Study of recourse between guarantors

Study of recourse between guarantors

Preamble

The recourse between guarantors can be divided into three specific circumstances: "mutual recourse between guarantors of joint and several guarantee", "mutual recourse between guarantors of joint and several property guarantee" and "mutual recourse between guarantors of a mixed guarantee". Before the promulgation of the Jiumin Minutes, the legal provisions and judicial practice basically "support recovery" held by the above-mentioned issues. However, Article 56 of the Jiumin Minutes provides that the issue of "mutual recourse between guarantors in a mixed guarantee" first makes disturbing provisions while the Civil Code promulgated later did not clarify such issue, which causes such issue to become disputed issues in theory and practice. The author holds through analysis that, after the promulgation of the Jiumin Minutes and the Civil Code, the recovery against each other by the guarantors under the above three circumstances shall not be supported.

Keywords: recourse between guarantors | joint and several guarantee | joint and several property guarantee | joint and several guarantee

I. Preamble

With regard to the recourse between guarantors after they have assumed the guarantee liability, there are different provisions in the Guarantee Law, the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Guarantee Law of the People's Republic of China, the Property Law and the 2019 Minutes of the National Working Conference on Civil and Commercial Trials in Courts (hereinafter referred to as the "Minutes of the Jiumin Minutes"). Thus, the application of law and the determination of liability of this issue cause great controversy in practice, and the relevant provisions of the Civil Code promulgated in 2020 on this issue do not give a definite conclusion. It can be foreseen that after the Civil Code comes into force, the controversy on this issue will continue to exist. This paper attempts to analyze this issue and its controversial views.

II、 Raising of Questions

With regard to the recourse between guarantors after they have assumed the guarantee liability, the issues can be subdivided into three issues: mutual recourse between guarantors of joint and several guarantee, mutual recourse between guarantors of joint and several guarantee, and mutual recourse between guarantors of a mixed guarantee. Considering the evolution of the relevant provisions under each issue, we can conclude that the relevant issues discussed in this article are as follows:

(I) Mutual recourse between the guarantors of joint and several guaranty

With regard to this issue, Article 89 of the General Principles of the Civil Law of the People's Republic of China (Order of the President [1986] No. 37) promulgated as early as 1986, only stipulates that "a guarantor has the right to seek recourse from the debtor after he has performed the debt". Article 12 of the Guaranty Law of the People's Republic of China (Order of the President [1995] No. 50, hereinafter referred to as the Guaranty Law) promulgated in 1995 provides that "a guarantor who has borne the guaranty liability has the right to seek recourse from the debtor or require other guarantors who bear the joint and several liability to pay off their portions of the guaranty they should bear". Article 20 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Guaranty Law of the People's Republic of China (Order of the Supreme People's Court [2000] No. 44, hereinafter referred to as the Judicial Interpretation of the Guaranty Law) further stipulates that "after assuming the guaranty liability, the portion that cannot be recovered from the debtor shall be shared by all joint and several guarantors according to the proportions agreed internally. In the absence of such an agreement, such guarantors shall share equally. "This provision adds provisions on the order of recourse on one hand, and on the other hand, it also stipulates how to determine the share of recourse to other guarantors. Later, the Official Reply of the Supreme People's Court to Issues Concerning the Exercise of Right of Recourse by Guarantors that Have Assumed Guaranty Liability against Other Guarantors (Fa Shi [2002] No. 37) confirmed that one or several guarantors that assume joint and several liability shall have the right to require other guarantors to pay their respective shares after their assumption of the guaranty liability.

From the evolution of the above regulations, we can see that before the Civil Code came into effect, the relevant laws have always adopted the attitude of supporting recourse for the joint and several surety. Article 700 of Civil Code provides, "A guarantor, after his assumption of the guaranty liability, is entitled to recourse against the debtor to the extent of the guaranty liability, and enjoys the rights of a creditor against the debtor, provided that the creditor's interests are not prejudiced, unless otherwise agreed upon by the parties."If this provision only mentions recourse against the debtor, can the guarantors that assume the guaranty liability still seek recourse against other joint and several guarantors as was stipulated in the previous relevant laws and judicial interpretations? Or does the absence of any provision regarding recourse against other joint and several guarantors under Civil Code imply that such recourse against other joint and several guarantors is inadmissible? In addition, can it be inferred from the provision of "enjoying the rights of a creditor against a debtor" that the same guarantee right as a "subordinate right", and then can be interpreted as recourse against other joint and several guarantors?

(II) Issues concerning the recourse of joint and several property guarantors against each other

As to the recourse against joint and several guarantors by joint and several guarantors, the only provision in the existing laws and relevant judicial interpretations is Article 75 of the Judicial Interpretation of Security Law, which provides that "where there are two or more mortgagors for the same creditor's right and there is no stipulation or no clear stipulation on the share or sequence of the creditor's right secured by the mortgaged property provided by the mortgagee, the mortgagee may exercise the mortgage right on any one or each of them. After fulfilling the guarantee liability, the mortgagor may have recourse against the debtor or require other mortgagors to pay off their own shares of the guarantee liability. "In addition, the Security Law, the Property Law, the Minutes of Nine Civil Proceedings and the Civil Code do not address such issues. The reason for this may be related to the characteristics of property security. In practice, there are few cases in which several mortgagors provide guaranty separately and there are relatively few disputes arising therefrom, but relevant disputes may also arise. Then, in the case that neither the Minutes of Nine Civil Proceedings nor the Civil Code of the People's Republic of China, shall the mutual recourse of joint and several property security guarantors still be identified by reference to Article 75 of the Judicial Interpretation of Security Law?

(III) Mutual recourse between guarantors in a mixed guarantee

According to Article 38 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Security Law of the People's Republic of China (Fa Shi [2000] No. 44), where the same creditor's right is secured by both a guarantee and property security provided by a third party, and the parties have no stipulation or no clear stipulation on the scope of security by guarantee or property security, the guarantor who has fulfilled the guarantee liability may have recourse against the debtor or require other guarantors to pay off their own shares of the guarantee liability.

Article 176 of the Property Law only provides that "the third party who provides the guarantee has the right to claim compensation from the debtor after fulfilling the guarantee liability", but does not stipulate whether the third party can claim compensation from other guarantors. In this regard, Article 56 of the Minutes states that: "In accordance with Article 178 of the Property Law, which provides that 'in case of any discrepancy between the provisions of the Security Law and those of the Law, the Law shall prevail', if a guarantor who has assumed the guarantee liability seeks compensation from other guarantors, the people's court shall not support such a claim, unless such guarantors agreed in the guarantee contract that such compensation may be recovered from each other." Such provisions negate the right of recourse of the guarantors in a mixed guarantee.

Article 392 of the Civil Code has provisions on this issue, but such provisions, the same as Article 176 of the Property Law, only stipulate the right of recourse against the debtor, but do not stipulate whether such compensation may be recovered from other guarantors. Then, shall the interpretation method in Article 56 of the Minutes of the Minutes of Civil Code apply mutatis mutandis to the conclusion that a guarantor may not seek compensation from other guarantors? Or shall it be considered that such compensation may be recovered from other guarantors in accordance with Article 700 of the Civil Code, which stipulates that such compensation may be recovered from other guarantors?

Ⅲ、Judicial Practices of Mutual Recovery Between Guarantors

There are many cases related to mutual recovery between guarantors, so a preliminary conclusion can be drawn as follows by retrieving cases based on the three circumstances analyzed above:

(i) Mutual recourse between guarantors of joint and several guarantee

Searches were conducted in the "alpha case base" with the keywords "disputes over the right of recourse" and "guarantee", with more than 400,000 search results in total. Among them, there are four cases in the gazette of the Supreme People's Court and two cases involving mutual recourse between guarantors of joint and several guarantee, all of which support that some guarantors of joint and several liability may seek compensation from other guarantors after bearing the guarantee liability. In particular, "Yunnan Yingmao Group Co., Ltd. v. Yunnan Tianyuan International Business Group Co., Ltd. (dispute over the right of recourse for a guarantee contract"), in the trial of first instance, the Kunming Intermediate People's Court held that if a creditor chooses part of the guarantors for recovery, it shall be deemed that the remaining guarantors have been exempted from their guarantee liability, and the guarantors who bear liability do not exceed their scope of voluntary guarantee at the time of setting up the guarantee, so they have no right to recover from the remaining guarantors. According to this view, the relevant provisions in the Security Law and its judicial interpretations will lose their significance. In this regard, the Yunnan High People's Court held in the trial of second instance that if a creditor chooses part of the guarantors for recovery, the remaining guarantors shall not be exempted from their guarantee liability, and the wrong application of law in the trial of first instance shall be corrected, which supports the warrantors who bear liability in seeking compensation from the other guarantors. This view represents the dominant view before the promulgation of the Jiumin Minutes.

After the promulgation of the Jiumin Minutes, judging from the view of case adjudication currently found, most of them still carry out adjudication in accordance with the Security Law and its judicial interpretations, that is, support the mutual recovery of joint and several guarantors. For example, in Handan Intermediate People's Court of Hebei Province (2020) Ji 04 Min Zhong No. 2252 case, Handan Intermediate People's Court held that Article 56 of the Jiumin Minutes stipulates the issue of recourse between guarantors in a mixed guarantee and does not apply to the case of joint and several guarantee, so the view that the parties request the application of the Jiumin Minutes was not adopted. But there are other courts who hold the opposite view. For example, in Beijing No. 3 Intermediate People's Court (2020) Jing 03 Min Zhong No. 1021 case, the court of second instance held, "First, theoretically speaking, there is no contractual relationship between the counter-guarantors,... So Huashang, after assuming the guarantee liability, can recover from the other guarantors lacks a contractual basis and theoretical basis; second, it violates the principle of litigation economy. Allowing the secured parties to recover from each other after assuming the guarantee liability may result in multiple proceedings for recovery of each other; third, where there are multiple cases of recovery, there is no operability in determining the share of recovery in the existence of multiple secured parties, particularly where both the guarantee and the security interest exist; and fourth, consideration based on the principle of equity. Allowing the secured parties to recover from each other in the absence of an agreement on recovery of each other reduces the risks foreseeable by the guarantor in its establishment. "Another example is that the Intermediate People's Court of Guangyuan City, Sichuan Province, in Case No. 195 (2020) Chuan 08 Min Zhong No. 195 case, "Article 56 of the Minutes stipulates that guarantors cannot recover from each other, because the guarantors have assumed the guarantee liability, it means that the creditor's right has been realized, the creditor-debtor relationship has been extinguished and the guarantee as collateral debt is extinguished. Therefore, there is no legal or logical basis for the guarantor who has assumed the guarantee liability to seek compensation from other guarantors."

(II) Issues concerning the recourse of joint and several property guarantors against each other

Few cases have been found in connection with the mutual recourse between joint and several security guarantors. Most of the existing cases relevant to Article 75 (3) of the Judicial Interpretation of the Security Law have supported the mutual recourse between joint and several security guarantors. For example, in the Changji Hui Autonomous Prefecture Intermediate People's Court of Xinjiang Uygur Autonomous Region, (2015) Chang Zhong Min Yi Zhong Zi No.678, the Changji Intermediate People's Court held, "according to Paragraphs 2 and 3, Article 75 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Security Law of the People's Republic of China, the mortgagor, after assuming the guarantee liability, has the right to require the other mortgagors to pay their respective shares of the debt. It was wrong for the court of first instance to hold that the law did not confer the right of recourse between guarantors, and this court made corrections in accordance with the law."However, since the ruling of this case was made in 2015, the relevant cases after the promulgation of the Minutes have not been retrieved, so it is impossible to determine the impact of Article 56 of the Minutes on this issue.

(III) Mutual recourse between guarantors in mixed guarantee

Before the promulgation of the Minutes, the mutual recourse between guarantors in a mixed guarantee has been controversial in judicial practice: most courts cited Article 38 of the Judicial Interpretation of Security Law to support the recourse. For example, in the Case of Yuhang District People's Court of Hangzhou City [2017] Zhe 0110 Min Chu No. 7766], the Yuhang Court held that, "First, from the perspective of legal function, the Property Law mainly regulates the guaranty based on real right, while the guaranty of one person is not governed by it. Therefore, the Property Law does not negate the clause of the Security Law and its judicial interpretations on mutual recourse of guarantors in a mixed guarantee. Second, from the perspective of fairness, whether the guarantor or the property guarantor pays off the debts, it would exempt the other guarantors from their liabilities. It would be unfair to prohibit the guarantor who has undertaken the guaranty from claiming for sharing the payment. Third, from the perspective of prevention of malicious danger, the prohibition of recourse between guarantors would encourage the creditor to collude with one guarantor and maliciously choose other guarantors to assume the liabilities so as to exempt him from the liabilities. This is obviously against the principle of good faith. "Some courts also refused to support recovery based on opinions such as "conflicting with the provisions of the Property Law" and "the new law prevails over the old one".

After the promulgation of the Minutes, the opinions on this issue were relatively consistent. More than 800 cases were retrieved from the "alpha case database" with the keywords "mixed guarantee" and "recovery", among which there were about 200 adjudicated cases in 2020. Almost all of them cited the reasoning of Article 56 to adjudicate the cases. For example, in a case (No. 724 [2020] of Liao 10 Min Zhong by the Intermediate People's Court of Liao Yang City, Liaoning Province, the Intermediate People's Court held: "According to the provisions of the Property Law, a third party providing guarantee, after assuming the guarantee liability, shall have the right of recourse against the debtor. However, it is not specified that the third party who has assumed the guarantee liability may require the other guarantors to pay their shares of the guarantee. Therefore, according to the principle that the new law prevails over the old one, the relevant provisions of the Property Law shall be applicable to this case. Where the secured creditor's right is secured by both a guarantee and property security provided by a third party, and the guarantor who has assumed the guarantee liability seeks recourse against the other guarantors, the people's court shall not support such a claim. "

Ⅳ、Study on Mutual Recourse Among Guarantors in Various Situations

According to the existing literature and relevant judicial cases, there is a great controversy both theoretically and practically on the issue of guarantors' mutual recourse against each other in the three situations. In particular, the introduction of Article 56 of the Minutes of the Nine Civil, which provides that "guarantors shall not seek recourse against each other in a mixed guarantee", and the failure to give a clearer conclusion on the above issues in Articles 392 and 700 of the Civil Code, led to the dispute over the "issue of mutual recourse between guarantors" being not eliminated but becoming increasingly fierce on the contrary. The author will analyze this issue based on the compilation and summary of relevant opinions.

(I) Mutual recourse between guarantors of joint and several guarantee

The reasons for supporting recourse mainly include: 1. Article 700 of the Civil Code only stipulates that the guarantor has the right to recourse against the debtor, but does not stipulate that it shall not recourse against other guarantors of joint and several guarantee; Article 56 of the Jiu Civil Summary only stipulates the situations of mixed guarantee, and this does not necessarily extend to situations of joint and several guarantee; 2. According to the Security Law and its judicial interpretations, joint and several guarantee guarantors that bear guarantee liability shall be allowed to seek recourse against other joint and several guarantee guarantors; 3. Article 700 of the Civil Code also stipulates that after the guarantor has borne the guarantee liability, the guarantee, as a "subordinate right" of the creditor's right, shall be enjoyed by the guarantor that bears the guarantee liability; 4. In consideration of the principle of fairness, if recourse is not supported, whether the guarantor shall bear the liability entirely depends on the creditor's choice and the guarantor that bears the guarantee liability may be unfair; 5. From the perspective of preventing malicious collusion, if recourse is not supported, the guarantor needs to be prepared to assume the full guarantee liability and no one will share the guarantee liability, which will objectively hinder the role of the guarantee system.

The reasons for not supporting those seeking recovery mainly include: 1. there is no legal basis to support recovery and there is no contractual relationship between the joint and several guarantors. The only possible explanation is that other joint and several guarantors have actually benefited from the repayment, but such benefits do not constitute "unjust enrichment" and require the return of such benefits; 2. the principle of litigation economy is violated, such as allowing recovery will lead to the occurrence of multiple subsequent proceedings for recovery, including the joint and several guarantors seeking recovery from the debtor; 3. a series of extended legal issues will arise, such as whether recourse against the debtor is a pre-procedure? Etc.; 4. when the joint and several guarantors agree to provide guarantee, they shall foresee the scope of their liabilities. If recourse is allowed, it will be disadvantageous for the guarantors to be fully aware of the risks of guarantee; 5. after the joint and several guarantors have assumed the guarantee liability, the creditor-debtor relationship will be extinguished, and the guaranty relationship as a collateral debt will also be extinguished; 6. by reference to the understanding provided in Article 56 of the Minutes of Civil, it should be deemed that the Civil Code does not provide for recourse against other joint and several guarantors, which means that the Civil Code does not support recourse.

The above pros and cons are reasonable, so the focus of this article is not on the theoretical basis behind such opinions, but on the opinions of judicial decisions that will be adopted after the Civil Code is promulgated. In the author's opinion, the background of the introduction of the Civil Code should be considered first when discussing the issue of mutual recourse between joint and several guarantors. According to Article 1260 of the Civil Code, upon the implementation of the Civil Code, nine laws including the General Principles of the Civil Law, the Security Law and the Real Rights Law shall be repealed simultaneously. Therefore, the understanding of articles of the Civil Code shall not be limited to the provisions of the original Security Law, the Real Rights Law, and so on. Second, the actual situation that must be taken into account is that in the case that Article 700 of the Civil Code does not objectively clarify the issue of whether compensation can be recovered from other joint and several guarantors, the application of relevant laws will inevitably be refined and clarified through judicial interpretations. Therefore, great attention must be paid to Article 56 of the Jiumin Minutes promulgated in 2019, as the understanding of the Supreme People's Court on relevant issues may be of a continuing nature. Article 56 of the Minutes provides that in a mixed guarantee, the "guarantor" that has undertaken the guarantee liability shall not seek recourse from other "guarantors". The provision includes the following circumstances: 1) the collateral warrantor that has undertaken the guarantee liability shall not seek recourse from the collateral warrantor; 2) the collateral warrantor that has undertaken the guarantee liability shall not seek recourse from the collateral warrantor; 3) the collateral warrantor that has undertaken the guarantee liability shall not seek recourse from the collateral warrantor; 4) the collateral warrantor that has undertaken the guarantee liability shall not seek recourse from the collateral warrantor. For two guarantors of joint and several liability, whether there are other property guarantees which constitute mixed guarantees actually has no effect. However, according to Article 56 of the Jiumin Minutes, even guarantors shall not seek recourse from each other. This detail shows that the provisions of the Jiumin Minutes issued by the Supreme People's Court superficially only stipulate the situation of mixed guarantees, but in fact, the issue of recourse of joint and several liability guarantees has already been involved.

Therefore, in consideration of the continuity of the opinions of the judicial interpretations of the Supreme People's Court, it is more consistent with the judicial practice to interpret Article 700 of the Civil Code as not supporting the mutual recourse of jointly and severally liable guarantors.

(II) Issues concerning the recourse of joint and several property guarantors against each other

As stated above, neither the Civil Code nor the Jiumin Minutes addresses this issue. Moreover, after the Civil Code comes into effect, the Guarantee Law will become invalid simultaneously, and the corresponding judicial interpretations will certainly become invalid. Therefore, Article 75 of the invalid Judicial Interpretation of the Guaranty Law does not provide an answer to this question. The author believes that this issue should be considered from the perspective of systematic interpretation. The issue of recourse between joint and several guarantee guarantors should be discussed by reference to the issue of mutual recourse between joint and several guarantee guarantors, on the grounds that the status of joint and several guarantee guarantors as well as that between joint and several guarantee guarantors is equal, which does not give priority to legal protection. Therefore, if the joint and several guarantee guarantors cannot recourse against each other, then joint and several guarantee guarantors should not recourse against each other, otherwise it will lead to confusion of legal logic. Therefore, in consideration of the systematic interpretation, the same should be held that joint and several guarantee guarantors shall not seek recourse against each other.

(III) Mutual recourse between guarantors in mixed guarantee

Based on the above analysis, the author holds the opinion that although Article 392 of Civil Code only stipulates that the guarantor has the right to seek recourse against the debtor after assuming the guarantee liability, it does not stipulate whether such guarantor can seek recourse against other guarantors, but there is no affirmative or negative conclusion based on this. In consideration of the continuity of the opinions of the judicial interpretation, the opinions in Article 56 of the Minutes of Jiumin should be referred to and a negative interpretation should be made. Article 700 of Civil Code stipulates that "after assuming the guarantee liability, the guarantor shall enjoy the creditor's rights against the debtor" does not necessarily expand its interpretation to enjoy the collateral rights of the creditor against other guarantors. Therefore, in my opinion, Article 392 of Civil Code shall be interpreted as follows: In the case of mixed guarantee, the guarantor who assumes guarantee liability shall not seek recourse against other guarantors.

V、 Conclusion

Based on the above analysis, the issue of mutual recourse between guarantors is not clearly covered by Articles 392 and 700 of Civil Code, which leaves room for subsequent formulation of judicial interpretations. From the perspective of institutional value, regardless of whether recovery is supported or not, as long as it can provide clear guidance for the parties to implement legal acts and provide judicial basis for dealing with relevant disputes. Both have their own reasonable basis and have no distinction between advantages and disadvantages. Based on the understanding of Article 56 of the Minutes, the author holds the opinion that a negative conclusion should be made on the mutual recourse between guarantors, whether it be the mutual recourse between guarantors of joint and several guarantors, between guarantors of joint and several guarantors of joint and several guarantors, or between guarantors of mixed guarantee.