Legal basis: Civil Code of People's Republic of China (PRC).
Article 386 Where the debtor fails to perform the due debt or the parties agree to realize the security interest, the holder of the security interest shall have the priority to be compensated for the secured property according to law, except as otherwise provided by law.
Article 388 To establish a security interest, a security contract shall be concluded in accordance with the provisions of this Law and other laws. Guarantee contracts include mortgage contracts, pledge contracts and other contracts with guarantee functions. The guarantee contract is a subsidiary contract of the main creditor's rights and debts contract. If the principal creditor's rights and debts contract is invalid, the guarantee contract is invalid, unless otherwise stipulated by law. If the debtor, guarantor and creditor are at fault after the guaranty contract is confirmed to be invalid, they shall bear corresponding civil liabilities according to their faults.
Article 390 During the guaranty period, if the mortgaged property is damaged, lost or expropriated, the owner of the secured property may get the insurance money, compensation or compensation in priority. If the performance period of the secured creditor's rights has not expired, the insurance money, compensation or compensation may also be deposited.
Article 391 Where a third party provides a guarantee and the creditor allows the debtor to assign all or part of the debt without its written consent, the guarantor shall no longer bear the corresponding guarantee liability.