[Handling Attorney] Zhang Dandan

[Keywords]      

Private Lending Disputes / Allocation of Burden of Proof

【Key Points of the Ruling】

The court holds that: The plaintiff brought a civil loan lawsuit based on the transfer record issued by the financial institution. The plaintiff has only fulfilled its initial burden of proof. If the defendant provides evidence demonstrating that the funds were part of another debt, the plaintiff still bears the burden of proving the existence of an agreement between the parties regarding the loan relationship; otherwise, the plaintiff will bear the consequences of losing the case.

[Basic Facts of the Case]   

The plaintiff, Gu Moumou, stated that he met the defendant, Chen Moumou, through a friend’s introduction and lent money to the defendant. On April 20, 2017, the plaintiff transferred RMB 409,500 to the defendant via bank transfer. The plaintiff provided an original copy of the transfer receipt as proof of the loan. On April 25, 2017, the defendant transferred RMB 40,500 back to the plaintiff, which the plaintiff acknowledged as repayment of the principal. Although the plaintiff failed to provide the court with a written loan agreement, he claimed that the two parties had verbally agreed on a loan term of three months and an interest rate of 3 fen.

The defendant argued that no loan relationship existed between the parties; rather, the plaintiff had entrusted the defendant to assist him in participating in the investment project of “Precise Company.” The defendant established an investment account for the plaintiff. Since the defendant was also an investor and had earlier access to the “Precise Project,” possessing experience in operating the backend computer systems, many people, through friends’ recommendations, entrusted the defendant to participate in the investment. After receiving the funds, the defendant made payments to the company’s designated collection account to purchase system credits and used these credits to complete the investment. The defendant provided explanations and clarifications regarding the investment procedures and the method of credit redemption, and submitted bank statements to the court showing that on April 24, 2017, the defendant paid 40,500 yuan to the plaintiff. The defendant claimed that this transfer constituted the return on investment and provided corresponding transfer records to explain and clarify the flow of funds related to the investment. Additionally, the defendant presented WeChat records to the court. Chat records from the group chat and a group photo of investors show that the plaintiff joined the WeChat group for the “Precise Project” and posted in the group, expressing concern about potential losses on his investment. The plaintiff also appears in the group photo of investors provided by the defendant. The defendant stated that, since the company’s current system does not yet support redeeming points for cash, the company had promised to restore the redemption function by January 2018.

The defendant provided one customer receipt, a copy of the personal customer transaction list, ten pages of WeChat chat records, one photograph, a video (on CD) showing the review of WeChat records, a bank transaction detail list, a screenshot from WeChat, and one bank statement from the Industrial and Commercial Bank of China.

The plaintiff acknowledged that the defendant had opened an investment account for him, but argued that he had never expressed any intention to make an investment. The 40,500 yuan transferred by the defendant was due to the plaintiff’s urgent need for funds. The plaintiff also requested that investors named Ying Mou and Wang Mou appear in court to testify. The court held that the witnesses’ testimony failed to establish the existence of a loan relationship; on the contrary, certain statements actually corroborated the defendant’s defense.

[Judgment Result] Dismiss the plaintiff Gu Moumou’s claim.

【Reasons for the Ruling】

The plaintiff claims that a legal relationship of private lending existed between the plaintiff and the defendant; however, the plaintiff only submitted bank transfer records to the court and failed to provide any evidence of debt such as loan agreements or promissory notes. The defendant countered that no lending relationship ever existed between the parties, asserting instead that the plaintiff had entrusted the defendant to assist in making an investment. Consequently, it was the defendant’s responsibility to present evidence to substantiate this defense. To this end, the defendant provided the court with bank statements, chat records from WeChat groups, and photographs, and offered reasonable explanations and clarifications regarding the flow of funds for the alleged investment, the system’s operational procedures, and the method for redeeming investment points. These materials collectively demonstrate—on a highly probable basis—that the plaintiff, as an investor, did indeed entrust the defendant to help him participate in the investment. Therefore, it should be recognized that the defendant has fulfilled its burden of proof regarding its defense. It now falls upon the plaintiff to further provide evidence demonstrating the existence of a genuine lending relationship between the two parties. However, the testimony given by the witness during the trial failed to establish the existence of such a lending relationship; on the contrary, certain statements made by the witness actually corroborated the defendant’s defense. Hence, the evidence presented by the plaintiff is insufficient to prove the existence of a real lending relationship between the parties. For these reasons, the court does not support the plaintiff’s claim.

[Relevant Statutes]

1. Article 17 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Loan Cases” states: “If the plaintiff brings a civil loan lawsuit solely on the basis of a transfer receipt from a financial institution, and the defendant argues that the transfer was made to repay a previous loan or other debt between the parties, the defendant shall provide evidence to substantiate such claim. After the defendant has provided appropriate evidence to support its claim, the plaintiff shall still bear the burden of proof regarding the establishment of the loan relationship.”

2. Article 90 of the “Interpretation by the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China” provides: “A party shall provide evidence to substantiate the facts upon which its own claims are based or to refute the facts upon which the opposing party’s claims are based, unless otherwise provided by law. If, prior to rendering a judgment, a party fails to provide evidence or the evidence is insufficient to prove its factual assertions, the party bearing the burden of proof shall bear the adverse consequences.”

[Lawyer’s Perspective]

The central issue in this case is whether a private loan relationship existed between the plaintiff and the defendant. The two essential factual elements of a private loan are: first, that the borrower and lender reached an agreement on the loan; and second, that the funds have been actually delivered. In this case, the plaintiff has filed a private loan lawsuit based on the bank transfer receipt dated April 20, 2017, demanding that the defendant repay the loan. However, the plaintiff’s claim lacks evidence of an actual loan agreement having been reached. The defendant contends that the funds in question were investment funds entrusted by the plaintiff to the defendant for investment purposes, and thus the defendant bears the burden of proof on this point. The evidence provided by the defendant—including documents detailing the investment methods and redemption points, WeChat chat records, and photographs—clearly demonstrates that the funds transferred by the defendant to the plaintiff were indeed investment funds entrusted by the plaintiff for the defendant’s investment activities. Therefore, the court finds the defendant’s defense to be reasonable, and accordingly, the plaintiff still bears the burden of proving the existence of the loan relationship in this case. Although the plaintiff further presented two witnesses to testify, their testimony failed to establish that the plaintiff and defendant had reached an agreement on the loan. Consequently, the court does not support the plaintiff’s claim according to law.

In this case, Article 17 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Loan Cases” is fully applicable. The core of this article lies in the principle governing the allocation of burden of proof in civil loan cases.

In the field of civil litigation, the allocation of the burden of proof is the core component of the civil litigation burden-of-proof system and is regarded as the “backbone of civil litigation.” The allocation of the burden of proof in civil litigation refers to the reasonable distribution of the burden of proof among the parties to the litigation—that is, the appropriate allocation of the burden of proof among the plaintiff, the defendant, and any third parties. The primary issues that the allocation of the burden of proof seeks to address are: first, who should bear the burden of proof with respect to which facts; and second, when the factual issues in dispute remain uncertain, who should bear the adverse consequences of the litigation. Under China’s current laws, the burden of proof is allocated as follows:

1. Basic Principle—The “Whoever asserts, whoever bears the burden of proof” principle

The principle of “who asserts, who proves” is a general principle for allocating the burden of proof. Its main tenet is that the party making an assertion bears the burden of proving the facts upon which its assertion is based. A party claiming that a right has arisen or that a legal relationship has been altered or extinguished need only bear the burden of proving the specific factual elements necessary to establish such alteration or extinction; as for the existence of the general factual elements, the burden of proof rests with the opposing party that denies the alteration or extinction.

2. Principle of Statutory Exceptions—The Principle of Reversed Burden of Proof

The so-called reversal of the burden of proof refers to a situation where, according to legal provisions, the party normally required to bear the burden of proof—typically the plaintiff—no longer bears such burden with respect to certain matters. Instead, the other party—the defendant—bears the burden of proving either the existence or non-existence of certain facts. If the defendant fails to provide sufficient evidence to establish these facts, the plaintiff’s factual claims will be presumed to be established. Under general rules of evidence, the principle that “he who asserts must prove” serves as the general rule for allocating the burden of proof; the reversal of the burden of proof, however, constitutes an exception to this general principle.

Article 17 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Loan Cases,” which is relevant to this case, fundamentally still adheres to the basic principle of “he who asserts must prove.” However, in terms of the allocation of the burden of proof, it effectively reduces the plaintiff’s burden of proof while increasing the defendant’s burden of proof.

Before the implementation of the Judicial Interpretation on Private Lending, plaintiffs were generally advised to file a claim for unjust enrichment against defendants, seeking repayment of the funds. Previously, the statute of limitations for claims based on unjust enrichment was three years. However, after the implementation of the Judicial Interpretation on Private Lending, when a plaintiff sues based on a bank transfer receipt, it is generally presumed that no specific loan term was agreed upon by the parties, thereby removing the limitation imposed by the statute of limitations. As a result, plaintiffs can freely bring lawsuits using bank transfer receipts dating back three years—or even eight or nine years—thus creating significant obstacles for defendants in gathering evidence and making it difficult to establish the objective truth, which may lead to unfair judicial outcomes.

Therefore, the application of Article 17 of the Judicial Interpretation on Private Lending should be approached with utmost caution. If a creditor in a non-private-lending relationship abuses Article 17 of the Judicial Interpretation on Private Lending by bringing a lawsuit under the guise of private lending when the underlying relationship is not actually a loan, such creditor should bear the risk of losing the case and being unable to assert its claim based on the actual legal relationship.