| Since personal security performs a function of “dynamic circulation” in security practice, it is necessary for security interests to extend to the substitution of collateral. However, the doctrine of in rem subrogation makes such extension difficult when the debtor loses collateral or when the economic value of collateral decreases due to sale, accession, rental, etc. Article 9 of the UCC adopts the rule of automatic attachment of security interests to maintain the security interest through physical changes of collaterals. This rule is based on an implied agreement centered on the economic value of the collateral, assuming that the parties will also create personal security in the proceeds. Automatic attachment is limited neither to existing collaterals, nor to exchange value in a narrow sense, but even extends to various converted forms of collateral value. Under the current Chinese law, consensual personal security agreement has provided the institutional basis for the implied interpretation, such as the existing expansion of collateral in China. The expanded interpretation of the words “and so on” in Article 390 of the Chinese Civil Code is consistent with the assumption of parties’ security agreement. Furthermore, registration system of personal security should undertake the task of perfection of proceeds, so as to avoid negative effects of automatic attachment of proceeds to the third parties. |
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