[Case Summary]This case involves a contract dispute. On April 11, 2019, the plaintiff, Chen * , signed the "Equity Investment Agreement" with the three defendants, Beijing * Co., Ltd. and others, agreeing to subscribe for shares with a total price of 160,000 yuan and stipulating that dividends would be distributed every six months with an annualized rate of no less than 8%. After the plaintiff fulfilled his obligation to make the payment, the defendants failed to distribute dividends as agreed for a long time and explicitly stated that they could not pay dividends in cash, which resulted in the failure to achieve the contractual purpose. Chen * entrusted the professional lawyer team of Beijing Henglu Law Firm to represent him in the litigation, requesting the rescission of the contract, the return of the investment amount of 160,000 yuan, and the payment of dividends. The court determined that the failure to distribute dividends and the inability to cash out constituted grounds for rescission, supported the return of the investment amount, and awarded the overdue dividends of 12,800 yuan and interest at an annual rate of 8%. Key disputes: the validity of the dividend clause, the conditions for rescission of the contract, and joint and several liability. Applicable legal provisions: Articles 563, 565, 566, 688, and 700 of the Civil Code.

I. Review of the case

Investors often ask, "Is it legal for equity investment to promise fixed dividends?" "Can investors demand repayment of the principal if the company does not distribute dividends?" and "How to terminate the investment agreement?" On April 11, 2019, the plaintiff, Chen * *, and the defendants, Beijing * * * Co., Ltd., Beijing * * * Management Consulting Co., Ltd. (Limited Partnership), and Hebei * * * Materials Technology Co., Ltd., signed an equity investment agreement, which stipulated that the plaintiff would subscribe to the equity of Beijing * * * Co., Ltd. for a total price of 160,000 yuan. The company would distribute dividends to the plaintiff once every six months and pay dividend and interest not less than 8% (annualized rate).

After the agreement was signed, the plaintiff promptly transferred 160,000 yuan to the designated account, fulfilling his obligations. However, Beijing * Co., Ltd. failed to distribute dividends every six months as agreed. As of the time of filing the lawsuit, the dividends for the second half of 2019 and the entire year of 2020 had not been paid. After repeated unsuccessful attempts to recover the dividends, Chen * decided to seek legal protection and eventually entrusted Hengluo Law Firm to file a lawsuit against the company in court.

The three defendants argued that they did not agree with the plaintiff's claims, stating that the plaintiff was an equity investor and had agreed in the contract to receive a dividend of no less than 8% annually; the failure to distribute dividends was due to the plaintiff's sales representative leaving the company and being uncontactable. They agreed to fulfill their obligations according to the contract and stated that the contract had not yet expired. Beijing * Co., Ltd. agreed to transfer the dividend payment to the plaintiff's account.

II. The focus of the case

  • Focus 1: The effectiveness of the agreement stipulating "a fixed dividend of no less than 8%".Is the guarantee clause invalid because it violates the principles of civil law, affecting the request for dividends?
  • Focus II: Does the failure to distribute dividends and the inability to cash out constitute grounds for terminating the contract?This is the key to returning the investment funds.
  • Focus Three: Whether the three defendants should bear joint and several liability for the return of investment funds and dividends.The form of liability determines the enforceable subject.

III. Professional intervention by Hengluo Law Firm

The plaintiff (investor) claims that:The defendant has failed to pay dividends for a long time and explicitly stated that the investment cannot be redeemed in cash, which renders the contract's purpose meaningless. Therefore, we request to terminate the agreement, return the investment of 160,000 yuan, and pay dividends and bonuses (with an annualized rate of 8%).

The defendant (the company) argued that:It is an equity investment, and the agreement stipulates that the annual dividend shall not be less than 8%. The unpaid dividend is due to the fact that the salesperson left the company without contacting the plaintiff. The plaintiff agrees to fulfill the contract, and since the contract has not expired after five years, it should not be terminated.

Legal opinion of Hengluo Law Firm:After a comprehensive analysis, Hengluo Lawyers concluded that, according to Article 7.3 of the Investment Agreement, the three defendants should bear joint and several liability for the return of the investment funds and dividends. The Equity Investment Agreement signed by the plaintiff and the three defendants is a true expression of their intention and is legally valid. Both parties should perform their obligations in accordance with the agreement. Article 563 Paragraph 1 of the Civil Code stipulates that if a party delays in performing its main obligations, fails to perform them within a reasonable period after being urged, or delays in performance results in the failure to achieve the purpose of the contract, the party may rescind the contract.

  • A certain limited company in Beijing failed to distribute dividends as agreed, and despite being reminded, still failed to fulfill its obligations. Moreover, its dividend notice No. [2021] XX clearly stated that dividends could not be paid in cash, which rendered the plaintiff's contractual purpose unattainable and met the statutory circumstances for contract termination. Therefore, the plaintiff has the right to terminate the contract.
  • After the contract is terminated, Beijing Company Limited shall return the investment funds; if the dividends due have not been paid due to the company's reasons, the company shall pay an annual interest of 8% on the unpaid dividends.

IV. Outcome of the case

After the trial, the court adopted some of the opinions put forward by Hengluo Law Firm. The court held that Beijing * Co., Ltd. failed to distribute dividends on time and could not pay them in cash, which resulted in the failure to achieve the purpose of the dividend contract. The plaintiff's claim to terminate the contract and return the investment funds should be supported. The plaintiff's claim that the dividend benefits were invalid because the agreement violated the principles of fairness and liability in civil law should be rejected. However, given that the failure to pay was due to the fact that the sales representative left the company and could not contact the plaintiff, the 8% dividend payment from July 2019 to June 2020 should be supported. In accordance with Article 563 Paragraph 1, Articles 565 and 566, and Articles 688 and 700 of the Civil Code, the court ruled as follows: 1. Confirm that the "Equity Investment Agreement" signed by the plaintiff and the three defendants on April 11, 2019 was terminated on September 23, 2021; 2. Beijing * Co., Ltd. shall return the plaintiff's investment funds of 160,000 yuan within ten days; 3. Beijing * Co., Ltd. shall pay the plaintiff dividend income of 12,800 yuan from June 4, 2019 to June 30, 2020, and interest losses calculated based on the LPR from September 23, 2021 to the actual date of repayment on the basis of 160,000 yuan; 4. Hebei * Materials Technology Co., Ltd. shall bear joint and several guarantee liability for the above-mentioned second-item debt; 5. After Hebei * Materials Technology Co., Ltd. assumes guarantee liability, it shall have the right to seek recourse from Beijing * Co., Ltd.

5. Henglu Law Firm's Reminder

For equity investments, investors should be vigilant against the legal risks of the "guaranteed fixed dividend" clause. If the company fails to distribute dividends for a long time and is unable to make payments, investors should promptly fix evidence and claim termination. This case is handled by the professional lawyer team of Beijing Henglu Law Firm (practice license number: __________, subject to the documents issued by the judicial administrative authorities). We remind investors to review the clauses before signing contracts and to entrust professional lawyers as soon as possible after disputes arise.

VI. Common Questions and Answers about Disputes over Equity Investment Contracts

  1. Q: Is it valid to stipulate in the equity investment agreement that the annual fixed dividend rate is 8%?
    A:Dividend clauses with the nature of "guaranteed minimum payout and rigid redemption" may be deemed invalid for violating the principle of risk sharing; however, for dividends that have actually been generated but not paid due to the company's reasons, the court may support the payment according to the agreement.
  2. Q: The company has never distributed dividends. Can I get my principal back?
    A:If the company is clearly unable to make the payment and the purpose of the contract cannot be achieved, you can request to rescind the contract and return the investment funds in accordance with the provisions on the right of rescission in the Civil Code.
  3. Q: How should the money already paid be calculated after the contract is terminated?
    A:After the contract is terminated, neither party shall continue to perform the contract, and the investment funds already paid shall be returned; the due and payable income may be claimed together with the interest loss.
  4. Q: Among multiple defendants, who should bear joint and several liability?
    A:According to the agreement, the party jointly liable for the return of investment funds and dividends shall be jointly responsible for repayment; the party assuming guarantee responsibility may seek recourse from the principal debtor after repayment.
  5. Q: How can an investment agreement be terminated effectively?
    A:Where the circumstances for legal termination are met, the notice to the other party shall constitute termination; where termination is initiated by litigation, the termination shall take effect from the date the court confirms it or from the date the judgment is made.