Perfecting a Security Interest in "Electronic Chattel Paper" under Revised Article 9 (2001)

I. INTRODUCTION In 1998, the National Conference of Commissioners on Uniform State Laws adopted a revised uniform text for Article 9. The revised text reflects the drafters' recognition of an emerging marketplace. One of the many changes made Article 9 in an effort accommodate these developments is the innovative concept of electronic chattel To facilitate perfection of a security interest in this new form of collateral, the Revised Article 9 drafters created the concept of control as a means perfect a security interest in electronic chattel Although control was a permissible means of perfecting a security interest in certain other types of collateral under Pre-Revision Article 9 and continues as such under Revised Article 9,1 control as a means perfect a security interest in electronic chattel is very different than these earlier concepts of control. The new concept of control is controversial because the technology create control as a means perfect a security interest in electronic chattel has not yet been developed. The purpose of the Note is inform the reader of some notable revisions Article 9 and examine the concept of electronic chattel and the new concept of control. This Note will also discuss problems that may arise as technology and the commercial marketplace attempt create control. Finally, this Note will suggest some possible means of creating control. Part I discusses the purposes and scope of Article 9. Part II is an overview of the purpose and process of the Drafting Committee's revision. Part III is an overview of some of the major revisions in Revised Article 9. Part IV is a discussion of chattel paper and chattel paper financing under Pre-Revision Article 9. Part V examines electronic chattel and chattel paper financing under Revised Article 9. This section also examines the concept of control as a means perfect a security interest in electronic chattel as defined in Revised Article 9. Finally, this section considers problems that may arise as technology attempts create control. Part VI is an introduction possible methods of creating control. II. ARTICLE 9: PURPOSE AND SCOPE A. Purpose Prior the adoption of the Uniform Commercial Code in the 1950s, the varied history of secured lending had left the landscape of secured transactions littered with a number of distinctly different methods for taking collateral as security for an obligation.2 Distinctions critical the validity of the secured transaction turned on the method used. Different requirements of form, different requirements for perfection and filing, and different priority rules existed between the different methods.3 A primary goal of the original Article 9 drafters was eliminate distinctions based on the form of the secured transaction and create a single method for securing an interest in personal property. Article 9 eliminated the need for the many pre-Code methods and established a single, unitary device - the security interest.4 The Article 9 draftsmen also sought create a uniform text that would simplify the various perfection procedures that existed and create a single process based on notice for perfecting security interests.5 Article 9 replaced the pre-Code system of filing different financing statements for each security device, which required a financing statement be filed perfect, with a more rational filing system.6 To a great extent, this filing system utilizes a central place of filing: the office of the Secretary of State.7 B. Scope The scope of Pre-Revision Article 9 is understood through an analysis of section 9-102 and section 9-104 as they relate section 1-201(37).8 Section 9-102 clarifies when Article 9 generally applies:9 (1) to any transaction (regardless of its form) which is intended create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts; and also [(2)] any sale of accounts or chattel paper. …