Lufa case [2024] 055
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Brief facts of the case
A borrowed 200,000 yuan from the bank for production and operation, and his friend B provided a joint and several liability guarantee to the bank. After the expiration of the loan term, A was unable to repay the principal and interest of the loan, and the bank required B to perform the guarantee obligation. In order to provide B with peace of mind, A invites another friend, C, to provide a counter-guarantee to B. C readily agreed and signed a written contract with B, stating that C guaranteed that A would repay B all the compensation within one month, and that if A did not repay it when due, B could require C to perform the guarantee obligation. C fails to perform the guarantee obligation within the time limit, and voluntarily pays liquidated damages to B at an annual interest rate of 13. After B repaid the principal and interest of the loan of RMB 220,000 on behalf of A, neither A nor C paid the compensation to B as agreed. B filed a lawsuit with the court, demanding that A repay the compensation of 220,000 yuan, and requiring C to perform the guarantee obligation and pay liquidated damages at an annual interest rate of 13. C does not agree to perform the guarantee liability and does not agree to pay liquidated damages.
Heard by the courts
After trial, the court held that B's intention to provide joint and several liability guarantee to the bank was genuine, and the legal relationship of joint and several liability guarantee between the two parties was established. B repaid the principal and interest of the loan on behalf of A, and has obtained the right of recourse against A. Therefore, B's claim for A to repay the compensation of 220,000 yuan should be supported by the court in accordance with law. C's provision of a counter-guarantee to B is also an expression of its true intentions, and the legal relationship between the two parties is established in accordance with law. Now B has fulfilled the guarantee liability, so its litigation claim requiring C to perform the counter-guarantee liability should be supported in accordance with the law. With regard to the liability for breach of contract agreed between C and B, according to the relevant laws and regulations, the parties have agreed on a special liability for breach of contract for the assumption of the counter-guarantee liability, and if the counter-guarantor claims that the liability is only within the scope of the guarantor's liability, the court should support it. Therefore, the court did not support B's claim for liquidated damages from C.
What the judge said
The counter-guarantee is created to ensure the realization of the right of recovery of the guarantor other than the debtor. This guarantee and counter-guarantee are guarantees in a general sense, and there is no difference in essence between them. The counter-guarantee may be the property security provided by the debtor itself, or the property security or guarantee provided by a third party. When a counter-guarantee is a property guarantee or guarantee provided by a third party, the relationship between the third party providing the counter-guarantee and the guarantor is a contractual relationship of guarantee. The counter-guarantee contract guarantees the guarantor's right of recourse arising from the entrustment relationship or no management, and the counter-guarantor is only liable within the scope of the guarantor's actual guarantee liability or compensation liability. If the scope of the counter-guarantee liability stipulated in the counter-guarantee contract is greater than the scope of the liability to be borne by the guarantor, or if a special liability for breach of contract is stipulated for the counter-guarantee liability, it is contrary to the subordinate nature of the scope of the guarantee. According to the first paragraph of Article 3 of the Interpretation of the Supreme People's Court on the Application of the Civil Code of the People's Republic of China on the Guarantee System, if the counter-guarantor claims to bear liability only within the scope of the guarantor's liability, the people's court shall support it.
Links to legal provisions
Article 387 of the Civil Code of the People's Republic of ChinaWhere a creditor needs security in order to ensure the realization of its creditor's rights in civil activities such as lending and trading, it may create a security interest in accordance with the provisions of this Law and other laws. Where a third party provides security to the creditor for the debtor, the debtor may be required to provide a counter-guarantee. Counter-guarantees shall be governed by the provisions of this Law and other laws.
Article 689The guarantor may request a counter-guarantee from the debtor.
Article 700After the guarantor assumes the guarantee liability, unless otherwise agreed by the parties, it has the right to recover from the debtor within the scope of the guarantee liability and enjoy the rights of the creditor against the debtor, but shall not harm the interests of the creditor.
Interpretation of the Supreme People's Court on the Application of the Civil Code of the People's Republic of China on the Guarantee SystemArticle 18, paragraph 1Where a guarantor who has assumed the guarantee liability or compensation liability recovers from the debtor within the scope of its responsibility, the people's court shall support it.
Article 3, paragraph 1Where the parties agree on a special liability for breach of contract for the assumption of the guarantee liability, or the agreed scope of the guarantee liability exceeds the scope of the debtor's liability, and the guarantor claims to bear liability only within the scope of the debtor's liability, the people's court shall support it. **Single County Court.