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CHATTEL MORTGAGES AND SECURED TRANSACTIONS. SEE ORS 79.1020 et seq.; CHATTEL PAPER, ORS 79.3050; PERFECTION, 79.1030; FILING REQUIREMENTS, ORS 79.3020, .2040; AND THE UNIFORM COMMERCIAL CODE OF OREGON GENERALLY. I. GENERALLY.
A chattel mortgage is an instrument by which the owner conveys conditional title to personal property to secure the payment of a debt or the performance of a contract or other obligation. It is a pledge that the debt will be paid. Any personal property that may be sold may be mortgaged, such as automobiles, livestock, machinery, farm implements, life-insurance policies, corporation stock, and crops. The mortgagor is the person who conveys the property. The mortgagee is the person to whom the transfer is made.
The usual form of a chattel mortgage is a bill of sale with the conditional clause stating the terms of the loan, and that on the mortgagor's failure to pay, the mortgagee may take possession of the property. Any person competent to make a contract, or h is agent, may make a chattel mortgage. Partners or joint tenants may mortgage jointly on their individual interests. A corporation may also mortgage its personal property. Chattel mortgages are usually given to secure notes in the same way in which real estate mortgages are given to secure notes. Greater strictness, however, is required in the acknowledgment, docketing, and recording of chattel mortgages than in the case of real estate mortgages. A chattel mortgage must usually be acknowledged before a justice of the peace or some other person authorized by law to take acknowledgments.
The property mortgaged must be described clearly enough to enable third persons to identify it, but this is determined largely by the nature of the chattels. "All" articles in a stated place is generally a valid description.
A chattel mortgage remains in effect as between the parties themselves until it is released or becomes barred by what is known as the statute of limitations. However, in order to preserve the mortgage's validity against creditors of the mortgagor and subsequent purchasers of the mortgaged property, it must be refiled or renewed periodically. The periods vary in different states but are generally from one to three years. To sell property covered by a chattel mortgage for a valuable consideration without notifying the purchaser of the existence of the mortgage is a criminal offense. Statutes in a few states provide that notes secured by chattel mortgages must show on their faces that they are secured by chattel mortgages, or they are absolutely void. In other states, chattel mortgages on household goods must be signed by both the mortgagor and his wife. See also MORTGAGE; SECURED TRANSACTIONS.
When the mortgagor fails to pay the debt, the right of the mortgagee to proceed in taking the property is regulated by law. In most chattel mortgages a clause is included permitting the mortgagee to seize and sell the property should the mortgagor fail to make payment. II. SECURED TRANSACTIONS.
A secured credit sale is a sale in which the possession of the goods and the risk of loss pass to the buyer, but the seller retains a security interest in the goods until he has been paid in full. The seller's security interest entitles the seller to repossess the goods when the buyer fails to make payments as required or when in any other way the buyer commits a breach of the purchase contract. This right of repossession is in addition to the right to sue on the purchase contract for the amount of the purchase price. A security interest for the protection of the seller arises as soon as the seller and buyer agree that the buyer shall have property rights in particular goods and that the seller shall have a security interest in them. It is immaterial whether or not the sales agreement provides for the passage of title to the buyer prior to his payment in full for the goods.
The agreement of the seller and buyer that the seller shall have a security interest in the goods must be evidenced by a written security agreement, which is signed by the buyer and which describes the collateral. This description need only reasonably identify the collateral. A description is sufficient when it would enable a third person, aided by inquires made to others, to determine what goods were involved.
The seller may transfer or assign the interest under the sales contract and under the security agreement to a third person, and the assignee acquires all the rights and interest of the seller. As soon as the security agreement is executed, the secured credit seller of consumer goods has rights that are effective not only against the buyer but also against purchasers of the property from the buyer. From that moment on, the seller's interest is generally effective against third persons and is described as a perfected security interest.
In an ordinary sale of consumer goods under a secured transaction, no filing is required in order to perfect the secured seller's interest. Such a seller is protected against purchasers from and creditors of the buyer who-may acquire the property thereafter. Although this is the general rule, there are some exceptions:
The buyer has certain rights of ownership in the collateral. It is not material whether technically the buyer is the owner of the title. Whatever interest the buyer owns may be transferred voluntarily, and creditors may reach it by the process of the law as fully as though there were no security agreement. Such third persons generally cannot acquire any greater rights than the buyer, and therefore they hold the property subject to the security interest of the seller. It is common practice for credit sellers to seek to protect themselves by prohibiting the buyer from reselling the property. Such a provision has no effect and does not prevent an effective resale, even though the security agreement expressly makes it a default or breach of the contract to make.
The secured transaction buyer is a debtor to the extent that there is a balance due on the purchase price. In order for the buyer to know just how much he owes and to check with his own records what the seller claims to be due, the buyer has the right to compel the seller to state what balance is owed and also to specify in what collateral the seller claims a security interest.
It is common practice for finance companies that have a standing agreement to purchase sales contracts from a credit seller to provide the buyer with forms to be signed by the buyer. These forms generally specify that the buyer waives, as against the assignee of the sales contract and security agreement, any right that the buyer would have against the seller. Both express and implied waivers are valid and bind the buyer if the assignee takes the assignment for value, in good faith, and without notice or knowledge of any claim or defense ofthe buyer. The validity of any waiver of defense is subject to two limitations:
When the buyer under the secured credit sale defaults by failing to pay an installment due, the secured party is entitled to take the collateral or purchased property from the buyer. If he can do so without causing a breach of the peace, the seller may repossess the property without legal proceedings. In any case he may use legal proceedings if he desires.
The seller who has repossessed the goods may resell them at a private or public sale at any time and place and on any terms. He or she must, however, act in good faith and in a manner that is commercially reasonable. The seller must give the buyer reasonable advance notice of a resale unless the goods are perishable, or unless they threaten to decline speedily in value, or unless they are of a type customarily sold on a recognized market. The seller's resale destroys all interest of the buyer in the goods.
If the buyer acts in time, he or may redeem or obtain the return to him of the goods by tendering to the secured party the amount that is owed, including expenses and any legal costs that have been incurred. The right to redeem is destroyed if the seller has made a resale or entered into a binding contract for resale.
When the secured party, that is, the original seller, makes a resale of repossessed goods, the proceeds of the resale are applied in the following order to pay (a) reasonable costs of repossession, storage, and resale of the goods, (b) the balance due, including interest and any proper additions such as attorney's fees, and (c) subsequent security interests on the property that are discharged by the resale. If any balance remains after the payment of these claims, the buyer is entitled to the surplus. Conversely, if the net proceeds of resale are insufficient to pay the costs and the debt due the seller, the buyer is liable for such deficiency unless it has been otherwise agreed by the parties.
If the buyer has paid less than 60 percent of the cash price of the consumer goods, the secured seller may propose in writing that the seller, keep the repossessed collateral in payment of the debt. If the buyer does not object to this proposal the secured party keeps the collateral and the secured obligation is automat proceed to dispose of the collateral by resale or other reasonable manner.
In contrast with one who buys personal property for family or consumer own use, the buyer may be a merchant or dealer who intends to resell the goods. The goods that such a merchant or dealer buys are classified as inventory. Filing of a financing statement is required to perfect the creditor's interest in inventory or the proceeds therefrom. An exception is made when a statute, such as a motor vehicle statute, requires the security interest to be noted on the title certificate issued for the property.
The financing statement, is distinct from the security agreement that was executed by the parties to give rise to the secured transaction. The financing statement must be signed by both the debtor and the secured party, it must give an address of the secured party, from which information concerning the security interest may be obtained, and a mailing address of the debtor; and it must contain a statement indicating the types, or describing the items, of collateral.
The customer of the buyer takes the goods free from the secured interest of the secured party. That is, one who buys in the ordinary course of business items of property taken from the original buyer's inventory is free from the secured party's interest, even though that interest was perfected and even though such ultimate customer knew of the secured party's interest.
The rights and remedies of the secured party and the buyer of inventory after a default on the part of the latter are similar to those in the case of a secured credit sale of consumer goods.
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