Article

Factual summary: On April 16th 2004 and Aug 31st 2004, Everbright bank signed two loan agreements with Jiarui (which, when the first agreement was signed, went by the name "Ansu"), in the amounts of 20,000,000 yuan and 30,000,000 yuan, respectively. The guarantees Jiarui provided were 75% of Zhensheng's stock as a pledge and a joint and several liability guarantee from Dongting and Zhensheng. Everbright bank had performed the loan agreement and lent 50,000,000 yuan to Jiarui, however when the loan was due, despite several loan collection letters from Everbright bank, Jiarui failed to pay the money back.

Legal Analysis:

The Judge scrutinized the two loan agreements separately. In the April 16th loan agreement, the purpose of the loan was depicted as to provide funds for capital turnover. Ansu/Jiarui received the 20,000,000 loan from Everbright bank on the same day and made several fund transfers accordingly, which complied with the loan terms. Although there was a strange clause stipulated in the Aug 31st agreement that said "the loan agreement will become effective once the guarantee contract is in effect.", neither the parties to the loan agreement deny the fact of loan was made successfully and in that agreement, the purpose for loan is borrowing new to recoup the old debt, which indicated that the loan had already been issued. Therefore it was quite obvious that the second loan agreement had been executed properly. The effective clause, in respect of the guarantee contract, did not affect the effectiveness of the loan agreement, which contradicted to what the defendant Dongting claimed.

As for the pledge contract, since the stock was frozen by other court prior to the signing of the pledge contract, a clear violation of the mandatory provision in the Guarantee Law of China, which therefore rendered the pledge contract null and void.

Conclusion: The two loan agreements were legitimate and effective, Jiarui has to pay back the overdue loan plus interests and legal cost to the Plaintiff. Dongting and Zhensheng shall be jointly and severally liable to the amount Jiarui owes to the Plaintiff. The pledge contract is invalid

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