(Adopted by the Standing Committee of the Eighth National People's Congress at the Fourteenth Session on June 30, 1995)

CONTENTS

CHAPTER 1 GENERAL PROVISIONS
CHAPTER 2 GUARANTEE
SECTION 1 GUARANTEE AND GUARANTOR
SECTION 2 GUARANTEE CONTRACT AND MODES OF GUARANTEE
SECTION 3 GUARANTEE RESPONSIBILITIES
CHAPTER 3 MORTGAGE
SECTION 1 MORTGAGE AND OBJECTS OF PLEDGE
SECTION 2 MORTGAGE CONTRACTS AND REGISTRATION OF OBJECTS OF PLEDGE
SECTION 3 THE EFFECTS OF MORTGAGE
SECTION 4 THE REALIZATION OF MORTGAGE RIGHTS
SECTION 5 MAXIMUM MORTGAGE
CHAPTER 4 HYPOTHECATION
SECTION 1 MOVABLE PROPERTY HYPOTHECATION
SECTION 2 RIGHTS OF HYPOTHECATION
CHARTER 5 LIEN
CHAPTER 6 DEPOSIT
APPENDIX

CHAPTER 1 GENERAL PROVISIONS

Article 1 This law has been formulated to promote the circulation of funds and commodities, ensure the realization of creditors' rights and thus advance the development of the socialist market economy.

Article 2 Act of guarantee can be established in accordance with this law whenever creditors require to safeguard the realization of their rights in such economic activities as debit and credit, selling and purchasing, commodities transport and contracted processing.

The means of guarantee stipulated by this law are guarantee, mortgage, hypothecation, lien and deposits.

Article 3 Acts of guarantee shall be conducted under the principles of equality, voluntariness, fairness and mutual trust.

Article 4 In providing guarantee to a creditor for a debtor a third party may demand counter-guarantee from the debtor.

This law also applies to counter-guarantee.

Article 5 A guarantee contract should be subordinated to the principal contract. When the principal contract is nullified, the guarantee contract should also become invalid. Otherwise, should there be some arrangements stipulated in the guarantee contract, those arrangements shall be followed instead.

After the nullification of the guarantee contract, mistakes, if any, of the debtor, guarantor or creditor, shall be affixed with due civil responsibilities.

CHAPTER 2 GUARANTEE

SECTION 1 GUARANTEE AND GUARANTOR

Article 6 Guarantee referred to in this law means the acts of a guarantor to pay the debts or assume the responsibility under an agreement between the guarantor and the creditor, in case the debtor fails to pay the debts,

Article 7 Legal persons, other organizations or citizens that have the capacity to pay off debts can act as guarantors.

Article 8 State organs cannot act as guarantors, except for sub-lending of loans from foreign governments or international economic organizations.

Article 9 Schools, kindergartens, hospitals and other institutions or social groups cannot act as guarantors.

Article 10 Branches and functional departments of enterprise legal persons cannot act as guarantors.

Branches of enterprise legal persons, with the legal person's written empowerment, can offer guarantee within the authorized areas.

Article 11 No units or individuals shall force financial institutions such as banks or enterprises to offer guarantee; banks and other financial institutions and enterprises have the right to refuse forced demands for guarantees.

Article 12 If one debt has more than two guarantors, the guarantors shall share their responsibility of guarantee in accordance with the arrangements laid down in the guarantee contract. If there are no arrangements on the share of guarantee responsibility, the guarantors shall assume joint responsibility and the creditor can demand any one of the guarantors to pay the whole debt; and any of the guarantors has the obligation to pay the total of the debt. The guarantor who has paid the debt has the right to seek compensations from the debtor, or demand other guarantors who have joint responsibility to pay their share.

SECTION 2 GUARANTEE CONTRACT AND MODES OF GUARANTEE

Article 13 A guarantor and the creditor shall enter into a written guarantee contract.

Article 14 A guarantor and the creditor may enter into separate guarantee contracts for a specific principal contract. They can also make a guarantee contract that sets a maximum amount and covers several loans contracts during a certain period, or covers certain commodity transactions.

Article 15 The guarantee contract shall include the following information:

1. The categories and sums of the principal creditor's rights guaranteed;

2. The deadline for the debtor to pay the debt;

3. The mode of guarantee;

4. The range covered by the guarantee;

5. The duration of the guarantee;

6. Other information deemed necessary by the signatories.

Guarantee contracts that do not fully comply with the requirements set in the previous paragraph may be revised.

Article 16 There are two modalities of guarantee:

1. Ordinary guarantee;

2. Joint responsibility guarantee.

Article 17 Ordinary guarantee refers to the arrangement in the guarantee contract that the guarantor assumes guarantee responsibility when the debtor fails to pay the debt.

A guarantor under the arrangements of ordinary guarantee may refuse the creditor's demand of assuming guarantee responsibilities before the principal contract undergoes judicial or arbitrary procedures and that the debtor remains incapable of paying the debt despite mandatory implementation against his properties.

A guarantor cannot exercise the rights laid down in the previous section in one of the following occasions:

1. The debtor changes its residence, resulting to major difficulty for the creditor to request the debtor to pay the debt;

2. The implementation procedure is suspended when the people's court accept and hear the debtor's bankruptcy case;

3. The guarantor gives up the responsibilities laid down in the previous paragraph through means of a written document.

Article 18 Joint responsibility guarantee refers to the arrangements laid down in the guarantor contract that the guarantor and the debtor assume joint responsibility over the debts.

When the deadline as set on the principal contract is passed and the debtor with joint guarantee responsibilities fails to pay the debts, the creditor may demand the debtor to pay the debts or demand the guarantor to assume guarantee responsibilities within the range set in the contract.

Article 19 When there is no arrangement or there is unclear arrangement on the modality of guarantee, the debtor and the guarantor shall assume joint guarantee responsibility.

Article 20 A guarantor involved in either ordinary guarantee or joint responsibility guarantee has the right of counterplea. The guarantor still has the right to counterplea even if the debtor gives up the right to counterplea.

The right to counterplea refers to the debtor's right to counter creditor's right to request according to statutory particulars of the matter, when the latter exercises its creditors' rights.

SECTION 3 GUARANTEE RESPONSIBILITIES

Article 21 The range of guarantee includes the principal debts and their interest, default fine, damage awards and expense for the realization of the creditors' rights. Should there be other arrangements in the guarantee contract, those arrangements shall be followed instead.

If there is no arrangement or there is unclear arrangement on the range of guarantee, the guarantor shall assume full responsibility over the total debts.

Article 22 During the period of the guarantee, when the creditor transfers the principal creditors' rights to a third party according to legal procedures, the guarantor shall continue to assume guarantee responsibilities over the range as set under the original guarantee contract. Should there be other arrangements set in the contract, those arrangements shall be followed instead.

Article 23 During the duration of the guarantee, when the debtor, with the approval of the creditor, transfers the debt, the transfer shall require a written approval from the guarantor. The guarantor assumes no more guarantee responsibilities over debts transferred without its approval.

Article 24 When the creditor and the debtor changes the principal contract, they shall have beforehand the written approval from the guarantor. The guarantor assumes no more guarantee responsibilities if the change is made without its approval. If there are other arrangements in the guarantee contract, those arrangements shall be followed instead.
Article 25 For ordinary guarantee activities without arrangements on the duration of the guarantee, the duration shall be six months following the date of the expiration of the principal debts.

During the duration as set in the guarantee contract or that described in the previous paragraph, if the creditor fails to file litigation or arbitration requests, the guarantor shall be exempt from guarantee responsibilities; if the creditor has filed litigation or arbitration requests, the duration of guarantee follows the procedures on suspension prescribed period for litigation.

Article 26 If no arrangements on the duration of guarantee are made between the creditor and the guarantor with joint guarantee responsibilities, the creditor has the right to request the guarantor to assume the guarantor right during the six months since the end of the execution period of the principal debt.

During the period of the guarantee and the period as stated in the previous paragraph, if the creditor fails to request the guarantor to assume guarantee responsibilities, the guarantor can be exempt from guarantee responsibilities.

Article 27 If the guarantor guarantees several consecutive debts, as described in Article 14 of the this law, and there are no arrangements on the duration of guarantee, the guarantor may notify the creditor of the termination of the guarantor contract through means of a written document at any time, but the guarantor has to assume guarantee responsibilities over the creditors' rights incurred before the time when the creditor receives the written notification.

Article 28 If the same creditor's rights has both guarantee and real security, the guarantor assumes guarantee responsibilities over the creditor's right other than guaranteed by real security.

If a creditor gives up the real security, the guarantor will be exempt from the guarantor rights over the rights that the creditor gives up.

Article 29 If the branches of enterprise legal persons enter into guarantee contracts without the written empowerment of the enterprise legal person concerned or exceeding the empowerment of the enterprise legal person, the guarantee contract or those parts of the guarantee contract that exceed the empowerment shall be nullified. If both the creditor and the enterprise legal person commit mistakes, they shall assume due civil responsibilities in accordance with their mistakes; if the creditor makes no mistakes, the enterprise legal person shall assume civil responsibilities.

Article 30 A guarantor assumes no civil responsibilities in the following two occasions:

1. The parties to the principal contract collaborate to cheat the guarantor into giving guarantees;

2. The creditor of the principal contract, through means such as fraud and coercion, prompts the guarantor to give guarantee in violation of the true conditions.

Article 31 The guarantor, after assuming the guarantee responsibilities, is entitled to seek recompensation.

Article 32 When a people's court accepts and listens to the debtor's bankruptcy case, if the creditor fails to submit its creditor's rights, the guarantor may participate in the distribution of the bankrupt properties and exercise the right of being recompensated in advance.

CHAPTER 3 MORTGAGE

SECTION 1 MORTGAGE AND OBJECTS OF PLEDGE

Article 33 The mortgage described in this law refers to the act of the debtor, or the third party, who, without transferring the ownership of the properties as listed in Article 34 of this law, sets those properties as guarantee to the creditor's rights. When the debtor fails to pay the debt, the creditor has the right to get compensation, in accordance with the stipulations of this law, by converting the properties into money or seek preferential payments from the proceeds from the auction or sales of the properties concerned.

The debtor or the third party referred to in the previous paragraph is the mortgagor; the creditor is the mortgagee; and the properties used for guarantee is object of pledge.

Article 34 The following properties can be used as mortgages:

1. The buildings and other fixed objects on the ground owned by the mortgagor;

2. The machines, transport means and other properties owned by the mortgagor;

3. State-owned land use rights, buildings and other fixed objects on the ground that the mortgagor has the right to dispose of according to law;

4. State-owned machines, transport means and other properties that the mortgagor has the right to dispose of according to law;

5. Land use rights of barren hills, ravines, shoals and other wastelands the mortgagor legally contracted, with the approval of the party that issued the contract;

6. Other properties that can be mortgaged according to law.

The mortgagor may at once mortgage all the properties listed in the previous paragraph.

Article 35 The creditor's rights that the mortgagor mortgaged shall not exceed the value of the properties mortgaged.

After being mortgaged, the balance of value of the properties that exceeds the creditor's rights can be mortgaged for a second time, but the sum of the mortgage shall not exceed the value of the balance.

Article 36 If legally-acquired buildings on State-owned lands are mortgaged, the land use rights of the land occupied by the buildings shall also be mortgaged at the same time.

The land use rights of State-owned lands acquired through means of transfer, when being mortgaged, the buildings on the land shall also be mortgaged at the same time.

The land use rights per se of the township and village enterprises cannot be mortgaged. When the buildings of the township and village enterprises are mortgaged, the associated land use rights shall also be mortgaged at the same time.

Article 37 The following properties shall not be mortgaged:

1. The ownership of lands;

2. The land use rights of farmlands, house sites, lands and hills allotted for personal needs and other collective-owned lands except those listed in Section 5 of Article 34 and the third paragraph of Article 36.

3. Educational, medical and other public welfare facilities of schools, kindergartens, hospitals and other institutions and social groups with the aim of benefiting the public;

4. Properties whose ownership and use rights are unclear or controversial;

5. Properties that are legally confiscated, seized or controlled;

6. Other properties that cannot be mortgaged according to law.

SECTION 2 MORTGAGE CONTRACTS AND REGISTRATION OF OBJECTS OF PLEDGE

Article 38 The mortgagor and the mortgagee shall enter into a written mortgage contract.

Article 39 The mortgage contract shall include the following information:

1. The varieties and sum of the principal creditor's rights guaranteed;

2. The deadline for the debtor to pay the debt;

3. The description, amount, quality, condition, site, ownership or ownership of use right of the objects of pledge;

4. The range of mortgage guarantee;

5. Other arrangements deemed necessary by the signatories.

Mortgage contracts that do not fully comply with the requirements set in the previous paragraph may be revised.

Article 40 When entering into a mortgage contract, the mortgagee and the mortgagor should not arrange to transfer the ownership of the objects of pledge to the creditor when the deadline for debt repayment passes but the mortgagee has not yet repaid the debt.

Article 41 The objects of pledge shall be registered when falling into the categories listed in Article 42 and the mortgage contract goes into effect as of the date of registration.

Article 42 The departments that handle the registration of objects of pledge are as follows:

1. If the right of use of lands with no fix objects on them are mortgaged, the registration shall be handled by the land administration departments that verify and issue land use right certificates;

2. If urban real estates or buildings of township and village enterprises are mortgaged, the registration shall be handled by departments designated by local governments above the level of counties;
3. If forest trees are mortgaged, the registration shall be handled by forestry administration departments above the level of counties;

4. If aircrafts, ships and vehicles are mortgaged, the registration shall be handled by departments registering means of transportation;

5. If equipment and other movable properties are mortgaged, the registration shall be handled by the local industrial and commercial administration departments.

Article 43 If other properties are mortgaged, the parties involved can voluntarily register the objects of pledge and the mortgage contract goes into effect as of the date of the registration.

If the parties don't register the objects of pledge, they shall not confront the third parties. When the parties register the objects of pledge, the registration shall be handled by the local public notary organs.

Article 44 In registrating the objects of pledge, the following documents or their duplicates shall be presented:

1. The principal contract and the mortgage contract;

2. Certificates of ownership of right of use of the objects of pledge.

Article 45 The data in the registration departments shall be allowed to consult, copied or duplicated.

SECTION 3 THE EFFECTS OF MORTGAGE

Article 46 The range of mortgage guarantee includes the principal creditor's rights and interest, default fines, damage awards and the expense for the realization of the mortgage rights. Should there be other arrangements in the mortgage contract, those arrangements shall be followed instead.

Article 47 When a debtor fails to repay the debt upon the expiration of the deadline of the debt payment with the result that the people's court seizes the objects of pledge according to law, the mortgagee, as of the date of the seizure of the objects of pledge, may collect the natural derivatives from the objects of pledge as well as the legal derivation that the mortgagor can collect from the objects of pledge. If the mortgagee fails to notify the legal derivatives' obligator the seizure of the objects of pledge, the effects of the mortgage rights will not include the derivatives.

The derivatives described in the previous paragraph shall be first used to compensate the expense for collecting the derivatives.

Article 48 If a mortgagor mortgages properties that have been leased out, the mortgagor shall notify the lease of the action with a written statement and the original lease contract continues to be valid.

Article 49 During a mortgage, when the mortgagor has to transfer the registered objects of pledge, the fact that the properties and mortgaged should be notified to the mortgagee as well as the transferee; If the mortgagor fails to notify the mortgagee or inform the transferee, the transfer is invalid.

If the purchase price of the transferred objects of pledge is obviously lower than their current value, the mortgagee can request the mortgagor to provide corresponding guarantee; If the mortgagor refuse to provide guarantee, the objects of pledge cannot be transferred.

The money incurred from the transfer of he objects of pledge by the mortgagor shall first be used to pay the creditor in advance the guaranteed creditor's rights or to be drawn by the third party as arranged by the mortgagee. The value exceeding the creditor's rights belongs to the mortgagor and the balance due shall be paid off by the debtor.

Article 50 The mortgage rights cannot be separated from the creditor's rights and be transferred or used as guarantee of other creditor's rights.

Article 51 Should the acts of a mortgagor result in a reduction of the value of the objects of pledge, the mortgagee has the right to request the mortgagor to cease such acts. If the value of the objects of pledge are reduced, the mortgagee has the right to request the mortgagor to restore the value of the objects of pledge, or provide guarantee equal to the reduced values of the objects of pledge.

If the mortgagor is not responsible for the reduction of value of the objects of pledge, the mortgagee can only seek guarantee within the reimbursement acquired by the mortgagor from the damages. The parts of the objects of pledge whose values are not reduced shall remain as guarantee of the creditor's rights.

Article 52 The mortgage rights and the creditor's rights guaranteed by the mortgage rights exist at the same time. When the creditor's rights perish, so do the mortgage rights.

SECTION 4 THE REALIZATION OF MORTGAGE RIGHTS

Article 53 When the deadline of a debt payment expires, the mortgagee can be paid off, with the agreement of the mortgagor, by converting the value of objects of pledge into money or by proceeds acquired through an auction, or sales of the objects; If the mortgagor and the mortgagee fail to reach an agreement, the mortgagee can file litigation with the people's court.

If there is a surplus of the money through conversion or the proceed through an auction or sales of objects of pledge in exceed of the sum of the creditor's rights, such surplus shall belong to the mortgagor, and the balance due shall be repaid by the mortgagor.

Article 54 If the same piece of property is mortgaged to two creditors, the proceeds incurred from the auction or sell-off of the objects of pledge shall be cleared according to the following stipulations:

1. If the mortgage contracts are registered and effective, the clearing shall be undertaken in accordance with the order of the registration of the objects of pledge; If the order is the same, the clearing shall be undertaken in accordance with the proportion of the creditor's rights.

2. If the mortgage contracts enter into effect as of the dates of the signature, when the objects of pledge are registered, the clearing shall be undertaken in accordance with procedures as set in part 1 of this article; When the objects of pledge are not registered, the clearing shall be undertaken in accordance with the order of the first effective day of the contracts (if the first day is the same, the clearing shall be undertaken in accordance with the proportion of the creditor's rights). The objects of pledge registered shall be cleared before those not registered.

Article 55 Buildings constructed after the signature of the mortgage contract on the lands of urban real estates mortgaged are not objects of pledge. When the mortgaged real estate needs to be auctioned according to law, the newly-constructed buildings can be auctioned together with the mortgaged objects of pledge, but the mortgagee does not have the mortgaged objects to be paid off with the proceeds incurred from the auction of the newly-constructed buildings.

If the use rights of contracted wastelands or of the lands occupied by buildings of township and village enterprises are mortgaged in accordance with this law, the lands' nature of collective ownership and the usage of the lands shall not be changed without legal procedures after the realization of the mortgage rights.

Article 56 A mortgagee has the preferential rights to be paid off with the proceeds incurred from the auction of the land use rights of transferred State-owned lands after paying the corresponding transfer fee of the land use rights according to law.

Article 57 A third party which guarantees the debtor's mortgages, after the realization of the mortgage rights by the mortgagee, has the right to seek compensation from the debtor.

Article 58 The mortgage rights perish when the objects of pledge perish. The damage awards incurred from the extermination shall be used as mortgages.

SECTION 5 MAXIMUM MORTGAGE

Article 59 The maximum mortgage in this law refers to an agreement between the mortgagor and the mortgagee to use objects of pledge to guarantee consecutive creditor's rights during a set period within the limit of the maximum of the debts.

Article 60 The borrowing contract may have a maximum mortgage contract attached.

A contract which is signed to cover consecutive transactions over certain commodities during a set period between the creditor and the debtor may have a maximum mortgage contract attached.

Article 61 The creditor's rights in the principal contract of the maximum mortgage cannot be transferred.

Article 62 The stipulations in this section, as well as stipulations in other parts of this chapter, are applicable to maximum mortgage.

CHAPTER 4 HYPOTHECATION

SECTION 1 MOVABLE PROPERTY HYPOTHECATION

Article 63 The hypothecation in this law refers to the acts of a debtor or a third party to transfer movable property thereof to the creditor as guarantee of the creditor's rights. When the debtor fails to pay off the debts, the creditor has the right, according to the procedures of this law, to convert the movable property into money, or auction, or sell off the movable property to get paid off preferentially with the proceeds.

The debtor or the third party described in the previous paragraph is the pledger; the creditor is the pledgee and the transferred movable property, hypothecated assets.

Article 64 The pledger and the pledgee shall enter into a written hypothecation contract.

The hypothecation contract goes into effect as of the date of the transfer of the movable property.

Article 65 The hypothecation contract shall include the following information:

1. The varieties and sums of the principal creditor's rights;

2. The deadline for the debtor to pay off the debt;

3. The description, amount, quality and condition of the hypothecated assets;

4. The range of hypothecation guarantee;

5. The time of the transfer of the hypothecated assets;

6. Other items deemed necessary by the signatories of the hypothecation contract.

Hypothecation contracts that do not fully comply with the requirements set in the previous paragraph may be revised.

Article 66 A pledger and the pledgee, in a hypothecation contract, shall not arrange to transfer the ownership of the hypothecated assets to the pledgee when the deadline of the debt expires and the pledgee is not paid off.

Article 67 The range guaranteed by hypothecation includes the principal creditor's rights and its interest, default fines, damage awards, hypothecated assets storage expense and expense for the realization of hypothecation rights. Should there be other arrangements in the hypothecation contract, those arrangements shall be followed instead.

Article 68 A pledgee has the right to collect the derivatives of the hypothecated assets. Should there be other arrangements in the hypothecation contract, those arrangements shall be followed instead.

The derivatives referred to in the previous paragraph shall first be used to compensate the expense for collecting the derivatives.

Article 69 A pledgee has the obligation to properly take care of the hypothecated assets. The pledgee shall assume civil liabilities for the damage or evanesce of the hypothecated assets resulted from improper care.

If the pledgee fails to properly take care of the hypothecated assets, which could lead to the damage or evanesce of the hypothecated assets, the pledger can request the pledgee to withdraw and deposit the hypothecated assets in advance, or request to pay off the debts and have the hypothecated assets returned.

Article 70 If there is the possibility of damaging or reducing the value of the hypothecated assets to a damage to the rights of the pledgee, the pledgee can request the pledger to provide corresponding guarantee. If the pledger refuses to provide guarantee, the pledgee can auction or sell off the hypothecated assets and use the proceeds, with the agreement of the pledger, to clear off the guaranteed creditor's rights or have the proceeds deposited with a third party agreed upon by the pledgee.

Article 71 When the deadline of the creditor's rights expires and the debtor pays off the debts, or when the pledger pay off the guaranteed creditor's rights ahead of the deadline, the pledgee shall return the hypothecated assets.

Upon the expiration of the deadline of payment, the pledgee can be paid off, with the agreement of the pledger by converting the hypothecated assets into money or proceeds acquired by auction, or sell off of the assets.

Should there be surplus of the value of the hypothecated assets after their conversion into money or being auctioned or sell-off in exceed of the creditor's rights, the balance shall belong to the pledger, and the balance due shall be paid by the debtor.

Article 72 The third party who guarantee the hypothecation for the debtor, when the pledgee realizes the hypothecation rights, can request compensation from the debtor.

Article 73 The hypothecation rights disappears with the evanesce of the hypothecated assets. The damage awards resulted from the evanesce shall become hypothecated property.

Article 74 The hypothecation rights and the creditor's rights guaranteed by the hypothecation rights exist at the same time, if the creditor's rights disappear, so do the hypothecation rights.

SECTION 2 RIGHTS OF HYPOTHECATION

Article 75 The following rights can be used in hypothecation:

1. Money order, check, cashier's check, securities, deposit receipt, warehouse receipt, bill of lading;

2. Shares and share certificates that are transferable according to law;
3. Exclusive trademark rights, patent rights, property rights of the copyrights;

4. Other rights that can be hypothecated according to law.

Article 76 When money orders, checks, cashier's checks, securities, deposit receipts, warehouse receipts and bills of lading are hypothecated, the documents of title shall be handed over to the pledgee before the deadline as set in the hypothecation contract. The hypothecation contract goes into effect as of the date of the transfer of the documents of title.

Article 77 When money orders, checks, cashier's checks, securities, deposit receipts, warehouse receipts and bills of lading that have redemption or delivery dates are hypothecated, if the redemption or delivery dates of the checks, cashier's checks, securities, deposit receipts, warehouse receipts and bills of lading are ahead of the deadline of the debts fulfilment dates, the pledgee can redeem or pick up the goods ahead of the filament dates of the debts, and, with the agreement of the pledger, use the redeemed money or the goods picked up to clear off the guaranteed creditor's rights in advance, or, have them withdrawn and deposited with a third party agreed upon by the pledgee.

Article 78 If the share certificates that can be transferred according to law are hypothecated, the pledger and the pledgee shall enter into a written hypothecation contract and register with securities registration departments. The hypothecation contract goes into effect as of the date of the registration.

Shares hypothecated cannot be further transferred, except with the agreement of both the pledger and the pledgee. The proceeds collected by the pledger in the transfer of the hypothecated shares shall be used to pay off the guaranteed creditor's rights in advance or have them withdrawn and deposited with a third party agreed upon by the pledger.

If the shares of limited liabilities companies are hypothecated, the transaction will be governed by related provisions under the Company Law on the transfer of shares. The hypothecation contract goes into effect as of the date the hypothecated shares are recorded in the stock ledger.
Article 79 If the exclusive trademark rights, patent rights or property rights of the copyrights that are transferable according to law are hypothecated, the pledger and the pledgee shall enter into a written hypothecation contract and register with the related administrative departments. The hypothecation contract goes into effect as of the date of the registration.

Article 80 When the rights described in the Article 79 are hypothecated, the pledger cannot further transfer or allow others to use the rights hypothecated, except with the agreement between the pledger and the pledgee. The transfer fee and license fee acquired by the pledger shall be used to pay off the guaranteed creditors rights in advance, or have them withdrawn and deposited with a third party agreed upon by the pledgee.

Article 81 Rights hypothecation is also governed by the provisions in Section of Chapter 1 of this law, besides the provisions in this section.

CHARTER 5 LIEN

Article 82 The lien described in the law refers to the acts of the creditor, in line with the provisions in Article 84 of this law, to own the debtor's movable property in accordance with the arrangements of the contract and if the debtor fails to pay the debts before the agreed deadline, the creditor has the right to take lieu of the property and convert it into money, or auction or sell off the property, and use the proceeds to be paid off preferentially according to provisions of this law.

Article 83 The range of lien guarantee includes the principal debts and their interest, default fines, damage awards, storage expense of the lined property and the expense for the realization of the lien rights.

Article 84 If the debtor fails to pay the debts incurred during the execution of storage contracts, transport contracts and processing contracts, the creditor has the right of lien.

Other contracts that can take lieu according to law are also governed by the stipulations in the previous paragraph.

The parties can exclude items that cannot be taken lien in the contract.
Article 85 If the properties are items that are dividable, the value of the liened properties shall correspond to the sum of the debts.

Article 86 A party that is entitled to the lien rights has the obligation to properly take care of the liened property. The party that is entitled to the lien rights shall assume civil responsibilities for the damage or evanesce of the liened property resulted from improper care.

Article 87 The creditor and the debtor shall agree in the contract that after the creditor takes lien of the property, the debtor shall repay the debts in no less than two months. If there are no such arrangements in the contract between the creditor and the debtor, after the creditor takes lien of the property, the creditor shall set a deadline of no less than two months for the debtor to pay off the debt and notify the debtor of the deadline set.

If the deadline expires and the debtor fails to pay off the debt, the creditor can, with the agreement of the debtor, be paid by converting the lined property into money, or by proceeds acquired by auctioning or selling off the property according to law.

Should there be a surplus value after converting the property into money or auctioning or selling off of the property in exceed of the sum of the debts, the balance shall belong to the debtor; the balance due shall be paid off by the debtor.

Article 88 The lien rights shall perish under the following two circumstances:

1. The creditor's right perishes;

2. The debtor provides other means of guarantee and the creditor accepts.

CHAPTER 6 DEPOSIT

Article 89 The parties can agree to the arrangements that one party provide the other party deposits as the creditor's guarantee. After the debtor repaid the debts, the deposits shall become the purchase fund of be returned. If the party that provides the deposit fails to pay off the contracted debts, the deposit shall not be returned; if the party that receives the deposit fails to pay off the contracted debts, the doubled sum of the deposits shall be returned.

Article 90 The deposit shall be arranged in a written contract. The parties shall set a deadline for the delivery of the deposit in the deposit contract. The contract goes into effect as of the date of the actual delivery of the deposit.

Article 91 The sum of deposit shall be decided by the parties and shall not exceed 20 percent of the sum of subject matter of the principal contract.

APPENDIX

Article 92 The fixed property described in this law refers to lands and such fixed objects on the ground such as buildings and forest woods.

The movable property described in this law refers to property other than fixed property.

Article 93 The guarantee contract, mortgage contract, hypothecation contract, deposit contract referred in this law may be a stand-alone written contract, including letters and facsimile messages between the parties that have the nature of guarantee. It may also be guarantee provisions in a principal contact.

Article 94 The conversion into money or sell-off of the objects of pledge, the hypothecated property or liened property shall be referenced with the market prices.

Article 95 Some laws such as the Maritime Law would have special provisions on guarantee and those provisions shall be followed.

Article 96 This law goes into effect as of October 1, 1995.