chapter

Right of Pledge

Section . General Provisions

Article . Definition of right of pledge . The right of pledge is a right held by an obligee to obtain satisfaction of his credit out of the value of the personal property or property right of which he has received possession from the obligor or a third party as security for such credit in preference to other obligees. . The obligor or third party in the preceding paragraph shall be the pledgor, the obligee shall be the pledgee, and the asset used for security shall be the pledged asset.

Article . Subjectmatteroftherightofpledge . A pledge can be created over legally alienable personal property. . A pledge can be created over a property right certificate of which possession is legally transferable. . A pledge can be created over a property right which can be legally disposed of. But a pledge shall not be created over a property right acquired as to immovable property.

Article . Pledge contract . A right of pledge shall be created through a written contract be- tween the pledgor and pledgee. . A pledge contract shall include the following contents: a.typeandamountofthesecuredcredit; b. duration of the debt that the obligor has to perform; c. name, quantity, quality, condition of, and ownership or use right over the pledged asset; d. scope of the credit secured by the pledge; e. time of transferring possession of the pledged asset; and f.otheritemsdeemednecessarybythepartiesconcerned. . The pledge contract may be supplemented if it does not include all the contents listed in the preceding paragraph.  chapter

Article . Agreement on the duration of pledge Any duration period agreed in the pledge contract to the right of pledge shall be invalid.

Article . Prohibition on collateral’s transfer The pledge contract shall not provide that the pledgee acquires the ownership of the pledged asset when the pledgor does not pay off his debt by the time when the duration to fulfill the debt expires.

Article . Creation of the right of pledge and effectiveness of pledge contract . When a right of pledge is created according to this Law, the pos- session of the pledged asset shall be transferred to the pledgee. The pledge shall be created at the time when the possession of the pledged asset is transferred to the pledgee. The parties concerned shall not agree in the pledge contract that the pledgor takes posses- sion of the pledged asset on the pledgee’s behalf. .Ifapledgeiscreatedoverabillofexchange,check,promissorynote, bond, certificate of deposit, warehouse receipt, bill of lading or other legally negotiable credit, the pledgor shall transfer the possession of the credit certificate to the pledgee. If a pledge is created over the equity of a limited liability company, the pledgor shall transfer the possession of the capital contribution certificate to the pledgee. If a pledge is created over a stock, the pledgor shall transfer the possession of the stock to the pledgee. . If the pledged asset is a property right for which assignment needs registration, the pledgor and the pledgee shall register the pledge and the pledge shall be created from the date of registration. The following documents or their duplicates shall be submitted to the registration agency for the pledge registration: a. principal contract and pledge contract; b. ownership certificate of the pledged asset. . The pledge contract shall be effective from the date of conclusion, unless otherwise provided by law or agreed by the parties, in which case such provisions or agreements shall apply.

Article . Scope of credit secured by pledge The scope of the credit secured by a pledge includes principal, interest, penalty for breach of contract, payment of damages, storage fees of