|
 |
||
|
SANTA CLARA UNIVERSITY FINAL EXAMINATION Commercial Transactions December 9, 1993 The revised examination rules issued June 1993 apply to this examination, except that this is a limited open book examination. Instructions 1. This is a limited open book examination. During the examination you may consult your casebook, Uniform Commercial Code (either as reprinted in or copied from Selected Commercial Statutes or another publication), class handouts, and any notes, outlines, charts, or other form of your own written work product. No other sources may be consulted. 2. Answer questions in blue books or, if typing, on typing paper. 3. Answer questions in accordance with the Uniform version of the Commercial Code. 4. Do not simply state a conclusion to a question. Provide an analysis which supports your conclusion. 5. Answer all six questions in this examination. There are two parts to Questions 3 and 4. 6. I do not grade by awarding points and establishing a curve. Rather, I consider the net impression made by all of your answers. I look for ability to identify issues, demonstrated understanding of legal principles and relationships, skill in using the statutory law we have studied, accuracy, clarity and creativity of analysis, organization and conciseness of response, and good English expression. Each of the questions on the examination is based on some variation of the following basic facts. Look in each question for any variations of facts previously given.
Basic facts: Custom Chemical Co., located in New Jersey, manufactures and sells chemicals. Catalysis, Inc., located in California, is a research firm which contracts with private industry to study ways to improve chemical manufacturing processes (e.g. more efficient ways to convert oil to gasoline). Custom Chemical Co. entered into a written agreement with Catalysis, Inc. to sell a large quantity of a highly toxic chemical to Catalysis, Inc. The written agreement included a clause requiring Catalysis, Inc. to store the chemical in storage tanks conforming to specifications set forth in regulations of the United States Environmental Protection Agency ("EPA"). This clause was included because of an EPA regulation requiring sellers of toxic chemicals to refrain from delivery of chemicals to any person or entity absent reasonable assurance that such chemicals would be stored in accordance with EPA regulations. The EPA may assess large fines against sellers of toxic chemicals who deliver chemicals absent such assurance.
Question 1 Assume that the written agreement provided for payment by sight draft against order bill of lading. Custom Chemical Co. shipped the chemical by rail, filling several tanker cars. The railroad issued a negotiable bill of lading to the order of Custom Chemical Co. Shortly before arrival of the shipment in California, and before arrival of the draft, the president of Custom Chemical Co. read a news story in the New York Times stating, in relevant part: "EPA inspectors will re-visit Catalysis, Inc. next month because of concerns about compliance with chemical handling regulations." Does Custom Chemical Co. have a right as against buyer to order the railroad to withhold delivery of the chemical from Catalysis, Inc.?
Question 2 Assume the same facts as in Question 1. Assume also that Custom Chemical Co. had a right as against buyer to order the railroad to withhold delivery of the chemical from Catalysis, Inc., whether or not you so concluded in your answer to Question 1. Assume finally that the bill of lading has been endorsed by Custom Chemical Co. in blank, that the bill of lading is in the possession of a bank located near Catalysis, Inc., and that the bank has notified Catalysis, Inc. to pay the draft. What need Custom Chemical Co. do to assure that the railroad withholds delivery of the chemical from Catalysis, Inc.?
Assume that Custom Chemical Co. was able to stop the railroad's delivery of the chemical and arranged for reshipment of the chemical to Custom Chemical Co. a. May Custom Chemical Co. proceed under U.C.C. 9-505? Do not overlook U.C.C. sections 2-505 and 9-113. b. If Catalysis, Inc. filed a Chapter 7 bankruptcy after Custom Chemical Co. regained possession of the chemical but before Custom Chemical Co. had taken any action with respect to the chemical, would the trustee have rights to the chemical if the trustee could show that Custom Chemical Co. had never filed a financing statement?
Suppose that the written agreement called for payment upon delivery rather than against a sight draft and suppose, therefore, that Custom Chemical Co. consigned the goods to the railroad and procured from the railroad a non-negotiable bill of lading naming Catalysis, Inc. as consignee. Suppose that, before Custom Chemical Co. could attempt to stop delivery because of its concern about the storage tanks, Catalysis, Inc. obtained possession of the goods from the railroad in exchange for its check for the full amount of the purchase price. Custom Chemical Co. was therefore relieved when it subsequently learned that Catalysis, Inc., itself concerned about violating EPA regulations, had sold and delivered all of the chemical purchased from Custom Chemical Co. to another firm (hereafter "buyer #2"), located in Nevada, in satisfaction of a pre-existing debt owed by Catalysis Inc. to buyer #2. The relief of Custom Chemical Co. was short lived, however, because several days later it learned that Catalysis' check was a dishonored (i.e. bounced) and also learned that Catalysis, Inc. was in severe financial difficulty. a. Are Custom Chemical Co.'s rights in the chemical in the hands of buyer #2 greater, the same as, or less than the rights Custom Chemical Co. would have had in the chemical in the hands of buyer #2 if: (i) the written agreement between Custom Chemical and Catalysis, Inc. had granted Custom Chemical Co. a security interest in the chemical to secure payment of the purchase price, and (ii) Custom Chemical Co. had failed to file a financing statement. (Do not overlook U.C.C. 2-505.) b. Assume that the written agreement between Custom Chemical Co. and Catalysis, Inc. had granted Custom Chemical Co. a security interest in the chemical to secure payment of the purchase price, and that Custom Chemical Co. had perfected its security interest, before consignment of the chemical to the railroad, by the filing of a financing statement in the appropriate California location. Assume that the chemical was sold and delivered to buyer #2 as stated above and that a bank, Chemical Bank, held a perfected security interest in after acquired equipment and inventory of buyer #2. Would the rights of Custom Chemical Co. in the chemical be superior or subordinate to the rights of Chemical Bank in the chemical?
Suppose railroad delivered the chemical to Catalysis, Inc. before Custom Chemical Co. could take any action to stop the delivery. Suppose also that Catalysis's check was honored (i.e. Custom Chemical Co. was fully paid) and that the Catalysis, Inc. kept the chemical itself. Finally, suppose that Custom Chemical Co. was fined by the EPA for selling to a company without having adequate assurance that the buyer had adequate toxic chemical storage facilities. The fine was levied in part on the basis of a rather fine distinction drawn by the EPA: while Catalysis, Inc. promised in the agreement that it would store the chemical in proper storage tanks, it never represented to Custom Chemical Co., in the written agreement or otherwise, that it had adequate existing toxic chemical storage facilities. The written agreement between the two companies contained no language concerning remedies for breach of the agreement. Can Custom Chemical Co. recover from Catalysis, Inc. an amount compensating Custom Chemical Co. for the amount of the fine? Before proceeding with the following questions, reread the basic facts and purge your mind of all of the variations in Questions 1-5.
The written agreement contained the scientific notation for the chemical to be delivered to Catalysis, Inc. and required that Custom Chemical Co. FAX to Catalysis, Inc., immediately after placing the chemical with a carrier, a certificate of inspection from an independent firm verifying that the chemical on board conformed to the chemical described by the scientific notation in the written agreement. The written agreement called for delivery of the chemical in two separate shipments, one month apart, and for payment of the entire purchase price within thirty days of receipt of the second shipment. Custom Chemical Co. timely supplied an inspection certificate for the first shipment. Catalysis, Inc. stored the first shipment upon receipt without its own inspection or testing. Three weeks after receipt of the first shipment, Catalysis, Inc. began to use the chemical in its research. After several seemingly inexplicable chemical reactions, Catalysis, Inc. analyzed the chemical and discovered, contrary to the conclusion reported in the inspection certificate, that the chemical did not conform to the description in the written agreement. Immediately prior to reaching this conclusion, Catalysis, Inc. had received and stored the second shipment. Custom Chemical Co. never supplied Catalysis, Inc. with an inspection certificate for the second shipment. Catalysis, Inc. estimates that its time and materials wasted by virtue of experiments using the non-conforming chemical amount to $25,000. It has not yet paid for the chemical. Assume that the only language in the written agreement speaking to remedies for breach was the following: ``Buyer's remedy for breach of this agreement shall be replacement of any non-conforming chemical. In no event shall seller be responsible for consequential damages suffered by buyer. Assume a court would find this clause not conspicuous. What are the rights and remedies of Catalysis, Inc., if any?
End of examination |
||