Recently, Ronly & Tenwen Partners won the lawsuit in representing Bank A in the case of whether the contract signed with a Shanghai financing guarantee company, Shanghai Nuofan Import and Export Trading Co., Ltd. (hereinafter referred to as “Nuofan Company”), Wu Moumou, Wang Moumou, You Moumou, and a Sinopharm E-commerce Company is invalid when the former branch president of Bank A was suspected of committing a crime. The People’s Court of Yangpu District, Shanghai adopted all the opinions of the agents Jiang Yulin and Zhang Ruixian. The judgment found that the fact that the former branch president of Bank A was suspected of committing a crime of embezzlement and the fact that the staff of the financing guarantee company accepted bribes did not affect the validity of the Loan Contract and the Guarantee Contract, which comprehensively protected the rights and interests of the client.
 

Case Background

    Nuofan Company signed a Loan Contract with Bank A, with a loan amount of 15 million yuan and a loan term of one year. The credit enhancement measures were a guarantee by a financing guarantee company in Shanghai. In September 2017, after the loan expired, Bank A urged the Shanghai financing guarantee company to make full compensation. At the end of 2017, a Shanghai Financing Guarantee Co., Ltd. filed a lawsuit in Yangpu Court to recover compensation from the borrower Nuofan Company, the counter-guarantors of Wu Moumou, Wang Moumou, You Moumou, and a Sinopharm E-commerce company.

   Wu Moumou proposed that the Shanghai financing guarantee company, Bank A, and Nuofan Company maliciously colluded to defraud the loan and the contract was invalid, and that Wu should not be liable for anti-guarantee. The court of first instance supported all the litigation claims of the Shanghai financing guarantee company. Since then, Wu Moumou has appealed to the Shanghai Financial Court, and the Shanghai Financial Court has upheld the judgment of the first instance after hearing.

    Wu Moumou filed for a retrial with the Shanghai High Court in 2021. The Shanghai High Court held that since more than 9 million yuan in the loan made by Nuofan Company to Bank A was actually used by the former branch president of Bank A, there was a crime of embezzlement of public funds. Therefore, the original judgment and ruling can be overturned due to the emergence of new evidence. Consequently, Shanghai High Court ruled to order the Shanghai Financial Court to retrial. After hearing the case, the Shanghai Financial Court held that as to whether the relevant facts identified in the criminal case of the former sub-branch president of Bank A affect the validity of the Loan Contract signed by Nuofan Company and Bank A, as well as the Guarantee Contract signed by the Shanghai financing guarantee Company and Bank A, it still needed to be determined in accordance with the law. Hence, Bank A was added as a third party in the litigation, and the rights and obligations under the Loan Contract and Guarantee Contract were dealt with together. Therefore, it ruled to revoke the first and second trial decisions and ordered the Yangpu Court, the original court of first instance to retrial.

Core Disputes and the Settlement

   Since this case is ruled by Shanghai High Court for retrial and further ruled by the financial court for retrial, there were many parties involved and the legal relationship was extremely complex. Since the former president of Bank A’s Sub-branch and an employee of the Shanghai financing guarantee company committed a crime, there was huge uncertainty about whether the loan contract was valid. Once the loan contract was found to be invalid or the guarantee contract was invalid, the bank would inevitably suffer huge losses. The defendant Wu Moumou’s defense view was: since the former president of Bank A’s sub-branch used the loan funds of Nuofan Company and constituted a crime of embezzlement of public funds, Bank A obviously colluded maliciously with the borrower Nuofan Company, and the loan contract was invalid in accordance with the law; and as the loan contract was invalid, the guarantee contract between Bank A and the Shanghai financing guarantee company was invalid, accordingly; and it was inferred that the anti-guarantee contract signed by the Shanghai financing guarantee company and Wu Moumou was invalid, and Wu Moumou should not bear the guarantee liabilities; furthermore, in signing of the guarantee contract between the Shanghai financing guarantee company and Bank A, two business executives of the Shanghai financing guarantee company accepted bribes from borrowers and were sentenced for committing a crime, which was sufficient to prove malicious collusion and the harm to the interests of the state, the collective or a third party. Therefore, the guarantee contract shall also be invalid.

  In view of the importance of the case, the agency team has written a similar case search report after detailed search and analysis. There has been a lot of controversy over this focus. In fact, there are also some un-supporting jurisprudence. The agency team conducted a careful analysis. During the trial that lasted for nearly more than a year, the agency team submitted evidence, and investigation and research materials to the court many times, and conducted a careful study on the characterization of criminal acts, the difference between employee’s criminal acts and unit crimes, the implication of criminal acts and civil legal relations, whether there is a master-slave relationship between the guarantee contract and the counter-guarantee contract, and whether the higher court has the right to decide on reviewing the related contractual relationship without jurisdiction in a case. The team also sorted out the legal relationship of the contract and the application and understanding of the law, wrote the detailed agency opinions, and conducted communications with the full court many times on the related legal issues and factual issues.

     In the end, the opinions of the agency team were all adopted by the review committee, and all the defense opinions of the defendant Wu Moumou were comprehensively rejected. Furthermore, a clear judgment was made on the focus.
 

Significance of the Case

    In the previous trial practice, it was basically believed that as long as the parties to the contract constituted a crime, it would inevitably lead to the invalidity of the contract. In recent years, there have been reflections on this issue in theoretical and practical circles, where it is argued that the invalidity of all contracts may not be conducive to the realization of the purpose of criminal law in combating crime and protecting victims, and may also cause “secondary harm” to the victims. Justice Liu Guixiang, a full-time member of the review committee of the Supreme People’s Court, delivered a speech entitled “On the Concept, Mechanism and Application of Law in Financial Civil and Commercial Trial Work” at the National Court’s Work Meeting on Financial Trial (hereinafter referred to as the “Financial Trial Meeting”) in early 2023. Justice Liu Guixiang pointed out that the regarding the determination of the validity of the contract in civil-criminal cases, the people’s court’s determination of the validity of the contract, should be based on the provisions of the Civil Code and other civil laws on the validity of civil legal acts, regardless of whether the contract involves a crime or not.

    The trial process and results of this case are in line with the spirit of the speech entitled “On the Concept, Mechanism and Application of Law in Financial Civil and Commercial Trial Work”. The judgment result corrects the wrong view in judicial trial practice, and the judgment view of this case will have important guiding significance for such cases in the future.

   The members of the lawyer team in this case were the leading senior partner, lawyer Jiang Yulin, the senior partner, lawyer Lin Qiao, and lawyer Zhang Ruixian. They participated in the research of this case and represented in court, making important contributions to the achievement of the successful outcome.