Essay Questions from Spring 1990 Commercial Paper Final Exam

Prof. Jeff Ferriell - Capital University law School

CAUTION -- THIS EXAM WAS DESIGNED TO BE ANALYZED UNDER THE ORIGINAL VERSION OF ARTICLES 3 & 4 OF THE UCC.  THESE ARTICLES OF THE UCC WERE AMENDED IN 1989.  THE ANALYSIS OF THESE PROBLEMS MAY BE DIFFERENT UNDER THE 1989 OFFICIAL VERSION OF THE UCC

ESSAY I -- 100 POINTS

LIMIT YOUR ANSWER TO THREE (3) PAGES IN A BLUEBOOK

Sally Signer sent the following message to Ace Finance Company, whom she owed $5,000, for delivery to her Uncle Mortimer:

Upon receipt, Ace Finance contacted Sally by phone and indicated its refusal to deliver the message to Uncle Mortimer unless Sally got someone else to agree to sign along with Sally. Ace therefore returned the message to Sally. Sally then convinced her friend, Guy Gallahad, to sign under her name. Guy wasn't sure why Sally needed his signature on a message to her uncle, but because he was very much enamored of Sally and wanted to impress her with his courtesy, he signed, as Sally requested, immediately below Sally's signature. Sally then sent the message to Ace Finance Company a second time.

Upon receipt of the message, Ace Finance indorsed it "without recourse -- Ace Finance Co." and, in exchange for $4,000, delivered Sally's message to Friendly Factor Company, a firm that specializes in buying odd forms of commercial paper at a substantial discount. Friendly wrote the words "pay to Friendly Factor Company" above Ace's indorsement.

Before Friendly Factor had the chance to deliver the message to Uncle Mortimer, however, Roy Robber broke into Friendly Factor's locked safe and stole all of their business papers, including Sally's message to Uncle Mortimer. Roy, who had once taken a course in commercial paper, immediately recognized the significance of Sally's message to her Uncle and wrote "pay to Roy Robber" on the back of the instrument before stamping it with the "Friendly Factor" signature stamp he also stole from Friendly's safe.

Roy subsequently managed to sell the message to Ivy Innocent for $3500 when Roy told her that it was an investment bond that might eventually pay as much as its face amount of $5,000. Ivy gave the message to her boyfriend, Ned Naive, who agreed to take the message to Uncle Mortimer and demand payment.

Uncle Mortimer called Sally, when Ned demanded payment, and after Sally confirmed that she wanted Mortimer to pay $5,000 to whomever Ace had instructed, Mortimer complied and handed Ned the $5,000 in cash. Ned later gave the money to Sally.

DRAFT A MEMO ANALYZING THE RIGHTS, IF ANY, OF UNCLE MORTIMER AND FRIENDLY FACTOR COMPANY.

ESSAY II -- 100 POINTS

LIMIT YOUR ANSWER TO THREE (3) PAGES IN A BLUEBOOK

Believing she had won $3,000,000 in the May 2, Ohio State Lottery drawing, Lilly Lotto went on a shopping spree in her home town, Columbus, to celebrate.

She first went to "Travel Unlimited" and purchased a new set of luggage for $1000, paying for the luggage by check. Because Lilly was unsure whether she liked the color of the luggage, though, Lilly postdated the check to May 5.

She also purchased a new sofa and living room chair, from Capital Department Store, located in Columbus, Ohio, for $2000, paying for the furniture with her Citywide Department Store credit card.

Lilly then went to "Stereo Heaven" and bought a new stereo, with wall-size speakers, for $5,000, paying for the purchase by check. She post dated this check to May 15, because she was afraid she wouldn't receive any of her lottery winnings for ten days.

Her next purchase was at the Pop-Funk Record Store where she used her First Bank "Convenient Shopping" card to pay for $300 worth of CD's through the point of sale electronic fund transfer terminal at the store.

When she arrived home Lilly logged onto her computer and used the electronic shopping service sponsored by First Bank, to order a new large screen television from 120th Street Appliance Store in New York City, paying the $1500 price with her First Bank credit card.

After she finished hooking up her new stereo Lilly re-examined her lottery ticket and discovered, to her dismay, that she had misread the ticket. Because she missed one of the six "big bucks" lottery numbers, her winnings would amount only to $2,000.

Lilly quickly called First Bank, where she kept her checking account and attempted to stop payment on her checks to Travel Unlimited and Stereo Heaven, giving the Bank all of the information it requested.

She also wrote a letter to First Bank purporting to refuse payment for the records, and the large screen TV. Finally she called Citywide Department Store and told them she didn't want the furniture anymore.

When she finished this flurry of activity she decided to at least try out the stereo and new CD's. She enjoyed the music so much that she fell asleep until, only a few hours of music, the stereo blew up, causing $1,000 damage to her home and destroying the 10 CD's that were in the stereo system's CD player at the time of the mishap.

Unfortunately the assistant bank manager who took Lilly's phone call when she tried to stop payment was rushed to the hospital with a heart attack immediately after hanging up on the phone with Lilly. In all of the confusion, Lilly's stop order was never properly recorded in the bank's computer and when Lilly's checks were presented on May 4, they were both paid.

Neither First Bank, Citywide, nor any of the other merchants Lilly dealt with are interested in rescinding the transactions with Lilly or giving her any of her money back.

DISCUSS LILLY'S RIGHTS AND LIABILITIES REGARDING EACH OF HER PURCHASES.