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16a-3-303. (UCCC) Debt secured by cross-collateral. (1) If debts arising from two or more consumer credit sales, other than sales pursuant to open-end credit, are secured by cross-collateral or consolidated into one debt payable on a single schedule of payments, and the debt is secured by security interests taken with respect to one or more of the sales, payments received by the seller after the taking of the cross-collateral or the consolidation are deemed, for the purpose of determining the amount of the debt secured by the various security interests, to have been first applied to the payment of the debts arising from the sales first made. To the extent debts are paid according to this section, security interests in items of property shall terminate as the debt originally incurred with respect to each item is paid.

(2) Payments received by the seller upon an open-end credit account are deemed, for the purpose of determining the amount of the debt secured by the various security interests, to have been applied first to the payment of finance charges in the order of their entry to the account and then to the payment of debts in the order in which the entries to the account showing the debts were made.

(3) If the debts consolidated arose from two or more sales made on the same day, payments received by the seller are deemed, for the purpose of determining the amount of the debt secured by the various security interests, to have been applied first to the payment of the smallest debt.

History: L. 1973, ch. 85, § 49; L. 1981, ch. 93, § 8; L. 2024, ch. 6, § 71; January 1, 2025.

KANSAS COMMENT, 2010

1. When a seller consolidates debts arising from multiple sales and secures the consolidated debt by security interests in the goods sold in those sales, or when a seller secures separate debts by cross-collateral (K.S.A. 16a-3-302), this section prevents the seller from retaining a security interest in all of the goods until the buyer's entire debt is paid. The basis of this section is that a security interest in goods terminates when the debt incurred in the purchase of those goods is paid. For the purpose of determining when this debt is paid, subsection (1) first allocates the buyer's payments to the debts first incurred. Thus, if the seller consolidates debts of $100, $200, and $300 arising from sales made in that order, the security interest in the goods purchased pursuant to the $100 sale terminates when $100 of the consolidated debt is paid. If the seller does not consolidate these debts but secures them by cross-collateral, all of the buyer's payments must be allocated to the $100 debt until it is paid off, and so forth. Subsection (2) applies this first-payments-against-first-debts rule to open end credit accounts.

2. Subsection (3) applies to the case in which the buyer purchases a $750 TV in one department at 9:30 a.m. and a $150 printer in another department at 10:00 a.m. Subsequently, the debts are consolidated. This subsection relieves the seller of having to keep records of the exact hour a sale is made.

3. This section applies only to credit sales; nothing in the U3C prohibits lenders from taking cross-collateral and applying the payments in any way they choose. However, In re Gibson, 16 B.R. 257 (Bankr. D. Kan. 1981), the court applied the first-payments-against-first-debts rule of this section by analogy to a cross-collateralized loan. Contrary to the rule of this section, however, the court also ruled that after the first item was paid off the lien was not extinguished; instead, it merely became non-purchase money and continued to secure debts attributable to other items. Under the F.T.C. Credit Practices Rule, if the item paid off was household goods, any continuing non-possessory, non-purchase money security interest would be invalid. See the discussion of the F.T.C. Rule in the Kansas comments to K.S.A. 16a-3-301 and 16a-3-302.

Law Review and Bar Journal References:

"The New Kansas Consumer Legislation," Barkley Clark, 42 J.B.A.K. 147, 198 (1973).

"Survey of Kansas Law: Consumer Law," John C. Maloney, 27 K.L.R. 197, 201 (1979).

"A Primer on Purchase Money Security Interests Under Revised Article 9 of the Uniform Commercial Code," Keith G. Meyer, 50 K.L.R. 143 (2001).

"To Be (Transformed) or Not to Be: The Transformation Versus Dual-Status Rules for Purchase-Money Security Interest Under Kansas' Former and Revised Article 9," Christopher Harry, 50 K.L.R. 1095 (2002).

CASE ANNOTATIONS

1. In lien avoidance case, a lien is purchase money until purchase price paid out applying first-in, first-out payment method. In Re Gibson, 16 B.R. 257, 258, 268, 269 (1981).


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