Legal Definitions - electronic chattel paper

Electronic chattel paper refers to a digital record that serves two primary purposes: it shows that a person or entity owes money, and it also establishes a security interest in specific goods (meaning the goods can be claimed by the lender if the debt isn't paid) or evidences a lease of specific goods. Unlike traditional chattel paper, which is a physical document, electronic chattel paper exists and is managed entirely in a digital format.

Here are some examples to illustrate this concept:

• Example 1: Car Loan Agreement

  Imagine a customer purchasing a new car. Instead of signing a stack of paper documents, the customer uses a digital tablet to sign the loan agreement, the promissory note (their promise to pay), and the security agreement (which gives the lender a claim on the car until the loan is repaid). All these documents are then stored securely in the financing company's electronic database, and the customer receives digital copies via email.

  Explanation: This scenario illustrates electronic chattel paper because the entire set of documents, existing in a digital format, evidences both the customer's monetary obligation (the car loan) and the lender's security interest in specific goods (the new car).

• Example 2: Commercial Equipment Lease

  A small construction business decides to lease a new bulldozer for a three-year project rather than buying it outright. The lease agreement, including all terms for payments, maintenance, and the lessor's ownership rights, is executed through an online portal. Both parties digitally sign the contract, and all records are maintained electronically by the equipment leasing company in their cloud-based system.

  Explanation: This is an example of electronic chattel paper because the digital lease agreement represents a monetary obligation (the lease payments) and the lessor's interest in specific goods (the bulldozer), all managed and stored in an electronic format.

• Example 3: Appliance Financing Agreement

  A homeowner purchases a high-end refrigerator from an appliance store and opts for in-store financing. The financing agreement, which details the loan amount, interest rate, and payment schedule, and grants the store a security interest in the refrigerator until it's fully paid off, is completed and signed electronically on a point-of-sale terminal. The homeowner receives an email with the full digital contract, and the store keeps the original electronic record on its secure servers.

  Explanation: This situation demonstrates electronic chattel paper because the digital financing agreement establishes a monetary obligation (the loan for the refrigerator) and a security interest (the store's claim on the appliance) in specific goods (the refrigerator), all existing solely in an electronic form.