Legal Definitions - chattel paper

Chattel paper is a legal document used in secured transactions to sell property on credit while still keeping some interest in the property. It is important that the document shows:

• A monetary obligation from Party A to Party B
• A security interest or other interest retained in the property by Party B

Chattel paper can be physical or electronic, and it is authorized by UCC §9-105.

Example 1: John wants to buy a car from Jane, but he cannot pay the full amount upfront. They agree that John will pay Jane in installments over the next two years. To secure the transaction, Jane creates a chattel paper that shows John's monetary obligation to her and her retained interest in the car until John pays off the debt.

Example 2: Sarah wants to buy a new computer for her business, but she does not have enough money to pay for it upfront. She decides to finance the purchase and signs an electronic chattel paper that shows her obligation to the lender and the lender's retained interest in the computer until Sarah pays off the debt.

These examples illustrate how chattel paper is used to secure transactions where one party sells property on credit while still retaining some interest in the property until the debt is paid off.