Chattel mortgage, sometimes abbreviated ''CM'', is the legal term for a type of loan contract used in some states with legal systems derived from English law. Under a typical chattel mortgage, the purchaser borrows funds for the purchase of movable personal property (the chattel) from the lender. The lender then secures the loan with a

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...

over the chattel. Legal ownership of the chattel is transferred to the purchaser at the time of purchase, and the mortgage is removed once the loan has been repaid. Chattel mortgages may have more particular characteristics in different jurisdictions.

Australia

In Australia, chattel mortgages are commonly used by

companies A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...

partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments ...

s and

sole traders A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole ...

to fund the purchase of

cars A car or automobile is a motor vehicle with wheels. Most definitions of ''cars'' say that they run primarily on roads, Car seat, seat one to eight people, have four wheels, and mainly transport private transport#Personal transport, people in ...

commercial vehicles A commercial vehicle is any type of motor vehicle used for transporting goods or paying passengers. The United States defines a "commercial motor vehicle" as any self-propelled or towed vehicle used on a public highway in interstate commerce to t ...

and other business equipment. Under

Australian Taxation Office The Australian Taxation Office (ATO) is an Australian statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system, superannuatio ...

rules, businesses that account for

GST GST may refer to: Taxes * General sales tax * Goods and Services Tax, the name for the value-added tax in several jurisdictions: ** Goods and services tax (Australia) ** Goods and Services Tax (Canada) ** Goods and Services Tax (Hong Kong) **G ...

on a cash basis are entitled to claim an Input Tax Credit for all of the GST contained in the purchase price of the chattel on their next Business Activity Statement. Repayment of chattel mortgages in most Australian states attract stamp duty.

England and Wales

Chattel mortgages in England and Wales are seen as a form of

security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the ''collateral'') which enables the creditor to have recourse to the property if the debtor defaults in makin ...

(or "collateral") for lenders in certain financing scenarios. Individuals (broadly, non-incorporated legal persons) may give a chattel mortgage over their personal property; however, it must be in the statutory form prescribed by the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act 1882 for it to constitute valid security. Companies and other corporate entities may also give chattel mortgages over any tangible, movable property as security for a debt obligation. This type of security will usually fall under the category of registrable charges under the

Companies Act 2006 The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely ...

. For a chattel mortgage to be a legal mortgage, it must transfer legal title to the chattel (or chattels) to the secured party (typically the lender) and include an express or implied proviso that the legal title will be transferred back to the debtor upon repayment (known as the

equity of redemption The equity of redemption refers to the right of a mortgagor to redeem his or her property once the debt secured by the mortgage has been discharged. Overview Historically, a mortgagor (the borrower) and a mortgagee (the lender) executed a conveyanc ...

). (If the chattel mortgage does not meet the statutory requirements for a legal mortgage it may nevertheless be re-characterised as an equitable mortgage or fixed or floating charge.) Chattel mortgages over certain assets (such as ships and aircraft) are governed by more particular rules.

United States

In the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

, chattel mortgages are referred to as '' secured transactions''. Article 9 of the

Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through U ...

governs such transactions in most states. However, later, some of the first laws on chattel mortgages in the Anglo-American world were passed.G. L. Flint Jr, M. J. Alfaro (2004)
"Secured Transactions History: The First Chattel Mortgage Acts in the Angol-American World"
. ''William Mitchell Law Review''. These early laws differed from other early laws in that filings and witnesses were required to enforce the

to prevent the debtor from fraudulently using the pledged collateral as a security interest in another loan. The issue had been handled differently in Roman law, by allowing the lender to sue a fraudulent debtor, and in Napoleonic law, by banning the transactions.

References

{{DEFAULTSORT:Chattel mortgage Mortgage Financial economics Contract law Business terms Business law Mortgage industry of Australia

Australia

England and Wales

United States

See also

References