Simon Says: An unregistered mortgage agreement is not a piece of paper

Published
07/20/2017 by

This is the twenty-first in a weekly series of legal advice provided in a short and entertaining story format.

 


Keywords: Debts, Security Law, Registration, and Validity of an Unregistered Mortgage 

 

 

An unregistered mortgage agreement is not a piece of paper

 

At a high school reunion party in Beijing, Jack met up with an old friend Alex, who was a scientist. Alex had always been very good at his studies and graduated with a doctor’s degree from MIT. After a night of casual chatting, Jack got to know that Alex was currently working on a new kind of airplane fuel that would burn twice as good as kerosene but at a price less than half of that of kerosene.

 

However, Alex needed more capital for his company for research and development, and Jack decided to invest a million Yuan on Alex’s project, even though he didn’t have enough money at that time. He borrowed the money from another friend, Derek and Jack mortgaged his house, specifying that he had to repay the money 2 years later, with a 3% interest per annum.

 

Two years later, Alex’s fuel turned out to be not as efficient as thought, and Jack lost all the 1 million invested. It was time to pay up the money to Derek, and Alex had no money at that time.

 

“Where is the money?” Derek asked.

“Lost it all in an investment. Got conned by a scientist. The investment was supposed to make me twice the original sum of money I borrowed.” Jack replied with a sigh.

“Well too bad,” replied Derek, “Borrowed money from someone else needs to be repaid with interest, or I will have to sell your house and get the money”

“Jokes on you Derek, you did not register the mortgage agreement. Adios!”

 

Is an unregistered mortgage contract useless?

 

 

Prof Simon Says:

 

No, Derek can sell Jack’s house to recover his 2 million.

 

Once the mortgage contract is signed, it withholds legal validity, and failing in registering it does not affect its validity. Registration is a concept of priority of debts which works against a bona fide third party without notice only, not the creditor and debtor themselves. Jack can start negotiating with Derek to repay his debts in installments, or he can prepare to sleep in the streets.

 

Simon Says - Episode 21: An unregistered mortgage agreement is not a piece of paper

 

 

For more about this or to contact Professor Simon Choi at www.acmeardent.comsimonhkchoi@163.com, +86 13823677853 or by WeChat: simonhkchoi. 

 

ACME Ardent's Simon Choi WeChat QR Code

 

"This article was originally written in Chinese by Mr Huanyu Li and rewritten into English by Simon Choi."

 

Simon Choi

About the Author: Professor Simon Choi

Prof Simon Choi, solicitor and linguist, is an international lawyer, qualified to practise law in England & Wales and in Hong Kong, China. Simon graduated from law schools of the Peking University, the University of London and the University of Hong Kong respectively, with an in-depth knowledge of Chinese laws and common laws and with more than 20 years experience in China practice and international trade, investment, finance, merger & acquisition. He is an adjunct professor of laws at the Zhongnan University of Economics and Law. Simon is the founding partner of Acme Ardent and can be reached at simonhkchoi@163.com or +86 13823677853.

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