First, the origin of the problem
The core function of the guarantee is to ensure the realization of the claim, and there may be multiple guarantees on a claim, which may be a joint guarantee, a joint mortgage or a joint pledge constituted by a single security method, or a situation where the guarantee and mortgage coexist, the guarantee and the pledge coexist, the mortgage and the pledge coexist, or the guarantee and the mortgage and the pledge coexist.
In the case of mixed security, the coexistence of the property security and the personal security provided by the debtor is the most common. For example, the company as the borrower provides a mortgage guarantee for its own house, and its legal representative provides a guarantee as a guarantor. In this case, does the creditor have to dispose of the collateral provided by the debtor first when realizing the claim, or is it free to choose without any restriction on the order?
2. Relevant regulations and current mainstream views
01 Relevant laws and regulations
Article 392 of the Civil Code stipulates that "if the secured creditor's right is secured by both real security and personal security, and the debtor fails to perform the due debt or the parties agree to realize the security interest, the creditor shall realize the creditor's right in accordance with the agreement; if there is no agreement or the agreement is not clear, and the debtor provides security in kind, the creditor shall first realize the creditor's right in respect of the security of the thing; if a third party provides security in kind, the creditor may realize the creditor's right in respect of the security in rem or request the guarantor to bear the guarantee liability." The third party providing the guarantee has the right to recover from the debtor after assuming the guarantee liability. ”
02How to understand the provisions of Article 392 of the Civil Code?
How to understand Article 392 of the Civil Code (Article 176 of the original Property Law), the Supreme People's Court has a wonderful discussion in the case of a financial loan contract dispute between Yulin Xinjian South Road Branch of China Construction Bank Corporation and Yulin Juneng Logistics Co., Ltd. [Supreme People's Court (2017) Gao Gao Fa Min Zhong No. 170]. The details are as follows:
The theoretical basis of the first sentence of 01176
In the case of the coexistence of security in rem and security in person, in what order should the creditor realize the creditor's claim, because it has nothing to do with the public interest, it is advisable to demonstrate the spirit of autonomy of private law, and the creditor and the guarantor in rem should freely agree. Article 176 of the Property Law states that "the creditor shall realize the creditor's rights in accordance with the agreement", which clarifies the arbitrary legal nature of the norm.
02How to understand that the creditor should realize the "agreement" in the creditor's right in accordance with the agreement?
From the last sentence of Article 176 of the Property Law, "if there is no agreement or the agreement is not clear, and the debtor provides security in rem, the creditor shall first realize the creditor's right in respect of the security of the thing, and if a third party provides security in kind, the creditor may realize the claim in respect of the security in rem or require the guarantor to bear the guarantee liability".
In addition, in terms of interpretation, the parties may also agree that each guarantor shall only bear the guarantee liability for the creditor's rights in accordance with its share. This joint guarantee agreement by share also restricts the exercise of the creditor's option when realizing the creditor's claim, and the creditor only has the right to claim the guarantee liability within the agreed share from each guarantor. It can be seen that if the parties agree that each guarantor shall only bear the joint guarantee liability according to the share, "the creditor shall realize the creditor's rights in accordance with the agreement". Therefore, the "agreement" in "the creditor shall realize the creditor's rights in accordance with the agreement" includes not only the agreement on the order of liability between the personal security and the security in rem, but also the agreement on the scope of the allocation of liability between the personal security and the security in rem.
Note: This article only discusses the order in which claims are realized.
03 To what extent can an agreement be recognized as clear?
According to the first sentence of Article 176 of the Property Law, the creditor can realize its creditor's rights in accordance with the agreement only if there is a clear agreement on the order of liability or the scope of liability allocation between the personal security and the security in rem. In trial practice, some parties believe that the "agreement" here is only clear when the priority between the security rights of the creditor is arranged, and the typical expression is that "there is a clear order such as the first, second and last priorities" is the agreement, otherwise the agreement is not clear, which has given rise to disputes over the interpretation of the parties' expressions of intent. This court held that the purpose of the "agreement" in "the creditor shall realize the creditor's right in accordance with the agreement" is to determine or restrict the creditor's right to choose when the security of the person and the security in rem coexist, as long as the content of the agreement between the parties reaches this level, it should be deemed that there is a clear agreement between the parties on the creditor's realization of its creditor's rights.
This includes both agreements restricting the exercise of the creditor's right of option, as well as agreements that determine or grant the creditor's right of option. The so-called clear agreement on the order of the creditor's realization of the creditor's rights includes the agreement that the order of realizing the creditor's rights is that the security in rem comes first, the personal guarantee comes first, the security in rem comes later, and the security in rem and the guarantee of the person bear the guarantee liability at the same time, and other three situations in which ordinary people in society can usually imagine the clear agreement according to logic, and of course, it also includes the situation that the guarantor should bear the guarantee liability under any circumstances.
3. How to realize the creditor's rights when the property insurance and the human insurance coexist?
According to the above provisions, when property insurance and PICC coexist, the creditor shall realize the creditor's rights in accordance with the following principles (this article only discusses the order of realizing the creditor's rights).
Scenario 1: The parties have clearly agreed on the order of realizing the creditor's rights when the property security and the human insurance coexist
According to Article 392 of the Civil Code, when property security and personal insurance coexist, the agreement of the parties shall be respected first, and if the parties have a clear agreement on the order of realizing the creditor's rights, the autonomy of the parties shall be respected because it is not related to the public interest.
Scenario 2: If there is no agreement between the parties or the agreement is not clear, the property security provided by the debtor takes precedence
When the property security and the personal security coexist, if the parties have not agreed on the order of realizing the claim or the agreement is not clear, and the debtor provides security for the goods, the debtor shall first realize the claim on the security of the things provided by the debtor. Because, as a third party, the guarantor is not the ultimate bearer of the debt, if the creditor gives the guarantee first, the guarantor also needs to seek recourse from the ultimate debtor, the debtor, after performing the guarantee obligation. If the guarantor first guarantees the goods, it can avoid the cumbersome need for the guarantor to exercise the right of recourse against the debtor in the future, and reduce the cost and expense of realizing the claim. Moreover, it would be unfair to the guarantor to require the guarantor to bear the guarantee liability first when the debtor provides security for the goods itself.
To put it simply, in the absence of an agreement or an unclear agreement, the guarantor is not the ultimate bearer of the debt, and it enjoys subordinate benefits.
Situation 3: There is no agreement or the agreement is not clear, and there is no order between the third person and the third person
In the absence of an agreement or the agreement is not clear, and the security and personal security provided by the third party coexist, the parties shall be allowed to choose. This provision is mainly based on the following considerations: in the absence of an agreement or an unclear agreement, the third party provides security in kind, and there is also a guarantee from others, neither the third party nor the guarantor is the ultimate bearer of the debt, and is in an equal position, and the debtor is the ultimate obligor. Therefore, whether the creditor is the security of the first realization or the first to realize the security, the guarantor or guarantor of the thing has the problem of recourse against the debtor. In order to ensure that the creditor's claim is fully realized, the law should respect the creditor's wishes and allow the security holder to have an option in such circumstances.
IV. Relevant Typical Precedents
Case 1
Ningxia Shengyan Industrial Group Energy Circular Economy Co., Ltd. et al. and China Minsheng Bank Co., Ltd. Xi'an Branch Financial Loan Contract Dispute Second Instance Civil Case, Beijing High People's Court (2022) Jing Min Zhong No. 18
[Details of the trial]
The court of first instance held that the No. 1-7 Guarantee Contract, No. 1-3 Mortgage Contract, and No. 1 Pledge Contract all contained clauses: if in addition to the security methods agreed in this contract, there are other guarantees under the main contract (including the mortgage or pledge guarantee provided by the principal debtor to Party B with its own property, the mortgage provided by a third party, pledge or guarantee guarantee), then, first, the guarantee liability of Shengyan Energy Recycling Company to Minsheng Xi'an Branch is not affected by any other guarantee, nor is it exempted or reduced by it;
Second, Minsheng Xi'an Branch has the right to choose to exercise the security rights under this contract in priority, as well as other security rights or to exercise all or part of the security rights at the same time, and the choice of Minsheng Xi'an Branch to exercise or give priority to the exercise of any security right shall not be regarded as a waiver of the security right that has not been exercised or exercised in priority, and Shengyan Energy Recycling Company agrees to waive the priority defense of any Minsheng Xi'an Branch that has not (preferentially) selected the guarantee;
Thirdly, if Minsheng Xi'an Branch fails to exercise or give priority to exercising or waiving the mortgage or pledge right to the property of the principal debtor for any reason, or changes the order or content of the mortgage or pledge, resulting in the loss or reduction of the priority right of repayment under the above-mentioned mortgage or pledge of Minsheng Xi'an Branch, Shengyan Energy Recycling Company undertakes to assume the guarantee liability to Minsheng Xi'an Branch shall not be exempted or reduced thereby. This clause is a special agreement between the parties on the order of realization of security rights, that is, Minsheng Xi'an Branch has the right to determine the order of realization of its claims in the mortgage, pledge and guarantee guarantee of Shengyan Energy Cycle Company and the other five guarantors. The agreement did not violate the provisions of the law, and the court of first instance recognized its validity.
The second instance of the Beijing High Court was upheld!
Case 2
Changde Modern Industrial Investment Group Co., Ltd., Fu Shengqing et al., Civil Case of Second Instance Civil Case of Loan Contract Dispute, Changde Intermediate People's Court (2022) Xiang 07 Min Zhong No. 364
[Details of the trial]
The court ruled that since the parties in this case did not agree on the order of realization of the creditor's rights, according to the above provisions, if the guarantee provided by Prosperity Company was established normally, the guarantors Fu Shengqing and Tao Shen would only bear the guarantee liability for the claims other than the guarantee in rem, that is, the guarantors in this case, Fu Shengqing and Tao Shen, had a reasonable reliance on their statutory subordinate interests, and the resulting trust interests should be protected by law. If the guarantors Fu Shengqing and Tao Shen continue to bear the guarantee liability when the security interest provided by the debtor is not created, it is also contrary to the principles of fairness and good faith. Therefore, the guarantors Fu Shengqing and Tao Shen should be exempted from the guarantee liability within the scope of the value of the pledge of 6000240 yuan of inventory, because the value of the pledge is much greater than the amount of the debt, that is, the guarantors Fu Shengqing and Tao Shen in this case do not need to bear the guarantee liability for the above-mentioned debts of Prosperity Company.
Case 3
Yibin Tiancheng Real Estate Development Co., Ltd. and Xia Ming Financial Loan Contract Dispute Yibin Intermediate People's Court (2021) Chuan 15 Min Zhong No. 596
[Details of the trial]
The court held that the loan lent by the Cuiping Branch of the commercial bank to Anji Logistics in this case was designed to be a pledge of accounts receivable from the debtor Anji Logistics and a guarantee guarantee from Tiancheng Real Estate Company, Xia Ming and Guo Lingli at the time of the initial lending. In accordance with the above-mentioned legal provisions, the pledgee, Yihai Commercial Bank Cuiping Branch, shall first realize the creditor's rights on the property security provided by the debtor, and then require the guarantors Tiancheng Real Estate Company, Xia Ming, Guo Lingli, etc. to bear the guarantee liability. The Working Capital Loan Contract signed by the Cuiping Sub-branch of the Commercial Bank with the debtor and the guarantors also indicated that the loan in this case had both a pledge and a guarantee provided by the guarantor.
This record allows each guarantor to rely on the guarantee liability it bears, which should be subordinated to the pledge security provided by the debtor itself, and the guarantee provided by the guarantor is basically risk-free. However, due to the negligence of the Cuiping Sub-branch of the commercial bank in performing its obligations, it not only caused the Cuiping Sub-branch of the commercial bank to be unable to exercise the pledge right of accounts receivable, but also caused the foreseeable subordinate interests of the guarantors Tiancheng Real Estate Company, Xia Ming, Guo Lingli, etc., to be frustrated, so Tiancheng Real Estate Company, Xia Ming, and Guo Lingli claimed to be exempted from liability within the scope of the lost pledge of accounts receivable, and this court supported it.
Case 4
Siyang County Sanlian Guarantee Co., Ltd. v. Zhou Yuming, Jiangsu Chuangzhuo Construction Co., Ltd., et al., Jiangsu Provincial High People's Court (2016) Su Min Zhong No. 1466
[Details of the trial]
The Jiangsu Higher People's Court held that, after Siyang County Sanlian Guarantee Co., Ltd. had been given priority in the repayment of the mortgage counter-guarantee property in items 3 and 4 above, and still failed to pay off part of the debt, Chen Fushun's legal heirs should bear joint and several liability within the scope of inheriting Chen Fushun's estate and within the limit of 10 million yuan, and Chen Tailiang, Xiao Shanjiang, Wang Anbing, and Liu Chengcheng should bear joint and several liability for repayment within the limit of 2 million yuan. Chen Fushun's legal heirs, Chen Tailiang, Xiao Shanjiang, Wang Anbing, and Liu Chengcheng have the right to recover from Jiangsu Chuangzhuo Construction Co., Ltd. after assuming the guarantee liability.
Case 5
China Construction Bank Corporation Daqing Branch v. Qu Fenghai et al., a loan contract dispute, Supreme People's Court (2018) Gao Gao Fa Min Zhong No. 966
[Summary of the trial]
Because in the case where the debtor provides mortgage guarantee with its own property and other guarantors provide guarantee for the same creditor's right, the debtor is the debtor in the standard, and the guarantor only bears the responsibility on its behalf, and whether the parties to the loan relationship have collateral in the loan and the agreement on the source of funds for loan repayment are important factors to consider when the guarantor provides security. After the creditor establishes a mortgage on the debtor's property, it releases the mortgage on the property, which changes the collateral under the loan contract when the guarantor makes the guarantee, increases the risk of the guarantor's liability, and the guarantor's guarantee liability within the scope of the creditor's loss of the creditor's priority right to be repaid by the mortgage shall be exempted.
[Details of the trial]
The Supreme People's Court held that there was a factual and legal basis for the first instance to determine that Shi Lijing and other guarantors should repay the principal and interest of the loan owed to the Daqing Branch of China Construction Bank to Yihai Company, and exempt them from guarantee liability within the scope of 318202651 yuan of the real estate sales proceeds from which the mortgage was released, and that if the amount of the principal and interest of the loan involved in the case exceeded 318202651 yuan, Shi Lijing and other guarantors should be jointly and severally liable for the excess part. CCB Daqing Branch's appeal request that Shi Lijing and other guarantors bear the scope of guarantee liability was wrong in the first-instance judgment, and that Shi Lijing and other guarantors should be ordered to bear joint and several guarantee liability for the principal and interest of the loan in this case that should be repaid by Yihai Company, this court does not support this court's appeal.
5. Summary and risk warning
According to the above provisions, when the property security provided by the debtor and the personal security provided by the third party coexist, if the parties have not agreed on the order of realizing the creditor's rights or the agreement is not clear, the creditor shall first realize the creditor's rights in respect of the material security provided by the debtor, and only then can the third party be required to bear the corresponding guarantee liability and the guarantor shall enjoy the subordinate interests. From the creditor's point of view, this is undoubtedly a restriction on the creditor's realization of the creditor's claim, which will have a certain impact on the creditor's realization of the creditor's claim.
Therefore, it is necessary to remind commercial banks and other credit institutions that once the property security provided by the debtor and the guarantee provided by a third party coexist in their operations, they must not forget to make full use of the "agreed" rights granted to creditors under Article 392 of the Civil Code. In order to effectively prevent risks, it is recommended that credit institutions have a clear agreement on the order of realizing claims when the guarantee contract coexists with property insurance and human insurance company, and it is recommended that there is no restriction on the order of realizing claims, and creditors can choose freely.
The author will analyze how to realize the creditor's rights when the debtor's property security and the third party's property security coexist, and the author will analyze it in the following articles.
Published: Credit Risk Management Training Center: Tong Jinbei
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