Legal Definitions - vif-gage

A vif-gage is an archaic legal term for a type of pledge or mortgage where a borrower transfers possession of their property to a lender as security for a debt. The distinctive feature of a vif-gage is that any income, rents, or profits generated by the property while it is in the lender's possession are applied directly towards reducing the principal amount of the debt. This arrangement was known as a "living pledge" because the property itself actively worked to pay down the outstanding obligation.

Here are some examples to illustrate this concept:

• Example 1: Agricultural Land
  A landowner needs a loan to cover unexpected expenses. They enter into a vif-gage agreement, granting a lender temporary possession and use of a specific parcel of agricultural land. For the duration of the agreement, the lender cultivates the land and sells the harvested crops. The net proceeds from these sales, after covering the lender's operational costs, are directly subtracted from the principal amount of the landowner's debt.

  Explanation: This illustrates a vif-gage because the income generated by the pledged property (the crops from the land) is actively and directly reducing the principal debt owed by the landowner.

• Example 2: Rental Property
  An individual requires capital for a new venture and pledges their multi-unit rental property under a vif-gage. The lender takes over management of the property, collecting rent from tenants. Each month, after deducting legitimate property management expenses, the remaining rental income is applied to diminish the principal balance of the loan provided to the property owner.

  Explanation: Here, the rental income from the apartment building, which is the pledged asset, directly contributes to paying down the original debt, embodying the "living" aspect of the pledge.

• Example 3: Commercial Business
  A small business owner seeks a loan for expansion but lacks traditional collateral. They agree to a vif-gage, temporarily transferring operational control of a profitable segment of their business (e.g., a specific product line's manufacturing unit) to the lender. A pre-determined percentage of the profits generated by this unit each quarter is then directly used to reduce the principal amount of the loan, rather than just covering interest.

  Explanation: This example demonstrates a vif-gage where the profits from a commercial enterprise, acting as the pledged asset, directly contribute to the repayment of the principal debt, making the pledge an active instrument in debt reduction.