A chattel mortgage is a lien upon specified personal property in the form of a conveyance of property with a condition or proviso that it shall be void if the debt is paid for which it is given as security.
(1) Form of chattel mortgage.
A chattel mortgage is in form a conveyance of the legal title to the property subject to a condition subsequent the performance of which renders the title defeasible. But in effect and for practical purposes the mortgagor remains the owner and the mortgagee has a lien which he may enforce according to the contract and the statute governing it.
(2) Subject matter of chattel mortgage.
The subject matter may be tangible, or intangible, although it is generally personal property of a tangible nature.222
Crops may be mortgaged as chattels - whether mature or immature, severed or unsevered.223
Fixtures may be mortgaged as chattels.224 Thus A sells a machine to B, which B affixes in a permanent way to the realty. A takes back a chattel mortgage on his machine and properly preserves his rights by due recordation. B then mortgages the land to C. Ordinarily this would operate to give C a lien on the machine as part of the real estate. He must in this case, however, take subject to the prior chattel mortgage to A.225 There is a difference of opinion whether one can attach chattels after the real estate mortgage, and by a chattel mortgage, keep them exempt from the operation of the real estate mortgage. The prevailing rule is that this can be done, unless the prior mortgage has in its terms included all fixtures and improvements to be placed thereupon.
If by annexation with the land the chattels are incorporated therein so as to lose their identity, as bricks or lumber in a house, they cannot be the subject of a chattel mortgage.
222. Metro. Nat. Bk. v. St. L. D. Co. 36 Fed. 722 (good will of a business if in connection with the business).
223. Demers v. Graham, 36 Mont. 402.
224. Hughes v. Edisto Cypress Shingle Co., 51 S. C. I, 28 S. E. 2.
225. Campbell v. Roddy, 44 N. J. Eq. 244, 14 Atl. 279.
In many states one cannot make a valid mortgage of a stock in trade which is to remain in the possession of the mortgagor with power to sell the same and deal with it as his own, at least unless he does it merely as the agent of the mortgagee, applying the proceeds to the payment of the debt or setting them aside as the proceeds of the mortgagee.226
(3) The debt secured.
One whose debt is unsecured or insufficiently secured may prevail upon the debtor to execute a chattel mortgage to secure, or more adequately secure the debt. But this may amount to a preference or an act of bankruptcy.227
The usual case in which a mortgage is given is one which is made to secure an indebtedness which arises at the time the mortgage is made as a part of the same transaction. It may be to secure a loan of money, or to secure a portion of a purchase price of an article bought and partially paid for.
One may make a mortgage to cover future advances. If the amount of the advances to be made appear in the mortgage, the party advancing such money may have priority over subsequent mortgages.
(4) Provisions of the mortgage.
Allusion to the usual form of a chattel mortgage shows that it is customary to name the parties, as mortgagor and mortgagee, at the beginning of the instrument. If a party to a mortgage is a corporation, the name of the corporation should be stated and not the name or names of any of its members or officers. If a party is a partnership, there are two ways of describing it in a chattel mortgage, thus "A., B., C. D. and E. F., copartners, trading as the General Manufacturing Company," or "The General Manufacturing Co." If the partnership is composed of only two or three members, perhaps all the partners should be named, as in the first case, but if it is composed of numerous members the second description would be of less trouble. (In a real estate mortgage, the only proper description would be the first one, that is, it should appear as executed by all the partners, as partners, trading as, etc.)
226. Hangen v. Hachemeister, 5 L. R. A. (N. Y.) 137; Zart-man v. Bank, 189 N. Y. 267.
227. See SEC. - , supra.
Real estate may be so described that the description, as made, can not pertain to any other land than the land in question; but the description of property in a chattel mortgage is more difficult. Suppose a number of chairs, for instance, are to be mortgaged. As between the parties it would not be difficult to tell what chairs are meant. But suppose the rights of third parties enter. The purpose of a mortgage is, as we know, to give notice to third persons. It follows that the description must be such that third persons may be notified from it, that the property against which thay are now seeking to establish rights, was the property mortgaged. If there are any identification marks, these should be given, as, for instance, the peculiar marking on an animal or serial numbers on machinery. And it may be noted that animals are comparatively easy of identification, as weight, size, name and peculiar markings can be given. In inanimate chattels, the make thereof, and principally, their location, serves to identify them.
It is customary to make notes in connection with a mortgage which secures a loan. The debt should be described and the notes should be referred to. Reference to the ordinary form of mortgage will show how this reference and description should be made.
The "security clause" or "danger clause" is set out in the ordinary form of printed mortgage. It is almost always included. The extent of the rights thereunder is discussed later.
Just as in a deed, the grantor signs a chattel mortgage. Some states require attestation. This is not required in other states. Local statutes must be consulted.
The notes given to evidence the debt which the mortgage secures should state on their face that they are chattel mortgage notes. To omit this in many states is very serious and renders the mortgage of no effect.