Study On The Application Of Purchase Money Security Interest In China

The system of purchase money security interests conflicts with the rules of subordination of security interests in our pre-Civil Code era,where Article 416 of the Civil Code,contrary to the rule of "first to register,first to right",still has priority after registration.The justification for a purchase money security right is threefold.First,it breaks the monopoly of the Subsequent Property Clause.The UCC recognizes the validity of the subsequent property clause,which,while saving transaction costs of repeated security contracts,creates a "situational monopoly" on the security interest in collateral flowing after the debtor,and the emergence of a purchase money security right not only preserves the advantage of saving transaction costs,but also eliminates this abnormal The emergence of the purchase money security right not only preserves the advantage of saving transaction costs,but also eliminates this abnormal advantage.Second,its predecessor was ownership of the security interest.The "instantaneous retention" doctrine provides an explanation for why a buyer’s ownership interests in a chattel are inferior to those of the mortgagee in real estate transactions that occur simultaneously with a deed and mortgage.Because the mortgagee is the de facto seller,there is no good reason for the owner’s status to be downgraded to that of a security right holder until the mortgage is satisfied.Third,to ensure that the protection of a purchase-money security right holder does not harm subsequent property interests holders,the purchase-money security right holder must be able to trace its payment to the acquisition of an asset not previously owned by the debtor and to guarantee the identifiability of its collateral.Thus,a purchase money security right balances the interests of prior creditors against those of purchase money creditors.For the debtor,it increases its chances of refinancing as a business and gives investors full confidence.This article makes the following recommendations on the understanding and application of purchase money security rights: First,with respect to the elements of the establishment of a purchase money security right,the debtor should be allowed to freely dispose of the inventory after taking possession of it to achieve economic efficiency and facilitate convenient transactions;for consumer goods,registration should be exempted to protect the rights and interests of consumers.In addition,the calculation of the starting point of the grace period should be calculated from the time the subject matter formally becomes collateral,so "delivery of the subject matter" should be interpreted in a restricted sense as delivery in the sense of ownership.Second,with respect to the survival of the purchase price security right,the dual identity rule may be referred to for the additional secured obligation level,and the purchase price security right is considered effective if the principal claim secures movable assets other than the acquisition goods or if the acquisition goods secure other claims.Third,with respect to the priority effectiveness of a purchase price security right,when purchase price security rights of different subjects coexist,the seller should be notified of the fact of financing from a third party in a transaction in which the purchase price security right is competed.If no notice is given,the seller’s security right in the price is paid in priority.The priority of the deposit and the rules of distribution of the claim may be negotiated by the parties.If the parties do not negotiate or fail to negotiate,the seller "wins" the competition for the right to deposit the price;if the movable property is sold,the purchase-money security right holder has priority over the right to receive payment for its receivables from the sale of the goods;with respect to conflicts between attachments to real property and rights in real property,Article 390 of the Civil Code may be applied to the priority of payment of The Civil Code extends the application of the arm’s-length buyer rule to all mortgages on movable property,and the purchase-money guarantor is also subject to this rule.