NCBE Uniform Bar Exam (UBE) Practice Exam

A Purchasing Money Security Interest (PMSI) arises specifically in situations where a secured party provides financing for the acquisition of goods, and those goods become collateral for the loan or obligation incurred. The correct choice indicates that a PMSI occurs when a secured party sells goods to the debtor and the debtor incurs an obligation to pay. This aligns with the definition of a PMSI, which is designed to protect creditors by ensuring that they have a security interest in the goods that they financed.

In this scenario, if the secured party participates in the financing transaction by selling the goods to the debtor while also lending money or extending credit, the creditor is granted a PMSI in those goods. This type of security interest typically affords the creditor priority over other creditors concerning the collateral.

The other choices do not address the specific conditions necessary to establish a PMSI. When goods are sold with a loan from a bank, this does not automatically create a PMSI unless the bank is selling the goods and the obligation to pay arises from that sale. Selling goods at auction does not constitute a PMSI as it is not tied to the debtor's obligation to the secured party. Lastly, taking out a line of credit does not directly relate to the acquisition of specific goods, so it