Article

Facts:

In Jul. 2008 and Nov. 2009, the Defendant established and practically controlled Jiaying Company and Siyuan Company. The Company mainly engaged in the methanol business. Due to the poor operation, Jiaying Company and Siyuan Company have been making losses. In order to maintain their business, the Defendant used financing loans and other ways to expand the scale of operation. Due to the high financing cost and the poor methanol market conditions, by the end of 2010, Jiaying Company and Siyuan company owed huge debts.

From the end of 2010 to Aug. 2013, the Defendant knew that Jiaying Company and Siyuan Company had no ability to perform the contract, and concealed the fact that the two companies had suffered serious losses and were insolvent. The Defendant fabricated that the two companies had solid financial strength, and used the high return as a bait to cheat RMB 135,240,000 from Zhenhai Petrochemical Company, Qingzhi Company, Haobo Company, Jueji Company, Shenshi Company, Huayi Company, Minghai Company:

  1. From Mar. to Jun. 2013, Defendant signed 12 methanol purchase contracts with Zhenhai Petrochemical Company on behalf of Siyuan Company to purchase the methanol, which were originally purchased from Huayi Company and Jiaying Company. But the Defendant only paid RMB 39,545,000 to the Zhenhai Petrochemical Company and defrauded the rest RMB 72,225,000.
  2. Since 2011, Defendant repeatedly requested that the Qingzhi Company lend methanol from Alashankou CNPC International Business Co. Ltd. deposited in the company to Jiaying Company, and then returned with newly purchased methanol. From May. to Aug. 2013, the Defendant, knowing that Jiaying Company had suffered serious losses and had no capital to purchase methanol, used the above method to cheat off from the Qingzhi Company a total of 12,450 tons of methanol with the ownership of Alashankou Company, which amounted to RMB 34,230,000.
  3. In Jul. and Aug. 2012, the Defendant lied to Haobo Company that Jiaying Company needed to open a L/C from the Agricultural Bank of China, Ningbo Zhenhai Sub-branch to import methanol. The Defendant cheated the Haobo Company to open a L/C to provide guarantee. After the expiration of the L/C, Jiaying Company was unable to repay the debts, resulting in Haobo Company to Agricultural Bank of China Zhenhai Sub-branch commitment of RMB 8,000,000 guarantee responsibility.
  4. In February 2012, the Defendant requested Shunji Company to provide a guarantee for Jiaying Company to open a L/C from Zhenhai Sub-branch of Bank of Ningbo to allow the company to buy methanol as a bait to defrauded Shunji Company signing a two-year maximum guarantee. In May. 2013, the Defendant signed an agreement on the opening of a domestic L/C with an amount of RMB 12,500,000 with Zhenhai Branch of Bank of Ningbo in the name of Jiaying Company through the forged financial statements and procurement contracts of Jiaying Company and delivered a guarantee deposit of RMB 2,500,000. In the same month, the Defendant signed an agreement on the domestic L/C with the Bank of Ningbo Zhenhai Branch in the name of Siyuan Company, and took over RMB 12,000,000 under the L/C. After the expiration of the L/C, the Defendant was unable to pay the remaining funds under the L/C, which lead to the Shunji Company’s loss of RMB 7,000,000.
  5. In Dec. 2012, the Defendant falsely claimed to borrow money for the purchase of methanol and lured entities and individuals such as Ningbo Kaishengbao Co., Ltd. and Shenshi Company to guarantee or counter-guarantee the working capital loan contract between Jiaying Company and Bank of Ningbo Zhenhai Branch, resulting in the Shenshi Company actual loss of RMB 2,600,000. Since Apr. 2012, the Defendant entrusted the Shenshi Company to transport methanol under the name of Jiaying Company. By Aug. 2013, the Jiaying Company owed gentleman company a total sum of RMB 3,590,000 in transportation costs.
  6. Since Mar. 2011, the Defendant entrusted Huayi Company to import methanol under the name of Jiaying Company. The Defendant instructed the Huayi Company to continue to sign and fulfill the contract through partial performance of the contract. As of Aug. 2013, the Jiaying Company owed the Huayi Company a total amount of RMB 4,280,000.
  7. In Oct. 2010 and Apr. 2011, the Defendant co-financed the payment of RMB 10,000,000 from the Minghai Company in the name of methanol joint investment. After repaying the principal and interest, the Defendant actual deceived RMB 3,320,000.

Legal Analysis:

Legal Issue(s): Whether the Defendant is guilty of the Contractual Fraud?

Legal Rule(s): Art. 224, Criminal Law of the People's Republic of China: Whoever, during the course of signing or fulfilling a contract, commits any of the following acts to defraud money or property of the other party for the purpose of illegal possession, if the amount involved is relatively large, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined; if the amount involved is huge, or if there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years and shall also be fined; if the amount involved is especially huge or if there are other especially serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than 10 years or life imprisonment and shall also be fined or be sentenced to confiscation property:

  1. signing a contract in the name of a fictitious unit or in the name of another person;
  2. offering as guaranty forged, altered or invalidated negotiable instruments or any other false property right certificates;
  3. while having no ability to fulfil a contract, cajoling the other party into continuing to sign and fulfil a contract by way of fulfilling a contract that involves a small amount of money or fulfilling part of the contract;
  4. going into hiding after receiving the other party's goods, payment for goods, cash paid in advance or property for guaranty; or
  5. any other acts.

Disposition – for each legal issue: The Court convicted that the Defendant was guilty of the Contractual Fraud.

Holding & Reasoning for each issue: According to the Art. 224, Criminal Law of the People's Republic of China, the Defendant as the manager and the executor of the Jiaying Company and Siyuan Company, with the intention of illegal possession of property, defrauded the property of other companies in the process of signing and performance of contracts. So the Defendant was guilty of the charge.

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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.