Case Analysis | Estate Debt Repayment Dispute Case

Where a creditor claims repayment for a debt incurred by one spouse in his or her personal name during the existence of the marital relationship, such debt shall be deemed marital joint debt unless the surviving spouse can prove the debt is the deceased spouse’s personal debt, or that the circumstance stipulated in Paragraph 3 of Article 19 of the Marriage Law of the People’s Republic of China applies.

Repayment of marital joint debts shall first be borne jointly and severally by the surviving spouse for all joint debts incurred during the marriage. Meanwhile, each heir shall bear joint and several repayment liabilities within the scope of the estate inherited.

Liu Jia was an employee of a Beijing company during his lifetime. Zheng and Liu Jia registered their marriage on June 18, 1999. Liu Yi is Liu Jia’s son and Zheng’s stepson. Liu Laoliu and Zhang are Liu Jia’s parents.

On June 15, 2004, Liu Jia signed a loan note and borrowed RMB 150,000 from the Beijing company for the purpose of purchasing a vehicle. Liu Jia passed away due to illness on May 1, 2011. After his death, the Beijing company failed to demand repayment of the RMB 150,000 loan from Liu Jia’s heirs and consequently filed a lawsuit with the people’s court.

The Beijing company alleged in the court of first instance: Our former employee Liu Jia passed away on May 1, 2011. During his employment, he borrowed RMB 150,000 from our company to purchase a vehicle. The company has repeatedly urged repayment without result. Since Zheng, Liu Yi, Liu Laoliu and Zhang are all first-order statutory heirs of Liu Jia and have not explicitly renounced the right of inheritance, we institute litigation to safeguard our legitimate rights and interests, requesting the court to order:

Zheng defended in the court of first instance: The creditor’s claim arose in 2004 and has exceeded the statute of limitations. The vehicle was not purchased solely by Liu Jia but with company dividend funds. I oppose the plaintiff’s claims.

Liu Yi failed to appear in court or submit any defense.

Liu Laoliu and Zhang did not appear in court but submitted a written statement:
We fully accept all claims of the Beijing company and agree that the loan shall be repaid in priority from Liu Jia’s estate. Estate distribution shall be conducted in accordance with the will and relevant laws after full repayment of the loan.

The court of first instance held: Under the Civil Procedure Law of the People’s Republic of China, parties have the right to defend and cross-examine evidence adduced by the opposing party. Liu Yi, Liu Laoliu and Zhang were lawfully summoned by the court but refused to appear without just cause, which shall be deemed a waiver of their right to defense and cross-examination.

The creditor-debt relationship between the Beijing company and Liu Jia is clear and legitimate, and Liu Jia was obligated to repay the loan. The loan was incurred during the marital relationship and shall be deemed marital joint debt, hence Zheng, as the surviving spouse, bears the repayment obligation. Following Liu Jia’s death, Liu Yi, Liu Laoliu and Zhang, as his heirs, shall bear joint and several liability together with Zheng within the scope of the inherited estate.

Since no definite repayment date was agreed upon for the loan, the Beijing company may assert its claim at any time. The court therefore rejects Zheng’s defense that the claim is time-barred.

In accordance with Article 108 of the General Principles of the Civil Law of the People’s Republic of China, Articles 10 and 33 of the Succession Law of the People’s Republic of China, Article 24 of the Judicial Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of the Marriage Law of the People’s Republic of China, and Article 144 of the Civil Procedure Law of the People’s Republic of China, the court ruled:

Any party failing to perform the monetary obligation within the prescribed period shall pay double interest on the delayed performance in accordance with Article 253 of the Civil Procedure Law of the People’s Republic of China.

Dissatisfied with the first-instance judgment, Zheng filed an appeal, requesting:

Grounds of appeal:
No genuine lending relationship existed between the appellee and Liu Jia. As a shareholder of the company, the fund for vehicle purchase was essentially shareholder dividends. Liu Jia had already returned relevant invoices to the company, so no such debt exists. Even if the debt exists, the court applied the law incorrectly on liability allocation. Liu Jia’s estate has been notarized and inherited solely by Liu Yi, who alone should assume the repayment obligation.

The Beijing company accepted the first-instance judgment and opposed the appeal. Liu Yi, Liu Laoliu and Zhang submitted written statements accepting the original judgment.

The appellate court confirmed the facts ascertained by the first-instance court, as supported by party statements on file.

The appellate court held: A party shall bear the burden of proving the facts relied upon to support its claims or refute the opposing party’s claims. A party who fails to adduce sufficient evidence shall bear the adverse legal consequences.

The loan note written by Liu Jia clearly specifies a RMB 150,000 loan for personal vehicle purchase, and the vehicle was registered under Liu Jia’s name. Zheng’s claim that the sum was actually shareholder dividends and not solely for Liu Jia’s personal vehicle purchase lacks supporting evidence, and the appellate court confirms the fact of the loan for vehicle purchase.

Upon the death of one spouse, the surviving spouse shall bear joint and several liability for marital joint debts incurred during the marriage. A debt incurred by one spouse in personal name during the marriage shall be treated as marital joint debt. The debt incurred by Liu Jia during his marriage constitutes joint debt with Zheng, who shall bear joint and several liability. As Liu Jia’s estate has not yet been fully partitioned, Zheng shall be primarily responsible for repayment, while Liu Yi, Liu Laoliu and Zhang shall bear joint and several liability within their respective inherited estate scope. The first-instance judgment is correct and shall be affirmed.

In conclusion, the first-instance judgment has correctly ascertained facts and applied the law. In accordance with Item 1 of Paragraph 1 of Article 170 of the Civil Procedure Law of the People’s Republic of China, the appellate court dismisses the appeal and upholds the original judgment.

The core dispute of this case is whether Zheng, Liu Yi, Liu Laoliu and Zhang shall be obligated to repay the RMB 150,000 loan borrowed by Liu Jia from the Beijing company for vehicle purchase during his lifetime.

First, regarding the authenticity of the estate debt: Based on evidence such as the loan note and vehicle purchase invoice submitted by the Beijing company, the court confirmed that the creditor-debt relationship is clear and genuine, and Liu Jia was legally obligated to make repayment.

Second, regarding the nature of the estate debt: As the loan arose during the marital relationship, it shall be deemed marital joint debt pursuant to Article 24 of the Judicial Interpretation (II) of the Marriage Law. This rule applies unless Zheng can prove either that the debt was Liu Jia’s personal debt, or that the couple had a separate property agreement known to the Beijing company. In this case, Zheng failed to adduce any such evidence. Therefore, as Liu Jia’s spouse, Zheng shall bear joint and several liability for the debt incurred by Liu Jia in his personal name during the marriage.

Meanwhile, pursuant to Article 33 of the Succession Law of the People’s Republic of China, Liu Yi, Liu Laoliu and Zhang, as Liu Jia’s heirs, shall bear joint and several repayment liabilities with Zheng within the scope of the estate each inherits.