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Xiong Ming, the legal representative of a Jiangxi Construction Engineering Co., Ltd. (hereinafter referred to as the "Engineering Company"), was confused by the fact that he was in debt of 15 million yuan. Although he repeatedly argued that the "Guarantee Letter" was forged, the appraisal opinion that the "seal was authentic" did not support him in the first instance, the second instance, and the application for retrial to the Supreme People's Court. The "Guarantee Letter" in the case was deemed valid, and the Engineering Company was therefore responsible for the guarantee of the 10 million yuan debt.

After Xiong Ming applied for supervision to the procuratorate, the case took a turn for the better - after the Supreme People's Procuratorate's appeal, the case was re-sentenced according to law, and the engineering company only needed to bear the guarantee liability for the loan principal of 2 million yuan that was still within the guarantee period.

"Although the 11 million yuan deducted has not been 'returned', the company's account has at least been unblocked." After the litigation and the market downturn, Xiong Ming, who was a little exhausted, planned to change his "track". "Now I have a lighter load and I have the confidence to start a business," Xiong said.

"We will continue to pay attention to the execution of cases. This is the expectation of the parties for judicial justice and the performance of prosecutorial duties. We cannot be negligent." The prosecutor in charge of the case from the Supreme People's Procuratorate told reporters.

Where does the Letter of Guarantee come from?

Since 2013, Zhang Biao began to borrow money from Huang Ping due to lack of funds for the contracted projects. In November 2013, Huang Ping lent Zhang Biao 10 million yuan through bank transfer and cash delivery. On the 21st of that month, Zhang Biao issued an IOU: "I have received a loan of 13 million yuan from Huang Ping, with a monthly interest rate of 3%, to be repaid before September 1, 2014." Why is the principal in the IOU 3 million yuan more than the actual amount? Zhang Biao explained that the 3 million yuan interest to be paid on time was also included in the principal, which was Huang Ping's request.

From March to April 2014, Huang Ping again lent 2 million and 3 million yuan to Zhang Biao in two installments. Two months later, on June 3, Zhang Biao issued an IOU: 2 million yuan received today, 3% monthly interest; on June 20, Zhang Biao issued another IOU: 3 million yuan received today, 3.5% monthly interest, to be repaid in three months.

Because Zhang Biao failed to repay the first installment of the "13 million yuan" loan on time, in accordance with Huang Ping's request, in September 2014, the two parties re-confirmed the settlement of the first installment of the 10 million yuan loan in November 2013. Zhang Biao re-issued 6 IOUs for 2 million yuan, 2 million yuan, 2 million yuan, 2 million yuan, 2 million yuan, 3 million yuan, a total of 13 million yuan, and the interest rate was "3% per month" on all the IOUs. As for the repayment period, the 5 IOUs for 2 million yuan stated that they should be repaid before March 30, May 30, July 30, September 30, and November 30, 2015 respectively. The repayment date for the IOU for 3 million yuan was January 30, 2016.

After the loan matured, Zhang Biao still could not repay it. On July 27, 2016, Huang Ping sued Zhang Biao and the engineering company in the Shangrao Intermediate People's Court of Jiangxi Province, demanding that Zhang Biao repay the loan principal of 22 million yuan and interest of 8.58 million yuan, and that the engineering company bear joint and several liability for repayment.

However, it was not until the trial that Xiong Ming learned that the engineering company had issued a "Guarantee Letter" to the plaintiff Zhang Biao on December 27, 2015, stating that "Zhang Biao borrowed RMB 22 million (principal) from Huang Ping in a certain engineering project, and our company is willing to assume joint and several liability for the debt (RMB 22 million) and interest."

"The entire letter of guarantee is almost entirely typed, without my handwritten signature. Moreover, at the legal representative's end, the signature that should have been 'Xiong Ming' was printed as 'Neng Ming'. The four dots under the character Xiong were later corrected by handwriting. In addition, the company seal was not stamped on the signature, but was stamped separately below the above content," said Xiong Ming.

The court of first instance held that the first batch of "13 million yuan" loans on November 21, 2013 could only be determined as 10 million yuan because Huang Ping could not provide relevant evidence. However, since the two parties re-settled the loan in September 2014, the loan amount was updated to 13 million yuan. In addition to the 2 million yuan and 3 million yuan loans in June 2014, the court of first instance determined that Zhang Biao needed to repay the principal of 18 million yuan to Huang Ping.

In response to the engineering company's defense that "the name of the company's legal representative and the ID number of the guaranteed person marked on the "Guarantee Letter" were wrong, and the "Guarantee Letter" was unilaterally forged by Huang Ping, and the engineering company was unaware of it", the first instance court held that although the "Guarantee Letter" had defects, the company seal on the "Guarantee Letter" was real, and according to the law, the "Guarantee Letter" was legal and valid. Based on this, the first instance court ruled that Zhang Biao should return the principal of Huang Ping's loan of 18 million yuan and interest; the engineering company was jointly and severally liable for the debt.

"Even if the seal is real, as the legal representative and the largest shareholder, I knew nothing about the guarantee. How can it be deemed legal and valid when there are so many problems with the Letter of Guarantee?" Xiong Ming was dissatisfied and appealed to the Jiangxi Higher People's Court.

During the second instance, the Jiangxi Provincial Higher People's Court took note of the relevant regulations that "after the principal and interest of the previous loan are settled, the interest will be included in the principal of the subsequent loan". On the basis of confirming that the actual amount of the first loan was 10 million yuan, it re-determined the interest and clarified that the loan amount on November 21, 2013 should be 10 million yuan. Together with the two loans totaling 5 million yuan in March 2014, the second instance court determined that the total principal lent by Huang Ping to Zhang Biao was 15 million yuan.

Regarding the engineering company's appeal that the "Guarantee Letter" was forged, the court conducted a verification in the second instance trial, but ultimately still held that the problems with the "Guarantee Letter" could not deny the authenticity of the official seal, and the engineering company still needed to bear the guarantee liability. Based on this, the second instance court ruled that Zhang Biao should repay the loan principal of 15 million yuan and interest; the engineering company should bear joint and several liability for repayment.

After the second trial, the engineering company was still dissatisfied and applied to the Supreme People's Court for a retrial. After the retrial application was rejected, the engineering company decided to apply to the procuratorate for supervision.

Expired warranty liability

The Jiangxi Provincial Procuratorate is the same level procuratorial organ as the court that made the effective judgment. In December 2019, Xiong Ming applied to the Jiangxi Provincial Procuratorate for supervision with various appeal materials accumulated over the years.

Some of the loan contracts signed before and after were debt renewals, while others were new loan contracts. During the lawsuit, the defendant Zhang Biao repeatedly claimed that the two parties were in a cooperative housing construction relationship of "Huang Ping invested and enjoyed the profits, and I was responsible for the construction and earned the construction fees", not a private loan relationship. In addition, outside of the civil lawsuit, Xiong Ming has been filing a criminal complaint with the public security organs on the grounds that "Huang Ping and Zhang Biao forged the "Guarantee Letter" and fabricated facts to file a lawsuit"... Faced with the complicated facts of the case, how to accurately grasp the substantive legal relationship? This is the primary question facing Xie Yumei, a prosecutor in the Civil Prosecution Department of the Jiangxi Provincial Procuratorate.

Zhang Biao and Huang Ping had multiple borrowing transactions and issued multiple IOUs. Each amount had a different repayment period. Were these numerous loans continuous phased loans or independent multiple loans? What was the actual loan amount between the two parties? How much excess interest needs to be deducted when the previous interest is included in the later loans? How should the guarantee liability for the debt involved in the case be determined? The complainant insisted that the "Guarantee Letter" was forged. Is it true as the complainant said? This series of questions made Xie Yumei feel that the case was complicated. "It is necessary to investigate and verify and clarify the above issues one by one to lay a solid foundation for accurate, timely and effective civil procuratorial supervision."

As the investigation and verification deepened, Xie Yumei found that the "Guarantee Letter" involved in the case had many unreasonable aspects, and the original court's direct determination of the validity of the "Guarantee Letter" was inappropriate; moreover, among the 7 IOUs involved in the case, 6 of them agreed to repay before November 30, 2015, while the date of the "Guarantee Letter" issued by the engineering company was December 27, 2015. From the issuance of the "Guarantee Letter" to July 28, 2016 when Huang Ping filed the lawsuit, a total of 6 IOUs were generated. When the parties sued for guarantee liability, these 6 IOUs had exceeded the 6-month guarantee period.

"It is a mistake to apply the law to still bear the responsibility after the warranty period has expired," Xie Yumei said. In this way, the case was submitted to the Supreme People's Procuratorate for appeal.

The prosecutors in charge of the case conducted a comprehensive review of the debt repayment date, guarantee period, etc., and found that when Huang Ping filed a lawsuit with the court on July 28, 2016, the six IOUs involved in the case had exceeded the six-month guarantee period. "The second-instance judgment did not proactively review whether the guarantee period had expired, and it determined that the engineering company should bear joint and several liability for the principal and interest of 15 million yuan, which was a mistake in the application of the law." On September 7, 2022, the Supreme People's Procuratorate filed an appeal to the Supreme People's Court.

The Supreme Court fully adopted the prosecution's protest opinion, believing that when Huang Ping filed the lawsuit, the six debts had indeed exceeded the guarantee period, and the engineering company should be exempted from the guarantee responsibility for this part of the debt, and only needed to bear joint and several liability for the 2 million yuan debt for which the repayment period was not agreed on on June 3, 2014.

Promoting individual case supervision based on legal explanations

Civil procuratorial supervision has the dual attributes of public power supervision and private rights relief. While achieving relief for the substantive rights of the parties, it also plays a positive role in promoting the fair exercise of judicial power in accordance with the law.

In the view of Hu Sibo, associate professor at the Institute of Litigation Law of China University of Political Science and Law and deputy director of the Basic Theoretical Research Base of the Supreme People's Procuratorate, the value of this case lies in the positive signal it sends to promote courts to interpret cases in accordance with the law, which will help change the erroneous concept of over-promoting party-centeredness and absolute neutrality of judges in trials.

"From a theoretical point of view, explanation is the act of the judicial organ to guide the litigation behavior of the parties in order to clarify their litigation requests and case facts. In the early stage of the development of civil litigation in my country, my country implemented the official litigation model. The court played a leading role in collecting evidence and ascertaining the facts, and there was no premise for explanation. With the shift of the litigation model to the party-based model, the subject status of the parties in civil litigation has been reflected - collecting facts, filing litigation requests and assuming the burden of proof for unfavorable evidence. However, if the litigation is completely left to the parties to lead in practice, it can easily lead to judicial justice being seriously restricted by the parties' litigation capabilities." Hu Sibo said that in order to achieve substantive fairness and justice, the courts need to explain in accordance with the law so as to better realize judicial justice.

"Take this case as an example. When Huang Ping claimed the guarantee liability, he should have clearly put forward the relevant facts of claiming rights during the guarantee period. When this fact was not clearly verified, directly judging that the guarantor was responsible was an error in the application of the law. To solve this problem, the court needs to make up for the deficiency through explanation in accordance with the law." Hu Sibo said.

According to the Guarantee Law and relevant judicial interpretations, when the guarantee period expires, the engineering company does not need to assume the guarantee liability for the debt. It is not difficult to understand that the guarantor does not assume liability after the guarantee period has expired. If the creditor and the guarantor fail to provide evidence and defense, can the procuratorate supervise the court's passive explanation? In other words, does the failure of the judicial organ to explain according to law fall within the scope of procuratorial supervision?

In the process of handling this case, there are indeed different opinions: "The guarantor did not raise the defense of exceeding the guarantee period, which is deemed to have waived the benefit of the statute of limitations, and there is no problem with the effective judgment of the original trial" "The rights enjoyed by the guarantor are the same as the rights of the debtor to the statute of limitations defense in the statute of limitations system, which are private rights. If the right holder does not exercise it himself, then there is no need for the trial organ to take the initiative to investigate, otherwise it is inconsistent with the nature of private rights"...

"From the perspective of substantive justice, the reason why the guarantee period is granted as a time limit defense is that the guarantee debt is different from a 'natural debt'. If it exceeds the statute of limitations, if the debtor is willing to assume the repayment responsibility, the creditor has the right to accept it; but as for the guarantee liability, if the guarantee period has expired, the guarantee debt will be exempted. In this case, if the trial organ does not actively explain, it will cause substantive injustice. Furthermore, the trial organ has the obligation to ascertain the basic facts of the relevant case, otherwise it will be detrimental to the fairness of the litigation and will in turn affect judicial fairness." The prosecutor in charge of the Supreme People's Procuratorate told reporters.

"Considering that the expiration of the guarantee period extinguishes substantive rights and has a great impact on the rights and obligations of the parties, it is not appropriate to adopt the party adversarial approach similar to the statute of limitations when examining the facts related to the guarantee period. Instead, the basic facts related to the guarantee period should be ascertained on the basis of explanations to the parties." The prosecutor in charge believes.

The prosecutors' thinking thoroughly understood the original intention of the "guarantee period" legislation, and also deeply comprehended the spirit of the rule of law from the specific legal provisions. During the handling of the case, the Supreme People's Court issued an interpretation on the application of the guarantee system of the Civil Code, which stipulates that when hearing cases involving guarantee contract disputes, the people's courts should ascertain whether the guarantee period has expired and whether the creditor has exercised his rights in accordance with the law during the guarantee period as basic facts of the case.

"It is not uncommon in practice to see cases where explanations are given when necessary or explained when they are not necessary. At least in clarifying the guarantee period, the judicial organs should explain according to the law, and the successful appeal of the Supreme People's Procuratorate in this case has reinforced this understanding," said Hu Sibo.

(The parties and companies mentioned in this article are all pseudonyms)

Legal knowledge tips

What is the warranty period?

Article 692, Paragraph 1 of the Civil Code stipulates that the guarantee period is the period for determining the guarantor's guarantee liability.

The prosecutor reminds: The expiration of the guarantee period will lead to the termination of the guarantee liability, and the creditor can no longer request the guarantor to assume the guarantee liability.

Duration of the warranty period

Article 692, paragraph 2 of the Civil Code stipulates that the creditor and the guarantor may agree on the guarantee period, but if the agreed guarantee period is earlier than the principal debt performance period or expires at the same time as the principal debt performance period, it shall be deemed that no agreement has been reached; if no agreement is reached or the agreement is unclear, the guarantee period shall be six months from the date of expiration of the principal debt performance period.

The prosecutor's reminder: Article 32 of the Judicial Interpretation of the Guarantee Law, which states that "if a guarantee contract stipulates that the guarantor shall assume the guarantee liability until the principal and interest of the principal debt are paid off, etc., it shall be deemed as an unclear agreement," will continue to apply after the implementation of the Civil Code.

Commencement and expiration of warranty period

Article 692, paragraph 3 of the Civil Code stipulates that if the creditor and the debtor have not agreed on the time limit for performance of the principal debt or the agreement is unclear, the guarantee period shall be calculated from the date on which the grace period for the creditor to request the debtor to perform the debt expires.

The prosecutor reminds: The guarantee period is a limitation period and will not be suspended, interrupted or extended. Therefore, no matter whether the last day of the guarantee period is a statutory holiday or not, there will be no extension. (Yu Xiao)

(Prosecution Daily)