Liaoning Mouhua Cable Co., Ltd. v. Ye Moumeng and Wang Moulong—Contract Dispute Case

Keywords Civil, Contract, Shareholder, Contracting

Key points for the referee Accurately determine the criminal or civil nature of economic cases and, amidst a mountain of complex evidence, identify the key pieces of evidence that can establish the facts of the case.

Basic Facts of the Case On February 11, 2009, Liaoning Shenyang Mohua Cable Manufacturing Co., Ltd., as the outsourcing party, entered into a “Contracting Agreement” with the defendant, stipulating that the outsourcing party would provide the contractor with access to its existing wire production equipment, and the contractor would be responsible for its custody and maintenance. The contracting period was from January 1, 2009, to December 31, 2009, with an annual contracting fee of XXX0,000 yuan. The scope of the contract covered wire production and wire distribution operations of Liaoning Mohua Cable Manufacturing Co., Ltd. The contracting fee was entirely owned by Liaoning Shenyang Mohua Cable Manufacturing Co., Ltd. After the expiration of the contracting period, on April 25, 2010, the two parties jointly signed a “Supplementary Agreement on the Settlement of Accounts Receivable Following Withdrawal of Shares from the Wire Workshop between Liaoning Mohua and the Wire Workshop.” Following reconciliation between the plaintiff and the defendants, it was determined that the two defendants still owed the plaintiff accounts receivable totaling XXXX yuan. After the signing of the agreement, the whereabouts of the two defendants became unknown. In 2014, the plaintiff filed a criminal complaint, which was accepted by the某某 Branch of the Shenyang Public Security Bureau. The case was referred to an audit conducted by the public security authorities, and the audit conclusion confirmed that the two defendants owed the plaintiff XXXX yuan. On January 31, 2018, the某某 Branch of the Shenyang Public Security Bureau issued the “Decision on Withdrawal of Case No. (2018) 002,” stating that criminal prosecution against the two defendants should not proceed and thus withdrawing the criminal case. Subsequently, the plaintiff brought this lawsuit, demanding that the defendants bear the amount of XXXX yuan plus interest. During the litigation, the defendant Wang Moulong failed to appear in court, and the court proceeded with the trial in his absence in accordance with the law.

Referee's decision ：

First-instance judgment:

1. Defendants Ye Moumeng and Wang Moulong shall pay the plaintiff, Liaoning Mouhua Cable Co., Ltd., XXXX yuan within ten days from the date this judgment becomes legally effective.

2. Defendants Ye Moumeng and Wang Moulong shall, within ten days from the date on which this judgment becomes legally effective, pay the plaintiff, Liaoning Mouhua Cable Co., Ltd., interest (calculated at an annual rate of 24% on the principal amount of XXXX yuan, starting from March 14, 2018, until the principal is fully repaid).

3. The other claims of the plaintiff, Liaoning Muhua Cable Co., Ltd., are dismissed.

If the obligation to pay money is not fulfilled within the period specified in this judgment, the debtor shall pay double the interest on the debt for the period of delay.

After the first-instance judgment, the defendant filed an appeal.

June 20, 2019, Second-Instance Judgment: Dismiss the appeal and uphold the original judgment.

Reasons for the Ruling The central issue in this case is whether a contracting relationship existed between the plaintiff and the defendant, whether the defendant should bear civil liability for paying the outstanding debt, and the exact amount of the debt. According to the “Supplementary Agreement on Accounts Receivable for the Withdrawal and Settlement of Shares in the Wire Workshop” provided by the plaintiff and the interrogation record of the defendant taken by the某某 Branch of the Shenyang Public Security Bureau, it is clearly stated that the defendant had contracted the Wire Workshop and was solely responsible for its profits and losses. Therefore, a contracting relationship indeed existed between the plaintiff and the defendant. As for the amount of the outstanding debt, based on the “Supplementary Agreement on Accounts Receivable for the Withdrawal and Settlement of Shares in the Wire Workshop” and the audit findings reported in the audit report, the amount of the outstanding debt should be XXXX yuan.

Relevant statutory provisions ：

Article 60 of the Contract Law of the People’s Republic of China: The parties shall fully perform their respective obligations in accordance with the agreement.

The parties shall abide by the principle of honesty and good faith and perform their obligations, such as notification, assistance, and confidentiality, in accordance with the nature, purpose, and trade practices of the contract.

Article 107: If one party fails to perform its contractual obligations or performs them in a manner that does not conform to the agreed terms, it shall bear liability for breach of contract, including continuing to perform the contract, taking remedial measures, or compensating for losses.

Article 109: If one party fails to pay the price or remuneration, the other party may demand that the defaulting party pay the price or remuneration.

Article 114: The parties may agree that, in the event of a breach by one party, that party shall pay the other party a liquidated damages amount determined according to the nature of the breach; they may also agree on a method for calculating the amount of compensation for losses arising from the breach.

If the agreed-upon liquidated damages are lower than the actual losses incurred, the party may request the people’s court or an arbitration institution to increase them. If the agreed-upon liquidated damages are excessively higher than the actual losses incurred, the party may request the people’s court or an arbitration institution to reduce them appropriately.

Article 9 of the “Provisions of the Supreme People’s Court on Several Issues Concerning Criminal Suspicions Involving Economic Disputes in the Adjudication of Economic Dispute Cases”: The statute of limitations for a victim’s request to protect his or her civil rights shall be suspended during the period when the public security organs or the procuratorial organs are investigating suspected economic crimes. If the public security organs decide to withdraw the case involving suspected economic crimes, or if the procuratorial organs decide not to prosecute, the statute of limitations shall resume running from the day following the withdrawal of the case or the date of the decision not to prosecute.

Article 144 of the Civil Procedure Law of the People's Republic of China: If the defendant, duly summoned by a subpoena, fails to appear in court without justifiable reason, or leaves the courtroom中途 without the court’s permission, a default judgment may be rendered.

Article 253: If the judgment debtor fails to perform the obligation to pay money within the period specified in the judgment, ruling, or other legal documents, he or she shall pay double the interest on the debt for the period of delay. If the judgment debtor fails to perform other obligations within the period specified in the judgment, ruling, or other legal documents, he or she shall pay a penalty for delayed performance.

Lawyer's Perspective ：

I. This case should be classified as a civil case. When the lawyer accepted the mandate in this case, the criminal case pending with the public security authorities had not yet been withdrawn. The background of the criminal case dates back to January 26, 2014, when Ye Moumeng was apprehended. On March 4, 2014, the procuratorate approved his arrest on suspicion of embezzlement. On May 4, 2014, the public security authorities transferred the case for prosecution; after review, the procuratorate returned it to the public security authorities for further investigation. During the supplementary investigation period, the public security authorities requested withdrawal of the prosecution, and the procuratorate agreed. On September 2, 2014, the public security authorities changed Ye Moumeng’s coercive measures from detention to release on bail pending trial and subsequently released him. On September 2, 2015, due to the expiration of the bail period, the coercive measures of Ye Moumeng’s bail were lifted. Wang Moulong, meanwhile, remained on bail pending trial due to health reasons and was later also released upon expiration of his bail period. Given the unresolved status of the case at that time, the lawyer first needed to determine whether the defendants had committed a crime. Whether or not the defendants were found guilty would dictate the lawyer’s different approaches to representation. Upon examination, it became clear that both defendants held dual roles within the plaintiff company: they were both sales managers appointed by the company and contractors running the company’s subordinate workshop. If viewed from the perspective of their role as sales managers, the defendants’ practice of using part of the proceeds from the sale of the company’s products to pay off their personal debts would appear to constitute a criminal offense. However, based on the “Contracting Agreement” signed by both parties and the “Supplementary Agreement on Receivables Settlement and Share Withdrawal between Liaoning Mouhua and the Wire Workshop” executed after the completion of the contracting agreement, it is evident that the two defendants had a creditor-debtor relationship with the plaintiff arising from the contracting agreement itself, thus placing the case squarely within the realm of civil litigation. After clarifying the nature of the case, the lawyer submitted a request to the public security authorities to withdraw the case. According to Article 25 of the “Several Provisions on Handling Economic Crime Cases by Public Security Authorities,” issued jointly by the Supreme People’s Procuratorate and the Ministry of Public Security, during the course of an investigation, if the public security authorities discover any of the following circumstances, they shall promptly withdraw the case: (1) Within twelve months from the date on which the coercive measures against the suspect are lifted, the case still cannot be transferred for review and prosecution or otherwise handled according to law. After multiple rounds of negotiations with the public security authorities, the authorities ultimately issued a decision to withdraw the case. Subsequently, the lawyer filed a civil lawsuit in this matter.

II. Focus on securing the key evidence to establish the facts of the case. During the trial, the defendant raised objections from multiple angles, including whether a contractual relationship existed between the parties, the identity of the main parties involved, and the exact amount of the outstanding debt. This case involves a long time span, numerous and often disorganized pieces of evidence, and repeated changes in the names of the parties involved. However, the key piece of evidence—the “Contractual Agreement”—clearly demonstrates that a contractual relationship did indeed exist between the two parties. Furthermore, the “Supplementary Agreement on the Settlement of Accounts Receivable for the Withdrawal of Shares from the Wire-Processing Workshop between Liaoning Mouhua and the Defendant” was signed by both the plaintiff and the defendant in this case, indicating that the defendant has effectively acknowledged the plaintiff’s status as the rightful party—thus confirming the correct identification of the parties involved in the case. Additionally, the audit report issued by a certified accounting firm commissioned by the public security authorities, to which the defendant did not object at the time, serves as conclusive proof of the precise amount of the outstanding debt. This underscores the importance of lawyers being able to identify and focus on the key evidence amid a vast and complex array of documentation, clearly delineate the core issues of the case, make accurate judgments, and ultimately establish the factual truth of the matter.