Case Description

Company A has two loans with the same amount and repayment period in a certain bank. The difference between these two loans is that one has secured the company A's own plant and the other has no mortgage. There is no agreement on the repayment order in the loan contract between the two parties. Currently, the funds in the hands of Company A are only sufficient to repay one of the loans. Company A hopes to give priority to the repayment of the loans with mortgages, but is worried that the bank will refuse, and does not know whether it has the option to repay them.

Lawyer Analysis

Before the implementation of the Civil Code, there were two ways to offset debts: "agreed offset" and "statutory offset". As the name implies, "agreed offset" refers to the agreement between the debtor and the creditor on the order of repayment of the debt; "Legal offset" refers to paying off debts in accordance with the order of debt repayment prescribed by law. Generally, if there is an agreed offset, the agreed offset is applicable. If there is no agreed offset, the statutory offset is applicable. The Civil Code has improved the aforementioned methods of debt repayment and offset, adding a new method of "designated offset" based on the original two methods of "agreed offset" and "statutory offset".

According to Article 560, Paragraph 1, of the Civil Code, designated offset refers to "if the debtor has the same types of debts owed to the same creditor, and the debtor's payment is not sufficient to pay off all the debts, unless otherwise agreed by the parties, the debtor shall designate them to perform the debts when paying off." From the above provisions, it can be seen that designated offset is a right enjoyed by the debtor, Its application needs to meet the following conditions simultaneously: ① The debtor bears multiple debts to the same creditor, and the types of these multiple debts are the same; ② The creditor and the debtor have not agreed on the order of debt repayment; ③ The debtor's payment is insufficient to repay multiple debts; ④ The debtor clearly specifies which debt to pay off while paying off. It can be seen that when the debtor's payment is insufficient to repay all debts, he has the right to exercise the designated right of set-off and decide on which debt to repay first.

The application of designated offset, agreed offset, and statutory offset can be divided into the following order: agreed offset, designated offset, and statutory offset. This means that when the creditor and the debtor have agreed to offset, the agreed offset shall prevail; If there is no agreed offset, the debtor can exercise the designated offset; "If there is no agreed offset and the debtor fails to exercise the designated offset when paying off, the payment shall be made in accordance with the provisions of Article 560 (2) of the Civil Code on statutory offset.".

Specifically, in this case, Company A's loans to the bank are multiple debts of the same type; There is no agreement between Company A and the bank on the method of debt repayment and offset, so Company A has the right to choose a designated offset method that is more advantageous to itself to determine the repayment order when repaying the debt.

When selecting the designated offset method, Company A should pay attention to two details: First, Company A should specify the offset when paying off the debt, as the designated offset after payment cannot have corresponding legal effect. Therefore, Company A should indicate the contract number of the loan repayment on the remittance voucher, in order to determine which loan is repaid by Company A; The second is to communicate with the bank in a timely manner after the remittance, and clearly inform the bank which loan is to be repaid. As designated offset is a right granted to the debtor by the Civil Code, as long as Company A exercises the designated offset right in accordance with the law, the designated offset will have legal effect, and even if the bank does not approve it, it will not affect the legal effect of the designated offset of Company A of the debtor.