[Keywords] Civil / Loan Contract Disputes / Maximum Guarantee

【Key Points of the Ruling】

The “Comprehensive Credit Agreement,” the “Maximum Amount Pledge Contract,” the “Maximum Amount Guarantee Contract,” and the “Bank Acceptance Bill Acceptance Agreement” signed between the plaintiff and the defendant reflect the true intentions of all parties involved and do not violate any mandatory provisions of laws and regulations, thus they are lawful and valid. After the plaintiff advanced funds to the defendant, Ming Company, in accordance with the contract, the defendant Ming Company was obligated to promptly repay the advanced funds to the plaintiff as stipulated in the contract. However, the defendant Ming Company has now failed to repay the advanced funds within the agreed time frame, constituting a breach of contract and thereby incurring the contractual liability for breach. The plaintiff’s claim that the defendant Ming Company should repay the outstanding principal amount of the loan, the penalty interest as agreed upon in the contract, and the court filing fee for this case is consistent with both the contract terms and applicable legal provisions, and is hereby supported by this Court. The plaintiff’s request to confirm its right to value, auction, or sell at a discount the 10,000,000 shares of stock held by the defendant Ming Company in XX Bank Co., Ltd., and to enjoy priority in receiving payment from the proceeds thereof, is also consistent with the agreement in the parties’ “Maximum Amount Pledge Contract,” does not exceed the agreed-upon balance of RMB 10,000,000, and the equity pledge registration has been duly completed. The plaintiff’s claim that the defendants Fu Company, Peng Company, and Lin Le shall jointly and severally bear liability for repayment of the plaintiff’s first, second, and fifth claims is consistent with the relevant “Maximum Amount Guarantee Contract” and does not exceed the scope of the guarantee. Since no specific share of liability was agreed upon between the guarantors and the creditor, such liability shall be deemed as joint and several guarantee. Accordingly, the plaintiff is entitled under law either to demand that the debtor perform its debt obligations or to require any one of the guarantors to assume full guarantee liability; this claim is hereby supported by the Court.

[Basic Facts of the Case]

On November 13, 2013, the plaintiff entered into a “Comprehensive Credit Agreement” with the defendant, Lingyuan City某某 Glass Co., Ltd. The agreement stipulated that the plaintiff would extend credit to the defendant, Lingyuan City某某 Glass Co., Ltd., with the credit limit designated for the acceptance of bank bills of exchange. On the same day, the plaintiff also signed a “Maximum Amount Pledge Contract” with the defendant, Lingyuan City某某 Glass Co., Ltd., under which the defendant pledged its equity interest in Chaoyang Bank Co., Ltd., totaling XXXX ten thousand shares, as security for the debts arising from the bank bills of exchange continuously provided by the plaintiff to the defendant. On the same day, the plaintiff further entered into “Maximum Amount Guarantee Contracts” separately with the defendants Guangdong某某 Industrial Group Co., Ltd., Guangdong某某 Supply Chain Co., Ltd., and Lin Moule, under which the aforementioned defendants provided joint and several guarantees. On November 21, 2013, the plaintiff and Lingyuan City某某 Glass Co., Ltd. executed a “Bank Bill of Exchange Acceptance Agreement,” pursuant to which Party A applied for a total of nine bank bills of exchange with a total face value of XXXX yuan. Party A was required to deposit a margin equal to 50% of the face value of each bill of exchange into an account designated by Party B. Upon maturity of the bills of exchange, if Party B had not been fully paid, Party B would charge penalty interest at a daily rate of five per ten thousand of the overdue amount, based on the number of days past due. After the contract was signed, the plaintiff issued nine bills of exchange as agreed, with a total face value of XXXX yuan, and the maturity date of these bills was May 21, 2014. On the same day, a margin of XXXX yuan was deposited into the designated margin account. Although the maturity dates of the accepted bills of exchange have not yet arrived, the defendant, Lingyuan City某某 Glass Co., Ltd., has explicitly informed the plaintiff of its inability to repay the debts. Therefore, the plaintiff demands that the defendant, Lingyuan City某某 Glass Co., Ltd., immediately fulfill its repayment obligations. Furthermore, the plaintiff asserts its right to have the equity interest in Chaoyang Bank Co., Ltd., totaling XXXX ten thousand shares held by the defendant, valued, auctioned, or sold at a discount, and to enjoy priority in receiving payment from the proceeds thereof. In addition, the defendants Guangdong某某 Industrial Group Co., Ltd., Guangdong某某 Supply Chain Co., Ltd., and Lin Moule have provided joint and several guarantees for the above-mentioned debts. Consequently, the plaintiff now requests that these defendants assume joint and several liability for repayment.

【Judgment Result】

1. The defendant, Lingyuan City [Company Name] Glass Co., Ltd., shall, within ten days from the date this judgment becomes effective, repay to the plaintiff, [Bank Name] Co., Ltd. Shenyang Branch, the principal amount of RMB XXXX under the “Bank Acceptance Bill Acceptance Agreement” No. Shenyang Branch 2013 Yin Cheng Zi No. 25-10-1.

2. The defendant, Lingyuan City [Company Name] Glass Co., Ltd., shall, within ten days from the date on which this judgment becomes effective, pay to the plaintiff, [Bank Name] Co., Ltd. Shenyang Branch, the overdue penalty interest accrued from May 21, 2014, until the date the loan is fully repaid (calculated at a daily interest rate of 0.05% based on the principal amount of the loan, which is XXXX yuan). If the defendant fails to perform the monetary obligation within the period specified 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.

3. The Plaintiff, [Name of Bank] Co., Ltd., Shenyang Branch, shall have a priority right to be compensated from the equity interest held by the Defendant, Lingyuan City [Name of Glass Company] Co., Ltd., in [Name of Bank] Co., Ltd., which has been pledged to the Plaintiff, to the extent of the payment obligations imposed on the Defendant, Lingyuan City [Name of Glass Company] Co., Ltd., as determined by this judgment. The Defendants, Guangdong [Name of Industrial Group] Co., Ltd., Guangdong [Name of Supply Chain] Co., Ltd., and Lin Moule, shall jointly and severally guarantee the payment obligations imposed on the Defendant, Lingyuan City [Name of Glass Company] Co., Ltd., as determined by this judgment. After having assumed the guarantee liability, each guarantor shall have the right to seek reimbursement from the debtor, Lingyuan City [Name of Glass Company] Co., Ltd., for the portion actually paid, or to require other guarantors in this case to pay their respective shares. If the joint and several guarantors have already assumed the guarantee liability but cannot recover from the debtor, the remaining unpaid portion shall be shared among the joint and several guarantors according to the proportions agreed upon internally; in the absence of such agreement, the share shall be divided equally.

【Reasoning of the Ruling】

On November 13, 2013, the plaintiff entered into a Comprehensive Credit Agreement, Contract No. Shenyang Branch 2013 Yin Shou Zi No. 25-10, with the defendant, Ming Company. The agreement stipulated that the plaintiff would extend credit to Ming Company, with the credit limit designated for the acceptance of bank bills of exchange. On the same day, the plaintiff also entered into a Pledge Contract for Maximum Amount Rights, Contract No. Shenyang Branch 2013 Qi Gao Zhi Zi No. 25-10, with Ming Company, under which Ming Company pledged its equity interest in XXXX ten thousand shares of a certain Bank Co., Ltd., serving as security for the debts arising from the bank bills of exchange continuously provided by the plaintiff to Ming Company. On the same day, the plaintiff further signed Maximum Amount Guarantee Contracts separately with the defendants Fu Company, Peng Company, and Lin Le, each undertaking joint and several liability guarantees. On November 21, 2013, the plaintiff and Ming Company executed a Bank Bill Acceptance Agreement, Contract No. Shenyang Branch 2013 Yin Cheng Zi No. 25-10-1, under which Ming Company applied to accept a total of nine bills of exchange, each with a face value of XX yuan. Ming Company deposited a margin equal to 50% of the face value of each accepted bill into an account designated by the plaintiff. Upon maturity of the bills of exchange, if the plaintiff had not yet been fully paid, the plaintiff would charge penalty interest at a daily rate of five per ten thousand of the overdue amount, based on the number of days past due. After the contract was signed, the plaintiff issued nine bills of exchange as agreed, with a total face value of XXXX ten thousand yuan, and the maturity date of these bills was May 21, 2014. On the same day, a margin of XXXX ten thousand yuan was deposited into the designated margin account. Although the maturity date of the accepted bills has not yet arrived, the defendant Ming Company has explicitly informed the plaintiff of its inability to repay the outstanding amounts. Therefore, the plaintiff is justified, pursuant to the Contract Law and the provisions of Article 27.8 of the Comprehensive Credit Agreement, in demanding that Ming Company immediately fulfill its repayment obligations.

[Relevant Statutes]

Article 60 of the Contract Law of the People’s Republic of China: 【Strict Performance and Honesty and Good Faith】The parties shall fully perform their respective obligations in accordance with the agreement. ”

Article 107 of the Contract Law of the People's Republic of China: 【Liability for Breach of Contract】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 207 of the Contract Law of the People's Republic of China: “ 【Overdue Interest】If the borrower fails to repay the loan by the agreed-upon deadline, they shall pay overdue interest in accordance with the agreement or relevant national regulations. ”

Article 170 of the Property Law of the People's Republic of China: The holder of a security interest has the right, in accordance with the law, to be paid in priority from the secured property if the debtor fails to perform the due debt or if any event occurs as agreed upon by the parties that triggers the enforcement of the security interest—unless otherwise provided by law. ”

Article 173 of the Property Law of the People's Republic of China: The scope of security interests includes the principal debt and its interest, liquidated damages, compensation for losses, expenses for the custody of the secured property, and costs incurred in enforcing the security interest. If the parties have made other agreements, such agreements shall prevail. ”

Article 176 of the Property Law of the People's Republic of China: If the secured claim is secured both by a real property security interest and by a personal guarantee, and the debtor fails to perform the due debt or the circumstances stipulated by the parties for enforcing the security interest occur, the creditor shall enforce the claim in accordance with the agreement. If no agreement has been reached or the agreement is unclear, and the debtor himself has provided a real property security interest, the creditor shall first enforce the claim against such real property security interest. If a third party has provided a real property security interest, the creditor may either enforce the claim against that security interest or demand that the guarantor assume the guarantee liability. After a third party providing the security interest has assumed the guarantee liability, it shall have the right to seek reimbursement from the debtor. ”

Article 223 of the Property Law of the People's Republic of China states: “The following rights that may be disposed of by the debtor or a third party may be pledged: (1) bills of exchange, checks, and promissory notes; (2) bonds and savings certificates; (3) warehouse receipts and bills of lading; (4) fund shares and equity interests that can be transferred; (5) property rights in intellectual property such as registered trademarks, patents, and copyrights that can be transferred; (6) accounts receivable; (7) other property rights that may be pledged as stipulated by laws and administrative regulations.”

Article 226 of the Property Law of the People's Republic of China provides: “Where a fund share or equity interest is pledged, the parties shall enter into a written contract. If the fund share or equity interest pledged is registered with a securities registration and settlement institution, the pledge right shall be established upon the completion of the pledge registration by the securities registration and settlement institution; if other equity interests are pledged, the pledge right shall be established upon the completion of the pledge registration by the administrative department for industry and commerce. After a fund share or equity interest has been pledged, it may not be transferred unless otherwise agreed upon through consultation between the pledgor and the pledgee. Any proceeds obtained by the pledgor from the transfer of the fund share or equity interest shall be used to prepay the debt owed to the pledgee or deposited in escrow.”

Article 12 of the Security Law of the People's Republic of China: If there are two or more guarantors for the same debt, the guarantors shall act in accordance with... Guarantee Contract The guarantor shall bear the guarantee liability according to the agreed-upon share of guarantee. If no share of guarantee has been agreed upon, the guarantor... Bear joint and several liability The creditor may require any one of the guarantors to assume full guarantee liability, and each guarantor is obligated to ensure the full realization of the entire debt claim. A guarantor who has already assumed guarantee liability has the right to seek reimbursement from the debtor or to demand that other guarantors jointly and severally liable pay their respective shares. ”

Article 14 of the “Guarantee Law of the People’s Republic of China”: The guarantor and the creditor may enter into separate guarantee contracts for each individual principal contract, or they may agree to provide guarantees within a maximum debt limit for a series of transactions occurring continuously over a specified period. Loan Agreement Or a certain commodity transaction Contract conclusion A guarantee contract. ”

Article 18 of the Security Law of the People’s Republic of China: The parties to the guarantee contract stipulate that the guarantor and the debtor shall... Debt assumption In the case of joint and several liability, it constitutes a joint and several guarantee. If the debtor under a joint and several guarantee fails to perform the debt within the time limit for performance stipulated in the principal contract, the creditor may either demand that the debtor perform the debt or demand that the guarantor assume the guarantee liability within the scope of its guarantee. ”

[Lawyer’s Perspective]

On the surface, this case does not appear particularly complex. However, due to the enormous amount in dispute, it has become a significant case. The plaintiff’s claim amounts to as much as XXXX ten thousand yuan, and the case involves numerous parties: the primary debtor, the guarantor, and also the issue of priority claims on pledged equity interests. Consequently, during the preparation for filing the lawsuit, there are many issues and details that must be carefully considered. Even the slightest oversight—such as miswriting a single digit, omitting a party, or failing to include a particular claim—could lead to immeasurable adverse consequences for the client. Moreover, since the repayment date for the principal debt had not yet arrived at the time the lawsuit was filed, it is essential to obtain clear documentation from the debtor stating that it will be unable to repay the substantial sum when due; otherwise, the filing court will refuse to accept the case. Therefore, throughout the entire preparation process, the attorney representing the client must be meticulous and thorough, maintaining unwavering attention to detail. Only after repeated and careful verification can the case proceed to filing and other related procedures.

Sometimes, even though the facts of a case may be straightforward, the substantial amount in dispute and the numerous details involved can place immense—and unimaginable—pressure on lawyers during the course of representation. At such times, a lawyer’s ability to withstand pressure and to perform their duties meticulously and carefully under intense stress is truly put to the test. In handling this particular case, I meticulously and flawlessly carried out the entire representation process, earning high praise from my client.