Laws of the People's Republic of China

the Supreme People's Court

Announcement of the Supreme People's Court of the People's Republic of China

Fa Shi [2000] No. 44

The Judicial Interpretation of the Supreme People's Court on Some Issues Regarding the Application of the Guarantee Law of the People's Republic of China, which has been adopted by the Judicial Committee of the Supreme People's Court at its No.1133 Conference on September 29, 2000, is hereby promulgated and shall come into force as of December 13, 2000.

the Supreme People's Court

December 8, 2000

The Judicial Interpretation of the Supreme People's Court on Some Issues Regarding the Application of the Guarantee Law of the People's Republic of China

(Adopted by the Judicial Committee of the Supreme People's Court at its No.1133 Conference on September 29, 2000)

For the purpose of ensuring the correct application of the Guarantee Law of the People's Republic of China (hereinafter referred to as "the Guarantee Law"), based on the judicial practice and experience, the following interpretations have been made concerning the application of laws while the people's courts are handling the guarantee disputes .

Part I

Interpretation of General Principles

Article 1

A guarantee created by the parties for the creditor's rights arising from civil relations may be considered valid if it conforms to the forms stipulated in the Guarantee law and does not violate any compulsory provision in laws and regulations.

Article 2

Counter-guarantee provider may be the debtor or some other parties.

The form of counter-guarantee may be mortgage or pledge offered by the debtor, or guarantee, mortgage or pledge offered by some other parties.

Article 3

Where any state organ or any institution, social organization for the public good violates laws to provide guarantee, the guarantee contract shall be invalid. And it shall be punished pursuant to Article 5 (2) of the Guarantee Law if any loss is caused to the creditors.

Article 4

Where any director or manager violates Article 60 of the Company Law of the People's Republic of China to provide guarantee for the debt of the company's shareholders or other persons, the guarantee contract shall be invalid. The debtor and the guarantee provider shall bear joint compensation liability for creditor's loss unless the creditor knows or should know about the fact.

Article 5

Where a guarantee is created with the property that is prohibited by laws and regulations from circulating, or is not transferable, the guarantee contract shall be invalid.

Where a guarantee is created with the property restricted by laws and regulations from circulating, the people's court shall dispose of the property to realize the creditor's rights in accordance with relevant laws and regulations.

Article 6

The foreign guarantee contract shall be invalid under any of the following circumstances:

1. a foreign guarantee is provided without the approval or registration by relevant competent departments;

2. the guarantee is provided to domestic creditors for oversea organs without approval or registration by relevant competent departments;

3. the guarantee is offered to secure the registered capital of a foreign-invested enterprise or the foreign party's external debt of its investment in a foreign-invested enterprise;

4. a foreign exchange guarantee is provided by a financial organ whose business scope does not include foreign exchange guarantees, or by a non-financial enterprise legal person without foreign exchange income;

5. the guarantee provider will not bear any responsibility if the principal contract is altered or the creditor transfers the right of a foreign guarantee contract without consent of the guarantee provider or approval of relevant competent departments, unless it is otherwise provided by in laws and regulations.

Article 7

The guarantee provider and the debtor shall assume joint compensation liability for the creditor's loss on the condition that the principal contract is valid while the guarantee contract is invalid and the creditor is not in fault. If the creditor and the guarantee provider are both in fault, the civil liability that the guarantee provider should assume shall not exceed half of that that the debtor can't pay off.

Article 8

If the guarantee contract is invalid due to the invalidity of the principal contract and the guarantee provider is not in fault, he shall not assume any civil obligation. If the guarantee provider is in fault, he shall bear not more than one third of the obligation that can't be fulfilled by the debtor.

Article 9

The guarantee provider may have recourse against the debtor after assuming compensation liability to the creditor in the case of invalid guarantee contract.

The guarantee provider may also require the counter-guarantee provider in fault to bear the liability within the compensation scope.

The guarantee provider may bring a lawsuit against the debtor or the counter-guarantee provider on the basis of the fact that the compensation has been made.

Article 10

After termination of the principal contract, the guarantee provider shall still be liable to the debtor for the latter's civil obligation unless it is otherwise stipulated by the guarantee contract.

Article 11

The act of concluding a guarantee contract by the legal representative or person in charge of a judicial person or other organizations beyond their purview of authorization shall be valid, except when the counter party knows or should know about such fact.

Article 12

The period of guarantee agreed upon by the parties or required by registration departments shall not have legal binding force on the continuity of the guarantee.

Within two years after the limitation of action for a creditor's secured right expires, the people's court shall support the creditor's exercise of his guarantee right.

Part II

Interpretation of Guarantee

Article 13

Where a guarantee contract reads that the guarantee provider shall fulfill the non-monetary obligation and the guarantee provider fails to do so actually, he shall compensate the creditor for the consequent loss.

Article 14

Where any legal person, any other organization or natural person without complete solvency concludes any guarantee contract as a guarantee provider, and then pleads to be exempted from guarantee liability for their lack of solvency, such pleadings shall not be supported by the people's court.

Article 15

Other organizations provided in Article 7 of Guarantee law mainly include:

1. independently-invested and partnership enterprises, which have legally registered and drawn business licenses;

2. jointly-operated enterprises with legal registration and business licenses;

3. Sino-foreign cooperative joint ventures with legal registration and business licenses;

4. social organizations approved and registered by civil administration departments;

5. enterprises owned by townships, subdistricts and villages with legal registration and business licenses;

Article 16

The guarantee contracts concluded by operating institutions or social organizations as the guarantee providers shall be deemed as valid, if there is no reason for invalidity of the contract.

Article 17

Where the guarantee is provided for by a branch of an enterprise legal person without authorization in written form by such legal person, the guarantee contract shall be invalid. And the consequent loss of the creditor shall be compensated for according to Article 5 (2) of the Guarantee Law.

When providing guarantee with written authorization by the enterprise legal person, if the scope of authorization is not clear, the branch of the enterprise legal person shall assume the whole liabilities for the debt agreed upon in the guarantee contract.

If the guarantee liability exceeds the amount of the property of the branch, the enterprise legal person shall assume the civil obligation.

Where the guarantee provided by the branch becomes invalid and the branch shall assume the compensation liability, the compensation shall be made with the property under the administration of the branch. If the enterprise legal person is in fault, Article 29 of the Guarantee Law shall apply.

Article 18

If the guarantee is offered by function departments of an enterprise legal person, the guarantee contract shall be invalid. The creditor shall bear consequent loss if he knows or should know that the guarantee provider is a functional department of an enterprise legal person.

If the creditor is not aware that the guarantee provider is a functional department of an enterprise legal person, the consequent loss may be dealt with according to Article 5 (2) and Article 29 of the Guarantee Law.

Article 19

Where two or more guarantee providers secure the same debt simultaneously or respectively but the guarantee providers and the creditor have not agreed on the guarantee shares, such guarantee shall be deemed as joint guarantee.

Where the joint guarantee providers antagonize the creditor with their internal agreement of guarantee shares, such defense shall not be supported by the people's court.

Article 20

If the debtor of a joint guarantee fails to fulfill his liability upon the termination of term for performance as written in the principal contract, the creditor may require the debtor to fulfill his liability or require any of the guarantee providers to bear the entire guarantee responsibility.

After undertaking the guarantee responsibility, the joint guarantee providers may divide the portion that is unrecoverable from the debtor according to the proportions agreed upon internally. If no such proportions are agreed upon, this portion shall be divided equally.

Article 21

The joint guarantee providers by shares shall be entitled to claim repayment from the debtor within the purview of responsibly guarantee after fulfilling their own shares of guarantee liabilities as agreed upon in the guarantee contract.

Article 22

Where the creditor accepts, without objection, a written guarantee that is unilaterally provided by a third party, the guarantee contract shall be regarded as valid.

Where the guarantee provider signs or stamps on the principal contract without guarantee items in it as a guarantee provider, the guarantee contract shall be regarded as valid.

Article 23

After confirming the uncertain creditor's rights in a contract of a guarantee up to a maximum amount, the guarantee provider shall assume responsibility within the maximum amount for the continuous obligations arising in a specific period.

Article 24

Where the general guarantee provider offers authentic information to the creditor concerning the debtor's property that is eligible for execution at the expiration of term for obligation performance in a principal contract, but the creditor gives up or neglects the right and causes the failure of execution on this property, the guarantee provider may require the court to exempt him from guarantee liability within the actual value scope of the above property.

Article 25

The major difficulties for the creditor to require the debtor to perform the liabilities stipulated in Section A of Article 17 (3) include: unknown whereabouts, emigration of the debtor or no property of the debtor to be executed.

Article 26

Where the third party guarantees for the creditor to supervise the special purpose of a special fund, he will be free from liabilities after performance of the above obligation. If the third party defaults and results in capital loss, he shall bear supplementary compensation responsibility for the lost capital.

Article 27

Where the guarantee provider assures the debtor's registered capital and the debtor's actual investment does not accord with the registered capital, or the debtor withdraws and transfers the registered capital, the guarantee provider shall assume the joint guarantee liability within the scope of the insufficient capital or transferred capital.

Article 28

When the creditor lawfully transfers his principal rights of a creditor to a third party during the period of guarantee, the guarantee rights of a creditor shall be transferred simultaneously and the guarantee provider shall fulfill his guarantee liability for the transferee in the original scope of the guarantee. The guarantee provider shall be exempted from guarantee responsibilities if it is agreed by the guarantee provider and the creditor that the guarantee is provided only to specific creditor or the credit is not transferable.

Article 29

Where the creditor allows the debtor to transfer part of his debt without written consent of the guarantee provider during the period of guarantee, the guarantee provider will not bear any liability for that transferred part of the debt, while he is still responsible for the remaining part of the debt.

Article 30

Where during the term of guarantee, the creditor and the debtor alter the quantity, price, kind of currency, interest rate and etc. in the principal contract without consent of the guarantee provider, and reduces the debtor's obligation, the guarantee provider shall still bear the guarantee liability in the altered contract; if the alteration increases the debtor's obligation, the guarantee provider will not be liable for the increased part.

If the creditor and debtor alter the performance duration of the principal contract without written consent of the guarantee provider, the guarantee duration shall remain unchanged or shall be the statutory duration.

The guarantee provider shall still bear the guarantee liability if the creditor and debtor agree to alter content of principal contract but have not performed accordingly.

Article 31

The term of guarantee shall not be suspended, discontinued or extended under any circumstances.

Article 32

The guarantee term stipulated in a guarantee contract, which is earlier than or the same as the performance term of the principal debt, shall be deemed as not stipulated. The guarantee term shall be six months as of the expiration date of the term for performance of the principal obligation.

If It will be considered as an unclear provision if the guarantee contract stipulates that the guarantee provider shall bear the guarantee liability until the principal amount and interest for the principal debt have been paid. The guarantee term shall be two years as of the expiration date of the term for performance of the principal obligation.

Article 33

Where there is no stipulation or no clear stipulation in the principal contract concerning the performance term of the principal debt, the term of guarantee shall be calculated as of the expiration date of the grace period for the debtor to fulfill his obligation.

Article 34

Where the creditor of a general guarantee lodges a complaint or applies for arbitration against the debtor before the expiration of the guarantee term, the limitation of action for the guarantee contract shall be calculated from the effective date of verdict or arbitration award.

When the creditor of a joint liability guarantee requires the guarantee provider to assume liability before the expiration date of the guarantee term, the limitation of action for the guarantee contract shall be calculated from the date of the creditor's requirement.

Article 35

Where the guarantee provider assumes guarantee liability or provides guarantee for the debt that has exceeded the limitation of action, and makes deraignment on the basis that such liability has exceeded the limitation of action, the people's court shall not support him.

Article 36

In general guarantees, the limitation of action for guarantee debts will intermit when that of principal debts does. In joint liability guarantees, the limitation of action for guarantee debts will not intermit when that of the principal debts does.

In both general and joint liability guarantees, the limitation of action for guarantee debts will pause when that of the principal debts does.

Article 37

Where there is no stipulation or no clear stipulation concerning the guarantee term in the contract of guarantee up to a maximum amount, and the term for the guarantee provider to pay debts is written in the contract, the guarantee term shall be six months from the expiration date of the term for the guarantee provider to pay the debts. If the term for payment of debts is not stipulated in the contract, the guarantee term shall be six months from the termination of the guarantee up to the maximum amount, or six months from the date of the creditor's receiving of the guarantee provider's written notice on terminating the guarantee contract.

Article 38

Where the same right of a creditor are assured by both a guarantee and a property guarantee of a third party, the creditor may require the guarantee provider or such third party to perform obligation. Where there is no stipulation or no clear stipulation by the parties concerning the scope of guarantee or property guarantee, the guarantee provider who has fulfilled the liability may have recourse against the debtor or have the right to require the other guarantee providers to answer for their shares.

Where the same right of a creditor is assured by both a guarantee and property guarantee, and the guarantee contract of property is proved invalid or rescinded, or the property is lost due to force majeure and no substitute is available, the guarantee provider shall still assume liability as stipulated by contract or by law.

Where the creditor fails to exercise the property guarantee after expiration of the performance term for principal contract, which thus results in depreciation, damage or loss of the guarantee property, the creditor shall be deemed to give up part or entire of the property guarantee . The guarantee provider will be mitigated or exempted from the guarantee liability for the rights are given up by such creditor.

Article 39

Where the parties of the principal contract agree to repay an old loan with a new loan, the guarantee provider will not bear civil liability except when he knows or should know about this.

The above provision shall not apply where the same guarantee provider secures these two loans.

Article 40

Where the debtor of principal contract makes the guarantee provider to provide guarantee contrary to his will by means of fraud, intimidation or the like, and the creditor knows or should know about such fact, Article 30 of Guarantee Law shall apply.

Article 41

Where the debtor and the guarantee provider concludes principal and guarantee contracts by jointly cheating the creditor, the creditor may request the people's court to remove such contracts. The guarantee provider and debtor shall bear joint liability for the creditor's consequent loss.

Article 42

Where the people's court decides that the guarantee provider shall assume guarantee liability or compensation liability, it shall specify in the verdict that the guarantee provider is entitled to have the rights in Article 31 of the Guarantee Law. If the right of recourse of the guarantee provider is not clearly defined in the verdict, the guarantee provider has to bring another lawsuit on the basis of his compensation.

The limitation of action for the guarantee provider to recover from the debtor shall be calculated from the date when the guarantee provider assumes liability to the creditor.

Article 43

Where the guarantee provider assumes liability independently and his actual payment exceeds the principal obligation, the guarantee provider may only have recourse against the debtor within the scope of the principal obligation.

Article 44

When the court accepts the bankruptcy application of a debtor during the term of guarantee, the creditor may either declare his claim to the people's court or make a claim to the guarantee provider .

The guarantee provider shall still assume guarantee liability for the portion unpaid in the bankruptcy procedure after the creditor has declared his claim. The creditor shall require the guarantee provider to perform his obligations within six months from the termination of the bankruptcy procedure.

Article 45

Where the creditor knows or should know about the debtor's bankruptcy but fails to declare a claim or notify the guarantee provider, which thus causes the guarantee provider's inability to claim recourse in advance, the guarantee provider will be exempted from obligation within the scope (for the amount) that may be paid in the bankruptcy distribution.

Article 46

Where the creditor has not declared his creditor's rights after the court accepts the debtor's bankruptcy case, the joint guarantee providers shall declare their creditor's rights as one body for recourse in advance.

Part III

Interpretation of Mortgage

Article 47

Where the parties have registered the mortgaged property of a house or other buildings that have been approved according to law but not built, or still under construction, such mortgage may be considered valid by the people's court.

Article 48

Mortgage on buildings, which is determined by legal procedure as violating laws or regulations, shall be invalid.

Article 49

Mortgage on a property without ownership certificate may be considered valid if the ownership certificate is available or the register procedure is handled before termination of court debate in the first instance.

The parties that fail to register the mortgaged property may not counterwork against a third party.

Article 50

Where a mortgage is made on all the properties stipulated in Article 34 (1) of the Guarantee Law, the scope of the mortgaged property shall be determined by the registration. The value of the mortgaged property shall be made certain upon the realization of hypothec.

Article 51

Where the guaranteed creditor's rights exceed the value of the mortgaged property, there will not be priority of payment for the exceeding portion.

Article 52

Where the parties make mortgages on crops and the usufruct of the undetached land simultaneously, the mortgage on the usufruct of land shall be invalid.

Article 53

Where institutions and social organizations for the public good such as schools, kindergartens, hospitals, etc., for their own debts, make mortgages on properties other than the educational, medical and other facilities for public good, such mortgage may be considered valid by the court.

Article 54

Mortgage made by a co-owner by shares on his own share of common property shall be valid. Where the common owner makes a mortgage on the jointly owned property without consent of other owners, such mortgage shall be invalid. Where the other common owners know or should know about such mortgage and do not object it, such act will be deemed as consent and the mortgage shall be valid.

Article 55

The procedures of property preservation and execution such as sealing up, detaining, etc. taken to the mortgaged property shall not influence the effect of the mortgage.

Article 56

Where there are no stipulations or no clear stipulations in mortgage contract concerning the category of the main creditor's rights guaranteed and the mortgaged property, and can not be supplemented or determined by the principal contract and mortgage contract, the mortgage shall be deemed as not created.

Where after concluding the mortgage contract that will take effect after registration stipulated by law, the mortgagor refuses to go through such procedure according to the principle of good faith, the mortgagor shall compensate the creditor for consequent loss.

Article 57

Where the parties stipulate in mortgage contract that the ownership of mortgaged property will be transferred to the creditor if the creditor has not received full payment upon the expiration date of performance, such provision shall be invalid and shall not have effect on other provisions of the contract.

Where a mortgagee has not received full payment at the expiration of the term for performance of obligations, he may negotiate with the mortgagor to obtain the mortgaged property by converting its value. If the interests of later mortgagees in sequence or other creditors are damaged thereof, the people's court may adopt stipulations of Articles 74 and 75 in Contract Law.

Article 58

Where the parties register the mortgaged property at different registration departments in the same day, the order shall be deemed as the same.

Where the continuous registrations are made due to the reasons by the registration department, the first day to register the mortgaged property shall be seen as the registration date of mortgage and shall be the basis to determine the order of hypothec.

Article 59

Where the parties can not register the mortgaged property due to the reasons by the registration department and the mortgagor provides the right certificate to the creditor, the creditor shall have priority right of payment for the property. However, without registering the mortgaged property, the parties cannot counterwork against a third party.

Article 60

Where a mortgage is made on real property listed in Article 42 (2) of Guarantee Law, and there are no stipulations by governments at county level or above concerning registration departments, if the parities register the mortgage at administration departments of land or real estate, the people's court may confirm effectiveness of such registration.

Article 61

Where the content of the mortgage registration is inconsistent with that of the mortgage contract, the former shall prevail.

Article 62

Where the mortgaged property is owned by a third party due to attaching, mixing or processing, the mortgage shall affect the compensation; where the mortgagor becomes the owner of the attachment, mixture or processed articles, the mortgage will affect such attachment, mixture or processed articles; where a third party jointly owns the attachment, mixture or processed articles with the owner of mortgaged property, the mortgage will affect the share enjoyed by the mortgagor.

Article 63

Where a property is accessory of the mortgaged property prior to the mortgage enactment, the mortgage shall have effect on such accessory. Where the mortgaged property and its accessory are independently owned by two or more persons, the mortgage shall not have effect on the accessory.

Article 64

Where a mortgaged property is detained by a people's court due to the debtor's failure to perform his obligation at the expiration of the term for such performance, as of the date of detaining, the natural and statutory fruits of the mortgaged property obtained by the mortgagee shall be paid in the following order:

1. expenses for obtaining fruits;

2. interest for principal creditor's rights;

3. principal creditor's rights.

Article 65

Where the mortgagor makes mortgage on a leased property, after realization of the hypothec, the lease contract shall still be binding on the consignee of such property within the validity period of the lease contract.

Article 66

Where the mortgagor leases a mortgaged property, the leasing contract will not be binding on the consignee after realization of the hypothec.

Where when leasing the mortgaged property, the mortgagor fails to notify the leasee in written form about the fact, the mortgagor shall compensate the leasee's loss arising thereof; if notified by the mortgagor in written form, the leasee shall bear the loss individually if any damage arises thereof.

Article 67

During the duration of hypothec, if the mortgagor transfers the mortgaged property without notifying the mortgagee or the consignee, the mortgagee can still exercise his hypothec on condition that the mortgaged property has been registered; the consignee who has obtained the ownership of the property may pay all the debts in the debtor's place to extinguish the hypothec. After payment, the consignee is entitled to have recourse against the mortgagor.

If the mortgaged property has not been registered, the mortgagee is not entitled to counterwork against the consignee. Any consequent loss of the mortgagee shall be assumed by the mortgagor.

Article 68

The hypothec shall not be influenced if the mortgaged property is inherited or donated.

Article 69

Where one creditor has several general creditors and at the time of payment for obligation the debtor maliciously colludes with one of the creditors to mortgage all or part of his property to the creditor, which results in the loss of capability of the creditor to fulfill other debts and the damage to the legitimate rights and interests of other creditors, the injured creditors may request the people's court to withdraw such mortgage.

Article 70

When the act of a mortgagor may depreciate a mortgaged property, and the mortgagor refuses to restore the original condition or provide guarantee, the mortgagee may require the debtor to perform his liability or require to exercise the hypothec in advance.

Article 71

Prior to full payment of the principal creditor's rights, the mortgagee may exercise his hypothec on the whole of the mortgaged property.

When the mortgaged property is divided or partially transferred, the mortgagee may exercise his hypothec on the divided or transferred mortgaged property.

Article 72

If the principal creditor's rights are divided or partially transferred, every creditor may exercise his share of hypothec.

If the principal debt is divided or partially transferred, the mortgagor still can guarantee the obligation of several debtors s with his mortgaged property. However, if the mortgage is provided by a third party and the creditor allows the debtor to transfer the debt without written consent of the mortgagor, the mortgagor will not be liable for such portion of the obligation.

Article 73

Where the prices from converting into money, auctioning or selling of the mortgaged property are lower than the stipulated value when the hypothec is created, payment shall be made according to the actual value of the proceeds. The debtor shall answer for the shortfall.

Article 74

When there is no stipulation of the parties on payment, the prices from converting into money, auctioning and selling of the mortgaged property shall be paid in the following order:

1. expenses to realize the hypothec;

2. interest of the principal creditor's rights;

3. principal creditor's rights.

Article 75

Where there are two or more mortgagors for the same creditor's rights and the creditor gives up the mortgage guarantee provided by the debtor, the other mortgagors may request the court to lessen or exempt him from guarantee liability.

Where there are two or more mortgagors for the same creditor's rights and there is no stipulation or no clear stipulation on the share or order of the creditor's rights mortgaged by properties, the mortgagee may exercise his right on any one or every one of such properties.

After having borne the guarantee liability, the mortgagor may have recourse against the debtor or require other mortgagors to answer for their own shares.

Article 76

Where the same movable property is mortgaged to two or more creditors and the hypothec is realized without registration of the mortgaged property, the creditors shall get payment according to the proportion of the creditor's rights.

Article 77

Where the same property is mortgaged to two or more creditors, and the earlier hypothec in sequence and the ownership of the property remains with one person, the property owner may counterwork against the later mortgagees in sequence with his mortgage.

Article 78

Where the same property is mortgaged to two or more creditors, and the creditor's rights guaranteed by later hypothec in sequence expires first, the later mortgagee may only get payment from the value portion exceeding the earlier guaranteed creditor's rights in sequence.

Where the earlier guaranteed creditor's rights in sequence expires first, the surplus amount after realization of this mortgage shall be deposited for payment of the later guaranteed creditor's rights in sequence.

Article 79

Where the legally registered hypothec and pledge coexist on one property, the mortgagee shall have priority in payment to the pledgee.

Where the pledge and lien coexist on one property, the lienor shall have priority in payment to the pledgee.

Article 80

The mortgagee shall have the right of priority in receiving payment of insurance money, compensation and damages if the mortgaged property is lost, damaged or requisitioned.

Where the guaranteed creditor's rights by hypothec has not expired when the mortgaged property is lost, damaged or requisitioned, the mortgagee may request the people's court to preserve the insurance money, compensation or damages, etc.

Article 81

The scope of creditor's rights guaranteed by the hypothec up to a maximum amount shall not include the creditor's rights that arise from property preservation or execution procedure of sealing-up, or creditor's rights arising after bankruptcy of the debtor or the mortgagor.

Article 82

Where the parties alter the maximum amount and duration of a mortgage up to a maximum amount and counterpart against later mortgagees in sequence with this alteration, such act will not be supported by the people's court.

Article 83

After specifying the uncertain creditor's rights secured by a mortgage up to a maximum amount, the mortgagee may exercise his hypothec according to the stipulations of general mortgage at the expiration of the performance term.

When exercising such hypothec, if the actual balance of the creditor's rights exceeds the maximum amount, the mortgagee can have priority to pay for the maximum amount except the exceeding portion. If the actual balance of the creditor's rights is less than the maximum amount, the mortgagee shall have priority to pay for the actual balance of the creditor's rights.

Part IV

Interpretation of Pledge Section

Section I

Pledge of Movable Property

Article 84

Where a pledgor has no ownership of a movable property and he pledges such legally possessed movable property, after the pledgee exercises his right of guarantee without knowing such fact, the pledgor shall compensate the owner of the movable property for his consequent loss if any.

Article 85

Where the debtor or a third party transfers the possession of his special account, sealed money, deposit or other forms of money to the creditor as pledge for the creditor's rights after specifying the above money, the creditor shall be entitled to have priority in receiving payment with such money if the debtor does not perform obligation.

Article 86

Where the debtor or the third party fails to transfer a pledged property at the time agreed upon in the pledge contract, the pledgor shall assume the compensation liability for his fault if any loss is caused to the pledgee.

Article 87

If a pledgor possesses the pledged property instead of the pledgee, the pledge contract shall not go into effect; if the pledgee returns the pledged property to the pledgor and counterwork against the third party with his pledge right, the court will not support the pledgee. If the possession of pledged property is lost without any fault of the pledgee, he may require the unwarrantable possessor to cease infringement, restore original condition or return the pledged property.

Article 88

Where the pledgor pledges an indirectly possessed property, the receipt of a written notice of the pledge contract shall be regarded as a successful transfer. If the possessor still disposes the pledged property as instructed by the pledgor after receipt of such notice, such act shall be regarded as invalid.

Article 89

Where there is no stipulation on pledged property in pledge contract or the stipulated pledged property is inconsistent with that actually transferred, the actually transferred property shall be the final.

Article 90

If the hidden defect of the pledged property causes damage to the pledgee's other properties, the pledgor shall assume compensation liability, unless the pledgee accepts such property knowingly at the time of transfer.

Article 91

The pledge of movable property shall have effect on the accessory of the pledged property except when the accessory is not transferred to the pledgee together with the pledged property.

Article 92

If the pledged property is deposited according to Article 69 of Guarantee Law, the deposit cost shall be covered by the pledgee; if the pledgor makes payment in advance, the interest of non-expired obligation shall be deducted.

Article 93

During the duration of pledge, if the pledgee uses, leasesor disposes of the pledged property without consent of pledgor, he shall compensate the pledgor for the loss caused by the above behavior.

Article 94

Where during the duration of the pledge, the pledgee pledges for a third party with the pledged property in his possession to guarantee his own debt with the pledgor's consent, such pledge shall not exceed the scope of obligation guaranteed by the original pledge; and the exceeding portion, if any, shall not be paid with priority. Re-pledge is prior to the original one.

During the duration of pledge, the pledgee makes guarantee on the pledged property to a third party to guarantee the pledgee's debt without the pledgor's consent shall be invalid. The pledgee shall assume the liability for damage caused by re-pledge.

Article 95

Where the pledgee is not paid at the expiration of the term for obligation performance, he may hold the pledged property and exercise his right with all of the property. After receiving payment from the pledgor, the pledgee shall return the pledged property.

Where at the expiration of the term for obligation performance, after being required by the pledgor, the pledgee fails to exercise his right and causes depreciation of the pledged property, the pledgee shall assume the compensation liability for the consequent loss.

Article 96

Articles 57, 62, 64, 71, 72,73, 74 and 80 of this Interpretation shall be applicable to the pledge of movable properties.

Section II

Pledge of Rights

Article 97

Article 75 (4) of Guarantee Law shall apply to the pledge on the right of proceeds from such real properties as highway bridges, tunnels or ferries.

Article 98

Where a pledge is made on bill of exchange, cheque and promissory note, and there is no writing of "pledge" in the endorsement, the court shall not support the defense with such pledge against a third party of good faith.

Article 99

If a pledge is made on company debenture, and there is no writing of "pledge" in the endorsement, the court shall not support the defense with such pledge against a third party of good faith.

Article 100

Where a pledge is made on deposit certificates, and the issuing bank accepts the loss report after checking and thus causes the deposit loss, the bank shall bear civil liability.

Article 101

Where a pledge is made on bills, bonds, deposit certificates, warehouse receipts or bills of lading, the re-transfer or pledge by the pledgee shall be invalid.

Article 102

Where a pledge is made on bills of exchange, cheque, promissory notes, bonds, deposit certificates, warehouse receipts or bills of lading, and the specified date for encashment or delivery of goods falls behind the term for obligation performance, the pledgee may only cash it or deliver the goods at the expiration of the term for encashment or delivery.

Article 103

Where a pledge is made on shares of a limited liability company by shares, the relevant provisions of the Company Law of the People's Republic of China for transfer of shares shall apply.

Where a pledge is made on shares of a listed company, the pledge contract shall go into effect as of the date when the pledge is recorded in the securities registry.

Where a pledge is made on shares of a non-listed company, the pledge contract shall go into effect as of the date when the pledge is recorded in the register of shareholders.

Article 104

Where a pledge is made on shares and stocks that are transferable according to law, the pledge right shall have effect on statutory fruits of shares and stocks.

Article 105

Where a pledge is made on the exclusive use right of trademarks or on the property right in the patent rights or the copyrights that are transferable according to law, and the pledgor assigns such rights or permits others to use such rights without consent of the pledgee, such act shall be considered invalid. The pledgor shall assume civil liability for the consequent loss of the pledgee or the third party.

Article 106

Where the pledgee exercises his pledge right to the pledgor or the debtor that has of pledged the creditor's rights, which is refused by them, he may bring lawsuit against the pledgor and the debtor who has pledged the creditor's rights, or sue the debtor separately.

Part V

Interpretation of Lien Section

Article 107

Where the parties agree in contract to exclude lien, the court shall not support the exercise of lien by the creditor at the expiration of term for obligation performance.

Article 108

Where the creditor possesses the debtor's movable properties lawfully and is not aware that the debtor has no right to dispose the movable properties, the creditor may be entitled to exercise the lien according to Article 82 of Guarantee Law.

Article 109

Upon expiration of the term for obligation performance, if the creditor's possession of a movable property is related to the occurrence of his creditor's rights, the creditor may retain the movable property under his possession.

Article 110

If the lien article is not separable prior to full payment of the obligation, the lienor may exercise the lien on the entire lien article.

Article 111

The court shall not support the creditor's lien if such lien conflicts with his liability or specific stipulations of the contract.

Article 112

Where the creditor's rights have not expired but his liability to offer a possessed article has expired, the creditor can not be entitled to exercise lien unless the creditor can prove that the debtor is not capable of paying.

Article 113

If the creditor directly converts the lien article into value Without informing the debtor to fulfill liability according to Article 87 of Guarantee Law, he shall bear compensation liability for consequent loss. If the creditor agrees with the debtor on grace period in the contract according to Article 87 of Guarantee Law, the creditor may exercise lien without notification.

Article 114

Articles of 64, 80,87,91 and 93 of this Interpretation shall be applicable to lien.

Part VI

Interpretation of Deposit Section

Article 115

Where the parties agree to pay a deposit to guarantee the creation of a principal contract, if the party paying the deposit refuses to sign the contract as agreed, he/it shall not have the right to demand a refund of the deposit; if the party receiving the deposit refuses to sign the contract, he/it shall refund twice the amount of the deposit.

Article 116

Where the parties agree to pay a deposit as an important document for creation or validation of the principal contract, if the party who should pay deposit fails to do so and the principal contract or the major part of it has been performed, the creation and effect of the principal contract shall not be influenced.

Article 117

After the payment of a deposit, the party who pays it may terminate the principal contract by abandoning the deposit according to the agreement in the contract while the party who receives the deposit may terminate the principal contract by refunding twice the amount of the deposit. The Contract Law of the People's Republic of China shall be applicable to the disposal of the liability of terminating a contract.

Article 118

Where the parties who provide money of lien, guarantee deposit, caution money, contract conclusion deposit, deposit or subscription have not agreed on the nature of deposit, and require the right of deposit, the court will not support it.

Article 119

If the actual payment of deposit is more or less than the stipulated amount, the deposit contract shall be deemed as altered; if the receiving party holds an objection to the deposit and refuses to accept it, the deposit contract shall not go into effect.

Article 120

If the purpose of the contract can not be realized due to the delay of one party in performance or other breach of the contract, the penalty rule of deposit shall be applied except it is otherwise stipulated by law or by agreement of the parties.

If one party fails to perform the contract completely, the penalty rule of deposit shall apply according to the proportion of the unperformed part.

Article 121

Where the stipulated deposit amount exceeds twenty percent of the value of the subject matter for the principal contract, the court shall not support the exceeding portion.

Article 122

When the principal contract is not fulfilled due to force majeure or accident, the penalty rule of deposit shall not apply. And if the principal contract is not fulfilled due to the fault of a third party outside the contract, such rule shall apply. The punished party may have recourse against the third party according to law.

Part VII

Interpretation of Other Issues

Article 123

Where several security interests coexist for the same creditor's right, and the creditor waives the guarantee of property provided by the debtor, the other guarantee providers shall be lessened or exempted from guarantee liability within the scope of the creditor's waiver of right.

Article 124

Where a branch of an enterprise legal person provides guarantee, such enterprise legal person may be deemed as a co-defendant in the lawsuit by the people's court when trying cases of disputes over guarantee, except when the guarantee provider is a branch of the commercial bank or a insurance company.

Article 125

The people's court may try the dispute case with the debtor and the guarantee provider as codefendants when the creditor of a general guarantee brings a lawsuit against both the debtor and the guarantee provider. However, if the obligation can't be fulfilled after compulsory execution of the debtor's properties, it shall be confirmed in the verdict that the guarantee provider shall bear liability.

Article 126

The creditor of a jointly liable guarantee may bring a lawsuit against the debtor or the guarantee provider, or both of them as codefendants.

Article 127

If the debtor brings a suit against the creditor and the creditor brings a counterclaim, The guarantee provider may participate in the proceedings as a third party.

Article 128

The debtor and the guarantee provider shall participate in the proceedings as codefendants when the creditor requests to exercise its guarantee right in the court.

Where an obligation is guaranteed by both the guarantee and the guarantee of property, the debtor may participate in proceedings with the guarantee provider, the mortgagor or the pledgor as codefendants if a dispute between the parties is brought to court.

Article 129

When a dispute between the principal and the guarantee contract is brought to court, jurisdiction of the case shall be determined on the basis of the principal contract. Where a dispute is arisen from the guarantee contract of joint liability guarantee and the creditor claims against the guarantee provider, such lawsuit shall be under the jurisdiction of the court at he locality where the guarantee provider has his domicile.

Where the courts of jurisdiction selected in the principal and guarantee contracts are different, the jurisdiction shall be determined based on the principal contract.

Article 130

In case of a lawsuit concerning the principal contract, if the guarantee contract hasn't been tried yet, the people's court shall not execute the guarantee provider's property, according to the verdict made to the parties of the principal contract.

Article 131

The term "insolvent" mentioned in the present Interpretation shall refer to the condition of non-solvency after execution of the debtor's movables and other assets such as deposit, cash, securities, end products, semi-finished products, raw materials, traffic vehicles, etc.

Article 132

Where the parties provide property guarantee in the proceedings of trying or executing of cases, the people's court shall detain the right certificate of such property and issue a notice on execution assistance to the relevant departments, and require them to refuse to accept applications for transfer of the guarantee property.

Article 133

Prior to the coming into force of the Guarantee Law, the laws, regulations and judicial interpretations effective at the time of guarantee creation shall apply to the guarantee acts.

Where the guarantee disputes, which take place after the effective date of Guarantee Law, has been tried in a final instance, but the parties apply for retrial or it is decided to be retried in light of the procedure of trial supervision, this Interpretation shall not apply.

Where the guarantee disputes, which take place after the executive date of Guarantee Law, is still under trying of the first or second instance after the effective date of this Interpretation, the Guarantee Law and this Interpretation shall apply.

Article 134

The judicial interpretation concerning guarantee issues made by the Supreme People's Court prior to the effective date of Guarantee Law shall not be applied if it is contrary to the Guarantee Law and this Interpretation.