Chattel mortgage is the legal terminology for a type of a secured loan contract, whereby the purchaser borrows funds from a lender for purposes of purchasing movable property (the chattel). The lender then secures the loan with a mortgage over the chattel. Also, a chattel mortgage covers a situation whereby a borrower creates security in favour of a lender, in the form of a chattel mortgage, to secure provision of a loan.
The law that makes provisions relating to chattel securities and the transfer of chattels in Tanzania is called, the Chattels Transfer Act, Chapter 210, Revised Edition 2002, of the laws of Tanzania, as amended from time to time (the “Chattels Act”).
Section 2 of the Chattels Act defines a chattel(s) (for purposes of registering it under the said act), as follows: -
"chattels" means 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, things in action, other than a debt 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.
You will note from above, and for purposes of determining the criteria for a movable property, the definition of a chattel, expressly excludes property of any company or other corporate body from the definition of the word chattel.
In our interpretation, this means that, as far as company’s movable properties are concerned, a borrower (company) cannot use the provision of the Chattels Act to create a chattel mortgage over its movable property(ies) in favour of a lender.
In addition, Section 2 of the Chattels Act which defines the word “instrument” (being the chattel mortgage charging document given to secure the payment of money or the performance of some obligation), excludes the application of the chattel mortgage instrument to a company or to be used by the company to charge its assets.
The exclusion definition reads as follows: -
"instrument" does not include the following – (A) to (H) Not Applicable, (I) debentures and interest coupons issued by any company or other corporate body and secured upon the capital stock or chattels of such company or other corporate body; (J) mortgage or charges granted or created by a company incorporated or registered under the Companies Act.
The above opinion is also cemented by the provisions of the Companies Act No. 12 of 2002 of the laws of Tanzania, as amended from time to time (the “Companies Act”), which has adequate provisions relating to charges that a company can create in favour of a lender to secure a loan. It should be noted here that, companies are registered under the Companies Act and the said act makes adequate provisions relating to charges created by a company and other incidental matters.
Section 97 (1) of the Companies Act, also known as the charging section, lists the type of charges that a company can create and register at the Registry of Companies by way of a debenture instrument. Among them, is a fixed or floating charge of the assets of a company, including movable assets, which is the avenue by which a company should charge its assets.
Conclusively, in lieu of Section 97 (1) of the Companies Act referenced above and the prohibitions highlighted under the Chattels Act, a company in Tanzania cannot create a chattel mortgage over its movable assets or charge its movable assets under the guise of a chattel mortgage. Alternatively, a company that wishes to create a charge over its movable assets, ought to go through the avenue provided in the Companies Act, that is, vide a debenture instrument or charge.
It is worth pointing out that, in practice, some lenders in Tanzania, who as part of their loan documentation requirements, mistakenly use chattel mortgage instruments to charge movable assets created by companies - to which the Registrar of Companies has, on several occasions, admitted these instruments and registered them. The above brief narrative now explains why, based on our interpretation of the provisions of the law cited above, this practice is wrong.
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
