[Case Details]

On December 3, 2013, Hu signed a loan contract with Dongxing Branch of Jingjiang Rural Commercial Bank Co., Ltd. (hereinafter referred to as “the Bank”), stipulating that Hu applied a loan of 28 million yuan from the Bank. On the same day, Taizhou Jintai Shipping Co., Ltd. (hereinafter referred to as “Jintai Company”), XX Zhang, X Zhang, Wu, and Mao signed a guarantee contract with the Bank, stipulating that Jintai Company, XX Zhang, X Zhang, Wu, and Mao shall provide joint liability guarantee for all principal, interest, overdue interest, penalty interest, compound interest, damages, expenses for realizing creditor’s rights and all other expenses for realizing creditor’s rights under the above contract. Hu and Jintai Company signed a mortgage contract with the Bank, stipulating that all “Jintai 528” bulk carriers of Hu and Jintai Company provide mortgage guarantee for the above loan, with the guarantee amount of 28 million yuan, and the scope of guarantee covers the principal, interest, overdue interest, penalty interest, compound interest, damages, expenses for realizing creditor’s rights and all other expenses for realizing creditor’s rights under the master contract. After the expiration of the repayment period, Hu still owed a principal of 26.93 million yuan and failed to return it according to the contract. The Bank appealed to Nanjing Maritime Court, requesting that Hu immediately repay the loan principal of 26.93 million yuan and the interest until the date of repayment. Jintai Company, XX Zhang, X Zhang, Wu and Mao shall bear joint and several liability. The Bank has the priority to be compensated for the price obtained from auction, sale and discount of “Jintai 528” bulk carriers mortgaged by Hu and Jintai Company for the above debts.

[Verdict]

Nanjing Maritime Court held upon trial that, according to Article 58 of the Minutes of Civil and Commercial Trial Work of National Courts issued by the Supreme People’s Court on November 8, 2019, in the confirmation of the scope of guarantee for real estate security, if the scope of guarantee agreed in the contract is inconsistent with the registration due to the setting of regional registration system and registration rules, it is an appropriate choice for the People’s Court to confirm the scope of guarantee for real estate security by contract. In the practice of Jiangsu’s ship mortgage registration authority, the registration system does not set the column of “guarantee scope”, and generally only has the expression of “amount of creditor’s rights”, and only a fixed number can be filled in. Due to the technical conditions, the registration authority usually only registers the amount of principal creditor’s rights in it. In this case, the registration authority recorded the amount of creditor's rights of 28 million yuan in the mortgage of “Jintai 528” bulk carriers, which only indicated the amount of principal creditor’s rights, but did not limit the guarantee scope of ship mortgage to 28 million yuan. In this case, the mortgage of “Jintai 528” bulk carrier involved in this case, as a special movable property, is inconsistent with the contract agreement due to the setting of the registration system of the ship mortgage registration authority. Therefore, the scope of mortgage guarantee may be determined as covering the principal creditor’s rights, interest, penalty interest and other expenses by reference to the spirit of meeting minutes, instead of simply confirming the registered creditor’s rights amount of 28 million yuan as the guarantee scope of ship mortgage. Therefore, the defendant, Hu, repaid the plaintiff, the Bank, the loan principal of 26.93 million yuan and accrued interest, and the defendants, Jintai Company, XX Zhang, X Zhang, Wu and Mao bore joint and several liabilities for liquidation. The plaintiff, the Bank, was given the priority of compensation for the proceeds from the auction, sale and discount of “Jintai 528” bulk carrier. After the judgement of the first instance was pronounced, neither party lodges an appeal.

[Significance]

There are disputes in practice as to whether the guarantee scope of ship mortgage shall be based on the amount of creditor’s rights registered in mortgage or the guarantee scope agreed in contract. The typical significance of this case lies in the establishment of the rules for the determination of the scope of creditor’s rights guaranteed by ship mortgage, that is, if the scope of ship mortgage secured as agreed in the contract is inconsistent with that of the mortgage registration, the contract shall prevail. At present, due to the technical conditions, the ship mortgage registration authorities in some areas of China usually only register the amount of the principal creditor's rights on the ship mortgage certificate, which leads to disputes over whether the scope of the creditor’s rights guaranteed by ship mortgage cover interest, penalty interest and other expenses. In the trial process of this case, instead of simply equating “the amount of creditor's rights” with “the scope of guarantee”, based on the analysis of the current legal provisions and referring to the rules for determining the scope of guarantee of real property rights in the Minutes of Civil and Commercial Trial Work of National Courts, it is determined that the scope of ship mortgage should be based on the contractual agreement of the parties, which provides targeted referee guidance for the people’s court to determine the scope of creditor’s rights guaranteed by ship mortgage, and can also promote the maritime department to further improve the ship mortgage registration system, which is conducive to standardizing the ship financing order and ensuring ship financing safety and the health of the whole shipping industry.

[First-instance Trial, Case Number] (2020) Jiangsu 72,Civil Case First Instance No.19