COMMERCIAL FINANCE
PROFESSOR JANICE KOSEL
FINAL EXAMINATION
FALL 2002
1. This is an open book exam. You may consult any materials you wish including but not limited to
the UCC, textbook, class notes, course outlines, and treatises.
2. You have two (2) hours to complete this exam.
3. There are two (2) questions on this exam, each of which is of equal weight.
4. If you believe you require any additional factual information to answer the questions, please
specify what that information is and how it would affect your answer.
5. Remember to read, think, analyze, and organize your answer before you begin to write.
6. Write your exam number on your exam envelope, at the top of this exam question packet and
on all used blue books. Do not use your student ID number, or Social Security Number on
any exam materials.
7. At the conclusion of the exam, return all test materials, including blue books, scratch paper, and
this exam question packet to the envelope and submit it to the proctor.
Have a happy holiday!
Question I
Crafty Charlie decided to repossess the 1992 Ford Explorer he had sold to Debbie Debtor
pursuant to a written security agreement. The agreement provided for a total purchase price of
$8,000 - a $2,000 down payment and six monthly payments of $1,000 each. Even though there
was a "time is of the essence" clause in the agreement, Debbie's payments were always late.
Here is her payment history:
| Due Date |
Payment Date |
| 8/1 |
8/5 |
| 9/1 |
9/15 |
| 10/1 |
10/24 |
| 11/1 |
11/29 |
| 12/1 |
|
Crafty Charlie had kept a spare key to the vehicle. At 2:00 a.m. on December 2, Charlie used
the key to repossess the car from Debbie's driveway. The repossession had been a little dramatic
- Debbie's date was just leaving her house and chased the departing vehicle yelling, "Stop, thief!"
but Charlie was able to outdistance the boyfriend in a block or so.
Charlie sold the car to his brother for $4,000. The blue book value is $7,000.
Now Debbie is threatening to sue.
Advise Charlie. If he had contacted you earlier, what advice would you have given him?
Question II
On April 1, 1999 First Bank made a $500,000 loan to Debtorco, a manufacturing company, pursuant
to a written security agreement. The collateral was described as "inventory." A financing statement
was duly filed.
Debtorco made a loan application to Second Bank three years later. Debtorco listed the
following assets on its application:
| Inventory |
$3,000,000 |
| Accounts receivable |
$2,000,000 |
| Equipment |
$500,000 |
On April 15, 2002 Second Bank filed a financing statement under Debtorco's name describing the
collateral as "inventory." On June 1, 2002, Second Bank made a loan of $1,000,000 to Debtorco
secured by "inventory."
On June 24, 2002, First Bank made an additional loan of $1,000,000 to Debtorco.
Debtorco filed for bankruptcy December 1, 2002. In its filings, it listed the following assets:
| Inventory |
$1,000,000 |
| Accounts receivable |
$200,000 |
| Equipment |
$500,000 |
| First Bank |
$1,000,000 |
| Second Bank |
$1,000,000 |
| Mother-in-law (an unsecured creditor) |
$100,000 |
Who will get what? Why?
END OF EXAM