Essential Facts

This book includes cases strictly selected by the jury and judge departments from the Supreme People’s Court of the People’s Republic of China. The chosen cases， mainly judged by the grand justice， enjoyed fame nationwide and worldwide. This book clearly and concisely conveys the process， methods， and concepts in the judging process through three columns.

Selected Cases from the Supreme People’s Court of the People’s Republic of China Volume 3

China Applied Jurisprudence Institute (editor-in-chief)

Translated by Zheng Daxuan et al.

Finalized by Legal Translation amp; Publication Center， Law Press China

Law Press China

June 2022

398.00 (CNY)

From July 2007 to March 2009， Oubao Biotech Company and Liaoning Telaiwei Property Development Company entered into nine loan contracts， under which Liaoning Telaiwei Property Development Company was to borrow a total of CNY 86.5 million from Oubao Biotech Company， with the agreed interest rate being four times of the loan interest rate for the same year.

The agreed purpose of the loan was that the loan could only be used for the real estate development project of Telaiwei International Garden. It was also agreed that “the borrower will place the entire property of the company， including the land of Telaiwei International Garden with an area of 33，158.26 m2 (subject to the land certificate) (Liaoning Telaiwei Property Development Company undertakes that the land and the property are currently unencumbered) and the ground property as the mortgage; if the borrower cannot repay on time the principal of the loan， a default fee will be charged at 5% per day from the date of borrowing， in addition to the return of the principal and interest as agreed. The lender reserves the right to pursue other assets of the borrower if the assets listed above are insufficient to repay the principal”. After signing the loan contract， Oubao Biotech Company made a total of ten remittances， totaling CNY 86.5 million， while Liaoning Telaiwei Property Development Company transferred six remittances thereof on the same day or a few days after receiving the remittances， totaling CNY 70.5 million， five of which were transferred to Hanhuang Company， totaling CNY 64 million. In addition， in the signing and performance of the abovementioned contract， the two parties did not go through the mortgage registration process. In addition， during the period of the first instance lawsuit for repayment from Liaoning Telaiwei Property Development Company， Oubao Biotech Company still transferred three remittances to Liaoning Telaiwei Property Development Company， totaling CNY 3.6 million.

Oubao Biotech Company was incorporated and established on September 13， 2005， with two shareholders， Li X and Qu X (A)， and with Li X being the legal representative. On May 28， 2008， after an equity transfer and an increase in registered capital， the number of shareholders on the list increased to eight， of which Qu X (B) invested CNY 8.85 million， holding 73.75% of the shares; Jiang X invested CNY 240，000， holding 2% of the shares; Zong X invested CNY 240，000， holding 2% of the shares. At the same time， the legal representative was changed to Zong X.

Liaoning Telaiwei Property Development Company was incorporated on January 12， 2006， the legal representative being Wang X (A). Hanhuang Company invested CNY 18 million， accounting for 90% of the registered capital; Wang X (A) contributed CNY 2 million， accounting for 10% of the registered capital. On August 16， 2010， the legal representative was changed to Jiang X. As recorded in the industrial and commercial administration files， when the company changed its registration， the signature of the licensee was made by Liu X， the appointed sole agent of Oubao Biotech Company during the first instance litigation， who is an employee of Oubao Biotech Company. The predecessor of Hanhuang Company is Shanghai Telaiwei Cosmetics Co.， Ltd.， which was established on March 26， 2002， with Wang X (A) contributing CNY 2 million， accounting for 67%; Qu X (B) contributing CNY 1 million， accounting for 33%， and Wang X (A) being the legal representative. On October 28 of the same year， the company information was changed， with Wang X (A)’s capital contribution of CNY 2 million， accounting for 67%， and Wang A’s capital contribution of CNY one million， accounting for 33%. On October 10， 2004， the company was renamed Hanhuang Company， and the company registration procedures were entrusted with Zong X. On July 5， 2011， the company was written off.

During the first trial of the case， Oubao Biotech Company filed an application for property preservation with the Higher People’s Court of Liaoning Province on June 22， 2010， requesting the seizure， attachment， and freezing of the property of Liaoning Telaiwei Property Development Company worth CNY 58.5 million. Wang A placed two plots of his properties (F32-1 and F32-2 of No. X， located on X X Road， Heping District， Shenyang City， Liaoning Province， with a floor area of 236.4 m2). Wang X (B) also placed his own property (located in No. X， XX District， Shenyang City， with a total floor area of 671.76 m2) and Shaqi Cosmetics Co. Ltd. [hereinafter referred to as Shaqi Cosmetics Company， the shareholders being Wang X (C) and Xiu X] has also placed two factory buildings (located in XX village of Shenyang City， with a floor area of 212 and 946 m2 respectively) and a tract of land (totaling 4000 m2) as suretyship and guarantee for Oubao Biotech Company.

During the first instance of retrying the case， Xie X provided to the Higher People’s Court of Liaoning Province a copy of the civil judgment made by the First Intermediate People’s Court of Shanghai Municipality (No. 426 [2008] Final， Civ. Division， the First Intermediate People’s Court of Shanghai Municipality)， concerning a dispute over a franchise contract in which Zhang X and Jia X launched legal action against Hanhuang Company and Oubao Biotech Company. The judgment by the First Intermediate People’s Court of Shanghai Municipality ascertained that the legal representative of Hanhuang Company is Wang X (A)， and the appointed agent for Oubao Biotech Company and Hanhuang Company is Zong X， an employee of Hanhuang Company.

During the second instance of retrying the case， it is additionally ascertained that the addresses stated in the application forms for opening bank settlement accounts on behalf of Oubao Biotech Company and Liaoning Telaiwei Property Development Company are both at No. X， XX Road， Donggang City， and Cui X is entrusted with handling the formalities. In May 2010， Wei X was authorized by Liaoning Telaiwei Property Development Company to open bank accounts， and in September 2011， he opened bank accounts on behalf of Oubao Biotech Company. The contact person for both accounts is Wei X， and the contact telephone number is 150XXXXXXXXX， which is the same as the contact telephone number of Liaoning Telaiwei Property Development Company in the civil complaint submitted to the Higher People’s Court of Liaoning Province by Oubao Biotech Company on June 10， 2010.

Wang X (A) and Qu X (B) are husband and wife. The shareholders of Shaqi Cosmetics Company， Wang X (C) and Xiu X， are the father and the mother of Wang X (A)， respectively. Wang X (C)， the shareholder of Oubao Biotech Company， is the daughter of Wang X (A)’s brother， Wang X (B)， and Wang X (A) are related to Wang A as brother and sister.

In the first instance， the Higher People’s Court of Liaoning Province held that the loan contract signed between Oubao Biotech Company and Liaoning Telaiwei Property Development Company manifested the genuine mutual intention of both parties and should be confirmed. After Oubao Biotech Company made appropriate payments to Liaoning Telaiwei Property Development Company according to the contract， Liaoning Telaiwei Property Development Company had not repaid the money within the purported period， as agreed upon in the contract. Therefore， the request from Oubao Biotech Company to get the arrears repaid immediately by Liaoning Telaiwei Property Development Company is reasonable and should be supported by the people’s court. However， as the case involves a corporate loan contract between enterprises (businesses)， the request by Oubao Biotech Company of Liaoning Telaiwei Property Development Company to bear four times the interest rate of the loan and liquidated damages is not supported by the court. The court modified the interest rate payable by Liaoning Telaiwei Development Company into the loan interest rate stipulated by the People’s Bank of China during the same period. Accordingly， on March 21， 2011， the court issued a civil judgment (No. 15 [2010] Trial， Civ. Division， the Higher People’s Court of Liaoning Province)， ordering that Liaoning Telaiwei Property Development Company repay the loan principal of CNY 86.5 million together with interest calculated at a rate published by the People’s Bank of China for the same period from the actual date of the loan to the date when the payment date is determined in the judgment.

After the judgment (No. 15 [2010] Trial， Civ. Division， the Higher People’s Court of Liaoning Province) took legal effect， Xie X， an outsider， complained to the court for the first instance that Liaoning Telaiwei Property Development Company and Oubao Biotech Company had maliciously colluded to infringe upon the legitimate rights and interests of Xie X， an investor of Telaiwei International Garden real estate project， by means of fabricating fictitious equity and debts， and requested the court of the first instance to retry the case. The court of the first instance made a civil ruling on January 4， 2012 (No. 8 [2012] Ruling， Filing， and Registration Division， the Higher People’s Court of Liaoning Province) to retry the case.

In the course of the retrial， the Higher People’s Court of Liaoning Province holds， according to Xie X’s claim， the disputant point in the case is whether there is a genuine loan relationship between Oubao Biotech Company and Liaoning Telaiwei Property Development Company. It was found by the court that from July 2007 to March 2009， Liaoning Telaiwei Property Development Company and Oubao Biotech Company had consecutively signed nine loan contracts， in which Liaoning Telaiwei Property Development Company borrowed a total of CNY 86.5 million from Oubao Biotech Company， and both parties agreed that the loan could only be used for financing Telaiwei International Garden real estate project. After signing the loan contracts， Oubao Biotech Company made a total of 10 remittances， remitting the contracted CNY 86.5 million to Liaoning Telaiwei Property Development Company， while Liaoning Telaiwei Property Development Company immediately transferred 6 of the remittances on the same day or a few days after receiving the remittances， transferring a total of CNY 70.5 million. Five of them were transferred to Hanhuang Company， totaling CNY 64 million. The above-verified facts are sufficient to prove that Liaoning Telaiwei Property Development Company has not used the loan for Telaiwei International Garden real estate project， and the immediate transference of the loan for other purposes runs contrary to the purported use of the loan and does not conform to common sense. Even in the first instance trial process， when Oubao Biotech Company requested Liaoning Telaiwei Property Development Company to repay the loan， Oubao Biotech Company persisted in transferring CNY 3.6 million to Liaoning Telaiwei Property Development Company. As the plaintiff sued for repayment of money， the said company still transferred money to Liaoning Telaiwei Property Development Company， which runs counter to common sense. While Oubao Biotech Company filed an application for property preservation， requesting the seizure， attachment， and freezing of the property of Liaoning Telaiwei Property Development Company worth CNY58.5 million， Wang A， a shareholder of Liaoning Telaiwei Property Development Company， provided a guarantee for Oubao Biotech Company with his property， which is also not in line with common sense.

In addition， Jiang X， the shareholder of Oubao Biotech Company， is the legal representative of Liaoning Telaiwei Property Development Company， and Zong X， the legal representative of Oubao Biotech Company， is a staff member of Hanhuang Company， the major shareholder of Liaoning Telaiwei Property Development Company. The addresses and the person in charge of handling the formalities recorded in the application forms for opening a bank settlement account for Oubao Biotech Company and Liaoning Telaiwei Property Development Company are the same. During the first instance proceedings， Liu X， an employee of Liaoning Telaiwei Property Development Company， acted as the appointed agent for Oubao Biotech Company， whose identity is an employee of Oubao Biotech Company. It can be found by the court that the existence of mixed personnel and identical office location between Oubao Biotech Company and Liaoning Telaiwei Property Development Company is justified. Through checking the files or the records deposited in the Industrial and Commercial Administration Office， it can be seen that the shareholders of Liaoning Telaiwei Property Development Company are Hanhuang Company and Wang X (A)， with Hanhuang Company accounting for 90% of the shares， while the shareholders of Hanhuang Company are Wang X (A) and Wang A， with Wang X (A) accounting for 67% of the shares， according to which it can be adjudged that Wang X (A) possesses absolute control over Liaoning Telaiwei Property Development Company. Qu X， the wife of Wang X (A)， holds 73.75% of the shares of Oubao Biotech Company and exercises absolute control over Oubao Biotech Company. The abovementioned facts have been found to justify that Wang X (A)， and his wife have full control over Liaoning Telaiwei Property Development Company， Oubao Biotech Company， and Hanhuang Company.

All in all， in consideration of the loan process between Oubao Biotech Company and Liaoning Telaiwei Property Development Company， together with other circumstances occurring in the lawsuit and the fact that Wang X (A) and his wife exercise full control over Liaoning Telaiwei Property Development Company， Oubao Biotech Company， and Hanhuang Company， as well as the fact that Liaoning Telaiwei Property Development Company transferred most of the monetary remittances， it is not sufficient for the people’s court to make a determination of the genuine loan relationship between the two parties. The claims raised by Oubao Biotech Company to collect the repayment of the arrears together with interest by Liaoning Telaiwei Property Development Company are not supported by the court due to insufficient evidence. After deliberation and decision by the Judicial Committee of the Higher People’s Court of Liaoning Province， the Higher People’s Court of Liaoning Province holds，

in accordance with Article 2 of Rules of the Supreme People’s Court on Evidence in Civil Actions and Article 207 of the Civil Procedure Law of the People’s Republic of China， that: (1) the civil judgment (No. 15 [2010] Trial， Civ. Division， the Higher People’s Court of Liaoning Province) be set aside; (2) the claims raised by Oubao Biotech Company be rejected.

After the judgment was pronounced， Oubao Biotech Company was dissatisfied and appealed to the Supreme People’s Court.