Section 3 Effect of Mortgage

　　Article 46 Within the guaranteed scope of a mortgage shall be the master obligatory² and its interest， contractual fine， damage compensation and expense of realization³ of mortgage. If there is an agreement otherwise in the mortgage contract， it shall be complied with.

　　Article 47 At the date of expiration⁴ of the debt performance period， if the debtor⁵ has not performed the debt so that the gage¹ has been distrained by the people's court， from the date of distraining the mortgagee shall be entitled to collect the natural fruits separated from the gage and the legal fruits that the mortgagee may collect on the gage. If the mortgagee has not informed the fact of the distraining of the gage to the obligatory person who shall satisfy the claim out of proceeds for the legal fruits， the effect of mortgage shall not extend to the said fruits.

　　The fruits of the proceeding⁶ paragraph shall eliminate in advance the expense of collecting the fruits.

　　Article 48 If the mortgagor wants to mortgage a property that has been leased， he shall notify the lea see in writing， and the original lease contract continues to be effective.

　　Article 49 During the period of mortgage， if the mortgagor assigns the gage registered， he shall inform the mortgagee and also notify the assignee of the situation that the grant has been mortgaged； if the mortgagor does not inform the mortgagee or notify the assignee， the assigning behavior shall be invalid⁷.

　　If the value amount of the gage assigned is obviously lower than its value， the mortgagee may demand the mortgagor to offer the equivalent guarantee； if the mortgagor does not offer， the gage shall not be assigned.

　　The value amount from assigning the gage by the mortgagor shall satisfy in advance the mortgagee for the claim out of the proceeds on the obligatory right guaranteed or be deposited to the third party he agreed with the mortgagee. The part exceeding the amount of the obligatory right， shall be owned by the mortgagor， while the short part shall be satisfied by the debtor.

　　Article 50 The mortgage right shall not be separated from the obligatory right so that it is assigned solely⁸ or as a guarantee of other obligatory rights.

　　Article 51 If the behavior of the mortgagor causes the value of the gage to decrease， the mortgagee shall be entitled to have right to demand the mortgagor to stop his behavior. When the value of the gage decreases， the mortgagee shall be entitled to have right to demand the mortgagor to restore the value of the gage， or offer a guarantee equivalent to the value decreased.

　　If the mortgagor has no fault for the decrease of the value of the gage the mortgagee shall demand the mortgagee to be offered only within the extent of compensation for the damage obtained by the mortgagor. The part of the gage of which the value does not decrease， shall still be the guarantee of the obligatory right.

　　Article 52 The mortgage shall exist simultaneously⁹ with the obligatory right it guarantees， where the obligatory right is extinct， the mortgage shall be extinct as well.

　　Section 4 Realization of Mortgage

　　Article 53 At the date of expiration of the debt performance period if the mortgagee has not been satisfied with the claim out of proceeds， he may make an agreement with the mortgagor to keep the said property to offset¹⁰ the gage or satisfies his claim out of proceeds from the auction¹¹， sale of the said gage； if failing to make an agreement， the mortgagor may file a case to the People's Court.

　　After the gage is set off， auctioned¹² or sold， the part of the value amount exceeding the amount of the obligatory right shall be owned by the mortgagor， the short part shall be satisfied by the debtor.

　　Article 54 If there are two or more creditors¹⁴ who have a mortgage on the same property， the value amount obtained from the auction， sale of the gage shall be satisfied pursuant to the following provisions：

　　1. where the mortgage contract is effective through registration¹⁵， it shall be satisfied in the registration sequence of the gage； if equal in sequence， then it shall be satisfied according to the proportion of the obligatory right； or

　　2. where the mortgage contract is effective as the date of signing， and the said gage has been registered， it shall be satisfied according to the item 1 of this Article； if the gage has not registered， it shall be satisfied in the sequence of the effective date of the contracts， and if equal in sequence， it shall be satisfied according to the proportion of the obligatory right. The registered gage has priority to the unregistered gage.

　　Article 55 After the signing of the city real estates mortgage contract， the houses built lately upon the land shall not belong to the gage. When the said mortgaged real estates is needed to be auctioned， the lately built houses upon the land may be auctioned together with the gage， but as for the amount from the auction of the lately built houses， the mortgagee shall not be entitled to have priority in satisfying the claim out of proceeds.

　　Where the right to the use of land of the unreclaimed land contracted for management according to this Law is to be mortgaged， or the right to the use of the land within the extent occupied by the buildings of the township （town） or village enterprises such as a plant is to be mortgaged， after the realization of mortgage， the collective ownership and purpose of the land shall not be changed without the legal procedure is gone through.

　　Article 56 The value amount obtained from the auction of the right to the use of the stated-owned land appropriated， after paying the amount equivalent to the transfer fee of the right to the use of land which shall be paid， the mortgagee shall be entitled to have right in priority for the claim out of proceeds.

　　Article 57 The third party who offers guarantee of a mortgage on behalf of the debtor， after the realization of the mortgage by the mortgagee， shall be entitled to have right to claim repayment¹⁶ from the debtor.

　　Article 58 The mortgage right extinguishes with the extinction¹⁷ of the gage. The compensation for the extinction shall be as the mortgaged property.

　　Section 5 Mortgage of the Maximum Amount

　　Article 59 The mortgage of the maximum amount prescribed in this Law， means that the mortgagor and the mortgagee agree， within the extent of maximum amount of the obligatory right， to take the gage as the guarantee of the obligatory right occurred continuously during a certain period.

　　Article 60 A loan contract may be attached with a mortgage contract of maximum amount.

　　The contract signed by the creditor¹³ and debtor on a certain item commodity with which the trade occurs continuously during a certain period， may be attached with a mortgage contract of maximum amount.

　　Article 61 The obligatory right of the master contract with the mortgage of maximum amount shall not be assigned.

　　Article 62 The mortgage of maximum amount shall， besides that it is applied¹⁸ to the provisions of this section， be applied to other provisions of this Chapter.

　　Chapter IV Pledge

　　Section 1 Pledge of Movables

　　Article 63 The pledge of movables described in this Law， means that the debtor or the party delivers his movables to the creditor for possession， and takes the said movables as the guarantee of the obligatory right. When the debtor does not perform the debt， the creditor shall be entitled to have right to keep the said movables to offset or have priority insatisfying in the claim out of proceeds from the value amount of the auction or sale of the said movables.

　　The debtor or the third party prescribed in the proceeding paragraph shall be a pledgor， the creditor shall be a pledgee， the movables delivered shall be the pledgings.

　　Article 64 The pledgor and the pledgee shall enter into a pledge contract in writing.

　　A pledge contract shall be effective as the date of remitting¹⁹ the pledgings to the pledgee.

　　Article 65 A pledge contract shall contain the following contents：

　　1. the categories and amount of the master obligation right guaranteed；

　　2. the time period to perform the debt by the debtor；

　　3. the name， quantity， quality and situation of the pledgings；

　　4. the extent guaranteed by the pledge；

　　5. the time to deliver the pledgings； and

　　6. other items which the parties consider necessary to agree.

　　If a pledge contract has the contents incompletely prescribed in the proceeding paragraph， it may be supplemented.

　　Article 66 The pledgor and the pledgee shall not agree that， when the pledgee is not satisfied at date of expiration of the time limitation for the debt performance， the ownership of the pledgings is to be transferred to the pledgee.

　　Article 67 The guaranteed scope of a pledge shall conclude the master obligatory right and its interest， contractual fine， damage compensation， expense for keeping the pledgings and expense for realization of pledge. If there is an agreement otherwise in the pledge contract， it shall be complied with.

　　Article 68 The pledgee shall be entitled to have right to collect the fruits produced by the pledgings. If there is an agreement otherwise in the pledge contract， it shall be complied with.

　　The fruits of the proceeding paragraph shall eliminate in advance the expense of collecting the fruits.

　　Article 69 The pledgee shall bear the obligation to keep the pledgings properly. If he does not keep the pledgings properly so that the pledgings are extinct or damaged， the pledgee shall bear the civil liability.

　　If the pledgee cannot keep the pledgings properly which probably cause the extinction or damage of the pledgings， the pledgor may demand the pledgee to have the pledgings to be deposited， or demand to satisfy the obligatory right before the date of expiration in order that the pledgings can be returned.

　　Article 70 If there is a probability of damage of or obvious deduction²⁰ of the value of the pledgings that is enough to hurt the rights of the pledgee， the pledgee may demand the pledgor to offer the relevant guarantee. If the pledgor does not offer the guarantee， the pledgee may auction or sell the pledgings， and make an agreement with the pledgor that the value amount obtained from the auction or sale is used to satisfy the obligatory right guaranteed before the date of expiration or to be deposited to the third party whom he agrees with the pledgor.

　　Article 71 At the date of expiration of the debt performance time limitation if the debtor has performed the debt， or the pledgor has satisfied the obligatory right guaranteed before the date of expiration， the pledgee shall return the pledgings.

　　At the date of expiration of the debt performance time limitation if the pledgee has not been satisfied， he may make an agreement with the pledgor to keep the pledgings to offset， or to auction， sell the pledgings.

　　After the pledgings are kept to offset or auctioned， sold， the part that the value amount exceeds the amount of the obligatory right shall be owned by the pledgor， the short part shall be satisfied by the debtor.

　　Article 72 The third party who offers the guarantee of a pledge on behalf of the debtor shall， after the realization of the pledge by the pledgee， be entitled to have right to claim repayment from the debtor.

　　Article 73 The right of the pledge extinguishes with the extinction of the pledgings. The compensation for the extinction shall be as the pledged property.

　　Article 74 The pledge shall be existed simultaneously with the obligatory right it guarantees， where the obligatory right is extinct， the pledge is extinct as well.

　　Section 2 Pledge of Rights

　　Article 75 The following rights may be pledged：

　　1. a bill of exchange， check， promissory note， bond， deposit receipt， bill of lading or warehouse²² receipt；

　　2. the share or share paper which may be assigned according to the law；

　　3. the property right of the exclusive right to use trademark²³， patent right， copyright which may be assigned according to the law； or

　　4. other rights which may be pledged according to the law；

　　Article 76 Where the bill of exchange， check， promissory note， bond， deposit receipt， bill of lading or ware²¹ house receipt is to be pledged， the right voucher²⁴ shall be delivered to the pledgee within the time limitation agreed in the contract. The pledge contract shall be effective from the date of delivery of the right voucher.

　　Article 77 Where the bill of exchange， check， promissory note， bond， deposit receipt， bill of lading or ware house receipt with clear record of the date of cashing or delivery of the goods is to be pledged， if the date of cashing or delivery of the goods is before expiration of the debt performance time period， the pledgee may make a cashing or delivery of the goods before the date of expiration of the debt performance time period， and make an agreement with the pledgor that the value amount cashed or the goods delivered is to be used to satisfy the obligatory right guaranteed before the date of expiration or to be deposited to the third party he agrees with the pledgee.

　　Article 78 Where the share paper that may be assigned according to the law is to be pledged， the pledgor and the pledgee shall enter into a written contract， and go through the pledge registration to the security registration institution. The pledge contract shall be effective as the date of registration.

　　After the share paper is pledged， it shall not be assigned， however it may be assigned with the agreement between the pledgor and the pledgee. The value amount obtained from the assignment of the shares by the pledgor shall be used to satisfy the pledgee the obligatory right guaranteed before the date of expiration or to be deposited to the third party he agrees with the pledgee.

　　Where the shares of a limited liability corporation are to be pledged， it shall be applied to the concerned provisions of the Corporation Law on the assignment of shares. The pledge contract shall be effective as the date of recording²⁵ the pledge of the shares in the shareholders²⁶' name list.

　　Article 79 Where the property right of the exclusive right to use trademark， patent right or copyright which may be assigned according to the law is to be pledged， the pledgor and the pledgee shall enter into a written contract， and go through the pledge registration to its administration department. The pledge contract shall be effective as of the date of registration.

　　Article 80 After the right prescribed in Article 79 is pledged， the pledgor shall not assign or permit others to use them， however it may be assigned with the agreement between the pledgor and the pledgee. The assignment fee， permission fee obtained by the pledgor shall be used to satisfy the obligatory right of the pledgee guaranteed before the date of expiration or to be deposited to the third party he agrees with the pledgee.

　　Article 81 The pledge of rights shall， besides that it is applied to the provisions of this section， be applied to other provisions of Section 1 in this Chapter.

　　Chapter V Lien²⁷

　　Article 82 The lien prescribed in this Law means that， according to the provisions of Article 84 in this Law， the creditor possess the property of the debtor according to the agreement of the contract， if the debtor does not perform the debt pursuant to the time limitation agreed in the contract， the creditor shall be entitled to have right to have a lien on the said property according to this Law， to keep the said property to offset or have priority in satisfying for the claim out of proceeds from the value amount of the auction， sale of the said property.

　　Article 83 The guaranteed scope of a lien shall conclude the master obligatory right and its interest， contractual fine， damage compensation， expense for keeping the subject with a lien and expense for realization of the right of lien.

　　Article 84 As for the obligatory right occurred with the contract of safekeeping， contract of carriage or contract for processing work， if the debtor does not perform the debt， the creditor shall be entitled to have a lien on it.

　　Other contracts in which a lien may be agreed prescribed by the laws， shall be applied to the provisions of the proceeding paragraph.

　　The parties may agree in the contract the subject that shall not be had with a lien.

　　Article 85 If the property with a lien is separable， the value of the subject with a lien shall be equal to the amount of the debt.

　　Article 86 The lien or shall bear the obligation to keep the subject with a lien properly. If he does not keep the subject with a lien properly so that the subject with a lien is extinct or damaged， the lien or shall bear the civil liability.

　　Article 87 The creditor and the debtor shall agree in the contract that， after the creditor has a lien on the property， the debtor shall perform the debt within the time limitation that shall not be less than 2 months. If the creditor and the debtor have not agreed in the contract， after the creditor has a lien on the property of the debtor， he shall determine a time limitation of more than 2 months， inform the debtor to perform the debt within the said time limitation.

　　If the debtor does not perform the debt yet at the date of expiration of the time limitation， the creditor may make an agreement with the debtor to keep the subject with a lien to offset， and may also auction， sell the subject with a lien according to the law.

　　After the subject with a lien is kept to offset or auctioned， sold， the part of which the value amount exceeds the amount of the obligatory right shall be owned by the debtor， the short part shall be satisfied by the debtor.

　　Article 88 The right of lien extinguishes，

　　1. if the obligatory right extinguishes； or

　　2. if the debtor offers guarantee otherwise and it is accepted by the creditor.

　　Chapter VI Deposit

　　Article 89 The parties may agree that one party will pay the deposit to another party as guarantee. After the debtor performs the debt， the deposit shall offset the value amount or be returned. If the party who pays the deposit does not perform the debt， he shall not be entitled to have right to demand the deposit to be returned； if the party who accepts the deposit does not perform the debt， he shall return twice the amount of the deposit.

　　Article 90 The deposit shall be agreed in writing. The parties shall agree the time limitation to pay the deposit in the deposit contract. The deposit contract shall be effective as the date of actual payment of the deposit.

　　Article 91 The amount of the deposit shall be determined²⁸ by the parties， but shall not exceed 20 percent of the target amount of the master contract.

　　Chapter VII Supplementary²⁹ Provisions

　　Article 92 The real estate prescribed in this Law indicates the land and the fixtures³⁰ upon the land such as a house or woods.

　　The movables prescribed in this Law indicates the subjects except the real estate.

　　Article 93 The guaranty contract， mortgage contract， pledge contract， deposit contract prescribed in this Law may be a written contract entered into separately， including the mails or letters， faxes between the parties which have the nature of guarantee， and may also be the guarantee articles in the master contract.

　　Article 94 When the gage， pledgings and subject with a lien is offset or sold， the market price shall be refereed³¹ to.

　　Article 95 If any law such as the Maritime³² Code has specific provisions on the guarantee， they shall be complied with.

　　Article 96 This Law shall become effective on the date of October 1， 1995

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