Can I ask for payment if the equity transfer payment exceeds the time limit？

Say "Dian" by case

A middle school in Kunming once invested with a factory in Qujing to build a production line. In 2005, the school transferred the invested equity to a factory at a fixed price. In 2021, the school found that the other party failed to pay the equity transfer fee as agreed, so it filed a lawsuit with the Zhanyi District People’s Court of Qujing City.

Then, 16 years have passed, and now can you win by asking the other party to pay the equity transfer money?

The key depends on whether the other party advocates the defense of the statute of limitations.

Details of the case

Zhang, an industrial company in Qujing, a middle school in Kunming, a chemical plant in Yunnan and a management office in Qujing signed a joint operation agreement, stipulating that the five parties would invest in building a production line with a total investment of 1.05 million yuan. After the agreement was signed, a middle school in Kunming invested 280,000 yuan.

In April 2005, a factory in Qujing (Party A) and the school (Party B) re-signed the share transfer agreement, stipulating that Party B would lose 40% of its shares on the basis of the investment of 280,000 yuan, and then deduct 50,000 yuan paid by Party A to the school, and transfer 118,000 yuan as shares to Party A.. Both parties agreed to pay 68,000 yuan before December 31, 2005 and 50,000 yuan before December 31, 2006.

A factory argued that the school sued a factory in Huashan, Qujing to pay the share transfer fee of 118,000 yuan, which exceeded the limitation of action, and rejected all the claims of the respondent according to law.

Court judgment

After hearing the case, Zhanyi Court held that the share transfer agreement of a factory actually happened in 2005, and the contract law should be applied to this case. The key to this case is whether the share transfer agreement signed by both parties exceeds the limitation of action.

With regard to the limitation of action, the general principles of the Civil Law stipulate that the limitation of action for requesting protection of civil rights from the people’s court is two years, unless otherwise stipulated by law.

The share transfer agreement signed by a middle school in Kunming and a factory in Huashan, Qujing is legal and valid. According to the payment time agreed by both parties in the agreement, the last payment of a factory should be paid before December 31, 2006, and the statute of limitations starts from January 1, 2007, and the statute of limitations is 2 years.

During the trial, the school did not show the factual basis for claiming the right to payment from January 1, 2007 to December 31, 2008, and there was no suspension or interruption during the two-year period from January 1, 2007 to December 31, 2008. Therefore, the school’s request for a factory to pay the equity transfer payment has exceeded the limitation of action, and the defense of a factory’s limitation of action has factual and legal basis, which can form an effective defense against the school’s application.

Therefore, the claim that the school requests a factory to pay the equity transfer fee cannot be established.

The limitation of action is the period during which the parties request the people’s court to protect their civil rights, which is divided into ordinary limitation of action and the longest period of rights protection. The Civil Code stipulates that the ordinary limitation of action is three years and the longest limitation of action is twenty years. If the parties agree to perform the same debt by stages, the limitation period of action shall be counted from the date when the last performance period expires.

For ordinary creditor’s rights, if one party claims the right beyond the limitation of action and the other party does not claim the defense beyond the limitation of action, then the party claiming the right will not lose the right to win the lawsuit because of the limitation of action. If the other party claims that the limitation of action is exceeded, and the party claiming rights does not suspend or interrupt the limitation of action, the claim will be rejected because the limitation of action is exceeded.

It should be noted that the period, calculation method and reasons for suspension and interruption of the limitation of action are stipulated by law, and the agreement of the parties is invalid. The parties’ prior waiver of the interests of limitation of action is invalid.

Related laws and regulations

Civil Code of People’s Republic of China (PRC)

Article 188 The limitation of action for requesting protection of civil rights from a people’s court shall be three years. Where there are other provisions in the law, such provisions shall prevail.

The limitation period of action shall be counted from the day when the obligee knows or should know that the right has been damaged and the obligor. Where there are other provisions in the law, such provisions shall prevail. However, if more than 20 years have passed since the right was damaged, the people’s court will not protect it. Under special circumstances, the people’s court may decide to extend it according to the application of the obligee.

Article 189 Where the parties agree to perform the same debt by installments, the limitation period of action shall be counted from the date when the last installment expires.