Supreme People's Court: Article 12 of the Rules for the Bearing of Civil Liability of Branch Offices

Author: Xu Zhongxing

Transferred from: Jurisprudence 45 degrees

Article 12 of the rules for the bearing of civil liability of branches

1. Can a company file a third-party revocation lawsuit against a civil effective judgment between its branch and another person?

-- Changsha Guangda Building Decoration Co., Ltd. v. Industrial and Commercial Bank of China Co., Ltd. Guangzhou Yuexiu Branch, Lin Chuanwu, Changsha Guangda Building Decoration Co., Ltd. Guangzhou Branch, and other third parties to revoke the lawsuit

The gist of the adjudication: If a branch of a corporate legal person engages in civil activities in its own name and independently participates in civil litigation, and the people's court rules that the branch bears civil liability externally, and the corporate legal person files a third-party revocation lawsuit against the effective judgment, it does not meet the third-party requirements provided for in Article 59 of the Civil Procedure Law (2023 Amendment), and the people's court will not accept it.

Case No.: First instance: (2017) Yue 01 Min Qu No. 10, second instance: (2018) Yue Min Zhong No. 1151

Trial court: Guangzhou Intermediate People's Court of first instance, Guangdong Provincial High People's Court of second instance

Source: Guiding Case No. 149 of the Supreme People's Court, Notice of the Supreme People's Court on Releasing the Seventh Batch of Guiding Cases, released on February 19, 2021.

2. Can the internal agreement between the company and its subsidiaries on the division of rights, obligations and responsibilities be used against a third party?

——Meng Fansheng, Changchun Shengxiang Construction Engineering Co., Ltd. v. Li Jianguo, Changchun Teng'an Real Estate Development Co., Ltd

The gist of the adjudication: The property of a branch belongs to the company that established it, and the civil liability arising from the civil activities of the branch shall be borne by the company, which is the basic rule established by the Company Law. If a branch is registered with the market supervision and administration authority in accordance with the law, it shall be subject to the adjustment of the above-mentioned rules of the Company Law. No matter how the company and its branch agree on the relationship of rights and obligations between the two parties and the standard for the division of responsibilities, the content of the agreement is not sufficient to oppose the publicity effect of the branch's legal registration, and thus to the third party. If the branch believes that it is in violation of the internal agreement between it and the company that it is liable for the company, it can negotiate with the company to settle the matter.

Case No.: (2016) Zui Gao Fa Min Zai No. 149

Trial court: Supreme People's Court

Case source: Sponsored by the General Office of the Supreme People's Court: Gazette of the Supreme People's Court of the People's Republic of China, Issue 2, 2017 (Issue 244).

3. Does the cancellation of the branch affect the company's commitment to its civil obligations?

——Pan-China Engineering Co., Ltd. Southwest Company and Chinese Life Insurance (Group) Company Commercial Housing Pre-sale Contract Dispute

Gist of the adjudication: The second paragraph of Article 13 of the Company Law stipulates that "a company may establish a branch office. A branch office does not have legal personality, and its civil liability is borne by the company. Therefore, whether or not a branch of the company has actually been deregistered by the company registration authority in the process of changing the registration of the company does not affect the exercise of the civil rights enjoyed by the company branch based on the independent legal personality of the company and the assumption of the civil obligations of its branch.

Case No.: (2005) Min Yi Zhong Zi No. 85

Trial court: Supreme People's Court

Source: Sponsored by the General Office of the Supreme People's Court, Gazette of the Supreme People's Court of the People's Republic of China, No. 2, 2008 (No. 136).

4. The basic requirements for determining whether a branch of a legal person can be a party to a civil litigation

-- Jianxingyuan Pharmaceutical Group Co., Ltd. v. Tiantong Securities Co., Ltd., Tiantong Securities Co., Ltd., Shenzhen Jixiang Middle Road Securities Business Department, other securities contract disputes

Gist of the adjudication: The first paragraph of Article 51 of the Civil Procedure Law stipulates that "citizens, legal persons and other organizations may be parties to civil litigation. Article 52 of the Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China stipulates that: "Other organizations provided for in Article 51 of the Civil Procedure Law refer to organizations that are legally established and have certain organizational structures and assets, but do not have the status of a legal person, including...... ......"According to the above provisions, although a branch of a legal person does not have the status of a legal person, if the branch is established in accordance with the law and has a business license, has a certain amount of operating capital and the capacity to carry out transactions within the approved business scope, it belongs to other organizations provided for in the Civil Procedure Law and may be a party to a civil lawsuit.

Case No.: (2005) Min Er Zhong Zi No. 160

Trial court: Supreme People's Court

Source: Sponsored by the General Office of the Supreme People's Court, Gazette of the Supreme People's Court of the People's Republic of China, No. 6, 2006 (No. 116).

5. Can a legal person be exempted from liability for the civil activities carried out by its branch without industrial and commercial registration?

-- A securities repurchase dispute between the Business Department of Yunnan Branch of Agricultural Bank of China and Shenzhen International Trust and Investment Company and Dapeng Securities Co., Ltd. and Huanyu Securities Business Department

The gist of the adjudication: Where a legal person establishes a branch in accordance with law, and laws or administrative regulations stipulate that the branch shall be registered, the legal person shall handle the industrial and commercial registration of the branch in accordance with the law. A branch engages in civil activities in its own name, and the civil liability arising therefrom shall be borne by the legal person. However, there are many factors that determine whether a branch has been established by a legal person or whether its internal functional departments have carried out industrial and commercial registration in a timely manner, and it is not possible to determine whether a branch has already been established by a legal person when it engages in a certain civil juristic act solely on the basis of industrial and commercial registration. Even if a branch of a legal person is not registered in accordance with laws and administrative regulations, it does not exempt the legal person from civil liability for the civil activities engaged in by the branch.

Case No.: (2000) Jing Zhong Zi No. 87

Trial court: Supreme People's Court

Source of the case: Gazettes of the Supreme People's Court of the People's Republic of China, No. 5, 2004 (No. 91).

6. Can a legal person claim that a contract signed by its branch is invalid on the grounds of exceeding its authority?

-- Industrial and Commercial Bank of China Inner Mongolia Autonomous Region Tongliao Branch and Tongliao Horqin District Industrial and Commercial Rural Credit Cooperative

The gist of the adjudication: A branch of a legal person is an integral part of a legal person in nature and does not have independent legal personality, and must carry out business activities within the scope of the legal person's authorization, and must not engage in business activities beyond its authority. However, within the scope of the legal person's authorization, the branch office may independently engage in civil activities in its own name, and whether it exceeds its authority is an internal relationship of the legal person and cannot be used against a bona fide third party. Where there is no evidence to prove that the third party has bad faith, and a legal person requests confirmation of the invalidity of a contract signed by its branch on the grounds of exceeding its authority, the people's court will not support it.

Case No.: (2005) Min Er Zhong Zi No. 210

Trial court: Supreme People's Court

Source of the case: See Zhang Xueyun, "The Identity of the Debt and the Debtor's Right to Defend the Statute of Limitations: A Case of a Loan Contract Dispute between the Tongliao Branch of the Industrial and Commercial Bank of China of Inner Mongolia Autonomous Region and the Industrial and Commercial Rural Credit Cooperative of Horqin District, Tongliao City", edited by the Second Division of Civil Trial of the Supreme People's Court, Civil and Commercial Trial Guidance, Vol. 1, 2006 (No. 9), People's Court Press, 2006, pp. 230-248.

7. The validity of a legal person's branch office signing a jurisdiction agreement stipulating that the court at its domicile will be selected

——Shaanxi Yikangle Industry and Trade Co., Ltd. v. Ningxia Xinhua Department Store Xia Jin Dairy Group Co., Ltd. Shaanxi Branch Jurisdiction Dispute Jurisdictional Objection

Gist of the Adjudication: According to the provisions of the Civil Procedure Law and its judicial interpretations, a branch established by a legal person in accordance with the law and obtaining a business license can not only be a party to the civil litigation, but also the contract signed by it in its own name is also binding on it, which should include the agreement on the jurisdiction of the dispute. Therefore, if a branch of a legal person enters into a written jurisdiction agreement with another person, agreeing to choose the jurisdiction of the people's court at the domicile of one party, the people's court may, if it finds that the jurisdiction clause of the agreement is valid, determine the jurisdiction of the case based on the domicile of the branch, but does not need to determine the jurisdiction of the case according to the domicile of the legal person.

Case No.: (2007) Min Li Ta Zi No. 11

Trial court: Supreme People's Court

Case source: See Anisha and Zhang Dong, "A Branch of a Legal Person Can Be a Litigant Party", in People's Justice, Cases, No. 4, 2008.

8. The company is not jointly and severally liable for the debts of its branches

——Sanjiu Enterprise Group Lankao Wine Industry Co., Ltd. Protein Food Branch v. Jiangxi Jiangzhong Food Therapy Technology Co., Ltd., Sanjiu Enterprise Group Lankao Wine Industry Co., Ltd., Anhui Jinmaile Noodle Industry Co., Ltd., Nancheng County Wanjiafu Shopping Plaza Design Patent Infringement Dispute Case

Gist of the adjudication: The second paragraph of Article 13 of the Company Law stipulates that "a company may establish a branch office. A branch office does not have legal personality, and its civil liability is borne by the company. The second paragraph of Article 74 of the Civil Code stipulates that: "If a branch engages in civil activities in its own name, the civil liability arising therefrom shall be borne by the legal person; According to the above provisions, it is not that the branch is exempt from any civil liability. In a legal dispute involving a branch, if the plaintiff sues the branch and the company that established it as co-defendants, the branch and the company may respond to the lawsuit as parties to the lawsuit at the same time upon the plaintiff's application. Since the branch also owns a certain amount of relatively independent property, it can first enforce the self-owned property operated and managed by the branch when assuming civil liability, and when its property is insufficient to pay off the debt, it will enforce the company's other property. In other words, although the branch does not have the status of a legal person, it should still bear civil liability with its own property, and the company shall bear the shortfall, that is, the company shall not be jointly and severally liable for the debts of its branch.

Case No.: (2016) Supreme Law Min Shen No. 2540

Trial court: Supreme People's Court

Source of the case: See "Jiangxi Jiangzhong Food Therapy Technology Co., Ltd. v. Sanjiu Enterprise Group Lankao Wine Industry Co., Ltd. Protein Food Branch, Sanjiu Enterprise Group Lankao Wine Industry Co., Ltd., et al. Infringement of Design Patent Dispute Complaint and Application Civil Ruling", China Judgments Network, released on December 28, 2016.

9. The company is directly or additionally liable for the debts of its branches

-- Jilin Huancheng Rural Commercial Bank Co., Ltd., Hengfeng Bank Co., Ltd., Qingdao Branch, and Hengfeng Bank Co., Ltd., a contract dispute case

Gist of the adjudication: The second paragraph of Article 13 of the Company Law stipulates that "a company may establish a branch office. A branch office does not have legal personality, and its civil liability is borne by the company. The second paragraph of Article 74 of the Civil Code stipulates that: "If a branch engages in civil activities in its own name, the civil liability arising therefrom shall be borne by the legal person; The above provisions clarify the attribution of the liability of the branch, that is, the branch cannot independently bear civil liability, and all the consequences and liabilities of its actions are borne by the company that established it, and it can also be borne by the property managed by the branch first, and if it is insufficient, it shall be borne by the established company. That is, the company is not jointly and severally liable for the debts of its branches, but directly bears the liability for repayment or bears supplementary liability. There is no legal basis for the company to be jointly and severally liable for the debts of its branches. For the debts of a branch, if the assets managed by the branch are relatively sufficient, it may be solely liable; if the assets are insufficient, the branch may bear the liabilities at the same time as the establishment of the company. If the creditor only sues the branch, and the effective judgment only orders the branch to be liable, and the property managed by the branch is not enough to bear the liability, it can be resolved by directly establishing a company as the person subject to enforcement through the enforcement procedure.

Case No.: (2017) Zui Gao Fa Min Zhong No. 965

Trial court: Supreme People's Court

Source of the case: See the Civil Judgment of the Second Instance of the Contract Dispute between Jilin Huancheng Rural Commercial Bank Co., Ltd. and Hengfeng Bank Co., Ltd. Qingdao Branch, published on July 18, 2018.

10. Can disputes between partners of a branch be handled with reference to the provisions of the Partnership Enterprise Law?

-- Tao Kaiping, Xu Feng, Teng Dahu, Liu Yan partnership agreement dispute

The gist of the adjudication: After the branch has been registered with the company registration authority and obtained the business license, it may engage in commercial operations in its own name. If the branch established by the company adopts a partnership system and the partnership affairs are carried out in the name of the branch, the relevant provisions of the Partnership Enterprise Law may be applied by reference when dealing with civil disputes between partners.

Case No.: (2017) Supreme Law Min Zai No. 208

Trial court: Supreme People's Court

Source of the case: See "Tao Kaiping and Xu Feng Partnership Agreement Dispute Retrial Civil Ruling", China Judgments Network, released on October 20, 2017.

11. The entity bearing civil liability of a branch of a legal person that has not received a business license

——Chen Shaoqing v. Fujian Construction Engineering Group Corporation, Construction Engineering Group Zhangpu Wanxin West Lake Commercial Plaza Project Management Department, Lin Binfang, Lin Wenlu, Fujian Wanxin Real Estate Development Co., Ltd. Sales contract dispute

The gist of the adjudication: A branch established by a legal person in accordance with the law has been approved and registered by the competent registration authority and has received a business license, and has the capacity for civil rights and civil conduct, and may engage in civil activities in its own name, and its civil liability shall be borne by the legal person. If a branch established by a legal person in accordance with the law does not have a business license, it is only an internal functional organ of the legal person and does not have the qualification of an independent civil subject, and its civil activities must be carried out in the name of the legal person, and the corresponding civil liability shall also be borne by the legal person.

Case No.: (2011) Zhangmin Zhong Zi No. 510

Trial court: Intermediate People's Court of Zhangzhou City, Fujian Province

Case source: See Lin Zhentong, "Civil Liability Arising from the Performance of Duties by the Staff of a Legal Person Branch", published by the Supreme People's Court: People's Justice, Cases, No. 22, 2011.

12. A prerequisite for the establishment of a legal person with an additional branch office as a person subject to enforcement

-- Pan Wencai v. Zhongfu Construction Co., Ltd., Beijing Lutong Tongtai Construction Branch, and Zhongfu Construction Co., Ltd. Dispute over the execution of the creditor's rights transfer contract

Gist of the Adjudication: The first paragraph of Article 15 of the Provisions of the Supreme People's Court on Several Issues Concerning the Change and Addition of Parties in Civil Enforcement stipulates that: "If a branch of a legal person that is the person subject to enforcement is unable to pay off the debts determined in the effective legal documents, and the applicant for enforcement applies to change or add the legal person as the person subject to enforcement, the people's court shall support it. Where the debts cannot be repaid with the responsible assets directly managed by the legal person, the people's court may directly enforce the assets of other branches of the legal person. It can be seen that the failure of a branch of a legal person to pay off the debts determined in the effective legal documents is a prerequisite for adding a legal person as a person subject to enforcement, and ruling that a legal person is the person subject to enforcement is a necessary procedure for enforcing the property of the legal person directly managed by the legal person. In other words, in a case where a branch of a legal person is the person subject to enforcement, the people's court should first exhaust the enforcement measures against the branch of the legal person, and only then can it rule that the branch office of the legal person has no property to be enforced, and should not directly rule that the legal person is the person subject to enforcement.

Case No.: (2013) Tong Zhi Zi No. 1446

Trial court: Beijing Tongzhou District People's Court

Case source: See Yang Guang, "When the Branch Company Fails to Repay Its Debts, the Head Office Shall Bear the Repayment Liability", published by the Supreme People's Court, People's Justice, Cases, No. 14, 2015.

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