Security Law of the People's Republic of China

Order of the President No.50

June 30, 1995

Contents
Chapter I General Provisions
Chapter II Guarantee
Section 1 Guarantee and Guarantor
Section 2 Guarantee Contract and Forms of Guarantee
Section 3 Guarantee Liability
Chapter III Mortgage
Section 1 Mortgage and Mortgaged Property
Section 2 Mortgage Contract and Registration of Mortgaged Property
Section 3 The Effect of A Mortgage
Section 4 Realization of Mortgage Rights
Section 5 Mortgage Up to a Maximum Amount
Chapter IV Pledge
Section 1 Pledge of Movable Property
Section 2 Pledge of Rights
Chapter V Lien
Chapter VI Deposit
Chapter VII Supplementary Provisions

Chapter I General Provisions

Article 1 This Law is formulated in order to promote financing and circulation of commodities, safeguard fulfillment of obligations and develop the socialist market economy.

Article 2 Where a creditor requires realization of his rights by means of guarantee in an economic activity such as lending, sale, purchase, carriage of goods, undertaking of processing, etc., guarantee may be created in accordance with this Law.
The forms of guarantee provided for in this Law shall be guarantee, mortgage, pledge, lien and deposit.

Article 3 Activities relating to guarantees shall conform to the principles of equality, voluntariness, fairness, honesty and trustworthiness.

Article 4 A third party that provides a guarantee to the creditor for a debtor may require the debtor to provide a counter-guarantee.
The provisions hereof relating to guarantees shall apply to counter-guarantees.

Article 5 A guarantee agreement shall be accessory to the principal contract, and shall be invalid if the principal contract is invalid. Where a guarantee agreement provides for a separate agreement, such agreement shall be observed.
Where a debtor, a person providing guarantee or a creditor is at fault after a guarantee agreement is declared invalid, he shall bear respective civil liability for his own faults.


Chapter II Guarantee

Section 1 Guarantee and Guarantor

Article 6 For the purposes of this Law, the term "guarantee" shall refer to an act whereby a guarantor and a creditor agree that when a debtor fails to perform his obligation, the guarantor shall perform the obligation or assume liability as agreed.

Article 7 Legal persons and other organizations or citizens that have the capacity to fulfill obligations on behalf of others may act as guarantors.

Article 8 State authorities may not act as guarantors, except for on lending with the use of a loan from a foreign government or a foreign economic organization upon the approval of the State Council.


Article 9 Institutions and social organizations for the public good such as schools, kindergartens, hospitals, etc. may not act as guarantors.


Article 10 Branches and functional divisions of enterprise legal persons may not act as guarantors.
Branches of enterprise legal persons with letters of authorization from such legal persons may provide guarantees within their scope of authority.


Article 11 No work unit or individual may forcibly demand a bank, another financial institution or an enterprise to provide a guarantee for a third party. A bank, other financial institution or an enterprise that is forcibly demanded to provide a guarantee for a third party shall have the right to reject such demand.

Article 12 Where the same obligation is guaranteed by two or more guarantors, the guarantors shall bear guarantee liability in accordance with their respective shares of the guarantee as stipulated in the guarantee contract. Where no shares of the guarantee are stipulated, the guarantors shall bear joint and several liability, in which case the creditor may require that any of the guarantors bear the entire guarantee liability and all guarantors shall be obliged to secure the fulfillment of the whole obligation. A guarantor that has assumed the guarantee liability shall have recourse against the debtor or the right to demand that the other jointly and severally liable guarantors answer for the shares to be assumed by them.


Section 2 Guarantee Contract and Forms of Guarantee

Article 13 Guarantors and creditors shall conclude a written guarantee contract.


Article 14 Guarantors and creditors may conclude a separate guarantee contract for a single principal contract or agree to conclude a guarantee contract for a series of loan contracts or transaction contracts for a certain commodity within a maximum obligation amount over a certain period of time.


Article 15 A guarantee contract shall include the following content:
1. the type and amount of the principal obligation guaranteed;
2. the deadline for fulfillment of the obligation by the obligor;
3. the form of guarantee;
4. the scope of guarantee covered by the guarantee;
5. the time period of guarantee; and
6. other matters which the parties consider necessary to agree upon.
Guarantee contracts that do not contain all of the contents specified in the preceding paragraph may be amended.


Article 16 The forms of guarantee shall be:
1. general guarantee; and
2. guarantee with joint and several liability.


Article 17 A general guarantee is a guarantee whereby the parties agree in a guarantee contract that the guarantor shall bear guarantee liability when the debtor fails to perform his obligation.
The guarantor under a general guarantee may refuse to assume guarantee liability in relation to the creditor before a dispute concerning the principal contract has been adjudicated or arbitrated and when such creditor has still failed to perform the obligation despite enforcement against the debtor's property according to law.
The guarantor may not exercise the right mentioned in the preceding paragraph where:
1. a change of the debtor's domicile has made it very difficult for the creditor to require the debtor to perform the obligation;
2. a People's Court has accepted the debtor's bankruptcy case and suspended the execution process; or
3. the guarantor has waived in writing the right mentioned in the preceding paragraph.


Article 18 A guarantee with joint and several liability is a guarantee whereby the parties agree in a guarantee contract that the guarantor and the debtor are jointly and severally liable for the obligation.
Where the debtor in a guarantee with joint and several liability has not performed his obligation by the expiration of the term for performance specified in the principal contract, the creditor may require the guarantor to perform the obligation or assume guarantee liability within the scope of his guarantee.


Article 19 Where the parties have not agreed on the form of guarantee or the agreement is unclear, guarantee liability shall be borne as that of a guarantee with joint and several liability.

Article 20 The guarantor under a general guarantee or a guarantee with joint and several liability shall have the right of defense available to the debtor. The right of defense in respect of the obligation that is waived by the debtor shall still be available to the guarantor.
The term "right of defense" shall mean the right of a debtor to exercise a claim against a creditor with a legal cause when the creditor exercises his rights as a creditor.

Section 3 Guarantee Liability

Article 21 The scope of guarantee by means of a guarantee covers the principal obligation, interest, liquidated damages, compensation damages and expenses for fulfillment of the obligation. Where a guarantee contract provides for a separate agreement, such agreement shall be observed.
Where the parties have not agreed on the scope of guarantee by means of a guarantee or the agreement is unclear, the guarantor shall be liable for all obligations.

Article 22 Where a creditor lawfully assigns a principal credit to a third party during the term of a guarantee, the guarantor shall continue to bear guarantee liability within the scope of the original guarantee. Where the guarantee contract provides for a separate agreement, such agreement shall be observed.


Article 23 Where a creditor allows a debtor to assign his obligation during the term of a guarantee, he shall obtain a written consent from the guarantor. The guarantor shall no longer bear guarantee liability where the obligation is assigned without his consent.


Article 24 Where a creditor and a debtor agree to alter the principal contract, they shall obtain written consent from the guarantor. The guarantor shall no longer bear guarantee liability where he has not granted his written consent. Where the guarantee contract provides for a separate agreement, such agreement shall be observed.


Article 25 Where a guarantor and a creditor have not agreed on the term for a general guarantee, such term shall be six months from the date of expiration of the term for performance of the principal obligation.
The guarantor shall be released from his guarantee liability where the creditor fails to file a suit or to apply for arbitration against the debtor during the term of the guarantee agreed in the contract or the term of guarantee prescribed in the preceding paragraph. Where the creditor has filed a suit or applied for arbitration, the rules suspended at the time of such arbitration shall apply during the term of guarantee.

Article 26 Where a guarantor and a creditor have not agreed on the term of a guarantee in a guarantee with joint and several liability, the creditor shall have the right to require the guarantor to assume guarantee liability within six months from the date of expiration of the term for performance of the principal obligation.
Where the creditor does not require the guarantor to assume guarantee liability during the term of guarantee agreed in the contract or during the term of guarantee provided for in the preceding paragraph, the guarantor shall be released from his guarantee liability.

Article 27 Where a guarantor provides guarantees for a series of obligations in accordance with the provisions of Article 14 hereof without specifying the term of guarantee, the guarantor may at any time notify the creditor of the termination of the guarantee contract. However, the guarantor shall bear guarantee liability for the obligations incurred before the creditor is notified.

Article 28 Where an obligation is secured by both a guarantee and property, the guarantor shall bear guarantee liability for the part of the obligation that is not secured by property.
Where the creditor waives the obligation secured by property, the guarantor shall be excluded from guarantee liability for the rights waived by such creditor.


Article 29 Where the branch of an enterprise legal person concludes a guarantee contract with a creditor without prior written authorization by the legal person or beyond the scope of such authorization, such contract or the portion of such contract that exceeds the scope of authorization shall be void. Where the creditor and the enterprise legal person are at fault, they shall bear respective civil liability according to their own fault. Where the creditor is not at fault, civil liability shall be borne by the enterprise legal person.


Article 30 A guarantor shall not assume civil liability if:
1. the parties to a principal contract have conspired with each other to deceive the guarantor into providing a guarantee; or
2. the creditor under a principal contract has caused the guarantor to provide a guarantee against his will by means of fraud, intimidation or other means.


Article 31 After a guarantor has borne his guarantee liability, he shall have a recourse against the debtor.

Article 32 Where a creditor fails to declare his claim after a People's Court has accepted a bankruptcy case of the debtor, the guarantor may take part in the distribution of property in such bankruptcy and exercise his right of recourse in advance.

Chapter III Mortgage

Section 1 Mortgage and Mortgaged Property

Article 33 For the purposes of this Law, the term "mortgage" shall refer to a guarantee whereby a debtor or a third party uses property as listed in Article 34 hereof as a guarantee for an obligation without the transfer of the possession of such property. Where the debtor fails to perform his obligation, the creditor shall be entitled to priority in receiving payment by converting the property into value or in receiving proceeds from the auction or sale of the property, in accordance with this Law.
The debtor or the third party mentioned in the preceding paragraph shall be the mortgagor, the creditor shall be the mortgagee and the property provided as a guarantee shall be the mortgaged property.


Article 34 The following property may be mortgaged:
1. premises and other attachments to land owned by the mortgagor;
2. machinery, means of communication and transportation and other property owned by the mortgagor;
3. State-owned leaseholds, premises and other attachments to land of which the mortgagor has the right to dispose of according to law;
4. State-owned machinery, means of communication and transportation and other property of which the mortgagor has the right to dispose of according to law;
5. leaseholds of wasteland such as barren hills, gullies, mounds, beaches, etc. which have been lawfully contracted for by the mortgagor and with the consent of the party that contracted out the same to the mortgage; and
6. other property that may be mortgaged according to law.
A mortgagor may mortgage together different items of property set forth in the preceding paragraph.


Article 35 The obligation secured by a mortgagor may not exceed the value of the mortgaged property.
After property is mortgaged, the balance of the value of such property in excess of the secured obligation may be mortgaged again, provided that the mortgage may not exceed the balance.


Article 36 Where premises on lawfully acquired State-owned land are mortgaged, the State-owned leaseholds within the area of the land occupied by such premises shall be mortgaged at the same time.
Where State-owned leaseholds acquired by means of grant are mortgaged, the premises on such State-owned land at the time of mortgage shall be mortgaged at the same time.
Leaseholds of enterprises in townships (towns) and villages may not be mortgaged separately. Where buildings such as factory buildings of enterprises in townships (towns) or villages are mortgaged, the leaseholds within the area of the land occupied by such buildings shall be mortgaged at the same time.


Article 37 The following property may not be mortgaged:
1. land ownership;
2. leaseholds of collectively-owned land such as cultivated land, homestead land, private plots, mountainous land, etc., except for that provided for in Item 5 of Article 34 and the third paragraph of Article 36;
3. educational facilities, medical and public health facilities and other public welfare facilities of institutions and social organizations for the public good such as schools, kindergartens, hospitals, etc.;
4. property of which the ownership or leaseholds are unclear or in dispute;
5. property that are sealed up, seized or subject to supervision and control according to law; and
6. other property that may not be mortgaged according to law.


Section 2 Mortgage Contract and Registration of Mortgaged Property

Article 38 A mortgagor and a mortgagee shall conclude a written mortgage contract.

Article 39 A mortgage contract shall include the following contents
1. the type and amount of the principal obligation secured;
2. the term for performance of the obligation by the debtor;
3. the name, quantity, quality, state, location and ownership of, and use right to, the mortgaged property;
4. the scope of security covered by the mortgage; and
5. other matters which the parties consider necessary to agree upon.
A mortgage contract that does not include all of the contents specified in the preceding paragraph may be amended.

Article 40 When concluding a mortgage contract, a mortgagee and a mortgagor may not agree in such contract on the transfer of the ownership of mortgaged property to the creditor when the mortgagee has not received payment at the expiration of the term for performance of an obligation.


Article 41 The parties to a mortgage on property provided for in Article 42 hereof shall carry out registration of mortgaged property. A mortgage contract for such property shall become effective on the date of registration.


Article 42 The authorities for registration of mortgaged property shall be:
1. the land administration authority that verifies and issues leasehold certificates where leaseholds of land to which there are no attachments are mortgaged;
2. the authority designated by the local People's Government at or above county level where urban real property or buildings of enterprises in townships (towns) or villages such as factory buildings are mortgaged;
3. the forestry administration authority at or above county level where woods are mortgaged;
4. the registry for means of transportation where the aircraft, vessels or vehicles are mortgaged; and
5. the authority for administration of industry and commerce of the place where the property is located if equipment or other movables of enterprises are mortgaged.


Article 43 Where parties mortgage other property, they may carry out registration of mortgaged property on a voluntary basis. A mortgage contract for such property shall become effective on the date of signing.
Parties that fail to carry out registration of mortgaged property may not make a claim against a third party. Where the parties carry out registration of mortgaged property, the registry shall be the notarial authority of the place where the mortgagor is located.


Article 44 For the registration of mortgaged property, the following documents or photocopies thereof shall be submitted to the registry:
1. the principal contract and the mortgage contract; and
2. the ownership or leasehold certificate of the mortgaged property.


Article 45 The information registered with the registry shall be available for browsing, copying or photocopying.


Section 3 The Effect of a Mortgage

Article 46 The scope of security by means of a mortgage shall cover the principal obligation, interest, liquidated damages, compensatory damages and expenses for realization of mortgage rights. Where a mortgage contract provides for a separate agreement, such agreement shall be observed.

Article 47 Where mortgaged property is seized by a People's Court due to the debtor's failure to perform his obligation at the expiration of the term for such performance, the mortgagee shall, from the date of seizure, be entitled to the natural fruits separated from the mortgaged property as well as the statutory fruits that may be obtained by the mortgagor from the mortgaged property. Where the mortgagee fails to notify the persons who are obliged to pay the statutory fruits of such seizure, the effect of the mortgage shall not be extended to cover such fruits.
The fruits mentioned in the preceding paragraph shall first be set off against the expenses for obtaining such fruits.

Article 48 Where a mortgagor mortgages property which is already leased out, he shall inform the lessee in writing and the original lease contract shall remain effective.


Article 49 Where a mortgagor assigns mortgaged property that has already been registered during the term of the mortgage, he shall notify the mortgagee and tell the assignee of the details of such mortgaged property. The assignment shall be void where the mortgagor fails to notify the mortgagee or tell the assignee.
Where proceeds from the assignment of the mortgaged property are obviously less than the value of such mortgaged property, the mortgagee may require the mortgagor to provide a corresponding security. Where the mortgagor fails to provide such a security, the mortgaged property may not be assigned.
Proceeds obtained by the mortgagor from the assignment of the mortgaged property shall be paid to the mortgagee as advance fulfillment of the obligation secured or be deposited with a third party agreed with the mortgagee. Any portion in excess of the amount of the obligation shall be owned by the mortgagor and any shortfall shall be paid by the debtor.


Article 50 Mortgage rights may not be assigned separately from claims or used to secure another obligation.


Article 51 Where an act of a mortgagor is able to diminish the value of mortgaged property, the mortgagee shall have the right to require the mortgagor to stop such act. Where the value of such mortgaged property is diminished, the mortgagee shall have the right to require the mortgagor to either restore the value of such mortgaged property or provide a security corresponding to the diminished value.
Where the mortgagor is not at fault in the diminishment of value of such mortgaged property, the mortgagee may only require the mortgagor to provide a security to the extent of the damage compensation received by the mortgagor. The portion of the mortgaged property that has not diminished in value shall still serve as a security for the obligation.

Article 52 The mortgage and the obligation secured thereby shall co-exist. The mortgage shall be extinguished with the extinguishment of the obligation.

Section 4 Realization of Mortgage Rights

Article 53 Where a mortgagee has not received full payment at the expiration of the term for performance of the obligation, he may agree with the mortgagor to receive payment by converting the mortgaged property into value or obtaining proceeds from the auction or sale of the property.
After the mortgaged property has been converted into value or auctioned or sold off, any portion of the proceeds that exceeds the amount of the obligation shall be owned by the mortgagor and any shortfall shall be paid by the debtor.

Article 54 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 payment in accordance with the following provisions:
1. where a mortgage contract becomes effective on the date of registration, payment shall be made according to the chronological order of registrations; in case of same chronological order, payment shall be made according to the proportion of the obligations; and
2. where a mortgage contract becomes effective on the date of signing and the mortgaged property has already been registered, payment shall be made in accordance with the provisions of Item 1 of this Article; where such mortgaged property has not been registered, payment shall be made in accordance with the chronological order of the time at which the contract becomes effective; in case of same chronological order, payment shall be made according to the proportion of the obligations. With respect to payment, mortgaged property that has been registered shall take priority over mortgaged property that has not been registered.

Article 55 Buildings newly erected on the land after a mortgage contract for urban real property has been signed shall not be mortgaged property. Where such mortgaged real property needs to be auctioned, the buildings newly erected on the land may be auctioned together with the mortgaged property according to law; however, the mortgagee shall have no right of priority in receiving payment out of the proceeds from the auction of the newly erected buildings.
After the realization of mortgage rights in respect of leaseholds of contracted wasteland that are mortgaged according to this Law or leaseholds of land occupied by buildings such as factory buildings, etc. of enterprises in townships (towns) or villages that are mortgaged, the collective ownership and the purpose of the land may not be altered without having gone through the statutory procedures.

Article 56 Mortgagees shall have the right of priority in receiving payment out of the proceeds from the auction of allocated State-owned leaseholds after paying an amount equivalent to that payable as a leasehold grant fee.


Article 57 A third party that provides a security in the form of a mortgage for a debtor shall have the recourse against the debtor after realization of the mortgage rights by the mortgagee.


Article 58 Mortgage rights shall be extinguished by the loss of the mortgaged property. Compensation obtained for such loss shall serve as mortgaged property.

Section 5 Mortgage up to a Maximum Amount

Article 59 For the purposes of this Law, the phrase "mortgage up to a maximum amount" shall mean that a mortgagor and a mortgagee agree to use mortgaged property as security for a series of obligations over a certain period of time up to a maximum obligation amount.

Article 60 A contract of mortgage up to a maximum amount may be attached to a loan contract.
A contract of mortgage up to a maximum amount may be attached to a contract between a creditor and a debtor for a series of transactions relating to a certain commodity over a certain period of time.

Article 61 In a mortgage up to a maximum amount, the creditor's rights under the principal contract may not be assigned.

Article 62 In addition to the provisions of this Section, the other provisions of this Part shall apply to mortgages up to a maximum amount.

Chapter IV Pledge

Section 1 Pledge of Movables

Article 63 For the purposes of this Law, the term "pledge" shall refer to a security whereby a debtor or a third party uses movables as obligations with the transfer of the possession of such movables to the creditor. When the debtor fails to perform his obligation, the creditor shall be entitled to priority in receiving payment by converting the movable into value or proceeds from the auction or sale of such movable in accordance with this Law.
The debtor or the third party mentioned in the preceding paragraph shall be the pledgor, the creditor shall be the pledgee and the movable transferred shall be pledged property.

Article 64 Pledgors and pledgees shall conclude a written pledge contract
A pledge contract shall become effective at the time of the transfer of pledged property to pledgees.


Article 65 A pledge contract shall include the following contents:
1. the type and amount of the principal obligation secured;
2. the term for performance of the obligation by the debtor;
3. the name, quantity, quality and state of the pledged property;
4. the scope of security covering the pledge;
5. the time of transferring the pledged property; and
6. other matters which the parties consider necessary to agree upon.
Pledge contracts which do not contain all of the contents specified in the preceding paragraph may be amended.

Article 66 Pledgors and pledgees may not agree in contracts on the transfer of the ownership of pledged property to the pledgees when the pledgee has not received fulfillment of the obligation at the expiration of the term for performance of the obligation.


Article 67 The scope of security by means of a pledge shall cover the principal obligation, interest, liquidated damages, compensatory damages, expenses for the custody of pledged property and realization of pledge rights. Where a pledge contract provides for a separate agreement, such agreement shall be observed.

Article 68 Pledgors shall be entitled to the fruits produced by pledged property. Where a pledge contract provides a separate agreement, such agreement shall be observed.
The fruits mentioned in the preceding paragraph shall first be set off against the expenses for obtaining such fruits.

Article 69 Pledgees shall be obliged to keep pledged property in proper custody. Where the pledged property is lost or damaged due to improper custody, pledgors shall be civilly liable.
Where pledged property may be lost or damaged due to the inability of the pledgee to keep it in proper custody, the pledgor may require the pledgee to deposit the pledged property or fulfill his obligation and return the pledged property earlier.


Article 70 Where pledged property is likely to be damaged or obviously to diminish in value to an extent sufficient to jeopardize pledgee's rights, the pledgee may require the pledgor to provide a corresponding security. Where the pledgor fails to do so, the pledgee may auction or sell the pledged property and agree with the pledgor to use the proceeds from the auction or sale for early fulfillment of the obligation secured, or to deposit with a third party agreed with the pledgor.

Article 71 Where a debtor performs his obligation by the term for performance of such obligation or a pledgor fulfills his obligation secured ahead of the term, the pledgee shall return pledged property.
Where the pledgee does not receive payment at the expiration of the term for performance of the obligation, he may agree with the pledgor to convert the pledged property into value or may auction or sell the pledged property according to law.
After pledged property has been converted into value or auctioned or sold, any portion of the proceeds that exceeds the amount of the obligation shall be owned by the pledgor and any shortfall shall be paid by the debtor.

Article 72 A third party that provides a security by means of pledge for the debtor shall have recourse against the debtor after realization of the pledge rights by the pledgee.

Article 73 Pledge rights shall be extinguished by the loss of pledged property. Compensation obtained for such loss shall serve as pledged property.

Article 74 Pledge and the obligation secured thereby shall co-exist. The pledge shall be extinguished with the extinguishment of the obligation.

Section 2 Pledge of Rights

Article 75 The following rights may be pledged
1. bills of exchange, cheques, promissory notes, bonds, certificates of deposits, warehouse receipts, bills of lading;
2. shares and share certificates that are transferable according to law;
3. exclusive rights of trademarks, property rights among patents and copyrights that are transferable according to law;
4. other rights that may be pledged according to law.


Article 76 In case of a pledge of bills of exchange, cheques, promissory notes, bonds, certificates of deposit, warehouse receipts or bills of lading, proof of the right shall be delivered to the pledgee within the term agreed in the contract. The pledge contract pledge shall become effective on the date of the delivery of the proof of the right.


Article 77 In case of a pledge of bills of exchange, cheques, promissory notes, bonds, certificates of deposit, warehouse receipts or bills of lading specifying a date for encashment or delivery of goods and where the date for encashment or delivery of goods under the bills of exchange, cheques, promissory notes, bonds, certificates of deposit, warehouse receipts or bills of lading falls before the term for performance of the obligation, the pledgee may cash it or deliver the goods prior to the expiration of the term for performance of the obligation and may agree with the pledgor to use the amount cashed or the goods delivered for early fulfillment of the obligation secured or to deposit with or withdraw from a third party agreed with the pledgor.

Article 78 In case of a pledge of share certificates that are transferable according to law, the pledgor and the pledgee shall conclude a written contract and register the pledge with the securities registry. The pledge contract shall become effective on the date of registration.
A share certificate may not be assigned after it has been pledged; however, it may be assigned after the pledgor and the pledgee so agree following consultations. Proceeds obtained by the pledgor from the assignment of the share certificate shall be used for early fulfillment of the secured obligation to the pledgee or deposited with a third party agreed with the pledgee.
In case of a pledge of shares in a limited liability company, the relevant provisions of the Company Law of the People's Republic of China for transfer of shares shall apply. The pledge contract shall become effective on the date on which the pledge of the shares is recorded in the register of shareholders.


Article 79 In case of a pledge of a trademark, patent or copyright among property rights that are transferable according to law, the pledgor and the pledgee shall conclude a written contract and register the pledge with the authorities for the administration of such trademark, patent or copyright. The pledge contract shall become effective on the date of registration.


Article 80 After the rights specified in Article 79 hereof have been pledged, the pledgor may not assign such rights or permit others to use such rights. However, the pledgor and the pledgee may assign or permit others to use such rights through consultations. The assignment fee or license fee obtained by the pledgor shall be used for early fulfillment of the secured obligation to the pledgee or deposited with a third party agreed with the pledgee.


Article 81 In addition to the provisions of this Section, the provisions of Section One of this Part shall apply to the pledge of rights.

Chapter V Lien

Article 82 For the purposes of this Law, the term "lien" shall refer to a creditor's possession of a movable of a debtor as agreed in the contract according to Article 84 hereof. Where the debtor fails to perform his obligation within the term agreed in the contract, the creditor shall have the right to retain such property and priority in receiving payment by converting the property into value or proceeds from the auction or sale of the property in accordance with this Law.


Article 83 The scope of security by means of lien shall cover the principal obligation, interest, liquidated damages, compensatory damages and expenses for the custody of lien Articles and realization of lien rights.

Article 84 Where the debtor of an obligation incurred under a contract of custody or for transport or the undertaking of processing fails to perform his obligation, the creditor shall have a right of lien.
The provisions of the preceding paragraph shall apply to other contracts that may be subject to lien according to law.
The parties may agree in a contract on Articles that must not be subject to lien.


Article 85 Where property subject to lien is divisible, the value of such property shall be equivalent to the amount of the obligation.


Article 86 Lienors shall be obliged to keep lien Articles in proper custody. Where a lien Article is lost or damaged due to improper custody, the lienor shall be civilly liable.

Article 87 Creditors and debtors shall agree in a contract that debtors shall perform his obligation within a term of no less than two months after creditors have retained lien property. Where creditors and debtors do not agree in the contract, the creditor, after having retained the debtor's property, shall fix a term of two months or more and notify the debtor of performing his obligation within such term.
Where debtors have not performed his obligation at the expiration of the term, creditors may agree with debtors on converting lien Articles into value or may auction or sell such lien Articles according to law.
After a lien Article has been converted into value or auctioned or sold, any portion of the proceeds that exceeds the amount of the obligation shall be owned by debtors and any shortfall shall be paid by debtors.

Article 88 A lien shall be extinguished as a result of the following reasons
1. the obligation is extinguished; or
2. a separate security is provided by the debtor and accepted by the creditor.

Chapter VI Deposit

Article 89 Parties may agree that one party pay the other party a deposit as a security for an obligation. After debtors have performed obligations, deposits shall be set off against the price or be recovered. Where the party who pays a deposit fails to perform the obligation as agreed, he shall not have the right to demand a refund of the deposit. Where the party who receives a deposit fails to perform the obligation as agreed, he shall refund twice the amount of the deposit.

Article 90 Deposits shall be agreed in writing. In a contract for a deposit, parties shall agree upon a deadline for payment of the deposit. The contract for a deposit shall become effective on the date on which the deposit is actually paid.

Article 91 The amount of a deposit shall be agreed by the parties, but may not exceed 20 per cent of the value of the subject matter of a principal contract.

Chapter VII Supplementary Provisions

Article 92 For the purposes of this Law, the term "immovables" shall refer to land and attachments thereto, such as premises, woods, etc.
For the purposes of this Law, the term "movables" shall refer to Articles other than immovables.

Article 93 For the purposes of this Law, guarantee, mortgage, pledge and deposit contracts may be separately concluded written contracts that include letters, facsimiles, etc., between parties with a nature of security, and that may also be security clauses of a principal contract.

Article 94 Mortgaged, pledged or lien property shall be converted into value or sold by reference to the market value.

Article 95 Where laws such as the Maritime Law of the People's Republic of China contain special provisions on security, such provisions shall be observed.

Article 96 This Law shall be effective as of October 1, 1995.