The Concept Of Hypothecation As A Secured Credit Instrument Under International Business Law: An Appraisal

ABSTRACT: This article seeks to examine the concept of hypothecation within the international trading arena, notwithstanding misconceptions amongst academic pundits, lawyers, jurists and a dearth of reported cases as to the exact or true meaning of the concept. Thus, the article seeks to explain the nature and character of hypothecation, which quite often is regarded as an alternative name for a charge, which is an equitable interest in a secured chattel entitling the chargee to attach that chattel or the proceeds therefrom for the settlement of the debt owed to him upon default of the chargor through insolvency or otherwise. Hypothecation is a security for a debt and nothing more and it cannot survive the debt. It is merely the shadow so to speak, cast by the debt upon the property of the debtor. The writer pointed out the fact that it is a misnomer to describe hypothecation as a „lien‟ and ipso facto letters of hypothecation as „letters of lien‟ or used interchangeably as it is sometimes called. The article analyse the fact that while both concepts share a common denominator in the sense of creating an in cumbrance over the goods in question as opposed to a transfer of either a proprietary or possessory interest in them, the concepts arise under different circumstance; for, while a charge in the form of hypothecation arises mainly by act of parties, a lien generally arises by operation of law or rules of equity from the relations between the parties. The writer concluded by justifying the fact that hypothecation has proven to be a more convenient and less cumbersome security devices as compared to the traditional legal mortgage. For instance, one basic difference between hypothecation and mortgage is that the chargee unlike the mortgagee does not obtain any certain rights to the res upon creation of the hypothecation; rather such rights arose only upon default. These rights, even when they do arise, they are not ownership or dominion rights rather they belong to the wider class of proprietary rights. It is significant to point out that whereas both mortgages and possessory securities assign already existing rights in property but by hypothecation creates rights.

KEYWORDS: Statutory hypothecation, Judicial Hypothecation, Charge, Lien, Mortgages, Security