In law, hypothecation is a security interest in personal property that is created without the delivery of the property to the creditor. The debtor (the person who owes the money) retains possession of the property, but the creditor (the person who is owed the money) has the right to take possession of the property if the debt is not paid.
Hypothecation is commonly used to secure loans. For example, a person who takes out a loan from a bank may hypothecate their car as security for the loan. If the person does not repay the loan, the bank can take possession of the car.
Hypothecation can also be used to secure other obligations, such as the payment of a debt owed to a creditor. For example, a person who owes money to a supplier may hypothecate their inventory as security for the debt. If the person does not pay the debt, the supplier can take possession of the inventory.
MCQs on Hypothecation
- What is hypothecation?
- A bailment of goods as security for a debt or other obligation.
- A transfer of ownership of goods from one person to another.
- A lease of goods from one person to another.
- A security interest in personal property without delivery of the property.
The answer is (d). Hypothecation is a security interest in personal property without delivery of the property.
- What are the two parties to a hypothecation?
- The debtor and the creditor.
- The buyer and the seller.
- The lessor and the lessee.
- The pledgor and the pledgee.
The answer is (a). The two parties to a hypothecation are the debtor and the creditor.
- What are the three essential elements of a hypothecation?
- Debtor’s intention to create a security interest.
- Creditor’s right to take possession of the property if the debt is not paid.
- Delivery of the property to the creditor.
- All of the above.
The answer is (a). The three essential elements of a hypothecation are debtor’s intention to create a security interest, creditor’s right to take possession of the property if the debt is not paid, and delivery of the property to the creditor.
- What is the difference between a pledge and a hypothecation?
- A pledge is a bailment of goods, while a hypothecation is a security interest in personal property without delivery of the property.
- A pledge is a security interest in personal property, while a hypothecation is a security interest in real property.
- A pledge is a temporary security interest, while a hypothecation is a permanent security interest.
- All of the above.
The answer is (a). The difference between a pledge and a hypothecation is that a pledge is a bailment of goods, while a hypothecation is a security interest in personal property without delivery of the property.