N.C. Gen. Stat. § 25-9-103
Purchase-money security interest; application of payments; burden of establishing
Redline — June 1, 2021 → current.View current text →
Current — April 1, 2022
As of June 1, 2021
(1) Definitions. - In this section: "Purchase-money collateral" means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and
(1) Definitions. — In this section: “Purchase-money collateral” means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and
(2) "Purchase-money obligation" means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(2) “Purchase-money obligation” means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(3) Purchase-money security interest in goods. - A security interest in goods is a purchase-money security interest: To the extent that the goods are purchase-money collateral with respect to that security interest;
(3) Purchase-money security interest in goods. — A security interest in goods is a purchase-money security interest: To the extent that the goods are purchase-money collateral with respect to that security interest;
(4) If the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; and
(4) If the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase-money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; and
(5) Also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the secured party holds or held a purchase-money security interest.
(5) Also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the secured party holds or held a purchase-money security interest.
(6) Purchase-money security interest in software. - A security interest in software is a purchase-money security interest to the extent that the security interest also secures a purchase-money obligation incurred with respect to goods in which the secured party holds or held a purchase-money security interest if: The debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and
(6) Purchase-money security interest in software. — A security interest in software is a purchase-money security interest to the extent that the security interest also secures a purchase-money obligation incurred with respect to goods in which the secured party holds or held a purchase-money security interest if: The debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and
(7) The debtor acquired its interest in the software for the principal purpose of using the software in the goods.
(7) The debtor acquired its interest in the software for the principal purpose of using the software in the goods.
(8) Consignor's inventory purchase-money security interest. - The security interest of a consignor in goods that are the subject of a consignment is a purchase-money security interest in inventory.
(8) Consignor’s inventory purchase-money security interest. — The security interest of a consignor in goods that are the subject of a consignment is a purchase-money security interest in inventory.
(9) Application of payment in non-consumer-goods transaction. - In a transaction other than a consumer-goods transaction, if the extent to which a security interest is a purchase-money security interest depends on the application of a payment to a particular obligation, the payment must be applied: In accordance with any reasonable method of application to which the parties agree;
(9) Application of payment in non-consumer-goods transaction. — In a transaction other than a consumer-goods transaction, if the extent to which a security interest is a purchase-money security interest depends on the application of a payment to a particular obligation, the payment must be applied: In accordance with any reasonable method of application to which the parties agree;
(10) In the absence of the parties' agreement to a reasonable method, in accordance with any intention of the obligor manifested at or before the time of payment; or
(10) In the absence of the parties’ agreement to a reasonable method, in accordance with any intention of the obligor manifested at or before the time of payment; or
(11) In the absence of an agreement to a reasonable method and a timely manifestation of the obligor's intention, in the following order: To obligations that are not secured; and
(11) In the absence of an agreement to a reasonable method and a timely manifestation of the obligor’s intention, in the following order: To obligations that are not secured; and
(12) If more than one obligation is secured, to obligations secured by purchase-money security interests in the order in which those obligations were incurred.
(12) If more than one obligation is secured, to obligations secured by purchase-money security interests in the order in which those obligations were incurred.
(13) No loss of status of purchase-money security interest in non-consumer-goods transaction. - In a transaction other than a consumer-goods transaction, a purchase-money security interest does not lose its status as such, even if: The purchase-money collateral also secures an obligation that is not a purchase-money obligation;
(13) No loss of status of purchase-money security interest in non-consumer-goods transaction. — In a transaction other than a consumer-goods transaction, a purchase-money security interest does not lose its status as such, even if: The purchase-money collateral also secures an obligation that is not a purchase-money obligation;
(14) Collateral that is not purchase-money collateral also secures the purchase-money obligation; or
(14) Collateral that is not purchase-money collateral also secures the purchase-money obligation; or
(15) The purchase-money obligation has been renewed, refinanced, consolidated, or restructured.
(15) The purchase-money obligation has been renewed, refinanced, consolidated, or restructured.
(16) Burden of proof in non-consumer-goods transaction. - In a transaction other than a consumer-goods transaction, a secured party claiming a purchase-money security interest has the burden of establishing the extent to which the security interest is a purchase-money security interest.
(16) Burden of proof in non-consumer-goods transaction. — In a transaction other than a consumer-goods transaction, a secured party claiming a purchase-money security interest has the burden of establishing the extent to which the security interest is a purchase-money security interest.
(17) Non-consumer-goods transactions; no inference. — The limitation of the rules in subsections (e), (f), and (g) of this section to transactions other than consumer-goods transactions is intended to leave to the court the determination of the proper rules in consumer-goods transactions. The court may not infer from that limitation the nature of the proper rule in consumer-goods transactions and may continue to apply established approaches. "Dual-Status" Rule. For transactions other than consumer-goods transactions, this article approves what some cases have called the "dual-status" rule, under which a security interest may be a purchase-money security interest to some extent and a nonpurchase-money security interest to some extent. (Concerning consumer-goods transactions, see subsection (h) and comment 8.) Some courts have found this rule to be explicit or implicit in the words "to the extent," found in former section 9-107 and continued in subsections (b)(1) and (b)(2). The rule is made explicit in subsection (e). For nonconsumer-goods transactions, this article rejects the "transformation" rule adopted by some cases, under which any cross-collateralization, refinancing, or the like destroys the purchase-money status entirely.
(17) Non-consumer-goods transactions; no inference. — The limitation of the rules in subsections (e), (f), and (g) of this section to transactions other than consumer-goods transactions is intended to leave to the court the determination of the proper rules in consumer-goods transactions. The court may not infer from that limitation the nature of the proper rule in consumer-goods transactions and may continue to apply established approaches.
(18) Allocation of Payments. Continuing with the example, if the debtor makes a $1,000 payment on the $12,000 obligation, then one must determine the extent to which the security interest remains a purchase-money security interest $9,000 or $10,000. Subsection (e)(1) expresses the overriding principle, applicable in cases other than consumer-goods transactions, for determining the extent to which a security interest is a purchase-money security interest under these circumstances: Freedom of contract, as limited by principle of reasonableness. An unconscionable method of application, for example, is not a reasonable one and so would not be given effect under subsection (e)(1). In the absence of agreement, subsection (e)(2) permits the obligor to determine how payments should be allocated. If the obligor fails to manifest its intention, obligations that are not secured will be paid first. (As used in this article, the concept of "obligations that are not secured" means obligations for which the debtor has not created a security interest. This concept is different from and should not be confused with the concept of an "unsecured claim" as it appears in Bankruptcy Code section 506(a).) The obligor may prefer this approach, because unsecured debt is likely to carry a higher interest rate than secured debt. A creditor who would prefer to be secured rather than unsecured also would prefer this approach.
(19) Burden of Proof. As is the case when the extent of a security interest is in issue, under subsection (g) the secured party claiming a purchase-money security interest in a transaction other than a consumer-goods transaction has the burden of establishing whether the security interest retains its purchase-money status. This is so whether the determination is to be made following a renewal, refinancing, or restructuring or otherwise.
History
Official source: North Carolina General Assembly. Reproduced from public-domain North Carolina statutes; confirm against the official source for the current text. Not legal advice.