Hypothec (Mortgage)

I. Notion. Hypothec is a real right by which another's immovable thing is obligated to the creditor as security of a debt. The right of hypothec commonly arises from contract.

II. Division. Hypothec is distinguished as conventional, judicial, and legal, according as the right of hypothec arises from contract, from a decree of a judge, or from law.

III. Form. The form is established by law.

IV. Rights of the hypothecary creditor. The creditor has the debtor's thing obligated to himself until the latter has paid; and if the latter is unequal to paying debts, he has the right that payment be made to him from the thing obligated before the other creditors, according to what is to be said in n. 1012.

V. Obligation of the debtor. "It is not permitted to give the same thing in hypothec to several persons, unless it is sufficient for paying all, or the later ones are warned about the prior hypothec" (St. Alphonsus, III, 915).

¹ Cf. Oswald von Nell-Breuning, Grundzüge der Börsenmoral.

Forms of Contract.—The chief forms of contract are the following:

(a) gratuitous contracts, which are those that confer advantage on only one of the contractants, or those in which no payment or compensation for his acts or goods is made to one party by the other party. They include unilateral contracts, which produce obligation on one side only (e.g., a promise, gift, testament), and bilateral contracts, which produce obligation on both sides. The bilateral contracts are also known as bailments, or understandings whereby a thing or business is transferred from one person to another in trust, on condition that a return will be made to the owner, They include the following contracts: loans, in which return must be made of the identical things borrowed (commodatum), or of a thing similar in kind (mutuum); deposit, in which a thing must be returned after safekeeping (depositum); an agency, in which one conducts the business of another with the obligation of making returns, either from express contract (mandatum) or from imputed agreement (negotiorum gestio). In commodatum and mutuum the advantage is had by the bailee, in the other three by the bailor;

(b) onerous contracts of certain event, which are those that confer an advantage on both parties, and in which the thing agreed on is certain and definite. They include contracts in which one party transfers ownership to the other (e.g., buying and selling, barter, loan at interest, contracts for annuities, stocks and bonds) or useful dominion (e.g., lease of property, contractor’s agreement, hire of labor), and contracts in which both parties transfer rights to a moral person of which they are the members (partnership);

(c) onerous contracts of uncertain event, which are those that confer advantage on both parties, but in which the thing agreed on is contingent and uncertain. Examples are insurance, wager, gaming contracts, lottery, and stock market speculation;

(d) subsidiary contracts, which are those that are made in order to give security to principal contracts to which they are annexed or for whose sake they are made. Such are guaranty and surety, pledge and pawn, and mortgage.

What is mortgage; what is its nature? - It is a contract by which an immovable thing is obliged to the creditor, so that from it he may be able to pay himself if the debtor has not paid. C. H. 1858; C. L. 888 ff.; C. A. 448; C. I. 1967; C. G. 2118. An immovable thing; for the creditor will be able to pursue a movable thing in the hands of a third party only with difficulty. - Mortgage is indivisible, and subsists wholly over all the goods obliged, and any one of them, and any part of them. It moreover inheres in the goods, and follows the same before any possessor. C. I. 1964; C. G. 2114; C. H. 1860. According to C. G. 2115, 2134, mortgage has place only in cases and according to forms prescribed by law. According to C. I. 1965, 1981, 2007, a mortgage does not produce effect unless it is published, and cannot subsist except over goods specially indicated and for a certain sum of money. According to C. H. 1875, the document by which the mortgage is constituted must be inscribed in the Register of property. Among several creditors, the mortgage prior in time of legitimate inscription is stronger in right. C. I. 2007; C. G. 2134. Mortgage confers a real right not only for the capital, but also for the interest of the preceding two years, of the current year and following years, as well as for expenses made. C. I. 2010. According to C. I. 2001, a mortgage lasts for 30 years; according to C. G. 2154, for 10, unless in the thirtieth year or tenth the inscription is renewed. C. B.

1113 ff.

How many kinds of mortgage are there? A threefold mortgage is distinguished, C. I. 1968; C. G. 2116; C. A. 448. The first is legal, which according to C. G. 2121 is induced by the law itself in favor of wives, minors, interdicted persons, and communities, over the goods of the husband, tutors, and administrators. According to C. I. 1969, it belongs to wives, minors, interdicted persons. It moreover belongs to coheirs, partners, and other co-dividers, over the goods of the inheritance, partnership, common ownership. Likewise it belongs to the State over the goods of those condemned for expenses of justice in criminal or police matters, and to sellers or others alienating, over immovables alienated for the fulfillment of obligations deriving from the act of alienation.

The second is judicial, which results from the sentence of the judge, in favor of him who obtained the sentence against him who lost the case; for by force of that sentence the goods of the condemned person are burdened by mortgage for repairing the damage of the victorious co-party. C. I. 1970; C. G. 2123. The third is conventional, which depends on the mutual will of the contracting parties, or on testament. From positive law this requires persons capable of contracting, or who have free administration of their goods. Hence minors, wives, interdicted persons cannot hand anything over into mortgage. It must be done with the formalities prescribed by law, under penalty of nullity, and can be done only in present goods. According to C. G. 2127, it must be done before a notary. According to C. I. 1978, it requires a public act or a private writing. - C. I. 1974, 1975, 1977 ff.; C. G. 2124, 2127, 2129, 2130.

What goods can be subjected to mortgage? - 1. Immovable goods which are in commerce with all accessories which are held as immovable. 2. The usufruct of the same goods with their accessories, except the legal usufruct of ascendants. 3. The rights of the grantor and of the emphyteuta over emphyteutic goods. 4. Revenues upon obligations of the State. C. I. 1967. Cf. C. G. 2118; C. A. 448; C. H. 1874, 1877; E. M.

What are the rights and obligations of the mortgage-creditor? - The mortgage-creditor has this proper right, that from the mortgaged goods satisfaction be made to him before the other common creditors. C. I. 1964; C. G. 2114. Wherefore if the debtor has alienated the things subjected to mortgage among several, each can be compelled either to yield the thing accepted or to pay the whole debt. C. I. 2013, 2014; C. G. 2167, 2168, 2169; C. H. 1876, 1879. But the mortgage-creditor cannot appropriate the mortgaged thing to himself, or dispose of it. He is bound to free the immovable from the mortgage once the whole debt has been paid to him. C. H. 1859, 1860.

939. • Hypothec is a contract by which an immovable thing is obligated to the creditor, so that from it he may be able to pay himself, if the debtor has not paid.

A hypothec is distinguished into a threefold kind: namely legal, judicial, and conventional.

1. Legal hypothec, which is also called implicit or tacit, is that which is instituted by force of law alone and without any special agreement: thus a wife has a hypothec on all the goods of the husband for recovering the dowry.

2. Judicial hypothec is that which is established by decree of a judge in favor of those who have obtained the case: if, for example, a judge condemns someone to repairing a certain damage, by force of that sentence all the immovable goods of the condemned person, present and future, are burdened with hypothec for repairing this damage. It is required, moreover, that this sentence of the judge be inscribed with the conservator of hypothecs, and it obtains force only from the day of inscription.

3. Conventional hypothec, or that which the parties establish among themselves by mutual agreement, is a solemn contract by which a person fit for contracting obligates goods specially designated to the creditor for insurance and payment of a determined debt. Therefore it must be made before a notary, with certain formalities under pain of nullity at least in the external forum, and by a person fit for contracting, or one who has the free administration of his goods; hence minors, the interdicted, and wives cannot hand over anything in hypothec (Art. 2124 and following). - See Cases, n. 1015.

606. Accessory or subsidiary contracts are those which essentially suppose a principal contract, to which they accede for its security and execution, and on which they depend in some way according to the axiom: the accessory follows the principal.

There are three principal ones: suretyship, by which an obligation is undertaken by one in place of another; pledge and hypothec, by which an obligation is undertaken in place of another obligation.

607. Suretyship (fidem iubere, to give one's word; cautionnement; borgstelling, borgtocht, a. 2011) is a contract by which one or more take upon themselves another's obligation, if the principal debtor does not pay. It can be undertaken gratuitously; something can also be accepted for it, so much the more as the danger that the debtor will not pay is greater; indeed, even if there is no danger or trouble, because to take such an obligation upon oneself is estimable by price.

It is a contract which essentially depends altogether on another; whence the surety (la caution) obliges himself only subsidiarily, indeed conditionally, for the case in which the debtor does not satisfy.

Hence:

1. The obligation of the surety depends on the obligation of the principal debtor, and therefore does not exist unless this itself is valid (a. 2012);

2. He is not obligated to more than the principal; and therefore, if the latter's obligation ceases, the surety is freed (a. 2013);

3. He is not held to pay the debt unless the principal debtor has first been exhausted before a judge; except if he himself has renounced the benefit of excussion, or constituted himself an equally principal debtor (a. 2021).

No one can be a surety except one who has the free administration of goods sufficient for this; such as a ward, a minor, a religious, and in many regions a wife do not have, at least without the consent of tutor, curator, superior, or husband. Moreover, from our civil law it is required that he dwell in the territory of the royal court (cour d'appel) where the suretyship is to be paid (a. 2018).

He is held toward creditors concerning all obligations of the debtor (a. 2016), but only in his default or inability, and indeed juridically proved (a. 2021), that is, not except after the sentence of a judge. The obligation is real, and therefore passes to heirs (a. 2017).

If the surety pays for the debtor, he by that very fact becomes a creditor and has recourse against him in order to demand back those things which he was forced to pay in his place (a. 2028-2030). The principal debtor is held to keep the surety indemnified, unless the latter paid without forewarning the debtor, and thus was the cause why the debtor either paid a second time, or could not pursue the extinction of the debt (a. 2031); but then the surety has action against the creditor.

The surety can act against the debtor: 1. when he himself is summoned before a judge to pay; 2. when the debtor yields into insolvency or is unequal to paying; 3. when the debtor has bound himself to free him at a certain time; 4. when the time of payment has elapsed; 5. after ten years, if the time of payment was not determined, unless there is question of guardianship and other obligations which cannot be extinguished by lapse of time (a. 2032).

608. Pledge or pawning (nantissement; pandgeving, a. 2071) is a real contract by which the debtor, or another, hands over some thing to the creditor, or to a third party, for the security of the debt; so that payment can be sought from it before other creditors, if the debtor does not pay. If this thing is movable, it is called a pledge (gage; onderpand); if immovable, antichresis¹, which is given in writing (verpanding).

¹ German Code a. 1213: for antichresis, no distinction is made between a movable and an immovable thing.

The debtor is held toward the creditor to hand over a suitable pledge, to refund necessary expenses which were made for the conservation of the thing, and not to demand it back before he has paid the whole debt, unless the creditor abuses it.

The creditor must guard the pledge diligently, otherwise he is held to repair damage; he must count fruits received from it toward diminution of the debt; nor can he, except with the consent of the debtor or judge, use the pledged thing, nor sell it to obtain payment, unless the debtor is in culpable delay and has first been warned (a. 2073-2091).

609. Hypothec (grondpand, kusting) is a contract by which an immovable thing,² remaining with the debtor, is obligated to the creditor for the security of the debt. Consequently the word also designates the immovable thing obligated, and the right of demanding the debt from it; it is a real right, in the thing, and indivisible, so that if the debtor has neglected to pay, the creditor can satisfy himself from all the obligated things and from each part of them, by whomever they may be held (Belgian law 16 Dec. 1851, a. 41).

² An exception is made for maritime hypothec, by which ships with their instruments and goods can be hypothecated (Commercial Code and Maritime Insurance, a. 37); by Italian law (a. 1967), titles of obligations of the State are also subjected to hypothec.

It differs from pledge in this: that the pledge is handed over, but the hypothec is secured only by bare agreement. It is threefold (a. 43-44; C. C., a. 2116):

1. Legal or implicit, which is induced by force of law in favor of communities, wife, son, and minor upon the goods of administrators, husband, father, and tutor (a. 45 and 47);

2. Judicial, which proceeds from the decree of a judge in favor of him who has obtained a sentence against another;³

³ This no longer subsists in Belgium.

3. Conventional, which depends on the mutual will of the contracting parties; to this accedes testamentary hypothec (a. 44), which is established by a testator upon immovable goods specially designated in the testament, for the insurance of legacies which he prescribed to be made (a. 44).

It can be special, namely, when someone obligates a determined thing, for example, such a piece of land; or general, by which someone obligates all goods. Legal and judicial hypothec can embrace all present and future goods, but conventional and testamentary hypothec only present goods.

Hypothec in Belgium is ruled by the law of 16 Dec. 1851, according to which only those are capable of conventional hypothec who are capable of alienating the goods which are subjected to hypothec (a. 73). It cannot be conceded except by an authentic act entered into before a notary, or by a private act acknowledged before a judge or notary (a. 76). Nor is it valid unless in the act constituting it, or in another authentic act, the nature and location of each good subjected to hypothec is specially declared (a. 78), and in the act itself a certain and determined sum is expressed. But if the debt is conditioned, mention of the condition must be made in the inscription (a. 80): for, that a hypothec may have its full force, it must be inscribed in the register with the conservator of hypothecs of the region in which the goods subjected to hypothec are situated (a. 81).

There are two principal effects or privileges of hypothec:

1. The right of preference, by which the creditor has the right of obtaining payment from the goods before merely chirographic creditors, and even before those who took care to have hypothecs inscribed only on the following day;⁴

⁴ Thus by French, Belgian, and other law they take order from the day of inscription; elsewhere from the inscription itself, but Italian law (a. 2008) provides that those who present a document at the same time are placed under one number of inscription.

2. The right of pursuit, by which the creditor can pursue the hypothecated good, into whosever hands it has come (a. 96). Except for legal hypothec, which always endures without being renewed, the inscription of the hypothec must be renewed from civil law before a certain term has elapsed; otherwise the aforesaid privileges would be lost (a. 81-90).

In France the inscription must be renewed within 10 years; in Belgium within 15; in Italy within 30; in Spain within 20; in Germany it does not have to be renewed.

Hypothec is extinguished: 1. by the extinction of the principal debt; 2. by renunciation of the creditor; 3. by prescription; 4. by observation of the formalities and conditions which are prescribed so that goods may be freed from hypothec (purge des hypotheques).

For the holder of a hypothecated good who is not personally obligated can free himself: a) either by paying all inscribed debts; b) or by abandoning the good without any reservation; c) but if he does neither, any creditor can obtain that the good be sold after 30 days from the demand which he must make both to the primitive debtor and to the present holder. Then, however, one means remains, namely, recourse to what they call la purge des hypotheques, by force of which the holder can obtain that he be freed by paying the price of the hypothecated good (a. 97-107; 109 sq.).

610. Transaction (compromis; dading, schikking in der minne, overeenkomst) can be reduced to subsidiary contracts. It is an onerous contract by which a doubtful and uncertain matter is composed between parties, or by which two or more compose a doubtful contestation that has arisen among them, or prevent one about to arise. Thus C. C., art. 2044, according to which it must be made in writing; this, however, is not required for solemnity or validity, but for mere proof.

That someone may enter into this contract, it is necessary that he be able to dispose of the thing about which the contestation turns. But this must be doubtful, because if the right of the other party were certain, it would be unjust to propose to him a transaction by which he would have to renounce that right. Nevertheless it is not required that the contestation has already arisen, but it suffices that it be foreseen; in which case it can be made on account of fear, provided the fear is founded and renders the rights uncertain. Transaction puts an end to contestation, and has no less authority than a definitive sentence of a judge (a. 2052), unless it is discovered that the things alleged were false (a. 2055-2056).

Mortgage is a contract by which the debtor obliges some immovable thing to the creditor for the security of the debt: houses and estates are everywhere handed over thus. Wherefore mortgage differs from pledge and from antichresis; from pledge indeed, because the thing which is handed over in mortgage is immovable; but from antichresis, because the use is not handed over. Cf. St. Alphonsus, n. 913. - Kenrick, n. 140.

Concerning mortgage only these things must be said:

I. The contract of mortgage, the dispositions of positive law being observed, is wholly licit, as is established both because there is nothing in it which is repugnant to natural law, and because the practice and positive laws of almost all peoples admit it.

II. So great is the force of mortgage that, if the debtor has neglected to pay each year the legitimate increase and the principal at the appointed time, the creditor will be able in the forum of conscience to claim for himself possession of the mortgaged thing or to offer it for sale, yet with the order of judgment observed. - Cf. Kenrick, ibid.

Very akin to mortgage is the contract which among us is called bottomry, and which consists in this, that a ship is obligated for the money received: but it is called by such a name because a part of the ship, namely the bottom, is taken for the whole ship. - Cf. Kenrick, tract. 11, n. 140, with notes (1) and (2).

III. Pledge and hypothec are wont to be taken for the same thing. Strictly taken, nevertheless, those contracts differ: for a pledge is of movables only, a hypothec of immovables. A pledge is defined a contract by which a movable thing is delivered to a creditor for the security of a debt. A hypothec is a contract by which an immovable thing, by a bare convention, without delivery, is obligated to a creditor for the security of a debt, so that if the other do not satisfy, satisfaction may thence be sought. A hypothec is twofold: one general, by which all goods are obligated; the other particular, by which a man obligates some determinate thing.