(a) In this section:

(1) “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.

(b) A security interest in goods is a purchase-money security interest:

(1) To the extent that the goods are purchase-money collateral with respect to that security interest;

(2) 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

(3) 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.

(c) 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:

(1) The debtor acquired its interest in the software in an integrated transaction in which it acquired an interest in the goods; and

(2) The debtor acquired its interest in the software for the principal purpose of using the software in the goods.

(d) The security interest of a consignor in goods that are the subject of a consignment is a purchase-money security interest in inventory.

(e) (1) 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:

(A) In accordance with any reasonable method of application to which the parties agree;

(B) 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

(C) In the absence of an agreement to a reasonable method and a timely manifestation of the obligor's intention, in the following order:

(i) To obligations that are not secured; and

(ii) If more than one obligation is secured, to obligations secured by purchase-money security interests in the order in which those obligations were incurred.

(2) In 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:

(A) The payment must be applied so that the secured party retains no purchase money security interest in any property as to which the secured party has recovered payments aggregating the amount of the sale price including any finance charges attributable thereto; and

(B) For the purposes of this subdivision only, in the case of items purchased on different dates, the first item purchased shall be deemed the first paid for and, in the case of items purchased on the same date, the lowest priced item shall be deemed the first paid for.

(f) In a transaction other than a consumer-goods transaction, a purchase-money security interest does not lose its status as such, even if:

(1) The purchase-money collateral also secures an obligation that is not a purchase-money obligation;

(2) Collateral that is not purchase-money collateral also secures the purchase-money obligation; or

(3) The purchase-money obligation has been renewed, refinanced, consolidated or restructured.

(g) 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.

(h) The limitation of the rules in subsections (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. Those approaches may apply principles of existing statutory and case law that apply to analogous consumer transactions in similar goods under part XI of chapter 669 and under the law of this state.

(P.A. 76-369, S. 9; P.A. 77-604, S. 25, 84; P.A. 79-435, S. 45; P.A. 96-198, S. 20; P.A. 97-182, S. 52; P.A. 01-132, S. 3; P.A. 03-62, S. 1.)

History: P.A. 77-604 made technical correction in Subsec. (3)(a), removing comma following “described in subsection (5) of this section”; P.A. 79-435 specified in Subsec. (3) that subsection applies to accounts “other than certificated securities” and added Subsec. (6) re uncertificated securities; P.A. 96-198 amended Subsec. (1) to make it applicable to “rights to proceeds of written letters of credit”; P.A. 97-182 amended Subsec. (6) to specify choice of law rules for perfection of security interests in investment property by adding Subdiv. (a) to provide that said Subsec. applies to investment property, adding Subdiv. (b) re certificated securities, designating existing provisions re uncertificated securities as Subdiv. (c) and rephrasing said Subdiv., adding Subdiv. (d) re security entitlements and securities accounts, adding Subdiv. (e) re commodity contracts or commodity accounts and adding Subdiv. (f) re exception to choice of law rules; P.A. 01-132 replaced former provisions re perfection of security interests in multiple state transactions with provisions re purchase-money security interest; P.A. 03-62 amended Subsec. (e) to replace reference in Subdiv. (2)(B) to “subsection” with “subdivision”.