Preservation of Contractual Rights 1. The Right of Revoke (or Cancel) Juristic Act which prejudicial to the Creditor’s Right 2.The Right of Subrogation

Preservation of Contractual RightsPreservation of Contractual Rights

1. The Right of Revoke (or Cancel) Juristic 1. The Right of Revoke (or Cancel) Juristic Act which prejudicial to the Creditor’s RightAct which prejudicial to the Creditor’s Right2.The Right of Subrogation2.The Right of Subrogation3. Guaranty Contractual Rights and Secured 3. Guaranty Contractual Rights and Secured TransactionTransaction

The Accomplishment of the The Accomplishment of the Creditor’s RightCreditor’s Right

What is a liability?What is a liability?– Right, obligation , and liabilityRight, obligation , and liability

A right is a interest awarded, recognized, and protected by law.A right is a interest awarded, recognized, and protected by law.A duty or obligation is a burden to do or refrain from doing enforced by law.A duty or obligation is a burden to do or refrain from doing enforced by law.A liability is an imputation levied by law when an obligor fails to perform its A liability is an imputation levied by law when an obligor fails to perform its obligation.obligation.

– Compulsory performance Compulsory performance – DamagesDamages

RecoveryRecoveryPecuniary damage Pecuniary damage

Manner to take a liabilityManner to take a liability– Personal liabilityPersonal liability– Property liabilityProperty liability

Range of liabilityRange of liability– Liability limitedLiability limited– Liability without limitedLiability without limited

X(Creditor)

Y(Debtor)

Mortgagor

Debtor of Y

Creditor of Y

Guarantor(surety)

The Right of SubrogationThe right of Revocation (Cancellation)

Passively impaired X’s right

Positively impaired X’s Right

MortgageGuarantee

The Right to Cancel Juristic Act Harming the The Right to Cancel Juristic Act Harming the Creditor’s Right in PRC Contract LawCreditor’s Right in PRC Contract Law

Article 74 Obligee's Right to Cancel Manifestly Unreasonable Act by Article 74 Obligee's Right to Cancel Manifestly Unreasonable Act by ObligorObligor– Where the obligor waived its creditor's right against a third person that was due Where the obligor waived its creditor's right against a third person that was due

or assigned its property without reward, thereby harming the obligee, the obligee or assigned its property without reward, thereby harming the obligee, the obligee may petition the People's Court for cancellation of the obligor's act. Where the may petition the People's Court for cancellation of the obligor's act. Where the obligor assigned its property at a low price which is manifestly unreasonable, obligor assigned its property at a low price which is manifestly unreasonable, thereby harming the obligee, and the assignee was aware of the situation, the thereby harming the obligee, and the assignee was aware of the situation, the obligee may also petition the People's Court for cancellation of the obligor's act.obligee may also petition the People's Court for cancellation of the obligor's act.The scope of cancellation right is limited to the extent of the obligee's right to The scope of cancellation right is limited to the extent of the obligee's right to performance. The necessary expenses for the obligee's exercise of its performance. The necessary expenses for the obligee's exercise of its cancellation right shall be borne by the obligor. cancellation right shall be borne by the obligor.

Article 75 Time Limit for Exercising Obligee's Cancellation RightArticle 75 Time Limit for Exercising Obligee's Cancellation Right– The obligee's cancellation right shall be exercised within one year, commencing The obligee's cancellation right shall be exercised within one year, commencing

on the date when it became, or should have become, aware of the cause for on the date when it became, or should have become, aware of the cause for cancellation. Such cancellation right is extinguished if not exercised within five cancellation. Such cancellation right is extinguished if not exercised within five years, commencing on the date of occurrence of the obligor's act. years, commencing on the date of occurrence of the obligor's act.

The Right to Revoke Juristic Act Prejudicial The Right to Revoke Juristic Act Prejudicial to the Creditor’s Right in ROC Civil Codeto the Creditor’s Right in ROC Civil CodeArticle 244Article 244

– If a gratuitous act done by the debtor is likely to be prejudicial to the rights of the creditor, thIf a gratuitous act done by the debtor is likely to be prejudicial to the rights of the creditor, the creditor may apply to the court for the revocation of such act.e creditor may apply to the court for the revocation of such act.If a non-gratuitous act done by the debtor is likely to be prejudicial to the rights of the creditoIf a non-gratuitous act done by the debtor is likely to be prejudicial to the rights of the creditor and the debtor knew of it at the time of doing that act, the creditor may apply to the court for and the debtor knew of it at the time of doing that act, the creditor may apply to the court for the revocation of such act, provided that the party profited by the act (the beneficiary) also r the revocation of such act, provided that the party profited by the act (the beneficiary) also knew of the circumstances on the receipt of the interests.knew of the circumstances on the receipt of the interests.

– The provisions of the preceding two paragraphs do not apply to the act done by the debtor, iThe provisions of the preceding two paragraphs do not apply to the act done by the debtor, if the object of which is not on the property or is only prejudicial to the prestation of delivering f the object of which is not on the property or is only prejudicial to the prestation of delivering a specific thing.a specific thing.

– When the creditor applies to the court for the revocation according to the provision of the firsWhen the creditor applies to the court for the revocation according to the provision of the first or the second paragraph, he may also apply for ordering the beneficiary or the person who t or the second paragraph, he may also apply for ordering the beneficiary or the person who acquires the object afterwards (the afterwards acquiring person) to restore to the status quo acquires the object afterwards (the afterwards acquiring person) to restore to the status quo ante, except the afterwards acquiring person did not know of the ground for revocation at thante, except the afterwards acquiring person did not know of the ground for revocation at the time of acquiring.e time of acquiring.

Article 245Article 245– The claim for revocation in the provisions of the preceding article shall be extinguished by prThe claim for revocation in the provisions of the preceding article shall be extinguished by pr

escription if not exercised within one year from the moment when the creditor knew of the grescription if not exercised within one year from the moment when the creditor knew of the ground for revocation, or shall be extinguished after ten years from the date of doing the act.ound for revocation, or shall be extinguished after ten years from the date of doing the act.

The Right to Revoke Juristic Act Harming The Right to Revoke Juristic Act Harming the Creditor’s Right in Japan Civil Codethe Creditor’s Right in Japan Civil Code

Article 424 Revocation of a Juristic Act Prejudicial to the ObligeeArticle 424 Revocation of a Juristic Act Prejudicial to the Obligee– The obligee may petition the court to revoke the juristic act that is made The obligee may petition the court to revoke the juristic act that is made

by the obligor with a knowledge of the act being prejudicial to the by the obligor with a knowledge of the act being prejudicial to the obligee. However, if the person, who benefits from the act directly or obligee. However, if the person, who benefits from the act directly or receives the benefit subsequently, has no knowledge about the fact receives the benefit subsequently, has no knowledge about the fact being prejudicial to the obligee when the act is made or he receives the being prejudicial to the obligee when the act is made or he receives the benefit subsequently, the right can not be exercised. benefit subsequently, the right can not be exercised.

Article 425 Effectiveness of RevocationArticle 425 Effectiveness of Revocation– The right of revocation provided in the preceding article is effective for The right of revocation provided in the preceding article is effective for

the interest of all obligees.the interest of all obligees.Article 426 Extinctive PrescriptionArticle 426 Extinctive Prescription– The right of revocation provided in article 424 shall be extinguished if it The right of revocation provided in article 424 shall be extinguished if it

is is not exercised within two years from the moment when the obligee knenot exercised within two years from the moment when the obligee knew of the ground for revocation, or shall be extinguished after twenty yearw of the ground for revocation, or shall be extinguished after twenty years from the date of doing the act.s from the date of doing the act.

The Right to Revoke (Cancel) a Juristic ActThe Right to Revoke (Cancel) a Juristic Act

DefinitionDefinition– The right of revocation can be defined as a right of petition to the court tThe right of revocation can be defined as a right of petition to the court t

o invalidate the obligor’s juristic act which is positively prejudicial to the o invalidate the obligor’s juristic act which is positively prejudicial to the obligee’s benefit to accomplish its creditor’s right. obligee’s benefit to accomplish its creditor’s right.

Gratuitous Act Gratuitous Act – ElementsElements

The juristic act is done by the debtor, the juristic act is The juristic act is done by the debtor, the juristic act is a gratuitous acta gratuitous act, and t, and the juristic act is likely to be he juristic act is likely to be prejudicialprejudicial to the rights of the creditor. (ROC) to the rights of the creditor. (ROC)Where the obligor Where the obligor waived its creditor's right waived its creditor's right against a third person that was against a third person that was due or due or assigned its property without rewardassigned its property without reward, thereby , thereby harmingharming the obligee, the the obligee, the obligee may petition the People's Court for cancellation of the obligor's act. obligee may petition the People's Court for cancellation of the obligor's act. (PRC)(PRC)

– EffectEffectThe creditor may apply to the court for the revocation of such act. The creditor may apply to the court for the revocation of such act. When the creditor petitions to the court for the revocation, he may also apply When the creditor petitions to the court for the revocation, he may also apply for ordering the beneficiary or the person who acquires the object afterwards for ordering the beneficiary or the person who acquires the object afterwards (the afterwards acquiring person) to restore to the status quo ante, except th(the afterwards acquiring person) to restore to the status quo ante, except the afterwards acquiring person did not know of the ground for revocation at the afterwards acquiring person did not know of the ground for revocation at the time of acquiring. (ROC)e time of acquiring. (ROC)


A Non-gratuitous ActA Non-gratuitous Act– ElementsElements

the juristic act is done by the debtor, the juristic act is the juristic act is done by the debtor, the juristic act is a non-ga non-gratuitous actratuitous act, the juristic act is likely to be , the juristic act is likely to be prejudicialprejudicial to the rig to the rights of the creditor, the hts of the creditor, the debtor knewdebtor knew of it at the time of doing t of it at the time of doing that act, and the party profited by the act hat act, and the party profited by the act (the beneficiary) als(the beneficiary) also knewo knew of the circumstances on the receipt of the interests. of the circumstances on the receipt of the interests. (ROC)(ROC)

Where the obligor Where the obligor assigned its property at a low priceassigned its property at a low price which which is manifestly unreasonableis manifestly unreasonable, thereby , thereby harming the obligeeharming the obligee, and , and the assignee was aware of the situationthe assignee was aware of the situation. (PRC). (PRC)

The The juristic actjuristic act is made by the is made by the obligor with a knowledgeobligor with a knowledge of of the act being the act being prejudicial to the obligeeprejudicial to the obligee. (Japan). (Japan)


– EffectEffectThe creditor may apply to the court for the revocation of such The creditor may apply to the court for the revocation of such act.act.

When the creditor applies to the court for the revocation, he When the creditor applies to the court for the revocation, he may also apply for ordering the beneficiary or the person whmay also apply for ordering the beneficiary or the person who acquires the object afterwards (the afterwards acquiring peo acquires the object afterwards (the afterwards acquiring person) to restore to the status quo ante, except the afterwards rson) to restore to the status quo ante, except the afterwards acquiring person did not know of the ground for revocation at acquiring person did not know of the ground for revocation at the time of acquiring. (ROC)the time of acquiring. (ROC)

The right of revocation provided in the preceding article is The right of revocation provided in the preceding article is effective for the interest of all obligees. (Japan)effective for the interest of all obligees. (Japan)


LimitationLimitation– Do not apply to the act done by the debtor, if Do not apply to the act done by the debtor, if

the object of juristic act is not to transfer a property or the object of juristic act is not to transfer a property or the act is only prejudicial to the prestation of delivering a specific thithe act is only prejudicial to the prestation of delivering a specific thing. (ROC)ng. (ROC)

– The provisions of the preceding two paragraphs do not apply to tThe provisions of the preceding two paragraphs do not apply to the act done by the debtor, if the object of which is not on the prohe act done by the debtor, if the object of which is not on the property or is only prejudicial to the prestation of delivering a specifiperty or is only prejudicial to the prestation of delivering a specific thing. (PRC)c thing. (PRC)

– However, if the person, who benefits from the act directly or However, if the person, who benefits from the act directly or receives the benefit subsequently, has no knowledge about the receives the benefit subsequently, has no knowledge about the fact being prejudicial to the obligee when the act is made or he fact being prejudicial to the obligee when the act is made or he receives the benefit subsequently, the right can not be receives the benefit subsequently, the right can not be exercised. (Japan)exercised. (Japan)


– Time PeriodTime PeriodThe claim for revocation in the provisions of the preceding artThe claim for revocation in the provisions of the preceding article shall be extinguished if not exercised within one year froicle shall be extinguished if not exercised within one year from the moment when the creditor knew of the ground for revom the moment when the creditor knew of the ground for revocation, or shall be extinguished after ten years from the date cation, or shall be extinguished after ten years from the date of doing the act. (ROC)of doing the act. (ROC)The right of revocation provided in article 424 shall be The right of revocation provided in article 424 shall be extinguished if it is extinguished if it is not exercised within two years from the mnot exercised within two years from the moment when the obligee knew of the ground for revocation, ooment when the obligee knew of the ground for revocation, or shall be extinguished after twenty years from the date of doir shall be extinguished after twenty years from the date of doing the act. (Japan)ng the act. (Japan)The obligee's cancellation right shall be exercised within one The obligee's cancellation right shall be exercised within one year, commencing on the date when it became, or should year, commencing on the date when it became, or should have become, aware of the cause for cancellation. Such have become, aware of the cause for cancellation. Such cancellation right is extinguished if not exercised within five cancellation right is extinguished if not exercised within five years, commencing on the date of occurrence of the obligor's years, commencing on the date of occurrence of the obligor's act. (PRC)act. (PRC)

The Right of SubrogationThe Right of Subrogation

DefinitionDefinition– The Right of subrogationThe Right of subrogation can be defined as a right awarded the can be defined as a right awarded the

obligee a legal status to exercise the rights of obligor where the obligee a legal status to exercise the rights of obligor where the obligor delayed in exercising its right against a third person that obligor delayed in exercising its right against a third person that was due, thereby harming the obligee.was due, thereby harming the obligee.

ElementsElements– The obligor owns a creditor’s right against a third person.The obligor owns a creditor’s right against a third person.– The obligor neglects to exercise its creditor’s right.The obligor neglects to exercise its creditor’s right.– The obligor’s delay in exercising its creditor's right harms the The obligor’s delay in exercising its creditor's right harms the

obligee’s right.obligee’s right.– The obligor’s delay in exercising its creditor's right causes a The obligor’s delay in exercising its creditor's right causes a

hazard of extinction of the obligor’s right. hazard of extinction of the obligor’s right.

The Right of SubrogationThe Right of Subrogation

Manner to exercise the right of subrogationManner to exercise the right of subrogation– The obligee may petition the People's Court for subrogation (PRC)The obligee may petition the People's Court for subrogation (PRC)– The obligee may exercise the right of subrogation without a ratification The obligee may exercise the right of subrogation without a ratification

of court. (ROC).of court. (ROC).– Before the creditor’s right is due, the obligee cannot exercise the right pBefore the creditor’s right is due, the obligee cannot exercise the right p

rovided in the preceding paragraph except exercising it through a litigatirovided in the preceding paragraph except exercising it through a litigation except an act of preservation.(Japan) on except an act of preservation.(Japan)

LimitationsLimitations– except rights which are exclusively belonged to the debtor. (ROC Civil Cexcept rights which are exclusively belonged to the debtor. (ROC Civil C

ode Article 242); ode Article 242); except where such creditor's right is exclusively except where such creditor's right is exclusively personal to the obligor.(PRC)personal to the obligor.(PRC)

– The scope of subrogation is limited to the extent of the obligee's right to The scope of subrogation is limited to the extent of the obligee's right to performance. performance. (PRC Contract Law (PRC Contract Law Article 73)Article 73)

– So long as the debtor is not in default, the creditor shall not exercise the So long as the debtor is not in default, the creditor shall not exercise the right specified in the preceding article, except those rights which are excright specified in the preceding article, except those rights which are exclusively for the preservation of the rights of the said debtor.lusively for the preservation of the rights of the said debtor.(ROC Civil Code Article 243)(ROC Civil Code Article 243)

The Right of Subrogation in PRC The Right of Subrogation in PRC Contract LawContract Law

Article 73 Subrogation; LimitationArticle 73 Subrogation; Limitation– Where the obligor delayed in exercising its creditor's Where the obligor delayed in exercising its creditor's

right against a third person that was due, thereby right against a third person that was due, thereby harming the obligee, the obligee may petition the harming the obligee, the obligee may petition the People's Court for subrogation, except where such People's Court for subrogation, except where such creditor's right is exclusively personal to the obligor.creditor's right is exclusively personal to the obligor.

– The scope of subrogation is limited to the extent of The scope of subrogation is limited to the extent of the obligee's right to performance. The necessary the obligee's right to performance. The necessary expenses for subrogation by the obligee shall be expenses for subrogation by the obligee shall be borne by the obligor. borne by the obligor.

The Right of Subrogation in ROC The Right of Subrogation in ROC Civil CodeCivil Code

Article 242Article 242– The creditor may, in order to preserve his prestation, The creditor may, in order to preserve his prestation,

exercise in his the name of himself any right of the deexercise in his the name of himself any right of the debtor which the debtor neglects to exercise, except righbtor which the debtor neglects to exercise, except rights which are exclusively belonged to the debtor.ts which are exclusively belonged to the debtor.

Article 243Article 243– So long as the debtor is not in default, the creditor shaSo long as the debtor is not in default, the creditor sha

ll not exercise the right specified in the preceding articll not exercise the right specified in the preceding article, except those rights which are exclusively for the prle, except those rights which are exclusively for the preservation of the rights of the said debtor. eservation of the rights of the said debtor.

The Right of Subrogation in Japan The Right of Subrogation in Japan Civil CodeCivil Code

Article 423Article 423– The obligee may, in order to preserve his credThe obligee may, in order to preserve his cred

itor’s right, exercise any right of the debtor excitor’s right, exercise any right of the debtor except rights which are exclusively belonged to thept rights which are exclusively belonged to the debtor.e debtor.

– Before the creditor’s right is due, the obligee cBefore the creditor’s right is due, the obligee cannot exercise the right provided in the preceannot exercise the right provided in the preceding paragraph except exercising it through a ding paragraph except exercising it through a litigation except an act of preservation. litigation except an act of preservation.

Guaranty of Contractual Rights Guaranty of Contractual Rights MortgageMortgage– In realtyIn realty

ROC Civil Code Article 860: a mortgage is the right to receive performance of an ROC Civil Code Article 860: a mortgage is the right to receive performance of an obligation from the price of sale of the real property which has been treated as security obligation from the price of sale of the real property which has been treated as security for the obligation by the debtor or by the third party, without transferring its possession. for the obligation by the debtor or by the third party, without transferring its possession. PRC Guarantee Law Article 33 The mortgage prescribed in this Law, means a PRC Guarantee Law Article 33 The mortgage prescribed in this Law, means a guarantee that a debtor or a third party does not transfer the possession of the property guarantee that a debtor or a third party does not transfer the possession of the property listed in. listed in. Japan Civil Code Articles 369~398-22Japan Civil Code Articles 369~398-22

– In rightsIn rightsROC Civil Code Article 883: The provisions of the present chapter concerning ROC Civil Code Article 883: The provisions of the present chapter concerning mortgage shall apply mutatis mutandis to the mortgage specified in the preceding mortgage shall apply mutatis mutandis to the mortgage specified in the preceding article and to statutory mortgage. article and to statutory mortgage. Japan Civil Code Articles 369IIJapan Civil Code Articles 369IIPRC Guarantee Law Article 34PRC Guarantee Law Article 34

– In chattelsIn chattelsROC Secured Transaction Act.ROC Secured Transaction Act.PRC Guarantee Law Article 34 PRC Guarantee Law Article 34 Japan Manufactory Place Mortgage LawJapan Manufactory Place Mortgage Law

Guaranty of Contractual RightsGuaranty of Contractual Rights

PRC Guarantee Law Article 34 PRC Guarantee Law Article 34 – The following properties may be mortgaged:The following properties may be mortgaged:

1. 1. the house and other land fixturesthe house and other land fixtures owned by the mortgagor; owned by the mortgagor;2. 2. the machine, transportation meansthe machine, transportation means and other property owned by t and other property owned by the mortgagor;he mortgagor;3. 3. the state-owned right to the use of land, housethe state-owned right to the use of land, house and other land fixt and other land fixtures which the mortgagor is entitled to dispose of pursuant to the laures which the mortgagor is entitled to dispose of pursuant to the law;w;4. the state-owned machine, transportation means and other propert4. the state-owned machine, transportation means and other property which the mortgagor is entitled to dispose of pursuant to the law;y which the mortgagor is entitled to dispose of pursuant to the law;5. 5. the right to the use of land on the unreclaimed landthe right to the use of land on the unreclaimed land such as unrec such as unreclaimed mountains, unreclaimed valleys, unclaimed hills or unreclaimlaimed mountains, unreclaimed valleys, unclaimed hills or unreclaimed beaches which is contracted for management by the mortgagor ied beaches which is contracted for management by the mortgagor in accordance with law and is agreed to mortgage by the contractee; n accordance with law and is agreed to mortgage by the contractee; oror6. other property which may be mortgaged in accordance with the la6. other property which may be mortgaged in accordance with the law.w.


PRC Guarantee Law Article 35 PRC Guarantee Law Article 35 – The obligatory right guaranteed by the mortgagor shall not exceed the The obligatory right guaranteed by the mortgagor shall not exceed the

value of the gage.value of the gage.– After the property is mortgaged, the surplus part that the said property is After the property is mortgaged, the surplus part that the said property is

more than the obligatory right guaranteed, may be mortgaged once more than the obligatory right guaranteed, may be mortgaged once more, but shall not exceed the surplus part.more, but shall not exceed the surplus part.

PRC Guarantee Law Article 36 PRC Guarantee Law Article 36 – If the house upon the state-owned land obtained according to the law is If the house upon the state-owned land obtained according to the law is

to be mortgaged, the right to the use of the state-owned land within the to be mortgaged, the right to the use of the state-owned land within the scope the house occupies shall be mortgaged at the same time.scope the house occupies shall be mortgaged at the same time.

– If the right to the use of state-owned land obtained by way of transfer If the right to the use of state-owned land obtained by way of transfer according to the law, when mortgaged the house upon the said state-according to the law, when mortgaged the house upon the said state-owned land shall be mortgaged at the same time.owned land shall be mortgaged at the same time.

– The right to the use of land of enterprises of a township (town) or village The right to the use of land of enterprises of a township (town) or village shall not be mortgaged separately.shall not be mortgaged separately. If the buildings of enterprises of If the buildings of enterprises of township (town) or village such as a plant is to be mortgaged, the right township (town) or village such as a plant is to be mortgaged, the right to the use of the land within the scope it occupies shall be mortgaged at to the use of the land within the scope it occupies shall be mortgaged at the same time.the same time.


PRC Guarantee Law Article 37 PRC Guarantee Law Article 37 – The following properties shall not be mortgaged:The following properties shall not be mortgaged:

1. 1. the ownership of landthe ownership of land;;2. 2. the ownership of the lands owned by collectivesthe ownership of the lands owned by collectives such as cultivatesuch as cultivated land, house sites, private plots of cropland and hilly landd land, house sites, private plots of cropland and hilly land shall not shall not be mortgaged, except that prescribed in item 5 of Article 34, paragrabe mortgaged, except that prescribed in item 5 of Article 34, paragraph 3 of Article 36 of this Law;ph 3 of Article 36 of this Law;3. the facilities for education, the facilities for public health and medi3. the facilities for education, the facilities for public health and medicine and other facilities for social benefit of the institutions or social cine and other facilities for social benefit of the institutions or social units for purpose of public interest such as schools, kindergartens or units for purpose of public interest such as schools, kindergartens or hospitals;hospitals;4. the properties whose ownership or right to use is uncertain or in d4. the properties whose ownership or right to use is uncertain or in dispute;ispute;5. the properties sealed up, distrained or regulated; or5. the properties sealed up, distrained or regulated; or6. other properties which shall not be mortgaged pursuant to law.6. other properties which shall not be mortgaged pursuant to law.


PledgePledge– In chattels or MovablesIn chattels or Movables

Article 884: Article 884: – pledge of personal property is the right to take possession of the personpledge of personal property is the right to take possession of the person

al property delivered by the debtor or a third party as security for a claial property delivered by the debtor or a third party as security for a claim of prestation, may receive performance of the said prestation from thm of prestation, may receive performance of the said prestation from the prices of sale of such personal property. e prices of sale of such personal property.

PRC Guarantee Law Article 63: PRC Guarantee Law Article 63: – The pledge of movables described in this Law, means that the debtor or The pledge of movables described in this Law, means that the debtor or

the party delivers his movables to the creditor for possession, and takes the party delivers his movables to the creditor for possession, and takes the said movables as the guarantee of the obligatory right. When the dethe said movables as the guarantee of the obligatory right. When the debtor does not perform the debt, the creditor shall be entitled to have righbtor does not perform the debt, the creditor shall be entitled to have right to keep the said movables to offset or have priority insatisfying in the ct to keep the said movables to offset or have priority insatisfying in the claim out of proceeds from the value amount of the auction or sale of the laim out of proceeds from the value amount of the auction or sale of the said movables. said movables.

– The debtor or the third party prescribed in the proceeding paragraph shThe debtor or the third party prescribed in the proceeding paragraph shall be a pledgor, the creditor shall be a pledgee, the movables delivered all be a pledgor, the creditor shall be a pledgee, the movables delivered shall be the pledgings.shall be the pledgings.

Japan Civil Code Japan Civil Code §§352~355§§352~355


– In realtyIn realtyJapan Civil Code Japan Civil Code §§356~361§§356~361

– In rightsIn rightsROC Civil Code Article 900ROC Civil Code Article 900

– A transferable claim of prestation and other rights may be the object of A transferable claim of prestation and other rights may be the object of a lien. a lien.

PRC Guarantee Law Article 75 PRC Guarantee Law Article 75 – The following rights may be pledged:The following rights may be pledged:

1. a bill of exchange, check, promissory note, bond, deposit receip1. a bill of exchange, check, promissory note, bond, deposit receipt, bill of lading or warehouse receipt;t, bill of lading or warehouse receipt;2. the share or share paper which may be assigned according to t2. the share or share paper which may be assigned according to the law;he law;3. the property right of the exclusive right to use trademark, patent 3. the property right of the exclusive right to use trademark, patent right, copyright which may be assigned according to the law; orright, copyright which may be assigned according to the law; or4. other rights which may be pledged according to the law.4. other rights which may be pledged according to the law.

Japan Civil Code Japan Civil Code §§362~368§§362~368


Right of RetentionRight of Retention– ROC Civil Code Article 928ROC Civil Code Article 928

The creditor, who is in possession of a personal property belonging to his deThe creditor, who is in possession of a personal property belonging to his debtor, may retain the same on the fulfillment of all the following conditions befbtor, may retain the same on the fulfillment of all the following conditions before debtor's prestation has not been preformed: ore debtor's prestation has not been preformed:

– (1) When the claim of prestation is matured.(1) When the claim of prestation is matured.– (2) If there is a nexus between the creation of the claim of prestation and the pers(2) If there is a nexus between the creation of the claim of prestation and the pers

onal property, andonal property, and– (3) If the possession of the personal property did not originate from a tort.(3) If the possession of the personal property did not originate from a tort.

– PRC Guarantee Law Article 82 PRC Guarantee Law Article 82 The lien prescribed in this Law means that, according to the provisions of ArtThe lien prescribed in this Law means that, according to the provisions of Article 84 in this Law, the creditor possess the property of the debtor according icle 84 in this Law, the creditor possess the property of the debtor according to the agreement of the contract, if the debtor does not perform the debt pursto the agreement of the contract, if the debtor does not perform the debt pursuant to the time limitation agreed in the contract, the creditor shall be entitled uant to the time limitation agreed in the contract, the creditor shall be entitled to have right to have a lien on the said property according to this Law, to keeto have right to have a lien on the said property according to this Law, to keep the said property to offset or have priority in satisfying for the claim out of pp the said property to offset or have priority in satisfying for the claim out of proceeds from the value amount of the auction, sale of the said property.roceeds from the value amount of the auction, sale of the said property.

– Japan Civil Code Japan Civil Code §§362~368§§362~368


LienLien– Japan Civil Code Japan Civil Code §§362~368§§362~368

Secured Transaction in other special lawsSecured Transaction in other special laws– Secured trustSecured trust

Customary Law (or Case Law) in Taiwan and Customary Law (or Case Law) in Taiwan and Mainland ChinaMainland China

– Trust receiptTrust receiptTaiwan Secured Transaction LawTaiwan Secured Transaction Law

– Japan Enterprise Bond Guarantee LawJapan Enterprise Bond Guarantee Law

Guarantee ContractGuarantee Contract

Korea Credit Guarantee Fund (Appellee, Plaintiff, Guarantor)

Kim Jeong-man (Appellant, Defendant, Guarantor)

Yoon Jong-wook (the Debtor, borrower)

Korea Exchange Bank (the creditor, lender)

Loan for consumption

Claimed for indemnity

Guarantee

Guarantee

Credit guarantee agreement


Surety or GuarantorSurety or Guarantor– The term surety is commonly used as a synonym for guarantor, The term surety is commonly used as a synonym for guarantor,

although at one time the term surety primarily described a guaraalthough at one time the term surety primarily described a guarantor whose liability arose by deed. [See K. P. McGuinness, The ntor whose liability arose by deed. [See K. P. McGuinness, The Law of Guarantee (2nd ed.) (Toronto: Carswell, 1996) at p. 25] Law of Guarantee (2nd ed.) (Toronto: Carswell, 1996) at p. 25]

– Under American law, there is a technical distinction between surUnder American law, there is a technical distinction between suretyship and guarantee. In Canada, suretyship is not considered tetyship and guarantee. In Canada, suretyship is not considered to be a form of undertaking distinguishable from a guarantee. Hoo be a form of undertaking distinguishable from a guarantee. However, some early Canadian cases use the word surety to refer twever, some early Canadian cases use the word surety to refer to what is now called an indemnity. (See Campbell v. McIsaac (1o what is now called an indemnity. (See Campbell v. McIsaac (1873), 9 N.S.R. 287 (C.A.), per Shaw C.J.) Throughout this paper, 873), 9 N.S.R. 287 (C.A.), per Shaw C.J.) Throughout this paper, surety and guarantor are used interchangeably. surety and guarantor are used interchangeably. http://www.cwilson.com/pubs/comlend/kjm1/guarantee.htmhttp://www.cwilson.com/pubs/comlend/kjm1/guarantee.htm


Co-Sureties (Joint, Several and Joint and Several)Co-Sureties (Joint, Several and Joint and Several)– Several liability arises when two or more persons make separate Several liability arises when two or more persons make separate

promises to another. The promises are cumulative, and payment promises to another. The promises are cumulative, and payment or performance by one does not discharge the other, unless or performance by one does not discharge the other, unless there is total payment or performance. there is total payment or performance.

– Parties are jointly liable when two or more persons promise to do Parties are jointly liable when two or more persons promise to do the same thing. Since there is only one promise, performance or the same thing. Since there is only one promise, performance or payment by one discharges the other. Joint and several liability payment by one discharges the other. Joint and several liability arises when two or more persons make one promise to do the arises when two or more persons make one promise to do the same thing and also make separate promises to do the same same thing and also make separate promises to do the same thing.thing.

– In most standard forms of guarantees, the obligations of the co-In most standard forms of guarantees, the obligations of the co-sureties are stated to be joint and several. The distinction sureties are stated to be joint and several. The distinction between joint and several and joint promises can be significant. between joint and several and joint promises can be significant.


Korea Civil Code Korea Civil Code Article 448 (Right of Article 448 (Right of Reimbursement among Co-sureties)Reimbursement among Co-sureties) – (1) Where there are several sureties, one of whom has effected (1) Where there are several sureties, one of whom has effected

performance in excess of the share incumbent on him, the performance in excess of the share incumbent on him, the provisions of provisions of Article 444Article 444 shall apply mutatis mutandis. shall apply mutatis mutandis.

– (2) Where the principal obligation is indivisible or each surety (2) Where the principal obligation is indivisible or each surety has assumed the obligation for which they are jointly and has assumed the obligation for which they are jointly and severally liable to each other or with the principal obligor, and severally liable to each other or with the principal obligor, and one of the sureties has effected performance in excess of the one of the sureties has effected performance in excess of the share incumbent on him, the provisions of share incumbent on him, the provisions of Articles 425Articles 425 through through 427427 shall apply mutatis mutandis. shall apply mutatis mutandis.


Korea Civil Code Korea Civil Code Article 444 (Right of Article 444 (Right of Reimbursement of Nonfiduciary Surety)Reimbursement of Nonfiduciary Surety) – (1) In a case where a person who has become surety without the (1) In a case where a person who has become surety without the

request of the principal obligor, has performed the obligation or request of the principal obligor, has performed the obligation or has otherwise, at his own expense, procured the discharge of has otherwise, at his own expense, procured the discharge of the principal obligor, the latter is liable to indemnify the surety to the principal obligor, the latter is liable to indemnify the surety to the extent that he was enriched as of the time of discharge. the extent that he was enriched as of the time of discharge.

– (2) In a case where a person has become surety against the will (2) In a case where a person has become surety against the will of the principal obligor, has performed the obligation or has of the principal obligor, has performed the obligation or has otherwise at his own expense procured the discharge of the otherwise at his own expense procured the discharge of the principal obligor, the latter is liable to indemnify the surety only to principal obligor, the latter is liable to indemnify the surety only to the extent that the latter is still being enriched. the extent that the latter is still being enriched.

– (3) If, in the preceding paragraph, the principal obligor claims (3) If, in the preceding paragraph, the principal obligor claims that he had, prior to the demand for indemnification, a good that he had, prior to the demand for indemnification, a good cause for set-off against the obligee, the claim, which would cause for set-off against the obligee, the claim, which would have been extinguished by such set-off, shall be transferred to have been extinguished by such set-off, shall be transferred to the surety. the surety.

Financial Leasing Financial Leasing TransactionTransaction

Financial LeasingFinancial Leasing

Definition of Financial Leasing ContractDefinition of Financial Leasing Contract– A financial leasing contract is a contract whereby A financial leasing contract is a contract whereby

the lessor, upon purchase of the lessor, upon purchase of the lessee-selected the lessee-selected lease itemlease item from from a lessee-selected sellera lessee-selected seller, provides , provides the lease item to the lessee for its use, and the the lease item to the lessee for its use, and the lessee pays the rent. (PRC Contract Law Article lessee pays the rent. (PRC Contract Law Article 237) 237)

– UNDROIT Convention on InternationalUNDROIT Convention on InternationalFinancial LeasingFinancial Leasing

– PRC PRC Contract Law, Chapter Fourteen Financial Contract Law, Chapter Fourteen Financial Leasing Contracts Leasing Contracts

Definition of Financial Leasing ContractDefinition of Financial Leasing Contract

A financial leasing contract is a contract A financial leasing contract is a contract whereby the lessor, upon purchase of whereby the lessor, upon purchase of the the lessee-selected lease itemlessee-selected lease item from from a lessee-a lessee-selected sellerselected seller, provides the lease item to the , provides the lease item to the lessee for its use, and the lessee pays the lessee for its use, and the lessee pays the rent. (PRC CL Article 237) rent. (PRC CL Article 237)

Unidroit Conventions on InternationalUnidroit Conventions on InternationalFinancial Leasing Financial Leasing Article I para. 2Article I para. 2

2.The financial leasing transaction referred to in the previous 2.The financial leasing transaction referred to in the previous paragraph is a transaction which includes the following paragraph is a transaction which includes the following characteristics:characteristics:– (a) (a) the lessee specifies the equipment and selects the supplier without the lessee specifies the equipment and selects the supplier without

relying primarily on the skill and judgment of the lessorrelying primarily on the skill and judgment of the lessor;;– (b) (b) the equipment is acquired by the lessor in connection with a leasing the equipment is acquired by the lessor in connection with a leasing

agreementagreement which, to the knowledge of the supplier, either has been which, to the knowledge of the supplier, either has been made or is to be made between the lessor and the lessee; andmade or is to be made between the lessor and the lessee; and

– (c) (c) the rentals payable under the leasing agreement are calculated so the rentals payable under the leasing agreement are calculated so as to take into account in particular the amortization of the whole or a as to take into account in particular the amortization of the whole or a substantial part of the cost of the equipment.substantial part of the cost of the equipment.

3. This Convention applies whether or not the lessee has or 3. This Convention applies whether or not the lessee has or subsequently acquires the option to buy the equipment or to hold it subsequently acquires the option to buy the equipment or to hold it on lease for a further period, and whether or not for a nominal price on lease for a further period, and whether or not for a nominal price or rental. or rental. 4. This Convention applies to financial leasing transactions in 4. This Convention applies to financial leasing transactions in relation to all equipment save that which is to be used primarily for relation to all equipment save that which is to be used primarily for the lessee's personal, family or household purposes.the lessee's personal, family or household purposes.

Financial Leasing

Loan for ConsumptionLender Borrower

Sale of the Leased Item

Pay rental

Seller

Lessor

Purchaser(Owner of

the Leased Item)

Lessee

Possessor of the Leased Item

Delivery and Conveyanceof Ownership

Attributes of Finance LeaseAttributes of Finance Lease

Type contractType contract– LeaseLease– Loan for consumptionLoan for consumption– SaleSale– Financial Leasing (PRC)Financial Leasing (PRC)

Non-type ContractNon-type Contract (ROC & Japan) (ROC & Japan)

Attributes of Finance LeaseAttributes of Finance Lease

The financial leasing enterprise could be defined as an enterprise wThe financial leasing enterprise could be defined as an enterprise which provides funds to purchase a thing and then leases it to an entehich provides funds to purchase a thing and then leases it to an enterprise who needs to use the thing after it gains the ownership of the rprise who needs to use the thing after it gains the ownership of the thing leased, rather than directly loans money to the enterprise whicthing leased, rather than directly loans money to the enterprise which needs funds.h needs funds. Such transaction indeed dose not violate the manda Such transaction indeed dose not violate the mandatory, public policy, or good moral. The transaction dose not have no tory, public policy, or good moral. The transaction dose not have no any advantage to the industrial and commercial activities in this couany advantage to the industrial and commercial activities in this country. Tntry. The purpose of financial leasing transaction is to finance the lehe purpose of financial leasing transaction is to finance the lessee and so does the loan for consumption. However, ssee and so does the loan for consumption. However, both juristic aboth juristic acts are tremendously different. In terms of the attributes of financial lcts are tremendously different. In terms of the attributes of financial leasing , it shall be interpreted as a non-type contract similar to lease easing , it shall be interpreted as a non-type contract similar to lease because the allocation of profit and hazard to the thing leased differbecause the allocation of profit and hazard to the thing leased differs from that in loan for consumption.s from that in loan for consumption. Taiwan Supreme Court Civil Taiwan Supreme Court Civil Decision Decision Tai-shang Tai-shang No. 482 (2004).No. 482 (2004).

Loan for Consumption

Delivery and Conveyanceof ownership

Sale of Goods

Amortization of loans

Mortgage in a chattel

Lender

Mortgagee

Borrower

MortgagorPurchaser

(Owner and Possessor)

Seller

Sale of Goods by installment

Payment of PriceSeller

(Owner)

Purchaser

(Possessor)DeliveryConveyance of ownership subject to a condition precedent

Loan for ConsumptionBorrower

(Actual owner of a real property)

LenderTrustee

(nominal owner)Conveyance of ownership subject to a conduction subsequent

Secured Trust

Bona Fide Purchaser

Conveyance of ownership

SaleCan the actual owner claim the bona fide purchaser to eradicate the title record in official register?

Lease

Loan for ConsumptionLender Borrower

The FirstSale of the Machines

Pay rental

Seller(Hon Ying Co.)

PurchaserAppelleeOwner of

the Machines Lessor

Seller(Wholesale)

ObligorPossessor of the Machines

LesseePurchaser

Delivery and Conveyanceof Ownership

Appellant(President Co.)

Obligee

Compulsory Execution

The Third Party Objection

The Second Sale of the Machines

Conveyance of Ownership

Payment of Price

ROC Civil Code Article 761ROC Civil Code Article 761The transfer of rights in rem of personal property will not The transfer of rights in rem of personal property will not effect until the personal property has been delivered. Hoeffect until the personal property has been delivered. However, if the transferee has been in possession of the pewever, if the transferee has been in possession of the personal property, the transfer effects when the parties agrrsonal property, the transfer effects when the parties agree to such transfer.ee to such transfer.In the transfer of a right in rem of personal property, wheIn the transfer of a right in rem of personal property, where the transferor is still in possession of it, a contract caure the transferor is still in possession of it, a contract causing the transferee to acquire its indirect possession may sing the transferee to acquire its indirect possession may be made between the parties in the place of its delivery.be made between the parties in the place of its delivery.

ROC Civil Code Article 87ROC Civil Code Article 87

A fictitious expression of intent made by the A fictitious expression of intent made by the expresser in collusion with other party is void, expresser in collusion with other party is void, but the voidance can not be a valid defense but the voidance can not be a valid defense against any bona fide third party.against any bona fide third party.If the fictitious expression of intent was intended If the fictitious expression of intent was intended to conceal another juridical act, the provisions of to conceal another juridical act, the provisions of the act with respect to such another juridical act the act with respect to such another juridical act shall apply.shall apply.

The lessee’s rights in financial LeasingThe lessee’s rights in financial Leasing

Lessee's Assumption of Buyer's RightsLessee's Assumption of Buyer's Rights– Under the sales contract concluded by the Under the sales contract concluded by the

lessor according to the lessee's selection of lessor according to the lessee's selection of the seller and the lease item, the seller and the lease item, the seller shall the seller shall deliver the subject matter to the lesseedeliver the subject matter to the lessee in in accordance with the contract, and accordance with the contract, and the lessee the lessee enjoys the rights of the buyerenjoys the rights of the buyer in respect of in respect of taking delivery of the subject mattertaking delivery of the subject matter. (PRC . (PRC Contract Law Article 239) Contract Law Article 239)

The lessee’s rightsThe lessee’s rights in financial Leasingin financial Leasing

Lessee's Assumption of Buyer's Lessee's Assumption of Buyer's Remedies in Case of Seller's Non-Remedies in Case of Seller's Non-performanceperformance

– The lessor, the seller and the lessee The lessor, the seller and the lessee maymay agreeagree that that any claim arising from the seller's any claim arising from the seller's non-performance of its obligationsnon-performance of its obligations under the under the sales contract will be made by the lessee. sales contract will be made by the lessee. Where the lessee makes such a claim, the Where the lessee makes such a claim, the lessor shall provide assistance. . (PRC lessor shall provide assistance. . (PRC Contract Law Article 240) Contract Law Article 240)

Amendment of Sales ContractAmendment of Sales Contract

Certain Amendment of Sales Contract Certain Amendment of Sales Contract Subject to Consent by LesseeSubject to Consent by Lessee

– Absent consent by the lessee, the lessor Absent consent by the lessee, the lessor may not amend any lessee-related term in may not amend any lessee-related term in the sales contract concluded by it according the sales contract concluded by it according to the lessee's selection of the seller and the to the lessee's selection of the seller and the lease item. . (PRC Contract Law Article lease item. . (PRC Contract Law Article 241) 241)

Title to the lease itemTitle to the lease item

Exclusion of Lease Item from Bankruptcy Exclusion of Lease Item from Bankruptcy Assets of LesseeAssets of Lessee– Title to the lease item Title to the lease item vests in the lessorvests in the lessor. In . In

case the lessee enters into bankruptcy, the case the lessee enters into bankruptcy, the lease item is not part of its bankruptcy assets. lease item is not part of its bankruptcy assets. . (PRC Contract Law Article 242) . (PRC Contract Law Article 242)

RentRent

Determination of Rental ComponentsDetermination of Rental Components– Unless otherwise agreed by the parties, the Unless otherwise agreed by the parties, the

rent under a financial leasing contract shall be rent under a financial leasing contract shall be determined determined based on the major portion of or based on the major portion of or full costs of purchasing the lease itemfull costs of purchasing the lease item and and the the lessor's reasonable profitlessor's reasonable profit. . (PRC Contract . . (PRC Contract Law Article 243) Law Article 243)

Warranty Warranty for fitness for fitness

Lessor Not Liable for Non-fitness of Lease Lessor Not Liable for Non-fitness of Lease Item; ExceptionsItem; Exceptions– Where the lease item does not comply with Where the lease item does not comply with

the contract or is not fit for the intended the contract or is not fit for the intended purpose, purpose, the lessor is not liablethe lessor is not liable, , except where except where the lessee relied on the skills of the lessor in the lessee relied on the skills of the lessor in selecting the lease itemselecting the lease item or or the lessor the lessor interfered in the selection thereofinterfered in the selection thereof. . (PRC . . (PRC Contract Law Article 244) Contract Law Article 244)

Warranty by LessorWarranty by Lessor

The lessor shall give warranty in respect of The lessor shall give warranty in respect of the lessee's possession and use of the the lessee's possession and use of the lease item. (PRC Contract Law Article lease item. (PRC Contract Law Article 245) 245)

Liability for InjuryLiability for Injury

Lessor Not Liable for Damage or InjuryLessor Not Liable for Damage or Injury– If while in the possession of the lessee, the If while in the possession of the lessee, the

lease item caused personal injury or property lease item caused personal injury or property damage to any third person, the lessor is not damage to any third person, the lessor is not liable. (PRC Contract Law Article 246) liable. (PRC Contract Law Article 246)

Maintenance ObligationsMaintenance Obligations

Lessee's Obligation of Due Care; Lessee's Obligation of Due Care; Maintenance ObligationsMaintenance Obligations– The lessee shall The lessee shall keepkeep (or (or keep it in his custodkeep it in his custod

y)y) and and use the lease item with due careuse the lease item with due care..– While in possession of the lease item, the While in possession of the lease item, the

lessee shall perform the obligations of lessee shall perform the obligations of maintenance and repairmaintenance and repair thereof. (PRC thereof. (PRC Contract Law Article 247) Contract Law Article 247)

Lessor' s RemediesLessor' s Remedies

Lessor' s Remedies in Case of Non-Lessor' s Remedies in Case of Non-payment by Lesseepayment by Lessee– The lessee shall pay the rent in accordance The lessee shall pay the rent in accordance

with the contract. Where the lessee fails to with the contract. Where the lessee fails to pay the rent within a reasonable period after pay the rent within a reasonable period after receiving demand for payment from the receiving demand for payment from the lessor, the lessor may lessor, the lessor may require payment of the require payment of the full rentfull rent; or it may ; or it may terminate terminate the contract and the contract and repossessrepossess the lease item. (PRC Contract Law the lease item. (PRC Contract Law Article 248)Article 248)

RefundRefund

Partial Refund in Case of Termination by LessorPartial Refund in Case of Termination by Lessor– Where the parties agreed that title to Where the parties agreed that title to the lease item the lease item

will vest in the lesseewill vest in the lessee at the end of the lease term, at the end of the lease term, and after paying a major portion of the rent, the and after paying a major portion of the rent, the lessee is unable to pay the remaining balance, lessee is unable to pay the remaining balance, resulting in the lessor's termination of the contract and resulting in the lessor's termination of the contract and repossession of the lease item, repossession of the lease item, if the value of the if the value of the repossessed lease item exceeds the rent owed by the repossessed lease item exceeds the rent owed by the lessee and other expenses, the lessee may require lessee and other expenses, the lessee may require partial refundpartial refund. (PRC Contract Law Article 249). (PRC Contract Law Article 249)

Ownership of Lease ItemOwnership of Lease Item

Ownership of Lease Item at End of Lease TermOwnership of Lease Item at End of Lease Term– The lessor and the lessee may agree on the The lessor and the lessee may agree on the

ownership of the lease item at the end of the lease ownership of the lease item at the end of the lease term. term.

– Where ownership of the lease item was not Where ownership of the lease item was not prescribed or clearly prescribed, and cannot be prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, title determined in accordance with Article 61 hereof, title to the lease item shall vest in the lessor. (PRC to the lease item shall vest in the lessor. (PRC Contract Law Article 250) Contract Law Article 250)

Documents

Preservation of Contractual Rights 1. The Right of Revoke (or Cancel) Juristic Act which prejudicial to the Creditor’s Right 2.The Right of Subrogation