[Title] Guo v. Shenyang Branch of Beijing [Company Name], Beijing [Company Name] – Dispute over Private Lending

[Keywords] Civil/Peer-to-Peer Lending/Branch Office/Company Law

【Key Points of the Ruling】

The “Loan Contract” signed between Mr. Guo and the Shenyang Branch of Beijing [Company Name] stipulates, pursuant to Article 14 of the Company Law, that a company may establish branches. A branch does not have legal personality, and its civil liabilities shall be borne by the company itself. Therefore, Beijing [Company Name] shall assume the civil liabilities arising from the “Loan Contract” under which the Shenyang Branch owes money to Mr. Guo.

[Basic Facts of the Case]

The defendant, Beijing [Company Name] Ltd., intended to establish a Shenyang branch in Shenyang and requested the plaintiff, Mr. Guo, to make an investment. Since the plaintiff was unfamiliar with the tourism industry, he decided first to lend money to the Shenyang branch for its operational needs, intending to evaluate whether to invest further after gaining a better understanding of the business. On June 13, 2016, the defendant’s Shenyang branch of Beijing [Company Name] Ltd. was officially registered and established. On June 30, 2016, the plaintiff, Mr. Guo, entered into a “Loan Agreement” with the defendant’s Shenyang branch of Beijing [Company Name] Ltd., under which the Shenyang branch could apply for loans from the plaintiff as needed for its business operations. The plaintiff would disburse the loan amount to the Shenyang branch upon its request, with the principal amount being determined by the actual amount disbursed. Interest would accrue from the date the plaintiff notified the Shenyang branch to repay the loan, at a monthly interest rate of 2%. In the three months prior to the registration of the Shenyang branch, all rental and renovation expenses incurred by the Shenyang branch were paid by Mr. Guo. The lease agreement was signed by Mr. Guo, and after the Shenyang branch completed its industrial and commercial registration, the lessee under the lease agreement was changed to the Shenyang branch. The renovation contract was executed and retroactively signed after the Shenyang branch was registered. In January 2017, the Shenyang branch of Beijing [Company Name] Ltd. issued to Mr. Guo a “Detailed Statement of Loan Expenses,” documenting the branch’s operational cost expenditures. At the end of February 2017, the plaintiff, Mr. Guo, began urging the Shenyang branch of Beijing [Company Name] Ltd. to repay the loan. In March 2017, he filed a lawsuit in court, requesting that both the defendant, Beijing [Company Name] Ltd., and its Shenyang branch jointly assume responsibility for repaying the loan. After the lawsuit was filed, Beijing [Company Name] Ltd. dissolved the Shenyang branch in Shenyang, retrieved all office documents, and dismissed all employees, making it impossible to serve the complaint on the Shenyang branch. Although Beijing [Company Name] Ltd. sent someone to appear in court, the representative explicitly stated that they had no authorization from the Shenyang branch and were unable to contact them, requesting that the notice be served on the Shenyang branch via public announcement. Following the public notice, the court proceeded with the trial.

【Judgment Result】

Based on the provisions of Article 144 of the Civil Procedure Law of the People’s Republic of China, Article 196 of the Contract Law of the People’s Republic of China, and Article 14 of the Company Law of the People’s Republic of China, the court of first instance ruled as follows: First, the defendant, Beijing [Company Name] Co., Ltd., shall repay to the plaintiff, Guo Hongtao, the principal amount of RMB 1,006,449.98 within ten days from the date this judgment becomes legally effective; Second, starting from March 15, 2017, the defendant, Beijing [Company Name] Co., Ltd., shall pay the plaintiff, Guo Hongtao, interest on the loan principal of RMB 1,006,449.98 at a monthly interest rate of 2% until the date specified in this judgment for payment; if the defendant fails to perform its payment obligations within the time period prescribed in this judgment, it shall, in accordance with Article 253 of the Civil Procedure Law of the People’s Republic of China, pay double the interest on the debt for the period of delay. Third, the other claims of both the plaintiff and the defendant are dismissed. The case filing fee is RMB 15,971, the preservation fee is RMB 5,000, and the announcement fee is RMB 800. The plaintiff shall bear RMB 2,078 of the case filing fee, while the defendant, Beijing [Company Name] Co., Ltd., shall bear RMB 13,893 of the case filing fee, RMB 5,000 of the preservation fee, and RMB 800 of the announcement fee.

【Reasoning by the Court】 According to Article 14 of the Company Law, a company may establish branch offices. A branch office does not have legal personality, and its civil liabilities are borne by the parent company. Therefore, the Shenyang Branch Office of Beijing [Company Name] as a branch office does not have legal personality, and its civil liabilities are borne by Beijing [Company Name].

[Relevant Statute] Article 14 of the Company Law: A company may establish branch offices. A branch office does not have legal personality, and its civil liabilities shall be borne by the company.

[Lawyer’s Perspective] This case is an atypical private lending dispute. The lender entered into a loan agreement with the branch office. According to Article 14 of the Company Law, when filing a lawsuit against the branch office, the parent company was also named as a defendant, and the lender demanded that both the parent company and the branch office jointly bear responsibility. As a result, the financially stronger parent company assumed the repayment obligation, thereby safeguarding the legitimate rights and interests of the borrower.