While researching the meaning of the word “hypothecation” for my last post, I came across an interesting case where the Fifth Circuit analyzed its meaning under Louisiana law. The facts were pretty straightforward: One Mr. Hill got in trouble with his bank and was required to put up collateral against the more than $700,000 he owed the bank in loans. Mr. Hill just so happened to have twenty-five shares of a closely-held corporation that he wanted to use as collateral, but the transferability of the shares was restricted as such:
No shareholder shall sell, transfer, hypothecate, assign, or in any manner convey his stock without first offering same . . . to the remaining shareholders . . . .1
Unable to “sell, transfer, hypothecate, assign, or in any manner convey” his shares to the bank, Mr. Hill proceeded to “pledge” them. The issue then naturally arose whether this “pledge” was really a “hypothecation” under Louisiana law. If there’s one thing I love about Louisiana law, it’s that centuries-old sources are used to answer questions like these. In true civilian form—students and practitioners of Louisiana law tend to consider themselves “civilians”—Circuit Judge Jacques Wiener looked at the meaning of “hypothecate” in the Corpus Iuris Civilis under Roman law and in the Code Napoléon under French law.
But Judge Wiener also bemoaned the practice of lawyers using words they don’t know:
The point we so belaboredly make is that neither the history, the sources, the terminology of the current codes and statutes, nor the jurisprudence conclusively and absolutely define the word “hypothecate” either to include or to exclude the concept of encumbering movables. Nor do we find that to hypothecate absolutely includes or excludes delivery of possession. The conclusion that does come through “loud and clear,” however, is that the drafters of statutes and legal instruments in current Louisiana practice appear to play rather fast and loose with the verb, to hypothecate.
Part of such practice, we suppose, is the untidy but prevalent penchant of lawyers to invoke the mystique of the profession’s glossary of archaic and anachronistic terms without bothering to identify the precise legal meaning of the terms thus employed. That tendency, coupled with an equal penchant for invoking solemnity by including several synonyms—usually the Biblical three—for the desired word when that one word alone would suffice, leads to controversies (such as the instant litigation) that could be avoided by a drafting technique that is more precise and less pretentious.2
Judge Wiener’s point is that lawyers should use the word “pledge” if they mean a pledge, “mortgage” if they mean a mortgage, and so on. Throwing in the “legalese” just leads to trouble. But I wonder if that’s really true. Lawyers tend to throw in “archaic and anachronistic terms” because they don’t understand their “precise legal meaning.” And oftentimes, that precise meaning is a matter of debate. For example, I see “the Biblical three” of “right, title, and interest” quite frequently in copyright law. And I would bet half my student loans that most lawyers lumping those terms together couldn’t define them precisely if you asked.
I think the reason lawyers lump them all together is so that they have their bases covered. It’s not meant to invoke “mystique” or “solemnity.” It’s meant to avoid litigation like the one Mr. Hill found himself in. The problem in drafting the share restriction was not that it included the word “hypothecate,” it’s that it didn’t also include the word “pledge. ” There wasn’t enough “legalese.” Similarly, I think “right, title, and interest” gets used so much in the copyright context because nobody knows the difference between a right, a title, and an interest. Lawyers use all three to make sure they aren’t leaving anything out, lest their clients end up like poor Mr. Hill.
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© 2013 Devlin Hartline. Licensed under the Law Theories Public License 1.0.