Chattels Transfer KSL Short

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Moveable Property

Security Rights
Background
The primary concern for any lender is how to get their
money back. Two basic loan transactions have evolved
in private markets:

• unsecured loan
• secured loan
When borrowers cannot use their assets as collateral for
loans and cannot purchase goods on credit using the
goods themselves as collateral, interest rates on loans
tend to be higher to reflect the risk to lenders.
•In Early English law (around the 16th century) It was
considered that any transfer of property from a
debtor to a creditor, after which the debtor remained
in possession of that property, was a fraudulent act
intended to defraud creditors. This was established in
the Tywne’s case (1601) 76 ER 809.
Facts
•Pierce (debtor) owed Twyne (creditor) £400 and owed
C (creditor) £200. C sued Pierce for the debt. Pierce
then secretly agreed to transfer all of his goods,
amounting to £300, to Twyne. Pierce, however, kept
possession of the goods and continued to use them.
• Thegoods pledged were sheep and Pierce remained in
possession of them, and continued marking and shearing
them.

•C obtained a judgment against Pierce, and the sheriff


obtained a writ of execution. At Twyne’s direction, Twyne’s
representatives resisted the sheriff’s attempts to enforce the
writ and claimed that the goods in question belonged to
Twyne, not Pierce. The issue before the court was whether
Pierce’s transfer of his goods to Twyne was fraudulent.
• It
was held that Twyne was fraudulent for the following
reasons among others
• The donor continued in possession, and used them as his own; and
by reason thereof he traded and trafficked with others, and
defrauded and deceived them.

• It was made in secret, et dona clandestina sunt semper


suspiciosa.

• There was trust between the parties, and fraud is always


appareled and clad with a trust, and a trust is the cover of fraud.

• It was made pending the writ.


• Thus it was clear that primacy was given to possession over
actual rights in the property, despite the fact that the
borrower could use the pledged items to receive an income
• Earlier on because of this principle, borrowers often faced
difficulties in "pledging" their personal property as
collateral, especially when the property available was
working equipment and inventories, commonly used by the
borrower during the course of business.

• As a result, it became increasingly important that a


feasible system of granting security be devised which
enabled encumbered personal properties to remain with
the borrower throughout the duration of the loan.

• TheBill of Sale was thus introduced, as a recognized


document which led to the facilitation of non-possessory
security interests that took the form of a chattel mortgage.
The bill of sale is a contractual instrument through which
personal property is transferred from one person to
another

• There are of two different types—


• the security bill of sale
• the absolute bill of sale.
•The absolute bill of sale is the outright
assignment of personal property, for example by
sale or gift.

•A security bill of sale, sometimes called a


"conditional bill", is a contractual instrument
which confirms security for a debt by
encumbering the personal property of the
borrower (grantor) without the lender (grantee)
taking possession of the property.
•The increased use of bills of sale in the Victorian era
created a “false wealth” problem. Potential
purchasers and other lenders could be misled into
thinking that the person in possession of goods still
owned them.
•The person in possession could sell the goods or use
them to secure another loan. In both cases, the
purchaser or lender had no way of discovering that
the goods were already subject to a bill of sale.
•As a result, Parliament passed the Bills of Sale Act
1854 and subsequently the Bills of Sale Acts of 1878
and 1882. It required all bills of sale to be registered
at the High Court so that interested third parties could
check whether the person in possession has already
transferred away ownership of goods.
Historical Background : Kenya
•In Kenya this concept was first introduced in 1930 by
the enactment of the Chattels Transfer Ordinance, that
later became the Chattels Transfer Act Cap 28 (now
repealed)

•The Kenyan Chattels Transfer Act was the equivalent


of the English Bills of Sale Acts but was also closely
modelled after the New Zealand Chattels Transfer Act
of 1924 (which was repealed by the Personal Property
Security Act of 1999)
According to the Kenya Legislative Council
Debates, 1930, the Chattel Transfer Ordinance
was enacted to facilitate credit to “flow more
rapidly and in greater quantities compared to
the ordinary banking and commercial
revenues.”
In the. case of Dyal Singh V Kenyan Insurance 1955 it
was held that the main purpose of the Chattels transfer
ordinance is to facilitate loans on the security of
chattels more so in relation to the budding settler
community that was growing and whose main source of
income was farming
CTA defined an instrument as given to secure the
payment of money or the performance of some
obligation. Simply put it is the deed or formal written
legal document that is used in the chattel transfer
process

Under the Act an instrument included


• any bill of sale
• chattel mortgage
• a pledge
• lien or
• any other document that transfers or purports to
transfer the property in or right to the possession of
•Other instruments included
•Inventories of chattels to which a receipt is
attached

•Receipts for purchase money of chattels


•Declaration of trust without transfer
However the UK Law Reform Commission, in a 2015
report recommended the Bills of Sale Acts be reformed
due to

•undue complexity; the use of Victorian style English


•highly technical documentation;
•the registration regime needed to modernize; it was
bulky

•they offer little protection to borrowers;


•they offer no protection to third party purchasers
•However both the 1878 Act and the 1882 Act
remain in force today. Absolute bills are regulated
only by the 1878 Act. Security bills are regulated
by the 1882 Act 
•IN New Zealand the New Zealand Chattels
Transfer Act of 1924 was replaced by the
Personal Property Security Act of 1999
•The Law Reform Commission of New Zealand
said the factors that led to the replacement of
the New Zealand Chattels Transfer Act of 1924
were that the law was complex, uncertain,
anomalous and inflexible
• Over the past decade over 80 economies have reformed their
legislation governing chattels securities (secured
transactions). More recently, reform has been effected in
Rwanda, Liberia, Malawi, Gambia, Ghana, Nigeria. Additional
reform efforts are now in process in Morocco, Tunisia,
Lesotho.

• InApril 2016 Zambia enacted the Moveable Property


(Security Interest) Act 3 of 2016 (the MPA)

• InUganda the Movable Property Security Interest Act of


2017 (the Movable Property Security Act) was enacted after
the Chattels Security Act of 2014 was found to be inadequate

• These changes were all part of the World Bank  Doing


Business project, launched in 2002, that looks at domestic
small and medium-size companies and measures the
• In line with Vision 2030 and the economic recovery
programme (ESP) initiated by former President Kibaki’s
regime, the ease of doing business was part of the
strategy to jumpstart the economy by creating a
conducive environment for local as well as international
investors.

• This started the raft of reforms that culminated in changes


in the Company, Insolvency and Banking Regimes.

• With focus on SMEs and the informal sector and the


changes in the use of personal property in other
developing economies, Kenya needed to radically revamp
the area.

• Hence the enactment of the MPSR Act 2017 and the


The objects of this MPSR Act are to

•promote consistency and certainty in secured


financing relating to movable assets;

•enhance the ability ofindividuals and entities to


access credit using movable assets; and

•to establish the office of the Registrar and a


Registry to facilitate the registration of security
rights in movable assets.
• The MPSR Act creates 2 types of movables
• Tangible
• Intangible

Intangible property here being

• IP rights

• Book debts

• Chooses in action

• Negotiable instruments
•Creation of a security right via a security agreement. A
security agreement shall be in writing and signed by the
grantor and identify the creditor. It shall describe the
secured obligation; and describe the collateral
•Registration of the notice and priority once registered
(perfection). Priority determined based on time of
registration. First to register first to acquire rights
•Enforcement of a security right and the applicable law e.g
• As provided for in the security agreement
• Right to sue
• Right to appoint a receiver
• Right to lien
• Lease of the moveable
The MPSR Act applies to the following security rights in moveables
(Sec 4)

• every transaction that secures payment or performance of an


obligation, without regard to its form and without regard to the
person who owns the collateral;

• chattel mortgage,
• credit purchase/sale transaction,
• floating and fixed charge,
• pledge, trust indenture, trust receipt, financial lease
• any other transaction that secures payment or performance of an
obligation; and
• security right in book-entry securities under the
• Central Depositories Act, 2000
• the creation, lease or transfer of an interest in land, excluding a
right to payment that arises in

• connection with an interest in or a lease of land;


• a security right in a vessel including a mortgage right subject to
the Merchant Shipping Act, 2009;

• a security right in an aircraft subject to the Civil Aviation Act,


2013

• a lien, charge or other interest created by law, except as


otherwise provided in this Act,

• security rights in proceeds of collateral if the proceeds constitute


•Once parties have written and signed their security
agreement, they can proceed to register a notice.

•Registration of a notice ensures that the parties


have registered their legal obligations and that the
security agreement is enforceable
• Enter Creditors details
• Enter collateral details
• Enter agreement details
• Verify and view notice
• After the initial notice, an applicant can conduct a search to
ascertain the particulars of the notice.

• The criteria for conducting a search is by using either the


grantor’s identification or the serial number of the collateral.
Once a person enters a search request and pays the requisite
fee, the registry conducts the search and issues a search
certificate, which contains the date, and time when the search
was performed, all information matching the search
requirements criterion exactly or an indication that no
registered notice contains information matching the search
criterion exactly.

• Theresultant search certificate is proof of its contents. A


search costs Kshs.500.
• A reform will only have economic impact if banks and other lenders
are ready to use the system

• How many are aware? Individuals, SME’s, womens groups, small


businesses etc

• Still complex
• Alternative means of accessing credit
• Enforcement of rights for the secured creditor
• Nature of moveables
• No unique identifier
• Commingled assets
• Can be stolen, sold, damaged
• Valuation
Assignment:

• Analyze the Rights and obligations of the parties and third-party obligors
PART 4 of the Act

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