Research On The Liability Bearing For The Invalid Guarantee By Companies

The academics have not sufficiently discussed the question how should the parties bear the liability caused by the invalidity of the Guarantee by Companies due to Article 16 of the Company Law.This situation is in stark contrast with the discussion of the validity criteria of the Guarantee by Companies.This article consists of an introduction,main body and conclusion.The main body is divided into three parts,the content of which are as follows:The first part reviews the three existing validity criteria of the Guarantee by Companies in order to establish the basis for the following discussion of the liability bearing for the invalid Guarantee by Companies.In this part,the article first introduces the basic claims of the three validity criteria: the basic claim of the No-Effect-Theory is that Article 16 of the Company Law does not have effect in any form on the guarantee's validity;the basic claim of the Invalid-Theory is that in conjunction with Article 52,Item 5 of the Contract Law the guarantee is absolutely invalid,if Article 16 of the Company Law is violated;the basic claim of the Authority-Restriction-Theory is that Article 16 of the Company Law is a restrictionprovision of the legal representative's authority and if Article 16 of the Company Law is violated,the validity of the guarantee depends on Article 50 of the Contract Law.After the introduction,this paper demonstrates the No-Effect-Theory's and the Invalid-Theory's defect in system and logic and suggests that only the Authority-Restriction-Theory can be used as the criterion for determining the validity of the Guarantee by Companies.The second part discusses the liability of the represented,that is,the company,for the invalidity of the Guarantee by Companies due to lack of authority.In this part,the article first introduces a typical handling by courts who hold the Authority-Restriction-Theory: according to Article 7,Sub-Sentence 2 of the Interpretation of the Guarantee Law the represented shall bear the compensation whose amount equals the 1/2 of the unsatisfied main debt.Then,this article demonstrates this handling's logical paradox and then suggests that such handling should be rejected categorically.Subsequently,this paper raises the question whether Article 62,paragraph 1 of the General Principles of the Civil Law can be combined with the contracting fault liability,the tort liability or the unauthorised agency liability to determine the liability of the represented.After a thorough argumentation,this paper suggests that the combination with the contracting fault liability or the tort liability should be accepted but the combination with the unauthorised agency liability should not.The third part discusses the legal representative's liability for the invalidity of the Guarantee by Companies due to lack of authority.This part revolves around the explanation of Article 171,paragraphs 3 and 4 of the General Principles of the Civil Law.Firstly,this article demonstrates that the precondition for determining the legal representative's liability by analogy with Article 171,paragraph 3 of the General Principles of the Civil Law is that the unauthorised representation does not constitute representation by estoppel because the represented is not accountable,and suggests that the judgment of the above accountability should follow the risk principle.Secondly,this paper discusses the legal effect of the performance duty in Article 171,paragraph 3 of the General Principles of the Civil Law and demonstrates that the compensation in the same paragraph is the compensation for the performance benefit.Thirdly,this paper demonstrates that Article 171,paragraph 4 of the General Principles of the Civil Law is a fault liability and the content of its compensation is the reliance interest compensation.In addition,regarding the negative impact brought by the provision that the creditor knowing the unauthorised agency can still claim damages from the agent,this article suggests that such impact can be alleviated through the discretion granted by the paragraph to judges.