William Mitchell Law Review
The chattel mortgage acts first arose in the southern mainland English-American colony of Virginia in 1643. Other colonies followed suit over the next 100 years. The function of the earliest chattel mortgage acts was not to legalize the transaction, but to declare it void if not registered, or to provide a priority rule favoring the registered transaction. Legislatures did not pass these colonial chattel mortgage acts to legalize an otherwise fraudulent transaction because reported cases indicate that the common law upheld the nonpossessory secured transaction prior to the passage of the earliest act in the southern states.
The Northeastern States’ Industrial Revolution had nothing to do with spawning these chattel mortgage acts. The southern economy of plantation agriculture led to the creation of the acts because planters seeking riches through expansion granted nonpossessory interests in their plantations, its labor contracts, and its agricultural products to obtain borrowings.
The nonpossessory secured transactions interfered with other transactions, primarily the judgment lien on the debtor’s property and sales of the debtor’s property. The nonpossessory secured transaction would defeat a subsequent judgment lien under the derivation principle as a sale. The chattel mortgage registration act would now alert the sheriff and the judgment lienor.
George Lee Flint, Jr. and Marie Juliet Alfaro, Secured Transactions History: The First Chattel Mortgage Acts in the Anglo-American World, 30 Wm. Mitchell L. Rev. 1403 (2004).