WILLIAM MITCHELL COLLEGE OF LAW
CREDITOR-DEBTOR Spring 2006 Final Exam
Professor Gendler
(Two Hours)
QUESTION 1
(35 Points)
Deadline Photo Inc., a corporation operating a retail camera store, seeks to purchase cameras and photographic equipment from Creative Company, a supplier of such items, for resale, and on credit. Because Deadline Photo is a new business with little credit history, Creative requires and obtains a personal guaranty by Deadline Photo's president, Doug Deata. Over a four month period, Deadline Photo places several small orders with Creative, running between $500 and $1,000 each. Each order was paid for in full when the merchandise was received. In the 5th month, Deadline Photo places a $15,000 order with Creative, explaining that it needed more inventory for its forthcoming sales promotions. Creative ships the merchandise and bills Deadline Photo for the $15,000. Three months pass and Deadline Photo hasn't paid anything on that $15,000 debt, despite Creative's repeated reminders and Deadline Photo's promises to pay. At a meeting of photographic industry credit managers, Creative's credit manager learns that Deadline Photo has done the same thing with other suppliers: ordered and paid for several small shipments, and then failed to pay for a much larger order. He also teams that there are rumors that Deadline Photo is moving its inventory to another store owned by a new corporation called Fast Film, and preparing to go out of business. Creative's credit manager then comes to you, Creative's attorney, for advice as to what can be done to get back its merchandise or collect the $15,000. What advice do you give him? Why?
CREDITOR/DEBTOR
Spring 2006 Exam
QUESTION 2
(35 Points)
Charlie decided to repossess the 2002 Ford Explorer he had sold to Debbie Debtor pursuant to a written security agreement. The agreement provided for a total purchase price of $8,000 - a $2,000 down payment and six monthly payments of $1,000 each. Even though there was a "time is of the essence" clause in the agreement, Debbie's payments were always late. Here is her payment history:
Due Date
Payment Date
8/1
8/5
9/1
9/15
10/1
10/24
11/1
11/29
12/1
On October 14th, Charlie sent Debbie a letter informing her that she was once again late with her payment and that he had had enough. The letter stated that unless she paid him by October 20th he would repossess the car. He intended to do so, but when the October 24th payment came he decided he would cash the check and see if Debbie would start paying on time. He was upset when the November payment was late.
Charlie had kept a spare key to the vehicle. At 2:00 a.m. on December 5th, Charlie used the key to repossess the car from Debbie's driveway. The repossession had been a little dramatic - Debbie's date was just leaving her house and chased the departing vehicle yelling, "Stop, thief!" but Charlie was able to outdistance the boyfriend in a block or so. Charlie sold the car to his brother for $4,000. The blue book value is $7,000. Debbie has retained your services and wants to sue. What advice do you give her?
CREDITOR/DEBTOR
Spring 2006 Exam
QUESTION 3
(30 Points)
Barbara Biyor bought a flat screen television set from Terrific TV, Inc., a retail store. Barbara is a consumer and bought the television to watch in her home. A month later Terrific filed a Chapter 7 bankruptcy petition and a banker from the Big National Bank ("BNB") showed up on her front porch and asked her to turn over the set. He explained than BNB held a perfected security interest in all of Terrific's inventory and that since Terrific had not paid off its debts to BNB, the bank was repossessing.
i. What should Barbara tell the banker? Explain. ii. Would it matter if she had known that BNB had a perfected security interest in Terrific's inventory? Explain. iii. What if Barbara had put the TV on "layaway" and had paid 50 percent of the price, but permitted Terrific to keep the TV (she signed a contract obligating herself to pay the balance), and then the store filed for bankruptcy? Explain.