Bank Enforces Mortgage After CNY 5 Million Loan Default
The Eastern China City Branch of a major Chinese bank (the Bank) filed a lawsuit against Eastern China City Electric Appliances Co., Ltd. (the Company) after the Company defaulted on a 5 million CNY working capital loan. The loan was secured by a maximum amount mortgage over industrial land. The court ruled in favor of the Bank, ordering the Company to repay the full principal plus interest, penalties, and compound interest, and allowing the Bank to enforce the mortgage by selling the land and collecting proceeds.
In October 2010, the Company entered into a maximum amount mortgage agreement with the Bank, covering all loans made between October 21, 2010 and October 20, 2012, up to a total of 8.04 million CNY. The mortgage was over a parcel of industrial land measuring 19,864 square meters located in Eastern China City (Yanzhan area). The mortgage was properly registered with the local land authority, and the Bank obtained a mortgage certificate. In November 2010, the Bank and the Company signed a working capital loan agreement for 5 million CNY, with a one-year term ending November 1, 2011. The interest rate was fixed at 7.506% per annum, with monthly interest payments. The loan was secured by the existing maximum amount mortgage. The Bank disbursed the full 5 million CNY on November 1, 2010. The Company made interest payments only until September 20, 2011, and then stopped paying both interest and principal.
The Bank initiated legal proceedings on December 7, 2011, and on the same day obtained a court order preserving the mortgaged land by seizure. The court applied ordinary procedures and held a public hearing on March 14, 2012. The Bank’s authorized representative, Mr. Chen, attended the hearing in person. The Company, despite being properly served with summons, failed to appear without any justified reason. The court proceeded with a default judgment. The Bank presented seven pieces of evidence, including copies of the loan contract, mortgage agreement, land registration certificate, mortgage registration documents, loan receipt, default notice, and a shareholder resolution approving the mortgage. The court verified the original documents and admitted all evidence as lawful, authentic, and relevant to the case.
The court found that both the working capital loan contract and the maximum amount mortgage contract were legally valid and binding. The Company had clearly breached the loan agreement by failing to repay the 5 million CNY principal and any interest after September 20, 2011. The court ordered the Company to repay the full principal amount as well as all outstanding interest, penalty interest, and compound interest from September 21, 2011 onward, calculated strictly according to the contract terms. The court also held that the Bank, as the mortgagee, was entitled to enforce the mortgage and had priority in receiving proceeds from the sale of the mortgaged land to satisfy the debt.
The court