UCC Law Journal
Since its inception, Article 9 has authorized both non-possessory assignment of chattel paper perfected by the filing of a financing statement and a possessory assignment perfected by possession. As a result, tangible chattel paper is “quasi-negotiable” because certain purchasers for value with possession can have priority over previously perfected secured parties. The 2000 revision of Article 9 authorized security agreements evidenced by an electronic record or records and created electronic chattel paper as a new sub-type of collateral. To extend quasi-negotiability to electronic chattel paper, it also introduced the concept of “control” as an analogue to possession of tangible chattel paper.
The initial definition of control required, in part, the existence of a “single authoritative copy” which is “unique.” Given that an electronic record may be perfectly replicated, this definition created challenges for achieving this standard, but the chattel paper finance industry has developed methods for complying with this definition. Nevertheless, the requirement for a single and unique authoritative copy is more stringent than necessary for the purpose of the quasi-negotiability of chattel paper and is more consistent with a possessory analogue for electronic negotiable instrument and documents. The 2010 revision to the definition of control introduced a more flexible standard that requires a system that “reliably establishes” the secured party as the assignee. This new definition will permit the development of methods of control that are less complicated than current methods and more consistent with the limited nature and purpose of the quasi-negotiability of chattel paper. The new definition may even permit the development of a system that eschews the possessory analogue and that resembles the non-possessory assignment of intangible receivables like accounts and payment intangibles.
Plank, Thomas E., Evolution of Chattel Paper: From Possession to Control (September 7, 2014). 46 UCC Law Journal 1 (2014), University of Tennessee Legal Studies Research Paper No. 264, Available at SSRN: https://ssrn.com/abstract=2561891