CHATTEL TRANSFER INSTRUMENT

A chattel is an item of tangible, movable character that is capable of possession. It is any movable item that is capable of delivery. When affixed to land, the chattel becomes a fixture. As was held in the case of Botham versus TSB Bank plc (1996) EG 149 whether a chattel has become a fixture will depend on;

·         The degree of annexation

·         The purpose of annexation, and

·         the permanence

A chattel instrument is an instrument creating security over a chattel. Section 2 of the Chattel Transfer Act defines a chattel instrument as any instrument given to secure the payment of money or the performance of some obligation and includes any bill of sale, mortgage, lien or any other document that transfers or purports to transfer the property in or right to the possession of chattels, whether permanently or temporarily, whether absolutely or conditionally, and whether by way of sale, security, pledge, gift, settlement or lease.

A chattel instrument should be in the prescribed form as provided in Form 4 of the First Schedule of the Chattel Transfer Act. It should state in clear terms;

1.      A description of the parties to the instrument.

2.      The date

3.      A statement showing it is an instrument meant to operate as a chattel instrument

4.      The chattel subject of the chattel security. An instrument should contain, or have endorsed thereon or attached thereto an inventory of all chattels comprised therein. The instrument does not affect any chattel contained in the schedule.

5.      Consideration

6.      Mode of payment

7.      Recognition of ownership of the chattel by the grantor

8.      Assignment of the chattel to the grantee by the grantor

9.      Covenants

10.  Execution, attestation and verification

Execution of the instrument should be attested to by at least one witness who should add his name, signature, residence and occupation. Sealing is not important for the validity of the instrument. Verification should be done by a qualified advocate. As per section 9 of the Advocates Act a qualified advocate is one who;

·         Has been admitted as an advocate

·         His name is for the time being on the roll

·         He has in force a practicing certificate. An advocate is deemed not to have a practicing certificate at any time when he is suspended from practice under section 27 of the Advocates Act.

The instrument does not take effect until it is registered. An instrument should be registered within 21days of execution by filing it and all schedules endorsed thereon, annexed thereto or referred to therein, or a true copy of the instrument and the schedules, and an affidavit in Form 1 in the First Schedule or to the same effect, in the office of the Registrar. Registration should be renewed once every five years. Failure to renew registration, the initial registration ceases to have effect upon expiration of five years since registration.

An unregistered instrument is deemed void and fraudulent as against any person seizing the chattels or any part thereof comprised in the instrument, in execution of the process of any court authorizing the seizure of the chattels of the person by whom or concerning whose chattels the instrument was made, and against every person on whose behalf the process was issued. The instrument is also void in respect of any chattels that the grantor acquires or becomes entitled to after execution of the chattel instrument.

BASICS OF CHATTEL SECURITY

A chattel can be defined as any item of tangible movable property. It is a personal possession which does not include real estate. The Black’s Law Dictionary defines a chattel as an article of personal property; any species of property not amounting to a freehold or fee in land. Chattels are into categories, chattels real which include leaseholds and chattels personal.

Section 2 of the Chattel Transfer Act defines a chattel as any movable property that can be completely transferred by delivery, and includes machinery, stock and the natural increase of stock as hereinafter mentioned, crops and wool, but does not include—

a)      title deeds, choses in action or negotiable instruments;

b)      shares and interests in the stock, funds or securities of any government or local authority;

c)      shares and interests in the capital or property of any company or other corporate body; or 

d)     debentures and interest coupons issued by any government, or local authority, or company, or other corporate body;

Chattel security denotes the security that one may use to secure payment of money. The most common one is chattel mortgage which financial institutions use to secure payment of money used to purchase chattels such as motor vehicles. In a chattel mortgage, a financier agrees to finance purchase of a chattel, in exchange; the financier holds title to the chattel until full payment of the amount loaned is paid. In case of failure by grantor to settle the purchase price, the financier has the right to sell the chattel and satisfy the unpaid amounts.

Whether a chattel security is arising from a purchase or a chattel the grantor already owns, it is a condition of chattel transfer that the grantee must have the right and full power to transfer the chattel. The chattel should not be subject to any encumbrance that may interfere with the grantee’s interest of the chattel. Until the grantor makes default in payment of any money secured, the grantee has the right to retain the chattel and use it, but in such a manner that may not affect the interest that the grantee has over the chattel.

In addition, the grantor should at all times, while any moneys remain owing on the chattel security, keep and maintain all and singular the chattels assigned in the same good order and condition in which they are at the date of assignment; and, if any of them are damaged or destroyed, or cease to exist, he should repair the damage, or replace the chattels so destroyed or ceasing to exist, with other chattels of the same nature; and further should, if required so to do by the grantee, execute any instrument that may be necessary to give to the grantee security over chattels replacing the chattels which have been destroyed or have ceased to exist.

Where legal process issues against the chattels of a judgment-debtor for the execution of a judgment of any court, and those chattels, or any of them, are comprised in a chattel security instrument, the officer charged with the execution of the process may, in lieu of seizing and selling the chattels so comprised, sell the right, title and interest of the judgment-debtor therein. The grantee of the instrument (financier) may however take possession of the chattel but he shall be deemed to hold it in trust for the purchaser until the amount secured by the chattel instrument is settled by the judgment debtor (grantor/borrower).

If the grantor of the instrument fails to settle the secured amount and the grantee sells the chattel as per the chattel instrument. He holds any excess proceeds of sale in trust for the purchaser. This therefore means that where a chattel is sold to settle a judgment debt against a judgment debtor, the purchaser only purchases the interest not covered by the grantee until such time as the judgment debtor may settle the amount secured and the purchaser will hold the full interest over the chattel. This follows from the fact that a grantor’s interest in a chattel is limited by the interest held by the grantee over the chattel.