Question I
(50 of 100 points; Suggested Time: One Hour)
In December 1, 1997, our client Bob Borrower borrowed from Larry Lender $24,000. The loan was to be repaid by Borrower not later than December 1, 1998. Unfortunately, Borrower was unable to repay the loan by that date. On December 1, Bob Borrower visited Larry Lender and told him that his business was in trouble and that he could not repay the loan. Bob told Larry that if his creditors did not help him, he would probably have to declare bankruptcy. Bob pointed out to Larry that since his debts were far greater than his assets, creditors were likely to recover only a small percentage of their claims in bankruptcy.
On the other hand, Bob Borrower said, if his creditors were flexible about his situation, his business could survive and he would be able to pay off a larger portion of his debt and he would remember favorably those creditors who helped him out now. Bob then proposed that Larry forgive half the debt and permit him an additional year to pay. He said that he was going to make the same proposal to his other creditors.
Larry Lender and Bob Borrower had been friends for many years and Bob hoped that Larry would be sympathetic, and he was. The two of them signed an agreement which provided that Bob would pay $1000 per month for 12 months with interest at the market rate in full settlement of Bob’s obligation to Larry. The agreement also recited that Larry’s agreement to the reduction of debt and extension of time for repayment was given “... in consideration of value received ...” from Bob.
Larry has apparently had a change of heart about this agreement. Bob received a letter from Larry yesterday which states:
“I’m sorry that I am unable to accept either the reduction in your debt or the extension of the time for payment. If I do not receive payment in full from you by December 10, I shall initiate proceedings against you for the recovery of the $24,000 that you owe me.”
Bob is unable to make the payment being demanded. Furthermore, Bob had gone to other creditors and told them of the agreement he had reached with Larry and some of them had agreed to a similar reduction in debt and extension of time for repayment. He is deeply troubled about his situation and has come to you for legal advice. Please provide him with an analysis of his legal situation. In so doing, consider both the arguments you would make in his behalf and the arguments you would expect in return from Lender’s attorney.
Question II
(50 of 100 points; Suggested Time: One Hour)
Signals Inc. is a manufacturer of cables used primarily by computer manufacturers. These cables are employed to carry signals inside the computer among its component parts, particularly between the disk , cdrom and dvd drives and the system (“mother”) board. Bell Inc. is a manufacturer of desktop computers used in homes and offices. Although they sell some computers to retail computer stores, they also engage in manufacturing computers “to order”, that is, they assemble computers on the basis of specifications provided by a particular buyer. The problem described here arose from an order for cables which Bell placed with Signals. This order called for specially designed and manufactured cables which were designed to become part of 500 computers which Bell was building for Comics, Inc., a major publisher of comic books and computer games. The unusual cable design was required because of the number and variety of internal disk, cdrom and dvd disk drives that Bell had to assemble into each computer to meet the requirements of Comics, Inc.
The contract to buy cables was signed by Signals and Bell in October 1998. Delivery of the cables was to take place not later than December 1. The contract price was $5 per cable, for a total contract price of $2500. In its contract with Comics, Bell agreed to deliver the computers to Comics by January 15, 1999.
Yesterday, December 9, 1998, Signals informed Bell that it was unable to supply the cables. It stated that its supplier of wires had informed it that the kind of wire needed to build these cables was currently backordered and that the wire supplier could not deliver the wire to Signals until the end of January 1999. Signals stated that it had been unable to find an alternative source of wire and that it was therefore unable to manufacture and deliver the cables by December 1 and, indeed, could not promise delivery before mid-February.
Bell has been unable thus far to find an alternative supplier of cables who could deliver cables in time for Bell to assemble the computers for Comics by January 15. Bell is particularly unhappy about this both because it hoped Comics would be a continuing customer in the future and also because Bell anticipated a profit of $100 on each of the computers it was going to deliver to Comics. It is also concerned that Comics is depending upon these new computers to meet a scheduled completion of a new combined comic book and computer game product that it needed to bring to an industry show in April to solicit sales for the 1999 Christmas shopping season.
You represent Bell. Please provide an analysis for Bell of its alternatives, including both its claims against Signals and its concerns about Comics. In so doing, please include the kinds of arguments you would expect counsel for Signals to make in its behalf.