A chattel mortgage is good as between the parties, whenever the contract has been made, though informal, and the court will enforce it; but the mortgagee is concerned that it shall also be good as against every one else who may claim a subsequent title or subsequent liens. He desires to feel secure against A, who may get a judgment against the mortgagor and claim a lien thereby on the mortgagor's goods; and against B to whom the mortgagor, violating his trust, may execute another mortgage upon the same property; and against C, to whom the mortgagor in violation of his trust may sell the mortgaged property.
How may he know when he has taken a mortgage that he is really secure, not only against the mortgagor, but against everyone else who has not already acquired rights? There may be said to be two ways of bringing this about - by giving actual notice, and by doing those things which in the law may be said to amount to notice or as it is said, to constitute constructive notice. Actual notice exists in cases in which the third party in question had actual knowledge of the mortgage; constructive notice exists when the third party in question is from the circumstances deemed to know (whether he does or not), that is, the circumstances are such that he should have made inquiry and should have learned by proper investigation. We will consider the two chief cases in which constructive notice is given; first, where the proper record is made upon the public books; and, second, where possession is taken by the mortgagor.
Attestation, acknowledgment, recording, are not necessary as between the parties; neither are they necessary as against a third party where the third party in question had actual knowledge; neither are they necessary where notice is constructively given by some other fact, as by the taking or retaining of possession by the mortgagee. But otherwise the mortgagor must go before some proper officer and acknowledge the mortgage.
Also the mortgage must be recorded with the officer who is recorder of deeds in the jurisdiction where the mortgagor resides, or else in the jurisdiction where the goods are located.
Attestation is not so common a provision. In a few states it is provided for, but not in most.
Affidavits of good faith are also required by the laws of some states.
It is impossible to attempt here a statement of the requirements of the various jurisdictions.
In the majority of cases, the mortgagor retains his possession of the goods and uses them, and the mortgagee relies upon his compliance with the law as to acknowledgement, recording, etc., to give him protection. If, however, the mortgagee takes possession, parties claiming rights, accruing thereafter, must claim them subject to the mortgage, for by the mortgagee's possession they are put on notice of the rights he has therein. Possession, then, constitutes a constructive notice in most, if not all, of the states, which is equivalent to the notice imparted by the record.
(6) Rights of possession under the mortgage.
Almost all mortgages provide that possession may remain with the mortgagor. Even where the mortgage did not so provide, and yet it was so understood, the mortgagor would be entitled to possession. But in the absence of any agreement the mortgagee would have the right to possession.
The insecurity of danger clause in a mortgage is a provision that the mortgagee in a mortgage which gives the mortgagor the right of possession shall have the right to enter and take possession if he deems himself insecure. In most states, he must proceed upon reasonable grounds. It is not necessary that he be actually in danger, but he must have reasonable grounds to fear that he is; 228 but in other states the rule is laid down that the reasonableness of his fear is not subject to inquiry.
Foreclosure of a chattel mortgage may be accomplished in two ways: first, by filing a bill for foreclosure in the courts, and, second, by proceeding under a power of sale in the mortgage. Most mortgages provide that in case of default the mortgagee shall have the right to take possession of the mortgaged goods and sell them at public or private sale for the realization of the debt. This constitutes the "power of sale." In such a case the mortgagee may either proceed under the power or file his bill in the Court of Equity.
228. Hogan v. Aikin, 181 111. 448; See collection of authorities 19 L. R. A. (N. S.) 915.
The sale may be public or private if the mortgage so provide, yet it should be made publicly upon public notice in order that the mortgagee may be fully protected against any claim that he has not used good faith or secured as much as the property would bring.
The mortgagee cannot purchase at his own sale, without the full and free consent of the mortgagor.
When the property upon sale does not bring the full amount of the debt with the proper costs of conducting it, the mortgagor is still indebted for the balance. Where the sale results in more than the debt, the surplus belongs to the mortgagor.
The mortgagor is not restricted to foreclosure; he may sue upon the indebtedness, and have judgment, and he may pursue his various methods concurrently. He cannot, however, have more than complete satisfaction of his debt.