Chapter XVII Pledge Right

Section 1 Chattel Pledge

Article 208 For the security of the payment of debts,an obligor or a third party may pledge his/its chattels to the obligee for occupation, and when the obligor fails to pay due debts or any circumstance for realizing the pledge right as stipulated by the parties happens, the obligee has the right to seek preferred payments from the pledged chattels.

The "debtor" or "third party" as referred to in the preceding paragraph shall be the pledger, the "obligee" shall be the pledgee, and the "chattels" as delivered shall be the pledged property.

Article 209 The chattels,which are forbidden from being transferred by any law or administrative regulation, may not be pledged.

Article 210 For establishing the pledge right, the parties concerned shall enter into a contract on pledge right in written form.

In general, a contract on pledge right shall contain the following items:

(1) The variety and amount of the principal obligee's rights;

(2) The time limit for the obligor to pay off debts;

(3) The name, amount, quality and condition of the pledge;

(4) The scope of security; and

(5) The time for the delivery of pledged properties.

Article 211 The pledgee and the pledger may not, prior to the time limit for paying debts expires, stipulate that the ownership of pledged properties is attributed to the obligee when the obligor fails to pay due debts.

Article 212 The pledge right shall be established when the pledgee has delivered the pledged properties.

Article 213 Unless it is otherwise stipulated in the contract, a pledgee has the right to obtain the fruits of the pledged properties.

The "fruits" as referred to in the preceding paragraph shall be firstly used for paying the expenses for collecting the fruits.

Article 214 Where a pledgee, without consent of the pledger, illegally uses or disposes of the pledged properties within the duration of the pledge right, and thus damages are caused to the pledger, he/it shall make compensations.

Article 215 A pledgee shall be obliged to properly keep pledged properties; and where pledged properties are damaged or lost by virtue of improper keeping, the pledgee shall make compensations.

Where pledged properties may be damaged or lost by act of the pledgee, the pledger may ask for the pledgee to submit them to a competent authority for keeping or require to pay debts in advance and take back them.

Article 216 Where any cause not attributable to the pledgee's fault may result in the destruction of the pledged properties or an obvious decrease of the value of the pledged properties, which is sufficient to damage the pledgee's rights, the pledgee has the right to require the pledger to provide corresponding security. Where the pledger refuses to do so, the pledgee may auction or sell off the pledged properties, and may, by negotiating with the pledger, seek preferred payments for the obligee's rights in advance with the money generated from such auction or sell-off, or submit the said money to a competent authority for keeping.

Article 217 Where a pledgee transfers, without consent of the pledger, the pledge within the duration of the pledge right, and thus destroy or loss are caused to the pledged properties, he/it shall make compensations to the pledger.

Article 218 A pledgee may abandon the pledge right. Where an obligor provide the pledge right by his/its own properties, and the pledgee abandons the pledge right, unless any of other security providers promises to provide the security all the same, other security providers' security liability will be exempted within the scope for which the pledgee has lost the right to seek preferred payments.

Article 219 Where the obligor has paid off the debts or the pledger has fulfilled the secured obligee's rights in advance, the pledgee shall return the pledged properties.

Where an obligor fails to pay off its due debts or any circumstance for realizing the pledge right as stipulated by the parties concerned happens, the pledgee may, by negotiating with the pledger, convert the pledge into money or seek preferred payments from the money generated from the auction or sell-off of the pledged properties.

When converting the pledged properties into money or selling off them, their market price shall be referred to.

Article 220 A pledger may, upon expiration of the time limit for paying debts, request the pledgee to exercise the pledge right in a timely manner; if the pledgee fails to do so, the pledger may ask for the people's court to auction or sell off the pledged properties.

Where a pledger has requested the pledgee to exercise the pledge right in a timely manner, but the pledgee delays doing so and thus damages are caused, the pledgee shall make compensations.

Article 221 After pledged properties are converted into money, auctioned or sold off, the value exceeding the obligee's rights shall be attributed to the pledger, and the