This is a two hour and fifteen minute (135 minutes) examination. Any LL.M. student whose native language is not English is entitled to an extra three-quarters of an hour for a total of three hours (180 minutes).

This is an open book examination. During the examination you may consult any written materials except materials checked out from Underwood Law Library. You may, however, consult photocopies of library materials.

There is only one question. Read the question carefully. Think before you write. If you find an ambiguity that affects your answer to a question, make reasonable assumptions and state these clearly in your answer. Be concise. Be clear. Good luck!

Cinema Ex¢tica S.A. owns and manages movie houses throughout Equitoria, a large country in the southern hemisphere. Wishing to expand its entertainment business, Cinema Ex¢tica decides to build and operate video game arcades. To do so, it must acquire durable hardware and "action" software.

On November 8, 1993, Cinema Ex¢tica approaches Core Entertainment, Inc., a New York import-export enterprise with which Cinema Ex¢tica has previously done business. Carmen O'Connell, the general manager of Cinema Ex¢tica, telephones Ben Apple, the president of Core Entertainment. During this telephone conversation, they agree that Core Entertainment will sell to Cinema Ex¢tica 1,200 video display units loaded with video games. The units are to be delivered "C.I.F. Puerto de Salvaci¢n, Equitoria" in three equal lots over a nine-month period, with the first delivery to be made within three months of January 1, 1994. The price per unit is to be determined by the parties at the time each lot is tendered for delivery, but in no event is the unit price to be less than U.S. $4,000 or more than $4,400. Once the price is determined for each lot, Cinema Ex¢tica is to "wire" the purchase price within three business days to Core Entertainment's bank account at Sunflower State Bank in New York. With respect to each unit that fails to meet agreed technical specifications after installation, Core Entertainment agrees to pay U.S. $1,000 per defective unit as "liquidated" damages.

Any dispute arising from the transaction is to be submitted to ad hoc arbitration in New York before a panel of three arbitrators no later than 90 days after a claim accrues. The UNCITRAL Arbitration Rules are to govern the arbitration proceedings.

On November 15, 1993 Se¤ora O'Connell sends a letter confirming the agreement. The letter repeats the terms set out above, except that the letter states that the price per unit is $4,000 without any qualification. When the letter arrives, Mr. Apple's secretary files the letter without showing it to him.

During the first week of December 1993 Mr. Apple attends a Trade Fair in London, where he examines video arcade equipment loaded with action games. He is particularly impressed with the high quality of the equipment manufactured by Henri Richard et Cie. ("Richard") of Caen, France. On behalf of Core Entertainment, Mr. Apple promptly executes a written contract with Richard to purchase 1,200 video display units loaded with "suitable action software." Richard agrees to deliver the equipment "C.I.F. (Incoterms) Puerto de Salvaci¢n" in three equal lots during a nine-month period, with Cherbourg, France to be the port of shipment. The price is U.S. $3,400 per unit. Payment is to be made by means of a letter of credit issued by Core Entertainment's New York bank and confirmed by Richard's bank in Caen. Any dispute is to be submitted to ad hoc arbitration before a three-arbitrator panel at an unspecified place.

Richard manufactures the first 400 units ordered, loads them in two containers, and sends the sealed containers by truck to the port of Cherbourg, where they arrive on January 5, 1994. While in the custody of the terminal operator, unknown persons break into one of the containers, remove 60 units, and reseal the container. Three days later, without noting the difference in weight of the containers, an agent of the carrier loads the containers on the container ship, S.S. DEL NORTE, for carriage to Equitoria. The master issues a bill of lading to Richard listing the cargo as "2 containers said to contain video display equipment". The bill does not purport to limit the liability of anyone other than the carrier.

Richard presents the bill of lading and a draft to the confirming bank. The bank pays Richard, airmails the documents to the issuing bank, and is reimbursed. The issuing bank charges Core Entertainment's account and turns over to Core Entertainment the bill of lading. Core Entertainment promptly indorses the bill of lading and airmails it to Cinema Ex¢tica, which receives the bill before the S.S. DEL NORTE arrives in Puerto de Salvaci¢n.

On its voyage to Equitoria, the S.S. DEL NORTE runs into severe weather customarily encountered on that trade route. As a result, water seeps into the container that had been broken into and warps the electronic circuit boards in the display units.

Upon arrival at Puerto de Salvaci¢n on January 21, 1994, the carrier turns over the two containers to Cinema Ex¢tica upon surrender of the bill of lading. At this time neither the carrier nor Cinema Ex¢tica notices the water seepage. Cinema Ex¢tica first discovers the missing units and the water damage when it unloads the containers five days later. Cinema Ex¢tica promptly notifies the carrier.

After the containers are handed over but before discovering the missing and damaged units, Cinema Ex¢tica orders its bank to wire U.S. $1,600,000 to Core Entertainment's account at Sunflower State Bank. By mistake, the Equitorian bank sends a wire ordering the payment of only $600,000. Sunflower State Bank receives the wire and credits Core Entertainment's account. Before notifying Core Entertainment, the bank "fails."

In the meantime, soon after Cinema Ex¢tica installs the units Equitorian customs officials confiscate the units on the grounds that some of the "action" provided by the software is overtly sexual and therefore contrary to "public morals."

Se¤ora O'Connell and Mr. Apple promptly exchange phone calls to complain of these mishaps. For three months they work to sort them out, but without success. At the end of the three months Se¤ora O'Connell telephones Mr. Apple to say that Cinema Ex¢tica is "canceling" the contract.

Core Entertainment has retained you to advise it on its rights and obligations on the above facts. Mr. Apple asks for an initial memorandum analyzing the sales law aspects of Core Entertainment's contracts with Cinema Ex¢tica S.A. and Henri Richard et Cie. A telephone call the United Nations reveals that Equitoria, France, and the United States were parties to the United Nations Convention on Contracts for the International Sale of Goods at all relevant times.

Write this memorandum.