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PART IV Security Interest In Property Rights
Chapter XV General Stipulations
Article 170Unless otherwise stipulated by laws, holder of security interest shall have priority in satisfying its claim if a debtor defaults in its obligations.
Article 171
If any guarantee is necessary for the creditor to enforce its claim in civil activities like accommodation of funds and the circulation of commodities, security interest may be provided in accordance with this Law and other laws.
Where a third party provides a guarantee to a creditor for a debtor, the third party may require the debtor to provide him with a counter-guarantee. The provisions on guarantee in this Law and other laws shall apply to the counter-guarantee.
Article 172
When the security interest is provided, a guarantee contract should be entered into in accordance with this Law and other laws. A guarantee contract is an ancillary contract of the principal contract. If the principal contract is null and void, the guarantee contract shall be null and void accordingly, unless otherwise stipulated by laws. .
If a guarantee contract is determined to be null and void, the debtor, the guarantor or the creditor who is in default shall bear civil liability according to their respective fault.
Article 173
The scope of security interest covers principal creditor's right and its interest, penalty, liquidated damages and expenses for storage of pledged assets and enforcement of security interests, unless otherwise agreed in the contract.
Article 174
In case of destruction, loss and requisition of the mortgaged property during the period of the surety-ship, the holder of security interest shall have priority in satisfying his claim from the guarantee fund, compensation money or compensatory amounts. The holder of security interest may also have such guarantee fund, compensation money or compensatory amounts deposited when the time limit for the performance of the security interest does not expire.
Article 175
Where a third party provides a guarantee to creditor for a debtor, if the creditor permits the debtor to transfer its debt without written consent of such third person, the guarantor shall not undertake surety-ship liability.
Article 176
Where there are both surety-ship and property security for the same claim, the creditor shall enforce its claim according to the agreement if the debtor fails to perform its debt; in the absence of an agreed or explicitly agreed mode of surety-ship, if the debtor provides the property security, the creditor shall enforce its claim from such property security; where a third person provide the property security, the creditor may enforce its claim from such property security or request the guarantor to undertake surety-ship liability. The third person that has undertaken the surety-ship liability shall have the right of recourse against the debtor.
Article 177
The security interest shall lapse under any of following circumstances:
(i) The principal debt lapses,
(ii) The security interest is enforced;
(iii) The creditor waive the security interest;
(iv) Other circumstances provided by law under which the security interest lapses.
Article 178
In case of any discrepancy between the Guarantee Law of the People’s Republic of China and this Law, this Law shall prevail.
Chapter XVI Right to Mortgage
Section 1 General Mortgage Right
Article 179Where a debtor or a third party, for performance of the mortgaged debt, secures the creditor's rights with property without transference of its possession, if the debtor defaults, the creditor shall have priority in satisfying his claim from such property;
The debtor or the third party specified in the preceding paragraph is the mortgagor; the creditor is the mortgagee, and the property provided as security is the mortgaged property.
Article 180
The following property which the creditor or third person is entitled to dispose of may be mortgaged:
(i) Houses and other things firmly fixed on the land;
(ii) Land use right to building lot;
(iii) The land-use right to barren land contracted by the mortgagor by way of bidding, auction and discussion;
(iv) Production equipment, raw materials, semi-finished products and finished products;
(v) Buildings, ships and aircrafts under construction;
(vi) Means of transportation;
(vii) Other property that may be mortgaged according to law and administrative rules.
A mortgagor may at the same time mortgage all the property listed in the preceding paragraph.
Article 181
Enterprises, small business of industry and commerce and rural contractors may mortgage their existing and future production equipment, raw materials, semi-finished products and finished products according to the agreement between the parties, if the debtor defaults, the creditor shall have priority in satisfying his claim from such property.
Article 182
Where houses are mortgaged, the land use right to the construction lot occupied by the houses shall be mortgaged at the same time. Where the land use right to the construction lot is mortgaged, the houses fixed on the land shall be mortgaged at same time.
If the mortgagor fails to comply with the preceding paragraph, property not mortgaged shall be deemed as mortgaged at the same time.
Article 183
The land-use right to the land used by a township (town) or village enterprise may not be mortgaged separately. Where factories and other buildings of township (town) or village enterprises are mortgaged, the land-use right to the land occupied by such buildings shall be mortgaged at the same time.
Article 184
The following property may not be mortgaged:
(i) Ownership of the land;
(ii) Land-use right to the land owned by the collectives such as cultivated land, house sites, private plots and private hills, with the exception of those provided by law;
(iii) Educational facilities, medical and health facilities of schools, kindergartens, hospitals and other institutions or public organizations established in the interest of the public and other facilities in the service of public welfare;
(iv) Property in relation to which the ownership or the right of use is unknown or disputed;
(v) Property sealed up, distrained or placed under surveillance in accordance with law; or
(vi) Other property which may not be mortgaged as prescribed by law.
Article 185
A mortgagor and a mortgagee shall conclude a mortgage contract in writing.
A mortgage contract shall include the following particulars:
(i) The kind and amount of the debt secured;
(ii) The time limit for the debtor to perform his obligation;
(iii) The name, quantity, quality, condition, location, ownership or ownership of The right to the use of the mortgaged property;
(iv) The scope of the guarantee of mortgage.
Article 186
The mortgagor and the mortgagee may not stipulate that the ownership of the mortgaged property shall be transferred to the creditor in case the mortgagee's claim is not satisfied after maturity of the debt.
Article 187
Where a party mortgages assets provided for in Article 180 (i)-(iii) of this Law or houses under construction provided for in Article 180 (v) of this Law, he shall register the mortgaged property, and the mortgage contract shall become effective as of the date of registration.
Article 188
Where a party mortgages movable property provided for in Article 180 (iv)-(vi) of this Law or ships and aircrafts under construction provided for in Article 180 (v) of this Law, the mortgage contract shall become effective as of the date of registration. If a party does not register the mortgaged property, he may not defend against the claims of third party of good faith
Article 189
Where enterprises, small business of industry and commerce and rural contractors mortgage movable property provided for in Article 181 of this Law, the mortgage contract shall become effective as of the date of registration. If a party does not register the mortgaged property, he may not defend against the claims of third party of good faith.
If a party registers the mortgaged property in accordance with Article 181 of this Law, he may not defend against the claims of third party which has paid the consideration and obtained the mortgaged property in the ordinary course of business operations.
Article 190
If a mortgagor leases the mortgaged property before the execution of mortgage contract, the original contract of lease continues in effect. If a mortgagor leases the mortgaged property after the establishment of right of mortgage, the lease may not defend against registered right of mortgage.
Article 191
If a mortgagor transfers mortgaged property with the consent of the mortgagee during the period of mortgage, the proceeds which the mortgagor obtains from the transfer of the mortgaged property shall be used to liquidate the claim secured by the mortgage or it shall be deposited with a third party agreed upon by the mortgagor and the mortgagee.
If the proceeds exceed the claim, the balance shall belong to the mortgagor; if the proceeds do not cover the claim, the difference shall be paid by the debtor.
The mortgagor may not transfer the mortgaged property without consent of mortgagee during the period of mortgage, unless the transferee pays off debts on behalf of mortgagor and the right of mortgage lapses.
Article 192
The right of mortgage may not be separated from the creditor's rights and transferred singly, nor used to secure other creditors' rights. If the creditor’s right is transferred, the right of mortgage shall be transferred at the same time, unless otherwise stipulated by laws or agreed by the parties.
Article 193
Where a mortgagor's acts are likely to cause the value of the mortgaged property to decline, the mortgagee shall be entitled to demand that the mortgagor cease and desist from such acts. Where the value of the mortgaged property has declined, the mortgagee shall be entitled to demand that the mortgagor restore the original value of the mortgaged property or provide security corresponding to the amount of the lost value. Where a mortgagor fails to restore the original value of the mortgaged property and fails to provide security, the mortgagee is entitled to request the mortgagor to liquidate the claim in advance.
Article 194
Mortgagee may waive the right of mortgage or order of right of mortgage. A mortgagor and a mortgagee may change the order of right of mortgage and amount of mortgaged debt by agreement, provided that, the change of right of mortgage shall not have negative impact to other mortgagees without written consent of such mortgagees.
Where a debtor shall provide guarantee of mortgage with its own property, if a mortgagee waives the right of mortgage or order of right of mortgage or change the right of mortgage, other guarantors shall be relieved of the suretyship liability to the extent that the mortgagee loses the priority in satisfying his claim, unless other guarantors commit to provide a guarantee.
Article 195
The mortgagee, who is not paid at the maturity of the obligation, may, through agreement with the mortgagor, be paid out of the proceeds from the conversion of the mortgaged property or from the auction or sale of the mortgaged property; other creditors may request the People’s Court to cancel such agreement within one year after they know or should have known the cause of cancellation if the interest of such creditors are adversely affected.
If the mortgagee and mortgagor fail to reach an agreement, the mortgagee may bring a lawsuit in a People's Court.
Market price should be taken as reference when converting the mortgaged assets into money or selling the mortgaged assets.
Article 196
If the right of mortgage is provided in accordance with Article 181 of this Law, the mortgaged property shall be determined if any of the following circumstances occur:
(i) Claim is not paid at the maturity of the obligation
(ii) Bankruptcy or dissolution of the mortgagor;
(iii) Other circumstances which may seriously affect the enforcement of right of mortgage;
(iv) Other circumstances which may seriously affect the enforcement of claim
Article 197
If the mortgaged property is seized by a People's Court because of the debtor's failure to perform his obligation prior to the maturity of the debt, the mortgagee shall, from the date of seizure, be entitled to collect the natural fruits severed from the mortgaged property and the legal fruits which the mortgagor may collect from the mortgaged property. If the mortgagee fails to notify the person who has the obligation to pay legal fruits of the fact that the mortgaged property is seized, the mortgagee's right shall not extend to such fruits.
The fruits mentioned in the preceding paragraph shall first be used to pay the expenses for collecting the fruits.
Article 198
If the proceeds from auction and sales of mortgaged property exceed the claim, the balance shall belong to the mortgagor; if the proceeds do not cover the claim, the difference shall be paid by the debtor.
Article 199
Where the same property is mortgaged to two or more creditors, the proceeds from the auction or sale of the mortgaged property shall be used for liquidation according to the following provisions:
(i) Where a mortgage contract takes effect with its registration, the liquidation shall be made in the order of the time of registration of the mortgaged property; if the registration is in the same order, the liquidation shall be made according to the respective proportions of the claims;
(ii) The claim secured by registered mortgage shall be satisfied prior to the claim secured by unregistered mortgage;
(iii) Liquidation of unregistered mortgage shall be made according to the respective proportions of the claims.
Article 200
When land use right of construction lot is mortgaged, newly built houses on the land are not mortgaged property. Where it is necessary to auction the land use right to the mortgaged construction lot, the newly-built houses on the land may be disposed of, according to law, together with the mortgaged property, but the mortgagee shall have no right to enjoy the priority of having his claim satisfied with the proceeds from the newly-built houses.
Article 201
Where the land-use right prescribed in Article 181 (iii) or the land-use right to the land occupied by the factories and other buildings of a township (town) or village enterprise is mortgaged prescribed in Article 183, the collective ownership and the uses of the land may not be altered without the legal procedure after enforcement of the right of mortgage.
Article 202
The holder of security interest shall enforce the security interest upon the expiry of prescribed period for litigation; if the holder of security interest fails to enforce the security interest within such period, it shall not be protected by the People’s Court.
Section II Maximum Mortgage Right
Article 203Where a debtor or a third person provides a guarantee with mortgaged property for the claim to be occurred within a given period of time, if the debtor fail to perform his obligations, the mortgagee shall have the priority in satisfying its claim to the extent of the total amount of the claims.
Claim that exists before the establishment of right of mortgage of maximum amount may be converted into the debt secured by the mortgage of maximum amount as agreed by the parties.
Article 204
Where part of claim is transferred before the claim secured by the mortgage of maximum amount is determined, the right of mortgage of maximum amount may not be transferred, unless otherwise agreed by the parties.
Article 205
Before the determination of claim secured by the mortgage of maximum amount, a mortgagor and mortgagee may change the term, scope and maximum amount of the claim through agreement, provided that such change may not cause any negative impact to other mortgagees.
Article 206
The claim of mortgagee is determined under any of the following circumstances:
(i) Agreed term for determination of claim expires;
(ii) In absence of an agreed or explicitly agreed term of claim, the mortgagee or mortgagor request to determine the claim upon the expiry of two years as of the date of establishment of right of mortgage of maximum amount;
(iii) No new claim will occur,
(iv) The mortgaged property is sealed up or distrained;
(v) Bankruptcy or dissolution of the debtor or mortgagor;
(vi) Other circumstances prescribed by law under which a claim is determined.
Article 207
The provisions of this section and Section 1 of this Chapter shall apply to right of mortgage of maximum amount.
Chapter XVII Right of Pledge
Section 1 Pledge of Movable PropertyArticle 208
The debtor or a third party transfers the possession of his movables to the creditor as a security for debt. If the debtor defaults, the creditor shall be entitled to enjoy priority of having his claim satisfied with the proceeds of auction or sale of the pledged property.
The debtor or the third party mentioned in the proceeding paragraph shall be the pledgor, the creditor shall be the pledgee, and the movables transferred shall be the pledged property.
Article 209
Movables that transfer is strictly forbidden according to relevant laws and administrative regulations must not be used as security for debt.
Article 210
A pledgor and a pledgee shall conclude a pledge contract in writing.
A pledge contract shall include the following particulars:
(i) The kind and amount of the principal debt secured;
(ii) The time limit for the debtor to perform his obligation;
(iii) The name, quantity, quality and condition of the pledged property;
(iv) The scope of the guarantee of pledge;
(v) The time for delivering the pledged property.
Article 211
A pledgor and a pledgee may not stipulate in the contract that ownership of the pledged property shall be transferred to the pledgee if the obligation is not discharged at its maturity.
Article 212
The pledge shall be effective upon delivery of the pledged property.
Article 213
The pledgee shall be entitled to collect the fruits derived from the pledged property. If otherwise provided for in the pledge contract, the provisions there shall apply.
The fruits mentioned in the preceding paragraph shall first be used to pay the expenses for collecting the fruits.
Article 214
During the existence of the plegdge, the pledgee, without consent of the pledgor, shall be civilly liable for any losses arising from his use, lease or disposal of the pledged property.
Article 215
The pledgee shall have the obligation to maintain the pledged property in good condition. The pledgee shall be civilly liable for the loss or destruction of or damage to the pledged property resulting from his negligence in storage.
Where the pledgee is unable to maintain the pledged property in good condition and may thus cause loss or destruction of or damage to the pledged property, the pledgor may demand that the pledgee have the pledged property deposited, or demand that his obligation be discharged in advance and the pledged property returned.
Article 216
Where there is a possibility for the pledged property to perish or for its value to obviously decline, the pledgee may demand that the pledgor provide additional security in like amount. If the pledgor refuses to provide the additional security, the pledgee may auction or sell the pledged property, and conclude an agreement with the pledgor that the proceeds from the auction or sale shall be used to pay in advance the debt secured or be deposited with a third party as agreed upon with the pledgor.
Article 217
During the existence of the pledge, with the consent of the pledgor, the pledgee may transfer the right of pledge. However, the pledgee shall bear civil liability for any loss or destruction of or damage to the pledged property.
Article 218
The pledgee may abandon the right of pledge. Where the debtor pledges his own property and the pledgee abandon such right of pledge, then other guarantors may be exempted from their liability to the extent that the pledgee would have the priority in satisfying his claim from the proceeds of auction or sale of the property, unless other guarantors have committed to providing security in any event.
Article 219
Where the debtor performs his obligation at its maturity, or where the pledgor pays, prior to maturity, the debt secured, the pledgee shall return the pledged property.
If the pledgee is not paid at the maturity of the obligation, he may conclude an agreement with the pledgor that the pledged property be converted into money in order to pay the debt, or he may enjoy priority of having his claim satisfied with the proceeds of auction or sale of the pledged property. Market prices shall be used as reference in conversion and/or sale of the pledged property.
Article 220
The pledgor may request the pledgee to enforce the right of pledge in a timely manner. Where the pledgee fails to do so, the pledgor may request the court to conduct auction and/or sale of the pledged property.
Where the pledgor requests the pledgee to enforce the right of pledge in a timely manner, the pledgee shall compensate for any losses arising from his delay in exercising his right that is due.
Article 221
Where the money converted from the pledged property or the proceeds from auction or sale exceed the debt secured, the balance shall be paid to the pledgor. Where the money or the proceeds do not cover the whole debt secured, the difference shall be paid by the debtor.
Article 222
The pledgor and the pledgee may set by mutual agreement a pledge of maximum amount.
The provisions of mortgage of maximum amount set forth in Section 2, Chapter 17 of Part Four, shall apply to the pledge of maximum amount.
Section 2 Pledge Rights
Article 223
The following rights that a debtor or a third party is entitled to dispose of may be pledged:
(i) Bills of exchange, cheques, promissory notes;
(ii) Bonds, certificates of deposit;
(iii) Warehouse receipts, bills of lading;
(iv) Shares of stocks or certificates of stocks which are transferable;
(v) The rights to exclusive use of trademarks, the property right among patent rights and copyrights which are transferable according to law;
(vi) The right of collecting fees for use of road and power grid infrastructures;
(vii) Other rights which may be pledged according to laws and administrative regulations.
Article 224
Where a bill of exchange, cheque, promissory note, bond, certificate of deposit, warehouse receipt or bill of lading is pledged, the pledgor and the pledgee shall conclude a pledge contract in written form and the document of title shall be effective upon delivery to the pledgee.
Article 225
Where a bill of exchange, cheque, promissory note, bond, certificate of deposit warehouse receipt or bill of lading, which carries the date of payment or the date of delivery of goods, is pledged and if the date of its payment or delivery of goods is prior to the time limit for the performance of the obligation, the pledgee may be paid or accept the delivery of the goods, and conclude an agreement with the pledgor that the payment or the goods accepted shall be used to pay in advance the debt secured or be deposited with a third party as agreed upon with the pledgor.
Article 226
Where portions of fund and/or shares are pledged, the pledgor and the pledgee shall conclude a pledge contract in writing. Where the portions of fund and/or shares that have been registered with relevant security registration and settlement authority are pledged, the right of pledge shall become effective upon registration with the securities registration authorities. Where the shares of any other kinds are pledged, the right of pledge shall become effective upon registration with the administrative department in charge of commerce and commerce.
The portions of fund and/or shares pledged may not be transferred, unless otherwise agreed by the pledgor and the pledgee. The proceeds the pledgor obtained from the transfer of the portions of fund and/or shares shall be used to pay in advance the pledgee's claims secured, or be deposited with a third party.
Article 227
Where the right to exclusive use of trademarks, the property rights among patent rights and copyrights are pledged, the pledgor and the pledgee shall conclude a contract in writing. The right of pledge shall become effective upon registration with the administrative department in charge of commerce and industry.
If the property rights in the foregoing paragraph are pledged, the pledgor may not transfer or permit the right to be used by another, unless otherwise agreed by the pledgee and the pledgor. The proceeds from the transfer or license of use obtained by the pledgor shall be used to pay in advance the pledgee's claims secured or be deposited with a third party.
Article 228
Where the right of collecting receivables is pledged, the pledgor and the pledgee shall conclude a contract in writing and the right of pledge shall become effective upon registration with the competent authority.
The right of receivables collection, once it is pledged, shall not be transferred unless otherwise agreed by the pledgee and the pledgor. The proceeds from the transfer of the right shall be used to pay in advance the pledgee’s claims secured or be deposited with a third party.
Article 229
The pledge of rights is governed not only by the provisions of this Section, but also by the provisions of Section 1 of this Chapter.
Chapter XIX Lien
Article 230If a debtor defaults in his debt, the creditor shall be entitled to retain the property under legal possession and to the priority of having the debt paid with the money converted from the property or proceeds from sale or auction of the property.
The creditor mentioned in the proceeding two paragraphs shall be the lien holder and the movables possessed shall be the retained property.
Article 231
Retained movables shall fall within the scope of creditor’s rights except in the case of a retention between enterprises.
Article 232
Where the property must not be retained according to law, such law shall prevail. Where the property shall not be retained as agreed upon by the parties concerned, such an agreement shall prevail.
Article 233
Where the retained property is dividable, the total amount of the retained property shall be equal to the value of the debt involved.
Article 234
The lien holder shall have the obligation to maintain the retained property in good condition. The lien holder shall be civilly liable for loss or destruction of or damage to the retained property resulting from his negligence.
Article 235
The lien holder shall be entitled to collect the fruits derived from the retained property.
The fruits mentioned in the preceding paragraph shall first be used to pay fruit collection expenses.
Article 236
The lien holder and the debtor shall reach an agreement upon the time limit of the debtor’s performance of obligations after the property is retained. In the absence of any agreement or any explicit agreement thereof, the lien holder shall grant a time limit of two (2) months or more for the debtor’s performance of obligations, except in the case of movables such as fresh, living and easily decayed goods. If the debtor defaults within the specified time limit, the lien holder may convert the retained property into money upon agreement with the debtor, or enjoy the priority of having the debt paid with the money converted from the property or proceeds from sale or auction of the property.
Market prices shall be used as reference in conversion and/or sale of the retained property.
Article 237
The debtor may request the lien holder to enforce the right of lien in a timely manner. Where the lien holder fails to do so, the debtor may request the court to conduct auction and/or sale of the retained property.
Article 238
Where the money converted from the retained property or the proceeds from auction or sale exceed the debt secured, their balance shall be paid to the debtor; where the money or proceeds do not cover the entire secured debt; the difference shall be paid by the debtor.
Article 239
Where the movable property that have already been mortgaged or pledged are retained at a later time, the lien holder shall enjoy the priority of having the debt paid with the money converted from the property or proceeds from sale or auction of the property.
Article 240
Where the lien holder loses his possession of the retained property or accepts other security provided by the debtor, the right of retention shall lapse.
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