Real Estate Perspective... Schools, hospitals, external guarantees, and their educational facilities, medical facilities set up mortgage legal analysis.

Article 87 of China's Civil Code stipulates that a legal person established for the purpose of public welfare or other non-profit purposes and not distributing the profits obtained to the funder, the establishment or the members shall be a non-profit legal person. Non-profit legal persons include institutions, social organizations, foundations, social service agencies, etc.

1.(2022) Case No. 1589 of Gan 10 Min Zhong

In this case, the court of first instance held that although Xifeng Beichen Experimental Middle School is a private school, compared with public schools, it is only a difference in investment channels, and it cannot deny its public welfare attributes. The facilities in private schools are still social welfare facilities. The act of providing guarantee for the loan of Qingyang Deyuan Planting Cooperative by Xifeng Beichen Experimental Middle School is a situation that cannot be a guarantor according to law, that is, the guarantee contract and mortgage contract signed between Xifeng Beichen Experimental Middle School and Qingyang Deyuan Planting Cooperative are invalid contracts. Article 5, paragraph 2, of the the People's Republic of China Guarantee Law "If the debtor, guarantor and creditor are at fault after the guarantee contract has been confirmed to be invalid, they shall each bear the corresponding civil liability according to their fault." In this case, when signing the contract, Qingyang Deyuan Planting Cooperative and Xifeng Beichen Experimental Middle School should know that Xifeng Beichen Experimental Middle School is a civil subject that cannot be a guarantor according to law, and its facilities cannot be used as collateral according to law. Qingyang Deyuan Planting Cooperative and Xifeng Beichen Experimental Middle School are at fault for the invalidation of the guarantee contract and mortgage contract involved in the case. Accordingly, qingyang Deyuan Planting Cooperative and Xifeng Beichen Experimental Middle School shall each bear corresponding civil liability according to the degree of their fault. The court of second instance held that although the guarantee contract in the case was invalid, it could not be concluded that the guarantee period was ipso facto invalid. The nature of the guarantee period is the period during which the creditor holds the guarantor liable, and the validity of the guarantee period is not premised on the validity of the contract. In this case, the fund cooperative of Yuguozui Village in Huanxian County did not claim the guarantee responsibility to Xifeng Beichen Experimental Middle School during the guarantee period, and the guarantee responsibility of Xifeng Beichen Experimental Middle School should be exempted.

According to the above-mentioned court decision, it can be seen that the court found that the guarantee and mortgage contract is invalid on the basis of the school's public welfare attributes, that is, although it belongs to a private school, but its facilities are still social welfare facilities. It should be noted that the trial time of the first instance of this case was 2021, and the "Guarantee Law" on which the trial was based was abolished at that time. Although the court of second instance did not explain the basis, it used "Xifeng Beichen Experimental Middle School Registration Certificate shows that it is a private non-enterprise unit, and its nature should be a non-profit private school. Therefore, Xifeng Beichen Experimental Middle School is a non-profit private school for public welfare purpose, the view that it has the same legal status as public schools and should also be prohibited as guarantors is in line with Article 399 of the Civil Code.

2.(2021) Su 1282 Min Chu Case No. 6567

In this case, the court held that although the Suqian Orthopaedic Hospital had stamped the official seal of the guarantor column in the contract provided by the plaintiff, the defendant Suqian Orthopaedic Hospital was a non-profit medical institution approved and registered by the Suqian Municipal Health and Health Commission.<中华人民共和国民法典>Article 6 of the Interpretation on the Guarantee System, where non-profit schools, kindergartens, medical institutions, pension institutions, etc. for the purpose of public welfare provide guarantees, the people's court shall determine that the guarantee contract is invalid. Therefore, the guarantee contract between the plaintiff and the defendant Suqian Orthopaedic Hospital should be invalid. According to the statements of the original and the defendant and the evidence cited, the plaintiff and the defendant Suqian Orthopaedic Hospital knew that Suqian Orthopaedic Hospital was a non-profit medical institution for the purpose of public welfare, so both the plaintiff and the defendant Suqian Orthopaedic Hospital were at fault for the legal consequences of ensuring the invalidity of the contract. The defendant Suqian Orthopaedic Hospital was 1/2 liable for the defendant Suqian Obstetrics and Gynecology Hospital's failure to repay the principal and Gynecology Hospital.

According to the above-mentioned court decision, the court found that the guarantee contract is invalid on the basis that the hospital is a non-profit medical institution for the purpose of public welfare, but because it knows the nature of its own business is still external guarantee, so it is required to bear the corresponding liability according to law.

Article 76 of China's Civil Code stipulates that a legal person established for the purpose of obtaining profits and distributing them to shareholders and other contributors shall be a for-profit legal person. For-profit legal persons include limited liability companies, joint stock limited companies and other enterprise legal persons.

1.(2022) Lu 17 min zong case no 3188

In this case, the court held that the scientific research buildings and office buildings of the coal field hospital were not medical and health facilities prohibited by law, and that the coal field hospital set up mortgage for its own debts with property other than medical and health facilities, which did not violate the mandatory provisions of the law. And has been in the Juye County Housing Authority for mortgage registration, Juye County Housing Authority issued a certificate of other rights, paper registration materials stored in the housing management file, although not entered in the computer management system, but not enough to deny the establishment of mortgage registration. The "Working Capital Loan Contract", "Loan Extension Agreement" and "Mortgage Contract" signed by Juye Agricultural Commercial Bank and Coalfield Hospital are the true intentions of both parties on a voluntary basis, and their content does not violate the provisions of national laws and regulations. All are legal and valid, and the collateral involved in the case has been registered with the relevant administrative department.

According to the above-mentioned court judgment point of view, the court found that the guarantee and mortgage contract is valid on the basis that the coalfield hospital is not a non-profit legal person established for public welfare purposes. As a profit-making legal person, it has independent legal person property. Its handling of loans and mortgage from Juye Agricultural Commercial Bank is a manifestation of engaging in commercial business activities and does not harm social welfare.

2.(2022) Case No. 22891 of Shanghai 0106 Minchu

In this case, the court held that a certain school in the "subject change agreement of the lease contract" clearly "to a certain company 2 in the process of performing the original contract and after the termination or termination of the original contract should bear unconditional, irrevocable joint and several guarantee liability to Party A, the scope of its joint and several guarantee liability not only includes the original contract, it also includes other supplementary agreements and documents related to the original contract signed by XXX company 2 and XXX company 1", which is that XXX school voluntarily provides joint and several liability guarantee for the debts that XXX company 2 may incur to XXX company 1. XXX school is a profit-making legal person as a private non-enterprise unit, and the argument that its non-profit organization guarantee of public welfare nature is invalid cannot be established, therefore, such and such a school shall be jointly and severally liable for the above payment obligations.

According to the above-mentioned court decision, the court found that the guarantee contract signed by the school is valid on the basis that the school belongs to a profit-making legal person in a private non-enterprise unit, and its guarantee behavior is a true expression of intention and does not harm the public welfare, so it should bear joint and several liability for settlement.

Combined with the above case analysis and the current legal provisions, the author believes that the key to judging whether schools and hospitals can be used as the appropriate subject of security and whether their facilities can be mortgaged lies in the analysis of whether the act violates the interests of social public welfare law.

Schools and hospitals as non-profit legal persons are established for public welfare purposes, and if such legal persons become the subject of security or set up mortgages with their facilities, they will inevitably harm the interests of public welfare law. Therefore, except when purchasing or leasing educational facilities, medical and health facilities, old-age service facilities and other public welfare facilities by way of financial lease, the seller or lessor retains ownership of the public welfare facilities for the realization of the guarantee price or rent, they cannot be the subject of the guarantee, and the guarantee contract signed by them is invalid, and their educational facilities, medical and health facilities and other public welfare facilities shall not be mortgaged (the mortgage contract is invalid).

As a profit-making legal person, schools and hospitals are established for profit-making purposes. They are essentially enterprises. The classification of "business nature" in the "Medical Institution Practicing License" belongs to profit. Therefore, such legal persons have the qualification of security, can become the subject of security, and their facilities can also be mortgaged. However, just as the judgment point of (2022) Lu 17 min zong No. 3188 case, the medical facilities mortgaged by the coalfield hospital are not the medical and health facilities prohibited by law to be mortgaged, and the mortgage registration has been handled. then whether schools and hospitals as profit-making legal persons can mortgage their educational facilities and medical facilities (whether the mortgage contract is valid) still needs to consider whether the facilities have public welfare nature, and whether the local housing management department can handle the mortgage registration for it.

Finally, both non-profit legal persons and for-profit legal persons should note that, according to Article 17 of the Interpretation of Guarantees, when the main contract is valid and the guarantee contract is invalid, the people's court shall distinguish between different circumstances to determine the liability of the guarantor. That is, even if the court finds that the security contract is invalid, the guarantor may be liable accordingly. Therefore, schools and hospitals should be cautious in dealing with external guarantees, accurately analyze their own situation, and avoid the corresponding liability for compensation due to their own fault.

Security Act (expired on 1 January 2021)

Article 9 Schools, kindergartens, hospitals and other public institutions and social organizations for the purpose of public welfare shall not be guarantors.

Article 37 Paragraph 3 The following property shall not be mortgaged:… (III) educational facilities, medical and health facilities and other public welfare facilities of public institutions, social organizations, such as schools, kindergartens, hospitals, etc.

2. Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the the People's Republic of China Guarantee Law (expired on January 1, 2021)

Article 16 Where a public institution or social organization engaged in business activities is a guarantor, the guarantee contract signed by it shall be deemed valid if there are no other circumstances that cause the guarantee contract to be invalid.

Article 53 Where schools, kindergartens, hospitals and other institutions and social organizations for the purpose of public welfare set up mortgages for their debts with property other than their educational facilities, medical and health facilities and other public welfare facilities, the people's court may determine that the mortgage is valid.

3. Civil Code

Article 76 A legal person established for the purpose of obtaining profits and distributing them to shareholders and other contributors shall be a for-profit legal person. For-profit legal persons include limited liability companies, joint stock limited companies and other enterprise legal persons.

Article 87 A legal person established for the purpose of public welfare or other non-profit purposes and does not distribute the profits obtained to the investors, establishers or members shall be a non-profit legal person. Non-profit legal persons include institutions, social organizations, foundations, social service agencies, etc.

Article 399 The following property may not be mortgaged: ...... (III) educational facilities, medical and health facilities and other public welfare facilities of non-profit legal persons established for public welfare purposes, such as schools, kindergartens and medical institutions......

4. The Supreme People's Court on the application<中华人民共和国民法典>Interpretation of the Guarantee System

Article 6 Where non-profit schools, kindergartens, medical institutions, old-age care institutions, etc. for the purpose of public welfare provide guarantees, the people's court shall determine that the guarantee contract is invalid, except in one of the following circumstances:

When the (I) purchases or leases educational facilities, medical and health facilities, old-age service facilities and other public welfare facilities by way of financial lease, the seller or lessor retains ownership of the public welfare facilities for the realization of the guarantee price or rent;

Security interests (II) be established with real estate, movable property or property rights other than educational facilities, medical and health facilities, old-age service facilities and other public welfare facilities.

If the (III) is registered as a for-profit legal person's school, kindergarten, medical institution, pension institution, etc. to provide guarantee, and the party claims that the guarantee contract is invalid on the grounds that it does not have the guarantee qualification, the people's court shall not support it.

Article 17 If the principal contract is valid and the guarantee contract provided by a third party is invalid, the people's court shall distinguish between different circumstances to determine the liability of the guarantor:

If both the (I) creditor and the guarantor are at fault, the guarantor's liability for compensation shall not exceed the 1/2 of the debtor's inability to pay off;

If the (II) guarantor is at fault and the creditor is not at fault, the guarantor shall be liable for the part that the debtor cannot pay off;

If the (III) creditor is at fault and the guarantor is not at fault, the guarantor shall not be liable for compensation.

If the invalidity of the main contract results in the invalidity of the guarantee contract provided by a third party, the guarantor shall not be liable for compensation if it is not at fault; if the guarantor is at fault, its liability shall not exceed the 1/3 of the debtor's inability to pay off the part.