China CITIC Bank Co., Ltd. Dongguan Branch v. Chen Zhihua, et al. Dispute over Financial Loan Contract

(Deliberated and approved by the Adjudication Committee of the Supreme People's Court, issued on November 9, 2021)

Keywords   Civil/Financial Loan Contract/Failure to Register Mortgage/Liability for Compensation/Fault

Main Points of the Judgment

If a mortgage is provided with real estate as collateral, the failure of the mortgagor to register the mortgage as agreed in the mortgage contract does not affect the validity of the mortgage contract. If the creditor claims that the mortgagor shall bear liability for breach of contract within the value of the mortgaged property based on the mortgage contract, the people's court shall support it. If the mortgagee is at fault for failing to register the mortgage, the mortgagor's liability for compensation shall be reduced accordingly.

Relevant Legal Provisions

1. Article 15 of the Property Law of the People's Republic of China (Note: The current effective law is Article 215 of the Civil Code of the People's Republic of China);

2. Articles 107, 113(1), and 119(1) of the Contract Law of the People's Republic of China (Note: The current effective law is Articles 577, 584, and 591(1) of the Civil Code of the People's Republic of China).

Basic Case Information

On December 31, 2013, China CITIC Bank Co., Ltd. Dongguan Branch (hereinafter referred to as CITIC Bank Dongguan Branch) and Dongguan Huafengsheng Plastic Co., Ltd. (hereinafter referred to as Huafengsheng Company), Dongguan Yiyang Communication Group Co., Ltd. (hereinafter referred to as Yiyang Company), and Dongguan Gaolixin Plastic Co., Ltd. (hereinafter referred to as Gaolixin Company) signed the "Comprehensive Credit Granting Contract", stipulating that CITIC Bank Dongguan Branch provides Yiyang Company, Gaolixin Company, and Huafengsheng Company with a comprehensive credit line of 400 million yuan, with the credit line usage period from December 31, 2013 to December 31, 2014. To guarantee this contract, CITIC Bank Dongguan Branch signed the "Maximum Guarantee Contract" with Chen Zhibo, Chen Zhihua, Chen Zhiwen, Yiyang Company, Gaolixin Company, Huafengsheng Company, Dongguan Yilian Trading Co., Ltd. (hereinafter referred to as Yilian Company), Dongguan Lihong Trading Co., Ltd. (hereinafter referred to as Lihong Company), and Dongguan Tonghui Trading Co., Ltd. (hereinafter referred to as Tonghui Company) on the same day, stipulating that: Gaolixin Company, Huafengsheng Company, Yiyang Company, Lihong Company, Tonghui Company, Yilian Company, Chen Zhibo, Chen Zhihua, and Chen Zhiwen provide joint and several guarantee liability to CITIC Bank Dongguan Branch within their respective guarantee limits for the principal and interest of the loan and expenses for realizing creditor's rights during the above period. At the same time, CITIC Bank Dongguan Branch also signed the "Maximum Mortgage Contract" with Chen Zhihua, Chen Zhibo, Chen Renxing, and Liang Caixia respectively. Chen Zhihua, Chen Zhibo, Chen Renxing, and Liang Caixia agreed to provide a maximum mortgage for the creditor's rights generated by CITIC Bank Dongguan Branch to Yiyang Company, etc. from December 31, 2013 to December 31, 2014, with the guaranteed principal debt limit of 400 million yuan, and the guarantee scope including loan principal and interest and related expenses. The mortgaged properties include: 1. Chen Zhihua's property located in Dongbo Village, Zhongtang Town, Dongguan City and a comprehensive building next to Zhongtang Bus Station in Dongbo Village, Zhongtang Town, Dongguan City (without real estate registration certificate); 2. Chen Zhibo's land use right with an area of 4667.7 square meters and buildings on the land located in Dongyi Lane, Chenwu Dongxing Road, Dongbo Village, Zhongtang Town, Dongguan City, land use right with an area of 30801 square meters located in Wujiayong, Zhongtang Town, Dongguan City, and land use right with an area of 12641.9 square meters located in Dongbo Village, Zhongtang Town, Dongguan City (all without real estate registration certificate); 3. Chen Renxing's house located in Zhongtang Town, Dongguan City; 4. Liang Caixia's property located in Chenwu New Village, Dongbo Village, Zhongtang Town, Dongguan City. None of the above real estate has been registered for mortgage.

In addition, CITIC Bank Dongguan Branch signed the "Maximum Right Pledge Contract" and "Accounts Receivable Pledge Registration Agreement" with Yiyang Company on the same day.

Based on the "Comprehensive Credit Granting Contract", CITIC Bank Dongguan Branch and Huafengsheng Company signed the "RMB Working Capital Loan Contract" on March 18 and 19, 2014, stipulating that: CITIC Bank Dongguan Branch provides Huafengsheng Company with working capital loans of 25 million yuan, 25 million yuan, and 20 million yuan respectively, with loan terms from March 18, 2014 to March 18, 2015, March 19, 2014 to March 15, 2015, and March 19, 2014 to March 12, 2015 respectively.

On June 29, 2011, Dongguan Real Estate Administration Bureau issued the "Letter on Clarifying Relevant Matters Concerning Real Estate Mortgage Registration" (Dongfang Han [2011] No. 119) to various financial institutions in Dongguan, which reads: "To various financial institutions in Dongguan: Due to historical reasons, there are some houses in our city where the land user is inconsistent with the house owner. In 2008, the Ministry of Housing and Urban-Rural Development issued the 'Measures for House Registration' (Order No. 168 of the Ministry of Construction), which clearly stipulates in Article 8 that 'House registration shall follow the principle that the subject of the right to own a house is consistent with the subject of the right to use the land within the scope of the house's occupation'. Therefore, when applying for ownership transfer registration of the above-mentioned houses, the subject of the right to own the house must be consistent with the subject of the right to use the land before it can be processed. In order to avoid the mortgagee's legitimate interests from being unable to be protected due to the inability to process the ownership transfer registration of the house at the real estate management department when realizing the mortgage right of such houses, according to the 'Property Law', 'Measures for House Registration' and other relevant regulations, our bureau further clarifies the relevant matters concerning real estate mortgage registration, and hereby informs you as follows: 1. For houses where the land user is inconsistent with the house owner, mortgage registration can only be processed after the subject of the right to own the house is consistent with the subject of the right to use the land. 2. At present, some financial institutions in our city implement the practice of issuing loans first and then applying to the real estate management department for mortgage registration, which has caused some unnecessary contradictions and disputes. In order to reduce the credit risk and credit contradictions and disputes of financial institutions, our bureau suggests that financial institutions should carefully examine whether the subject of the right to own the house and the subject of the right to use the land of the mortgaged real estate are consistent when handling real estate mortgage loan applications on a daily basis, and then decide whether to issue the loan. If there are any questions about the ownership of the real estate, you can consult the real estate management department. 3. In order to better protect the interests of the parties, our bureau will require applicants to submit the land use right certificate at the same time for all businesses applying for mortgage registration with self-built houses from August 1, 2011."

CITIC Bank Dongguan Branch issued a loan of 70 million yuan to Huafengsheng Company as agreed. However, Huafengsheng Company failed to pay interest on time since August 21, 2014. CITIC Bank Dongguan Branch filed this lawsuit. Request: Huafengsheng Company to repay all the loan principal of 70 million yuan and pay loan interest, etc.; Chen Zhibo, Chen Zhihua, Chen Renxing, and Liang Caixia to bear joint and several liability for compensation within the value range of the mortgaged property.

Judgment Result

The Intermediate People's Court of Dongguan City, Guangdong Province, issued a civil judgment on November 19, 2015, with the reference number (2015) Dong Zhong Fa Min Si Chu Zi No. 15: 1. Dongguan Huafengsheng Plastic Co., Ltd. shall repay the principal of the loan of 70 million yuan, interest, compound interest, and pay overdue interest to the Dongguan Branch of China CITIC Bank Co., Ltd.; 2. Dongguan Huafengsheng Plastic Co., Ltd. shall compensate the Dongguan Branch of China CITIC Bank Co., Ltd. for the attorney fees of 130,000 yuan; 3. Dongguan Yiyang Xintong Group Co., Ltd., Dongguan Gaolixin Plastic Co., Ltd., Dongguan Lihong Trading Co., Ltd., Dongguan Tonghui Trading Co., Ltd., Dongguan Yilian Trading Co., Ltd., Chen Zhibo, Chen Zhihua, and Chen Zhiwen shall bear joint and several liability for the debts of Dongguan Huafengsheng Plastic Co., Ltd. to the Dongguan Branch of China CITIC Bank Co., Ltd. within the limits stipulated in their respective "Maximum Guarantee Contracts". After the guarantors have assumed the guarantee liability, they have the right to recover from Dongguan Huafengsheng Plastic Co., Ltd.; 4. Chen Zhihua shall bear joint and several compensation liability within one-half of the uncompensated portion of the debts owed by Dongguan Huafengsheng Plastic Co., Ltd. to the Dongguan Branch of China CITIC Bank Co., Ltd., as determined in items 1 and 2, within the value range of a comprehensive building located next to the Zhongtang Bus Station in Dongbo Village, Zhongtang Town, Dongguan City, Guangdong Province, and Chen Zhibo shall bear joint and several compensation liability within the value range of the land use right with an area of 4667.7 square meters and the buildings above it (three residential buildings with an area of 3000 square meters) located at Dongyi Lane, Chenwu Dongxing Road, Dongbo Village, Zhongtang Town, Dongguan City, Guangdong Province, the land use right with an area of 30801 square meters located in Wujiayong, Zhongtang Town, Dongguan City, and the land use right with an area of 12641.9 square meters located in Dongbo Village, Zhongtang Town, Dongguan City; 5. The other claims of the Dongguan Branch of China CITIC Bank Co., Ltd. are rejected. The Dongguan Branch of China CITIC Bank Co., Ltd. filed an appeal. The Guangdong Provincial High People's Court issued a civil judgment on November 14, 2017, with the reference number (2016) Yue Min Zhong No. 1107: The appeal is rejected, and the original judgment is upheld. The Dongguan Branch of China CITIC Bank Co., Ltd. refused to accept the decision and applied to the Supreme People's Court for retrial. The Supreme People's Court issued a civil ruling on September 28, 2018, with the reference number (2018) Zui Gao Fa Min Shen 3425, ruling to retry the case. On December 9, 2019, the Supreme People's Court issued a civil judgment with the reference number (2019) Zui Gao Fa Min Zai 155: 1. The civil judgment of the Guangdong Provincial High People's Court (2016) Yue Min Zhong No. 1107 is revoked; 2. Items 1, 2, 3, and 4 of the civil judgment of the Intermediate People's Court of Dongguan City, Guangdong Province (2015) Dong Zhong Fa Min Si Chu Zi No. 15 are upheld; 3. Item 5 of the civil judgment of the Intermediate People's Court of Dongguan City, Guangdong Province (2015) Dong Zhong Fa Min Si Chu Zi No. 15 is revoked; 4. Chen Zhihua shall bear joint and several compensation liability to the Dongguan Branch of China CITIC Bank Co., Ltd. within one-half of the uncompensated portion of the debts owed by Dongguan Huafengsheng Plastic Co., Ltd. as determined in items 1 and 2 of the civil judgment of the Intermediate People's Court of Dongguan City, Guangdong Province (2015) Dong Zhong Fa Min Si Chu Zi No. 15, within the value range of the houses located in Dongbo Village, Zhongtang Town, Dongguan City; Chen Renxing shall bear joint and several compensation liability within one-half of the uncompensated portion of the debts owed by Dongguan Huafengsheng Plastic Co., Ltd. as determined in items 1 and 2 of the civil judgment of the Intermediate People's Court of Dongguan City, Guangdong Province (2015) Dong Zhong Fa Min Si Chu Zi No. 15, within the value range of the houses located in Zhongtang Town, Dongguan City; Liang Caixia shall bear joint and several compensation liability within one-half of the uncompensated portion of the debts owed by Dongguan Huafengsheng Plastic Co., Ltd. as determined in items 1 and 2 of the civil judgment of the Intermediate People's Court of Dongguan City, Guangdong Province (2015) Dong Zhong Fa Min Si Chu Zi No. 15, within the value range of the houses located in Chenwu Xincun, Dongbo Village, Zhongtang Town, Dongguan City; 5. The other claims of the Dongguan Branch of China CITIC Bank Co., Ltd. are rejected.

Reason for Judgment

The Supreme People's Court holds that Article 15 of the "Property Law of the People's Republic of China" stipulates: "Contracts concluded between parties concerning the establishment, modification, transfer, and extinguishment of real property rights shall become effective upon their establishment, unless otherwise provided by law or agreed upon in the contract; failure to register the property rights shall not affect the validity of the contract." In this case, the Dongguan Branch of China CITIC Bank signed the "Maximum Mortgage Contract" with Chen Zhihua and two others, stipulating that Chen Zhihua would provide guarantee for the debt in question with his house located in Dongbo Village, Zhongtang Town, Dongguan City, Chen Renxing with his house located in Zhongtang Town, Dongguan City, and Liang Caixia with her house located in Chenwu Xincun, Dongbo Village, Zhongtang Town, Dongguan City. The above contract content is the true expression of the intentions of both parties, and the content does not violate the mandatory provisions of laws and administrative regulations, and should be legally valid. Although the aforementioned mortgages have not been registered, according to Article 15 of the "Property Law of the People's Republic of China", this fact does not affect the validity of the mortgage contract.

A legally established contract is legally binding on the parties. The parties shall perform their respective obligations in accordance with the contract. If a party fails to perform its contractual obligations or its performance of the contractual obligations does not conform to the agreement, it shall bear the corresponding liability in accordance with the contract or legal provisions. Article 6, "Declarations and Guarantees of Party A," of the "Maximum Mortgage Contract" stipulates: "6.2 Party A has complete, effective, and legal ownership or disposal rights over the mortgaged property under this contract. The mortgaged property that needs to obtain ownership certificates in accordance with the law has been issued all ownership certificates in accordance with the law, and there are no disputes or any ownership defects in the mortgaged property...6.4 The establishment of this mortgage will not be subject to any restrictions or cause any illegal circumstances." Article 12, "Liability for Breach of Contract," stipulates: "12.1 After this contract becomes effective, both parties shall perform the obligations stipulated in this contract. If either party fails to perform or does not fully perform the obligations stipulated in this contract, it shall bear the corresponding liability for breach of contract and compensate the other party for the losses caused thereby. 12.2 If the declarations and guarantees made by Party A in Article 6 of this contract are untrue, inaccurate, incomplete, or intentionally misleading, causing losses to Party B, it shall be compensated." According to the above agreement, Chen Zhihua and the other two should ensure that the property in question can be mortgaged and registered in accordance with the law, otherwise they should bear the corresponding liability for breach of contract. In this case, Chen Zhihua and the other two have not yet obtained the land use right certificate for the land occupied by the property in question. Because the property rights are inconsistent, the property in question has not been mortgaged and registered, and the mortgage right has not been legally established. Chen Zhihua and the other two constitute a breach of contract and should compensate the Dongguan Branch of China CITIC Bank for the losses caused thereby in accordance with the aforementioned agreement.

Article 113, paragraph 1 of the "Contract Law of the People's Republic of China" stipulates: "If one party fails to perform its contractual obligations or its performance of contractual obligations does not conform to the agreement, causing losses to the other party, the amount of compensation for losses shall be equivalent to the losses caused by the breach of contract, including the benefits that can be obtained after the performance of the contract, but shall not exceed the losses that the breaching party foresaw or should have foreseen when concluding the contract that may be caused by the breach of contract." Article 6.6 of the "Maximum Mortgage Contract" stipulates: "Party A promises: When the debtor of the main contract fails to perform the due debt or the agreed circumstances for realizing the mortgage right occur, regardless of whether Party B has other guarantees for the creditor's rights under the main contract (including but not limited to the debtor of the main contract providing guarantees such as security on property, guarantee, mortgage, pledge, letter of guarantee, standby letter of credit, etc.), Party B has the right to directly request Party A to bear the guarantee responsibility within its guarantee scope without exercising other rights (including but not limited to disposing of the security on property provided by the debtor of the main contract first)." Article 8.1 stipulates: "If the debtor fails to perform all or part of the debt as agreed in the main contract on the date of expiration of the debt performance period determined in Article 2.2 of this contract, Party B has the right to dispose of the mortgaged property in accordance with the provisions of this contract." Under the normal performance of the "Maximum Mortgage Contract", when the main debtor fails to perform the due debt, China CITIC Bank Dongguan Branch may directly request priority in receiving compensation for the mortgaged property. In this case, the mortgage right was not established because the registration was not completed. China CITIC Bank Dongguan Branch cannot realize the mortgage right, and the loss objectively exists. The scope of its loss is equivalent to the amount of Huafengsheng Company's outstanding debt within the value range of the mortgaged property, and it can directly request Chen Zhihua and other three persons to compensate in accordance with the agreement. At the same time, according to the facts found in this case, China CITIC Bank Dongguan Branch also has faults in the failure to perform the "Maximum Mortgage Contract". Dongguan Real Estate Administration Bureau clearly informed all financial institutions in its jurisdiction in 2011 that houses with inconsistent real estate rights cannot be registered for mortgage. Based on this, it can be determined that China CITIC Bank Dongguan Branch should have known or should have been able to foresee that the houses involved in the case could not be registered for mortgage when signing the "Maximum Mortgage Contract" in 2013. As a professional financial institution whose main business is credit business, China CITIC Bank Dongguan Branch should have higher audit capabilities than ordinary creditors. Compared with Chen Zhihua and other three persons who had previously registered the mortgage on the mortgaged property, China CITIC Bank Dongguan Branch has higher judgment ability and has a higher review obligation. China CITIC Bank Dongguan Branch failed to fulfill its reasonable review and due diligence obligations, and also has faults in the failure to establish the mortgage right. At the same time, according to Article 119 of the "Contract Law of the People's Republic of China", "After one party breaches the contract, the other party shall take appropriate measures to prevent the expansion of losses; if the losses are expanded due to the failure to take appropriate measures, compensation shall not be claimed for the expanded losses." China CITIC Bank Dongguan Branch did not take measures such as reducing the credit line and requiring supplementary guarantees to prevent the expansion of losses after learning that the houses involved in the case could not be registered for mortgage, and the compensation liability of Chen Zhihua and other three persons can be appropriately reduced. Taking into account the degree of fault of both parties and the specific circumstances of this case, it is appropriate to determine that Chen Zhihua and other three persons shall bear joint and several compensation liability to China CITIC Bank Dongguan Branch within the range of one-half of the outstanding debt of Huafengsheng Company, limited to the value of the mortgaged property.

(Adjudicators of effective judgments: Gao Yanzhu, Zhang Yingxin, Liu Shaoyang)

Xu Xin v. China Merchants Bank Co., Ltd. Shanghai Yanxi Branch Bank Card Dispute Case

(Deliberated and approved by the Adjudication Committee of the Supreme People's Court, issued on November 9, 2021)

Keywords  Civil/Bank Card Dispute/Online Theft/Liability Determination

Main Points of the Judgment

If the cardholder provides evidence to prove that another person used the cardholder's name to conduct online transactions and requests the issuing bank to bear the loss of funds reduced from the stolen account, and the issuing bank fails to provide evidence to prove that the cardholder violated the obligation to properly keep the information, and only claims that it is not liable for compensation on the grounds that the cardholder's identity verification information and transaction verification information are consistent, the people's court will not support it.

Relevant Legal Provisions

Article 107 of the "Contract Law of the People's Republic of China" (Note: The currently effective law is Article 577 of the "Civil Code of the People's Republic of China")

Basic Case Information

Xu Xin is a depositor of China Merchants Bank Co., Ltd. Shanghai Yanxi Branch (hereinafter referred to as CMB Yanxi Branch) and holds a debit card with card number ××××.

On March 2, 2016, three transfers occurred on Xu Xin's above-mentioned debit card, with amounts of 50,000 yuan, 50,000 yuan and 46,200 yuan respectively, totaling 146,200 yuan. The account names transferred to were all Shi, card number: ××××, bank transferred to: Agricultural Bank of China.

On May 30, 2016, Xu Xin's father, Xu, reported to the Economic Investigation Detachment of the Qingpu Branch of the Shanghai Public Security Bureau and obtained a "Case Acceptance Receipt." On the same day, the Economic Investigation Detachment of the Qingpu Branch of the Shanghai Public Security Bureau sent Xu Xin the "Case Filing Notice" No. Hu Gong (Qing) Li Gao Zi (2016) 3923, informing that the case of credit card fraud was decided to be filed.

On April 29, 2016, the Fuqing Public Security Bureau of Fujian Province issued the Arrest Warrant No. Rong Gong (Criminal Investigation) Bu Zi (2016) 00066, stating: With the approval of the Fuqing People's Procuratorate, our bureau will execute the arrest of Xie 1, who is suspected of theft, and send him to the Fuqing Detention Center for detention.

On May 18, 2016, the Criminal Investigation Brigade of the Fuqing Public Security Bureau of Fujian Province made a "Transcript of Interrogation" to the criminal suspect Xie 1, stating: ...I bought a laptop, a black bank card (a bank card handled using someone else's identity), an ID card, a USB flash drive and other equipment from my master for 9,800 yuan to carry out the theft of other people's bank card deposits. The USB flash drive sold to me by my master contained the victim's identity information, mobile phone number, bank card number, withdrawal password and the deposit situation in the bank card. ...Use the avatar of your own person to make a fake temporary ID card. The purpose of handling the fake temporary ID card is to go to the mobile phone service provider's business hall to report the loss of the victim's mobile phone that we want to steal and replace it with a new SIM card. The purpose of replacing our new SIM card is to master the mobile phone reserved by the victim for the bank so as to receive the verification code sent by the bank when transferring money and other operations. Only by entering the verification code can the money in the mobile bank be successfully transferred. Moreover, after the victim's bank card is stolen, the SIM card in his hand will not receive any information, and we will not be discovered when we transfer the money in his bank account. ...On March 2, 2016, my master told me that he would be responsible for handling the victim's fake temporary ID card and replacing the new mobile phone SIM card associated with the victim's bank card this time. He gave me three bank accounts and passwords (after identifying the bank transaction details, ...one is a CMB card with card number ××××, account name: Xu Xin).

In June 2016, the Fuqing Public Security Bureau of Fujian Province issued a "Report on Requesting the Conclusion of Case Investigation", stating: ...On March 2, 2016, Xie 1 was responsible for transferring money and withdrawing money in this case, and the upstream was responsible for providing information and replacing the card. Xie 1 stole a total of 400,700 yuan from the bank card deposits of Zhou, Xu Xin, Wang and others...

On June 22, 2016, the Fuqing People's Procuratorate of Fujian Province sent Xu Xin a "Notice of Litigation Rights and Obligations of the Victim", stating: The case of Xie 1, Xie 2 and other 3 persons suspected of theft has been transferred by the Fuqing Public Security Bureau for review and prosecution...

Xu Xin filed a lawsuit in the People's Court requesting Zhaohang Yanxi Sub-branch to compensate for the loss and interest of the bank card being swiped fraudulently.

Judgment Result

The Changning District People's Court of Shanghai made a civil judgment No. (2017) Hu 0105 Minchu 1787 on April 25, 2017: 1. China Merchants Bank Co., Ltd. Shanghai Yanxi Sub-branch shall pay Xu Xin a deposit loss of 146,200 yuan; 2. China Merchants Bank Co., Ltd. Shanghai Yanxi Sub-branch shall pay the plaintiff Xu Xin interest loss calculated from March 3, 2016 to the date when the judgment takes effect, based on 146,200 yuan and calculated according to the deposit interest rate of the People's Bank of China at the same period. China Merchants Bank Co., Ltd. Shanghai Yanxi Sub-branch refused to accept the first-instance judgment and filed an appeal to the Shanghai First Intermediate People's Court. The Shanghai First Intermediate People's Court made a civil judgment No. (2017) Hu 01 Minzhong 9300 on October 31, 2017: rejected the appeal and upheld the original judgment.

Reason for Judgment

The effective judgment of the court held that: The appellant opened a debit card at the appellant's office and deposited funds into the appellant's office, and a savings deposit contract relationship was established between the appellant and the appellant. Article 6 of the "Commercial Banking Law of the People's Republic of China" stipulates that "Commercial banks shall protect the legitimate rights and interests of depositors from infringement by any unit or individual." In the savings deposit contract relationship, the appellant, as a commercial bank, has a statutory obligation to protect the safety of the account funds of the appellant as a depositor and to perform the contractual obligation to the appellant himself or his authorized person. To this end, the appellant, as the card issuing bank of the debit card and the provider of related technologies, equipment and operating platforms, should strengthen the safety management of transaction equipment and transaction venues, and update and upgrade various software and hardware facilities in a timely manner to maximize the prevention of fund transaction security vulnerabilities. In particular, with the development of electronic banking business, commercial banks, as developers, designers and maintainers of electronic transaction systems, and also the party that obtains economic benefits from the convenience of electronic transactions, should also be more capable of taking more stringent technical safeguards to enhance the ability to prevent illegal and criminal acts of bank cards. According to the facts found in this case, the loss of funds in the appellant's account was caused by Xie Mou1, an outsider, illegally obtaining the appellant's identity information, mobile phone number, withdrawal password and other account information, and intercepting the dynamic verification code sent by the appellant by reissuing the mobile phone SIM card, and then transferring the money. In the case of online fraud, the appellant still claims that the transaction in question is a transaction by the cardholder himself or authorized by the cardholder on the grounds that the identity verification information and transaction verification information have been passed, which cannot be established. Moreover, according to the existing evidence in this case, it is impossible to find out how Xie Mou1, an outsider, obtained the account information such as the transaction password, and the appellant did not provide corresponding evidence to prove that the account information was leaked because the appellant did not properly keep and use the bank card. Therefore, the appellant himself is at fault, and the appellant shall bear the legal consequences of failing to provide evidence. The appellant also claims that the mobile phone operator is at fault in the incident. However, the basis for the appellant's lawsuit is the savings deposit contract relationship, and the mobile phone operator is not a party to the contract or this case. Whether the mobile phone operator is at fault and whether the appellant has the right to recover from the mobile phone operator after assuming the liability for compensation to the appellant is not within the scope of review in this case. In summary, the appellant failed to fulfill its security obligations for the appellant's account funds in the process of performing the savings deposit contract, and there is no evidence to prove that the appellant has breached the contract and can mitigate its liability, and the appellant shall bear full liability for the loss of the appellant's account funds. The appellant's appeal request is not justified and will not be supported.

(Effective judgment adjudicators: Cui Jie, Zhou Xin, Gui Jia)

Rao Guoli v. a Material Supply Station, etc. for a dispute over a house lease contract

(Discussed and approved by the Adjudication Committee of the Supreme People's Court, released on November 9, 2021)

Keywords Civil/House Lease Contract/Contract Validity/Administrative Regulations/Public Order and Good Customs/Dangerous House

Main Points of the Judgment

Violation of administrative regulations generally does not affect the validity of the contract, but signing a lease contract in violation of administrative regulations and agreeing to lease a dangerous house that has been identified by an appraisal agency as having serious structural hidden dangers or that will cause major safety accidents and should be demolished as soon as possible for the purpose of operating a hotel, which endangers the personal and property safety of unspecified members of the public, is an act that harms the public interest and violates public order and good customs. The lease contract should be declared invalid in accordance with the law, and the legal responsibilities that each party should bear should be determined according to the size of the fault of both parties to the contract.

Relevant Legal Provisions

Article 153 of the General Principles of the Civil Law of the People's Republic of China, Article 52 and Article 58 of the Contract Law of the People's Republic of China (Note: The currently effective laws are Article 153 and Article 157 of the Civil Code of the People's Republic of China)

Basic Case Information

Nanchang Qing Shan Lake District Jingpin Holiday Hotel (hereinafter referred to as Jingpin Hotel) is organized in the form of individual operation, the operator is Rao Guoli, and the business scope and method is hotel service. On July 27, 2011, Jingpin Hotel won the right to lease the office building at No. 1 Qingshan South Road, Nanchang, owned by a material supply station through public bidding, and issued a "Commitment Letter" to the material supply station, promising that after winning the bid, it would strictly follow the reinforcement plan issued by the reinforcement design unit and the Jiangxi Provincial Construction Project Safety and Quality Supervision Bureau and other authoritative departments to scientifically and safely reinforce the office building at No. 1 Qingshan South Road, and then use the building after obtaining legally effective written documents. On August 29 of the same year, Jingpin Hotel and the material supply station signed a "Lease Contract", stipulating that the material supply station would lease 4120 square meters of the office building at No. 1 Qingshan South Road, Nanchang (including No. 1 Qingshan South Road, Donghu District and No. 3 Qingshan South Road, Donghu District recorded in the real estate certificate) to Jingpin Hotel for the operation of a business hotel. The lease term is fifteen years, from September 1, 2011 to August 31, 2026. In addition to stipulating the standards, payment methods, and liability for breach of contract for rent and other expenses, Article 5 also specifically stipulates: 1. The leased property has been identified by relevant departments as a dangerous building and can only be used after reinforcement. Jingpin Hotel is fully aware of the aforementioned problems and defects of the leased property. Jingpin Hotel promises to reinforce the leased property to ensure that the leased property meets the commercial real estate use standards, and Jingpin Hotel shall bear all expenses. 2. Jingpin Hotel shall be responsible for the approval, construction, and acceptance (the acceptance department is the Jiangxi Provincial Construction Project Safety and Quality Supervision Bureau or a department with the same qualifications) of the reinforcement project plan, and the material supply station shall provide assistance as needed. 3. If Jingpin Hotel uses the leased property without passing the reinforcement, it shall bear all responsibilities. After the contract was signed, the material supply station delivered the leased house as agreed. Jingpin Hotel paid a performance bond of 200,000 yuan and a bid bond of 10 million yuan to the material supply station. After winning the bid, the material supply station returned the bid bond of 8 million yuan.

On October 26, 2011, Jingpin Hotel and Shanghai Yongxiang Reinforcement Technology Engineering Co., Ltd. signed a reinforcement and renovation project "Agreement", Jingpin Hotel contracted the leased house to Shanghai Yongxiang Reinforcement Technology Engineering Co., Ltd. for reinforcement and renovation in the form of a lump sum contract for all labor and materials (all civil construction parts within the drawings), and the renovation scope was the main load-bearing columns, walls, beam and slab structure reinforcement, all new wall interior painting, all contents within the drawings, drawings, elevators, and heat pumps. The start date was October 26, 2011, and the completion date was January 26, 2012. On January 3, 2012, during the reinforcement construction process, most of the buildings in question collapsed.

The Jiangxi Province Construction Industry Safety Supervision and Management Station issued a 'House Safety Appraisal Opinion' on June 18, 2007. The appraisal results and recommendations are: 1. The design and construction of the main structural load-bearing components of the building cannot meet the requirements of the current national design and construction codes, and its strength cannot meet the load-bearing requirements of the upper structure, posing a serious structural hazard. 2. The building has not been designed for earthquake resistance and lacks seismic structural measures, which does not comply with the requirements of the 'Code for Seismic Design of Buildings' (GB50011-2001). Earthquakes or other accidents may cause major safety incidents. 3. According to the 'Standard for Appraisal of Dangerous Buildings' (GB50292-1999), the building is classified as a Grade D dangerous building according to the classification of building risk levels and should be demolished. 4. Recommendations: (1) The building should be immediately unloaded to reduce the load on the structure. (2) Reinforce the problematic structural components. (3) Currently, the building should be closely monitored, and measures should be taken to ensure the safe transition of the building to demolition. If any abnormalities are found, all personnel in the building should be evacuated immediately and reported to the relevant departments. (4) It is recommended to demolish the entire structure as soon as possible.

Rao Guoli filed a lawsuit with the court of first instance: 1. Terminate the 'Lease Contract' signed with the Materials Supply Station on August 29, 2011; 2. The Materials Supply Station shall return his deposit of 2.2 million yuan; 3. The Materials Supply Station shall compensate him for various economic losses totaling 2.81 million yuan; 4. The Materials Supply Station shall bear the litigation costs of this case.

The Materials Supply Station filed a counterclaim with the court of first instance: 1. Order Rao Guoli to bear tort liability and compensate it for 24.635 million yuan; 2. Order Rao Guoli to bear all litigation costs.

During the retrial, Rao Guoli changed his above-mentioned first litigation request to: Confirm that the 'Lease Contract' in question is invalid. The Materials Supply Station also changed its litigation request to: Rao Guoli shall compensate the Materials Supply Station for a loss of 4.187 million yuan.

Judgment Result

The Intermediate People's Court of Nanchang City, Jiangxi Province, made Civil Judgment No. 2 (2013), Hong Min Yi Chu Zi, on September 1, 2017: 1. Terminate the 'Lease Contract' signed on August 29, 2011, between the Jingpin Hotel operated by Rao Guoli and the Materials Supply Station; 2. The Materials Supply Station shall return the bid bond of 2 million yuan to Rao Guoli; 3. Rao Guoli shall compensate the Materials Supply Station for 8.043 million yuan. After deducting the 2 million yuan deposit returned by the Materials Supply Station to Rao Guoli in the second item of this judgment, Rao Guoli shall pay the Materials Supply Station 6.043 million yuan within fifteen days after this judgment takes effect; 4. Reject Rao Guoli's other litigation requests; 5. Reject the Materials Supply Station's other litigation requests. After the first instance judgment, Rao Guoli appealed. The Higher People's Court of Jiangxi Province made Civil Judgment No. 173 (2018), Gan Min Zhong, on April 24, 2018: 1. Maintain Items 1 and 2 of Civil Judgment No. 2 (2013), Hong Min Yi Chu Zi, of the Intermediate People's Court of Nanchang City, Jiangxi Province; 2. Revoke Items 3, 4, and 5 of Civil Judgment No. 2 (2013), Hong Min Yi Chu Zi, of the Intermediate People's Court of Nanchang City, Jiangxi Province; 3. The Materials Supply Station shall return the performance bond of 200,000 yuan to Rao Guoli; 4. Rao Guoli shall compensate the Materials Supply Station for economic losses of 1.824 million yuan; 5. After offsetting the amounts determined in Items 1, 3, and 4 of this judgment against each other, the Materials Supply Station shall return 3.757 million yuan to Rao Guoli, which shall be paid by the Materials Supply Station within 10 days after this judgment takes effect; 6. Reject Rao Guoli's other litigation requests; 7. Reject the Materials Supply Station's other litigation requests. Both Rao Guoli and the Materials Supply Station were dissatisfied with the second instance judgment and applied to the Supreme People's Court for retrial. The Supreme People's Court made Civil Ruling No. 4268 (2018), Zui Gao Fa Min Shen, on September 27, 2018, ruling to retry the case. On December 19, 2019, the Supreme People's Court made Civil Judgment No. 97 (2019), Zui Gao Fa Min Zai: 1. Revoke Civil Judgment No. 173 (2018), Gan Min Zhong, of the Higher People's Court of Jiangxi Province and Civil Judgment No. 2 (2013), Hong Min Yi Chu Zi, of the Intermediate People's Court of Nanchang City, Jiangxi Province; 2. Confirm that the 'Lease Contract' signed between the Jingpin Hotel operated by Rao Guoli and the Materials Supply Station is invalid; 3. The Materials Supply Station shall return the deposit of 2.2 million yuan to Rao Guoli within 10 days from the date this judgment becomes legally effective; 4. Reject Rao Guoli's other litigation requests; 5. Reject the litigation requests of the Materials Supply Station.

Reason for Judgment

The Supreme People's Court holds that: According to the 'Housing Safety Appraisal Opinion' issued by the Jiangxi Provincial Construction Industry Safety Production Supervision and Management Station on June 18, 2007, before the 'Lease Contract' was signed, the house under the contract had the following safety hazards: First, the design and construction of the main structural load-bearing components cannot meet the requirements of the current national design and construction codes, and their strength cannot meet the load-bearing requirements of the upper structure, and there are serious structural hidden dangers; second, the house has not been designed for earthquake resistance and has no seismic structural measures, which does not meet the national standard of 'Code for Seismic Design of Buildings'. In the event of an earthquake or other accidents, major safety accidents will occur. The 'Housing Safety Appraisal Opinion' also issued warnings that the previous local earthquake had caused certain damage to the structure of the house involved, and the owner and its superior departments should pay enough attention to it. Based on the above findings, the appraisal result and suggestion of the Jiangxi Provincial Construction Industry Safety Production Supervision and Management Station on the house involved is that the leased house involved is a Class D dangerous house that should be demolished as soon as possible. Based on this, after appraisal by the competent appraisal agency, the house involved has been determined to be a Class D dangerous house with serious structural hidden dangers, or may cause major safety accidents, and should be demolished as soon as possible. According to Article 6.1 of the 'Standard for Appraisal of Dangerous Buildings' (implemented on December 1, 2016) of the Ministry of Housing and Urban-Rural Development of the People's Republic of China, the appraisal of the dangerousness of houses as Class D dangerous houses refers to the fact that the load-bearing structure can no longer meet the requirements for safe use, and the overall house is in a dangerous state, constituting the entire dangerous house. Although Article 7.0.5 of the 'Standard for Appraisal of Dangerous Buildings' stipulates that houses assessed as partially dangerous or entirely dangerous houses can be handled in the following ways: 1. Observe use; 2. Handle use; 3. Stop use; 4. Overall demolition; 5. Handle according to relevant regulations. However, in this case, the competent appraisal agency has clearly stated that the house involved should be demolished, and suggested that the entire structure of the dangerous house should be demolished as soon as possible. Therefore, the dangerous house involved does not have the situation where it can continue to be used after reinforcement. Article 6 of the 'Measures for the Administration of Leasing of Commodity Houses' stipulates that houses that do not meet the mandatory standards for safety, disaster prevention and other construction projects shall not be leased. Although the 'Measures for the Administration of Leasing of Commodity Houses' belongs to departmental regulations in terms of the level of validity, Article 6 of the measures reflects the protection of social public safety and the maintenance of public order and good customs. Combining the facts of this case, in the case where the house involved has been determined to be a Class D dangerous house with serious structural hidden dangers, or may cause major safety accidents, and should be demolished as soon as possible, the parties still signed the 'Lease Contract', agreeing to lease the house for the operation of a business hotel that may endanger the personal and property safety of unspecified members of the public, which obviously damages social public interests and violates public order and good customs. From the perspective of maintaining public safety and establishing correct social values, the determination of the validity of the contract in this case should be strictly controlled, and the judiciary should not support or encourage this behavior that ignores public safety and violates social public interests and public order and good customs in order to pursue economic benefits. Therefore, in accordance with Article 153, Paragraph 2 of the 'General Principles of the Civil Law of the People's Republic of China' regarding the invalidity of civil legal acts that violate public order and good customs, and Article 52, Paragraph 4 of the 'Contract Law of the People's Republic of China' regarding the invalidity of contracts that damage social public interests, the 'Lease Contract' is confirmed to be invalid. Regarding the issue of compensation fees paid to others by the Material Supply Station after the collapse of the house involved, since the Material Supply Station should bear the main responsibility for the invalidity of the 'Lease Contract', according to Article 58 of the 'Contract Law of the People's Republic of China', 'After the contract is invalid, if both parties are at fault, they shall bear their respective responsibilities', the above fees shall be borne by the Material Supply Station itself. Since Rao Guoli is also at fault for the invalidity of the 'Lease Contract', Rao Guoli's losses shall also be borne by himself in accordance with the provisions of Article 58 of the 'Contract Law of the People's Republic of China'. The 2.2 million yuan deposit paid by Rao Guoli to the Material Supply Station shall be returned to Rao Guoli by the Material Supply Station in accordance with the law because the 'Lease Contract' is an invalid contract and the Material Supply Station obtained the funds based on the contract.

(Effective judgment adjudicators: Zhang Aizhen, He Jun, Zhang Ying)

Zhongtian Construction Group Co., Ltd. v. Henan Henghe Real Estate Co., Ltd. Construction Project Construction Contract Dispute Case

(Deliberated and approved by the Adjudication Committee of the Supreme People's Court, issued on November 9, 2021)

Keywords   Civil/Construction Project Construction Contract/Priority Right of Compensation/Limitation Period

Main Points of the Judgment

If the executing court enforces the construction project of the developer at the request of other creditors, and the contractor claims to the executing court that it enjoys the priority right to compensation for the construction project price and has not exceeded the limitation period, it shall be deemed that the contractor has exercised the priority right to compensation for the construction project price in accordance with the law. If the developer defends on the grounds that the contractor's exercise of the priority right to compensation for the construction project price exceeds the limitation period when filing the lawsuit, the people's court shall not support it.

Relevant Legal Provisions

Article 286 of the 'Contract Law of the People's Republic of China' (Note: The currently effective law is Article 807 of the 'Civil Code of the People's Republic of China')

Basic Case Information

On September 17, 2012, Henan Henghe Real Estate Co., Ltd. and Zhongtian Construction Group Co., Ltd. signed a 'Henghe International Business Convention and Exhibition Center Project Construction Project Construction Contract' stipulating that Zhongtian Construction Group Co., Ltd. would carry out the construction of the project involved. On June 25, 2013, Henan Henghe Real Estate Co., Ltd. issued a 'Bid Winning Notice' to Zhongtian Construction Group Co., Ltd., notifying Zhongtian Construction Group Co., Ltd. that it had won the bid for the Henghe International Business Convention and Exhibition Center project located on Kaiyuan Avenue, Luolong District, Luoyang City. On June 26, 2013, Henan Henghe Real Estate Co., Ltd. and Zhongtian Construction Group Co., Ltd. signed a 'Construction Project Construction Contract', in which both parties agreed on relevant project matters such as the construction period, project price, and liability for breach of contract. After the contract was signed, Zhongtian Construction Group Co., Ltd. entered the site for construction. During the construction period, due to Henan Henghe Real Estate Co., Ltd.'s arrears in project payments, Zhongtian Construction Group Co., Ltd. repeatedly sent contact letters to Henan Henghe Real Estate Co., Ltd. on November 12, November 26, 2013, and December 23, 2014, requesting Henan Henghe Real Estate Co., Ltd. to immediately pay the arrears in project payments, pay liquidated damages as agreed in the contract, and bear corresponding losses. In April and May 2014, Henan Henghe Real Estate Co., Ltd. and Dewei Engineering Management (Beijing) Co., Ltd. signed a 'Construction Project Cost Consulting Contract', entrusting Dewei Engineering Management (Beijing) Co., Ltd. to conduct settlement review of the project involved. On November 3, 2014, Dewei Engineering Management (Beijing) Co., Ltd. issued a 'Henghe International Business Convention and Exhibition Center Settlement Review Report'. Henan Henghe Real Estate Co., Ltd., Zhongtian Construction Group Co., Ltd., and Dewei Engineering Management (Beijing) Co., Ltd. respectively affixed their official seals and signed to confirm the review summary table in the review report. On November 24, 2014, Zhongtian Construction Group Co., Ltd. received a notice that the Jiaozuo Intermediate People's Court of Henan Province would auction the project involved based on the application of other creditors of Henan Henghe Real Estate Co., Ltd. On December 1, 2014, the Ninth Construction Company of Zhongtian Construction Group Co., Ltd. submitted a 'Contact Letter on the Auction of the Henghe International Business Convention and Exhibition Center under Construction' to the Jiaozuo Intermediate People's Court of Henan Province, stating that Zhongtian Construction Group Co., Ltd. is the contractor of the Henghe International Business Convention and Exhibition Center under construction. Since the project started, Zhongtian Construction Group Co., Ltd. has completed a project value of 287 million yuan. Zhongtian Construction Group Co., Ltd. requested to confirm the priority right of compensation in accordance with the law and participate in the entire auction process. Zhongtian Construction Group Co., Ltd. and Henan Henghe Real Estate Co., Ltd. both acknowledged that the project involved was suspended on February 5, 2015.

On January 31, 2018, the Henan Provincial High People's Court accepted the lawsuit filed by Zhongtian Construction Group Co., Ltd. against Henan Henghe Real Estate Co., Ltd. Zhongtian Construction Group Co., Ltd. requested to terminate the 'Construction Project Construction Contract' signed by both parties and requested to confirm that Henan Henghe Real Estate Co., Ltd. owed Zhongtian Construction Group Co., Ltd. the project price and the priority right of compensation.

Judgment Result

The Henan Provincial High People's Court issued Civil Judgment No. 3 (2018) Yu Minchu on October 30, 2018: 1. The two Construction Project Construction Contracts signed between Henan Henghe Real Estate Co., Ltd. and China Construction Group Co., Ltd. on September 17, 2012, and June 26, 2013, are invalid; 2. It is confirmed that Henan Henghe Real Estate Co., Ltd. owes China Construction Group Co., Ltd. 288,428,047.89 yuan in project funds and corresponding interest (calculated based on 288,428,047.89 yuan, from March 1, 2015, to April 10, 2018, at the loan interest rate announced by the People's Bank of China for the same period); 3. China Construction Group Co., Ltd. has the right to exercise priority in receiving compensation for the discounted or auctioned price of the Henghe International Business Convention and Exhibition Center project it constructed within the scope of the project price of 288,428,047.89 yuan; 4. Other litigation claims of China Construction Group Co., Ltd. are rejected. After the judgment was pronounced, Henan Henghe Real Estate Co., Ltd. filed an appeal, and the Supreme People's Court issued Civil Judgment No. 255 (2019) Zui Gao Fa Min Zhong on June 21, 2019: The appeal is rejected, and the original judgment is upheld.

Reason for Judgment

The Supreme People's Court holds that: Article 22 of the Interpretation (II) of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Construction Project Contract Disputes stipulates: The time limit for the contractor to exercise the priority right to compensation for the price of the construction project is six months, calculated from the date on which the employer should pay the price of the construction project. According to Article 1 of the Reply of the Supreme People's Court on Issues Concerning the Priority Right to Compensation for the Price of Construction Projects, the validity of the priority right to compensation for the price of construction projects takes precedence over the mortgage right established on the construction project and the ordinary claims enjoyed by other creditors of the employer. If the people's court takes compulsory enforcement measures against the construction project based on the application of other creditors or mortgagees of the employer, it will affect the contractor's priority right to compensation for the price of the construction project. At this time, if the contractor claims to the executing court that it has a priority right to compensation for the price of the construction project, it is a legal way to exercise the priority right to compensation for the price of the construction project. Dehui Engineering Management (Beijing) Co., Ltd., the cost consulting agency jointly entrusted by Henan Henghe Real Estate Co., Ltd. and China Construction Group Co., Ltd., issued an Audit Report on the project price involved on November 3, 2014. On November 24, 2014, China Construction Group Co., Ltd. received a notice that the Jiaozuo Intermediate People's Court of Henan Province would auction the project involved based on the application of other creditors of Henan Henghe Real Estate Co., Ltd. On December 1, 2014, the Ninth Construction Company of China Construction Group Co., Ltd. submitted a Contact Letter on the Auction of Henghe International Business Convention and Exhibition Center Under Construction to the Jiaozuo Intermediate People's Court of Henan Province, requesting that the priority right to compensation for the construction project involved be confirmed according to law. On February 5, 2015, China Construction Group Co., Ltd. stopped construction on the project involved. On August 4, 2015, China Construction Group Co., Ltd. sent a Work Contact Form on Claiming the Priority Right to Compensation for the Project Price of Henghe International Business Convention and Exhibition Center to Henan Henghe Real Estate Co., Ltd., requesting to enjoy the priority right to compensation for the project price involved. On May 5, 2016, the Ninth Construction Company of China Construction Group Co., Ltd. submitted an Application for Participating in Distribution of Priority Right to the Luoyang Intermediate People's Court of Henan Province, requesting that its priority right to compensation for the project price of the construction project involved be confirmed and guaranteed according to law. Therefore, the appeal reason of Henan Henghe Real Estate Co., Ltd. that China Construction Group Co., Ltd. did not claim the priority right in litigation within the six-month exclusion period and its claim for priority right should not be supported cannot be established.

(Trial personnel of the effective judgment: Bao Jianping, Du Jun, Xie Yong)