Quiz 4

1. General Leasing Company (GLC) buys equipment for use as inventory,

borrowing $1 million from Helpful Finance Corporation for a security
interest in the equipment. The next day, GLC borrows $500,000 from
Interstate Bank, also for a security interest in the equipment. GLC
defaults on the loans. Suppose that two weeks after GLC takes
possession of the equipment, Helpful and Interstate file financing
statements, with Interstate filing first. In that circumstance, the party
with priority to the equipment is: interstate only
2. General Leasing Company (GLC) buys equipment for use as inventory,
borrowing $1 million from Helpful Finance Corporation for a security
interest in the equipment. The next day, GLC borrows $500,000 from
Interstate Bank, also for a security interest in the equipment. GLC
defaults on the loans. Suppose that Helpful perfects its security
interest when GLC takes possession of the equipment. In that

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circumstance, the party with priority to the collateral on GLC’s default

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would be: helpful only

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3. To create an enforceable security interest, the secured party must give
value. true

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4. Corporate Bank wants to perfect its security interest in inventory
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owned by Outdoor Outfitters, Inc. Most likely, a financing statement
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should be filed with: the secretary of state
5. Perfection refers to the quality of the collateral that secures a creditor’s
interest in a debtor’s debt. false
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6. Secured transactions are governed by the Uniform Commercial Code

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(UCC). true
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7. In order to have a valid security interest you need which of the

following: both of the above (perfection and attachment)
8. A lien is an encumbrance on property to satisfy a debt or protect a
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claim for the payment of a debt. true

9. A security interest is enforceable only if the collateral is in the secured
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party’s possession. false

10. Dozen’s Donuts LLC goes through an involuntary bankruptcy
proceeding. An involuntary bankruptcy occurs when: a debtor’s creditors
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force the debtor into bankruptcy proceedings.

11. Wilson’s Warehousing LLC wants to file a bankruptcy and receive a
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discharge or liquidation of all debts. Wilson’s should file using: chapter

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12. A creditor must exhaust all legal remedies against the principal debtor
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before holding the surety responsible for payment. false

13. Wilson’s Warehousing LLC wants to file a reorganization bankruptcy.
Wilson’s should file using: chapter 11
14. The filing of a petition for bankruptcy will automatically stay most legal
actions against the debtor. true

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 15. For a creditor to have an enforceable security interest, the debtor must
have rights in the collateral. true
16. Clear Lake Credit Corporation lends funds to Donny, a consumer, to
apply to the cost of a boat, which is the collateral for the loan. An
enforceable security interest requires: a written agreement or Clear Lake’s
possession of the boat.

17. If in possession of a negotiable instrument, you would rather be a

Holder than a Holder in Due Course? false
18. A purchase-money security interest in consumer goods is perfected
automatically at the time of a credit sale. true

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