Hypothec
Encyclopedia
Hypothec is a mortgage in Roman and Scots law, in other words, a legal right over a debtor's property that however remains in the debtor's possession.
It is a species of encumbrance
giving a creditor
a non-possessory
security interest
in a debtor
’s real property
jus in re aliena and a preferential right
to have claims paid out of that property as last recourse when the debtor is in default
. It is ultimately an advanced form of pledge
for real property, at least insofar as it was conceived of by Roman law
from which it originates. However, a pledge gives possession on delivery whereas a hypothec gives neither possession nor ownership. It is very similar to a common law
non-possessory remortgage
.
A specific thing may be given absolutely to a creditor
on the understanding that it is to be given back when the creditor's debt is paid; or the property
in the thing may be assigned to the creditor while the debtor is allowed to remain in possession, the creditor as owner being able to take possession if his debt is not discharged.
In the hypothec, the property does not pass to the creditor, nor does he get possession, but he acquires a preferential right to have his debt paid out of the hypothecated property; that is, he can sell it and pay himself out of the proceeds, or in default of a purchaser he can become the owner himself. The name and the principle have passed into Scotland
's civil law system
, which distinguishes between conventional hypothecs, as bottomry
and respondentia, and tacit hypothecs established by law. Of the latter the most important is the landlord's hypothec for rent (corresponding to distress in the law of England
), which extends over the produce of the land and the cattle and sheep fed on it, and over stock and horses used in husbandry.
The Bankruptcy and Diligence etc. (Scotland) Act 2007 abolishes the common law diligence of sequestration for rent. Under Scottish law, Landlord's hypothec is a common law right of security enjoyed by landlords over any goods sited on the leased premises, regardless of who owns those goods. The hypothec does not secure all sums which happen to be due to the landlord, only a portion of the rent. Landlord's hypothec is enforced by court proceedings known as sequestration for rent.
The Scottish Executive felt that such a mechanism had no part to play in a modern enforcement system, not least because a landlord is able to use other diligences to recover unpaid rent, such as attachment Sequestration for rent can now be used to sell only goods that are secured by a right known as the landlord's hypothec, which arises automatically whenever there is a qualifying lease.
The Bill makes some changes to the hypothec, even though it is not a diligence. For example, it completes the process of abolishing the hypothec over goods in dwelling-houses that was initiated by the Debt Arrangement and Attachment (Scotland) Act 2002. It also abolishes the hypothec over goods owned by a third party.
The Bill also states that, notwithstanding the abolition of sequestration for rent, landlord's hypothec does continue as a right in security "conferring a preference in favour of landlord" on insolvency.
defines a hypothec as follows:
There are many kinds of hypothecs, such as:
The Civil Code also provides for another kind of security called a prior claim, defined as follows:
Please update as necessary.
It is a species of encumbrance
Encumbrance
Encumbrance is legal technical terminology for anything that affects or limits the title of a property, such as mortgages, leases, easements, liens, or restrictions. Also, those considered as potentially making the title defeasible are encumbrances...
giving a creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
a non-possessory
Possession
In law, possession is the control a person intentionally exercises toward a thing. In all cases, to possess something, a person must have an intention to possess it. A person may be in possession of some property...
security interest
Security interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
in a debtor
Debtor
A debtor is an entity that owes a debt to someone else. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor...
’s real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
jus in re aliena and a preferential right
Rights
Rights are legal, social, or ethical principles of freedom or entitlement; that is, rights are the fundamental normative rules about what is allowed of people or owed to people, according to some legal system, social convention, or ethical theory...
to have claims paid out of that property as last recourse when the debtor is in default
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
. It is ultimately an advanced form of pledge
Pledge (law)
A pledge is a bailment or deposit of personal property to a creditor to secure repayment for some debt or engagement, The term is also used to denote the property which constitutes the security....
for real property, at least insofar as it was conceived of by Roman law
Roman law
Roman law is the legal system of ancient Rome, and the legal developments which occurred before the 7th century AD — when the Roman–Byzantine state adopted Greek as the language of government. The development of Roman law comprises more than a thousand years of jurisprudence — from the Twelve...
from which it originates. However, a pledge gives possession on delivery whereas a hypothec gives neither possession nor ownership. It is very similar to a common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
non-possessory remortgage
Remortgage
A remortgage is the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security. The term is mainly used commercially in the angla saxon countries such as the United Kingdom and the United States , though what it describes is not unique to any one...
.
A specific thing may be given absolutely to a creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
on the understanding that it is to be given back when the creditor's debt is paid; or the property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
in the thing may be assigned to the creditor while the debtor is allowed to remain in possession, the creditor as owner being able to take possession if his debt is not discharged.
In the hypothec, the property does not pass to the creditor, nor does he get possession, but he acquires a preferential right to have his debt paid out of the hypothecated property; that is, he can sell it and pay himself out of the proceeds, or in default of a purchaser he can become the owner himself. The name and the principle have passed into Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
's civil law system
Scots law
Scots law is the legal system of Scotland. It is considered a hybrid or mixed legal system as it traces its roots to a number of different historical sources. With English law and Northern Irish law it forms the legal system of the United Kingdom; it shares with the two other systems some...
, which distinguishes between conventional hypothecs, as bottomry
Bottomry
A bottomry, or bottomage, is when the master of a ship borrows money upon the bottom or keel of it, so as to forfeit the ship itself to the creditor, if the money is not paid at the time appointed with interest at the ship's safe return....
and respondentia, and tacit hypothecs established by law. Of the latter the most important is the landlord's hypothec for rent (corresponding to distress in the law of England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
), which extends over the produce of the land and the cattle and sheep fed on it, and over stock and horses used in husbandry.
Scotland
The law of agricultural hypothec long caused much discontent in Scotland; its operation was restricted by the Hypothec Amendment (Scotland) Act 1867, and by the Hypothec Abolition (Scotland) Act 1880 it was enacted that the landlords right of hypothec for the rent of land, including the rent of any buildings thereon, exceeding two acres (8,000 m²) in extent, let for agriculture or pasture, shall cease and determine. By the same act and by the Agricultural Holdings (Scotland) Act 1883 other rights and remedies for rent, where the right of hypothec had ceased, were given to the landlord.The Bankruptcy and Diligence etc. (Scotland) Act 2007 abolishes the common law diligence of sequestration for rent. Under Scottish law, Landlord's hypothec is a common law right of security enjoyed by landlords over any goods sited on the leased premises, regardless of who owns those goods. The hypothec does not secure all sums which happen to be due to the landlord, only a portion of the rent. Landlord's hypothec is enforced by court proceedings known as sequestration for rent.
The Scottish Executive felt that such a mechanism had no part to play in a modern enforcement system, not least because a landlord is able to use other diligences to recover unpaid rent, such as attachment Sequestration for rent can now be used to sell only goods that are secured by a right known as the landlord's hypothec, which arises automatically whenever there is a qualifying lease.
The Bill makes some changes to the hypothec, even though it is not a diligence. For example, it completes the process of abolishing the hypothec over goods in dwelling-houses that was initiated by the Debt Arrangement and Attachment (Scotland) Act 2002. It also abolishes the hypothec over goods owned by a third party.
The Bill also states that, notwithstanding the abolition of sequestration for rent, landlord's hypothec does continue as a right in security "conferring a preference in favour of landlord" on insolvency.
Quebec
Article 2660 of the Civil Code of QuebecCivil Code of Quebec
The Civil Code of Quebec is the civil code in force in the province of Quebec, Canada. The Civil Code of Quebec came into effect on January 1, 1994, except for certain parts of the book on Family Law which were adopted by the National Assembly in the 1980s...
defines a hypothec as follows:
- A hypothec is a real right on a movable or immovable property made liable for the performance of an obligation. It confers on the creditor the right to follow the property into whosoever hands it may be, to take possession of it or to take it in payment, or to sell it or cause it to be sold and, in that case, to have a preference upon the proceeds of the sale ranking as determined in this Code.
There are many kinds of hypothecs, such as:
- Conventional hypothecs (article 2681)
- Legal hypothecs (article 2724)
- Pledge (gage), or movable hypothecs with delivery (art. 2702)
- Movable hypothecs on claims (art. 2710)
- Floating hypothecs (art. 2715)
The Civil Code also provides for another kind of security called a prior claim, defined as follows:
- A claim to which the law attaches the right of the creditor to be preferred over the other creditors, even the hypothecary creditors [...] (article 2650)
Please update as necessary.