The referee's perspective... The base of the calculation of private lending interest.
Published:
2021-04-28
Li Ruiqing Lawyer
Private lending disputes are one of the most common civil disputes. The Supreme People's Court also promulgated the "Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases" (hereinafter referred to as the "Regulations on Private Lending") in 2015. Two amendments were made in 2020 to further clarify and adjust related issues such as the interest rate of private lending contracts. But unfortunately, regarding the calculation base of private lending interest, the "Private Lending Regulations" lacks more clear regulations, and various views in practice are also more complicated. From the perspective of the Supreme People's Court judgment case, the calculation base of private lending interest in the judgment case is summarized.
The basis for calculating interest during the (I) borrowing period.
1. The basis for calculating interest during the borrowing period is the principal and is not disputed.
2. With regard to the inclusion of prior interest in the later principal, Article 27 of the Regulations on Private Lending stipulates that if the prior interest rate does not exceed four times the market quoted interest rate for one-year loans at the time of the establishment of the contract, the amount stated in the re-issued debt certificate may be recognized as the principal of the later loan. Interest in excess of the portion shall not be recognized as the principal of the later loan. According to the preceding paragraph, the people's court shall not support the sum of the principal and interest payable by the borrower after the expiration of the borrowing period, which exceeds the sum of the interest for the entire borrowing period calculated on the basis of the original borrowing principal and four times the market quoted interest rate of the one-year loan at the time of the establishment of the contract. That is, conditional recognition of compound interest.
Basis for calculation of (II) overdue interest
Article 28 of the Regulations on Private Lending stipulates that if the interest rate during the borrowing period is agreed upon but the overdue interest rate is not agreed upon, the people's court shall support the lender's claim that the borrower shall pay the interest during the period of funds occupation at the interest rate during the borrowing period from the date of overdue repayment.
The provision uses the expression "appropriation of funds" rather than "appropriation of principal" or "appropriation of principal and interest", resulting in two different views in practice:
Viewpoint 1: Calculate overdue interest based on principal.
Viewpoint 2: Because overdue interest has the property of liability for breach of contract, the sum of principal and interest should be used as the basis for calculation.
The Supreme People's Court (2019) Supreme Famin Re -220 Civil Judgment held that "Chen Yucui shall repay the loan principal of Chongqing Xiangao Trading Co., Ltd. to 20 million yuan within 15 days after this judgment comes into effect, and shall pay overdue interest at an annual interest rate of 6% from September 6, 2017 (the date of expiration, the author's note) to the time when the principal is repaid, based on 20 million yuan".
The Supreme People's Court (2020) Supreme Law Minzong No. 478 Civil Judgment held that "Therefore, Jibang Company shall pay Chen Jinming an overdue interest of 8653261.46 yuan from October 10, 2012 to July 15, 2014 (overdue, the author's note) based on the loan principal of 20466825 yuan and an annual interest rate of 24%."
As a result, overdue interest is generally calculated on the basis of principal in Supreme Court decisions.
Basis for calculating interest on (III) late performance (interest on general debt, interest on doubled debt)
Article 253 of the Civil Procedure Law stipulates that if the person subject to execution fails to perform the obligation to pay money within the period specified in the judgment, ruling and other legal documents, the interest on the debt during the period of delay shall be doubled. If the person subjected to execution fails to perform other obligations within the period specified in the judgment, ruling or other legal documents, a delay payment shall be paid.
Article 1 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law to the Calculation of Debt Interest during Delayed Performance in Execution Procedures stipulates that the debt interest during delayed performance after double calculation in accordance with Article 253 of the Civil Procedure Law, Including the general debt interest during the delayed performance period and the doubled part of the debt interest. Interest on general obligations during the period of delay in performance shall be calculated in accordance with the method determined by the legal instrument in force; if the legal instrument in force does not determine the payment of such interest, it shall not be calculated. The interest on the doubled portion of the debt is calculated as follows: interest on the doubled portion of the debt = monetary debt other than interest on general debt as determined by the debtor's outstanding legal instrument in force x 1.75 per 10,000 per day x the period of delay in performance.
In accordance with the foregoing, interest on the deferred performance period consists of interest on general debt and interest on the doubled portion of the debt. In practice, the basis of interest on general debt is not controversial, but there are still two different views on the basis of double part of the debt interest calculation:
Viewpoint 1: With reference to Article 9 of the Minutes of the Symposium on the Trial of Cases Involving the Transfer of Financial Non-performing Claims, the interest on the double portion of the debt shall be calculated on the basis of the principal amount determined by the legal instrument in force as the monetary debt (base).
Viewpoint 2: Since doubling interest on debt is judicially punitive, interest on doubling debt should be calculated on the basis of the sum of the principal and interest determined by the legal instrument in force as the monetary debt (base).
The Supreme People's Court (2014) Zhifu Zi No. 24 Executive Ruling Letter held that "when the performance period expires, the total amount of monetary debts determined in legal documents shall be used as the interest base to pay the double debt interest during the delayed performance period; Fujian High Court only takes the principal of the main creditor's rights involved in the case as the interest base for double debt interest during the delayed performance period, which is improper and should be corrected".
The Guangdong Provincial Higher People's Court (2020) Guangdong Zhifu 767-768 Execution Ruling Letter determined that "with reference to Article 6 of the Minutes of the Meeting on Regulating the Implementation of Debt Interest and Delayed Performance Payments during Delayed Performance issued by the Guangdong Provincial Higher People's Court, the calculation base of debt interest during delayed performance is all monetary debts determined by the effective legal documents, the calculation base for the interest on the delayed performance of the debt in this case is 25483000 yuan (the sum of the principal and interest determined by the instrument in force in this case, the author notes)".
Jiangsu Higher People's Court (2017) Su Zhifu No. 167 Private Loan Dispute Enforcement Ruling Letter held that "after the payment date determined by the effective judgment, the debt interest during the delayed performance period shall be calculated on the basis of the 1654851 yuan (principal 426580 yuan and interest 1010845 yuan + principal 189630 yuan and interest 27796 yuan) determined by the effective judgment".
Thus, the "monetary debt other than interest on general debt as determined by the legal instrument in force" in the decision is generally the sum of the principal and interest as determined by the legal instrument in force.
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