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ABC is a manufacturer of office copier/fax machines. ABC sells 50 of these machines to XYZ a company that sells copier/fax machines. XYZ signs a

ABC is a manufacturer of office copier/fax machines. ABC sells 50 of these machines to XYZ a company that sells copier/fax machines. XYZ signs a note unconditionally promising to pay to the order of ABC $150,000 for these machines in month. ABC also has XYZ sign a security agreement granting a security interest in these machines and ABC files a financing statement in the appropriate filing location. Bank2 then pays ABC a fair discounted amount for the note and ABC then indorses XYZ's note to Bank2 and assigns its security interest over to Bank2 as well. XYZ sells 2 of these machines to CostLiquidhouse, an accounting firm, for $3,600 payable at $4100/month for three years. XYZ stops paying its note claiming the copier/fax machines are defective. Bank2 brings an action against XYZ on the note and seeks to recover the machines from XYZ and CostLiquidhouse. CostLiquidhouse responds that it knew nothing of the arrangement between ABC, XYZ and Bank2, is current on its financing with XYZ and will retain the machines. XYZ claims that Bank2 is subject to XYZ's claim that the copier/fax machines were defective and XYZ does not have to pay on the note. Please comment on the legal claims and obligations of the parties.

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