Colorado § 4-9-103 - Purchase-money security interest - application of payments - burden of establishing - definitions.

§ 4-9-103. Purchase-money security interest - application of payments - burden of establishing - definitions.

(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) 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:

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

(2) 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

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

(A) To obligations that are not secured; and

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

(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 (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.

Source: L. 2001: Entire article R&RE, p. 1327, § 1, effective July 1.

Editor's note: This section is similar to former § 4-9-107 as it existed prior to 2001.

ANNOTATION

Annotator's note. Since § 4-9-103 is similar to § 4-9-107 as it existed prior to the 2001 repeal and reenactment of this article, relevant cases construing that provision have been included in the annotations to this section.

A purchase money security interest in property takes precedence over any preexisting lien. Chambers v. Nation, 178 Colo. 124, 497 P.2d 5 (1972).

If property comes into the hands of a purchaser already encumbered with a purchase money lien, a prior lien remains subordinate to the purchase money mortgage, and it cannot displace the security interest which is the subject matter of the purchase money agreement. Chambers v. Nation, 178 Colo. 124, 497 P.2d 5 (1972).

Loan may be partly purchase money and partly nonpurchase money. There is no requirement that an item secure only its purchase price, and a loan may be partly purchase money and partly nonpurchase money. In re Stevens, 24 B.R. 536 (Bankr. D. Colo. 1982).

The purchase money security interest portion of a debt is not destroyed or transformed by the nominal nonpurchase money security interest portion of the debt attributable to financing insurance. In re Madrid-Baskin, 619 B.R. 710 (Bankr. D. Colo. 2020).

The purchase money character of a security interest should be determined from all the surrounding circumstances. In re Stevens, 24 B.R. 536 (Bankr. D. Colo. 1982); In re Billings, 63 B.R. 717 (Bankr. D. Colo. 1986).

Refinancing will not always have the effect of destroying the purchase money security interest. In re Billings, 63 B.R. 717 (Bankr. D. Colo. 1986).

Refinancing of a purchase money loan does not automatically extinguish the creditor's purchase money security interest in the debtor's collateral and, thus, debtors could not avoid creditor's interest in bankruptcy proceeding. In re Billings, 838 F.2d 405 (10th Cir. 1988).

Negative equity financing of a vehicle trade-in is not a purchase-money obligation. In re McCauley, 398 B.R. 41 (Bankr. D. Colo. 2008).

Bankruptcy court applied dual status rule to case involving financing of negative equity on a vehicle trade-in. Lender had a purchase-money security interest only to the extent of the purchase price of the new vehicle and the incidental transactional expenses. Financing of negative equity for trade-in vehicle was not entitled to purchase-money security interest treatment. Thus debtors had to treat proportion of debt attributable to purchase price of new vehicle and the incidental expenses as a secured claim. In re McCauley, 398 B.R. 41 (Bankr. D. Colo. 2008).