In the process of designing the architecture of financial trading products,there are frequent"repurchase"clauses,such as repurchase agreements,repurchase commitments,and many other forms.So,What is meant by"Repurchase?Repurchase is not based on legal provisions.In daily financial transactions,repurchase terms are generally considered to be special agreements between parties to financial transactions to improve the credit rating of financial debt,and are essentially a credit enhancement measure.When investing in financial products such as asset management plans and trust plans,many financial institutions often require product issuers to provide a strong third party when agreed conditions arise To fulfill the repurchase obligations of financial products and mitigate the transaction risks of financial institutions as investors.Based on the relevant provisions of the"Minutes of the National Court Civil and Commercial Trial Work Conference",the author intends to analyze a recent typical case of the Supreme People's Court on the qualitative nature of repurchase clauses,hoping to share and exchange with industry insiders.

case analysis

The Supreme Court:The debt of the undertaker under the debt accession is his own debt that is juxtaposed with the original debt.A unilateral commitment made by a third party to the creditor is accepted by the creditor,and both parties reach a consensus,constituting a debt accession.If the third party fails to fulfill the obligations under the unilateral commitment,it shall be liable for breach of contract.

[Brief Introduction to the Case]

On December 9,2015,Anxin Trust Co.,Ltd.(hereinafter referred to as"Anxin Trust")and Henan Zhongcheng Construction Investment Co.,Ltd.(hereinafter referred to as"Henan Zhongcheng Construction")signed the"Henan Hebi Equity Yield Transfer and Repurchase Contract",which stipulated that Anxin Trust was entrusted by Bank of Gansu Co.,Ltd.to establish"Henan Hehui Equity Yield Single Designated Fund Trust".Anxin Trust,as the trustee of this trust,has transferred 95%of the equity usufruct of Henan Hehui Expressway Construction Co.,Ltd.held by Henan Zhongcheng Construction Co.,Ltd.at a transfer price of 800 million yuan.Henan Zhongcheng Construction should pay a repurchase premium of 7.5%annually in four installments,and repurchase the proceeds with 800 million yuan two years after receiving the transfer price.On the same day,China Urban Construction Holding Group Co.,Ltd.(hereinafter referred to as"China Urban Construction Group"),after reviewing the above-mentioned"Transfer and Repurchase Contract"and other relevant documents,issued a"Commitment Letter"to Anxin Trust,promising that if Henan Urban Construction Company still fails to make payment within 3 working days after any payment date/accounting date/payment date(including the early repurchase date)specified in the"Transfer and Repurchase Contract";Anxin Trust failed to obtain the equity usufruct repurchase price and repurchase premium from Henan Zhongcheng Construction Co.,Ltd.in accordance with the Transfer and Repurchase Contract.In the event of any of the above circumstances,China Urban Construction Group will unconditionally acquire the above-mentioned equity usufruct held by Anxin Trust within five working days after Anxin Trust issues the"Equity usufruct Transfer Notice".After that,Henan Zhongcheng Construction failed to fulfill the obligations of repurchase premium and repurchase payment in accordance with the"Transfer and Repurchase Contract for Equity Proceeds in Hebi,Henan".In accordance with the"Commitment Letter"issued by Zhongcheng Construction Group,Anxin Trust issued a"Notice of Transfer of Equity Proceeds"to it,notifying it to unconditionally acquire the equity proceeds within 5 working days after receiving the notice and paying the total repurchase price agreed in the"Commitment Letter"to the collection account of Anxin Trust.However,China Urban Construction Group also failed to fulfill its repurchase obligations in accordance with the Letter of Commitment issued by it.Anxin Trust filed a lawsuit with the Shanghai Higher People's Court.The court held that the"Letter of Commitment"issued by China Urban Construction Group did not constitute a guarantee guarantee relationship as it argued,but should be recognized as a debt accession.China Urban Construction Group refused to accept the judgment of first instance and appealed to the Supreme People's Court.

[Decision result]

The Supreme Court rejected the appeal and upheld the original judgment.

[Reason for award]

The Supreme Court believes that,first of all,the"Transfer and Repurchase Contract"signed between Anxin Trust and Henan Zhongcheng Construction is legal and valid.According to the contract,Henan Zhongcheng Construction is obligated to pay the equity usufruct repurchase price and repurchase premium to Anxin Trust;Secondly,on the same day as the signing of the Transfer and Repurchase Contract,China Urban Construction Group issued a Letter of Commitment to Anxin Trust,agreeing that in order to ensure Anxin Trust's realization of all the equity usufruct repurchase price and repurchase premium under the Transfer and Repurchase Contract,if Henan Urban Construction Group does not repurchase the equity usufruct of Anxin Trust,it shall be repurchased by China Urban Construction Group.From this agreement,it can be seen that when Henan Zhongcheng Construction Company fails to pay or Anxin Company fails to obtain the total repurchase price according to the agreement,it is obligated to repurchase,and it is not premised on enforcing the invalidity of Henan Zhongcheng Construction.In other words,China Urban Construction Group does not enjoy the right of first instance defense,and it does not have a priority in the assumption of responsibility.Therefore,the appeal of China Urban Construction Group regarding the establishment of a general guarantee legal relationship between it and Anxin Trust cannot be established;Finally,Article 6 of the Guarantee Law of the People's Republic of China stipulates,"The term guarantee as used in this Law refers to the act of the guarantor and the creditor agreeing that when the debtor defaults,the guarantor shall perform the debt or bear the liability in accordance with the agreement."According to this article,guarantee,especially joint and several guarantee liability,is of the same nature as debt addition(i.e.,concurrent debt assumption)for the purpose of guaranteeing the debt of the original debtor.Especially when creditors and bearers reach a consensus and establish debt participation,it is more difficult to distinguish between the two.However,in practice,there are still necessary and standard distinctions.For example,if a debt is added to the debt of the undertaker,it is his own debt that stands side by side with the original debt;"Guaranteed debt is a debt that guarantees the debt of others and is attached to the principal debt.".For another example,if the undertaker has paid off or otherwise exempted from liability to the creditor after assuming the obligation,the right to claim against the original debtor and the scope of the claim shall be determined based on the internal legal relationship between the undertaker and the debtor;Article 31 of the"Guarantee Law of the People's Republic of China"stipulates that the guarantor has the right to recover from the debtor after assuming the guarantee liability.Therefore,when the parties'intention is unclear,comprehensive judgment should be made based on specific circumstances.If the undertaking is mainly for the benefit of the original debtor,it can be recognized as a guarantee.If the undertaking has direct and actual interests,it can be recognized as a debt addition.In this case,given the purpose for which China Urban Construction Group bears the repurchase obligation,whether it has actual interests,whether it has the right to claim compensation from Henan Urban Construction Group,and the scope of the claim,it is not clear that it is difficult to directly establish a joint liability guarantee.In summary,based on a comprehensive judgment of the issuance process and agreed content of the Letter of Commitment,it is considered more appropriate for China Urban Construction Group to constitute a debt.

[Case Analysis]

The purpose of debt addition and guarantee is to ensure the realization of creditor's rights.Without exempting the original debtor from liability,a third party is added to assume liability together with the original debtor.Due to the similarity between guarantees,especially joint and several liability guarantees,and debt addition in terms of external characteristics and liability bearing methods,it is difficult to define the legal consequences of both parties due to confusion.

The author believes that the debt of the undertaker added to the debt is his own debt standing side by side with the original debt;"Guaranteed debt is a debt that guarantees the debt of another person and is attached to the main debt.After assuming the guarantee responsibility,the guarantor has the right to recover from the debtor.".

On November 15,2019,Article 89 of the Minutes of the Civil and Commercial Judicial Work Conference of the National Court issued by the Supreme People's Court mentioned that if the trust contract stipulates that the transferor or a third party designated by it shall unconditionally repurchase the subject matter transferred by the transferor at a fixed price such as transaction principal plus premium after a certain period of time,regardless of whether the subject matter transferred by the transferor actually exists,whether it is actually delivered or transferred,as long as there is no legal cause for invalidity in the contract,The people's court shall support the litigation request made by the trust company that the transferor or its designated third party bear the responsibility according to the agreement.Article 91 stipulates that if a party other than a trust contract provides similar commitment documents such as third-party margin replenishment,agency performance of due repurchase obligations,liquidity support,and other similar commitment documents as credit enhancement measures,and the contents thereof comply with the provisions of the law on guarantees,the people's court shall determine that a guarantee contract relationship is established between the parties.If the content does not comply with the provisions of the law on guarantees,the corresponding rights and obligations shall be determined based on the specific content of the commitment document,and the corresponding civil liability shall be determined based on the facts of the case.

Therefore,in accordance with the relevant provisions of the Minutes of the Civil and Commercial Trial Work Conference of the National Court of Justice,when a third party provides similar commitment documents to perform due repurchase obligations as a credit enhancement measure,in order to prevent the repurchase clause from being recognized as a guarantee,when designing the repurchase clause of a transaction contract,it is necessary to reflect the transaction nature of the repurchase clause as much as possible to avoid the semantic or wording of the guarantee,which may lead to ambiguity in expression.If the parties'intention is unclear,a comprehensive judgment should be made based on specific circumstances.If the undertaking is mainly for the benefit of the original debtor,it can be recognized as a guarantee.If the undertaking has direct and actual interests,it can be recognized as a debt addition.

(This article is translated by software translator for reference only.)