Legal Definitions - chattel paper

Chattel paper refers to a specific type of legal document, which can be either physical or electronic, that records two key elements:

• A monetary obligation: One party owes money to another.
• A security interest or lease: The party owed money (or the lessor) retains a legal claim or interest in specific movable property (known as "chattel") until the debt is paid or the lease term is fulfilled.

In essence, chattel paper provides a clear record that links a debt or a lease agreement directly to a particular piece of tangible property, giving the creditor or lessor a defined right to that property if the terms of the agreement are not met.

Here are some examples to illustrate how chattel paper works:

• Example 1: Financing a New Vehicle

  Imagine a customer purchases a new pickup truck from a dealership. Instead of paying cash upfront, the customer finances the purchase directly through the dealership's financing department. The agreement signed by the customer details the total amount owed, the monthly payment schedule, and explicitly states that the dealership (or its financing arm) retains a security interest in the truck until the loan is fully repaid. This document, outlining both the debt and the dealership's claim on the specific truck, constitutes chattel paper.

• Example 2: Equipment Lease for a Business

  A small landscaping business decides to acquire a new commercial-grade zero-turn mower. Rather than buying it outright, they enter into a lease agreement with the equipment supplier. The agreement specifies the monthly lease payments and clarifies that the supplier retains ownership of the mower throughout the lease term. If the business defaults on payments, the supplier has the right to reclaim the mower. This lease agreement, showing the monetary obligation (lease payments) and the supplier's retained interest (ownership/leasehold) in the specific mower, is an example of chattel paper.

• Example 3: Buying Appliances on Credit

  A homeowner wants to upgrade their kitchen appliances and purchases a new refrigerator, oven, and dishwasher from a large electronics and appliance store using the store's in-house credit program. The credit agreement they sign outlines the total amount financed, the interest rate, and the payment schedule. Crucially, it also states that the store retains a security interest in these specific appliances until the full balance is paid. This document, linking the debt to the particular appliances, serves as chattel paper.