Case about Dispute over a Financial Leasing Contract
Wanfeng Financial Leasing Co., Ltd. v. Yichang Jintaiyuan Industry & Trade Group Co., Ltd. (Case about dispute over a financial leasing contract)
--Where, according to the contract, the financial leasing lessor requires both the recession of the contract and the lessee's payment of full unpaid rent for repurchase of the leased property, it is not contrary to the provision of Article 248 of the Contract Law that “the lessor may either require payment of the full rent or terminate the contract and recover the leased property.”
(1) Basic Facts
On April 9, 2013, Wanfeng Financial Leasing Co., Ltd. (hereinafter referred to as “Wanfeng Company”) and Yichang Jintaiyuan Industry & Trade Group Co., Ltd. (hereinafter referred to as “Jintaiyuan Company”) concluded a Financial Leasing Contract. At the price of CNY50 million, Wanfeng Company purchased medium-density board preparation sections and other equipment from Jintaiyuan Company and then it leased such equipment to Jintaiyuan Company, with the lease term of three years and the total rent of CNY56,973,198.51 to be paid in 36 installments. After having paid the down payment of CNY7.5 million and the rent of first to five installments, from September 20, 2013, Jintaiyuan Company no longer paid the corresponding rent as stipulated. Upon receipt of the Letter of Demand for Overdue Payment of Wanfeng Company on December 2, 2013, Jintaiyuan Company still failed to pay the rent. Wanfeng Company held that the act of Jintaiyuan Company constituted breach of contract and requested the People's Court of Pudong New Area to render a judgment that the contract should be rescinded and Jintaiyuan Company should make the payment for repurchasing the leased property, which included full rent payable upon deduction of the down payment, the interest of the overdue unpaid rent, and the nominal price of the leased property. Jintaiyuan Company held that Wanfeng Company could claim either the termination of the contract or the recovery of the leased property and payment of the full rent.
In the view of the Court, Jintaiyuan Company failed to pay the rent within the time limit and in the amount as stipulated in the contract. Upon demand by Wanfeng Company, it still refused to make the payment, which satisfied the conditions for termination as stipulated in the Financial Leasing Contract involved. Wanfeng Company may thereby exercise the right to terminate the contract and require Jintaiyuan Company to assume the liability for breach of contract as agreed by both parties. While claiming for termination of the contract, Wanfeng Company also claimed that Jintaiyuan Company should repurchase the leased property at the agreed price. They were claims of Wanfeng Company raised according to the stipulations of the contract. The full rent payable claimed by Wanfeng Company was part of Jintaiyuan Company's price payable for repurchase of the leased property after the termination of the contract. In nature, it was different from the rent payable for continuing to perform the Financing Leasing Contract and it was not contrary to the provision of Article 248 of the Contract Law of the People's Republic of China that “Where the lessee fails to pay the rent within a reasonable time limit after receiving the demand for payment from the lessor, the lessor may require payment of the full rent; or it may terminate the contract and recover the leased property.” Therefore, the Court rendered a judgment that the contract should be terminated, Jintaiyuan Company should make the payment for repurchasing the leased property to Wanfeng Company, and after the payment, the leased property was owned by Jintaiyuan Company.
Financial leasing is one of the three industries included in the first batch of industries for further opening-up of the financial service field within China (Shanghai) Pilot Free Trade Zone (“SHFTZ”). Institutional innovations have stimulated the market vitality in this field. Up to the end of September 2015, the number of financial leasing enterprises has been increased from 181 before the foundation of SHFTZ to 1,449. From January to October 2015, the People's Court of Pudong New Area has accepted 948 cases about financial leasing, increased by 3.7 times over the same period of 2014. Besides conventional financial leasing modes, as a new business pattern, leaseback is gradually adopted widely and there is such provision that when exercising the right to terminate a contract, the lessor may require the lessee to pay all rent to repurchase the leased property without return of such leased property. There is divergence on whether the aforesaid provision is contrary to the provision of Article 248 of the Contract Law and this case is a model one. The judgment of this case follows the legal thinking that “what is not prohibited by the law is permitted” and the commercial adjudication idea of “respecting the autonomy of the parties,” specifies that the aforesaid provision is not contrary to law, provides evaluation and guidelines for business operations of financial leasing market player within SHFTZ, and promotes the mediation and settlement of similar disputes accepted by the People's Court of Pudong New Area.