Viewpoint... An analysis of the main body of repayment responsibility in the loan.
Published:
2024-04-16
In the case of a nominal borrower and an actual borrower, who will bear the responsibility for repayment will be the focus of the study and adjudication of such cases. The author will combine the relevant provisions and the trial point of view of the courts at all levels to explore this.
Borrowing by name is a common situation in private lending relationships for reasons such as account freezing and credit. Borrowing by name refers to the act of borrowing money from a lender in the name of a celebrity. It involves subjects including borrowers (actual borrowers), celebrities (nominal borrowers) and third parties (lenders). In the case of a nominal borrower and an actual borrower, who will bear the responsibility for repayment will be the focus of the study and adjudication of such cases. The author will combine the relevant provisions and the trial point of view of the courts at all levels to explore this.
1. follows the principle of contract relativity, and the repayment responsibility is borne by the nominal borrower.
1. According to Article 465 of the the People's Republic of China Civil Code, "A lawfully formed contract shall be protected by law. A lawfully formed contract shall be legally binding only on the parties, unless otherwise provided by law." The provisions of the nominal borrower as the relative of the loan contract, the court will be directly judged by the nominal borrower to bear the responsibility for repayment.
For example, Shandong Higher People's Court (2020) Lu Minshen No. 5178 ruled: "In this case, according to the evidence in the case and the facts found out in the original trial, the Loan Contract signed by Li Quanzhuang Sub-branch of Agricultural Commercial Bank and Bai Youlin, and the maximum mortgage contract signed with Sun Meijuan, Sun Feizhang and Sun Kunying are all the true intentions of both parties, and the contents are legal and effective. Both parties shall enjoy rights and obligations according to the contract. Agricultural and commercial bank Li Quanzhuang branch in accordance with the agreement to Bai Youlin personal account issued a loan, and by its actual withdrawal, the borrower Bai Youlin how to use the loan, does not affect the determination of the main body of the loan in this case."
2. However, there are exceptions to the principle, and the proviso based on the principle of contract relativity provides that the principle of contract relativity can be broken if the law provides otherwise. Article 925 of the Civil Code "A contract entered into by a trustee in his own name with a third party within the scope of the principal's authorization, and if the third party knows the agency relationship between the trustee and the principal at the time of the conclusion of the contract, the contract directly binds the principal and the third party, there is definite evidence to prove that the contract only binds the trustee and the third party except" and Article 926 "When the trustee enters into a contract with a third party in his own name, the third party does not know the agency relationship between the trustee and the principal, and the trustee fails to perform his obligations to the third party due to the principal, the trustee shall disclose the principal to the third party, and the third party may therefore choose the trustee or the principal as the counterpart to claim its rights, however, the third person may not change the selected counterpart". At the same time, in combination with the clear responsibility of the nominal borrower and the actual borrower for repayment in the concept, mechanism and legal application of the financial civil and commercial trial work of Liu Guixiang Special Committee at the National Court Financial Trial Work Conference, the loan contract directly binds the lender and the actual borrower, and the actual borrower shall bear the corresponding repayment obligations under the condition that the lender knows or has disclosed to the lender the nominal borrower and the actual borrower.
When the nominal borrower invokes the aforementioned provisions and claims that the actual borrower assumes the repayment obligation, it shall provide evidence on the lender's knowledge of the loan between the nominal borrower and the actual borrower, otherwise it will bear the burden of proof.
For example, the Shandong Provincial Higher People's Court (2020) Lu Minshen ruled No. 5178, "This court reviewed this and held that, first of all, Bai Youlin, Sun Meijuan, Sun Feizhang, Sun Kunying did not submit sufficient evidence to prove that it was an agency relationship with Starfish; secondly, bai Youlin, Sun Meijuan, Sun Feizhang and Sun Kunying also have no sufficient evidence to prove that Li Quanzhuang Sub-branch of Agricultural Commercial Bank knew that Bai Youlin borrowed money for Starfish Company and Starfish Company was the actual borrower when concluding the contract with Bai Youlin; Thirdly, Bai Youlin, Sun Meijuan, Sun Feizhang and Sun Kunying were persons with full capacity for civil conduct, it should be aware of the meaning represented by its signature on the loan contract and the mortgage contract and the possible legal consequences, and therefore, the Court does not accept the claim that it is a 'top-name borrower".
The Intermediate People's Court of Shaoxing City, Zhejiang Province (2019) Zhejiang 06 Min Final No. 38 Judgment "According to Article 406 of the Contract Law, the establishment of a loan by name requires two elements, namely, the outsider has a entrusted loan relationship with him, and the appellee is informed of the entrustment relationship at the time of the conclusion of the contract".
The 2. is liable for repayment based on the actual performance of the loan contract and other facts of the case.
In Judgment No. 434 of the Supreme People's Court (2016), "This court believes that when the parties to the contract have disputes over who is the real borrower and directly affect the validity of the contract, they should combine the agreement of the contract and the actual situation. Performance and other relevant facts, comprehensively judge the true legal relationship between the parties".
Liaoning Provincial Higher People's Court (2017) Liao Min No. 89 Judgment "Although the nominal borrower enters into a loan contract with the lender in his own name, his act of entering into the contract is made according to the requirements of the actual borrower, and the purpose is to meet the financing needs of the actual borrower. Therefore, the act of entering into the loan contract by the nominal borrower actually reflects the will of the actual borrower. If the nominal borrower discloses to the lender the actual user of the loan, and the true intention of all parties is only in the name of the nominal borrower, and the nominal borrower does not actually participate in the performance of the loan relationship and does not enjoy the benefits of the loan activities, the actual user of the loan shall be deemed to be the actual borrower, and the actual borrower shall bear the repayment responsibility."
In summary, if the nominal borrower does not actually participate in the performance of the loan relationship and will not benefit from the loan relationship, the actual borrower shall bear the repayment responsibility, taking into account the true intention of the parties and the facts of the case such as the performance of the contract.
3. the actual borrower has a debt to join or have a dominant use situation, the nominal borrower and the actual borrower shall be jointly liable for repayment.
Hami Railway Transport Court (2017) New 7103 Minchu No. 53 judgment "This court believes that according to the basic principles of civil law that civil activities should follow the principle of fairness, the mutual rights and obligations established between the parties should be balanced, and the parties' civil liability should also be balanced. The nominal borrower is the issuer of the IOU and forms the creditor's rights and debts relationship with the lender in the contract law. As the debtor, he should bear the civil liability for repayment. However, the actual borrower is the actual user and master of the loan. With the help of the nominal borrower, he obtains the loan benefit and should also bear the repayment liability together as the debtor and the nominal borrower. Only in this way can the realization of the lender's claim be protected to the greatest extent, and can the imbalance between the obligations of the nominal borrower and the actual borrower be avoided, so as not to cause damage to one party and be obviously unfair". It is easy to see from the aforementioned decisions that a small number of courts will then order the nominal borrower to share the liability for repayment with the actual borrower on the basis of the actual use and disposition of the loan by the actual borrower, or because the actual borrower meets the circumstances of joining the debt under Article 552 of the Civil Code.
4. Summary
Although borrowing by name is a common situation in private lending, there are no uniform laws and regulations on the determination of the subject of repayment responsibility. Unless there is a situation in which the lender knowingly borrows the name, or there is a situation in which the actual borrower dominates the use of the loan and benefits from it, as well as the addition of the debt, the court directly based on the principle of contract relativity, the nominal borrower to assume the obligation of repayment, is the mainstream view of the court at this stage. Therefore, the parties should be cautious about borrowing by name, pay great attention to the relativity and limitations of the subject, content and binding force of the loan contract, fully consider the legal risks of borrowing by name, and avoid unnecessary losses to themselves.
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