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Legal Terms– Hypothecation
Definition:
Hypothecation refers to the act of pledging property as security for a debt or loan without transferring ownership or possession to the creditor.
Types:
Hypothecation remains vital in maritime law and secured lending, bridging the gap between unsecured and possessory forms of credit security
Definition:
Hypothecation refers to the act of pledging property as security for a debt or loan without transferring ownership or possession to the creditor.
Types:
- Maritime Hypothecation – A ship’s master may mortgage the ship (and sometimes its cargo) during a voyage to raise funds for necessities, such as repairs.
- If the hypothecation includes the vessel, it is called bottomry; if it covers the cargo alone, it is respondentia.
- These are secured through a bond, and the lender holds a maritime lien, which gives a right of priority in repayment upon the vessel’s arrival.
- Commercial Hypothecation – In banking, it involves a letter of hypothecation, granting a lender the authority to sell goods pledged as collateral if the borrower defaults, even though the borrower retains possession of the goods.
Hypothecation remains vital in maritime law and secured lending, bridging the gap between unsecured and possessory forms of credit security
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