Ohio Northern University Law Review
The development of secured transaction law in colonial America was spurred by a litigious conflict between the recognizance and the chattel mortgage. The recognizance was the admission and recording of a debt before the court in order to secure credit. However, court hearings were infrequent in the colonies and often logistically impractical to the average farmer or merchant. The chattel mortgage was a more informal and practical solution to providing lines of credit on personal property. Without a system for recording chattel mortgages, lenders could not be sure in their investments.
In the southern colonies, the emergence of staple crops, the infrequent use of recognizances, and the planter-merchant’s influence and control of local governments led to the adoption of chattel mortgage acts. If a southern colony developed a staple agricultural product, such as rice, tobacco, or tar and pitch, then merchants were willing to extend lines of credit on indentured servants and various goods in exchange for an interest in an equivalent value of the staple product by years end. The use of a recognizance by some lenders, only after they realized their borrowers were on the verge of default, created the opportunity for subsequent lender to take a chattel mortgage on the borrower’s personalty before the original lender recorded the recognizance. Because English common law recognized a first in time right for mortgages, courts held that the earlier recorded chattel mortgage would be recognized after litigation. In an effort to streamline the process and protect the interests of the lenders who also served as sheriffs and legislators, many southern colonies passed the chattel mortgage acts requiring filing of the mortgage within a designated period of time, which voided all unrecorded interests.
George Lee Flint, Jr. and Marie Juliet Alfaro, Secured Transactions History: The Impact of Southern Staple Agriculture on the First Chattel Mortgage Acts in the Anglo-American World, 30 Ohio N. L. Rev. 2 (2004).