What is the difference between mortgage and pledge and Hypothecation?

Answer 1

MORTGAGE: mortgage as "the transfer of interest in specific immovable property for the purpose of securing the payment of money, advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability". The transferor is called the 'mortgagor,' the transferee is a 'mortgagee'. The principal money and interest thereon, the payment of which is secured are called the 'mortgage money'.

PLEDGE : pledge as "bailment of goods as security for payment of a debt or performance of a promise". The person who offers the security is called 'pawner' or 'pledger' and the bailee is called the 'pawnee' or 'pledgee'. In case of pledge:

There should be bailment of goods; and

The objective of the bailment should be to hold the goods as security for the payment of a debt or the performance of a promise. The bailment should be on behalf of a debtor or an intending debtor.

The pawner or pledger remains the owner of the property except to the extent of interest which rests with the pledge because of the loan borrowed from the bank.

There is actual or constructive delivery of goods.

Pledge is not created in respect of future goods. The goods must be specific and be capable of identification.

The goods must be in possession of pledgee. Otherwise there is no pledge.

Pledge agreement may be oral or implied.

HYPOTHECATION: Hypothecation is a charge against property for an amount of debt where neither ownership nor possession is passed to the creditor. Hypothecation is a charge against movable property. The goods will, unlike a pledge, be retained by the borrower and be in the borrower's possession. The borrower gives only a letter stating that the goods are hypothecated to the banker as security for the loan granted. There will be no transfer of the property to the borrower.

Features: It is an equitable charge created against immovable property.

Neither the possession nor the ownership of the property is transferred to the banker.

The contents of the letter of hypothecation determine the rights of the banker.

The banker has the right to take possession of the property (if there is default) and sell the hypothecated goods to realize his dues.

If selling rights are not incorporated in the letter, the banker has to approach a court of law to recover the dues against the hypothecated property.

Hypothecated goods can be sold any time to the genuine purchaser for value without the knowledge of the banker or the hypothecated property can be pledged to another person provided the pledgee has no knowledge of the previous hypothecation.