiro 7 Secured Transactions Exam Exam No. i CORNELL LAW SCHOOL Fall Term, 2004 Final Examination SECURED TRANSACTIONS Tuesday. December 7. 2004 Professor Amy Shapiro Time (1 1:00 am. - 2:00 pm.) INSTRUCTIONS This is a full open7book and open—note exam. You may use any printed or written materials at all. You may not use any electronic deViees or devices with memory {except your own memory. of course!). There are 100 points, total. allocated as follows: Part 1 7 10 multiple choice and true—false questions. 3 points each 7 total 30 points. Part 2 7 One "issue spotter" essay question — 40 points. Part 3 — One essay question asking you to synthesize the law and make policy assessments 730 points. if you use a computer, you must install SecurExam. Please double-space answers in standard-si7e fonts and margins. 11‘ you write by hand, please write clearly. using every other line and only one side of each page. Please write the answers to everything. including the multiple choice and true—false questions in your bluebook or laptop answers. not on the exam. Please put you exam number on bluebook and laptop answers. btit not your name. Please be as concise as possible in your answers. Feel free to use these ahhreyiations tor others. as long as you make them clear): D (debtor). C (collateral). SP (secured party). SI (security interest). SA (security agreement), FS (financing statement). FA (future advance). PMSI (purchase money security interest). In answering. be sure to give analysis to support your conclusions. Unless you Clo, you may receive only paitial credit eyen for “correct” answers. If you quote specific statutory language. it is useful to cue to the releyant L'CC section, but citations alone are not analysis — you need to relate the lau to the facts in each question, If a question seems ambiguous or unclear. please state what the problem is and how you resolved it. then answer the question. If you think relevant facts are missing. state any factual assumptions you are making. and then proceed with your answer (but be careful not to assume away the problem!) All questions are set in Madisonia, the fictional 51hl state of the US. lt has adopted the official version of the UCC. but has no state case law on point (thus. if ;t problem involves dceisional law. make arguments from the statute, the commentary and ease itl\\' in other states). Assume that raw sed Article 9 and revised Article I of the UCC arc in effect at all time relevant to the exam questions. Page 2 of 1D — Shapiro — Secured Transactions Exam PART ONE Multiple Choice and True-False Questions. 3 points each. TOTAL 30 POINTS 1. The US, Congress enacted the Uniform Commercial Code pursuant to its Constitutional power to “regulate Commerce . , . among the several States." True or False? 7. Student l’loustng, Inca. owns several apartment houses and receives monthly rent from tenants. Under the U.C.C.. the corporation may grant a security interest in rent accounts to Home Finance Company to secure a loan Home Finance is making to Fred Jones. president of Student Housing, Inc. for his personal use. even though Student Housing, Inc.. will receive no benefit from the loan. True or False? 'i. Acme Piano Company sells a piano to Ted Jones, The sales contract between him and Acme says “Price is $5.000. payable in 36 monthly installments, Seller retains title to the goods until payment is complete." The piano is delivered to the Jones house. The Jones children hate piano lessons. A few months later. Ted sells the piano to Nick’s Used Piano Store for $3,000. and Ann Martin then buys ll from that store. Meanwhile, Ted stops paying the monthly bills sent by Acme Piano Company. Can Acme recover the piano from Ann? a. Yes. Acme can recover the piano. even though Anne bought it without knowledge of Acme‘s interest. h. Yes, Acme can recover the piano because it owns the piano. Nor Acme cannot recover the piano because Nick's ot’ten purchases used pianos and as a buyer in the ordinary course of business. it was able to take the piano free of even a perfected security interest. I’r d. l\'o. Acme cannot recover the piano because Ann was a buyer in the ordinary course of business. EXAM CONTINL'ES Page 3 of 10 7 Shapiro — Secured Transactions Exam 4. Jo Johnson operates “Jo’s General Store” in Ulyssesville. NY. selling small appliances, among other things. Last year, she realized it cost less to buy teleVisions and VCRs at the large Wal-Mart store than through a wholesaler. So. Jo periodically goes to the Wal-Mart “consumer electronics" department and buys items to put on sale at the store. She finances the purchases through a line of credit from the Bank of Ulyssesville secured by “goods.” As needed. 310.000 is disbursed by check payable to “Wal—Mart and Jo Johnson dorng business as Jo‘s General Store." What should the Bank do in order to obtain a first priority purchase money security interest (PMSI) in the televisions and VCRs'! ..1, Nothing. The PMSI is automatically perfected because the collateral is consumer goods. b. Nothing. as long as the Bank can prove that the balance in the store checking account did not drop below $10000 in between the date of the $10,000 check and the delivery of the collateral to Jo‘s General Store, c. Before Jo obtains the collateral. the Bank should file a financing statement against “Jo's General Store" as debtor and send notice ot'its PMSl to any other lender With a conflicting filed security interest in the same collateral. d. Bel‘ore Jo obtains the collateral, the Bank should file a financing statement against "Jo Johnson” as debtor and send notice of its PMS] to any other lender with a conflicting filed security interest in the same collateral. EXAM CONTINLTES Page 4 of 10 — Shapiro — Secured Transactions Exam 6. Dave X is a sculptor, He needs cash for stone and supplies. .John. a wealthy art collector. agrees to lend him $10,000. Dave signs a simple security agreement that says repayment is secured by "two sculptures.” As soon as Dave receives the 1310.000 check on January 17, he buys stone and supplies and creates two large sculptures: “Black Mood“ and “Gray Mood." Dave delivers the sculptures to John on January 18. In March. Dave again needs cash to buy stone and supplies. First Bank lends him 320.000. secured by his artwork On March 5, Dave signs Ll security agreement describing the collateral as “all sculptures now owned by dcbtor/ohligor." First Bank files a financing statement the same day. With the same collateral description. Dave then decides to hold an open house at his studio and asks John to let him exhibit “Black Mood" and "Gray Mood.” On .’\pl'll I. John files a financing statement indicating "two sculptures." On April 2. John returns the two sculptures to Dave. In July, Dave defaults on both loans. Now. it. First Bank is entitled to all the sculptures b. John is entitled to Black Mood and Gray Mood, and First Bank is entitled to the rest of the sculptures c. John is entitled to two sculptures of his choice. and First Bank is entitled to the rest of the Sculptures d. John is entitled to Black Mood and Gray Mood, and John and First Bank are entitled to share in the value of the remaining sculptures in proportion to the value of their contributions for stone and supplies. On July 1. Anne Appleby meets with a Friendly Finance loan officer. During the conversation. she agrees to give Friendly a security interest in her new BMW automobile. valued at 565.000. On July 3. the loan officer emails Anne a security agreement. describing the collateral as “debtor‘s 2005 BMW.” On Jttly 4., the officer sends a second email reading “Do you accept yesterday's agreement?" Anne immediately hits "Reply." types “OK. A. A.” and sends the email to thC officer. On July 5. Friendly files a financing statement indicating “vehicle” as the collateral. On July 6. Friendly opens a line ofcredit entitling Anne to borrow tip to $2.000. but she does not borrow any money until she draws $500.00 on Jul} 32. When did Friendly Finance's security interest attach to the BMW? C" Li E 4 4‘ wrong-J ‘— E < O The interest never became attached EXAM CONTINUES Page 5 of 1D — Shapiro * Secured Transactions Exam d. You are the lawyer for Madisonia State Bank. Last year, it loaned Ross Paint (To $100‘000 secured by a security interest in “all equipment, now owned or hereafter acquired.” A loan officer visited the Ross Paint warehouse on May 10, 2004. and noticed that the workers were using 10 brand—new forklifts. The foreman said the forklifts were leased from Acme Leasing and gave the loan officer a copy ot the lease for the file. Ross Paint did not make the July and August. 200-1. payments and the Bank accelerated the debt. Yesterday. the loan officer drove by the Ross Paint warehouse and saw the 10 forklifts parked outside He called you toda} at 4:30 pm, to say that he can arrange to repossess them all tonight and that the Bank wishes to act quickly because it learned that a group of etc-employees just won r1585 million discrimination lawsutt against Ross Paint. You need to figure out as qutckly and efficiently as you can whether the Bank can repossess the It) forklifts, Which ofthe following questions should you ask the loan officer first? Are the forklifts locked in a fenced yard orjust sitting 1n the open parking lot'.’ Did Acme Leasing file a financing statement in the relevant state filing system against Ross Paint Co.‘ and if so when? What are the terms of the lease between Ross Paint Co. and Acme Leasrng'? What is the date of the employment discrimination judgment against Ross Paint Ctr“? EXAM CONTINUES Page 6 of 10 — Shapiro e Secured Transactions Exam 9. You have shares of stock in Ace Corporation worth about $50.000. They are held in an account With your stockbroker. You do not have paper certificates representing these shares. You would like to offer the shares as collateral for a loan from ABC Bank. Which of the following is true: (‘1 You cannot use the shares as collateral because they are not represented by paper certificates. You can use the shares as collateral However, because they are not represented by paper certificates. ABC Bank will not be able to perfect its security interest in the shares and for that reason, it may decide not to make the loan. You can use the shares as collateral, but ABC Bank needs information from your broker about how the shares are held in order to determine how it may attach and perfect its security Interest. You can use the shares as collateral, but because the shares are uneerttl‘ieuted. ABC Bank will need to obtain an agreement from Ace Corporation that Ace Corporation, as the issuer of the shares, will comply will instructions from ABC Bank without further consent from you. You mayor may not be able to use the shares as collateral depending on what ABC Bank learns from your broker about how the shares are held. "Seeun‘tization" 15 another term for giving someone a security interest in an item of collateral. True or False? EXAM CONTINUES Page 7 of 10 — Shapiro — Secured Transactions Exam 10. Mega Bank has a perfected security interest in two welding machines at Ace Welding Co, to secure “all current or future obligations to Bank," although it has no contractual duty to lend Ace anything beyond the initial loan. On February 1. Ace sells machine No. l to Mel’s Welding Inc. On March 1. the sheriff levies on .Vlachine No. 2 on behalf of ajudgrnent creditor. On March 5. Mega Bank obtains {nowledge of both the sale and the levy. On March 6. Mega Bunk lends an additional 810.000 to Ace Welding Co. Which statement is correct? a, Mel’s Welding owns Machine No. 1 free of Mega Bank's $10000 security interest. but thcjudgment creditor’s interest in Machine No. 2 is subordinate to Mega Bank’s $10,000 security interest. 3. Mel‘s Welding owns Machine No. 1 subject to Mega Brink‘s 3310.000 security interest, but the judgment creditor‘s interest in Machine No. 2 is prior to Megit Bank‘s $10,000 security interest. Mega Bank‘s 5310.000 security interest is subordinate to the interests of both Mel‘s Welding and the judgment creditor. :1. As the first to file or perfect, Mega Bank has priority over both Mel‘s Welding and the judgment creditor EXAM CONTINUES Page 8 of 10 — Shapiro — Secured Transactions Exam PART TWO “Issue spotter" Essay Question TOTAL 40 POINTS You are a young lawyer at Megabank, Inc, parent of the Bovine State Bank in Desolation. State of Gilmon'a. This message has been left on your answering machine: Hi pal, Bubba here from the Bovine State Bank. I think we may have a problem, and before I go any further, I thought I‘d give you a call. This concerns what used to be a favorite company of mine, Casey’s Caps Corp. It’s a Gilmoria corporation. We call it “CCC” for short. We’ve been lending to (300 for years. I checked our files 1 we filed our original financing statement with the Gilmoria Secretary of State‘s office on 1972. It‘s pretty cryptic — all it says is: “eqp & inv.“ | see we‘ve filed continuation statements since then, so good for us. The last one was filed on July 15. 2003, and the one before that was filed on March 2, 1999. The Security Agreement with CCC gives us an interest in “inventory & equipment” to secure all current & future obligations to Bovine State Bank. The Note is a bit unusuai. It‘s a Demand Note signed by Casey that just says “Debtor/Obligor will repay any and all indebtedness to Bank immediately on demand of Bank.” I think Jed Smith, who had this job before me, used these Demand Notes a lot because he didn’t trust what he called “upstart entrepreneurs,” meaning anyone who didn't grow cotton like Jed’s granddaddy did. Anyway, that’s what we’ve got. It looks from the fite like CCC generally pays $4,000 per month. i don’t know where that number came from. Well, like all of us, Casey is getting older, and he wanted to work a little less hard. So as of April 2, 2004, C00 merged with a larger competitor in the neighboring state of Madisonia, called Sports Caps, Inc., or “SCI.” The CCC factory is still in Gilmoria, but now C00 is just a division of SCI, a Madisonia corporation. SCI sells merchandise on credit to sporting goods stores around the country. I understand the merchandise usually turns over every month or so. I re-tiled a financing statement naming “inventory and equipment” in Madisonia against SCI on June 2, 2004. We did a search and feund that Madisonia Bank already filed a financing statement that says "inventow & equipment" against SCI (well, it actually says the debtor is “Sports Map, Incorporated") in Madisonia on January 3, 2004. I assume that’s not a problem because I tiled within the four-month window, just like you told me to. EXAM CONTINUES Page 9 of 10 — Shapiro — Secured Transactions Exam Anyway, I follow baseball big time. I’m one of the few guys that had faith that the Boston Red Sox were going to win the World Series. (3005 biggest seller 7 about 70% of their business, I think — was a line of caps and shirts with “Red Soxs Are Losers” printed on them. They calted it the "Losers" line. SCI continued making the line at the old 000 factory after the merger. | just knew in my bones the Soxs would win, and l have a soft spot for old Casey, who is now SCl’s production manager. I must have called him a dozen times to tell him the Soxs were going to win the Series and they should stop manufacturing the Losers merchandise or they‘d be stuck with it. Well, sure enough. the Red Sox did win the World Series in October. And l was right. I’ve been seeing "Losers" items marked down 70% and 80% in stores all over Gilmoria, and I hear rumors that SCI isn’t doing too well. 1 got a little nervous because 000 or SCI or whoever it is owes us about $100,000 and I don‘t want to have to explain what happened to it at the January Megabank bad loan review meeting, especially since I saw this one coming and figure that its not my fault. I also think that SCI owes Madisonia Bank a fair amount, and they’ll start taking action if we don’t. So, remember that Demand Note? Well, | read it and it says we can have our money back any time we want. On November 20, 2004, I sent SCI a certified letter saying all indebtedness was due and owing as of December 1. They didn't pay or even call. It looks like we‘ll have to turn to the collateral for payment. 1 think three items are worth going after. A printing machine that CCC brought to the merger is worth about $10,000. It‘s at the factory here in Gilmoria. SCI is also owed about $20,000 in accounts receivable from stores that buy merchandise to resell. And, there is lots of inventory stacked up at the SCI distribution center in Madisonia. Can we send someone to disable the machine and cart off the inventory? Can we start direct collection of the accounts? Can we take money out of SCl‘s checking accounts? They‘ve got one with us and I think one with First Bank around the corner or maybe Madisonia Bank. ldon't want to get into a tight with SCI, or Madisonia, or anyone else, but I do need to get something out of this. I’m counting on you to help me. Oh, one more thing -- I heard something real strange this morning at the coffee shop. Bobby Bellicose said that his cousin up in Boston told him the college kids up there want to buy “Red Sox Are Losers" caps and shirts. They think it’s ironlc. t‘ve never understood those folks up north. What mil you tell Bubba to do and why”? Be sure to anticipate arguments other interested parties are liker to raise. EXAM CONTINUES Page 10 of 10 — Shapiro — Secured Transactions Exam PART THREE Essay Question Askng You to Synthesize the Law and Make Policy Asessments 30 POINT S The imaginary Kingdom of Snowlund has an outmoded commercial law, lts King hus convened 11 group of experts to draft the new Snowland Commercral Code, You are in the group because of your knowledge of Article 9 of the Uniform Commercial Code. The King has requested a memorandum addressing your chotce of ONE of the following tuo questions For the question you answer. the King would like a brief outline of how the UCC (and any relevant case law) address the issue, and a discussion regarding whether as a matter of policy. this approach should he followed. modified or I‘CJCCICCl 1n the Snowland Commercial Code and why. ANSWER EITHER 1 g 2: 1. To what extenti ifany, should secured transactions involving consumer parties he treated differently than those involving only commercial parties? L4 Upon default in performance of a secured obligation. should perfected secured creditors have full priority in the collateral over unsecured creditors and hen creditors,j END OF EXAM ...
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This test prep was uploaded on 02/20/2008 for the course LAW 6811 taught by Professor Shapiro during the Fall '04 term at Cornell University (Engineering School).

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6811_Sec_Trans_Fa04_Shapiro - Page 1 of 10 7 Shapiro 7...

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