Research On Trading-based Guarantee

Trading-based guarantee is a form of guarantee which emerged with continuous development of private lending under the circumstances of financial deregulation. Trading-based guarantee refers to an act of guarantee on loan provided based on the borrower or any third party’s house in the form of signing house trading contract by and between the lender and the borrower(or any third party) when the lender and the borrower conclude a contract of loan or before expiry of term of repayment for contract of loan. Essence of trading-based guarantee is a fluidity contract under contract frame agreed by parties concerned. From the perspective of way of realization for debt, such guarantee should be categorized into datio in solutum. Therefore, trading-based guarantee can be called pre-contract for datio in solutum. Trading-based guarantee has important elements with typical characters and has characteristic subject, object and relations of rights and obligations, which is obviously different from private lending and house trading contract. Therefore, trading-based guarantee doesn’t have those preconditions for becoming general rules. Investigation on emergence of trading-based guarantee indicates that it is a typical market behavior choice. Firstly, the lender and the borrower can reach consensus on an acceptable balance point. Secondly, limited by registration and realization of mortgage, creative guarantees, including trading-based guarantee, have been emerging continuously. How to deal with disputes concerning such new ways of guarantee becomes a challenge for jurisprudential circles and judicial practice. On one hand, categorizing trading-based guarantee into transferring guarantee lacks understanding on the fact that real intention of parties concerned can’t be properly expressed. In trading-based guarantee and transferring guarantee, declarations of intention between parties concerned as for contract are totally different. On the other hand, if trading-based guarantee is permitted, then the legal provision concerning banning liquidity guarantee contract and the principle that datio in solutum should be practical will be totally ignored. Japan has a different reality in this respect, so we shouldn’t copy theories used in other countries totally; instead, choice should be appropriately made with consideration of situation in China. From the perspective of traditional civil law theories, negation of fluidity guarantee contract and requirement on practicality of datio in solutum both verify that trading-based guarantee shouldn’t be protected. In judicial practices, cases concerning trading-based guarantee have a common character that all trading-based guarantees occur in debtor-creditor relationships. If such type of guarantee should be protected, lenders will realize excessive profits, but borrowers will lose their houses with a relatively large value for relatively small debts. This situation reflects the point of view in traditional civil law theories: Based on principles of fairness and equality in civil law, purpose of banning liquidity guarantee contract lies in preventing lenders from making excessive profits through unequal advantages and thus harming interests of borrowers. Therefore, trading-based guarantee shouldn’t be protected. In this paper, it is hoped that through analysis on nature of trading-based guarantee, relationship of rights and obligations for expression of real intentions of parties concerned can be clarified. With combination of current legal provisions, especially relevant judicial interpretations issued by the Supreme People’s Court of the People’s Republic of China, illegality of trading-based guarantee should be determined. With consideration of the method of civil trial based on right of claim, specific methods for dealing with such disputes in trials are put forward.