Under what condition does a purchaser of chattel paper gain priority?

A purchaser of chattel paper gains priority when they take possession of the chattel paper and give new value. This priority status under the Uniform Commercial Code (UCC) is designed to encourage the market for chattel paper while providing protection to those who invest in it by taking physical possession. The requirement of providing new value emphasizes that the purchaser must also contribute something of value in exchange for the chattel paper, thus ensuring that the transaction is legitimate and that the purchaser is genuinely invested in the rights to the chattel paper.

When taking possession, the purchaser’s physical control over the chattel paper affirms their status against competing claims, especially from prior creditors. This priority can protect the purchaser from other claims that may be asserted against the collateral represented by the chattel paper.

This approach fosters a reliable system for financing and transferring interests in chattel paper, which often represents a right to payment related to goods or services, thereby supporting commerce and ensuring clarity in ownership and security interests.