What is the judicial interpretation of the Civil Code security regime? Under what circumstances does it apply?

I. Judicial Interpretation of the Guarantee System of the Civil Code:

In order to support the implementation of the Civil Code, the Supreme People's Court has issued a series of new judicial interpretations. However, most of these new judicial interpretations are only renovated or fine-tuned, except for the New Guarantee Judicial Interpretation, which has undergone structural changes compared to the Old Guarantee Law Judicial Interpretation. The main performance in:

1. Substantial deletion, the number of articles reduced by nearly half.

2. Many new rules have been added, and the provisions retained have undergone significant changes in terms of both kernel and extension.

The Supreme People's Court (SPC) published the Interpretation of the Supreme People's Court on the Application of the Chinese People's **** and National Codes Concerning the Guarantee System (hereinafter referred to as the "Interpretation of the Guarantee System") on December 31, 2021, which will come into effect on January 1, 2021. The Interpretation of the Guarantee System covers five chapters, including General Provisions, Guarantee Contracts, Security Rights, Atypical Guarantees, and Supplementary Provisions, and contains seventy-one articles. The "Security System Interpretation" provisions of the revision of the length of this article to extract the first chapter of some of the key points for readers to understand the new regulations.

Security System Interpretation of the first chapter of the general provisions, *** article 24 . Read through the chapter found that the "Guarantee System Interpretation" efforts to balance the legitimate rights and interests of all parties involved in the guarantee relationship, and the company's external guarantee, guarantee the identification of a number of issues such as guidelines.

A, focus on balancing the legitimate rights and interests of the parties to the guarantee relationship

"Guarantee System Interpretation" of the third article: "the parties to the assumption of responsibility for the guarantee of the agreement on the special liability for breach of contract, or the scope of the agreed guarantee liability beyond the scope of the debtor's liability should be borne by the guarantor claiming that The people's court shall support the guarantor's claim that the guarantor is liable only within the scope of the debtor's liability. If the liability assumed by the guarantor exceeds the scope of liability to be assumed by the debtor, and the guarantor recovers from the debtor, and the debtor claims to be liable only within the scope of liability to be assumed by the debtor, the people's court shall support the claim; and if the guarantor requests that the creditor return the excess portion, the people's court shall, in accordance with the law, support the claim."

Accordingly, the guarantor guarantees the debt to the extent that the debtor should bear the responsibility, even if the parties to the guarantee responsibility of the default clause,

Security Law, Article 2 Scope of application and security In the borrowing and lending, sale and purchase, transportation of goods, processing and soliciting and other economic activities In economic activities such as lending and borrowing, purchase and sale, transportation of goods, processing and contracting, etc., creditors who need to protect the realization of their claims by means of security may set up security in accordance with the provisions of this Law.

The modes of security provided for in this Law are guarantee, mortgage, pledge, lien and deposit

When the Chinese People's *** and National Code came into effect, and in order to effectively regulate the order of secured transactions and to unify the application of the rules of law on security, the Trial Committee of the Supreme People's Court adopted the "Rules of the Supreme People's Court on the Application of the Chinese People's Code of Criminal Procedure" at its 1824th Meeting on 25 December 2020, which is the most comprehensive and comprehensive legal framework for the application of the Chinese People's Code. Adopted the Interpretation of the Supreme People's Court on the Application of the Chinese People's **** and National Code Regarding the Guarantee System (Fa Shi [2020] No. 28) (hereinafter referred to as the New Guarantee Judicial Interpretation), which was published on December 31, 2020, and came into force on January 1, 2021, onwards.

With the development of the market economy, the role of the guarantee system in optimizing the business environment and promoting high-quality development has become more and more prominent. The Supreme Court, on the basis of clearing the previous nine judicial interpretations related to security, has formulated a new judicial interpretation on the application of the security system of the Civil Code, centering on the latest provisions of the Civil Code on security. The full text of the New Judicial Interpretation on Guarantees covers five chapters, including General Provisions, Guarantee Contracts, Security Interests, Atypical Guarantees, and Supplementary Provisions, and contains seventy-one articles. The following extracts four highlights of the New Guarantee Judicial Interpretation and interprets them one by one.

Clarifying the rules of movable security to match the unified registration system

Cracking the financing difficulties of small and medium-sized enterprises

In the past, due to the imperfection of the unified registration system of movable assets, the security coefficient of the movable security is relatively low, and many creditors are usually unwilling to accept the security of movable assets, which is not able to Effectively play the role of guaranteeing the realization of claims. The implementation of the New Judicial Interpretation of Security has contributed to the change of this status quo, and has made specific provisions on the effectiveness of security over movable assets, the rights of subordination and judicial remedies.

New Guarantee Judicial Interpretation of Article 54 stipulates that, "after the conclusion of the movable property mortgage contract is not registered, the effectiveness of the movable property mortgage in accordance with the following circumstances: (a) the mortgagor transfers the mortgaged property, and the transferee takes possession of the mortgaged property, the mortgagor to the transferee to request the exercise of the right of mortgage. The People's Court shall not support the request, but the mortgagor can prove that the transferee knew or should have known that a mortgage contract had been concluded; (b) if the mortgagor leases the mortgaged property to another person and removes possession of the mortgaged property, and the mortgagor exercises the mortgage right, the lease relationship shall not be affected, but the mortgagor can prove that the lessee knew or should have known that a mortgage contract had been concluded; (c) if the mortgagor's other creditors apply to the people's court for the preservation or execution of the mortgaged property, the people's court has made a ruling on the preservation of property or taken enforcement measures, the mortgagee claims priority compensation for the mortgaged property, the people's court shall not support; (d) the mortgagor is bankrupt, the mortgagee claims priority compensation for the mortgaged property, the people's court shall not support."

Accordingly, the rules of the movable property mortgage can be summarized as follows:

The movable property mortgage contract is effective from the time of its formation, but the failure to register the mortgage will produce the following legal effects:

Firstly, it shall not be opposed to the bona fide transferee of the mortgaged movable property. That is, when the transferee does not know and should not know that the mortgage contract has been concluded, and the transferee, possession of the mortgaged property, the mortgagee shall not claim to the transferee to exercise the right of mortgage;

Secondly, not against the bona fide lessee of the mortgaged movable property. That is, in the lessee did not know and should not know has concluded a mortgage contract, and possession of the mortgaged property, the lease relationship is not affected by the mortgage to survive; for the people's court has made a decision on the preservation of property or take measures to implement the mortgaged movable property, the mortgagee does not enjoy the right of priority.

On the contrary, if the movable property mortgage contract for mortgage registration, the mortgagee can be based on the registered mortgage against the transferee of the mortgaged movable property, the lessee, and can be the mortgaged movable property priority compensation.

This means that, once the movable property mortgage registration, the security effect will be greatly enhanced, the safety factor is increased. This is conducive to lifting the worries of creditors, improve the efficiency of the utilization of movable resources, for small and medium-sized enterprises with movable financing to clear the way.

In addition, with regard to the registration agency and procedures for movable security, according to the Decision on the Implementation of the Unified Registration of Movable Assets and Rights Guarantees (Guofa [2020] No. 18) issued by the State Council, starting from January 1, 2021, a unified registration of movable assets and rights guarantees will be implemented nationwide. "The registration of mortgages on production equipment, raw materials, semi-finished products and products previously undertaken by the General Administration of Market Supervision (GAMS) and the registration of pledges of accounts receivable undertaken by the People's Bank (PBoC), as well as the registration of pledges of certificates of deposit, financial leasing, factoring, etc., have been changed to be undertaken by the PBoC in a unified manner, with the provision of 24/7 internet-based 7×24 service. Those who have previously made registration of movable assets and security of rights do not need to re-register, and the relevant departments shall properly do the transfer of stock information and data and other convergence work. The new registration, by the parties through the movable property financing unified registration publicity system independently, and the registration content of the authenticity, completeness and legitimacy of the responsibility; the registration agency does not review the substance of the registration content."

The implementation of a unified registration system helps financial institutions to fully grasp the information on movable assets and related rights of enterprises, and enhance the willingness to give enterprises secured financing.

New atypical guarantees to broaden financing channels

Guarantees, mortgages and pledges are the three traditional forms of guarantees, and with the rapid development of the economy, these three forms of guarantees can no longer meet the needs of a diversified society. The Civil Code has added new contracts with security functions such as retention of title, financial leasing, factoring, etc. The New Judicial Interpretation of Guarantee published this time also accompanies the corresponding rules, which clarifies the solutions to the legal problems that may be encountered in judicial practice. For example:

Article 63 establishes the principle that a contract for the establishment of security for a property right that has not yet been provided for in laws and administrative regulations is not necessarily invalid, and provides that the security for such a property right needs to be registered in accordance with the law in order to have the effect of property right.

Article 61 specifies the effectiveness of the pledge of tolls on highways, bridges, parks, etc. and the way to realize it. That is, the infrastructure and public utilities project revenue rights, the provision of services or services arising from the claims and other accounts receivable will be pledged, the parties to the accounts receivable for the establishment of a specific account, the occurrence of legal or agreed upon reasons for the realization of the right of pledge, the pledgee may be on the specific account of the amount of money priority; the amount of money in the account is not enough to settle the debt or the failure to set up a specific account, the pledgor may request discount or auction, sale of project revenue rights and other receivables that will be available, and the proceeds of the price priority.

Article 68 specifies the priority effect of the security in the form of property cession, which is divided into the following three cases:

First, if the debtor or the third party and the creditor agree to transfer the property formally to the creditor's name, and the debtor does not fulfill the due debt, the creditor has the right to the property at a discount or by auction or sale of the proceeds of the property to repay the debt. The proceeds of the property to repay the debt, the agreement is valid, in the parties to complete the publicity of the change in property rights, the debtor does not fulfill the debt due, the creditor may be paid in priority on the property;

Secondly, if the debtor or a third party and the creditor agreed to formally transfer the property to the name of the creditor, the debtor fails to perform the debt due, the property to the creditor, the agreement is invalid, the debtor fails to perform the debt due, the property to the creditor, the agreement is invalid. The creditor may not claim ownership of the property if the debtor fails to perform the debt as it falls due. However, it does not affect the validity of the intention of the parties regarding the provision of security, that is, the parties have completed the publicity of the change of property rights, the creditor may request a discount on the property or the auction, sale of the property proceeds of the price of the priority of compensation;

Thirdly, if the debtor and the creditor agree to transfer the property to the name of the creditor, and after a certain period of time and then by the debtor or a third party designated by the debtor with the principal amount of the transaction plus a premium, the debtor fails to fulfill the repurchase obligation at the expiration of the period, the property belongs to the creditor, the agreement is invalid. However, the parties to complete the publicity of changes in property rights, the creditor may request a discount on the property or the auction, sale of the property from the price of priority.

Specify the relevant legal provisions of the company's external guarantee

In the past practice, the company law, although the company's external guarantee requires the company's board of directors or shareholders' resolution, but the company violates the provisions of this guarantee is not effective, not a clear stipulation, which led to a great deal of controversy in practice. At the same time on the mutual guarantee between enterprises, the past judicial cases tend to think that mutual guarantee is often mutually beneficial, so even if there is no resolution should be recognized as effective guarantee. The new judicial interpretation of the new guarantee has adopted a new way of thinking.

The new guarantee judicial interpretation of article 7, "the company's legal representative of the violation of the provisions of the company law on the resolution of the company's external security procedures, exceeding the authority on behalf of the company and the relative to enter into a security contract, the people's court shall be dealt with in accordance with the provisions of article 61 of the civil code and article 504, etc.: (a) the relative to the good faith, the security contract on the company (i) If the counterparty is in good faith, the guarantee contract shall be effective for the company; if the counterparty requests the company to bear the guarantee responsibility, the people's court shall support it. (ii) the relative is not in good faith, the security contract is not effective against the company;......

The first paragraph of the good faith, refers to the relative in the conclusion of the security contract does not know and should not know that the legal representative of the legal representative exceeds the authority. The people's court shall find that the relator constitutes good faith if it has evidence that it has reasonably examined the company's resolution, unless the company has evidence that the relator knew or should have known that the resolution was forged or altered."

Accordingly, the rules of the company's external guarantee are summarized as follows:

Firstly, the company's external guarantee, including the mutual guarantee of the enterprise should fulfill the relevant resolution procedures, otherwise it constitutes the ultra vires guarantee, which may affect the validity of the guarantee contract;

Secondly, the company's legal representative without the board of directors or shareholders' meeting of the resolution to provide guarantee in the name of the company, constitutes the ultra vires guarantee. Second, the company's legal representative without the resolution of the board of directors or shareholders' meeting to provide security in the name of the company, constituting ultra vires representative. The effectiveness of the security contract signed on behalf of the company depends on whether the relative good faith. Relative bona fide, the security contract is effective for the company, the company has to bear the responsibility of guarantee; Relative does not constitute a bona fide, the company does not have to bear the responsibility of guarantee;

Thirdly, the relative bona fide judgment standard is that the relative does not know and should not know that the company's legal representative overstepped the signing of the security contract. Specifically manifested in the relative in the signing of the security contract, whether the company resolution of the reasonable review obligation. If the relative examined the company's resolution on the guarantee, so as to enter into a security contract, constitutes good faith, if not, constitutes bad faith.

According to "the supreme people's court adjudication committee deputy ministerial-level full-time member Liu Guixiang on & lt; civil code & gt; judicial interpretation of the guarantee system to answer the reporter's questions", "the new judicial interpretation of the guarantee" the reason why the relative to the signing of the guarantee contract to the obligation to reasonably examine the company's resolution, the purpose is to "prevent the legal representative of the violation of the provision of mutual guarantees to avoid a chain reaction of debt crisis caused by mutual guarantees, and to prevent the legal representative from providing mutual guarantees. Mutual guarantee triggered a chain reaction of debt crisis, to prevent financial risks."

The New Judicial Interpretation of Guarantees increases the obligation of the counterparty to review the guarantee resolution disclosed by the listed company. If the counterparty does not conclude a guarantee contract with the listed company on the basis of the information publicly disclosed by the listed company that the guarantee matter has been passed by the board of directors or the shareholders' meeting, and the listed company claims that the guarantee contract is not effective for it and does not assume the guarantee responsibility or liability, the people's court shall support it."

Accordingly, in addition to the board of directors' resolution or the shareholders' meeting resolution, the external guarantee of the listed company should also publicly disclose the matters of the resolution concerning the guarantee. If the relative does not sign a guarantee contract with the listed company according to the disclosed guarantee resolution, there is a risk that the relative's request for the listed company to assume the guarantee liability will not be supported by the court. If the counterparty enters into a guarantee contract based on the disclosed guarantee resolution of the listed company, the guarantee contract is valid for the listed company and the listed company needs to assume the guarantee responsibility.

The purpose of this provision is to cope with the frequent occurrence of the legal representative of the listed company overstepping his authority to sign the guarantee contract in practice, prompting the listed company's assets to be hollowed out and seriously harming the interests of small and medium-sized investors.

Specifying the path of financing guarantee for special subjects such as schools, kindergartens and medical institutions

On the question of whether special civil subjects, such as schools, kindergartens and medical institutions, can provide guarantee, the New Judicial Interpretation of Guarantees defines it in general based on the nature of profit-making and non-profit-making.

Article 6 of the New Judicial Interpretation of Guarantees stipulates that, "Where a non-profit school, kindergarten, medical institution, or nursing home for the purpose of public welfare provides a guarantee, the people's court shall determine that the guarantee contract shall be invalidated, except for one of the following circumstances:

(a) In the purchase or lease of educational facilities, medical and health facilities, nursing home service facilities, and other public welfare facilities, the people's court shall determine that the guarantee contract is invalid.

(a) in the acquisition or financial lease of educational facilities, medical and health facilities, elderly service facilities and other public welfare facilities, the seller or lessor retains ownership of the public welfare facilities for the purpose of guaranteeing the realization of the price or rent;

(b) the establishment of a security right in real property, movable property or property rights other than educational facilities, medical and health facilities, elderly service facilities and other public welfare facilities.

Where a school, kindergarten, medical institution, or elderly care facility registered as a for-profit legal person provides a guarantee, and the party asserts that the guarantee contract is invalid on the ground that it does not have the qualification for guarantee, the people's court shall not support it."

Accordingly, the validity of the guarantee contract on the establishment of special subjects such as schools, kindergartens, medical institutions, elderly institutions, etc. depends on the nature of the for-profit and non-profit. If it is a non-profit school, kindergarten, medical institution, nursing institution for the purpose of public welfare, the guarantee contract is invalid in general, unless it meets the two exceptions stipulated in Article 6, i.e., the validity of the guarantee contract that creates a retention of title due to the purchase or lease of public welfare facilities, the validity of the guarantee contract that is created with property or property rights other than public welfare facilities; if it is registered as a for-profit legal person, the school, kindergarten, If registered as a profit-making legal person, the school, kindergarten, medical institution, nursing home institution, it has the qualification of guarantee, and the contract of guarantee is generally valid.

"The supreme people's court on the application of the Chinese people's *** and the national code" on the interpretation of the security system "(law [2020] 28) is worth in-depth study of many other places to study and grasp the essence of the provisions of the new judicial interpretation of the security, will have an important role in guiding our work and life.

II.? Civil code guarantee scope of application includes: