The Effectiveness of Notarized Credit Agreement from the Perspective of Compulsory Enforcement

Abstract

The credit agreement is a common form of business contract in financial activities, which means that financial institutions and natural persons or legal persons agree to issue loans to borrowers within the credit limit upon application. However, while the credit agreement brings benefits to multiple parties in the financial society, it also brings certain risks. The signing of the credit agreement is based on the trust of financial institutions in the credit and financial status of borrowers. Once the credit status of the borrower changes, due to the existence of the credit agreement, financial institutions do not repeatedly review the credit status of the borrower, thus making it difficult to promptly grasp the changes in the borrower's credit status and unable to promptly stop the issuance of loans. When the borrower fails to repay the loan on time, the compulsory enforcement of the credit agreement becomes inevitable. To avoid the burden of litigation and shorten the period of debt collection, financial institutions generally notarize the credit agreement to endow it with compulsory enforcement power. However, when the credit agreement is combined with specific business contracts, whether the credit agreement has compulsory enforcement power beyond the specific business contract is understood differently by financial institutions and borrowers, and they are in dispute. The courts also have inconsistent determinations on this issue in practical trials, and there are no clear regulations in current laws and regulations. This article takes a real case from a certain district court in City C, Province S as an introduction and conducts a detailed discussion on this issue, with the aim of obtaining more legal and reasonable enforcement suggestions.