CASE OF DISPUTE CONCERNING PLEDGE OF NEGOTIABLE INSTRUMENTS
TIANJIN BRANCH OF CHINA BANK OF INVESTMENT V.
TIANJIN LIGHT INDUSTRY
FOREIGN TRADE COMPANY
Plaintiff: Tianjin Branch of China Bank of Investment.
Legal Representative: Zhang Aiguo, president.
Defendant: Tianjin Light Industry Foreign Trade Company.
Legal Representative: Wang Shirong, Manager General.
Plaintiff Tianjin Branch of China Bank of Investment (hereinafter Bank of Investment) brought a suit in Tianjin Higher People's Court because of its dispute with Tianjin Light Industry Foreign Trade Company (hereinafter Light Industry Company) concerning pledge of negotiable instruments.
Plaintiff pleaded: On June 23, 1995, defendant Light Industry Company submitted to our Bank an application for usance L/C pledged with bill of exchange, the total worth of which was USD 2,719,000. It was pledged with a bill of exchange honored by bank, the worth of which was RMB 2,530,000 yuan. After reviewing, our Bank issued an unrevocable usance L/C. Respectively on July 26 and August 7, 1995, our Bank received bills for negotiation from foreign negotiating banks, the total worth of which was USD 2,709,044.88, so we presented the bills to the Light Industry Company. Light Industry Company affirmed the payment of the bill after examining the document within stipulated limitation, and pledged with six one-year bills of exchange honored by bank, total worth RMB 22,486,000 yuan, which was issued on August 2 and August 14, 1995, the acceptor of which was Kunshan Branch of the Industrial and Commercial Bank of China, and the formalities for redeeming documents were went through. two separate occasions our Bank accepted the bills and the date of payment was affirmed. Our Bank will pay the sum of money under the L/C on August 2 and August 14, 1996. However, Light Industry Company didn't pay security deposit for issuance of bill. If our Bank can't exercise the right to the pledged bills before paying the sum of money under the L/C, it will affect the payment to others by our Bank, and consequently the reputation of our Bank will be damaged. Therefore it is petitioned that the pledging of the bills be affirmed as lawful and effective. If the bills were defected, it is petitioned that Light Industry Company shall pay USD 2,719,000, which is the sum of security deposit.
Defendant pleaded: Our Company is for import and export. In May 1995, as commissioned by Jiangsu Province Kunshan City Manufacture Service Company (hereinafter Kunshan Company), our Company imported wool as an agent. According to the agreement, our Company applied for L/C to Bank of Investment. After the documents for import arrived, our Company will get back the documents for import with the six bills of exchange honored by bank pledged for redeeming documents. So the pledging of bills between our Company and Bank of Investment is lawful and effective. The contractual dispute concerning foreign trade agency between our Company and Kunshan Company doesn't involve Bank of Investment, and this shall not affect the validity of the pledging of bills between the parties of the present case. Our Company has tried our best to safeguard the lawful rights and interests of the holder of the bills, and if the right of the Bank of Investment shall be infringed upon, this shall not be the fault and responsibility on the part of our Company. The Bank of Investment that has accepted the pledging of bills is a specialist bank; it has not only the obligation but also the means of examination. If Bank of Investment think that the bills have defects, the liability shall not be on our Company. It is petitioned that the court judge according to law.
Tianjin Higher People's Court ascertained through trial: on June 23, 1995, because of the importing of wool from Australia Wan Hon Company as an agent for Kunshan Company, defendant Light Industry Company applied to plaintiff Bank of Investment for usance L/C pledged with bill of exchange payable on sight, the total worth of which was USD 2,719,000 and the duration of which was 360 days. Light Industry Company pledged with 90-day usance bills of exchange honored by bank, agreeing that when the documents under the L/C has arrived, a 360-day usance bill of exchange honored by bank the worth of which was equivalent to the sum of money on the invoice shall be submitted to Bank of Investment in order to redeem documents. Before that, the ownership of the goods belongs to the Bank of Investment. After examination, Bank of Investment issued No. 1295YQ1046 unrevocable documentary L/C; price: CIF Xiamen; negotiation duration: 360 days; negotiable against valid documents, invoices and 360-day usance bill of exchange payable on sight with Bank of Investment as negotiating bank, which shall submitted by beneficiary Australia Wan Hon Company.
On July 26 and August 7, 1995 respectively, plaintiff Bank of Investment received negotiating documents, total worth of which was USD 2,709,044.88, from foreign negotiating banks West Pacific Bank and Australian National Bank. After examination by defendant Light Industry Company of the documents as valid, the date of payment were affirmed as August 2 and August 14, 1996. At the same time, Light Industry Company pledged to Investment Bank with six bills of exchange honored by bank, acceptor bank being Kunshan Branch of Industrial and Commercial Bank of China, remittee being Light Industry Company, date due being July 26 and August 14, 1996, and the total worth being RMB 22,486,000 yuan. The formalities of pledging for redeeming were completed through endorsement. Through two occasions Bank of Investment honored the documents of negotiating banks of the L/C issued, and the dates due were affirmed as July 26 and August 14, 1996.
It was also made clear: After the documents for Australia Wan Hon Company to import wool arrived at plaintiff Bank of Investment, in order to submit money to redeem the documents, on August 2 and August 14, 1995 respectively, Kunshan Company issued to defendant Light Industry Company six bills of exchange honored by bank, the serial numbers of which being from 'IXIV04365656' to '59' and from 'IXIV04365673' to '74', the total worth being RMB 22,486,000 yuan, and it was written on the bill ' untransferrable'.
It was also made clear: defendant Light Industry Company is now unable to liquidate the debt to plaintiff Bank of Investment.
The facts above are supported with application for issuance of L/C, Contract for Import, L/C, Notice of Import Documents, letters and documents concerning the pledging, letters and documents of acceptance, bills of exchange honored by banks, the statements by the parties and other evidence.
Tianjin Higher People's Court held: having paid negotiating banks after receiving documents plaintiff Bank of Investment paid consideration, so it was good faith holder of the bill of exchange. Defendant Light Industry Company applied to Bank of Investment for L/C and commissioned it to pay money to abroad; after the Bank of Investment have completed the commission, a new relationship of credit and debt has been formed between the parties. With reference to Article 75 and Article 76 of Law of the People's Republic of China on Security, in order to guarantee the performance of its obligation of payment, Light Industry Company has the right to transfer by endorsement to Bank of Investment six bills of exchange with itself as remittee and with the term 'untransferrable' on it, constituting pledge of rights. Since pledge of rights can only make pledgee possess the thing pledged and no right of ownership got transferred, so the term 'untransferrable' on the bill of exchange doesn't affect the lawfulness and validity of the contract of pledging between the two parties. Referring to Article 76 of Law of Security, contracts of pledging become effective upon the date when the certificate of right was transferred. Bank of Investment possessed the bill through pledging; it also paid consideration through paying negotiating banks after receiving documents, so it was good faith holder of the Bill of Exchange. With reference to Article 81 and Article 63 of the Law on Security, Bank of Investment has the right to exercise the rights on the bill and has priority of claim when Light Industry Company cannot pay its debts. The agreement of 'untransferrability' and the contractual disputes between Light Industry Company and persons that are not parties to this case are the relationship of reasons of bills to Bank of Investment who possessed the bills through pledging. The relationship of reasons of bills cannot prevail over good faith holder of bills who obtained the bills through lawful channels and has paid consideration for this. Accordingly, Tianjin Higher People's Court held on July 9, 1996:
It is reaffirmed that the pledging by defendant Light Industry Company to plaintiff Bank of Investment of six bills of exchange honored by bank, the serial numbers of which are IXIV04365656--59 and IXIV04365673- -74, shall be valid; plaintiff can exercise its rights on the bills of exchange as right of pledge. The acceptance fee of this case 141,000 yuan shall be shouldered by defendant Light Industry Company.
After the judgment was announced, neither party appealed.
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