(Adopted at the 14th Meeting of the Standing Committee of the Eighth National People’s Congress on June 30, 1995
and promulgated by Order No. 50 of the President of the People’s Republic of China on June 30, 1995)
Contents
Chapter I General Provisions
Chapter II Suretyship
Section 1 Suretyship and Surety
Section 2 Suretyship Contract and Modes of Suretyship
Section 3 Suretyship Liability
Chapter III Mortgage
Section 1 Mortgage and Mortgaged Property
Section 2 Mortgage Contract and Registration of Mortgaged Property
Section 3 Effect of Mortgage
Section 4 Enforcement of Mortgage Right
Section 5 Mortgage of Maximum Amount
Chapter IV Pledge
Section 1 Pledge of Movables
Section 2 Pledge of Rights
Chapter V Lien
Chapter VI Deposit
Chapter VII Supplementary Provisions
Chapter I
General Provisions
Article 1 This Law is enacted with a view to promoting the accommodation of funds and the circulation of commodities, ensuring the
enforcement of creditor’s rights and developing the socialist market economy.
Article 2 If creditors need to have their claims honoured by means of guaranty in such economic activities as loans, purchase and
sale of commodities, transportation of goods, and contract for processing materials, they may establish guaranty according
to the provisions of this Law.
The modes of guaranty as provided by this Law are suretyship, mortgage, pledge, lien and deposit.
Article 3 In guaranty activities, the principles of equality, voluntariness, fairness, honesty and credibility shall be observed.
Article 4 Where a third party provides a guaranty to creditor for a debtor, the third party may require the debtor to provide him
with a counter-guaranty.
The provisions on guaranty in this Law shall apply to the counter-guaranty.
Article 5 A guaranty contract is an ancillary contract of the principal contract. If the principal contract is null and void, the
guaranty contract shall be null and void, accordingly. Where it is otherwise agreed in the guaranty contract, such agreement shall
prevail.
If a guaranty 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.
Chapter II
Suretyship
Section 1
Suretyship and Surety
Article 6 Suretyship as used in this Law means an agreement pursuant to which a surety and a creditor agree that the surety shall
perform the obligation or bear the liability according to the agreement, when the debtor fails to perform his obligation.
Article 7 A legal person, other organization or a citizen capable of assuming debts may act as a surety.
Article 8 No State organ may act as a surety, except in the case of securing loans, for onlending, from a foreign government or an
international economic organization as is approved by the State Council.
Article 9 Institutions such as schools, kindergartens and hospitals established for purposes of public welfare, and public organizations
may not act as a surety.
Article 10 Branches and functioning departments of an enterprise as a legal person may not act as a surety.
If a branch of an enterprise as a legal person has a power of attorney from the legal person, it may provide a suretyship within
the scope of authority.
Article 11 No organization or individual may compel a bank or another financial institution or an enterprise to provide a suretyship
for another; a bank or another financial institution or an enterprise shall have the right to refuse to provide suretyship for another.
Article 12 Where there are two or more sureties for one obligation, the sureties shall undertake suretyship liability according to
their proportion of suretyship agreed in the suretyship contract. In the absence of an agreement on the proportion of suretyship,
the sureties shall be jointly and severally liable. The creditor may demand any one of the sureties to undertake all suretyship liability,
and every surety shall have the obligation to ensure all of the creditor’s rights. The surety who has undertaken the suretyship liability
shall have the right of recourse against the debtor, or have the right to demand other sureties who are jointly and severally liable
to discharge the proportion of obligations which they should respectively assume.
Section 2
Suretyship Contract and Modes of Suretyship
Article 13 A surety and a creditor shall conclude a suretyship contract in writing.
Article 14 A surety and a creditor may conclude separate suretyship contracts for a single principal contract, or may reach an agreement
to conclude, to the extent of the maximum amount of claim, a single suretyship contract for loan contracts or for certain commodities
transaction contracts which successively occur in a given period of time.
Article 15 A suretyship contract shall contain the following particulars:
(1) the kind and amount of the principal claim guaranteed;
(2) the time limit for the debtor to perform the obligation;
(3) the modes of suretyship;
(4) the scope of the suretyship guaranty;
(5) the term of the suretyship; and
(6) other matters the parties deem appropriate.
If a suretyship contract does not contain all the particulars specified in the preceding paragraph, the particulars omitted
may be added by amendment.
Article 16 The modes of suretyship include:
(1) general suretyship;
(2) suretyship of joint and several liability.
Article 17 A general suretyship refers to a suretyship contract wherein the parties agree that the surety shall undertake suretyship
liability in case the debtor defaults.
A general suretyship allows the surety to refuse to undertake suretyship liability towards the creditor before a dispute over the
principal contract is tried or arbitrated and the obligations are not enforceable even after the debtor’s assets have been seized
according to law.
A surety may not exercise the right provided in the preceding paragraph in any of the following circumstances:
(1) The change of the debtor’s domicile makes it extremely difficult for the creditor to have the debtor’s obligation enforced;
(2) A People’s Court suspends the enforcement proceedings due to its acceptance of the debtor’s bankruptcy case; or
(3) The surety waives in writing the right provided in the preceding paragraph.
Article 18 A suretyship of joint and several liability refers to a suretyship contract wherein the parties agree that the surety
and the debtor shall be jointly and severally liable.
Where the debtor of a suretyship of joint and several liability defaults when the time limit for his performance of the obligation
provided in the principal contract expires, the creditor may demand that the debtor perform his obligation, or demand that the surety
undertake the suretyship liability within the scope of the suretyship agreement.
Article 19 In the absence of an agreed or explicitly agreed mode of suretyship, the parties shall bear the suretyship liability following
the mode of a suretyship of joint and several liability.
Article 20 The surety of a general suretyship or a suretyship of joint and several liability shall enjoy the debtor’s right of defense.
Where a debtor waives his right of defense against the obligation, the surety shall still enjoy a right of defense.
The right of defense means a debtor’s right to exercise his right of claim on legal basis against the creditor when the creditor
seeks to enforce his rights.
Section 3
Suretyship Liability
Article 21 The scope of the suretyship guaranty includes the principal claim and the interest thereof, default fine, compensation
for damage and expenses for enforcing the claim, unless the suretyship contract provides otherwise.
In the absence of an agreed or explicitly agreed scope of the suretyship guaranty, the surety shall be liable for payment of all
the above costs.
Article 22 If a creditor transfers, in accordance with law, his principal claim to a third party during the period of the suretyship,
the surety shall continue to be bound by the suretyship contract within the scope of the original suretyship guaranty, unless the
suretyship contract provides otherwise.
Article 23 Where a creditor permits a debtor to transfer his debts to a third party during the period of the suretyship, a consent
in writing shall need to be obtained from the surety; the surety shall no longer be liable if the debts are transferred without his
prior consent in writing.
Article 24 When a creditor and a debtor agree to alter the principal contract, they shall have to obtain the surety’s consent in
writing; the surety shall no longer be liable if the contract is altered without his prior consent in writing, unless the suretyship
contract provides otherwise.
Article 25 If the surety of a general suretyship and the creditor have no agreement on the term of suretyship, the term of suretyship
shall be six months from the date of maturity of the principal debts.
Where the creditor neither files a lawsuit against the debtor nor applies for arbitration during the term of suretyship agreed in
the contract or provided in the preceding paragraph, the surety shall be relieved of the suretyship liability; where the creditor
has filed a lawsuit or applied for arbitration, the provisions on the interruption of prescription shall apply to the term of suretyship.
Article 26 Where the surety of a suretyship of joint and several liability and the creditor have no agreement on the term of suretyship,
the creditor shall, within six months from the date of maturity of the principal debts, have the right to demand that the surety
undertake suretyship liability.
If the creditor does not demand that the surety undertake suretyship liability during the term of suretyship agreed in the contract
or provided by the preceding paragraph, the surety shall be relieved of the suretyship liability.
Article 27 Where in accordance with the provisions of Article 14 of this Law, a surety provides a suretyship to a creditor’s claims
which successively occur but there is no agreement on the term of the suretyship, the surety may at any time notify in writing the
creditor of termination of the suretyship contract, nevertheless, the surety shall be liable for the creditor’s claims which vested
before the creditor receives the notice.
Article 28 Where there are both suretyship and property security for the same claim, the surety shall be liable for the creditor’s
claim unsecured by the property security.
If the creditor waives the property security, the surety shall be relieved of his suretyship liability to the extent of the creditor’s
waiver.
Article 29 If a branch of an enterprise as a legal person concludes a suretyship contract with a creditor without the written authorization
of the enterprise or beyond the scope of the authorization, the suretyship contract shall be null and void or the part of the contract
that is beyond the scope of the authorization shall be null and void. If the creditor and the enterprise as a legal person are both
at fault, they shall bear their respective civil liabilities commensurate with their own fault; if the creditor is not at fault,
the enterprise as a legal person shall be civilly liable.
Article 30 The surety shall not be civilly liable under any of the following circumstances:
(1) the parties to the principal contract conspire to defraud the surety of a suretyship; and
(2) the creditor to the principal contract resorts to deception or coercion to induce or cause the surety to provide a suretyship
against its will.
Article 31 The surety, after his assumption of the suretyship liability, shall be enpost_titled to recourse against the debtor.
Article 32 If the creditor does not seek to enforce his claim after a People’s Court’s acceptance of the debtor’s bankruptcy case,
the surety may participate in the distribution of the bankruptcy property and exercise his right of recourse in advance.
Chapter III
Mortgage
Section 1
Mortgage and Mortgaged Property
Article 33 Mortgage as used in this Law means that the debtor or a third party secures the creditor’s rights with property listed
in Article 34 of this Law without transference of its possession. If the debtor defaults, the creditor shall be enpost_titled to convert
the property into money to offset the debts or have priority in satisfying his claim from the proceeds of auction or sale of the
property in accordance with the provisions of this Law.
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 34 The following property may be mortgaged:
(1) houses and other things firmly fixed on the land which are owned by the mortgagor;
(2) machines, means of transport and other property owned by the mortgagor;
(3) the land-use right to the State-owned land, State-owned houses and other things firmly fixed on the land which the mortgagor
is enpost_titled to dispose of according to law;
(4) State-owned machines, means of transport and other property which the mortgagor is enpost_titled to dispose of according to law;
(5) the land-use right to barren hills, barren gullies, barren hillocks, waste flood land and other unreclaimed land contracted by
the mortgagor according to law and consent for the mortgage of such right is obtained from the party granting the contract; and
(6) other property that may be mortgaged according to law.
A mortgagor may at the same time mortgage all the property listed in the preceding paragraph.
Article 35 The amount of a claim secured by a mortgagor shall not exceed the value of his mortgaged property.
If the value of the mortgaged property exceeds that of the claim secured, the surplus may be mortgaged again, but not in excess of
the surplus.
Article 36 Where houses on State-owned land acquired in accordance with law are mortgaged, the land-use right to the State-owned
land occupied by the houses shall be mortgaged at the same time.
Where the land-use right to State-owned land acquired by means of granting is mortgaged, the houses on the State-owned land shall
be mortgaged at the same time.
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 37 The following property may not be mortgaged:
(1) ownership of the land;
(2) the 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 in sub-paragraph (5) of Article 34 and sub-paragraph (3) of Article 36 of this Law;
(3) 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;
(4) property in relation to which the ownership or the right of use is unknown or disputed;
(5) property sealed up, distrained or placed under surveillance in accordance with law; or
(6) other property which may not be mortgaged as prescribed by law.
Section 2
Mortgage Contract and Registration of Mortgaged Property
Article 38 A mortgagor and a mortgagee shall conclude a mortgage contract in writing.
Article 39 A mortgage contract shall include the following particulars:
(1) the kind and amount of the principal claim secured;
(2) the term in which the debtor performs his obligation;
(3) the name, quantity, quality, condition, location, ownership or ownership of the right to the use of the mortgaged property;
(4) the scope of the guaranty of mortgage; and
(5) other matters the parties deem necessary to include in the contract.
If a mortgage contract does not include all the particulars specified in the preceding paragraph, the omissions may be added by amendment.
Article 40 In concluding a mortgage contract, 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 41 Where a party mortgages property provided for in Article 42 of this Law, he shall register the mortgaged property, and
the mortgage contract shall become effective as of the date of registration.
Article 42 The departments responsible for the registration of mortgaged property are as follows:
(1) the land administration departments which verify and issue certificates evidencing the land-use right if the land-use right to
the land to which nothing is firmly attached is mortgaged;
(2) the departments designated by local people’s governments at or above the county level, if urban real estates or factories and
other buildings of township (town) or village enterprises are mortgaged;
(3) the forestry administration departments at or above the county level, if forest trees are mortgaged;
(4) the registration departments for means of transport, if aircraft, ships and vehicles are mortgaged; or
(5) the administrative departments of industry and commerce in the place where the property is located, if the equipment
and other movables of enterprises are mortgaged.
Article 43 Where a party mortgages other property, he may, of his own will, register the mortgaged property, and the mortgage contract
shall become effective as of the date of execution.
If a party does not register the mortgaged property, he may not defend against the claims of third party. If a party intends to register
the mortgaged property, the notary department in the place where the mortgagor resides shall be the registration department.
Article 44 To register the mortgaged property, a party shall submit to the registration department the following documents or their
duplicates:
(1) the principal contract and the mortgage contract; and
(2) the certificates evidencing the ownership of or the use right to the mortgaged property.
Article 45 Consulting, transcribing or duplicating the materials registered with the registration departments shall be permitted.
Section 3
Effect of Mortgage
Article 46 The scope of guaranty of mortgage includes the principal debt and the interest thereof, default fine, compensation for
damage and expenses for enforcing the mortgage, unless otherwise provided in the mortgage contract.
Article 47 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 enpost_titled 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 provided for in the preceding paragraph shall first be used to offset the expenses for collecting the fruits.
Article 48 If a mortgagor mortgages leased property, he shall notify the lessee of the fact in writing, and the original contract
of lease continues in effect.
Article 49 If a mortgagor transfers mortgaged property already registered during the period of mortgage, he shall notify the mortgagee
and inform the transferee that the transferred property is mortgaged; if the mortgagor fails to notify the mortgagee or inform the
transferee of the fact, the transfer shall be null and void.
If the proceeds expected from the transfer of the mortgaged property are evidently less than its value, the mortgagee may demand
that the mortgagor provide an additional guaranty; if the mortgagor fails to provide the additional guaranty, then he may not transfer
the mortgaged property.
The proceeds which the mortgagor obtains from the transfer of the mortgaged property shall first 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.
Article 50 The right of mortgage may not be separated from the creditor’s rights and transferred singly, nor used to secure other
creditors’ rights.
Article 51 Where a mortgagor’s acts are likely to cause the value of the mortgaged property to decline, the mortgagee shall be enpost_titled
to demand that the mortgagor cease and deist from such acts. Where the value of the mortgaged property has declined, the mortgagee
shall be enpost_titled to demand that the mortgagor restore the original value of the mortgaged property or provide security corresponding
to the amount of the lost value.
If the mortgagor is not responsible for the decline in the value of the mortgaged property, the mortgagee may only demand that the
mortgagor provide security to cover the loss resulting from the decline in value. The part of the mortgaged property whose value
has not declined shall continue to serve as guaranty for the creditor’s right.
Article 52 The right of mortgage shall co-exist with the creditor’s right secured. If the creditor’s right lapses, the right of mortgage
shall also lapse.
Section 4
Enforcement of Right of Mortgage
Article 53 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; if they fail
to reach an agreement, the mortgagee may bring a lawsuit in a People’s Court.
If the proceeds from the conversion of the mortgaged property or the proceeds from the auction or sale thereof exceed the claim,
the balance shall be returned to the mortgagor; if the proceeds do not cover the claim, the difference 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 liquidation according to the following provisions:
(1) 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;
(2) Where a mortgage contract takes effect on the date of its execution and the mortgaged property is registered, the liquidation
shall be made according to the provisions of sub-paragraph (1) of this Article; if the mortgaged property is not registered, the
liquidation shall be made in the order of the effective dates of the contracts; if the order of the effective dates is the same,
the liquidation shall be made according to the respective proportions of the claims. The claim secured by registered mortgage shall
be satisfied prior to the claim secured by unregistered mortgage.
Article 55 After the execution of a contract in which urban real estate is mortgaged , the newly-built houses on the land shall not
be included in the mortgaged property. Where it is necessary to auction the mortgaged real estate, the newly-built houses on the
land may be auctioned, 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 auction of the newly-built houses.
Where the land-use right to contracted barren hills is mortgaged or the land-use right to the land occupied by the factories and
other buildings of a township (town) or village enterprise is mortgaged in accordance with the provisions of this Law, the
collective ownership and the uses of the land may not be altered without following the legal procedure after enforcement of the right
of mortgage .
Article 56 The mortgagee shall be enpost_titled to the priority of having his claim satisfied with the proceeds from auction of the land-use
right to the allocated State-owned land after payment of the granting fees for the land-use right.
Article 57 The third party who provides guaranty of mortgage for the debtor shall have the right of recourse against the debtor after
enforcement of the right of mortgage by the mortgagee.
Article 58 The right of mortgage shall lapse due to loss or destruction of the mortgaged property. The compensation obtained for
the loss or destruction shall be used as the mortgaged property.
Section 5
Mortgage of Maximum Amount
Article 59 A mortgage of maximum amount as used in this Law means that the mortgaged property shall be used to secure the creditor’s
claims which occur successively during a given period of time and to the extent of the total amount of the claims, as agreed upon
between a mortgagor and a mortgagee.
Article 60 A loan contract may be accompanied by a contract of mortgage of maximum amount.
The contract executed by a creditor and a debtor for the continuous transaction of a specific commodity in a given period of time
may be accompanied by a contract of mortgage of maximum amount.
Article 61 The creditor’s right to the principal contract secured by a mortgage of maximum amount may not be transferred.
Article 62 The provisions of this section plus other provisions of this Chapter shall apply to mortgage of maximum amount.
Chapter IV
Pledge
Section 1
Pledge of Movables
Article 63 Pledge of movables as used in this Law means that 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, in accordance with the provisions of this Law,
be enpost_titled to convert the property into money as payment of the debt or 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 preceding paragraph shall be the pledgor, the creditor shall be the pledgee, and the
movables transferred shall be the pledged property.
Article 64 A pledgor and a pledgee shall conclude a pledge contract in writing.
A pledge contract shall become effective upon the delivery of the pledged property to the possession of the pledgee.
Article 65 A pledge contract shall include the following particulars:
(1) the kind and amount of the principal debt secured;
(2) the time limit for the debtor to perform his obligation;
(3) the name, quantity, quality and condition of the pledged property;
(4) the scope of the guaranty of pledge;
(5) the time for delivering the pledged property; and
(6) other matters the parties deem necessary to include in the contract.
If a pledge contract does not contain all the particulars specified in the preceding paragraph, the omissions may be added by amendment.
Article 66 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 67 The scope of guaranty of pledge includes the principal claim and the interest thereof, default fine, the compensation
for damage, the storage charges and the cost of enforcing the right of the pledge. If otherwise provided for in the pledge contract,
the provisions there shall apply.
Article 68 The pledgee shall be enpost_titled 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 69 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 70 Where there is a possibility for the pledged property to perish or for its value to obviously decline to a point sufficient
to impair the rights of the pledgee, 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 71 Where the debtor performs his obligation at its maturity, or where the pledgor pay
