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70% 6 Pages
You represent the Church of the Nativity of Our Lord. The following
facts describe the situation your client faced after contracting for the
installation of a new roof.
Montedison, S.p.A., a large Italian chemical corporation, developed and
produced chemical compounds--Flagon SF and Flagon C (PVC pellets and
powder)--which were transformed by Flag, S.p.A., under Montedison's
direction and supervision, into membranes for use as roofing material.
Montedison at all times maintained control of the chemical formulas.
From the development of the formula through completion of the finished
membrane, Montedison employees maintained quality control.
Montedison U.S.A., a wholly owned subsidiary of Montedison, S.p.A., was
involved in a joint venture with Montedison, S.p.A., to produce,
develop; market and distribute Flagon roofing materials. Montedison
U.S.A. coordinated all phases of marketing and distribution of the
materials in the United States, including the use of the Montedison
Flag, S.p.A., an Italian corporation formed by former Montedison
employees, is an agent of Montedison.
The roofing materials used on Nativity's roofs were shipped through
WatPro, Inc., the sole distributor of Flagon roofing materials in the
United States and the exclusive agent of Flag. In a letter from
Montedison to Flag prepared at WatPro's request, Montedison detailed its
role in the production of the Flagon materials and guaranteed the
quality of the final product. WatPro relied on this letter in deciding
to become the exclusive agent for Flag in the United States. The roofing
materials were supplied by MacArthur Company and installed on Nativity's
buildings by Ampco, an approved Flagon roofing applicator and local
roofing contractor who.
In 1984, Nativity retained the architectural firm of Voight & Fourre to
inspect parish-owned buildings and to identity and prioritize repair,
rehabilitation, and maintenance needs. The architect recommended the
reroofing of certain sections of the roofs of the convent and school as
a high priority and later participated with the parish priest and
finance council in the selection of materials and contractors for the
job. Nativity selected the Flagon materials because of representations
made in the product literature that the Flagon materials would provide a
watertight roof and because a ten-year guarantee was available.
About 60% of the work was to be completed in 1985, the remaining 40% in
1987. Two consecutive five-year guarantees were issued for the first
work completed. In these documents Flag guaranteed that it would
"maintain the Flagon roof * * * in a watertight condition at its own
expense for a period of five years from this date provided that the
owner gives WatPro, Inc., our exclusive agent, written notice of any
leaks within 30 days from discovery of such leaks." The first guarantee
covered the period September 4, 1985, to September 3, 1990, and was
apparently provided at no additional cost. Nativity paid separately for
the second guarantee which covered the period September 4, 1990, to
September 3, 1995. For the work completed in 1987 Nativity purchased two
more five-year guarantees containing identical promises by Flag, the
first covering the period July 14, 1987, to July 13, 1992, and the
second covering the period July 14, 1992, to July 13, 1997. All of the
guarantees contain the names of Flag, WatPro, and Montedison. The
guarantees, drafted and approved by both Flag and Montedison, identified
WatPro as the exclusive agent of Flag.
In September 1985, a leak was discovered in the roof of the convent.
This leak was satisfactorily repaired under the guarantee though the
source of the problem was not discovered. In 1987, new leaks were
discovered. It was later determined that the Flagon material was the
cause of the leaks. It appears that the Flagon roofing materials were
defective and that the defect was caused by plasticizer migration.
Plasticizer is the chemical that makes the PVC flexible. The plasticizer
migration, which occurs when an improper chemical formula is used, makes
the Flagon brittle and susceptible to tears and shrinkage.
In 1989, WatPro was given written notice of the problem. WatPro promised
repairs and extended the guarantees, but the Flagon materials continued
to deteriorate. In November 1991, WatPro informed Nativity that Flag was
refusing to honor its guarantees. In the summer of 1992, after
consulting with experts, Nativity removed and replaced the roofs at its
own expense. Nativity sustained substantial interior damage to the walls
and ceilings of the convent and school.
Assume that the jurisdiction in which you practice and in which all
relevant events took place is a State in the United States and has in
force, in addition to the UCC, the following Consumer Fraud Act.
CHAPTER 325F CONSUMER PROTECTION; PRODUCTS AND SALES PREVENTION OF
CONSUMER FRAUD ACT Stat. 325F.68 - 70 (1992)
Subdivision 1. The following words and terms where used in sections
325F.68 to 325F.70 shall have the meanings ascribed to them in this
Subd. 2. "Merchandise" means any objects, wares, goods, commodities,
intangibles, real estate, or services.
Subd. 3. "Person" means any natural person or a legal representative,
partnership, corporation (domestic and foreign), company, trust,
business entity, or association, and any agent, employee, salesperson,
partner, officer, director, member, stockholder, associate, trustee, or
cestui que trust thereof.
Subd. 4. "Sale" means any sale, offer for sale, or attempt to sell any
merchandise for any consideration.
Subd. 5. "Going out of business sale" means any sale advertised or held
out to the public as a sale in anticipation of the imminent termination
of a business, including any sale advertised or held out to the public
as a "going out of business sale," a "close out sale," a "loss of lease
sale," a "must vacate sale," a "bankruptcy sale," or in any similar
325F.69 Unlawful practices
Subdivision 1. Fraud, misrepresentation, deceptive practices. The act,
use, or employment by any person of any fraud, false pretense, false
promise, misrepresentation, misleading statement or deceptive practice,
with the intent that others rely thereon in connection with the sale of
any merchandise, whether or not any person has in fact been misled,
deceived, or damaged thereby, is enjoinable as provided herein.
Subd. 2. Referral and chain referral selling prohibited. (1) With
respect to any sale or lease the seller or lessor may not give or offer
a rebate or discount or otherwise pay or offer to pay value to the buyer
or lessee as an inducement for a sale or lease in consideration of the
buyer's or lessee's giving to the seller or lessor the names of
prospective purchasers or lessees, or otherwise aiding the seller or
lessor in making a sale or lease to another person, if the earning of
the rebate, discount or other value is contingent upon the occurrence of
an event subsequent to the time the buyer or lessee agrees to buy or
(2) (a) With respect to any sale or lease, it shall be illegal for any
seller or lessor to operate or attempt to operate any plans or
operations for the disposal or distribution of property or franchise or
both whereby a participant gives or agrees to give a valuable
consideration for the chance to receive something of value for inducing
one or more additional persons to give a valuable consideration in order
to participate in the plan or operation, or for the chance to receive
something of value when a person induced by the participant induces a
new participant to give such valuable consideration including such plans
known as chain referrals, pyramid sales, or multilevel sales
(b) The phrase "something of value" as used in paragraph (a) above, does
not mean or include payment based upon sales made to persons who are not
purchasing in order to participate in the prohibited plan or operation.
(3) If a buyer or lessee is induced by a violation of this subdivision
to enter into a sale or lease, the agreement is unenforceable and the
buyer or lessee has the option to rescind the agreement with the seller
or lessor and, upon tendering the property received, or what remains of
it, obtain full or in the case of remains, a proportional restitution of
all sums paid, or retain the goods delivered and the benefit of any
services performed without any further obligation to pay for them.
(4) With respect to a sale or lease in violation of this section an
assignee of the rights of the seller or lessor is subject to all claims
and defenses of the buyer or lessee against the seller or lessor arising
out of the sale or lease notwithstanding an agreement to the contrary,
but the assignee's liability under this section may not exceed the
amount owing to the assignee at the time the claim or defense is
asserted against the assignee. Rights of the buyer or lessee under this
section can only be asserted as a matter of defense to or setoff against
a claim by the assignee.
(5) In a sale or lease in violation of this section, the seller or
lessor may not take a negotiable instrument other than a check as
evidence of the obligation of the buyer or lessee. A holder is not in
good faith if the holder takes a negotiable instrument with notice that
it is issued in violation of this section.
(6) Any person who violates any provision of this subdivision shall be
guilty of a gross misdemeanor.
Subd. 3. Advertising media excluded. Sections 325F.68 to 325F.70 shall
apply to actions of the owner, publisher, agent or employee of
newspapers, magazines, other printed matter or radio or television
stations or other advertising media used for the publication or
dissemination of an advertisement, only if the owner, publisher, agent,
or employee has either knowledge of the false, misleading or deceptive
character of the advertisement or a financial interest in the sale or
distribution of the advertised merchandise.
Subd. 4. Solicitation of money for merchandise not ordered or services
not performed. The act, use, or employment by any person of any
solicitation for payment of money by another by any statement or
invoice, or any writing that could reasonably be interpreted as a
statement or invoice, for merchandise not yet ordered or for services
not yet performed and not yet ordered, whether or not any person has in
fact been misled, deceived, or damaged thereby, is enjoinable as
Subd. 5. Prohibited going out of business sales. It is illegal for any
person to represent falsely that a sale is a "going out of business
sale." Any representation that a sale is a "going out of business sale"
is presumed to be false and illegal under this subdivision, if at that
location or within a relevant market area:
(1) the sale has been represented to be a "going out of business sale"
for a period of more than 120 days;
(2) the business has increased its inventory for the sale by ordering or
purchasing an unusual amount of merchandise during the sale or during
the 90 days before the sale began;
(3) the business, or any of its officers or directors, has advertised
any other sale as a "going out of business sale" during the 120 days
before this sale began; or
(4) the sale has continued after a date on which the business has
represented, expressly or by reasonable implication, that the business
Any presumption arising under clauses (1) to (4) may be rebutted if the
business shows, by clear and convincing evidence, that the sale was in
fact conducted in anticipation of the imminent termination of the
business. This subdivision does not apply to a sale in any statutory or
home rule charter city that by ordinance requires the licensing of
persons conducting a "going out of business sale," nor to public
officers acting in the course of their official duties.
Subdivision 1. Injunction. The attorney general or any county attorney
may institute a civil action in the name of the state in the district
court for an injunction prohibiting any violation of sections 325F.68 to
325F.70. The court, upon proper proof that defendant has engaged in a
practice made enjoinable by section 325F.69, may enjoin the future
commission of such practice. It shall be no defense to such an action
that the state may have adequate remedies at law.
Subd. 2. Service of process. Service of process shall be as in any other
civil suit, except that where a defendant in such action is a natural
person or firm residing outside the state, or is a foreign corporation,
service of process may also be made by personal service outside the
state, or in the manner provided by section 303.13, subdivision 1(3), or
in such manner as the court may direct. Process is valid if it satisfies
the requirements of due process of law, whether or not defendant is
doing business in Minnesota regularly or habitually.
What rights does your client have against Watpro, Flag, MacArthur and
Montedison U.S.A.? What problems do you expect to encounter in
establishing these rights? Be certain to state the reasons supporting
the positions you take.
II 30% 4 Pages
Marjorie purchased consumer goods on credit from Wise on four separate
occasions between February 9, 1989 and October 22, 1989. On February 9,
1989 she purchased a carpet and two lamps with a cash price of $250.00
and a finance charge of $28.61. Sometime after February 9, 1989, she
also purchased a vacuum cleaner that was added to the February 9, 1989
contract. A separate agreement with cash price and financing charge does
not appear to exist; the addition of the vacuum cleaner is only apparent
because of reference to the vacuum cleaner as part of the "old contract"
in the April 2nd contract.
On April 2, 1989, Marjorie purchased four chairs with a cash price of
$300.00 and an added finance charge of $113.90.
On October 22, 1989, she purchased a sofa and two tables. The cash price
was $729.95 and a finance charge of $277.78 was added.
Each contract refinanced the previous contract. For example, the April 2
contract totaled $634.00 plus the finance charge. The $634.00 was
composed of the $300.00 cash price for the chairs, plus $11.05 tax, plus
a $322.95 balance on the April 2 contract. The credit agreement recites
"the old contract" and is unclear whether the $322.95 balance of "the
old contract" includes the old finance charge, nor is it clear whether
the new finance charge is computed on a total figure which includes the
old finance charge. Furthermore, the newly computed finance charge is
added in twice in arriving at the deferred payment price of the new
contract. The October 22, 1989 agreement also appears to refinance the
balance due and owing, including the finance charge, on the April 2
The April 2 and October 22 agreements seem to attempt to retain a
security interest in all of the goods purchased by respondent.
On March 4, 1991 Marjorie defaulted on the last contract with an
outstanding balance of $811.23 due. Marjorie made payments totaling
$947.55 prior to default.
You represent Marjorie. Please draft a memorandum to your files
outlining her rights. Include a discussion of those points you expect to
be raise against Marjorie and why.
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