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Simple English definitions for legal terms
tacit hypothecation
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A quick definition of tacit hypothecation:
Term: Tacit Hypothecation
Definition: Tacit hypothecation is when someone pledges something as security for a debt without actually giving the item to the creditor. It's like saying "if I don't pay you back, you can take this thing I own instead." This can happen automatically by law, without the parties having to agree to it. It's often used in the context of maritime law, where a ship can be used as collateral for a loan.
A more thorough explanation:
Definition: Tacit hypothecation is a type of lien or mortgage that is created by law without the parties' express agreement. It is a pledge of something as security without delivery of title or possession.
Examples:
- General hypothecation: A debtor pledges all their property as collateral to satisfy an outstanding debt.
- Maritime lien: A type of tacit hypothecation that gives a creditor the right to seize a ship to satisfy a debt owed by the ship's owner.
These examples illustrate how tacit hypothecation works. In general hypothecation, the debtor pledges all their property as collateral, even if specific items are not named in the security agreement. In maritime lien, the creditor has a right to seize the ship without the owner's express agreement to satisfy a debt. In both cases, the lien or mortgage is created by law without the parties' express agreement.