Tips For Secured Transactions on the Multistate Essay Exam

What to Know About Secured Transactions on the Multistate Essay Exam

Last week we talked about conflicts of law on the Multistate Essay Exam.  Today we address secured transactions.  When thinking about secured transactions on the Multistate Essay Exam, you should consider two questions: how is it tested? And how often is it tested?  In the last 10 years (20 administrations), we’ve seen secured transactions on the Multistate Essay Exam almost twice as often as conflicts of law: it’s shown up 10 times!  For you math fans out there, that’s about once a year.

What to Know About Secured Transactions on the Multistate Essay Exam

Standard disclaimer: make sure you are preparing for all of the subjects!  Statistics regarding the frequency we see secured transactions on the Multistate Essay Exam should be used in determining how much to study for the subject, not whether to study for it at all.  Spend the most time on the subjects that are the most likely to come up.  But do not ignore any subject!

Here are the most commonly tested topic in secured transactions on the Multistate Essay Exam:

Remember the classification of goods

An issue like this has come up almost every time we’ve seen secured transactions on the Multistate Essay Exam.  A good can be a consumer good, inventory, equipment, or a farm product.

• A consumer good is bought for use primarily in personal, family, or household purposes. An example is a cell phone you use for personal use.
• Inventory are goods other than farm products that are held by a person for sale or lease to be furnished under a contract of service; or raw materials, work in process, or materials used or consumed in a business. An example is cell phones sold by a store (e.g. Apple).
• Equipment is a good other than inventory, farm products, or consumer goods. Example is a cell phone used by a business.
• Farm products are crops, livestock, or supplies produced in a farming operation or products of crops or livestock in their unmanufactured state in possession of debtor who is engaged in a farming operation. (This has not been tested on the MEE)

Be able to state the requirements for attachment

This is another topic that comes up in almost every instance of secured transactions on the Multistate Essay Exam.  For a valid security interest to arise, three things must occur.

• First, value must be given by the secured party to the debtor.
• Second, the debtor must have rights in the collateral.
• Finally, there must be a finding security agreement, which requires authentication, intent, and a description of the collateral.

Understand the methods of perfection

Perfection doesn’t come up quite as frequently as attachment, but it is still highly tested.  Remember that perfection can occur by the filing of a financing statement.  However, a security interest in each type of good can also be perfected in different ways.  For example, a PMSI in consumer goods is automatically perfected.  Or the interest might be perfected upon possession of the good, or control of the good.

Know the order of priority in a dispute between interests

This is another very common topic when we see secured transactions on the Multistate Essay Exam.  Remember that a perfected security interest always beats an unperfected one, even if it is a PMSI!  So, in a battle between two perfected interests, the first to perfect will have priority.  If neither interest is perfected, then the first to attach will have priority.  When a lien creditor gets involved, consider the time of perfection vs. when the lien arose.  The secured party will have priority over a lien creditor if it perfected before the lien arose.

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