Academic journal article The University of Memphis Law Review

Perfecting a Security Interest in "Electronic Chattel Paper" under Revised Article 9

Academic journal article The University of Memphis Law Review

Perfecting a Security Interest in "Electronic Chattel Paper" under Revised Article 9

Article excerpt

I. INTRODUCTION

In 1998, the National Conference of Commissioners on Uniform State Laws adopted a revised uniform text for Article 9. The revised text reflects the drafters' recognition of an emerging electronic marketplace. One of the many changes made to Article 9 in an effort to accommodate these developments is the innovative concept of "electronic chattel paper." To facilitate perfection of a security interest in this new form of collateral, the Revised Article 9 drafters created the concept of "control" as a means to perfect a security interest in "electronic chattel paper."

Although "control" was a permissible means of perfecting a security interest in certain other types of collateral under Pre-Revision Article 9 and continues as such under Revised Article 9,1 "control" as a means to perfect a security interest in "electronic chattel paper" is very different than these earlier concepts of "control." The new concept of "control" is controversial because the technology to create "control" as a means to perfect a security interest in "electronic chattel paper" has not yet been developed. The purpose of the Note is to inform the reader of some notable revisions to Article 9 and to examine the concept of "electronic chattel paper" and the new concept of "control." This Note will also discuss problems that may arise as technology and the electronic commercial marketplace attempt to create "control." Finally, this Note will suggest some possible means of creating "control."

Part I discusses the purposes and scope of Article 9. Part II is an overview of the purpose and process of the Drafting Committee's revision. Part III is an overview of some of the major revisions in Revised Article 9. Part IV is a discussion of chattel paper and chattel paper financing under Pre-Revision Article 9. Part V examines "electronic chattel paper" and chattel paper financing under Revised Article 9. This section also examines the concept of "control" as a means to perfect a security interest in "electronic chattel paper" as defined in Revised Article 9. Finally, this section considers problems that may arise as technology attempts to create "control." Part VI is an introduction to possible methods of creating "control."

II. ARTICLE 9: PURPOSE AND SCOPE

A. Purpose

Prior to the adoption of the Uniform Commercial Code in the 1950s, the varied history of secured lending had left the landscape of secured transactions littered with a number of distinctly different methods for taking collateral as security for an obligation.2 Distinctions critical to the validity of the secured transaction turned on the method used. Different requirements of form, different requirements for perfection and filing, and different priority rules existed between the different methods.3

A primary goal of the original Article 9 drafters was to eliminate distinctions based on the form of the secured transaction and create a single method for securing an interest in personal property. Article 9 eliminated the need for the many pre-Code methods and established a single, unitary device - the security interest.4 The Article 9 draftsmen also sought to create a uniform text that would simplify the various perfection procedures that existed and to create a single process based on notice for perfecting security interests.5 Article 9 replaced the pre-Code system of filing different financing statements for each security device, which required a financing statement to be filed to perfect, with a more rational filing system.6 To a great extent, this filing system utilizes a central place of filing: the office of the Secretary of State.7

B. Scope

The scope of Pre-Revision Article 9 is understood through an analysis of section 9-102 and section 9-104 as they relate to section 1-201(37).8 Section 9-102 clarifies when Article 9 generally applies:9 (1) "to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts; and also [(2)] to any sale of accounts or chattel paper. …

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