Page 204 - 2021 White Paper
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1 White Paper on the Business Environment in China
accordance with joint liability25. However, the issued the Interpretation of the Supreme People's
Civil Code completely overrides this previous Court on the Application of the Guarantee System
provision, by providing that if the parties fail to in the Civil Code of the People's Republic of China
reach any agreement, or reach any agreement that that potentially will further refine and regulate
is unclear, they shall bear the general liabilities the specific application of guarantee contracts.
of guarantee26, that is, the guarantor shall only For example, unless otherwise subject to one of
assume its proportion of liability, instead of joint the four circumstances set forth in Article 687 (2)
liability. Should there be no agreed arrangement of the Civil Code, the court will not support the
on the proportion of liability, each party shall share creditor’s application for preservation of a general
an equal proportion. A guarantor bearing joint guarantor ’s assets. In a general guarantee, the
liability does not enjoy the benefit of resistance. creditor cannot only sue the guarantor, but it must
This means if the debtor fails to assume the debt, add the debtor as a joint defendant; otherwise,
the creditor may require the guarantor to assume the court will dismiss the creditor’s claim.29
the liability of guarantee, and does not need to
file lawsuit to a court or apply for arbitration to an This judicial interpretation, if adapted, will
arbitration organization. However, if the guarantor further regulate the statute of limitations for a
is subject to general liabilities of guarantee, it shall general guarantee. In 2000, the Interpretation of the
assume such liability only when the debtor cannot Supreme People’s Court on Several Issues Regarding
pay the debt. For example, in case of a guarantor Application of the Guarantee Law of the People’s
with general liability for guarantee, if a debtor fails Republic of China, Article 34 reads: “if a creditor of
to pay the debt, a creditor cannot directly request a general guarantee brings a lawsuit or applies for
the guarantor to assume liabilities as it can do so arbitration against a debtor prior to the expiration
in the case of joint liability; instead, the creditor of the term of guarantee, the statute of limitations
must file a lawsuit in courts or apply for arbitration of the guarantee contract will commence as of
to an arbitration tribunal. Upon the court’s the effective date of the judgement or arbitral
judgement or the panel’s arbitral award, if the a w a r d .” H o w e v e r, t h i s j u d i c i a l i n t e r p r e t a t i o n
creditor applies to the court for enforcement, but has a contradiction. According to the priority
the debtor still fails to pay the debt, the creditor of allocation of a general guarantee, before
may have the right to request the guarantor to the creditor applies for enforcement against
assume liabilities. If the creditor directly requests the debtor but the debtor fails to make full
the guarantor to assume liabilities, the guarantor payment, the general guarantor may refuse to
may exercise its right of benefit of resistance for assume liability for the guarantee. However, if, in
defense and refuse to assume liability. accordance with the judicial interpretation in 2000,
the statute of limitations of the guarantee contract
The general guarantor has the right to refuse starts after the effective date of the judgement or
to assume the liabilities of guarantee in the event arbitral award, obviously, it is unfair to the creditor.
that the dispute over the main contract has not As a result, the judicial interpretation revised this
been reviewed by a court or arbitrated, when provision to “if the people's court makes an order
the debtor still cannot assume its debt even if its to terminate this execution procedure, or makes
property is enforced pursuant to law. However, an order to terminate execution in accordance
there are three exceptions27. Compared to the with the Civil Procedure Law, Article 257 (3) and (5),
previous Guarantee Law, the Civil Code adds one the statute of limitations shall commence tolling as
more exception, namely the creditors shall provide of the day of service of order on the creditor. If the
evidence that the debtor's property is insufficient people's court fails to make the ruling mentioned
to assume all its obligation or that the debtor in the preceding paragraph within one year as of
is incapable of assuming its debts28. Based on the date of receipt of application for execution, the
the above features, the Supreme People’s Court statute of limitation shall start as of the date of
expiration of one year from the date of receipt of
25 Guarantee Law, Article 19
26 Civil Code, Article 686 29 Interpretation of the Supreme People's Court on the
27 Guarantee Law, Article 17 Application of the Guarantee System in the Civil Code of
28 Civil Code, Article 687 the People's Republic of China, Article 26
204
accordance with joint liability25. However, the issued the Interpretation of the Supreme People's
Civil Code completely overrides this previous Court on the Application of the Guarantee System
provision, by providing that if the parties fail to in the Civil Code of the People's Republic of China
reach any agreement, or reach any agreement that that potentially will further refine and regulate
is unclear, they shall bear the general liabilities the specific application of guarantee contracts.
of guarantee26, that is, the guarantor shall only For example, unless otherwise subject to one of
assume its proportion of liability, instead of joint the four circumstances set forth in Article 687 (2)
liability. Should there be no agreed arrangement of the Civil Code, the court will not support the
on the proportion of liability, each party shall share creditor’s application for preservation of a general
an equal proportion. A guarantor bearing joint guarantor ’s assets. In a general guarantee, the
liability does not enjoy the benefit of resistance. creditor cannot only sue the guarantor, but it must
This means if the debtor fails to assume the debt, add the debtor as a joint defendant; otherwise,
the creditor may require the guarantor to assume the court will dismiss the creditor’s claim.29
the liability of guarantee, and does not need to
file lawsuit to a court or apply for arbitration to an This judicial interpretation, if adapted, will
arbitration organization. However, if the guarantor further regulate the statute of limitations for a
is subject to general liabilities of guarantee, it shall general guarantee. In 2000, the Interpretation of the
assume such liability only when the debtor cannot Supreme People’s Court on Several Issues Regarding
pay the debt. For example, in case of a guarantor Application of the Guarantee Law of the People’s
with general liability for guarantee, if a debtor fails Republic of China, Article 34 reads: “if a creditor of
to pay the debt, a creditor cannot directly request a general guarantee brings a lawsuit or applies for
the guarantor to assume liabilities as it can do so arbitration against a debtor prior to the expiration
in the case of joint liability; instead, the creditor of the term of guarantee, the statute of limitations
must file a lawsuit in courts or apply for arbitration of the guarantee contract will commence as of
to an arbitration tribunal. Upon the court’s the effective date of the judgement or arbitral
judgement or the panel’s arbitral award, if the a w a r d .” H o w e v e r, t h i s j u d i c i a l i n t e r p r e t a t i o n
creditor applies to the court for enforcement, but has a contradiction. According to the priority
the debtor still fails to pay the debt, the creditor of allocation of a general guarantee, before
may have the right to request the guarantor to the creditor applies for enforcement against
assume liabilities. If the creditor directly requests the debtor but the debtor fails to make full
the guarantor to assume liabilities, the guarantor payment, the general guarantor may refuse to
may exercise its right of benefit of resistance for assume liability for the guarantee. However, if, in
defense and refuse to assume liability. accordance with the judicial interpretation in 2000,
the statute of limitations of the guarantee contract
The general guarantor has the right to refuse starts after the effective date of the judgement or
to assume the liabilities of guarantee in the event arbitral award, obviously, it is unfair to the creditor.
that the dispute over the main contract has not As a result, the judicial interpretation revised this
been reviewed by a court or arbitrated, when provision to “if the people's court makes an order
the debtor still cannot assume its debt even if its to terminate this execution procedure, or makes
property is enforced pursuant to law. However, an order to terminate execution in accordance
there are three exceptions27. Compared to the with the Civil Procedure Law, Article 257 (3) and (5),
previous Guarantee Law, the Civil Code adds one the statute of limitations shall commence tolling as
more exception, namely the creditors shall provide of the day of service of order on the creditor. If the
evidence that the debtor's property is insufficient people's court fails to make the ruling mentioned
to assume all its obligation or that the debtor in the preceding paragraph within one year as of
is incapable of assuming its debts28. Based on the date of receipt of application for execution, the
the above features, the Supreme People’s Court statute of limitation shall start as of the date of
expiration of one year from the date of receipt of
25 Guarantee Law, Article 19
26 Civil Code, Article 686 29 Interpretation of the Supreme People's Court on the
27 Guarantee Law, Article 17 Application of the Guarantee System in the Civil Code of
28 Civil Code, Article 687 the People's Republic of China, Article 26
204
