Article 4 In any of the following circumstances, where a party registers a security interest in the name of another person, and the debtor fails to perform the due debts or the parties agree to realize the security interest, and the creditor or its trustee claims that the property shall be repaid in priority, the people's court shall support it in accordance with law:
(1) The security interest provided for the bondholder is registered in the name of the bond trustee;
(2) the security interest provided for the entrusted lender is registered in the name of the trustee;
(3) Other circumstances in which the guarantor is aware of the existence of an entrustment relationship between the creditor and others.
【Purpose of the Article】
This article is about how to determine the ownership of the security interest and who will exercise the rights when the registered security interest holder is different from the actual security interest holder due to the existence of a trust relationship between the creditor and another person.
【Overview of Provisions】
This article applies to the situation where the registered security interest holder is inconsistent with the actual security interest holder due to the existence of a fiduciary relationship between the creditor and another person for a security interest that uses registration as the method of publicity. This article lists the two most typical and common applicable situations, and then summarizes them in a catch-all clause, with the aim of avoiding opening the door to the widespread use of negotiable or even securitized mortgages. On the issue of the attribution of rights, this article determines that the creditor, rather than the registered nominal right holder, is the real security interest holder based on the actual rights and obligations between the parties, and stipulates that, in principle, only the creditor can exercise the rights. However, in view of the fact that in practice there may be a situation where there may be a large number of creditors and it is difficult for individual creditors to exercise their rights one by one, the Trustee may also exercise the security interest outside these Regulations, but whether or not it is exercised and the consequences of exercising it shall be attributed to all the creditors who authorize it to exercise it.
【Controversial Views】
Who is the real security interest holder when the registered security interest holder is different from the actual security interest holder? One view is that the registered security interest holder is the security interest holder, because in the registration validity doctrine, registration is a prerequisite for the creation of a real right, and only the rights recorded in the register are the actual rights holders. Moreover, the inconsistency between the registered right holder and the actual right holder is often caused by the entrustment relationship, and the entrustment relationship is a debt relationship, and the client can only request the name of the client, but cannot request confirmation of the right. Another view is that the settlor should be determined as the actual right holder according to the actual rights and obligations between the parties. Because the entrustment relationship is not the cause of the change of property rights, the issue of ownership of rights between the settlor and the trustee is not the issue of change of property rights.
[Understanding and Application]
1. The types of security interests to which this article applies
This article only applies to security interests that use registration as the method of publicity, so it naturally cannot be applied to security interests in movable property pledges, liens, etc., in which delivery is the method of publicity. Security interests that use registration as a method of publicity include:
The first is a security interest that takes registration as a requirement for creation, including a mortgage on immovable property and a pledge of rights. From a practical point of view, there is no doubt that this article applies to immovable property mortgages, and in fact immovable property mortgages are also the main circumstances under which this article applies. The circumstances of the pledge of rights are more complex, and they are divided into three situations: first, the pledge of rights that only uses registration as a method of publicity, such as pledge of rights such as accounts receivable, fund shares, equity, intellectual property rights, etc.; the second is the pledge of rights only by delivery as a method of publicity, such as the pledge of bills of exchange (including bills of exchange, promissory notes, and checks); Third, it can be delivered as a method of publicity, or it can be registered as a method of publicity of the pledge of rights, such as bonds, deposit receipts, warehouse receipts, bills of lading, etc. This article also applies to the pledge of rights using registration as the method of publicity, but not to the pledge of rights using delivery as the method of publicity.
The second is to register a security interest that is only a requirement for confrontation, such as a chattel mortgage, which is also applicable to this article. It is worth exploring whether this article can be applied to atypical security that requires registration as a countervailing element, such as retention of title, financial lease, factoring, and assignment security. Theoretically, since atypical security can be registered, there seems to be scope for application. However, from a practical point of view, atypical guarantees often rely on real transaction relationships, and it is rare for them to be inconsistent in name and reality.
2. Application of this Article
This article adopts the "enumeration + generalization" formula, which clearly lists two typical situations and summarizes them in a catch-all clause:
First, the security interest provided to the bondholder is registered in the name of the bond trustee. Based on the characteristics of corporate bondholders being scattered, collective, and difficult to protect their own rights, in the process of bond issuance, the trustee usually signs a guarantee contract with the guarantor on behalf of all bondholders, and registers the security interest in the name of the trustee.
Second, the security interest provided for the entrusted lender is registered in the name of the trustee. The entrusted loan contract is signed by the consignor (the actual funder), the trustee (mainly the bank) and the borrower (the user), in which the consignor hands over the funds to the trustee, and the trustee releases the funds to the borrower in its own name, and the borrower or a third party provides the collateral, and the security interest is registered in the name of the trustee. The entrustment loan contract is essentially a joint contract, the relationship between the principal and the trustee is an entrustment relationship, and the relationship between the trustee and the borrower is a silent agency relationship, but unlike the general anonymous agency counterparty who does not know the principal, in the entrustment loan relationship, the borrower knows the principal.
Third, the guarantor is aware of other circumstances in which there is an entrustment relationship between the creditor and others. As for how to summarize the catch-all clauses, during the drafting process of the Interpretation of the Guarantee System of the Civil Code, the controversy was still relatively large. The main concern is that if it is too lenient, it will make the separation of nominal mortgagee and actual mortgagee the norm, which will not only undermine the credibility of the registration system, but may also open the door to the widespread use of negotiable or even securitized mortgages, thus deviating from the subordinate nature of security interests. Considering that in practice, the reason for the inconsistency between the name and the reality is often the situation where there is an entrustment relationship between the nominal right holder and the actual right holder, and the third party is aware of it, the catch-all clause limits it to other situations where the guarantor is aware of the existence of an entrustment relationship between the creditor and others. Under this double limitation, there is generally no possibility of abusing rights or moving towards liquidity or even securitization mortgages, which also dissolves the concerns of the academic community.
In addition, from a practical point of view, it is also necessary to pay attention to the following situations:
First, in syndicated loans and portfolio loans, the security interest is registered in the name of the entrusted bank. Syndicated loan refers to the loan made by multiple banks as a whole to a certain enterprise, and for the sake of convenience, the security interest is registered in the name of a certain bank. The most common form of portfolio loan is a mortgage loan in which the buyer applies for a loan from a commercial bank when the provident fund loan is insufficient to pay for the house, and registers the security interest in the name of the commercial bank when there is a cooperative relationship between the provident fund center and the commercial bank. Syndicated loans and portfolio loans are essentially the same, that is, they are a whole externally, and they enjoy rights according to their respective shares internally. Different from the above-mentioned situation in which the nominal right holder and the actual right holder form an entrustment relationship, in syndicated loans and portfolio loans, the nominal right holder and the actual right holder often form a cooperative relationship. On the other hand, the nominal right holder and the actual right holder enjoy the rights according to the shares, rather than holding the rights on behalf of others, which is why the Interpretation of the Guarantee System of the Civil Code does not specify such a situation. However, we believe that in the case of registration, there is also an entrustment relationship in this situation, and the guarantor is often also a clear and righteous right holder who holds the trust on behalf of the syndicate or other institutions, so the provisions of this article can also be applied.
Second, in the trust loan, the security interest is registered in the name of the trust company. The trust company uses the raised funds to set up a trust plan to lend money to the borrower, and the borrower registers the security interest it provides in the name of the trust company. This situation is basically similar to an entrusted loan, but in the form of a trust, so the provisions of this article can also be applied.
Third, in online lending, the security interest is registered in the name of the platform company. In online lending, lenders and borrowers are scattered and collective. In particular, with the full use of modern network technology, one-to-many (one loan to multiple borrowers), many-to-one (multiple loans to the same borrower) and even many-to-many (multiple loans to multiple borrowers) have become the norm, and the one-to-one correspondence between lenders and borrowers in traditional private lending has been broken, and it is difficult for lenders to know who they have lent their money to, and similarly, it is difficult for borrowers to know who they are borrowing money from, so the guarantee provided by them can only be registered in the name of the platform company. Held by the platform company on behalf of the lender. The characteristics of online lending determine that the status and role of platform companies that should act as intermediaries for borrowing information are becoming more and more prominent, and as a result, they often become capital pools and engage in illegal lending or lending activities, resulting in most platform companies being liquidated. Considering that most platform companies have been liquidated or even banned for illegal acts, and such clean-up is often achieved through administrative means, such a situation that once existed widely in practice is unlikely to occur in judicial practice today. In particular, in this case, although the borrower knows that the platform company is not a real creditor but holds it on behalf of others, it does not know who the real creditor is, which is different from other circumstances, so the Interpretation of the Guarantee System of the Civil Code ultimately does not provide for such a situation.
3. How to determine the ownership of a security interest
For the sake of simplicity of the argument, the ownership of the security interest is mainly discussed in view of the situation in which the mortgage is registered in the name of the trustee in the entrusted loan. When a registered mortgage is separated from the real creditor, does the mortgage belong to the registered right holder or to the real creditor? There is a view that, in the above-mentioned circumstances, there is often a trust relationship between the registered mortgagee and the real creditor, and this relationship is a debt relationship in nature. Therefore, when the mortgage is registered in the name of the trustee, the settlor can only request the trustee to handle the transfer registration, but cannot directly request confirmation of the mortgage. In our view, the aforesaid view is not appropriate, and the ownership of the mortgage should be determined according to the actual rights and obligations between the parties, and the principal should be determined as the actual mortgagee, mainly for the following reasons:
First, the borrower cannot confront the settlor on the ground that the mortgagee is the entrusted bank. In the entrustment loan contract, the borrower clearly knows that the relationship between the entrusting enterprise and the entrusted bank is an agency relationship at the time of entering into the contract, and according to Article 925 of the Civil Code, which stipulates that "if the trustee enters into a contract with a third party in its own name and within the scope of the principal's authorization, and the third party is aware of the agency relationship between the trustee and the principal at the time of entering into the contract, the contract directly binds the principal and the third party", and the borrower cannot defend that the consignor is not the registered mortgagee.
Second, the trustee cannot oppose the settlor on the ground that it is a registered mortgagee. As far as the relationship between the settlor and the trustee is concerned, according to Article 927 of the Civil Code, which stipulates that "the property obtained by the trustee in handling the entrusted affairs shall be transferred to the trustor", the property acquired by the trustee as a result of the entrustment contract, including the mortgage right, is transferred to the trustor, and the trustee cannot oppose the settlor on the ground that it is the registered mortgagee.
Third, the entrustment contract is not a contract that causes a change in property rights, so the rules on changes in property rights do not apply. The core reason for the above view is that changes in real rights based on legal acts, especially changes in real estate rights, should be registered as effective, and the settlor is not a real mortgagee because it is not registered as a mortgagee. In our view, this is a mistaken understanding of the concept of change in property rights. The so-called change of property right based on legal act mainly refers to the fact that the legal act is the cause of the change of property right, such as the acquisition or loss of ownership due to the sales contract, and the establishment of a mortgage right due to the mortgage contract. Therefore, in the sales contract, the buyer only has the right to claim the seller for delivery of the immovable property without registering the alteration of the immovable property, but cannot directly request confirmation of ownership. In the mortgage contract, if the mortgage is not registered, the creditor can only claim the corresponding rights based on the mortgage contract, and cannot request confirmation of the mortgage rights. However, the entrustment contract is a contract agreed between the principal and the trustee that the trustee will handle the affairs of the client, and the purpose of the entrustment is not to cause a change in the real right, so it is not the cause of the change in the real right, and of course the rules on the change of real right do not apply. In other words, in the case where the trustee engages in external legal acts based on the authorization of the trustor, and the change of property rights is caused by this, as far as the relationship between the trustor and the entrusted bank is concerned, it is essentially a question of how to determine the ownership of the right, that is, who owns the right, rather than a change of the property right. In this case, whether it is based on the principle of consistency of rights and obligations, the rule that the trustee should transfer the acquired property to the settlor, or the principle of good faith, the settlor should be deemed to be the actual right holder.
4. Who will exercise the security interest
As mentioned above, when the registered nominal right holder is different from the actual right holder, in most cases, the actual right holder is often a specific subject, and there is no doubt that it is up to it to exercise its rights. However, in some cases, such as the security interest registered in the name of the bond trustee as provided for in Paragraph 1 of this Article, the bondholder as the settlor is an unspecified majority, and if a bondholder is allowed to exercise his rights at will, it will disrupt the order of the transaction; If they are not allowed to exercise it, it is inconsistent with the purpose of protecting their rights. To this end, Article 18 of the Minutes of the Symposium on the Trial of Bond Dispute Cases by National Courts states: "The exercise of a security interest registered in the name of the trustee. According to the spirit of the Reply of the Supreme People's Court on the Letter of Opinion of the General Office of the Ministry of Land and Resources on Soliciting the Registration of Mortgage of State-owned Land Use Rights for Corporate Bondholders, the security interest created for the bond may be registered in the name of the trustee, and if the trustee claims the security interest in accordance with the provisions of Articles 196 and 197 of the Civil Procedure Law or through ordinary procedures, the people's court shall support it, but it shall make it clear in the main body of the judgment that the rights and interests obtained therefrom belong to all bondholders. If the trustee only files a lawsuit on behalf of some of the bondholders, the people's court shall also clarify the corresponding share according to the proportion of the bondholders' shares in the current issuance of bonds. Accordingly, this article provides that, in addition to the creditor's ability to exercise its rights, the trustee is also entitled to enforce the security interest under certain circumstances. It is necessary to pay attention to the following points: First, the scope of the trustee should be strictly limited, and it should be limited to the situation where it is inconvenient for a single client to exercise its rights due to the large number of clients. Second, compared with the exercise of rights by creditors, the exercise of rights by the trustee is an exceptional circumstance. Third, the trustee should respect the opinions of the client on the exercise of rights and the ownership of rights, and authorize them mainly through resolutions. Fourth, it is necessary to leave room for individual settlors to exercise their rights under specific circumstances, otherwise, the rights will be exercised by the trustee, which may cause the trustee to deviate from the original intention of the trustee and ultimately damage the rights of the trustor.
[Practical issues]
The situation of entrusted holding of security interests is relatively common in judicial practice. Through the search of a number of civil judgments that have taken effect, it is found that the judiciary presents the following characteristics on this issue:
First, it is common for a security interest to be held in a bond issuance, and the trustee often signs a security contract with the issuer in his or her own name and goes through registration procedures. In the event of default, the people's court generally supports the plaintiff's claim when the bondholder files a lawsuit to realize the security interest, but the main text of the judgment or ruling does not clarify that the rights and interests belong to all bondholders in accordance with the provisions of the Minutes of the National Symposium on the Trial of Bond Dispute Cases by Courts.
Second, in some cases, there are cases where the main contract is suspected of a criminal offense, and the court will rule to dismiss the plaintiff's lawsuit for realization of the security interest.
Third, in a dispute over an entrustment loan contract, if the security interest is registered in the name of the entrusted bank, in the event of a breach of contract by the debtor, the creditor will generally sue the debtor for repayment and the realization of the security interest. When the court found that the creditor could be repaid preferentially for the collateral registered in the name of the entrusted bank, it highlighted the debtor's knowledge of the entrusted loan relationship as an important reason to support the creditor's claim.
Fourth, in the searched cases, there was also the issue of holding a security interest under the cause of action of the loan contract. For example, in a case where the creditor and the mortgagee are separated due to the registration and management of government departments, there are different views on whether the creditor can enjoy the mortgage right according to the transaction arrangements of the parties. One view is that, according to the legal principle of property rights, the creditor should be the mortgagee, and if the creditor and the mortgagee are separated in this case, the creditor cannot enjoy the mortgage right; Another view is that, according to the transaction arrangements of the parties, the creditor is the substantive mortgagee, and the parties have expressly agreed in the loan contract and mortgage contract, so although the creditor and the mortgagee are formally separated, the creditor is still the substantive mortgagee, which does not violate the general provisions of the Property Law on mortgage.