In the automotive industry, it is common practice for a car
dealer to enter into a lease or conditional sales contract with a
customer and then assign the right to receive the stream of
payments from that contract to a financing company. However, this
type of transaction, if not carried out properly, may create risk
for the financing company as a result of the provisions of the
Personal Property Security Act (the "PPSA"). If the
financing company does not perfect its security interest under the
PPSA, it may lose its right to the stream of payments if the dealer
were to go bankrupt.
Section 2(b) of the PPSA provides that, subject to certain
exceptions, the PPSA applies to a transfer of an account or chattel
paper even if the transfer does not secure payment or performance
of an obligation. Chattel paper is defined in the PPSA as a
document that evidences both a monetary obligation and a security
interest in or a lease of specific goods. This is the case with
leases
