| There are contradictions among the various provisions on the retention of ownership in the current Chinese law. Such contradictions should be solved in accordance with the principle that the Chinese Civil Code prevails over judicial interpretations and lex postrtior derogates lex prori. The doctrine that the retained ownership should be qualified as true ownership (the “Ownership Doctrine”) cannot provide a satisfactory interpretation of the relevant substantive rules in the Chinese Civil Code and the latest judicial interpretation regarding security institutions, while the doctrine that the retained ownership should be qualified as security property right (the “Security Doctrine”) can interpret these rules satisfactorily. The Security Doctrine is more likely to achieve the best utilization of the sold asset and the true intent of the seller to earn the price. The contradictions among relevant provisions in the current Chinese law stem from the mixed reception of rules and doctrine. The rules regarding retention of ownership under the Chinese law originated indirectly from the 1918 U.S. Uniform Conditional Sale Act, which in substance adopted the chattel mortgage doctrine of the conditional sale. However, the Chinese legal doctrine and the rule makers before the adoption of the Chinese Civil Code interpreted these rules pursuant to the Ownership Doctrine adopted from the German civil law. According to the Security Doctrine, the seller’s security right under the retention of ownership transaction is created by the seller retaining the security right when transferring ownership of the asset to the buyer, not by the buyer granting the security right to the seller. The legal positions of the seller and the buyer under retention of ownership transaction in various situations, such as insolvency and enforcement, etc., should be interpreted and designed in accordance with the Security Doctrine accordingly. |
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