Debtors' Rights, Creditors' Remedies and Enforcement of Judgments

Harold B. Auerbach, Prof.

Final Examination, December 18, 2001

Exam Instructions

1. This is an open book exam. You may use any materials you have.

2. Total time is two and a half hours.

3. The exam consists of three essay questions.

4. Each question is of equal weight.

5. You are free to allocate your time as you wish.

6. Answer each question in blue books.

7. Please try to write legibly. If I can't read it, I can't give you credit for it.

8. Put your exam number on each blue book and on the exam questions.

9. Please turn in all questions, scratch paper and blue books at the conclusion of the exam.

1. Kwik Photo Inc., a corporation operating a retail camera store, seeks to purchase cameras and photographic equipment from Nippon, USA, a supplier of such items, for resale, and on credit. Because Kwik Photo is a new business with little credit history, Nippon requires and obtains a personal guaranty by Kwik Photo's president, Dan Kwik. Over a four month period, Kwik Photo places several small orders with Nippon, running between $500 and $1,000 each. Each order was paid for in full when the merchandise was received. In the 5th month, Kwik Photo places a $15,000 order with Nippon, explaining that it needed more inventory for its forthcoming sales promotions. Nippon ships the merchandise and bills Kwik Photo for the $15,000. Three months pass and KwikPhoto hasn't paid anything on that $15,000 debt, despite Nippon's repeated reminders and Kwik Photo's promises to pay. At a meeting of photographic industry credit managers, Nippon's credit manager teams that Kwik 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 Kwik Photo is moving its inventory to another store owned by a new corporation called Fast Film, and preparing to go out of business. Nippon's credit manager then comes to you, Nippon'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?

2. FastBank sends an unsolicited credit card application to Penny Pauper, who works as a waitress for wages and tips which average $2,400 per month. She is unmarried and lives alone with her daughter in a small rented apartment. She needs everything she earns to cover the necessities of life. The credit card solicitation states that there would be 0% interest for 6 months, and 9% interest per year thereafter, and that minimum payments would not exceed 1/24 of the total unpaid balance. Seeing this as a chance to have better things for her daughter and herself, Penny applies for and receives a FastBank Credit Card with a $10,000 credit limit. With the credit card she receives but does not read a "Statement of Terms and Conditions" which include the following:  1. "The terms of payment and interest rate are subject to change at any time upon notice from FastBank to the cardholder".  2. "The interest rate on any balance on which the monthly payment is delinquent shall be 24%."  3. "The monthly payment is delinquent if it is not received by FastBanks by the due date shown on the monthly statement". Over the next three months, Penny incurs credit card charges of over $4,000 and makes the minimum required payments on time. In the third month Penny receives a notice from FastBank that because of changed economic agencies it has had to impose a 10% interest charge on all its former 0% accounts starting with the following month. Penny continues to charge on the card and make minimum monthly payments for the next four months, but by then, with accruing interest, the balance has increased to $9,000.00. At this point, Penny's employer goes out of business and Penny is left jobless. Still unemployed, Penny misses the next payment. She then is notified by FastBank that because of her missed payments her card has been cancelled and the interest on the unpaid balance has been increased to 24% per year, and the minimum monthly payment amount had been increased to 1/10 of the outstanding balance. Still unable to pay, Penny receives telephone demands from FastBank, often two or three times a day, in which FastBank threatens to sue her and "ruin her credit" even though she tells them that she will try to resume making the minimum monthly payments as soon as he gets a job. She then does get a new waitress job, at a similar wage and when FastBank next calls she tells them about the new job and promises to resume payments after her first payday. The next day, FastBank calls her at work and adds a threat that if she doesn't pay the full $1,000 delinquency together with a minimum 10% payment on the remaining balance now, they will sue her and attach her wages. Penny tells FastBank that her employer doesn't want her to take personal calls at work, but FastBank keeps calling her there anyway. Afraid of losing her job because of the repeated personal calls or for being sued, and losing her wages to FastBank, Penny comes to you, her lawyer for help. What advice do you give her? Why?

3. You are now a California lawyer. You are contacted by a Nevada lawyer who has a $25,000 Nevada state court judgment which he wants you collect in California. The judgment is in favor of a Nevada Casino against John Rover, whose last known address is in San Mateo, California. Rover is a self-employed independent insurance adjuster who works throughout California for various out-of-state insurance companies. The Nevada lawyer wants to know what you can do to collect this judgment in California. What do you tell him? Why?