Article 5 Where a legal person provides a guarantee, the people's court shall find that the guarantee contract is invalid, except where the use of a loan from a foreign government or an international economic organization is approved by the State Council for on-lending.
Where a residents' committee or villagers' committee provides a guarantee, the people's court shall find that the guarantee contract is invalid, except where the villagers' committee, which acts as a village collective economic organization in accordance with law, provides a guarantee in accordance with the discussion and decision procedures provided for in the Organic Law of the villagers' committee.
【Purpose of the Article】
This article is a provision on the eligibility of government agencies and special legal persons such as residents' committees and villagers' committees.
【Overview of Provisions】
This article is divided into two paragraphs. Paragraph 1 stipulates that, in principle, an agency legal person cannot provide not only a guarantee, but also a material guarantee, and the guarantee provided by it is invalid because it does not qualify as a guarantee, unless it is approved by the State Council for on-lending for the purpose of using a loan from a foreign government or an international economic organization. Paragraph 2 is a provision on the provision of guarantees by residents' committees and villagers' committees. Among them, the residents' committee does not have independent liability property, so the guarantee provided by it is invalid; In principle, the guarantees provided by villagers' committees to the outside world are invalid, except where villagers' committees that act as village collective economic organizations in accordance with the law provide guarantees in accordance with the discussion and decision procedures provided for in the Organic Law of Villagers' Committees.
【Controversial Views】
Is it not possible for a civil entity that is not qualified to provide a guarantee to provide property insurance? One view is that property insurance is a guarantee limited to the value of the thing, and whether the property insurance is effective mainly examines whether the secured property is secure, and whether the subject is qualified as a guarantee does not matter. Another view is that the reason why special legal persons such as government agencies, residents' committees, and villagers' committees do not have the qualification to guarantee is that they can only engage in civil and commercial activities or public welfare activities related to their statutory duties, and cannot engage in other civil and commercial transaction activities, so they cannot provide property insurance.
[Understanding and Application]
1. Guarantee qualifications
Article 683 of the Civil Code only provides in general terms that, in principle, a government legal person may not be a guarantor, and a non-profit legal person or unincorporated organization for the purpose of public welfare shall not be a guarantor, and does not stipulate whether an entity that is not qualified to provide a guarantee can provide property insurance. In our view, the reason why the above-mentioned entities are not qualified to guarantee is that they do not have property for which they are independently liable, but more importantly, they can only engage in civil and commercial activities or public welfare activities related to their statutory duties, and cannot engage in other civil and commercial transaction activities, so they certainly cannot provide property insurance. Therefore, entities that do not have the qualification of guarantee are not qualified for guarantee. In this regard, this article actually extends the provisions of the Civil Code on guarantee qualifications to guarantee qualifications.
2. Guarantee provided by the government agency legal person
According to Article 97 of the Civil Code, there are two types of government legal persons: one is the state organs at all levels that are established in accordance with laws and administrative orders with independent funds to perform public management functions, including power organs at all levels, administrative organs, judicial organs, procuratorial organs, and military organs. The second is the statutory body that undertakes administrative functions, mainly referring to some social group legal persons and public institution legal persons that undertake administrative functions, such as the former Women's Federation, and the latter such as the China Securities Regulatory Commission and the China Banking and Insurance Regulatory Commission. The main duties of government organs and legal persons are to perform the public functions of managing society in accordance with the law and to carry out routine official activities, and the assets and funds of government organs and legal persons are allocated by the state finance and local finances to maintain the official activities and daily expenses of state organs and ensure the normal performance of state organs' duties. Therefore, a government legal person cannot directly participate in economic activities and may not provide guarantees for the debts of others. Otherwise, if the organ legal person is allowed to act as a guarantor, when the debtor fails to perform its debts or a situation agreed by the parties occurs, the organ legal person shall bear the guarantee liability and bear the guarantee liability with the property and funds of the organ legal person. This is not only inconsistent with the purpose of its activities, but also affects the normal performance of its functions. Therefore, in principle, a government legal person does not have the qualification of a guarantor and may not provide guarantee for its own debts or the debts of others. Where a government agency legal person provides a guarantee in violation of the provisions, the guarantee contract shall be invalid.
However, there are exceptions to the rule that a legal entity cannot provide a guarantee. According to the provisions of paragraph 1 of Article 683 of the Civil Code, a government agency legal person may provide guarantee for the on-lending of loans from foreign governments or international economic organizations approved by the State Council. According to the Measures for the Administration of Loans and Grants from International Financial Organizations and Foreign Governments issued by the Ministry of Finance, the Ministry of Finance may provide guarantees on behalf of the central government for loans that the project implementation unit directly borrows from international financial organizations and foreign governments in accordance with the law, and the loans approved by the State Council may be guaranteed by the Ministry of Finance on behalf of the central government. For loans for which the government is responsible for guaranteeing, the financial department shall provide guarantee to the financial department at the next higher level. It can be seen that after being approved by the State Council in accordance with the legal procedures, the government legal person may provide guarantee for the on-lending activities of such loans, and the corresponding guarantee contract is valid.
3. Guarantee provided by the residents' committee
Paragraph 1 of Article 2 of the Organic Law of Urban Residents' Committees stipulates that: "Residents' committees are grassroots mass autonomous organizations for self-management, self-education and self-service of residents. "The tasks of the residents' committees include: publicizing the Constitution, laws, regulations, and state policies, safeguarding the legitimate rights and interests of the residents, educating the residents to fulfill their obligations in accordance with the law, caring for public property, and carrying out various forms of activities to build socialist spiritual civilization; Handle the public affairs and public welfare undertakings of the residents of the area where they live; mediation of civil disputes; assist in the maintenance of public order; Assist the people's governments or their dispatched agencies in public health, family planning, preferential care and relief, youth education, and other work related to the interests of residents; Reflect residents' opinions, demands, and suggestions to the people's government or its dispatched organs. Article 16 of the Law stipulates: "The expenses required by the residents' committee to handle the public welfare undertakings in the area of residence may, after discussion and decision by the residents' meeting, be raised from the residents on a voluntary basis or from the beneficiary units in the area of residence, but only with the consent of the beneficiary units; Accounts of income and expenditure shall be published in a timely manner and shall be subject to supervision by residents. Article 17 of the Law stipulates: "The expenses and sources for the work of residents' committees, and the scope, standards and sources of living allowances for residents' committee members, shall be prescribed and allocated by the people's governments of cities not divided into districts, municipal districts, or people's governments at higher levels; With the consent of the residents' meeting, an appropriate subsidy may be given from the economic income of the residents' committee. The office space of the residents' committee shall be settled by the local people's government as a whole. It can be seen from this that although the residents' committee manages the corresponding property and expenses, it serves the public welfare undertakings of the area where it lives, and is not allowed to engage in economic activities or profit-making activities. If they are allowed to engage in guarantee activities, it will be difficult for the social interests of community residents to be protected. Therefore, this article clearly stipulates that the residents' committee is not qualified as a guarantee, and the guarantee provided by it is invalid.
4. The villagers' committee provides guarantees
Like residents' committees, villagers' committees are also grass-roots mass autonomous organizations for villagers to manage, educate and serve themselves, and practice democratic elections, democratic decision-making, democratic management, and democratic supervision. Villagers' committees handle the village's public affairs and public welfare undertakings, mediate civil disputes, assist in maintaining public order, and reflect the villagers' opinions, demands, and suggestions to the people's government. Therefore, the nature and functions of the villagers' committee determine that it is an autonomous mass organization that handles the public affairs and public welfare undertakings of the village, mainly engaged in public welfare undertakings and the provision of public services, and does not have independent liability property and does not have the qualification of guarantee in principle.
However, unlike residents' committees, villagers' committees that perform the functions of collective economic organizations in accordance with the law are qualified to provide guarantees. The reason why villagers' committees are needed to perform the functions of villagers' collective organizations on behalf of them is that in some places on the mainland, especially in the rural areas of central and western China, independent rural collective economic organizations have not yet been formed because the collective economy is underdeveloped. In some localities, despite the existence of de facto rural collective economic organizations, they have not yet obtained legal personality in accordance with the law because they lack specific forms and legal person status. In the case that a rural collective economic organization has not obtained the status of a legal person in accordance with the law, it is often necessary for the villagers' committee to perform the functions of the rural collective economic organization on its behalf. It is precisely in view of the current situation that the Civil Code stipulates that rural collective economic organizations shall acquire the status of legal persons in accordance with the law (Article 99, paragraph 1 of the Civil Code). Judging from the current situation, there are three main forms for rural collective economic organizations to obtain the status of legal persons in accordance with the law: first, traditional rural collective economic organizations (mainly villages and villager groups) based on the enjoyment of collective land ownership, such as Zhejiang, Beijing, and Guangdong, are given legal status to collective economic organizations in the form of issuing organizational certificates; The second is the enterprise-oriented modern rural collective economic organization based on operational collective assets, among which Beijing, Shandong, and Hebei focus on the cooperation of specific people and register them as professional farmer cooperatives; Third, on the basis of operating collective assets, urban villages, suburban villages and economically developed villages in some economically developed areas such as Qingdao, Xiamen and Changsha shall be registered as enterprise legal persons with reference to the provisions of the Company Law.
Of course, in most cases, rural collective economic organizations do not have the status of legal persons, but they also have the need to engage in civil activities, so Article 101, Paragraph 2 of the Civil Code stipulates: "If a collective economic organization has not been established, the villagers' committee may perform the functions of the collective economic organization in accordance with the law." In particular, villagers' committees are composed of village directors and other village cadres, which may not necessarily represent the interests of villagers' collectives. For this reason, paragraph 2 of this article stipulates that if a villagers' committee acting as a village collective economic organization provides a guarantee without discussion and decision by the villagers' meeting, or if it is discussed and decided by the villagers' representative meeting but is not authorized by the villagers' meeting, the people's court shall find that the guarantee contract is invalid. The legal provisions here are mainly the provisions of the Organic Law of Villagers' Committees on the convening procedures, resolutions and voting rights requirements of villagers' meetings and villagers' representative meetings.
Article 24, Paragraph 1, Item 8 of the Organic Law of Villagers' Committees stipulates that "disposing of village collective property by means of loans, leases or other means" may be discussed and decided by the villagers' meeting or authorized by the villagers' representative meeting. The villagers' meeting is composed of villagers over the age of 18 in the village. Villagers' meetings are convened by villagers' committees. Where more than one-tenth of the villagers or more than one-third of the villagers' representatives propose, a villagers' meeting shall be convened. When convening a villagers' meeting, the villagers shall be notified 10 days in advance. The convening of a villagers' meeting shall be attended by more than half of the villagers over the age of 18 or representatives of more than two-thirds of the households in the village, and the decisions made by the villagers' meeting shall be passed by more than half of the persons present. Villagers' meetings may be convened and representatives of enterprises, public institutions, and mass organizations stationed in the village may be invited to attend as observers.
In villages with a relatively large number of people or scattered residences, a villagers' representative meeting may be set up to discuss and decide on matters authorized by the villagers' meeting. The villagers' representative meeting shall be composed of members of the villagers' committee and villagers' representatives, who shall account for more than four-fifths of the members of the villagers' representative meeting, and women villagers' representatives shall account for more than one-third of the members of the villagers' representative meeting. Villagers' representatives are to be elected by the villagers on a basis of one person for every five to fifteen households, or several by each villager group. The term of office of the villagers' representatives is the same as that of the villagers' committees. Villagers' representatives may be re-elected. The villagers' representative meeting is convened by the villagers' committee. The villagers' representative meeting is held quarterly. More than one-fifth of the villagers' representatives proposed that a villagers' representative meeting should be convened. A villagers' representative meeting can only be convened when more than two-thirds of its members participate, and decisions shall be made with the consent of more than half of the members present. In practice, although the villagers' committee acting as a village collective economic organization performs the functions of a village's collective economic organization has discussed and decided on an external guarantee after a discussion at the villagers' representative meeting, if it has not been authorized by the villagers' meeting, the guarantee contract shall still be deemed invalid.
5. The legal consequences of the invalidity of the guarantee contract
In terms of the consequences of the invalidity of a guarantee contract, although there is no special provision in this article, from the perspective of system interpretation, the general provisions of Article 17 of the Interpretation of the Guarantee System of the Civil Code on the invalidity of the guarantee contract should be applied. During the drafting of the Interpretation of the Guarantee System of the Civil Code, there was a view that special provisions should be made on the legal consequences of the invalidity of external guarantees by government agencies. On the one hand, because the law and judicial interpretations clearly stipulate that a legal person may not provide a guarantee, and the counterparty is well aware of this, it should bear all the risks caused by the fact that it still signs a guarantee contract with such an entity. On the other hand, the assets and funds of government agencies and legal persons are allocated by the state and local finances to maintain the official activities and daily expenses of the state organs and to ensure the normal performance of their duties. If the guarantee provided by a government legal person is found to be invalid, if it is still liable for damages like other civil entities, it will affect the normal performance of its functions. Therefore, after the guarantee provided by the government legal person is found to be invalid, it should not bear any civil liability. In the end, the Interpretation of the Guarantee System of the Civil Code did not adopt this view, because it is not in line with the equality of civil subjects, nor is it conducive to promoting the construction of a trustworthy government, and it is also inadequate in protecting the counterpart. Of course, given that such entities do not have independent liability assets, how to enforce them after they are held liable is a long-standing problem that has plagued practice. However, the "difficulty of implementation" that may be faced does not negate the need for liability for damages.
[Practical issues]
According to the provisions of the Civil Code, residents' committees and villagers' committees have the status of legal persons as grass-roots mass autonomous organizations and may engage in civil activities necessary for the performance of their functions. Where a village collective economic organization has not been established, the villagers' committee may perform the functions of the village collective economic organization in accordance with law. In practice, it is not uncommon for residents' committees and villagers' committees to provide guarantees. By searching a number of civil judgments that have come into effect, the following two aspects are summarized:
First, the judgments of most courts have held that villagers' committees are grass-roots mass autonomous organizations for villagers' self-management, self-education, and self-service, and mainly handle the village's public affairs and public welfare undertakings. If the guarantee is invalid without discussion at the villagers' meeting, the villagers' committee shall bear the corresponding fault liability.
Second, in terms of determining fault, the court held that when the creditor is a professional financial institution, it should take the initiative to request the villagers' committee to provide the discussed resolution documents, and it should be at fault if it fails to fulfill this obligation. As far as the villagers' committee is concerned, it can be found to be at fault if it provides a guarantee to the outside world without collective discussion. In practice, it is common to order the villagers' committee to bear no more than one-half of the liability within the scope of the insolvency. There are also judgments that hold that no more than one-tenth of the liability is born; In some cases, it was held that the guarantee contract was invalid and the residents' committee was not liable.