8 For the purpose of expanding his business, Mr Zhang borrowed RMB 100,000 yuan from Mr Lee and would provide
a mini-bus as the pledge to Mr Lee. However, Mr Lee returned the mini-bus to Mr Zhang because he did not hold a
Subsequently, Mr Zhang borrowed another RMB 100,000 yuan from Mr Wang and put the mini-bus as the pledge
to Mr Wang. After the conclusion of the loan agreement and pledge agreement, Mr Zhang delivered the mini-bus to
During the period of his possession of the mini-bus, Mr Wang concluded a rental agreement with a transport company
without the advance consent of Mr Zhang. The mini-bus was put into transportation service by the transport company
but was totally destroyed in a traffic accident.
Upon the expiration of the loan agreement, Mr Zhang came to repay the principal and interest. However Mr Wang
could not return the pledged mini-bus to him.
Answer the following questions in accordance with the relevant provisions of the Property Law of China and give
your reasons for your answer:
(a) explain whether the pledge agreement between Mr Zhang and Mr Lee came into effect; (3 marks)
(b) explain what the legal relationship between Mr Zhang and Mr Wang was; (2 marks)
(c) explain whether Mr Wang was entitled to lease the mini-bus to the transport company; and (2 marks)
(d) explain against whom Mr Zhang should act in law for the recovery of the mini-bus. (3 marks)
9 Since Hongyan Mechanical Engineering Co Ltd (Hongyan Co) could not settle the huge amount of debts due, its
creditors applied for bankruptcy in the competent people’s court. The court accepted the application of the creditors
and declared the bankruptcy of Hongyan Co. The court designated a bankruptcy administrator to be in charge of the
bankruptcy liquidation. During the process of bankruptcy liquidation, the bankruptcy administrator formulated a list
of bankruptcy assets, debts due and declared credits.
(a) the appraised bankruptcy assets of Hongyan Co were as follows:
(i) Office building – appraised value of RMB 2,400,000 yuan, mortgaged for a loan borrowed from the
(ii) Investment to a mutual fund – RMB 1,400,000 yuan.
(iii) A rental receivable from Company A – RMB 1,900,000 yuan.
(iv) Giving up a creditor’s right due 10 months before the bankruptcy of Hongyan Co – RMB 1,000,000 yuan.
(b) the declared credits by Hongyan Co’s creditors were as follows:
(i) Communication Bank’s loan – principal RMB 2,000,000 yuan with 10% of annual interest rate for two
(ii) Company A’s credit due – RMB 7,000,000 yuan.
(iii) Company B’s credit under a sales contract payable by Hongyan Co – RMB 1,500,000 yuan.
(iv) Company C’s damages due to the termination of contract by the bankruptcy administrator –
RMB 1,400,000 yuan.
Answer the following questions in accordance with the relevant provisions of the Enterprise Bankruptcy Law of
China and give your reasons for your answer:
(a) state which creditor should be satisfied in the priority order in the allocation of the bankruptcy assets;