Chattel paper is a legal term used to describe a record or document that represents both a monetary obligation and a security interest in a specific movable property, also known as chattel. This document combines both elements: it details a financial obligation (like a loan) and secures that loan with an interest in personal property (excluding real estate).
Chattel paper is a crucial concept in secured transactions, a field of commercial law. It typically involves items such as leases or conditional sales contracts, where the chattel (personal property) serves as collateral for a loan.
The importance of chattel paper arises in its use as a negotiable instrument in business transactions. It provides evidence of both the debt itself and the security interest granted in the collateral, allowing lenders to repossess the property if the debtor defaults on the loan.
In the context of the Uniform Commercial Code (UCC) in the United States, chattel paper plays a significant role in enabling businesses to obtain financing by using their movable assets as collateral. The UCC outlines specific rules for the creation, perfection, and enforcement of security interests in chattel paper, which help protect the rights of both lenders and borrowers.
One common misconception is that chattel paper refers only to physical documents. In today's digital age, chattel paper can also exist in electronic form, known as electronic chattel paper, which is equally recognized and regulated under laws like the UCC.
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