New Mexico Law Review
England first adopted Germanic law banning nonpossessory secured transactions because at the time, England was controlled by the Normans. The ban persisted as long as statutes favored alternative security devices, namely the pledge and the collusive judgment, the major competing security device. But the allowance of interest after 1571 obviated the advantage of the pledge to surreptitiously generate interest under the usury ban. The 1677 Statute of Frauds destroyed the priority of the collusive judgment, changing its priority from date of the judgment entered to the delivery of the writ of execution to the sheriff for execution. The nonpossessory secured transaction appeared shortly thereafter in both England and America.
When challenged by third parties during the eighteenth century, the Anglo-American nonpossessory secured transaction faced threats from the 1571 Fraudulent Conveyance Statute and the reputed ownership clause of the 1624 Bankruptcy Statute. Courts generally upheld these transactions under the absolute-conditional rule, and later the rebuttable rule devised to allow oral transactions in compliance with the sale of goods provision of the 1677 Statute of Frauds. Only where the reputed ownership clause applied, for English merchants in bankruptcy proceedings and later for Pennsylvania merchants, did the courts strike down the nonpossessory secured transaction as fraudulent.
By focusing on the few Pennsylvania cases applying the per se fraud rule, and then only after 1819, the fraudulent theorists cut off any attempt to understand the reason for the transaction. The transaction long served a useful function to compel compliance with promises after the collapse of the collusive judgment in 1677 until made fraudulent by the chattel mortgage acts.
George Lee Flint, Jr., Secured Transactions History: The Fraudulent Myth, 29 N. Mex. L. Rev. 363 (1999).