Putnam's Handy Law Book for the Layman

Chattel Mortgage. - A chattel mortgage is a conveyance of personal property, as distinguished from real property, to secure the debt of the lender or mortgagor. The essence of the agreement is, if the mortgagor does not repay the money as he has agreed to do, the mortgagee becomes the owner of [53]the property. Until the mortgagor fails to execute his part of the agreement, he retains possession of the property. By statutes that have been enacted everywhere, the mortgagee's interest, or conditional title in the property conveyed to him, is secure by recording the deed even though the mortgagor still retains possession.

The usual form of a chattel mortgage is a bill of sale with a conditional clause, stating the terms of the loan and that, on the mortgagor's failure to pay, the mortgagee may take possession of the property. Any persons who are competent to make a contract may make a chattel mortgage, and an agent may act for another as in many other cases. When thus acting his authority may be either verbal, or written, or may be shown by ratification. Persons also who have a common ownership in chattels, tenants in common or partners for example, may mortgage either their common or individual interests. A husband may give a chattel mortgage to his wife, and she in turn can give one to him. Likewise a corporation may make such a mortgage.

The law is broader in the way of permitting a minor, married woman, or corporation to be mortgagees when they cannot act as mortgagors of their property. Two or more creditors may join in such a mortgage to secure their separate debts. If the debt of one of them is fraudulent, his fraud, while rendering the mortgage fraudulent as to him, will not affect its validity as to the other.

How must the mortgaged property be described? With sufficient clearness to enable third persons to identify the property. The description must contain reasonable details and suggest inquiries which if followed will result in ascertaining the precise thing conveyed. A description of a baker's stock [54]"stock on hand," would be too meager, so would be a description of "our books of account, and accounts due and to become due," but cattle described by their age, sex and location will satisfy the law, though the cattle of other owners should form part of the same herd, when they can be ascertained by following out the inquiries suggested by the mortgage. Again, a description that is wholly false avoids the mortgage, but if it is false only in part, this may be rejected and the mortgage remain valid for the remainder.

More generally the nature of the chattels conveyed determine largely the character of the description. Thus animals may be described by weight, age, height, color and breed; vehicles by their style and manufacturer's name; furniture by piece or set; crops growing or to be grown by their location and year. A general claim of "all" articles in a stated place is regarded as sufficient. Oral evidence is admissible to aid the description in identifying the subject-matter of the mortgage, and to explain the meaning and extent of the terms of the description.

A mortgage may be given for a future advance of money. Nor need the mortgage state that it is thus given; and the fact may be proved orally. But when the right of third parties are affected, such a mortgage is not valid against them unless the specific sum that is to be secured is set forth. Likewise to render a mortgage secure against attaching creditors of the mortgagor, there must be a distinct statement of the condition or terms of the mortgage; in other words the creditors have a right to know what interest the mortgagee really has in the property that secures to him rights superior to their own. The rule should also be stated that where the rights of third parties are in issue, it must appear that the [55]mortgagee acquired the mortgage before they had any rights to the property.

The statutes require that chattel mortgages should be acknowledged and recorded. In some states the requirements are strict in respect to the disinterestedness of the official who takes the acknowledgment. An affidavit is another requirement. This must state several things, especially that the mortgage was given in good faith, and the nature and amount of the consideration.

What may be mortgaged? In general, any personal property that may be sold; many of the statutes define it. They cover a life insurance policy, corporation stock, railway rolling stock, seamen's wages, growing crops and trees, profits from the use of a steamboat, premiums earned by a horse, book accounts, leasehold interests, nursery stock, besides many other things. Whenever fixtures annexed to real estate retain the character of personal property they may be mortgaged. And when animals are mortgaged their natural increase are included. A mortgage made of an unfinished article will hold the article when finished if it can be identified.

By the common law nothing could be mortgaged that was not in existence at the time of the mortgage. By statute a mortgage may cover after-acquired property, and this statute has become very important especially with merchants, manufacturers, and others who are constantly changing their stocks of goods.

When the mortgagor fails to pay his debt, the right of the mortgagee to proceed in taking the property is usually regulated by statute, except when the parties have agreed themselves and in conformity with statute. The rights of the [56]mortgagee depend in many cases on the title, whether that has passed to him by virtue of the mortgage, or whether it still remains conditionally in the mortgagor. Where the mortgagor still retains the title, a clause is often put into the mortgage to the effect that, should the mortgagor default in payment, the mortgagee may take possession of the property and sell it; and such a provision is valid and enforcible. Where the title is vested or transferred to the mortgagee by virtue of the mortgage, this is equivalent to giving him possession whenever he chooses to demand it. In other states the mortgagee's discretion is not so broad, before taking possession he must have reasonable grounds for believing himself insecure, that the mortgagor has done, or threatens to do, something that would impair the mortgagee's security.

Where the common law prevails and no statute has been enacted regulating the rights of parties, an important question is still unsettled in cases of a mortgage given on a stock of merchandise which permits the mortgagor to remain in possession and to sell the property mortgaged in the course of trade. Can he do this? In many states such a mortgage is regarded as fraudulent to creditors, in other states if such a mortgage is not, on proper judicial inquiry, proved to be a fraud, it will be upheld.

A provision in a mortgage that it shall cover after acquired property is regarded in some states as an executory agreement that it shall be held by the mortgagee as security; and the mortgagee may take possession of it, should the mortgagor fail to pay his debt, in accordance with his promise, before the rights of third persons have intervened. See Mortgage.

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