Multiple choice questions:
1. William went to Bikes Are Beautiful, and bought a new 20 speed bicycle for $456.00. A sign on the bike read "regularly $1,000. Slashed to $456.00. As is!" The next day, William was riding his bike and the forks holding the front tire snapped. William fell, hitting his head on the sidewalk.
a. Bikes Are Beautiful has breached an implied warranty of merchantability
b. Bikes Are Beautiful has breached an implied warranty of fitness for a particular purpose
c. Bikes Are Beautiful has breached an express warranty.
d. There are no valid warranty claims against Bikes Are Beautiful.
2. William repaired the bike by welding the forks together, and then sold the bike at a garage sale, for $50. A week later, the guy who bought the bike from William was injured when the weld failed.
a. William has breached an implied warranty of merchantability
b. William has breached an implied warranty of fitness for a particular purpose
c. Bikes Are Beautiful has breached an express warranty.
d. There are no valid warranty claims against William.
3. Prof. Abbott bought a car for his daughter when she turned 21, titling the car in her name. He then went to the bank, and borrowed money to cover the check he wrote to the car dealership for the new car, signing a security agreement for the car. Does the bank have a security interest in the car?
4. Wilson Tractors sells a tractor to Farmer John. The purchase price is $225,000. Farmer John pays $25,000 as a down payment, and signs a promissory note for the balance, promising to pay the remaining $200,000 with interest, in monthly payments over the next 5 years. Does Wilson Tractor have a security interest in the tractor?
5. Farmer John needed money to pay for seeds, so he borrowed $25,000 from Production Credit Union. He signed a security agreement pledging the tractor he purchased from Wilson Tractors (see question 4). Does the bank have a valid security interest in the tractor?
6. After borrowing from the bank for seed (see question 5), Farmer John borrowed $100,000 from First National Bank to build a new barn. He gave a security interest in the tractor to First National Bank, which filed a financing statement. Farmer John then defaulted on his loans to Wilson Tractor, Production Credit Union and First National Bank and filed bankruptcy. The tractor was sold for $100,000. What should happen to the proceeds from the sale of the tractor?
a. Wilson Tractors should be paid in full. Any remaining money should go to Production Credit Union next, and the First National Bank last.
b. First National Bank should be paid first, with any remaining amounts going to Production Credit Union.
c. Production Credit Union should be paid first, with any remaining amounts going to First National Bank.
d. The $100,000 should be divided between the three lenders, in proportion to the amount of their loans.
7. Wilson Tractors sold a lawn tractor to Prof. Abbott to use on his personal lawn. Prof. Abbot paid $500 down and signed a note and a security agreement for the balance of $5,000. Later, Professor Abbot borrowed $5,000 to pay for a cruise. He signed a promissory note and a security agreement, pledging as collateral all of his lawn tools and equipment, including motorized equipment. The credit union which lent him the money for his cruise then filed a financing statement. Prof. Abbot's cruise ship sank, and he died in the incident. His estate sold the tractor for $3,000. Who has priority to claim the proceeds of the sale?
a. Wilson Tractor should be paid first, and then the credit union.
b. The credit union should be paid first, then Wilson Tractor.
c. The credit union should be paid first, the balance divided amongst all of Prof. Abbott's unsecured creditors.
d. The money should be divided equal between Wilson Tractor and the credit union.
8. Lumber n More sells lumber, hardware, paint and painting supplies. Its owners couldn't make ends meet and decided to liquidate the store. It had a "going out of business" sale and advertised that it was liquidating all of its inventory, supplies and equipment. A sign at the front of the store said "even the display cases are for sale!" Johnson was in the market for a used forklift, and knew that Lumber n More had a forklift which it used to move lumber onto trucks. He offered to buy the forklift for $5,000. After a few moments of haggling, Johnson and Lumber n More agreed of $6,000. Johnson wrote a check and took the forklift. The next day, Johnson called and complained that the forklift would not life more 500 pounds, when forklifts like this usually can lift at least 1,500 pounds.
a. Lumber n More has breached an implied warranty of merchantability
b. Lumber n More has breached an implied warranty of fitness for a particular purpose
c. Lumber n More has breached an express warranty.
d. There are no valid warranty claims against Lumber n More.
9. Jenson bought a car from Buy Here, Pay Here, for $10,000, paying $1,000 down and financing the balance by signing a promissory note promising to be pay the balance, with interest, over 48 years. Jenson signed a security agreement, granting a security interest in the car. After making payments on the car for two years, Jenson sold the car Wilbur for $2,000, and agreed that he [Jenson] would keep making the payments on the car. Jenson made the payments for about a year, then defaulted on the loan. Buy Here, Pay Here wants to know whether it can repossess the car.
Green: Sure it can!
Red: Heck no! Wilbur owns the car, and he doesn't owe Buy Here, Pay Here a plugged nickel.
10. The former owners of Lumber n More opened a new store, called All Your Building Needs, which sold lumber, hardware, paint and painting supplies. Wilbur bought 10,000 feet of pipe for fencing from All Your Building Needs. Two days after he took delivery of the pipe, and after his check paying for the pipe cleared the bank, someone showed up at his house to repossess the pipe. They had the paperwork showing the All Your Building Needs borrowed $500,000 from First National Bank, had granted a security interest in all of the company's inventory, and that a financing statement had been properly filed. All Your Building Needs had defaulted on its loan, and the bank was taking possession of all the collateral. Can it lawfully repossess the pipe that Wilbur bought?
Green: Yep. The lien stayed with the pipe.
Red: That just ain't right!
11. All Your Building Needs went the same way as Lumber n More, and had a going out of business sale. Dilbert heard that they were even selling the forklift used to move lumber onto delivery trucks, and negotiated a deal to buy the forklift for $5,000. A couple of weeks later, First National Bank stopped by Dilbert's house to repossess the forklift. Can they lawfully repossess it?
Green: Yep. The lien stayed with the forklift.
Red: That just ain't right!