Introduction to Payment Intangibles
A payment intangible is a type of intangible asset that represents a contractual right to receive payment, typically in the form of cash or other monetary consideration. Under the Uniform Commercial Code (UCC), payment intangibles are defined as a type of general intangible, which includes a wide range of contractual and other rights to receive payment.
The UCC provides a framework for the creation, transfer, and enforcement of payment intangibles, which is essential for businesses and financial institutions to manage their financial transactions and contracts effectively. Payment intangibles can take many forms, including accounts receivable, loans, and other types of debt instruments.
UCC Definition and Requirements
The UCC defines a payment intangible as a general intangible that is a contractual right to receive payment, whether or not the right is conditioned on the occurrence of a specific event. To qualify as a payment intangible under the UCC, the contractual right must be evidenced by a writing or other record, and the payment must be due from a specific person or entity.
The UCC also requires that payment intangibles be perfected by filing a financing statement with the relevant state or local authority, which provides public notice of the security interest in the payment intangible. This perfection requirement is essential to ensure that the payment intangible is enforceable against third parties.
Examples of Payment Intangibles
Payment intangibles can take many forms, including accounts receivable, loans, and other types of debt instruments. For example, a company may sell its accounts receivable to a factor, who then collects payment from the company's customers. In this case, the factor has acquired a payment intangible, which is a contractual right to receive payment from the company's customers.
Another example of a payment intangible is a loan, where the lender has a contractual right to receive repayment of the loan amount, plus interest. The loan agreement is a type of payment intangible, which can be assigned or transferred to another party, such as a secondary market investor.
Creation and Transfer of Payment Intangibles
Payment intangibles are created when a contractual right to receive payment is established, typically through a written agreement or contract. The creation of a payment intangible can occur in a variety of contexts, including the sale of goods or services, the extension of credit, or the issuance of a loan.
Payment intangibles can be transferred or assigned to another party, such as a factor or a secondary market investor. The transfer of a payment intangible requires a written agreement or assignment, which must be perfected by filing a financing statement with the relevant state or local authority.
Enforcement and Priority of Payment Intangibles
The enforcement of a payment intangible requires that the holder of the payment intangible take steps to collect payment from the obligor, such as sending a demand letter or filing a lawsuit. The UCC provides a framework for the enforcement of payment intangibles, including the priority of competing security interests.
The priority of payment intangibles is determined by the UCC, which provides that a perfected security interest in a payment intangible has priority over an unperfected security interest. The UCC also provides that a payment intangible can be subject to certain defenses or claims, such as a claim of fraud or duress.
Frequently Asked Questions
What is the difference between a payment intangible and a general intangible?
A payment intangible is a type of general intangible that represents a contractual right to receive payment, while a general intangible is a broader category that includes a wide range of contractual and other rights.
How is a payment intangible perfected under the UCC?
A payment intangible is perfected by filing a financing statement with the relevant state or local authority, which provides public notice of the security interest in the payment intangible.
Can a payment intangible be assigned or transferred to another party?
Yes, a payment intangible can be assigned or transferred to another party, such as a factor or a secondary market investor, through a written agreement or assignment.
What is the priority of competing security interests in a payment intangible?
The priority of competing security interests in a payment intangible is determined by the UCC, which provides that a perfected security interest has priority over an unperfected security interest.
Can a payment intangible be subject to certain defenses or claims?
Yes, a payment intangible can be subject to certain defenses or claims, such as a claim of fraud or duress, which can affect the enforceability of the payment intangible.
How does the UCC define a payment intangible?
The UCC defines a payment intangible as a general intangible that is a contractual right to receive payment, whether or not the right is conditioned on the occurrence of a specific event.