How is chattel paper defined?

Chattel paper is defined as documents that represent both a promise to pay money and a security interest in a specific piece of property. This definition encapsulates both elements essential to chattel paper: it includes a monetary obligation, such as a promissory note or an installment contract, and it also links that obligation to a tangible asset, such as goods or other personal property.

Understanding this definition is crucial because chattel paper is a unique form of collateral in secured transactions, which allows a creditor not only to secure a loan through the financial promise but also to have a claim on the property that serves as the collateral. This dual nature provides significant value and security to the creditor.

The other options do not accurately reflect the definition of chattel paper. For instance, simply evidencing an unsecured promissory note does not involve a security interest in property, while legal papers related to loan disbursement and written contracts for goods sold on credit do not capture the specific combination of a promise to pay and an interest in property that characterizes chattel paper.