The Supreme People's Court held that engaging in recurring lending business activities to collect high interest rates and engaging in recurrent lending business without the approval of the financial regulatory authorities is an illegal financial business activity.
▍ Summary of the trial:
In this case, the creditor of the Qishang Bank Entrusted Loan Loan Contract was Hongling Company, and the debtor was Jufu Company, and the essence of the contract was that Hongling Company borrowed money from Jufu Company, i.e., a private loan contract.
The company involved in the case engaged in regular lending business activities to collect high interest, engaged in foreign lending business without obtaining the approval of the financial regulatory department, disrupted the financial market and financial order, violated the Banking Supervision and Administration Law and the Commercial Bank Law and other laws, and earned high interest by providing funds to unspecified targets in society, and the lending behavior was repetitive and regular, and the purpose of the loan was also operational, and it engaged in regular loan business without approval, which is an illegal financial business activity. According to Article 19 of the Measures for the Supervision and Administration of the Banking Industry, Article 52 of the Contract Law of the People's Republic of China, and Article 10 of the Interpretation (I) of the Supreme People's Court on Several Issues Concerning the Application of the Contract Law of the People's Republic of China, the Entrustment Loan Contract involved in the case should be invalid.
Supreme People's Court of the People's Republic
Civil rulings
(2021) Supreme Law Min Shen No. 2140
Applicant for retrial (plaintiff of first instance, defendant of counterclaim, appellant of second instance): Hongling Venture Capital E-commerce Co., Ltd
Respondent (defendant of first instance, plaintiff of counterclaim, appellant of second instance): Shaanxi Jufu Industrial Co., Ltd
Respondent (defendant of first instance, third party of counterclaim, appellee of second instance): Xu Ning, male, born on October 00, 1969
Respondent (defendant of the first instance, defendant of the third instance, and appellee of the second instance): Wu Zhonghua, female, born on September 99, 1968
Third party of the original trial: Qishang Bank Co., Ltd. Xi'an Branch
Hongling Company applied for a retrial, alleging:
First, the original judgment directly identified the entrustment loan relationship between the three parties as a private lending relationship between Hongling Company and Jufu Company, which was a serious error in the determination of facts and the application of law.
Hongling Company, Qishang Bank Xi'an Branch and Jufu Company signed the "Qishang Bank Entrusted Loan Agreement" in accordance with the law to establish the entrusted loan legal relationship, which is different from the loan legal relationship between the two parties, and it has three parties and has two legal relationships, namely the entrustment relationship between the principal and the bank, and the loan relationship between the bank and the borrower. However, the court of first instance and the court of second instance both broke through the provisions of the law and directly regarded the legal relationship of entrusted loan between the three parties as a private loan legal relationship between Hongling Company and Jufu Company, which had no basis. Disputes arising from the issuance of loans and other related financial businesses do not fall within the scope of private lending.
Hongling Company entrusted Qishang Bank Xi'an Branch to issue loans in accordance with the law, which is one of the bank's standard loan businesses. The General Principles of Loans and the Measures for the Administration of Entrusted Loans of Commercial Banks have made clear provisions on banks' engagement in entrusted loan business, and entrusted loan business is one of the legitimate bank loan businesses, and banks' engagement in entrusted loan business is subject to legal protection and supervision. Therefore, the entrusted loan business should belong to the "financial business related to the issuance of loans" as referred to in Article 1 of the Interpretation.
Second, the characterization of this case should be a loan contract dispute, not a private lending dispute, and the application of law in this case should be the laws and administrative regulations related to the loan contract.
Third, the Entrustment Loan Contract, Supplementary Agreement and Mortgage Contract of Qishang Bank signed by Hongling Company, Jufu Company and Xi'an Branch of Qishang Bank in this case are legal and valid, and should be affirmed.
First of all, Hongling Company did not directly issue loans to the company, but entrusted the Xi'an branch of Qishang Bank to issue loans to the company. According to the provisions of the General Principles of Loans and the Measures for the Administration of Entrusted Loans of Commercial Banks, Hongling Company, as a legally established and existing enterprise, meets the requirements of the subject of the entrusted loan business, and there is nothing improper in participating in the entrusted loan business.
Secondly, Hongling Company essentially accepted the entrustment of the majority of lenders, and entrusted the Xi'an Branch of Qishang Bank to issue loans to the super-rich company according to the wishes of the majority of lenders, rather than raising funds from unspecified objects in the society and lending to unspecified objects, let alone issuing loans as a business. The funds for Hongling's entrusted loan came from an online lending intermediary platform. An online lending intermediary platform is a legal enterprise supervised by the banking regulatory authority, and its business model is to broker and match lenders with borrowers and provide corresponding services according to the lender's entrustment. The courts of first and second instance held that the "Qishang Bank Entrustment Loan Loan Contract" entrusted by Hongling Company was invalid and had no factual or legal basis.
Thirdly, the court of first instance held that Hongling Company had no factual or legal basis for being a professional money lender. The premise of constituting a professional money lender is to engage in private lending. The relationship between Hongling Company, Jufu Company and Xi'an Branch of Qishang Bank is an entrusted loan business, which is protected by law, and is fundamentally different in nature from private lending business, and does not meet the prerequisites for being recognized as a professional money lender.
Fourth, as mentioned above, the Qishang Bank Entrustment Loan Contract and the Supplementary Agreement should be deemed valid, so the principal and interest should be calculated in accordance with the contract. In summary, the application for retrial was made in accordance with Article 200, Item 6 of the Civil Procedure Law of the People's Republic of China.
After review, this court held that the reasons for Hongling Company's application for retrial were not established for the following reasons:
(1) On the issue of the original judgment's determination of the legal relationship between Hongling Company, Qishang Bank Xi'an Branch, and Jufu Company, and whether the original judgment's characterization of this case was correct.
Hongling Company asserted that the characterization of this case should be a loan contract dispute, not a private lending dispute, and that the facts and application of law in this case should be tried and regulated in accordance with the relevant laws and regulations of the loan contract dispute, rather than handled by the relevant laws of private lending. This court held that although the Xi'an Branch of Qishang Bank was the lender, it actually had a loan relationship with the company in the capacity of trustee, and did not decide on the specific matters of the loan on its own, and the determination of the main rights and obligations such as the loan object, purpose, amount, term, and interest rate still reflected the will of Hongling Company.
Secondly, from the perspective of the actual assumption of rights and obligations, Hongling Company actually bears the risk of non-repayment and overdue repayment of the super-rich company while enjoying the interest income of the loan. Qishang Bank Xi'an Branch collects agency commission fees and does not bear credit risk, which is essentially a private loan between Hongling Company and Jufu Company, and the validity of the Entrusted Loan Contract of Qishang Bank and the method of calculating interest shall be subject to the relevant laws, regulations and judicial interpretations of private lending. In this case, the creditor of the Qishang Bank Entrusted Loan Loan Contract was Hongling Company, and the debtor was Jufu Company, and the essence of the contract was that Hongling Company borrowed money from Jufu Company, i.e., a private loan contract. According to the second paragraph of Article 7 of the General Principles of Loans, entrusted loans are actually the intermediary business of banks, with the consignor being the creditor and the borrower being the debtor. Qishang Bank Xi'an Branch was only the agent of Hongling Company in the entrusted loan relationship. The original trial court found that the legal relationship in this case was essentially a private loan between the client and the borrower, and it was not improper to characterize this case as a private lending dispute.
(2) The issue of whether the "Qishang Bank Entrusted Loan Loan Contract", "Supplementary Agreement" and "Mortgage Contract" are valid
Hongling Company asserted that Hongling Company did not directly issue loans to Jufu Company, but entrusted Qishang Bank Xi'an Branch to issue loans to Jufu Company, and that the bank's entrusted loan business was legal, and that according to the provisions of the General Principles of Loans and the Administrative Measures for Entrusted Loans of Commercial Banks, Hongling Company, as a legally established and existing enterprise, met the requirements of the main body of the entrusted loan business, and there was no impropriety in participating in the entrusted loan business.
This court held that Hongling Company had a large number of loan targets, and had lent a large amount of funds to unspecified targets by the end of the second-instance trial of this case. Hongling Company engaged in regular lending business activities and charged high interest rates, and engaged in foreign lending business without obtaining the approval of the financial regulatory department, disrupting the financial market and financial order, and violating the Banking Supervision and Administration Law and the Commercial Bank Law. Hongling Company earns high interest by providing funds to unspecified objects in the society, and the lending behavior is repetitive and regular, and the purpose of the loan is also operational, and it engages in regular loan business without approval, which is an illegal financial business activity. In accordance with Article 19 of the Measures for the Supervision and Administration of the Banking Industry, Article 52 of the Contract Law of the People's Republic of China, and Article 10 of the Interpretation (I) of the Supreme People's Court on Several Issues Concerning the Application of the Contract Law of the People's Republic of China, the original judgment found that the Entrustment Loan Contract involved in the case was invalid, the facts were clear, and the law was correctly applied.
(3) The issue of how to calculate the principal and interest of the loan in this case
In view of the private lending relationship between Hongling Company and Jufu Company, the court of first instance held that the capital occupation fee for the period from March 21, 2018 to August 20, 2019 should be based on RMB 1,202,884.22 and calculated at an annual interest rate of 6%. The capital occupation fee from August 2l, 2019 to the date of actual payment shall be calculated in accordance with the loan market prime interest rate standard published by the National Interbank Funding Center, in accordance with the law.
In summary, Hongling Company's application for retrial did not meet the requirements of Article 200, Item 6 of the Civil Procedure Law of the People's Republic of China. In accordance with the first paragraph of article 204 of the "Civil Procedure Law of the People's Republic of China" and the second paragraph of article 395 of the "Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China", it is ruled as follows:
The retrial application of Hongling Venture Capital E-commerce Co., Ltd. was rejected.
