Invalidation Of Contract Of Guarantee And Judicial Recognition Of Its Civil Liability

Guarantee is a contractual relationship, whose purpose is to guarantee the realization of creditor's rights. Contract of Guarantee is concluded between a surety and a creditor, whose content is when the debtor fails to perform his debts, the surety will undertake guarantee liability. The Contract of Guarantee can be protected by national laws only when it's founded and in accordance with the law. Invalidation of Contract of Guarantee refers to the guarantee contract concluded between the surety and the creditor, which lacks efficacy of guaranteeing the realization of the creditor's rights, due to lack of entry-into-force conditions imposed by the law. Under the situation of the invalidity of the Contract of Guarantee, the guarantee's effect as the power of ensuring the realization of creditor's rights may reduce greatly, or even vanish. But the legal consequences brought about or coming into being due to the establishment of the guarantee can't vanish because of the invalidity of the Contract of Guarantee. It's expected to be helpful to the judicial practice through the research on invalidation of Contract of Guarantee and judicial recognition of its civil liability in this article.This thesis is divided into four parts, in order to dissertate the questions of invalidation of Contract of Guarantee and judicial recognition of its civil liability: Part One: Judicial recognition for the general reasons of invalid Contract of Guarantee. The Contract of Guarantee is a kind of contract, so the recognition of invalidation of Contract of Guarantee can be based on the general theories of invalidation of contract. While for the contract between the creditor and the debtor, Contract of Guarantee is subject to it, being the accessory contract. According to the master-slave contract theory, if the main contract is invalid, the accessory is of course invalid. Thus, under the situation of the invalidation of the main contract, the contract of guarantee can simultaneously be assessed as invalid. The reasons for the invalidation of Contract of Guarantee caused by the invalidation of the main contract differentiate from the reasons for the main contract being valid while the Contract of Guarantee being invalid. The main contract can be invalid for the following reasons: it violates the mandatory regulations of state laws and administrative rules and regulations; one party adopts means of fraud and threat to obtain the contract, damaging the interests of the state; both parties viciously collude, damaging the interests of the state, collective or a third party; both parties cover illegal purposes in form of obtaining the contract; it damages the interests of the society. The Contract of Guarantee shall be assessed as invalid. The so called special terms in Article 5 in Guarantee Law essentially give independence to the responsibility of the surety in the Contract of Guarantee, which is not affected by the invalidation of the main contract. In case of unless otherwise stipulated, the Contract of Guarantee shall not be assessed as invalid. The Contract of Guarantee can also lack legal effect, including entire invalidation and partial invalidation, due to its own lack of important documents, such as the surety lacks capacity as a subject; under the situation of the adressat knows or should know their stretch of authority, the legal person, legal representative or principal of any other organization obtain the Contract of Guarantee; the company in violation of the regulations signs the Contract of Guarantee as the surety; and the Contract of Guarantee damages the interests of the society and violates the law or the mandatory provisions of administrative regulations. The main contract can be cancelled, if the surety does not know the main contract has revocable purposes. When one party of the main contract sign the main contract by adopting means of fraud and threat contrary to the other party's will, or there is the situation of leading to the surety's providing guarantee contrary to his/her real will by cheating, the Contract of Guarantee is invalid. When the efficacy of the main contract is in-determined, and while signing the Contract of Guarantee, the party of the main contract conceals or makes up the fact of the main contract having defects, and cheats the surety regarding to the indetermination of the efficacy of the main contract, leading to the surety's providing guarantee contrary to his/her real will, the Contract of Guarantee is invalid. Under the situation of the partial invalidation of the main contract, if the invalid part of the main contract affects the efficacy of the Contract of Guarantee, the Contract of Guarantee shall also be invalid.Part Two: a certain number of special questions in the judicial recognition for the invalidation of the Contract of Guarantee. There are still some other factors in judicial practice affecting the recognition of the valid Contract of Guarantee. To analyze, solve and assess these questions is conducive to the judgment of the cases of invalid Contract of Guarantee. The Contract of Guarantee shall be assessed as invalid if one party of the Contract of Guarantee signs the Contract of Guarantee with the other party adopting means of fraud and threat, damaging the interests of the state. Or it shall be revocable contract. If the surety signs the Contract of Guarantee due to the threat of debts or fraud, and the creditor clearly knows or should know the principal debtor's means of fraud or threat, the surety have to exercise his/her right of claiming cancellation. If both parties of the main contract viciously collude and cheat the surety for guarantee damaging the interests of the state, the Contract of Guarantee is invalid. Or the Contract of Guarantee shall be revocable contract. The Contract of Guarantee based on the intervene from the government or a third party shall ordinarily be assessed as valid, but if the creditor knows the surety provides guarantee due to the government or the section he/she belongs to command him/her to provide guarantee, or the creditor actively urges the related units and individuals to exert influence, the Contract of Guarantee shall be assessed as invalid. The Contract of Guarantee signed by the surety based on wrong expression of will is ordinarily valid, but if the surety can exemplify that he/she signs the Contract of Guarantee on the condition of the creditor's considerable capacity of clearing off debts or the surety and the principal debtor have such express stipulations, the Contract of Guarantee can be cancelled. If the creditor of the main contract alternates, the Contract of Guarantee is valid; if the debtor alternates, the Contract of Guarantee is invalid; if the content alternates, the Contract of Guarantee is valid, but the scope of guarantee adjusts according to the alternated content.Part Three: Judicial recognition for the civil liability of the surety of invalid Contract of Guarantee. If the Contract of Guarantee is assessed as invalid, legal consequences of guaranteeing the realization of the creditor's rights expected by the parties will not happen ab initio. Because the Contract of Guarantee is invalid ab initio, the Contract of Guarantee has no legal binding force on neither parties, and the surety do not have to repay the debt or assume the joint liability for the debt with the debtor, nor will the surety assume the liability for guarantee any longer; but the invalidation of the Contract of Guarantee is a kind of fait juridique based on legal rule, and new legal relationship will from between the parties, and new legal liability will come into being. Under the situation of the main contract being valid and the Contract of Guarantee being invalid, one party shall assume culpa in comprehend for the damage he has done to the other party due to his fault. When the main contract is invalid, and the surety does not have any fault for the consequences of the invalidation of the main contract, the surety shall not assume any liability. Under the situation of the main contract being invalid and the Contract of Guarantee being invalid, based on the surety's fault of guaranteeing invalid debt, the surety shall assume civil liability for the damage done by the invalid debt to the creditor, whose nature is compensation liability for damage. The surety's assuming civil liability under the situation of the Contract of Guarantee being invalid shall conform to the following important document: the surety subjectively has fault; the creditor has fact of damage; there is cause-and-effect relationship between the creditor's damage and the surety's fault. The surety's liabilities ordinarily register as compensating for the damage, eliminating the obstruction and stopping the infringement, and so on. Under the situation of the invalidation of the Contract of Guarantee caused by the invalidation of the main contract, the surety's extent of compensation shall cover: the expenses paid by the creditor for the signing of the main contract and the Contract of Guarantee, as well as for the creditor's exercising the main contract. Under the situation of the Contract of Guarantee itself being invalid, the surety shall compensate for the creditor's reliance interest, which shall not include indirect loss. Part Four: judicial application for the surety's liability in the valid Contract of Guarantee. If the invalidation of the Contract of Guarantee is caused by the invalidation of the main contract, the surety's fault is limited to his/her fault for the invalidation of the main contract or his/her joint fault with the debtor. The part of the civil liability the surety should assume shall not exceed 1/3 of the debt the debtor can not repay. Under the situation of the Contract of Guarantee being invalid for self reasons, if the creditor has no fault, and the debtor and surety have joint fault, they shall assume joint and several liability, or assume liability according to their fault. The part of the civil liability the surety assumes shall not exceed 1/2 of the debt the debtor can not repay.