The Institutional Logic of Ultra Guarantee: An Analysis Centered on Article 16 Paragraph 1 of the Chinese Company Law

Zou Hailin

Since the amendment of Article 16 of the Chinese Company Law in 2005, the issue of the effect of ultra guarantee has been further discussed for more than 10 years. Even today, there are still uncertainties as to the private law effect of ultra guarantee in its interpretation. In fact, the private law effects of ultra guarantee depends on its institutional logic, which includes a company's ability to guarantee for others, the inherent legal orders between a legal person and its representative, and the doctrine of the right to refuse the claims of a third party. The long-standing debate on this matter in China has deviated from the institutional logic of ultra guarantee, leading to inappropriate approaches to as well as methods and conclusions of the interpretation of the effect of ultra guarantee. The effect of ultra guarantee should be interpreted and applied on the basis of its institutional logic. According to this institutional logic, the ultra guarantee made by a company representative in the name of the company has an effect of attribution to the company under Article 61 of the General Rules of the Civil Law of the People’s Republic of China, regardless of whether there is a violation of Article 16 of the Chinese Company Law. However, the company may have the right to refuse the claims made a third party for the company to be liable for the ultra guarantee on ground that the third party knew or should know the fact that the company representative violated the provisions of Article 16 of the Chinese Company Law. Based on the above understanding, a substantive change should be made to the current approach adopted by Chinese courts in the trial of ultra guarantee cases.