Civil Code: Security Interest - General Rules

(These clauses are selected from The Civil Code of the People’s Republic of China translated and authored by Steve Li and Robert Zhang, international arbitration lawyers registered in Shanghai, China, and published by Kindle Unlimited. No reproduction is allowed unless authorized by the authors.)
 
Chapter XVI General Rules
Article 386 A security interest holder shall be entitled to be paid in priority out of the collateral according to law in case of the obligor's failure to pay its debt when due or any other event which triggers the exercise of the security interest as agreed by the parties unless otherwise specified by law.
Article 387 An obligee may create a security interest in its claim, where necessary, in accordance with the applicable provisions of this Code and other laws, to secure the exercise of its claim arising in lending, sales, or any other civil activities.
A third party who secures a debt may request the obligor to provide counter security. Counter security shall be governed by the applicable provisions of this Code and other laws.
Article 388 No security interest shall be created unless a security contract is entered into in accordance with the applicable provisions of this Code and other laws. Security contracts include mortgage contracts, pledge contracts, and other contracts which may operate as a security. A security contract is an accessory to the master contract governing the secured claim and debt. The security contract shall be invalid if the master contract is invalid unless otherwise specified by law.
Where a security contract is held to be invalid, the obligor, the surety, or the obligee who was at fault for the invalidity shall be held civilly liable in proportion to their respective faults.
Article 389 A security shall cover the obligee's claim and the interest thereon, liquidated damages, compensatory damages, and the cost for the custody of the collateral or the exercise of the security interest unless otherwise agreed by the parties.
Article 390 Where the collateral is damaged, lost, or expropriated during the security term, the security interest holder shall be entitled to be paid in priority out of the insurance indemnity, damages, or compensation received for the collateral. Such insurance indemnity, damages, or compensation may be held in escrow before the expiration of the performance period of the secured claim.
Article 391 Where an obligor transfers its debt, in whole or in part, with the consent of the obligee but without the written consent of the surety, if any, the surety shall be relieved from its security liability for the debt or part of the debt which has been transferred.
Article 392 In case of an obligor's failure to pay its debt secured by both collateral and credit or any other event which triggers the exercise of the security interest in such a debt as agreed by the parties, the obligee shall exercise its claim as agreed or shall first exercise its claim on the collateral provided by the obligor, if any, in the absence of an express agreement, or the obligee may exercise its claim on the collateral provided by any third party, if any, or claim guarantee liability against the guarantor. After the assumption of its security liability, the third party who provides security shall be entitled to recover from the obligor.
Article 393 The security interest shall be extinguished:
(1) upon the extinguishment of the principal claim;
(2) upon the exercise of the security interest;
(3) in case of the obligee's waiver of its security interest; or
(4) in case of any other event which results in extinguishment of the security interest.