On Chattel Mortgage

Chattel mortgage is loan arrangements that involve the use of movable personalproperty as the security for the loan, in which the debtor enjoys a priority claim togains of auction and sale of the mortgage in case that the borrower does not have thecapability to repay the debt. Traditional real rights granted by way of security includemortgage, pledge and lien. The mortgagee generally applies to real estate whilepledge right of movable property is set through the transfer of possession. However,with the increase of financing secured transactions, traditional real estate mortgageecannot meet the needs of economic life, and chattel pledge requires the transfer ofpossession which causes a waste of resources. As a result a new guarantee, chattelmortgage, emerged. Accompanied by the emergence of chattel mortgage, thecontroversy over chattel mortgage has never stopped. After all, the traditionalmortgage generally applies to real estate while pledge to movable property. Moreimportantly, as the real right of movable property uses possession as the approach topublicity, the approach to publicity by taking possession of the property cannotdisplay the right of chattel mortgage while the approach to publicity by registering theright of chattel mortgage goes against the publicity approach of movable propertyright. Disputes about chattel mortgage arise frequently because of the lack of properpublicity approach. Although Real Right Law recognizes chattel mortgage as a newfinancing approach, it cannot be applied to actual practice due to the simple and faultyregulations.Chapter One introduces the system of chattel mortgage by firstly determining thedefinition of chattel, mortgage and chattel mortgage. Chattel mortgages are loanarrangements that involve the use of movable personal property as the security for theloan, in which the debtor enjoys a priority claim to gains of auction and sale of themortgage in case that the borrower does not have the capability to repay the debt. According to the broad understanding, chattel mortgage applies to not only specialmovable property like such chattel real as motor vehicles, ships and aircrafts, but alsogeneral movable property. This chapter then reveals the development of chattelmortgage and its underlying reality through looking back from its emergence and endswith a comparison of legislative status of chattel mortgage in different countries andprovides a legislation basis by summarizing gains and losses of various countries’practice.Chapter Two does a systematic study on the advantages and disadvantages ofchattel mortgage. From the perspective of value judging, there are pros and cons aboutchattel mortgage. It has great value in overcoming the disadvantages of and makingthe best use of chattel mortgage, encouraging the trade deal and meeting the needs offinancing. However, lacking proper publicity approach, the irreconcilablecontradiction between registering the right of chattel mortgage and taking possessionof the property leads to the conflict of interest between the mortgagee and the thirdparty, thus impacting security of the transaction. The analysis of the disadvantage ofchattel mortgage system reveals that the root lies in the publicity approach. So we canbring the chattel mortgage into full play by improving its publicity approach againstthe contradiction. Therefore, chattel mortgage system has its own value and cannot bereplaced by transferring guarantee.Chapter Three makes a study on publicity approach of chattel mortgage. TheReal Right Law stipulates registration as the publicity approach of both chattelmortgage and real estate mortgage, which fails to solve the fundamental contradictiondue to the lack of obligation of the third party to check the registration status ofchattel mortgage whose property right uses possession as the publicity approach. Bylearning from the other countries’ legislation of chattel security, this chapter aims atproviding a safe and efficient publicity approach for chattel mortgage that combinesregistration with auxiliary methods such as engraving and tagging. In order to ensurethe publicity efficacy of chattel mortgage, it is advisable to establish a safeguardmechanism for the publicity of chattel mortgage, such as unified registration authority,complete query system and sound accountability mechanisms. Chapter Four discusses the establishment of chattel mortgage, which is the mainreason for chattel mortgage right to happen. This topic is discussed mainly from fiveaspects. First, whether the establishment of chattel mortgage is juristic act of right ofcredit or right in rem. The distinction between right in rem and right of credit is ofgreat significance in the construction of civil law system. Right in rem has differentfeatures and effects from right of credit. Also, different reasons make each to happen.Thus, it’s of same significance to distinguish juristic act of right in rem from right ofcredit. The establishment of chattel mortgage has both juristic acts that lead to right inrem and right of credit.Second, whether the establishment of chattel mortgage isformal act or informal act. Considered from the fundamental spirit of autonomy ofprivate law and the convenience of transaction, the establishment of chattel mortgageuses informal act, in which written form has the evidence value.Third, whether thepublicity of chattel mortgage employs the Doctrine of Effectism or the Doctrine ofAntagonism. This is a question about the choice of legislation mode for the publicityof chattel mortgage right. According to the spirit of autonomy of private law, and forthe guarantee of transaction convenience and safety, the Doctrine of Antagonism isadopted. As registration is just one way of publicity, it is more reasonable to adopt theDoctrine of Antagonism. With such publicity, chattel mortgage right may challengethe bona fides third party. Otherwise, it may not. Forth, whether the object of chattelmortgage adopts restrictionism or non-restrictionism. Parties involved should haveknown the risk of chattel mortgage transaction. Since they choose the chattel securedtransaction, they should be responsible for themselves. While enlarging the objectrange of chattel mortgage right makes it easier for the debtors to finance. Thus, thereis no need for restriction. Fifth, the bona fide acquisition of chattel mortgage right.The establishment of chattel mortgage right does not depend on the parties’self-awareness. However in the transaction of chattel mortgage, one party may acquirethe chattel mortgage right in good faith, which is also one situation of the legalacquisition of chattel mortgage right.Chapter Five discusses the validity of chattel mortgage in detail. The validityprinciple of the chattel mortgage is the core of chattel mortgage system. In this section the author will analyze in detail the validity of chattel mortgage from five aspects.First, the general validity of chattel mortgage, which demonstrates the time and spacevalidity and validity for person. Chattel mortgage right is one of the guarantee realrights. Although the mortgage period may be registered, it is not the validity period ofmortgage right. It can be continued without the invalidation of mortgage right. For themortgagees, they enjoy the priority right to be repaired, ordination right, preservationright, etc. For the mortgagors, they have the right to occupy, use or dispose the objects,and the obligation to assist in practicing the mortgage right, and so on. Second, theconflicts and coordination between the mortgagee and the third party. Although themortgagee enjoys the mortgage right of the object, the mortgagor occupies it. Whenthe mortgagor disposes the object, conflicts between the third party and the pledgearise. It is an important part in the validity of chattel mortgage to balance the conflictsof interest between the third party and the mortgagee. How to solve the interestconflicts between the mortgagee and the third party is critical to the realization ofsecurity value of transaction. The principle of public summons and public trust playsan important role in maintaining the transaction security. Thus, publicity is decisive inthe conflict resolution between the mortgagee and the third party. With publicity,chattel mortgage right may challenge the bona fides third party. Otherwise, it may not.The third party shall be in good faith, and all third parties that have transaction withthe mortgagor shall be the third party, including the general creditor. If chattelmortgage right without publicity does not enjoy the priority validity to the right ofcredit, shall it be right in rem? Of course yes. Even if the chattel mortgage right iswithout publicity, it still remains mortgage right between parties, and should be ableto challenge the mala fide third party and possess the force of recourse. So it stillowns the features of right in rem. Third, the validity between the mortgagor and themortgagee can be judged by the mortgage contract. While the relation between themortgagor and the third party involves the relation of right in rem or the contract, thelegal relation between them should be determined by corresponding rules. Forth, theobject range of the validity of chattel mortgage right embodies the validity of chattelmortgage. In chattel mortgage, besides the priority of compensation of the collateral, the chattel mortgage right can generally be extent to its processed goods, attachmentand mixture, but limit to the original value of the object. The change of the ownershipshould also be taken into consideration. It should be analyzed case by case. Thevalidity of chattel mortgage right shall not be extent to the accessory matters andfruits. As for the subrogation of the collateral, although the collateral has perished, itsvalue has transferred to its subrogation, the validity of chattel mortgage right can beextent to its subrogation. Fifth, the range of the debtor’s right secured by the chattelmortgage right. Chattel mortgage right is set to secure the debtor’s right, the debtitself shall be in the range of security. Others, including interest and fees for guaranteeand practicing the mortgage right shall also be in the range. Default and damages shallnot be in the range.Chapter Six mainly discusses the conflicts and realization of chattel mortgageright. During the assignment of the collateral, the assignee’s ownership will conflictwith the mortgage right. For chattel mortgage right with publicity, the assignee shallnot obtain the complete ownership. The mortgagee enjoys the pursuing right to thecollateral. For chattel mortgage right without publicity, consignee could obtain thecomplete ownership. The mortgagee should claim compensation from the mortgagor.When the chattel mortgage right conflicts with other guarantee real rights, theprinciple of public summons and public trust and the principle of interest balance shallbe used to determine the sequence of each rights. In the realization of chattelmortgage, the property law of our nation still needs improvement. It is necessary tointroduce self-protection. When practicing chattel mortgage right with self-protection,the benefit of the mortgagor and the third party shall not be damaged.