; 16th century, from Fr. hypothèque
, from Lat. hypotheca
, from Gk. ὐποθήκη
: hypothēkē), sometimes tacit hypothec
, is a term used in mixed legal systems (e.g. Scots law, South African law, Ukrainian law (Ukrainian: Іпотека
)) to refer to an express or implied non-possessory real security over corporeal movable property. This real right
in security operates by way of hypothecation, often arises by operation of law
(generally statute), and gives a creditor a preferential right to have claims paid out of the hypothecated property as last recourse when the debtor is in default. At common law it is equivalent to an American non-possessory lien or English legal charge.
Originating in Roman law, a hypotheca
was essentially a non-possessory pledge over a person's entire estate, but during the Renaissance the device was revived by civil law legal systems as a hypothecatory security interest taken strictly over immovable property and, like the late medieval obligatio bonorum
, running with the land
(Latin jus persequendi
, French droit de suite
, Dutch zaaksgevolg
, German Folgerecht
). However, under a handful of mixed legal systems, the hypothec was imported as a non-possessory real security over movable property (in opposition to the common-law chattel mortgage
). Whereas a pledge operates by bailment and transfers possession on delivery and a chattel mortgage operates by conveyance and transfers title, a hypothec operates by hypothecation and transfers neither possession nor title.
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.