Lesson 19: Intangible Collateral (Accounts, Chattel Paper)

As part of our Types of Collateral series, this lesson focuses on intangible collateral, specifically accounts and chattel paper. Understanding these types of collateral is crucial in navigating secured transactions law.

What is Intangible Collateral?

Intangible collateral refers to non-physical assets that can be pledged as security in a secured transaction. Common examples include accounts, chattel paper, and intellectual property.

Accounts

Accounts are rights to payment for goods sold or services rendered that are not evidenced by an instrument or chattel paper. Examples include accounts receivable and credit card receivables.

Assets Amount
Accounts Receivable $20,000

Chattel Paper

Chattel paper is a record or records that evidence both a monetary obligation and a security interest in specific goods. It can be tangible or electronic.

Chattel Paper Example

This chattel paper evidences a monetary obligation of $10,000 secured by a security interest in a vehicle.

Secured Transactions Involving Intangible Collateral

Secured transactions involving intangible collateral require careful documentation and adherence to legal standards under the Uniform Commercial Code (UCC) Article 9.

Attachment and Perfection

For a security interest in intangible collateral to be enforceable, it must attach and be perfected.

  • Attachment: The security interest attaches when it becomes enforceable against the debtor with respect to the collateral.
  • Perfection: Perfection ensures that the secured party's interest is enforceable against third parties.
  1. A security agreement must be made.
  2. The debtor must have rights in the collateral.
  3. The secured party must give value.
  4. For perfection, a financing statement must be filed or possession/control must be taken.

Priority Rules

Priority rules determine the order of claims if multiple parties have interests in the same collateral. For intangible collateral, these rules can become complex.

graph TD A["Debtor"] -->|Creates Security Interest| B["Secured Party 1"] A -->|Creates Security Interest| C["Secured Party 2"] B -->|Files Financing Statement| D["Perfection"] C -->|Files Financing Statement| D D -->|Determines| E["Priority"]

Conclusion

Understanding and correctly handling intangible collateral like accounts and chattel paper is essential for any practitioner dealing with secured transactions. For further reading, visit our lesson on Requirements for Attachment and Methods of Perfection.

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