FINAL EXAMINATION
COMMERCIAL TRANSACTIONS
FALL, 1994
PROFESSOR KLEINBERGER
General Instructions
This is an open book examination. You may use the statute book, the assigned photocopied
materials, any additional photocopied materials distributed by the professor during the semester
and any notes you have made or developed in studying for the course or the exam. You may use
outlines or other notes developed by a group of students enrolled in this course this semester if
you played a substantial role in the development of the group outline or notes. Except as stated in
the second and third sentences of this paragraph, you may not use treatises, hornbooks,
commercial outlines, other commercial works or any other materials prepared by others.
This examination lasts three hours and has two parts. Part One consists of five separate
questions, each based on a separate fact pattern and each requiring a relatively short answer. Part
Two consists of a single fact pattern, requiring a more intricate answer. Each Part of the
examination is equal in weight to the other Part. That is, the five questions in Part One, taken
together, have the same weight as the one question in Part Two.
Please keep in mind that "spotting issues" is only the first step in doing a legal analysis. You must
also take the issues you identify and organize them into a coherent structure. Then, within that
structure, you must examine those issues (by applying the law you see as relevant to the facts you
see as relevant) and argue for some conclusion. For the questions in Part One, your analysis will
be less complicated than in your answer for Part Two. But for both Parts your answers must
reflect a coherent analysis.
Please do not write about subjects that are not germane to your analysis. Writing a "treatise" on
some area of law that the question does not put in issue wastes your time and conveys the
unfortunate impression that you do not understand which issues are relevant.
To the extent that your analysis involves statutory provisions, you MUST cite those provisions.
If your analysis involves the construction (as distinguished from mere application) of a particular
word, phrase or provision, it may make sense to quote that word, phrase or provision. Otherwise,
do not waste your time quoting the statute at length. (On the other hand, if you can quote a piece
of the statute faster than you can paraphrase it, feel free to do so.) There is no need to cite case
names. If citing case names helps you, feel free to do so. Do not, however, use case names as a
substitute for stating the law.
The grading rewards coherence. It will probably be worth your while to take some time to think
about the organization of your answer before you begin writing. Ask yourself:
whether you have identified all the necessary parts to your analysis;
whether all the issues you have identified are actually necessary; and
whether you have organized your issues in a way that is likely to make sense to your reader.
Please write legibly. Please write on only one side of each page. If legibility is not your
strong point, please skip every other line as you write.
Budget your time.
BUDGET YOUR TIME.
BUDGET YOUR TIME.
BUDGET YOUR TIME.
Special Note as to Applicable Law
To the extent (if any) that UCC § 2-318 applies to a question, assume that the relevant version
states:
A seller's warranty whether express or implied extends to any person who may reasonably be
expected to use, consume or be affected by the goods and who is injured in person or in his, her
or its property by breach of the warranty. A seller may not exclude or limit the operation of this
section.
Assume also that each problem is to be resolved under the law of a jurisdiction that has adopted
Minn.Stat. § 604.10. Whether § 604.10 is relevant to any problem is, of course, for you to
determine.
Part One
A. In May, Jim buys an 18-speed, mountain bike and pays the retailer $120 extra for a special,
high gloss paint job. Jim uses the bike without incident throughout the summer. In September,
Jim and the bike are caught in a sudden downpour. Within a week Jim notices that the fancy paint
job is deteriorating. Angered at the defect, Jim kicks the front tire, saying, "What a *!#@$%
paint job. No wonder we're losing so many jobs to overseas competitors." In his anger, Jim fails
to notice that his swift kick has bent the braking mechanism. The next time Jim rides the bike, the
bent brake malfunctions, he tumbles off the bike, and subsequently incurs $5000 in medical
expenses and loses $1000 in wages. Assume that the poor paint job constitutes a breach of the
warranty of merchantability. Assume also that the paint job could be repaired for $100. What, if
any, damages can Jim collect under Article 2 from the retailer?
B. State whether the following assertion is true or false and then justify your statement:
If a written sales agreement states in bold-faced, large letters,
This sale is made AS IS. There are no warranties, and the
warranties of merchantability and fitness for a particular
purpose are expressly disclaimed.
then the written agreement has effectively disclaimed the warranty of title.
C. Seller is the holder of a negotiable bill of lading, with the goods being shipped to buyer by
railroad. The bill of lading provides for shipping the goods to the railroad station at Buyersville.
Due to a keystroke error in its own computer system, Seller believes that the buyer has
repudiated. Seller accordingly sends to the railroad a telegram with the following text:
We are the holder of your negotiable bill of lading #123456(1) and we request that you not deliver
the goods covered by the bill to your station at Buyersville. We request instead that you deliver
the goods to your station at Resaleville, where our representative will present the bill of lading.
The railroad complies with this request. In due course, the goods arrive at Resaleville, a
representative of Seller presents the bill of lading, the railroad delivers the goods, and the
representative of Seller resells the goods to another buyer.
Unfortunately, the original buyer had not repudiated. To the contrary, the original buyer had pre-paid in full ($5500). Moreover, due to a rising market the original buyer was forced to expend
$6200 to cover. According to the materials covered in this course, what, if anything, can the
original buyer recover from the railroad? From the Seller?
D. Grain Company ("Company") agrees in writing to sell a railroad carload of grain to Conniver,
Inc. ("Conniver"), a company that deals in grain. The agreement states a price "FOB Company's
loading dock, ship via rail to buyer's facility." The agreement also requires Conniver to pay in full
for the goods "within three days of the execution of this agreement." Conniver pays with a check,
and Company promptly ships conforming goods via rail as contemplated by the agreement and
informs Conniver of the shipment. Conniver then resells the grain to Putupon, Inc. ("Putupon"),
promising delivery to Putupon "within 2 working days of Conniver's receipt of the goods."
Putupon pays Conniver by check.
While the grain is still en route Company learns that Conniver's check is no good, i.e. the check
has been dishonored. Properly invoking UCC § 2-705, Company regains possession of the goods.
Putupon then demands that Company release the grain to Putupon, "because it's ours." Company
responds, in essence, "No we won't, because the grain belongs to us." Who is right? Assume
that, at the time that Conniver contracted with Putupon, Putupon had no idea of any problem in
the Company--Conniver transaction. Assume also that Putupon's check to Conniver was
honored.
E. Minn.Stat. § 332.50 (civil liability for issuance of worthless check) allows the payee of a
dishonored (i.e. "rubber") check to collect service charges from the person who issued (i.e.
signed) the check. Minn. Stat. § 332.50, subd. 2, paragraphs (d) and (e) concern service charges
and state in pertinent part:
(d) A service charge may be imposed immediately on any dishonored check . . . if written notice
of the service charge was conspicuously displayed on the premises when the check was issued.
The service charge may not exceed $20 . . . . A payee may impose only one service charge under
this paragraph for each dishonored check.
(e) This subdivision prevails over any provision of law limiting, prohibiting, or otherwise
regulating service charges authorized by this subdivision, but does not nullify charges for
dishonored checks, which do not exceed the charges in paragraph (d) or the actual cost of
collection, but in no case more than $30, or terms or conditions for imposing the charges which
have been agreed to by the parties to an express contract.
I.M. Broke issues a check for $20 to William Mitchell College of Law to pay for copies on a copy
card. Broke signs and delivers the check at the College switchboard where there is a sign,
conspicuously posted, stating "Service Charge of $20 Assessed on All Returned Checks, plus any
additional costs incurred in collection."
The check bounces, and the College retains Knees, Inc. to collect on the check. Knees' minimum
fee for collecting a check is $40, and the College pays that amount in connection with Broke's
bounced check. How much can the College collect in service charges from Broke? Would it
matter if the College had a written agreement with Knees specifying the $40 minimum fee?
Part Two
Hibbing Chopsticks Factory, Inc. ("Hibbing") purchased a small airplane from Manufacturer, Inc.
pursuant to a written agreement and for a price of $2.3 million. The agreement contained inter
alia the following provisions:
13. WARRANTIES. Manufacturer warrants that the plane, when delivered to the buyer, will
conform to the specifications stated in Exhibit A. MANUFACTURER MAKES NO OTHER
WARRANTY, WHETHER EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
. . . .
18. REMEDIES LIMITED. For any component of the plane that fails to comply with Exhibit A,
Manufacturer will, at its option, repair or replace that component. This repair/replacement option
is buyer's sole remedy. In no event will Manufacturer be liable for consequential damages.
. . . .
32. COMPLETE AGREEMENT. This Agreement, together with its Exhibit A, states the final
and complete understanding between the parties.
Exhibit A specified inter alia that the plane could maintain a cruising speed of 300 mph and at
that speed had a cruising range (between refuelings) of 900 miles.
The written agreement was a standard form prepared by the Manufacturer. After Hibbing and
Manufacturer agreed on a selling price, Manufacturer sent two unsigned copies of the agreement
(each with Exhibit A attached) to Hibbing with a transmittal letter. The transmittal letter
requested that Hibbing sign both copies of the agreement and return them to Manufacturer.
Hibbing did so. Manufacturer then signed both of the copies, put one in its files and returned the
other to Hibbing with a cover letter that stated in part:
Enclosed is your copy of our agreement. We trust you will be delighted with your purchase.
With its cruising speed of 450 and its range of 1100 miles, this is truly the company plane of the
21st century for up and coming enterprises.
When delivered the plane conformed to Exhibit A but failed to meet the claims made in the cover
letter. Unfortunately, Hibbing did not discover the discrepancy until 6 weeks after taking delivery
and making payment for the plane. Hibbing's company pilot was somewhat inexperienced and, as
the pilot later explained, "I thought the plane was supposed to be able to do 450 and 1100, but
wanted to get the feel of the plane before pushing it all the way to the edge." During the first six
weeks, the pilot flew the plane extensively, but never beyond 300 mph and never more than 750
miles per trip.
Even more unfortunately, after 6 weeks Hibbing discovered the discrepancy inadvertently -- when
the plane nearly ran out of gas in midflight. The pilot landed the plane safely, but (a) the engine
was damaged from overheating, requiring repairs costing $90,000, (b) Hibbing incurred $2500 in
additional transportation and hotel expenses getting its executives from the site of the unexpected
landing to an important business meeting, and (c) Hibbing fired its pilot. In no event can the plane
be made to maintain a cruising speed of 450 mph. The plane simply was not designed for such
speed.
What remedies, if any, does Hibbing have against Manufacturer? Does the pilot have any
recourse against Manufacturer?
1. This bill of lading is in fact the bill covering the shipped goods.