About Business Law

Q) Donald purchased a 2.5 carat diamond bracelet form Mayor Jewelry as a present for Lorraine. Donald signed a written contract agreeing to pay for the bracelet in forty-eight monthly installment and granted Mayor a security interest in the bracelet. Donald took possession of the bracelet. The owner of Mayor Jewelry advised the store manager to be certain that sheperfect the security interest immediately. The store manager did not file a financing statement.

1) Instead of giving the bracelet to Lorraine, Donald sells the bracelet for $10,000 to his friend Ronald, who retains it for his own use. Prior to purchasing the bracelet, Ronald asks Donald if the bracelet is free and clear of all liens and Donald replies "yes". Shortly thereafter, Donald declares bankruptcy still owing $7,500 to Mayor Jewelry. After Ronald refuses to give the bracelet to Mayor, Mayor sues Ronald . To whom should the court award possession? Would your answer be different if Mayor filed a financing statement?

2) Instead of selling the bracelet, Donald gives it to Lorraine as he intended. Donald declares bankruptcy still owing Mayor $7,500. Mayor sues Lorraine. To whom should the court award possession of the bracelet?

3) Instead of selling the bracelet or giving it to Lorraine, Donald uses the bracelet as collateral to borrow $10,000 from First National Bank. He signs a security agreement giving the bank a security interest in the bracelet. For safekeeping the bank stores the bracelet in its vault. Donald declares bankruptcy. To whom should the court award the bracelet? Would your answer be different if Mayor or First National had filed a financing statement?