Supreme People's Court: On the validity and recovery of performance by a third party

Supreme People's Court

On the effectiveness and recovery of performance by a third party

1. The effect of a third party's performance on behalf of the third party

After the third party performs on behalf of the third party, the creditor-debtor relationship is relatively extinguished, that is, the debtor's debt to the creditor is correspondingly extinguished between the two parties, and the creditor-debtor relationship is directly transferred to the debtor and the third party in accordance with the law, and the debtor bears the original debt to the third party, and the third party enjoys the creditor's rights against the debtor. This is a general description of the legal effect of substitution performance. In fact, the following issues should not be overlooked.

(1) Whether the subordinate rights enjoyed by the creditor are transferred together

In the case of assignment of creditor's rights agreed by the parties, article 547 of the Civil Code stipulates that: "Where a creditor assigns a creditor's right, the assignee obtains a subordinate right related to the creditor's right, except that the subordinate right is exclusive to the creditor itself." The transferee's acquisition of subordinate rights is not affected by the failure to register the transfer of the subordinate rights or transfer of possession" It can be seen that in an agreed assignment of claims, the subordinate rights attached to the claims (such as security rights) are usually transferred at the same time. In the event of a transfer of statutory creditor's rights performed by a third party on behalf of the third party,

[We believe] that the subordinate rights enjoyed by creditors are also transferred. This is because the Civil Code of the Mainland does not have a compilation of the general provisions of the law of obligations, and in order for the general provisions of the contract to play the role of the general provisions of the law of obligations, it is necessary to supplement the general rules of the law of obligations. The provisions of Article 547 of the Civil Code should also be used as a rule on the effect of the assignment of statutory creditor's rights, which is consistent with the position of comparative law.

Similarly, since a third party subrogates the original creditor's claim, the debtor's defense against the creditor can be asserted against the third party.

(2) Whether the debtor has completely withdrawn from the relationship with the creditor

After the third party performs on behalf of the debtor, the creditor's rights and debts relationship between the debtor and the creditor is relatively extinguished. However, the premise is that the third party has performed the part (not necessarily all of the debt) in a full, complete and flawless manner. If the third party's performance is incomplete and incomplete, that is, there are defects in the part it has performed, then the creditor can still request full performance from the debtor, that is, the creditor still has a request for recovery. In practice, if the debtor fails to perform the monetary debt when due, if the third party performs on its behalf, there is sometimes a time lag between the agreed time point of debt performance and the time point when the third party performs on behalf of the debtor, and the time point of the third party's performance on behalf of the debtor may be later than the agreed time point for debt performance. At this time, if the third party fails to perform the loss (such as the interest on the monetary debt) during the time difference period, the creditor can continue to request performance from the debtor.

(3) Whether the third party can partially perform

Article 524 of the Civil Code does not clearly stipulate whether a third party can perform part of the performance on behalf of the third party, and Article 30 of the Judicial Interpretation of the General Principles of Contract does not directly stipulate from the front.

[We believe that] the third party enjoys the "right of performance" under the third party's performance on behalf of the third party, and how to exercise the right should be freely decided by the third party. If a third party partially performs it, it is necessary. For example, debtor B has debt repayment resources of $6.5 million, and he owes a debt of $6.5 million to creditor A. Normally, B can settle the debt relationship by paying off A directly. However, B invited C to pay off part of B's debt of $6 million to A, and A received $6 million. C subrogated to obtain a claim of $6 million against B. In this case, assuming that B only has 500,000 yuan of debt repayment resources left, he can only repay A and C according to the proportion of A and C's claims, A actually receives 38,500 yuan [50/(600+50)X50], and C receives 461,500 yuan. It can be seen that the performance of the debt repayment resources that should have been fully attributable to A was 6.5 million yuan, and A only received 6.0385 million yuan, which obviously damaged the interests of creditor A. The law should not allow it. This principle is set forth in paragraph 2 of Article 519 of the Civil Code, which states that "a joint debtor who actually bears debts in excess of its own share shall have the right to recover from it within the scope of the unfulfilled share of other joint debtors for the excess part, and shall accordingly enjoy the rights of creditors, provided that the interests of creditors are ...... not harmed", and Article 23, Paragraph 2 of the Judicial Interpretation of the Guarantee System of the Civil Code provides that "after the guarantor has paid off all the creditor's claims, it may be repaid in the bankruptcy proceedings on behalf of the creditor; Before the creditor's claim is fully repaid, the guarantor shall not be repaid in the bankruptcy proceedings on behalf of the creditor ......". Therefore, paragraph 2 of Article 30 of the Judicial Interpretation on the General Principles of Contract specifically stipulates that the claims of third parties shall not harm the interests of creditors. This provision also contrasts with the fact that a third party can perform part of the performance on behalf of the third party.

According to the provisions, if third party C only performs $6 million on behalf of third party C in the above example, then its right to debtor B in respect of the $6 million should be inferior to the right of creditor A for the remaining $500,000. A can claim against B to continue to pay off $500,000, but C cannot exercise his rights in this regard.

2. Recovery after the guarantor performs on behalf of the guarantor

Paragraph 3 of Article 30 of the Judicial Interpretation on the General Principles of Contract resolves the issue of recovery after performance by a third party acting on behalf of the guarantor, mainly by clarifying whether the guarantor can recover from other guarantors after performing on behalf of the guarantor. The reason why Article 30 of the Judicial Interpretation on the General Principles of Contract provides special guidance on the recovery of the guarantor is that in the case of multiple guarantors of the debt, one of the guarantors performs on behalf of the creditor, and the guarantor obtains it by subrogation in accordance with the provisions of paragraph 2 of Article 30 of the Judicial Interpretation on the General Principles of Contracts

The creditor's claim and the secured security provided by other persons on the creditor's right are obtained, and the guarantor formally becomes a creditor of the debtor. In this case, it is possible to either claim the guarantee liability from the other guarantors as a formal creditor and then achieve recovery from the other guarantors, or recover from the other guarantors in accordance with the relevant provisions of Article 519 of the Civil Code on the recovery of joint debtors, and finally achieve the objective effect of the person who bears the responsibility among the guarantors to recover from the other guarantors.

There was controversy before the promulgation of the Civil Code on the issue of whether one of the guarantors could recover from the other guarantors after assuming responsibility. Article 176 of the Property Law stipulates that if the secured creditor's right is secured by both real 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 rem, the creditor shall realize the creditor's right in respect of the security in rem; If a third party provides security in kind, the creditor may realize the creditor's rights in respect of the security in rem, and may also 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. Paragraph 1 of Article 38 of the Judicial Interpretation of the Security Law, which was still in effect at that time, stipulates that "if the same claim is both guaranteed and secured by a third party, the creditor may request the guarantor or the guarantor of the thing to bear the guarantee liability." If the parties have not agreed on the scope of the guarantee or the scope of the security in rem or the agreement is unclear, the guarantor who has assumed the guarantee liability may recover from the debtor and may also require other guarantors to pay off their share of the guarantee. In contrast, the Property Law does not stipulate that a guarantor who has assumed the guarantee liability "may also require other guarantors to pay off its share", and there were differences in understanding at that time: one view is that the provisions of Article 176 of the Property Law on the issue of recovery between guarantors are legal loopholes, and it does not deny the existence of mutual recovery between guarantors, so the provisions of paragraph 1 of Article 38 of the Judicial Interpretation of the Security Law can still be applied to fill the legal loophole; Another view is that the Property Law has clearly stipulated the object and scope of the guarantor's recovery, that is, the guarantor who has assumed the guarantee liability has the right to recover from the debtor, but cannot request other guarantors to share the burden.

The Legislative Affairs Committee of the Standing Committee of the National People's Congress has made it clear in its interpretation books of the Civil Code and the Property Law that guarantors cannot recover from each other, and the main considerations are as follows:

First, it doesn't make sense in theory. Unless otherwise agreed between the parties, the guarantees provided by the guarantors are independent, and the guarantors have no intention to communicate with each other, so there is no legal relationship, and the guarantors are required to recover from each other, which is in essence the law forcibly establishes mutual guarantees between the guarantors.

Second, procedurally speaking, it is time-consuming, laborious, and cumbersome. When there are multiple guarantors, the debtor is the ultimate responsible person, and the guarantor should recover from the debtor after assuming the guarantee liability.

Third, the principle of fairness is reflected in the fact that the guarantor who performs the guarantee obligation cannot recover from other guarantors. Unless otherwise agreed between the parties, the guarantor is aware of the risks it faces when creating the security and must bear it by himself.

Fourth, poor operability. In the process of recovery, the guarantor faces the problem of determining and calculating the share, which is difficult to accurately define in practice.

To sum up, under the framework of the Civil Code, in principle, guarantors are not allowed to recover from each other.

If the issue of recovery between the guarantors is not clear after the guarantor performs on behalf of the guarantor, then the guarantor may use the third-party settlement system to undermine the provisions prohibiting recovery in principle. The provisions of Article 30, Paragraph 3 of the Judicial Interpretation of the General Principles of Contract Codification clarify the issue of recovery, and guide the applicable rules to the rules for the recovery of guarantees in Articles 13, 14 and 18, Paragraph 2 of the Judicial Interpretation on the Guarantee System of the Civil Code. The applicable methods are:

First, if the guarantor obtains the creditor's right on behalf of the guarantor, it shall be determined in accordance with the provisions of Article 14 above, which stipulates that "if the guarantor accepts the creditor's right, the people's court shall determine that the act is a guarantee liability".

Second, after the guarantor assumes the guarantee liability (performing on behalf of the guarantor), it may claim against the debtor to exercise the security interest enjoyed by the creditor against the debtor in accordance with the provisions of paragraph 2 of Article 18 above, and such recovery is actually a recovery from the principal debtor.

Thirdly, the issue of recovery from a guarantor other than the principal debtor shall be dealt with in accordance with the provisions of Article 13 above, that is, if there is an agreement, the recovery and contribution shall be carried out in accordance with the agreement, and if there is no agreement but it can be presumed (each guarantor as specified in paragraph 2 of Article 13 shall sign, seal or fingerprint on the same contract), the guarantors shall share among themselves the part that cannot be recovered from the principal debtor in proportion. If there is no agreement and there is no presume, the guarantors cannot recover from each other.

Transferred from the same judgment rule for similar cases