Private lending can promote the development of small and medium-sized enterprises and effectively alleviate the problems of "difficult financing" and "expensive financing", but if the lender takes funds from financial institutions and then reloans, it violates the normative requirement that the source of funds for private lending should be its own funds, which is an act of evading supervision and disrupting the financial order. Therefore, the judicial interpretation stipulates that if a lender takes a loan from a financial institution and then re-lends it, the loan contract shall be deemed invalid. So, how to determine whether the lender is using its own funds to lend? How to deal with the loan contract of refinancing after taking out the loan? The following is a case study of the law and rationale.
01
Brief facts of the case
On the grounds of purchasing a house from Lu, Zhu issued a house purchase contract, receipts, housing agency contracts and other relevant materials to the bank to obtain a loan of 4 million yuan. After Zhu obtained a loan of 4 million yuan, he immediately lent 4 million yuan to Lu, and at the same time agreed on a high interest rate of 18% per annum. Later, Lu failed to return it within the time limit, and Zhu sued the court to demand that Lu repay the loan of 4 million yuan and interest. Lu asserted that Zhu's behavior was to arbitrage funds from financial institutions and re-lend them to others at usurious rates, and the private loan contract between the two was invalid.
During the trial, Lu and Zhu both admitted that the house involved in the loan was Lu's own house, which he had been living in, and had never had a plan to sell the house to Zhu, that there was no real house sale relationship between the two parties, that the signing of the house sale contract and the issuance of receipts were all made for arbitrage of bank loans, and that the housing intermediary contract and other materials provided to the bank were also forged and altered by both parties for the purpose of obtaining loans.
02
Tell the story by case
The focus of the dispute in this case is the determination of the validity of the private loan contract involved in the case and the allocation of responsibilities between the two parties.
The court held that Zhu took a loan of 4 million yuan from a financial institution in the name of a fictitious house purchase contract, and then relented it to others at a high interest, which was an act of taking a loan from a financial institution and then lending it to others, and according to Article 13 of the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases, the private loan contract should be found invalid. After the contract is invalid, the parties shall return it in accordance with the provisions of Article 157 of the Civil Code of the People's Republic of China. That is, Zhu should return the interest expenses paid by Lu under the contract involved in the case to Lu.
At the same time, the court held that in accordance with Article 11 of the Provisions of the Supreme People's Court on Several Issues Involving Suspected Economic Crimes in the Trial of Economic Dispute Cases, the parties to the case were suspected of forging certificates to defraud loans or transfer loans at usurious rates, so the case should be dismissed and transferred to the public security organs.
03
Reason with cases
Article 13 of the 2020 Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases specifically stipulates the specific circumstances under which private lending contracts are invalid. Compared with Article 14 of the 2015 Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases, the content of this provision has been significantly modified, that is, "arbitrage of credit funds from financial institutions and on-lending to the borrower at usurious interest, and the borrower knew or should have known about it in advance" to "arbitrage loans from financial institutions for on-lending", which obviously expands the scope of such invalid contracts. For the determination of the invalidity of such contracts, the following aspects often need to be considered:
1. The subject of arbitrage loans for on-lending may be legal persons, unincorporated organizations, or natural persons.
2. The lender shall bear the burden of proof that the funds are its own funds. If the lender claims that the money was not taken from the financial institution, it shall bear the burden of proof. If, during the trial of the case, the borrower has evidence to prove that the lender borrowed money from a financial institution at the time of signing the contract, it is generally deemed to be non-self-owned funds. In addition, it is necessary to examine whether the lender still has outstanding bank loans at the time of lending the funds, and if there are bank loans, further examine the economic strength of the lender, whether it can prove that the borrowed funds come from its economic income, and whether it can provide evidence to prove that the outstanding loans are used for consumer loans such as house purchases and car purchases.
3. Relending is not necessarily for profit. Under normal circumstances, taking loans from financial institutions and then relending them are for the purpose of making profits. In practice, it may happen that some individuals or enterprises do not make a profit by lending to financial institutions because the borrower does not meet the conditions for borrowing from a financial institution, and the lender does not make a profit from the loan due to some other interests. In such a case, even if there is no profit-making, the arbitrage of loans from financial institutions for on-lending is also an act of evading supervision and disrupting the financial order, and should be found invalid.
In addition, the act of arbitrage from financial institutions for on-lending violates the provisions of the relevant financial laws and regulations of the mainland, which not only increases the cost of financing, but also disrupts the financial order. In the process of obtaining loans from financial institutions, there may be acts of fraudulently obtaining bank loans, often accompanied by illegal acts such as forging official documents and seals, and in addition to determining the invalidity of the contract in civil cases, it may also constitute the crime of fraudulently obtaining loans, loan fraud, etc. If the lender takes the credit funds of a financial institution for the purpose of relending for profit, and the amount of illegal gains is relatively large, it may also be suspected of the crime of usurious on-lending, and will be investigated for criminal responsibility in accordance with law.
04
Links to legal provisions
Criminal Law of the People's Republic of China
Article 175: [Crime of Transferring Loans at Usurious Interest] Whoever, for the purpose of relending for profit, takes credit funds from financial institutions and lends them to others at usurious interest, and the amount of unlawful gains is relatively large, a sentence of up to three years imprisonment or short-term detention is to be given, and a fine of between 1 and 5 times the amount of unlawful gains is to be given; where the amount involved is huge, the sentence is between three and seven years imprisonment and a concurrent fine of between 1 and 5 times the amount of unlawful gains.
Where a unit commits the crime in the preceding paragraph, the unit is to be fined, and the directly responsible managers and other directly responsible personnel are to be sentenced to up to three years imprisonment or short-term detention.
Article 175-1 [Crime of Fraudulently Obtaining Loans, Acceptance of Bills, or Financial Documents] Whoever obtains loans, acceptances of bills, letters of credit, letters of guarantee, etc., from banks or other financial institutions by fraudulent means, causing major losses to banks or other financial institutions, shall be sentenced to fixed-term imprisonment of not more than three years or short-term detention and/or a fine; Whoever causes especially heavy losses to banks or other financial institutions or has other especially serious circumstances, is to be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and a concurrent fine.
Where a unit commits the crime in the preceding paragraph, the unit is to be fined, and the directly responsible managers and other directly responsible personnel are to be punished in accordance with the provisions of the preceding paragraph.
Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases
Article 13: In any of the following circumstances, the people's court shall find that the private lending contract is invalid:
(1) Arbitraging loans from financial institutions for on-lending;
(2) Relending funds obtained by means such as borrowing money from other for-profit legal persons, raising funds from employees of that unit, or illegally absorbing deposits from the public;
(3) Lenders who have not obtained lending qualifications in accordance with law provide loans to unspecified targets of society for the purpose of making profits;
(4) The lender knew or should have known in advance that the borrower was borrowing money for illegal or criminal activities, but still provided the loan;
(5) Violating mandatory provisions of laws or administrative regulations;
(6) Violating public order and good customs.
The picture comes from the Internet
Contributed by: Beijing No. 1 Intermediate People's Court
Editors: Yao Qin, He Wanshan, Guo Jin
Review: Wang Fang