This article advocates that courts should allow a purchase-money security interest in consumer goods to have dual status—part purchase-money and part nonpurchase-money—after the parties refinance the purchase-money obligation or after the secured party makes a future advance. Courts have struggled with this issue since the enactment of Article 9 because the definition of purchase-money security interest (U.C.C. 9-103) arguably permits a court to apply dual status or to hold that a refinancing or future advance “transforms” the purchase-money security interest into a nonpurchase-money security interest. Although Revised Article 9 adopts the dual status rule, a compromise among the drafting committee members resulted in restricting it to purchase-money security interests other than a consumer goods purchase-money security interest. Article 9 expressly leaves that issue to the courts, and court decisions are not uniform. My premise is that the appropriate interpretation of Article 9’s definition of purchase-money security interest should lead a court to adopt dual status.

Adopting dual status frequently requires a court to allocate any payments the debtor makes between the purchase-money part of the obligation and the nonpurchase-money part. Allocation has proved too difficult for some courts, while others accept the task. This article proposes several allocation methods that a court can and should implement so that the security interest retains purchase-money status after a payment. Sources I examine to support my assertions include section 9-103, early drafts of Revised Article 9, the policy of purchase-money protection, and the cases and legislation addressing the issue.