Rights to Payment

Almost all transactions give rise to rights to
payment.

Example: I buy a car from you, but we agree I will
pay you later. You now own a right to be paid by
me.

Rights to payment are either PROCEEDS of
secured collateral, or can be COLLATERAL in
their own right.

Because rights to payment are valuable in their
own right, the UCC lets you SELL or take out
LOANS using them as collateral.
The Major Rights to Payment:

Chattel Paper: a (1) security interest in property OR a
lease of property; AND (2) a monetary obligation.
[9-102(a)(11); Comment 5b]. The monetary obligation
MUST relate to the property.

Promissory Note: a written promise to pay. (NB: the
difference between a Promissory Note and Chattel
Paper is that the holder of Promissory Note has no right
of recourse against the borrower's property.)
[9-102(a)(65)].

Accounts: payment owed for GOODS or SERVICES.
[9-102(a)(2)].

Payment Intangible: primary monetary obligation NOT
evidenced by an Instrument, and NOT for goods or
services. [9-102(61)]
Examples of Rights to Payment:

Chattel Paper: an installment sales contract.

Promissory Note: a basic IOU.

Account: purchases on unsecured credit. (I buy
a computer, owe money for it).

Payment Intangible: an undocumented loan, or a
share in loan participation. (QUESTION: are
revenue streams "payment intangibles?")
Payment Intangibles and General Intangibles

Payment Intangibles are a subset of General
Intangibles.

Most General Intangibles -- like software or
Intellectual Property -- are not Payment
Intangibles.
Why Have a Separate Section on Rights to
Payment?

Because SALES of rights to payment are governed by the
Code. [9-109(a)(3)].

So, sales of "accounts, chattel paper, payment intangibles,
or promissory notes," are expressly part of the scope of
Article 9. [9-109(a)(3)]

This means that a BUYER of a right to payment for $$ up
front must still comply with Article 9.
(Compare: a BUYER of a toaster for $$ up front obviously
doesn't have to file or otherwise comply with Article 9).
Buyers of Rights to Payment are required to "perfect" a "security
interest."
Right
Sale
Loan
Account
File
File
Chattel Paper
File<Pledge/Possession File<Pledge/Possession
Promissory Note
Auto-perfect*
File<Pledge/Possession
Payment Intangible
Auto-perfect
File
*BUT 9-330(d) still cuts off the interest if a third party buys in good faith,
for new value, without knowledge, and takes possession UNLESS the
interest in the promissory note is perfected by possession.
9-330: Priority of Purchaser of Chattel Paper
or Instrument
Buyers of Chattel Paper or Instruments
(including promissory notes) can cut off prior
security interests (this includes the "security
interests" of prior BUYERS of these rights to
payment) if they meet certain conditions.
9-330(d) Instrument Purchaser's Priority
Purchaser of an instrument (including
promissory notes) takes over a security
interest perfected OTHER than by
possession if the purchaser (1) gives value;
(2) takes possession; (3) in good faith; and
(4) without knowledge that the purchase
violates the rights of the third party.
Bottom Line:
1)
File in Accounts -- whether selling or using as
collateral for a loan.
2)
Take possession of promissory notes: EVEN IF the
sale is auto-perfected, your interest can be cut off
under 9-330.
3)
Take possession of Chattel Paper: You *can* file, but
filing can simply be cut off under 9-330. If you can't
take possession, for some reason, stamp your name
on the Chattel Paper -- that gives notice
of assignation under 9-330(a)(2) AND notice of
violation under 9-330(b).