[Keywords] Financial loan contract / Mortgage / Pledge of maximum amount of rights / Personal guarantee / Priority right of repayment

【Key Points of the Ruling】

The contract signed between the parties reflects the true intentions of the contracting parties and meets the conditions for effectiveness stipulated in the contract. Therefore, the aforementioned contract is legally established, genuine and valid, and is legally binding on the contracting parties. Each party to the contract shall exercise its contractual rights and perform its contractual obligations in accordance with the provisions set forth in the contract.

[Basic Facts of the Case]

Defendant 1 entered into a “Working Capital Loan Agreement” with the Plaintiff, [Bank Name], and borrowed RMB 20 million from the bank. The following guarantees were provided for this loan: Defendant 1 pledged its accounts receivable as collateral; Defendant 3 pledged time deposits as collateral; Defendants 2, 3, 10, and 11 provided mortgage on real estate; and Defendants 2, 3, 4, 5, 6, 7, 8, and 9 provided joint and several guarantees.

【Judgment Result】

1. The defendant, [Company Name], shall, within ten days from the date on which this judgment becomes legally effective, pay in a lump sum to the plaintiff, [Bank Name], the outstanding principal amount of the loan, totaling × yuan.

2. Within ten days from the date on which this judgment becomes legally effective, the defendant, [Company Name], shall pay in a lump sum to the plaintiff, [Bank Name], the interest (including penalty interest and compound interest) outstanding as of [Date: Month/Year] in the amount of × yuan, as well as interest (including penalty interest and compound interest; the rates for penalty interest and compound interest shall be calculated based on the annual interest rate of ×%) on the principal amount of × yuan, starting from [Date: Month/Year] and continuing until the debt is actually repaid as determined by this judgment.

3. If the defendant, Company某某, fails to perform Items 1 and 2 of this judgment on time, the plaintiff, Bank某某, shall have a priority right to be compensated from the accounts receivable pledged to the plaintiff by the defendant, Company某某 (payee: Company某某, etc.), within the scope of the pledge rights.

4. If the defendant, [Company Name], fails to perform Items 1 and 2 of this judgment on time, the plaintiff, [Bank Name], shall have a priority right to be repaid from the 8× yuan savings certificates pledged to the plaintiff by the defendant, Jiang [Name], within the scope of the pledge rights.

5. If the defendant, [Company Name], fails to perform Items 1 and 2 of this judgment on time, the plaintiff, [Bank Name], shall have a priority right to be repaid from the house owned by the defendant, [Company Name], which is mortgaged to the plaintiff [address omitted], within the scope of the mortgage rights.

6. If the defendant, [Company Name], fails to perform Items 1 and 2 of this judgment on time, the plaintiff, [Bank Name], shall have a priority right to be repaid from the house owned by the defendants, Wu [Name] and Jiang [Name], which is mortgaged to the plaintiff [address omitted], within the scope of the mortgage rights.

7. If the defendant, [Company Name], fails to perform Items 1 and 2 of this judgment on time, the plaintiff, [Bank Name], shall have a priority right to be compensated from the house mortgaged to the plaintiff and registered under the name of the defendant, Wu [Name], located at [address omitted], within the scope of the mortgage rights.

8. If the defendant, [Company Name], fails to perform Items 1 and 2 of this judgment on time, the plaintiff, [Bank Name], shall have a priority right to be repaid from the real estate owned by the defendant, [Jin Name], which is mortgaged to the plaintiff, [Address Omitted], within the scope of the mortgage rights.

9. The defendants Wu Moumou, Jiang Moumou, An Moumou, Zhuang Moumou, Jiang Moumou, Chen Moumou, [Company Name], and [Company Name] shall jointly and severally guarantee the obligations imposed on the defendant [Company Name] under Items 1 and 2 of this judgment.

10. The other claims of the plaintiff, [Bank Name], are dismissed.

【Reasoning of the Ruling】

According to the provisions of China's Civil Procedure Law, parties have the right to file a defense and to challenge the evidence submitted by the opposing party. In this case, the defendant, having been duly summoned by the court, failed to appear in court without justifiable reason, thereby being deemed to have waived their right to challenge the evidence. The court has ascertained the facts of the case based on the statements made by the plaintiff and the parties present in court, as well as the evidence provided by them.

1. The Plaintiff, [Bank Name], and the Defendant, [Company Name], entered into a “Working Capital Loan Agreement” and a “Maximum Pledge Agreement on Accounts Receivable.” Additionally, the Plaintiff entered into a “Maximum Mortgage Agreement” with the Defendants Wu [Name] and [Company Name], among others, and a “Maximum Pledge Agreement on Rights” with the Defendant Jiang [Name]. Furthermore, the Plaintiff entered into a “Maximum Guarantee Agreement” with the Defendants Wu [Name] and [Company Name], among others. All of these contracts reflect the true intentions of the parties involved and meet the conditions for effectiveness stipulated in the contracts. Therefore, the aforementioned contracts are legally established, genuine and valid, and are legally binding on the parties to the contracts. Each party to the contract shall exercise its contractual rights and perform its contractual obligations in accordance with the terms and conditions set forth in the contracts. After signing the loan agreement with the Plaintiff and receiving the loan, the Defendant [Company Name] failed to strictly comply with the contractual provisions and promptly fulfill its obligation to repay the principal and interest. As of [Date], the Defendant [Company Name] has defaulted on the repayment of a total principal amount of [Amount] yuan and interest amounting to [Amount] yuan (including penalty interest and compound interest). The conduct of the Defendant [Company Name] constitutes a breach of contract and is therefore in violation of the agreed-upon terms. Consequently, the court supports the Plaintiff’s claim for repayment of principal and interest.

2. With regard to the plaintiff’s claim that it should have priority in receiving payment from all accounts receivable pledged by the defendant, Company [Company Name], to the plaintiff, according to the “Maximum Amount Pledge Contract for Accounts Receivable” signed between the plaintiff and the defendant, Company [Company Name], the plaintiff enjoys corresponding rights with respect to the pledged accounts receivable. Moreover, the pledged accounts receivable have been uniformly registered for property rights at the Credit Reference Center of the People’s Bank of China. Therefore, the court supports the plaintiff’s claim in this regard.

Regarding the plaintiff’s claim that it has a priority right to be compensated from the savings certificate worth × yuan pledged by the defendant Wu Moumou to the plaintiff, according to the “Maximum Amount Pledge Contract of Rights” signed between the plaintiff and the defendant Wu Moumou, the plaintiff enjoys corresponding rights over the pledged certificate. Moreover, the pledged certificate has undergone stop-payment procedures and has been handed over to the plaintiff for safekeeping. Therefore, the court supports the plaintiff’s claim in this regard.

3. Regarding the plaintiff’s claim that it has priority in receiving payment from the mortgaged properties and land owned by the defendant Wu Moumou, a certain company, and others, according to the provisions of the “Maximum Amount Mortgage Contract” signed between the plaintiff and the defendants Wu Moumou, the said company, and others, the plaintiff enjoys corresponding rights over the mortgaged real estate, and the mortgage registration procedures for the mortgaged real estate have been duly completed with the relevant authorities. Therefore, the court supports the plaintiff’s claim in this regard.

4. Regarding the plaintiff’s request that the defendant Wu and certain companies, among others, assume joint and several guarantee liability: According to the provisions of the “Maximum Amount Guarantee Contract” signed by the plaintiff and each defendant, the plaintiff is entitled to the corresponding rights. Therefore, the court supports the plaintiff’s claim in this regard.

[Relevant Statutes]

Article 60 of the Contract Law of the People's Republic of China stipulates that 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 18 of the Guarantee Law of the People's Republic of China states: If the parties to a guarantee contract agree that the guarantor and the debtor shall jointly and severally bear liability for the debt, such guarantee shall be a joint and several guarantee.

If the debtor under a joint and several liability guarantee fails to perform the debt within the deadline 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 the guarantee.

Article 21: The scope of the guarantee shall include the principal debt and interest, default damages, compensation for losses, and expenses incurred in enforcing the creditor’s rights. If the guarantee contract provides otherwise, the provisions of the contract shall prevail.

If the parties have not agreed on the scope of the guarantee or the agreement is unclear, the guarantor shall be liable for the entire debt.

Article 33: The term "mortgage" as used in this Law refers to a situation in which the debtor or a third party does not transfer possession of the property listed in Article 34 of this Law, but instead uses such property as security for the creditor’s claim. If the debtor fails to perform its debt obligations, the creditor shall have the right, in accordance with the provisions of this Law, to receive priority payment by valuing the property at a reduced price or by receiving the proceeds from its auction or sale.

The debtor or a third party specified in the preceding paragraph is the mortgagor, the creditor is the mortgagee, and the property provided as security is the mortgaged property.

Article 41: If the parties pledge property as stipulated in Article 42 of this Law, they shall register the pledged property. The mortgage contract shall take effect from the date of registration.

Article 46: The scope of the mortgage guarantee shall include the principal debt and interest, default penalties, damages, and expenses incurred in enforcing the mortgage rights. If the mortgage contract provides otherwise, the provisions of the contract shall prevail.

Article 75: The following rights may be pledged:

(1) Bills of exchange, checks, promissory notes, bonds, certificates of deposit, warehouse receipts, bills of lading;

(2) Shares and stocks that can be transferred in accordance with the law;

(3) Property rights in trademarks, patent rights, and copyright that may be transferred in accordance with the law;

(4) Other rights that may be pledged in accordance with the law.

Article 81: With regard to pledges of rights, in addition to the provisions applicable under this section, the provisions of Section 1 of this chapter shall also apply.

Article 144 of the Civil Procedure Law of the People's Republic of China provides that 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.

[Lawyer’s Perspective]

1. The parties to a contract shall adhere to the principle of honesty and good faith in the course of civil activities. All parties involved shall strictly perform their contractual obligations in accordance with the terms of the contract. In this case, the borrower’s failure to repay the loan on time in violation of the contractual agreement constitutes a breach of contract, and thus the borrower is liable for the corresponding breach of contract responsibilities.
2. In the course of civil litigation, after receiving the court summons and a copy of the complaint, the defendant shall attend the trial on time. If the defendant fails to appear at the court hearing at the time and place specified in the subpoena, it shall be deemed that the defendant has waived its rights to submit a defense and present evidence.
3. In civil activities, one should carefully consider providing guarantees for others in one's own name or offering one's own property as collateral for others. Under the Guarantee Law of the People's Republic of China, “guarantee” refers to an agreement between the guarantor and the creditor whereby, if the debtor fails to perform its debt obligations, the guarantor undertakes to perform the debt or assume liability as agreed. There are two types of guarantees: general guarantee and joint and several liability guarantee. Therefore, once you provide a guarantee for another party, you will face the risk of having to perform the debt or assume liability as agreed if the debtor is unable to fulfill its obligations. Moreover, if you offer your own property as collateral for another party’s debt, you will also face the risk that your pledged property may be seized, auctioned off, or sold off if the debtor fails to meet its obligations.