Meaning
Statutory lien mechanisms empower service providers and processors to retain physical custody of customer property until outstanding contract debts are fully paid. The possessory retention right, codified under Article 447 of the PRC Civil Code, allows contractors, repairers and carriers to withhold goods, machinery or components delivered under a valid contract. A creditor must maintain continuous physical control over the property to preserve the legal right.
Voluntary surrender of possession immediately extinguishes the retention right under domestic property law. Commercial contracts may expand or restrict this statutory right through express terms agreed prior to performance.
Possessory Requirement
Legitimate retention requires continuous physical control over the specific goods tied to the unpaid contractual fee. Voluntary delivery of completed goods to the buyer forfeits the lien over those specific items. Re-establishing physical custody later does not revive extinguished possessory claims.
Commercial entities may retain unrelated assets of a corporate debtor only when prior transaction agreements explicitly allow general cross-collateralization.
Grace Requirement
Statutory enforcement rules mandate giving the debtor a written grace period before liquidation occurs. The creditor must allow a minimum payment window of sixty days for standard commercial debts. Failure to pay within the designated timeframe authorizes the retaining party to seek asset conversion through court-monitored auctions.
Perishable goods permit immediate liquidation without waiting for standard notice periods.
Enforcement Remedy
Realization of retained property occurs through judicial auction or negotiated conversion into debt settlement value. Proceeds directly pay processing fees, storage expenses and court execution costs before satisfying underlying debt obligations. Excess cash from sales returns to the property owner.
