Research On The Legal Force Of Unauthorized Collateral Transaction

"Making the best use of everything" and "protecting the transaction security" are the fundamental principles of the property law. In the scope of security interest, the property law regulates that the mortgagee will not lose the ownership of the collateral after the mortgage which means the mortgagee still has the right to dispose the collateral. The value of this system is to play the utility of the res. However, due to the hypothec of the mortgage, the assignee’s ownership will certainly interfere with the mortgagee’s hypothec or even damage mortgagee’s interests when the collateral is mortgaged. So in order to protect the transaction security, the assignment rules of mortgage will certainly be different from other transactions.So far the issues of the assignment of collateral are regulated in article191of our property law. Using the mortgagor’s unauthorized assignment of the collateral without mortgagee’s agreement as a researching topic, this paper focuses on a relative case and provides author’s own interpretation of the legal application of this case through investigating on the legal facts, judicial decisions and grounds of the decisions, analyzing the significant points of legal application in the case and summarizing the general rules of legal application in issues of mortgagor’s unauthorized assignment of collateral.The paper is divided into six parts:The foreword is a brief introduction of the background and value of investigating the assignment of collateral. It also introduces the method and the purpose of writing this paper.Part two introduces the actual details and the judicial judgment of a dispute derived from a ship purchasing contract between Zhang and Chen. In this case, Zhang selled a mortgaged ship to Chen without the agreement of its mortgagee and Chen paid off one third of Zhang’s debts. So the central points of this case are whether the contract between Chen and Zhang is valid and whether Chen gets the ownership of the collateral.part three analyzes the legal effect of collateral assignment contract. First, the author briefly introduces and evaluates the divided opinions in academic circles. Second, this paper analyzes the incorrectness of the ineffective theory of contract and the deficiency of the theory of effect depending. Third, through analyzing the specific characteristic of collateral assignment, the author indicates that a collateral assignment should be considered valid if both parties reach their agreement and the contract has no legal obstacles.Part four conducts an analysis at the res changing result of collateral assignment according to the case. First, the author investigates the actual meaning of the proviso in article191of property law via legal interpretation. Second, through understanding of the system of replacement settlement by assignee, the author indicates that when the collateral is assigned without the agreement of the mortgagee, the assignee can only get the ownership via replacement settlement.Part five is the author’s analysis conclusion through his efforts of interpreting and analyzing the regulations and legal explanations according to the facts of the case.The author indicates that the contract between Chen and Zhang is valid and Chen can not obtain the ownership of the collateral.Part six rethinks and evaluates the legal application of the court in this case and provides some suggestions to improve the legislation of collateral assignment.