Civil Code: Pledge - Pledge over Personal Property

(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 XVIII Pledge
Section 1 Pledge over Personal Property
Article 425 Where the obligor or any third party pledges its personal property as collateral and delivers it to the obligee to secure the obligor's payment of its debt when due, the mortgagee shall be entitled to be paid in priority out of such personal property in case of the obligor's failure to pay its debt when due or any other event which triggers the exercise of the pledge right as agreed by the parties.
For the purpose of the preceding paragraph, the obligor or the third party shall be the pledgor, the obligee shall be the pledgee, and the personal property delivered shall be the pledged collateral.
Article 426 Any personal property which may not be transferred in accordance with laws and administrative regulations shall not be pledged as collateral.
Article 427 No pledge shall be created unless the parties enter into a written pledge contract.
In general, a pledge contract shall contain the following:
(1) the type and amount of the secured claim;
(2) the term for the obligor to pay its debt;
(3) the name, quantity, and other necessary information of the pledged collateral; and
(4) the coverage of the security; and
(5) the time and manner of the delivery of the pledged collateral.
Article 428 Where the pledgee reaches an agreement with the pledgor, before the expiration of the performance period of the debt, that the ownership of the pledged collateral shall be vested in the obligee in case of the obligor's failure to pay its debt when due, the pledgee shall be entitled to be paid in priority only out of the pledged collateral according to law.
Article 429 A pledge shall be created upon the pledgor's delivery of the pledged collateral.
Article 430 A pledgee shall be entitled to the fruits of the pledged collateral unless otherwise specified in the contract.
The fruits specified in the preceding paragraph shall first be applied to pay the cost for receiving such fruits.
Article 431 In case of damage to or loss of the pledgor due to the pledgee's use or disposal of the pledged collateral without the consent of the pledgor during the pledge term, the pledgee shall be held liable for compensation.
Article 432 The pledgee shall safekeep the pledged collateral with due care and shall be held liable for damage to or loss of the pledged collateral due to improper safekeeping.
Where any act of the pledgee may result in damage to or loss of the pledged collateral, the pledgor may request the pledgee to place the pledged collateral in escrow or claim payment of the debt in advance before returning the pledged collateral.
Article 433 In case of any event for any cause not attributable to the pledgee which may result in loss of the pledged collateral or decrease in its value to a material extent which may have an adverse effect on the rights of the pledgee, the pledgee may request the pledgor to provide corresponding security, failing which the pledgee may sell the pledged collateral by auction or on consignment and reach an agreement with the pledgor that the proceeds from the sale of the pledged collateral by auction or on consignment be applied to pay off its debt in advance or placed in escrow.
Article 434 In case of damage to or loss of the pledged collateral due to the pledgee's transfer of the pledged collateral to any third party without the consent of the pledgor during the pledge term, the pledgee shall be held liable for compensation.
Article 435 A pledgee may waive its pledge. Where the pledgee waives its pledge right in the obligor's own property pledged as collateral, any other surety shall be exempted from the security liability to the extent that the pledgee loses its priority to be paid with the pledged collateral unless any other surety undertakes to provide security nevertheless.
Article 436 The pledgee shall return the property pledged as collateral upon the obligor's payment of its debt or the pledgor's discharge of the secured claim in advance.
In case of the obligor's failure to pay its debt when due or any other event which triggers the exercise of the pledge right as agreed by the parties, the pledgee may reach an agreement with the pledgor that the claim shall be satisfied by liquidating the pledged collateral or paid in priority out of the proceeds from the sale of the pledged collateral by auction or on consignment.
Where any pledged collateral is liquidated or sold on consignment, reference shall be made to the market price.
Article 437 The pledgor may request the pledgee to exercise the pledge right in a timely manner upon the expiration of the performance period of the debt or file a petition with the people's court to sell the pledged collateral by auction or on consignment if the pledgee fails to do so.
In case of damage to or loss of the pledgor due to the pledgee's failure to exercise the pledge right in a timely manner as requested by the pledgor, the pledgee shall be held liable for compensation.
Article 438 Where any pledged collateral is liquidated or sold by auction or on consignment, the amount of the proceeds exceeding the amount of the claim, if any, shall be paid to the pledgor, and the shortage, if any, shall be covered by the obligor.
Article 439 The pledgor and the pledgee may agree to create a maximum pledge.
In addition to this Section 1, maximum pledge shall also be governed, mutatis mutandis, by the provisions of Section 2 of Chapter XVII under this TITLE TWO.