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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2016 LC CASE SUMMARIES Civil Ruling (2016) Hei Min Shen No.634 The High People’s Court, Heilongjiang Province [China]
Abstracted by ZHANG Zheng
Topics: Pledge of Cash Collateral Held in Special Account
Type of Lawsuit: Validity of pledge of money.
Parties: Petitioner for retrial – Muleng Rural United Credit Association
Petetionee – Zhao Huizhen
Third Party – Muleng Shenghe Economic Security Ltd.
Third Party – Xu Bing
Underlying Transaction: Cash collateral.
Instruments: Guarantee.
Decision: Money in a special account created to hold cash collateral yet without the change of the holder’s name nor the amount therein fixed is not pledged money and remain the property of the account holder.
Rationale: For a pledge of money to be successfully set up and invokable against a third party, the money must be “specialized” and “transferred”. As money can easily mingled with other money it is not specialized until it is put into a bank account, among other measures, whose balance is fixed and unchangeable, and whose bearer should be the pledgee. In the case at hand, though United and Shenghe agreed to create a “special account” to hold the cash collateral provided by Shenghe, the balance borne in the account was floating rather than fixed, and the bearer of the account remained Shenghe rather than transferred to United. Therefore the pledge was neither successfully created nor invokable against the third party.
Article
Factual Summary: Muleng Rural United Credit Association (United) and Muleng Shenhe economic Security Ltd. (Shenhe) entered into an agreement that Shenghe was to provide guarantee with joint and several liability to United’s customers by opening a special account for cash collateral with United. The special account was in Shenghe’s name and bore changing balance in it. A third party Zhao Huizhen, under the assistance of a court, froze the money in the special account of Shenghe based on Shenghe and Xu Bing’s payment obligation to Zhao in a separate case. United sued on the basis that money in the special account had been pledged to it as a pledgee and therefore not freezable by any third party. United lost the first and the second instances in the precedent court procedures and petitioned to the Heilongjiang High People’s Court for retrial. The High Court dismissed the petition.
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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.