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Electronic Chattel Paper

Electronic Chattel Paper. R. David Whitaker Margo H.K. Tank 202.974.1000 dwhitaker@goodwinprocter.com mtank@goodwinprocter.com. Electronic Chattel Paper. Chattel Paper -- Document or group of documents evidencing: Debt obligation secured by specific goods Lease of specific goods

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Electronic Chattel Paper

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  1. Electronic Chattel Paper R. David Whitaker Margo H.K. Tank 202.974.1000 dwhitaker@goodwinprocter.com mtank@goodwinprocter.com

  2. Electronic Chattel Paper • Chattel Paper -- Document or group of documents evidencing: • Debt obligation secured by specific goods • Lease of specific goods • Ownership and security interests in chattel paper may be transferred free and clear of most third party claims and other security interests

  3. Electronic Chattel Paper • Problems: • Law requires a signed writing • Promissory notes • Security agreements • Leases over $1,000.00 • Federal and state consumer disclosures • Transfer of ownership or super-priority security interest includes concepts of • Delivery and possession of paper document, or • Notice of assignment stamped on the face of the documents

  4. Electronic Chattel Paper • UETA removes writing requirements for promissory notes and leases and state consumer disclosures • Revised Article 9 removes writing and signature requirements for security agreements • ESIGN permits electronic disclosure under Reg. Z, Reg. B and Reg. M

  5. Electronic Chattel Paper • If certain requirements are met, the purchaser of electronic chattel paper takes ownership free of third party claims, including prior security interests.

  6. Electronic Chattel Paper • The criteria: • The electronic record contains only the same terms and conditions that are permitted in written chattel paper, and • The purchaser has “control” of the electronic chattel paper.

  7. Electronic Chattel Paper • Caution: Revised Article 9 sets specific standards for establishing “control” of electronic chattel paper -- these standards are not easy to meet and will require sophisticated systems

  8. Electronic Chattel Paper The purchaser has control if the record is created, stored, and assigned in such a manner that the authoritative copy: • Is unique, identifiable, and unalterable (except as otherwise provided below). • Identifies the controlling party as the: • Person to whom issued or • Person to whom most recently transferred.

  9. Electronic Chattel Paper • Authoritative copy is communicated to and maintained by person asserting control or a designated custodian. • Copies or revisions can be made only with consent of person asserting control. • Each copy and any copy of a copy can be readily identified as such. • Any revision of authoritative copy is readily identifiable as authorized or unauthorized.

  10. Electronic Chattel Paper • Potential: • Instant on-line financing for sales and leasing to consumers and small businesses built into Internet commerce models • Instant, low overhead, high-efficiency warehouse lending and factoring

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