Chattel mortgage
Encyclopedia
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 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.
, chattel mortgages are commonly used by companies
, partnership
s and sole traders to fund the purchase of cars
, commercial vehicles and other business equipment.
Under Australian Taxation Office
rules, businesses that account for GST
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
.
(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 from proscribed 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 give chattel mortgages too 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
.
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
). (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.
, chattel mortgages are referred to as secured transactions. Article 9 of the Uniform Commercial Code
governs such transactions in most states.
However, in the early history of the U.S. some of the first laws on chattel mortgages in the Anglo-American world were passed. These early laws differed from other early laws in that filings and witnesses were required in order to enforce the security interest
. This was 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.
English law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
.
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 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 AustraliaAustralia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
, chattel mortgages are commonly used by companies
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
, partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...
s and sole traders to fund the purchase of cars
CARS
Cars, or automobiles, motor cars, are wheeled motor vehicles used for transporting passengers.Cars or CARS may also refer to:-Entertainment:* Cars , a Disney/Pixar film series...
, commercial vehicles and other business equipment.
Under Australian Taxation Office
Australian Taxation Office
The Australian Taxation Office is an Australian Government statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system and superannuation legislation...
rules, businesses that account for GST
Goods and Services Tax (Australia)
The GST is a broad sales tax of 10% on most goods and services transactions in Australia. It is a value added tax, not a sales tax, in that it is refunded to all parties in the chain of production other than the final consumer....
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
Business Activity Statement
The Business Activity Statement is a form submitted to the Australian Taxation Office by all businesses to report their taxation obligations....
.
Repayment of chattel mortgages in most Australian states attract stamp duty
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...
.
England and Wales
Chattel mortgages in England and Wales are seen as a form of security interestSecurity interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
(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 from proscribed 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 give chattel mortgages too 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
Companies Act 2006
The Companies Act 2006 is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. It had the distinction of being the longest in British Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16 schedules but it has since...
.
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
Equity of redemption
The equity of redemption refers to the right of a mortgagor in law to redeem his property once the liability secured by the mortgage has been discharged.-Overview:...
). (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.
The United States
In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, chattel mortgages are referred to as secured transactions. Article 9 of the Uniform Commercial Code
Uniform Commercial Code
The Uniform Commercial Code , first published in 1952, is one of a number of uniform acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial transactions in all 50 states within the United States of America.The goal of harmonizing state law is...
governs such transactions in most states.
However, in the early history of the U.S. some of the first laws on chattel mortgages in the Anglo-American world were passed. These early laws differed from other early laws in that filings and witnesses were required in order to enforce the security interest
Security interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
. This was 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.
See also
- Hire purchaseHire purchaseHire purchase is the legal term for a contract, in this persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom and can now be found in China, Japan, Malaysia, India, South Africa, Australia, Jamaica and New Zealand. It is also called...
- LeasingLeasingLeasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments....
- Closed-end leasingClosed-end leasingClosed-end leasing is a contract-based system governed by law in the U.S. and Canada. It allows a person the use of property for a fixed term, and the right to buy that property for the agreed residual value when the term expires....
- Installment plan
- Business contract hireBusiness Contract HireBusiness Contract hire is a term used in the UK to describe a vehicle operating lease used by a business. Contracts range from 12–60 months and are tailored to the businesses requirements....