Part IV Real Rights for Security Chapter XV General Rules
Article 170 Where the obligor fails to pay its due debts or any circumstance for realizing real rights for security as stipulated by the parties concerned happens, the holder of real rights for security shall enjoy preferred payments from the property for security, except that it is otherwise provided for by any law.
Article 171 According to the present Law or any other law, an obligee may, in such civil activities as loans or sales, establish the real rights for security in case the security is required for ensuring the realization of its/his credits. Where a third party provides security to the obligee for an obligor, countersecurity from the obligor may be required. The countersecurity shall be pursuant to the present Law and other related laws.
Article 172 For establishing real rights for security, a security contract shall be entered into in accordance with the present Law and the other related laws. A security contract shall be a subordinate one to the principal contract. Unless it is otherwise prescribed by any law, the security contract shall be invalid when the principal contract is nullified. After a security contract is confirmed to be nullified, the obligor, the security provider and the obligee that has faults shall, in light of their respective faults, undertake corresponding civil liabilities.
Article 173 The security range shall cover principal obligee's rights and their interests, default fines, damages as well as expenses for keeping the property for security and for realizing the real rights for security. In case there are otherwise stipulations between the related parties, such stipulations shall prevail.
Article 174 In case, during the security term, the property for security is damaged, lost or expropriated, the security holder may seek preferred payments from the insurance money, damages or indemnities, etc. incurred therefrom. If the term for performing the obligee's rights as secured has not expired, such insurance money, damages or indemnities, etc. may be submitted to a competent authority for keeping.
Article 175 As regards any security provided by a third party, where the obligee, without obtaining the written consent of the third party, allows the obligor to transfer all or part of its obligations, the security provider does not have to undertake corresponding security liabilities any more.
Article 176 As regards a secured credit involving both physical and personal security, where the obligor fails to pay its due debts or any circumstance as stipulated by the parties concerned for realizing the property for security happens, the obligee shall realize the obligee's rights as stipulated; in the case of no or unclear such stipulation, and where the obligor provides his/its own property for the security, the obligee's rights shall be realized firstly by the security in property; and if the security by property is provided by a third party, the obligee may, by the physical security or through requiring the guarantor to assume the guaranty liability, realize the obligee's rights. The third party has the right,, after undertaking the security liability, to recover payments from the obligor.
Article 177 Real rights for security may be terminated under any of the following circumstances: (1) The principal obligee's rights are terminated; (2) The real rights for security have been realized; (3) The obligee waives the real rights for security; or (4) Any other circumstance under which the real rights for security will be terminated as provided for by any law.
Article 178 Where any provision in the Security Law conflicts with that of the present Law, the latter shall prevail.
Chapter XVI Mortgage Right
Section 1 General Mortgage Right
Article 179 In order to ensure the payment of debts, an obligor or a third party mortgages his/its properties to the obligee without transferring the possession of such properties, and when the obligor fails to pay due debts or any circumstance as stipulated by the parties concerned for realizing the mortgage right happens, the obligee has the right to seek preferred payments from such properties. The \the mortgagor, the \mortgaged properties.
Article 180 As regards the following properties that the obligor or the third party has the right to dispose of, mortgage may be established thereon : (1) buildings and other objects fixed to land; (2) the right to use construction land; (3) the right to contracted management of such land as barren land, etc. that is acquired through bid invitation, auction and public consultation, etc.; (4) manufacturing facilities, raw materials, semi-manufactured goods and finished products; (5) buildings, vessels and aircraft under construction; (6) means of communications and transportation; and (7) other properties not prohibited from being mortgaged by any law or administrative regulation. All the properties listed in the previous paragraph may be mortgaged together by a mortgagor.
Article 181 An enterprise, individual industrial and commercial household or agricultural production operator may, upon the written agreement between the parties concerned, mortgage the existing manufacturing facilities, raw materials, semi-manufactured goods and finished products or those to be owned in future, and when the obligor fails to pay its/his due debts or any circumstance as stipulated by the parties concerned for realizing the right to mortgage arises, the obligee has the right to seek preferred payments from the chattels existing at the time of the realization of the right to mortgage.
Article 182 For mortgaging building, the right to use construction land within the area of this building shall be mortgaged together. When mortgaging the right to use construction land, all the buildings on such land shall be mortgaged together. Where a mortgagor fails to mortgage the
properties in accordance with the provisions in the preceding paragraph, the properties not mortgaged shall be treated as having been mortgaged together.
Article 183 As regards the right to use construction land of a township or village enterprise, mortgages may not be alone established thereon. Where the plant of a township and village enterprise is mortgaged, the right to use construction land within the area of such plant shall be mortgaged together.
Article 184 Any of the following properties may not be mortgaged: (1) ownership of land; (2) the right to use such collectively-owned land as cultivated land, house sites, land and hilly land allotted for private use, etc, except for those mortgagable as prescribed by any law; (3) educational, medical, healthy and other public welfare facilities of such institutions and social groups with the aim of benefiting the public as schools, kindergartens, hospitals, etc; (4) properties with unclear or controversial ownership or use rights; (5) properties legally confiscated, seized or controlled; or (6) other properties that cannot be mortgaged as prescribed by any law or administrative regulation. Article 185 For establishing a mortgage right, the parties concerned shall enter into a written mortgage contract. In general, a mortgage contract shall contain the items as follows: (1) the variety and sum of the secured obligee's rights; (2) the time limit to pay debts by the obligor; (3) the name, amount, quality, situation, location, attribution of ownership or use right of the mortgaged property; and (4) the security scope.
Article 186 The mortgagee and the mortgagor may, prior to the expiration of the time limit for paying debts, not stipulate that the ownership of the mortgaged property will attributed to the obligee when the obligor fails to pay its due debts.
Article 187 In case properties as provided for in Items (1), (2) and (3) of Paragraph 1 of Article 180 in the present Law or a building under construction in Item (5) are mortgaged, the mortgage registration shall be gone through, and such mortgage right shall be established as of the date of registration.
Article 188 In case properties as provided for in Items (4) or (6) of Paragraph 1 of Article 180 of the present Law or a vessel or aircraft under construction as provided for in Item (5) are mortgaged, the mortgage right shall be established since the mortgage contract comes into effect; without the registration, the mortgage right may not challenge any third party with good faith.
Article 189 As regards the mortgage of the chattels prescribed in Article 181 of the present Law provided by an enterprise, individual industrial and commercial household or agricultural production operator, registration shall be handled by the administrative department for industry and commerce at the locality of the mortgagor. The mortgage right shall be established since the mortgage contract comes into effect; without the registration, such mortgage right may not challenge any third party with good faith. The mortgage as provided for in Article 181 of the present Law may not challenge the buyer which has paid a reasonable price and obtained the mortgaged property in normal business operations.
Article 190 Where the mortgaged property has been leased prior to the entering into of the mortgage contract, the original leasehold relations may not be impacted by the mortgage right. Where it is leased after the establishment of the mortgage right, the leasehold relation may be challenge the registered mortgage right.
Article 191 Where a mortgagor alienates, upon consent of the mortgagee, the mortgaged property during the mortgage term, the money generated from such alienation shall be used to pay off debts to the mortgagee in advance or be submitted to a competent authority for keeping. The value exceeding the obligee's rights shall be attributed to the mortgagor, and the gap shall be paid off by the obligor. Without the mortgagee's consent, a mortgagor may not alienate the mortgaged property during the mortgage term,, unless the transferee pays off the debts on behalf of the mortgagor so as to terminate the mortgage right.
Article 192 The mortgage right may not be alienated alone, or be used as a security for other obligee's rights by departing from the obligee's rights. Unless it is otherwise prescribed by any law or is otherwise stipulated by the parties concerned, when the obligee's rights are alienated, the mortgage right thereof shall be alienated concurrently.
Article 193 Where any act of the mortgagor may sufficiently cause the reduction of the value of the mortgaged property, the mortgagee has the right to require the mortgagor to cease such act. Where the value of the mortgaged property has been lowered, the mortgagee has the right to require the mortgagor to recover the value, or provide a security equal to the reduced value. Where the mortgagor neither recovers the value nor provides any security, the mortgagee has the right to require the obligor to pay off the debts in advance.
Article 194 A mortgagee may abandon the mortgage right or the sequence thereof. A mortgagee and a mortgagor may, through negotiations, alter the sequence of the mortgage right or the amount of secured obligee's rights, etc., however, such alteration may not produce unfavorable influences on any other mortgagee without the written consent thereof. Where an obligor creates the mortgage by its/his own properties, and the mortgagee abandons the mortgage right or the sequence thereof or alter such mortgage right, other security providers shall, within the scope for which the said mortgagee has lost the right to seek preferred payments, be exempted from the security liability, unless any of other security providers promises to provide the security all the same.
Article 195 When the obligor fails to pay its/his due debts or any circumstance as stipulated by the parties concerned for realizing the right to mortgage arises, the mortgagee may, upon negotiation with the mortgagor, convert the mortgaged property into money or seek preferred payments from the money generated from the auction or sale of the mortgaged property. Where the said agreement has injured the interests of any other obligee, the obligee may, within one year after he/it has known or should know the cause for cancellation, require the people's court to cancel such agreement. Where no agreement on the means of realizing the mortgage right is achieved between the mortgagee and the mortgagor, the mortgagee may require the people's court to auction or sell off the mortgaged property. When converting into money or selling off the mortgaged
property, its marker price shall be referred to.
Article 196 As regards the mortgage created in accordance with Article 181 of the present Law, the mortgaged property shall be determined when any of the following circumstances arises: (1) Upon expiration of the time limit for paying debts, the obligee's rights have not been realized; (2) The mortgagor has been declared bankrupt or has been canceled; (3) Other circumstances as stipulated by the parties concerned occurs for realizing the mortgage right; or (4) Any other circumstance seriously impacting the realization of obligee's rights.
Article 197 When the obligor fails to pay its/his due debts or any circumstance as stipulated by the parties concerned for realizing the mortgage right arises, and the mortgaged property is thus seized by the people's court in accordance with law, the mortgagee has the right to collect natural or statutory fruits of the mortgaged property as of the date of seizure, unless the mortgagee has failed to inform the subject liable to pay off statutory fruits. As regards the \preceding paragraph, they shall be firstly used for paying the collection expenses thereof.
Article 198 The value exceeding the obligee's rights shall be attributed to the mortgagor, and the gap shall be paid off by the obligor, after the mortgaged property has been converted into money, auctioned or sold off.
Article 199 In case a same property is mortgaged to two or more obligees concurrently, the money generated from the auction or sale of the mortgaged property shall be used for paying debts in light of the prescriptions as follows: (1) In case all the mortgage rights to have been registered, the payments shall be made according to the registration sequence; and where the sequence is the same, the payments shall be made on the basis of the proportion of obligee's rights; (2) The registered mortgage right shall be cleared off prior to the unregistered one; and (3) In case no mortgage right has been registered, the payments shall be made on basis of the proportion of obligee's rights.
Article 200 The buildings newly constructed on the land after the mortgage of the right to use construction land may not belong to the mortgaged properties. Such newly-constructed buildings can be disposed of together with the disposal of the aforesaid right to use construction land so as to realize the mortgage right, however, the mortgagee has no right to seek preferred payments from the money generated from the disposal of these newly-constructed buildings.
Article 201 As regards the mortgage of the right to the contracted management of land as provided for in Item (3) of Paragraph 1 of Article 180 of the present Law or the right to use construction land occupied by the plant or any other building of a township or village enterprise as prescribed in Article 183 of the present Law, after such mortgage right is realized, without completing the statutory procedures, the nature of land ownership or land use may not be altered.
Article 202 A mortgagee shall, within the limitation of action for the principal obligee's rights, exercise the mortgage right, otherwise, such mortgage right will not be protected by the people's court.