Research On Validity Of Company’s External Surety Contract

The issue of company’s external guarantee refers to corporate law, contract law, property law and guarantee law. Although 2005 corporate law quell the controversy of company’s external guarantee ability, it also causes the problem of law application. Company’s guarantee refers to the internal relationship and the external relationship. Although there are regulations on issues such as decision-making organs and procedures and the restrictions on external guarantee in the corporation law, it lacks legal consequence of ultra vires acts. Is the external surety contract effective when it is contrary to the article 16 of the Corporate Law? The law does not give a clear answer. Because of this, different scholars hold different opinions and give different explanations. The attitudes of judicial practice are also different.There are three key points to determine the validity of company’s external surety contract. Firstly, the corporation law lacks legal consequence of ultra vires acts,we should cite an article to solve the problem. Secondly, if apply article 50 of the Contract Law, we need to explain the standard of “good faith”. The legal representative of the company is the apparent authority. Apparent authority refers to a situation where a reasonable person would understand that an agent had authority to act. This means a principal is bound by the agent’s actions, even if the agent did not have actual authority. However, the law has social publicity effect. We need to determine whether article 16 of the Corporate Law can affect the relative person in good faith. Thirdly, there are loopholes in the article 50 of the Contract Law. It only provides that when the counterpart is in good faith, the contract is effective; but it not specified the validity of contract when the counterpart is not in good faith. Because the theoretical circles and judicial practice give different answers to above three key problems, there are debates in the problem of the company’s external guarantee.This paper argues that article 16 of the Corporate Law is a power limitation of the representation. We should apply the regulation of unauthorized agency. The author thinks that to determine whether the counterpart is in good faith, we should distinguish the civil subject and the commercial subject. As a special occupational group, the merchant should know the provisions of commercial law, the operation of the company, the articles of association and the internal decision. The merchant should bear more stringent review obligation than the general civil subject. Specifically, in the review of the articles of association and the internal decision, the merchant should bear more stringent review obligation. When the counterpart does not compose the “good faith”, we should apply the regulation of unauthorized agency to determine the validity of the contract. When the company refuse to ratifying, the surety contract is invalid, the outsider and legal person should bear responsibility according to the fault of both sides.This paper is divided into four chapters. The first chapter introduces the regulation and legislative purpose of related articles in corporate law during 1993 and 2005. On the base of this analysis, the author then summarizes the judicial attitude of the external security of the corporation. Because of this study, the key points of the problem gradually become clear.The second part reveals that article 16 lacks legal consequence of ultra vires acts. To determine the validity of company’s external surety contract, different scholars give different explanations. Then gradually form four kinds of theories. The author thinks that we should apply the regulation of unauthorized agency to fill the holes of article 16 in the bridge of “surpass the legal person’s limitation of power”.The third chapter reveals that whether external surety contract is valid or not is determined by whether the counterpart is in good faith. Representative in fact requires two aspects of elements. Firstly, the legal representative should right in appearance. Specifically, anybody should know the general rules and provisions of commercial law, should know that article 16 of the Corporate Law is a power limitation of the representation. So, the third party should prove that the contract party is the legal representative and it has check the internal decision according to the articles of association. Secondly, the law protect innocent third party. The innocent third party refers that the counterpart holds honest intentions or belief, and fulfill the duty of care. The author thinks that we should distinguish the civil subject and the commercial subject to judge whether the counterpart is in good faith. As a special occupational group, the merchant should know the operation of the company, the articles of association and the internal decision in the operation of the company. The merchant should bear more stringent review obligation than the general civil subject in the review of the articles of association and the internal decision Then the author discuss the duty of care and the subject of care duty when the association of the company does not make resolution.The fourth chapter draws the conclusions about how to determine the validity of the contract and how to distribute liability when the surety contract is invalid. When the counterpart does not compose the “good faith”, we should apply the regulation of unauthorized agency to determine the validity of the contract. In the issue of how to distribute liability, the court always invoke item 7 of the Legal Interpretation in Law of Warranty and sentence that the company should bear no more than 1/2 responsibility when the debtor can’t pay off debts. The author thinks that, when legal representative exceeding the scope of power, the company should not undertake legal person’s liability. According to the theory of Unauthorized Agency, the counterpart and the legal representative should bear the responsibility according to their respective fault.