Ningbo Branch of Bank of Wenzhou Co., Ltd. v. Zhejiang Chuangling Electrical Appliance Co., Ltd. (Dispute over a Financial Loan Contract)
Resources from:2016 LexisNexis
  
With the existence of several maximum-amount guarantee contracts, where a specific loan contract lists selectively some of the maximum-amount guarantee contracts, if a debt arises in the settlement period as agreed by the maximum-amount guarantee contracts, and the relevant creditor does not expressly waive his her its right of guarantee, the guarantors under the other maximum-amount guarantee contracts that are not listed in the loan contract shall also assume guarantee liability within the maximum amount of obligation
With the existence of several maximum-amount guarantee contracts, where a specific loan contract lists selectively some of the maximum-amount guarantee contracts, if a debt arises in the settlement period as agreed by the maximum-amount guarantee contracts, and the relevant creditor does not expressly waive his/her/its right of guarantee, the guarantors under the other maximum-amount guarantee contracts that are not listed in the loan contract shall also assume guarantee liability within the maximum amount of obligation.
 
(Adopted upon discussion by the Judicial Committee of Supreme People's Court and released on May 20, 2016)
 
Relevant Regulations

Article 14 of the Security Law of the People's Republic of China
 
Basic Case Facts

The plaintiff Ningbo Branch of Bank of Wenzhou Co., Ltd., Zhejiang Province (hereinafter referred to as "BOW") claimed: it concluded maximum-amount guarantee contracts with the defendants Ningbo Tingwei Electronic Technology Co., Ltd. (hereinafter referred to as "Tingwei Electronics"), Cen Jianfeng, and Ningbo Sanhao Plastic Mold Manufacturing Co., Ltd. (hereinafter referred to as "Sanhao Plastic Mold") respectively, agreeing that the three defendants provide guarantee under joint and several guarantee liability for Zhejiang Chuangling Electrical Appliances Co., Ltd. (hereinafter referred to as "Chuangling Electricals") with respect to the loans to Chuangling Electricals by BOW in a certain period and within the maximum credit amount. After obtaining the loans from BOW, Chuangling Electricals was unable to repay part of the loans as scheduled. Therefore, the plaintiff requested the court to order the defendant Chuangling Electricals to repay the loan principal of CNY2.5 million and pay the interest on the principal, penalty on late repayment and attorney's fees; and order Cen Jianfeng, Sanhao Plastic Mold and Tingwei Electronics to take the joint and several guarantee liability for the aforesaid debt.

The defendants Chuangling Electricals and Cen Jianfeng did not make a defense.

The defendant Sanhao Plastic Mold defended its position, claiming: the attorney's fees requested by the plaintiff should not be supported.

The defendant Tingwei Electronics defended its position, claiming: as the maximum-amount guarantee contract it signed with BOW was not included in the guarantee contracts as agreed by the loan contract, it should not bear the guarantee liability.

The court heard the case and ascertained: on September 10, 2010, BOW concluded maximum-amount guarantee contracts numbered Wen Yin 9022010 Gao Bao Zi No.01003 and Wen Yin 9022010 Gao Bao Zi No.01004 with Tingwei Electronics and Cen Jianfeng respectively, agreeing that Tingwei Electronics and Cen Jianfeng should, on a voluntary basis, provide guarantee with joint and several liability for the principal and interest thereon as well as penalty on late repayment relating to the debt with an outstanding balance of not more than CNY11 million incurred by Chuangling Electricals from September 10, 2010 to October 18, 2011.

On October 12, 2011, BOW concluded maximum-amount guarantee contracts numbered Wen Yin 9022011 Gao Bao Zi No.00808 and Wen Yin 9022011 Gao Bao Zi No.00809 with Cen Jianfeng and Sanhao Plastic Mold respectively, agreeing that Cen Jianfeng and Sanhao Plastic Mold should, on a voluntary basis, provide guarantee with joint and several liability for the principal and interest thereon as well as penalty on late repayment relating to the debt with an outstanding balance of not more than CNY5.5 million incurred by Chuangling Electricals from September 10, 2010 to October 18, 2011.

On October 14, 2011, BOW signed a loan contract numbered Wen Yin 9022011 Qi Dai Zi No.00542 with Chuangling Electricals, agreeing to lend the latter a loan of CNY5 million which would be due on October 13, 2012, and setting out the guarantee contracts numbered Wen Yin 9022011 Gao Bao Zi No.00808 and Wen Yin 9022011 Gao Bao Zi No. 00809 under the loan contract. After the loan was issued, Chuangling Electricals repaid CNY2.5 million for the loan principal on August 6, 2012, and Tingwei Electronics paid the loan interest of CNY31,115.3, CNY53,693.71 and CNY21,312.59 on June 29, October 31 and November 30, 2012 in succession. As of April 24, 2013, Chuangling Electricals had CNY2.5 million for the loan principal and CNY141,509.01 for the interest outstanding. It was also ascertained that BOW incurred attorney's fees of CNY95,200 for realizing its creditor's right in this case.
 
Results of Judgment

On December 12, 2013, the People's Court of Jiangdong District, Ningbo City, Zhejiang Province rendered the Civil Judgment (Yong Dong Shang Chu Zi [2013] No.1261): 1. Chuangling Electricals shall repay BOW the loan principal of CNY2.5 million and pay the interest thereon of CNY141,509.01 as well as further interest and penalties calculated in accordance with the loan contract for the period from April 25, 2013 to the date of performance as determined by the judgment, within ten days upon effectiveness of the judgment; 2. Chuangling Electricals shall compensate BOW for the attorney's fees of CNY95,200 incurred as a result of the realization of BOW of its creditor's right within ten days upon effectiveness of the judgment; and 3. Cen Jianfeng, Sanhao Plastic Mold and Tingwei Electronics shall bear joint and several liability for repayment with respect to the amounts mentioned in the above Items 1 and 2, and after the guarantee liability is fulfilled, they have the right to recover the corresponding amounts from Chuangling Electricals. After the judgment was pronounced, Tingwei Electronics filed an appeal on the ground that it was not required to assume the guarantee liability as it was not mentioned in the loan contract. on May 14, 2014, the Intermediate People's Court of Ningbo City, Zhejiang Province rendered the (2014) Zhe Yong Shang Zhong Zi No.369 Civil Judgment to reject the appeal and sustain the original judgment.
 
Reasons for Judgment

In the effective judgment, the court held: the loan contract numbered Wen Yin 9022011 Qi Dai Zi No.00542 concluded between BOW and Chuangling Electricals should be valid; Chuangling Electricals' failure to repay the principal and interest as agreed after BOW issued the loan constituted a default. Support should be granted to the plaintiff with respect to its claim against Chuangling Electricals for repayment of the loan principal of CNY2.5 million, as well as payment of the interest thereon and penalties calculated under the method as agreed by the contract, and the attorney's fees of CNY95,200 incurred by the plaintiff for the realization of its creditor's right. Cen Jianfeng and Sanhao Plastic Mold, who voluntarily provided the maximum-amount guarantee for the said debt, should bear joint and several liability for repayment, and upon fulfillment of their guarantee liability, they would have the right to recove the relevant amounts from Chuangling Electricals.

In this case, the focus of dispute was, as the maximum-amount guarantee contract numbered Wen Yin 9022010 Gao Bao Zi No.01003 signed by Tingwei Electronics was not listed in the guarantee contracts as agreed in the Wen Yin 9022011 Qi Dai Zi No.00542 Loan Contract, whether Tingwei Electronics should assume the guarantee liability for the debt under the said loan contract. In this regard, the court held that Tingwei Electronics should assume the guarantee liability. The reasons are as follows: 1. the waiver of any civil right shall have legal force only when it is an express intention, and an implied intention shall become legally effective only when there is any explicit legal provision or a special agreement between the parties concerned; thus, in the absence of an explicit agreement between the parties concerned or a specific legal provision, it is not advised to presume that a party concerned waived its right. In respect of this case, although the loan contract numbered Wen Yin 9022011 Qi Dai Zi No.00542 concluded between BOW and Chuangling Electricals did not contain the maximum-amount guarantee contract signed by Tingwei Electronics, the plaintiff did not expressly waive its right to the maximum-amount guarantee provided by Tingwei Electronics; therefore, Tingwei Electronics was still one of the maximum-amount guarantors for the loan contract in dispute. 2. In this case, as the dates when the loan contract in dispute was concluded and when the loan was issued fell within the settlement period (from September 10, 2010 to October 18, 2011) as agreed in the maximum-amount guarantee contract numbered Wen Yin 9022010 Gao Bao Zi No.01003, and BOW claimed its right against Tingwei Electronics within the period of guarantee as agreed by the contract, Tingwei Electronics should assume joint and several guarantee liability as agreed for the debts of Chuangling Electricals owed to BOW within the maximum amount of obligation it committed. 3. The maximum-amount guarantee contract is the direct contractual basis according to which the creditor and the guarantor agree on their legal relationship and mutual rights and obligations, and it is not allowed to use the contents of the master contract to replace those of the subordinate contract. With respect to this case, as BOW and Tingwei Electronics signed a maximum-amount guarantee contract, the rights and obligations of both parties in connection with the guarantee should be subject to such guarantee contract, and should not be restricted or altered by the loan contract signed by and between BOW and Chuangling Electricals. 4. Tingwei Electronics paid the interest on the loan involved in this case in June, October, and November 2016, respectively, which could be deemed as an act of Tingwei Electronics performing the guarantee liability for the loan in this case. In conclusion, Tingwei Electronics should assume joint and several liability for repayment of the said debt of Chuangling Electricals, and upon fulfillment of its guarantee liability, it would have the right to recover the relevant amounts from Chuangling Electricals.

(Resources from 2016 LexisNexis)