Article

Procedural History: The court made a decision that (1) the defendant 1 shall pay the plaintiff RMB 133,928, interest RMB 8,800 and overdue interest loss RMB 5,782.96; (2) the defendant 2 and 3 shall bear the joint guarantee liability; (3) dismissed and overruled the plaintiff’s other claims. The defendant 1 appealed.

Facts:

On Sep. 15, 2015, the plaintiff and the defendant 1 signed a purchase agreement.

And on Sep. 15, 2015, defendant 2 and defendant 3 issued warranty. These warranties guaranteed that the defendant 2 and 3 would bear the joint guarantee liability under the purchase agreement, if the defendant 1 failed to perform its obligation. And this warranty was separated from the purchase agreement. The warranty may be valid, even though the purchase agreement was invalid.

At the end of the 2015, the defendant 1 failed to pay the plaintiff RMB 373,000.

Later, the defendant 1 paid the plaintiff several times.

However, the defendant 1 still failed to pay the plaintiff principal 133,928 and the interest RMB 8,800 so far.

Legal Analysis:

Legal Issue(s): Whether the warranty was the independent L/G?

Legal Rule(s): Art. 1, Provisions on Several Issues in the Trial of Independent Letter of Guarantee Case, the independent L/G means a guarantee that a bank or non-bank financial institution issues in writing to beneficiary. The issuer agrees to pay the beneficiary a certain amount of money or within the maximum amount of the guarantee, when the beneficiary files it’s demand and documents in compliance with the L/G.

Art. 3, Provisions on Several Issues in the Trial of Independent Letter of Guarantee Case, If the parties claim that the nature of the L/G is an independent L/G, the people's court shall support it, unless the L/G does not contain the documentary evidence of the payment and the maximum amount: ……

Disposition – for each legal issue: The warranty, issued by the defendant 2 and 3, was not an independent L/G.

Holding & Reasoning for each issue:

The warranty, issued by the defendant 2 and 3, was not an independent L/G.

According to Art. 1, Provisions on Several Issues in the Trial of Independent Letter of Guarantee Case, only bank or non-bank financial institution was entitled to issue the independent L/G. However, in this case, it was the defendant 2(a company) and 3(a natural person) that issued this warranty. Both of them were not qualified to issue the independent L/G.

According to Art. 3, Provisions on Several Issues in the Trial of Independent Letter of Guarantee Case, a warranty that did not contain the documentary evidence of the payment and the maximum amount was not an independent L/G. Although the warranty stated that the warranty was separated from the purchase agreement and the warranty may be valid, even though the purchase agreement was invalid, the warranty did not contain the documentary evidence of the payment and the maximum amount. Thus, this warranty was not an independent L/G.

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