Electronic Chattel Paper Under Revised Article 9: Updating the Concept of Embodied Rights for Electronic Commerce

When UCC Article 9 was revised in 1998, a new provision governing “electronic chattel paper” (ECP) was added. “Chattel paper” is widely used in certain industries to finance the purchase of equipment, and includes loans and leases. Under former Article 9, chattel paper financers who took possession of the chattel paper could gain priority over other secured lenders who ear-lier perfected by filing, and equipment financers sought assurances they could retain this su-per-priority status if they switched from paper to electronic records. The concept of perfection by “control” of financial assets held in electronic form had been established with the revisions of UCC Article 8 in 1994, but a new model for control of electronic chattel paper was deemed necessary because chattel paper market institutions differed significantly from market institutions covered by the revised Article 8 provisions. Revised Article 9 provides that ECP must consist of a single authoritative copy of the chattel paper record or records which is unique, identifiable, and generally unalterable. This represents a significant innovation in commercial law because it updates the concept of rights embodied in the representation of financial assets, rather than accommodating the growth of account-based systems of tracking ownership of financial assets.