Movable Property Mortgage Registration Protocol under PRC Civil Code
Registration on the PBOC Zhongdengwang platform within ten days of delivery grants super priority over earlier floating liens under PRC Civil Code Article 416.
PRC Civil Code Article 403
Meaning
A statutory provision in the national property rights framework governs the priority and third-party validity of unregistered mortgages over movable assets. The rule established in prc civil code article 403 dictates that a mortgage over movables is created when the security contract takes effect, but is not valid against a bona fide third party without registration. This provision divides the creation of the right from its perfection.
Registration Effect
If a creditor files the mortgage on the unified registry of the people’s bank of china, the security interest becomes perfected and is valid against all third parties. Under prc civil code article 403, an unregistered mortgage is valid only between the creditor and the debtor. If the borrower sells the mortgaged machinery to a third party who does not know about the mortgage, the creditor cannot reclaim the asset from that buyer.
This separation of contract and registration encourages lenders to register their interests immediately to avoid losing their collateral.
Bona Fide Buyer
The definition of a good-faith purchaser requires that the buyer acts without knowledge of the existing security interest and pays a reasonable market price. If the buyer is aware of the debt or did not pay value, the unregistered mortgage can still be enforced against them. This rule places the burden of proof on the creditor, who must show that the buyer acted in bad faith.
This high standard makes reliance on unregistered mortgages very risky.
Enforcement Application
In default cases, unregistered creditors can still apply for judicial enforcement against the assets of the debtor if they are still held by that debtor. This right is demoted below any registered mortgage on the same asset. This provision maintains a clear hierarchy in commercial debt recovery.