248. What Kinds of Personal Property May Be Mortgaged. The rule is usually stated as follows: Any interest in personal property which may be the subject of a present sale may be mortgaged. Any tangible personal property such as furniture, horses, cattle and clothing, as well as intangible personal property, such as promissory notes, contracts, and shares of stock may be mortgaged. It is not necessary that the mortgagor have absolute, unencumbered title to the property to give a mortgage. An owner may give several mortgages on the same property. He may mortgage his interest as long as any remains. If A owns a stock of goods worth $10,000, he may give successive mortgages to different creditors to whom he is indebted. He must practice no fraud, however. He must make each mortgage subject to the prior ones, and must reveal the facts to the creditor taking the mortgage. But he is permitted to mortgage his remaining interest.
249. A Mortgage of Personal Property as Security for a Debt. A mortgage of personal property is a contract, and must be supported by a consideration. Mortgages are usually given to secure loans of money. They may, however, be given to secure any kind of obligation. A mortgage of personal property may be given to secure advances of money to be made in the future, as well as present or past advances or obligations. It is usually held that a past indebtedness is sufficient consideration to support a mortgage, as to all persons, except one who may have been defrauded out of the property mortgaged.
250. Form of Mortgages of Personal Property. To constitute a transaction a chattel mortgage, there must be an agreement by which title to personal property is transferred to a creditor upon condition that it is to revest in the debtor upon the latter paying a certain sum of money, or fulfilling an obligation, within a certain time. As between the mortgagor and mortgagee themselves, an oral chattel mortgage is binding, unless within the provisions of the Statute of Frauds. (See Statute of Frauds, chapter on Sales.) Most states provide that contracts for the sale of personal property involving more than $50.00 must be in writing to be enforceable. This provision applies to chattel mortgages. If possession of the mortgaged personal property is given the mortgagee under an oral mortgage, the transaction is binding, not only between the parties thereto, but as to third persons as well. Most states provide by statute that as against third persons who purchase the property, or as against creditors of the mortgagor, the chattel mortgage must be in writing, and be recorded or filed with a public official, in case possession of the mortgaged property is left with the mortgagor. This question is discussed more at length in the following section.
251. Filing and Recording Mortgages of Personal Property. Most states have statutes providing that chattel mortgages must be filed or recorded with a designated public official to be effective as against creditors, subsequent purchasers or mortgagees. This requires that the mortgage be in writing, and be deposited or recorded according to the provisions of the statute with the designated public official. For example, if A orally mortgages his horse to B to secure a loan of $40.00, the mortgage may be binding between A and B, but if C, a creditor of A, secures a judgment against A and levies on the horse, his levy is superior to B's mortgage. If A sells the horse to D, who has no notice of the mortgage to B, D's rights to the horse are superior to B's. If A gives a mortgage in writing to E, who records his mortgage according to statute, his rights to the horse are superior to B's. The statutes of the different states require these mortgages to be refiled at stated intervals. Most states require them to be refiled each year. Some require them to be refiled only every three years.
252. Rights of Mortgagor in Property Mortgaged. A mortgage of personal property ordinarily contains a stipulation that the mortgagor shall retain possession until after default of payment of the mortgage debt. Some states have statutory provisions giving the mortgagor the right of possession of the mortgaged property before default of payment of the mortgage debt. It is the custom at the present time to give the mortgagor possession of the property before default. If a mortgagor having possession of the property has it stored on his own behalf, and the warehouseman acquires a lien on the goods for his charges, his lien is inferior to the mortgage. The same is true if a mechanic acquires a lien for repairs upon the property.
A mortgagor may mortgage his interest in the personal property by giving a second mortgage. The second mortgagee takes the mortgagor's right to have the property revest in him upon payment of the debt secured by the first mortgage. A mortgagor may sell his interest in the property, subject to the interest of the mortgagee. If the mortgage stipulates that a mortgagor cannot sell his interest, this stipulation is binding. A mortgagor has the right to pay the debt secured, and by this means to have the title to the property revest in him.
253. Rights and Liabilities of Mortgagee. A mortgagee of personal property has a conditional title to the property. If the mortgagor does not pay the debt secured, according to the terms of the mortgage the mortgagee has the right to seize the property or at least to subject it to the satisfaction of his debt. The mortgagee has the right to sell the debt secured by the mortgage. In the absence of an express stipulation to the contrary, a transfer by a mortgagee of the debt secured by the mortgage, transfers the mortgage. An assignment of a chattel mortgage apart from the debt secured, passes no interest to the transferee. A mortgagee has the right to seize the property upon default of payment of the debt secured, if the mortgage contains a stipulation to that effect. The mortgagee has the right to foreclose his lien. By this is meant that he has the right to file a petition in a court of equity asking that the property be sold, and that his claim be paid from the proceeds first, and that the mortgagor's right to pay the debt and secure a return of the property be cut off. This is discussed under the section on foreclosure.
254. Mortgagor's Right of Redemption. In law, a mortgage is regarded as a security for a debt, rather than as a transfer of property. By a chattel mortgage, a transfer of title to personal property is made by a debtor to a creditor as security for a debt. The debtor has the right, however, to secure a return of the title to the property by paying the mortgage indebtedness according to the terms of the mortgage. When the debtor fails to pay the debt when it is due, absolute title to the property vests in the mortgagee or creditor. The law, however, permits the debtor or mortgagor to pay the debt at any time before actual sale of the property by the mortgagee, together with interest and expenses, and thus secure the title to the mortgaged property. This is known as the mortgagor's equity of redemption.
Legal title is vested absolutely in the mortgagee upon failure of the mortgagor to pay the mortgage debt when due. The mortgagor, however, is permitted to pay the debt with expenses at any time before sale of the property, and by this means to secure a return of the title to the property. This makes a mortgage of personal property in effect a security for a debt, rather than a transfer of title. The purpose of the law is to give the creditor or mortgagee the right to secure the payment of his debt out of the mortgaged property, and nothing more. Most states have statutes providing a method by which a mortgagor may obtain his equity of redemption. Where there are no statutes, this right must be enforced by a petition in a court of equity.
255. Mortgagee's Right of Foreclosure. Equity permits the mortgagor to recover the mortgaged property by filing a petition in a court of equity, even after he has defaulted in paying the mortgage debt, by tendering the amount due, together with interest and expenses. This right of the mortgagor may be cut off by an equitable right enforced on the part of the creditor or mortgagee. This right is called the mortgagee's right of foreclosure. When the debtor or mortgagor is in default, the creditor or mortgagee is permitted to file a petition in a court of equity, setting forth the fact, and asking the court to order the property to be sold, the expenses to be paid, the mortgage debt to be satisfied, and the balance of the proceeds of the sale to be paid to the debtor or mortgagor. After this proceeding has been resorted to and completed, the debtor cannot enforce his equity of redemption.