Article 23: Where the legally-designated representatives, responsible persons, or agents maliciously collude with their counterparts to conclude contracts in the name of legal persons or unincorporated organizations, harming the lawful rights and interests of legal persons or unincorporated organizations, and the legal persons or unincorporated organizations claim that they do not bear civil liability, the people's courts shall support it. Where legal persons or unincorporated organizations request that the legally-designated representatives, responsible persons, or agents and counterparts bear joint and several liability for the losses suffered, the people's courts shall support it.
On the basis of the evidence adduced by legal persons or unincorporated organizations, and comprehensively considering factors such as the trading habits between the parties, whether the contract was obviously unfair at the time of conclusion, whether the relevant persons obtained improper benefits, and the performance of the contract, where the people's court is able to determine that there is a high probability of malicious collusion between the legal representative, responsible person, or agent and the counterpart, it may require the aforementioned persons to make statements or provide corresponding evidence on the relevant facts such as the process of contract conclusion and performance. Where they refuse to make a statement without a legitimate reason, or the statement they make is unreasonable and they cannot provide relevant evidence, the people's court may find that the fact of malicious collusion is established.
【Purpose of the Article】
This article is about the validity of a contract in which a representative or agent colludes with a counterparty in bad faith.
【Overview of Provisions】
This article is divided into two paragraphs, which specifically contain the following aspects: First, it clarifies that the malicious collusion between the legal representative, the person in charge or the agent and the counterparty is not the malicious collusion that leads to the absolute invalidity of the contract as stipulated in Article 154 of the Civil Code. Because the legal representative or person in charge enters into a contract in the name of a legal person or an unincorporated organization, it is the interests of the legal person or unincorporated organization that maliciously colludes with the counterparty to harm the interests of the legal person or unincorporated organization, not the interests of "others". Second, in accordance with Article 164 of the Civil Code, which stipulates that "if the agent and the counterparty maliciously collude to damage the legitimate rights and interests of the principal, the agent and the counterpart shall bear joint and several liability", from the perspective of abuse of the right of representation or agency, it should be determined that the contract constitutes ultra vires representation or no agency, and then the validity of the contract shall be determined in accordance with the provisions of the Civil Code on ultra vires representation or non-authorized agency. Third, from the perspective of proof, it stipulates how to determine malicious collusion. Article 109 of the Judicial Interpretation of the Civil Procedure Law clearly defines the degree of proof of malicious collusion as beyond reasonable doubt, resulting in the risk of losing the case because the parties are often unable to complete the burden of proof in practice, and the provisions of the law and judicial interpretations on malicious collusion have become a dead letter. To this end, paragraph 2 of this article provides guidance on how to determine malicious collusion.
【Controversial Views】
Can the legal representative, responsible person or agent maliciously collude with the counterparty to harm the interests of a legal person or unincorporated organization in accordance with Article 154 of the Civil Code? There is a difference between effective and invalid arguments. For example, in the case of a guarantee, the invalidity of the main contract will lead to the invalidity of the guarantee contract, and such a determination will cause "secondary injury" to the victim. In view of this, this article determines the validity of a contract from the perspective of abuse of the right of representation or agency, thus leaving room for legal persons or unincorporated organizations to choose between recognizing the validity of the contract or recognizing it.
[Understanding and Application]
It is necessary to distinguish the connection and difference between Article 154 of the Civil Code and Article 146 of the Civil Code, and to understand this provision in conjunction with the provisions of Article 171 of the Civil Code on the absence of agency.
1. Overview of malicious collusion
(1) Malicious collusion and conspiracy to make false representations
The traditional civil law does not have a provision on the invalidity of the expression of intent to maliciously collude to harm the interests of the state, the collective, or a third party, and the system of collusion and false representation is most similar to malicious collusion. There is a view that malicious collusion is a conspiracy to make false representations, which is an insincere expression, and the expression of intention itself is flawed, so it is of course invalid. In essence, this view is based on the theory of collusion in the traditional civil law to interpret the current law, which is reasonable. However, at the level of interpretation, it is obviously not in line with the current reality to explain malicious collusion by means of collusion and hypocrisy, after all, there is a significant difference between malicious collusion and conspiracy to make false representations, which is manifested in four aspects: First, in terms of the reasons for invalidity, collusion and false representation refer to the expression of intent that the expressor and the counterparty collude to be hypocritical, and the reason why it is invalid is that the expression of intent of both parties is flawed. On the mainland, a contract of malicious collusion is only invalid if it harms the legitimate rights and interests of others, and only malicious collusion does not lead to the invalidity of the contract. It can be seen that the focus of malicious collusion is not on the defect of the expression of intent, but on the damage result. Second, in terms of whether the expression of intent is true, a conspiracy to make a false representation is a non-genuine representation, while malicious collusion may be either a conspiracy to make a false representation or a true expression of intent. If one party gives a kickback to the agent of the other party, and the agent of the other party signs a contract that damages the interests of the principal after receiving the kickback, the contract is an expression of the true intention of both parties, but the principal can still declare the contract invalid on the grounds of malicious collusion to damage its interests. Third, in terms of whether there is an externality, although collusive and false representations often have externalities because they involve third parties, the focus of legal regulation is on the parties and on the expression of intent itself, not on third parties, and only stipulates that collusive and false representations may not be used against bona fide third parties. Malicious collusion must be accompanied by the element of harming the legitimate rights and interests of others. Fourth, the conspiracy to make false representations is neutral in terms of value, which is only an objective revelation that both parties are insincere, and does not contain a negative evaluation of such acts by law. Malicious collusion, on the other hand, has a strong negative evaluation color in both the generalization of the act itself and the harmful consequences of the act. Based on the above-mentioned theories, under the framework of the current law, it is not appropriate to completely use the false representation of collusion to explain the mainland's malicious collusion system. In fact, the Civil Code retains the provisions of the Contract Law on malicious collusion after providing for false representations of intent, indicating that it is a cause for the invalidity of a contract that is different from the false representation of intent. Judging from the provisions of the Civil Code, the key to the invalidity of a contract of malicious collusion is not that the parties engaged in malicious collusion, but that their acts damage the legitimate rights and interests of others.
(2) Understanding the lawful rights and interests of others
Does the legitimate interests of others harmed by malicious collusion refer to the interests of an unspecified third party or the interests of a specific third party? In our view, it should refer to the interests of specific third parties, not unspecified third parties, because the interests of unspecified third parties are the public interest. Acts that harm the interests of unspecified third parties can be determined to be invalid on the basis of violating the mandatory provisions of laws and administrative regulations or violating public order and good customs. In fact, with the exception of Article 154 of the Civil Code, the current law and relevant judicial interpretations contain many provisions on malicious collusion to harm specific third parties. For example, Article 32 of the Tendering and Bidding Law stipulates that bidders collude to harm the interests of the tenderer or other bidders, and Article 7 of the Judicial Interpretation of the Judicial Interpretation of Commodity Housing Sales Contract provides that the interests of the buyer are all provisions that harm the interests of a specific third party. From the perspective of judicial practice, the vast majority of cases in which malicious collusion is invalid are cases in which the interests of a specific third party are harmed, and there are very few cases in which malicious collusion harms the public interest of the state or society is invalid. For example, in the case of Xu Mourong and six others v. Minmetals Handan Mining Co., Ltd. and Wang Mouling [Supreme Court (2011) Min Er Zhong Zi No. 37], the main text of the judgment pointed out that the third party in "harming the interests of a third party" refers to a third party other than malicious collusion; In the joint tort dispute case of Dongfeng Motor Trading Company, Inner Mongolia Automobile Repair Factory and Inner Mongolia Materials Group Co., Ltd. [Supreme Court (2007) Min Yi Zhong Zi No. 49], the main text of the judgment clearly pointed out that "the 'third party interests' as provided for in Article 52, Paragraph 2 of the Contract Law include the interests of the company's shareholders", and the interests of the shareholders obviously belong to the interests of specific third parties. It can be seen that from judicial interpretation to judicial practice, the "third party" is regarded as a specific third party; In the case of a dispute over a sales contract between Fujian Jinshi Oil Co., Ltd. et al. and Cargill International [Supreme Court (2012) Min Si Zhong Zi No. 1], it also involved a case of infringement of specific creditors. It is for this reason that scholars tend to believe that the invalidity provided for in Article 154 of the Civil Code is relative invalid rather than absolutely invalid, and this view has a certain degree of reasonableness.
Second, it is necessary to distinguish between two types of malicious collusion systems
The malicious collusion provided for in Article 154 of the Civil Code damages the legitimate rights and interests of others, and the effect is invalid. Although there is a theoretical view that this kind of invalidity is relatively invalid, because there is no form of contract validity such as relative invalidity in the mainland, it is still regarded as absolute invalidity in practice, which may not be conducive to protecting the legitimate rights and interests of creditors in some cases. Because in many cases, determining the validity of the contract and making the dishonest counterparty bear the liability for breach of contract is not only more conducive to protecting the interests of the creditor, but also more conducive to punishing the dishonest party than only allowing the dishonest counterparty to bear the liability for negligence in the contract. Moreover, when a guarantee is created, if the guarantee contract is ordered to be invalid due to the invalidity of the main contract, the creditor will not only lose the possibility of seeking relief for breach of contract, but also lose the room to protect its own interests through the guarantee system, thus causing "secondary injury".
Considering that the representative or agent is himself an organ or staff member of a legal person or an unincorporated organization, and is not a "other person" as provided for in Article 154 of the Civil Code, this article takes a different approach and starts to solve the problem under Article 164 of the Civil Code. However, Article 164 of the Civil Code only stipulates that if an agent and a counterparty maliciously collude to damage the legitimate rights and interests of the principal, the agent and the counterparty shall be jointly and severally liable, but this article itself does not explicitly stipulate the contractual validity of malicious collusion. We believe that malicious collusion between a legal representative or agent and a counterparty to damage the legitimate interests of a legal person or unincorporated organization is a typical manifestation of the abuse of representation or agency, and its act of entering into a contract should constitute an ultra vires representative or no agency, so the validity of the contract should be determined in accordance with the provisions of the Civil Code on ultra vires representation or non-authorized agency: if a legal person or unincorporated organization does not recognize the act, the consequences of effective agency or representation will not occur, and the legal person or unincorporated organization shall not bear any responsibility; If it is recognized, it constitutes the right to represent or have the right to act as an agent. Of course, even if a legal person or unincorporated organization is retrospectively recognized, it will not affect its request for the legal representative, agent and counterparty of malicious collusion to bear joint and several liability based on the provisions of Article 164, Paragraph 2 of the Civil Code.
In practice, in the case of a company's external guarantee, if the counterparty accepts the guarantee knowing that the company's resolution is forged or altered, can it be determined that it maliciously colluded with the legal representative or agent, and then exempted the company from liability if the company did not recognize it? There are differing views on this. There is a view that the company still cannot be exempted from liability, because the company will be liable without a resolution, and forging or altering the resolution is equivalent to no resolution; In addition, the forgery or alteration of the resolution shows that the legal representative or the company is still at fault, so it cannot be exempted from liability. In our opinion, if the counterparty accepts the guarantee knowing that the resolution is forged or altered, it can often be determined that the legal representative and the counterparty maliciously colluded to damage the interests of the company, and the company can be exempted from liability on this basis.
III. Determination of malicious collusion
In the contract dispute case of Chen and Pi Mouyong v. Chongqing Bibo Real Estate Development Co., Ltd. et al. [Supreme Court (2009) Min Shen Zi No. 1760], the adjudication rule determined by the court is that for the determination of malicious collusion, it is necessary to analyze whether the parties to the contract have subjective malice, and comprehensively analyze the specific circumstances at the time of entering into the contract, the content of the contract and the performance of the contract. On this basis, a comprehensive judgment is made. The gist of the adjudication in the case of Rizhao Guohui Electronic Technology Co., Ltd. v. Shandong Guoheng Energy Co., Ltd. et al. [Supreme Court (2011) Min Ti Zi No. 45] is clear: it is necessary to comprehensively determine whether the two parties constitute malicious collusion from the transaction background and subjective understanding status of the two parties at the time of signing, especially the employment history, management experience and role of key personnel in the contract. Paragraph 2 of this article provides guidance on the determination of malicious collusion, which essentially requires a case-by-case determination. From the perspective of the court's determination, it is necessary to comprehensively consider factors such as the trading habits between the parties, whether the contract was obviously unfair at the time of conclusion, whether the relevant persons have obtained improper benefits, and the performance of the contract to determine whether there is malicious collusion. From the perspective of the parties' presentation of evidence, the legal representative, agent or counterparty must make statements or provide corresponding evidence on the relevant facts such as the process of contract formation and performance; Where the legally-designated representative, responsible person, or agent and counterpart refuse to make a statement without a legitimate reason, or the statement is unreasonable and cannot provide relevant evidence, the people's court may find that the fact of malicious collusion is established.