Preserving Purchase Money Security Interests and Allocating Payments

This Note explores the rationale underlying the courts’ conflicting decisions in light of the purposes of the UCC. It concludes that the language of the UCC and its goals of uniformity and simplification require that a PMSI should not be entirely destroyed because a creditor also has a security interest in items the debtor acquired after the purchase money transaction or because a creditor extends additional credit. The best solution is to permit the creditor to retain a PMSI, to the extent of the purchase money loan, in those goods that the creditor’s loan helped to purchase.

Part I is a general overview of the terminology and commercial law relevant to the discussion of PMSl’s. Part II examines the conflicting case law concerning whether PMSI’s should be entirely destroyed when security agreements contain future advances clauses, after-acquired property clauses, or both. Part III discusses the possible methods for allocating payments between purchase money and nonpurchase money secured items and suggests that although the most effective method depends upon the context of the transaction, the first-in, first-out method of allocation is the most useful.