Research On The Validity Of Ultra Vires External Guaranty Contract

As the most active body in the market economy, company acts an important role in the development of market economy. Company providing a guaranty with specific property or credit for some other’s debt favors the company’s development. Sometimes a company provides a guaranty beyond its term of reference. A question arises under this circumstance. That is the validity of the guarantee contract. Company Law of the People’s Republic of China (2005) affirms the legality of the capacity and vadility of company’s external guarantee instead of Company Law (1993). The change gives company more autonomy and expands the scope of the guarantee. In the meanwhile, related procedures are perfected and the status of guarantee provisions are improved in the system of company law. That is a great progress.However,due to the legal provision is too indistinct, judging the problem r efer to the validity of contract of the external guarantee from company who is beyo nd its term of reference, is far more complicate than the new "Companies Act". It is not complete enough when it is in use,and has a lot of issue under discussing and n eeded to be clear.Considering the ultra vires external guaranty’s common application and potential problems in current corporations’legal practice, the author would like to conduct a typological research on the validity of ultra vires external guaranty contract, combining theory and case studies, using comparative law approach and historical analysis method.In this paper, The author try to research on the following aspects:First, the validity of external guaranty contract which beyond the scope of managerial range of corporation stipulated in articles of association. Seeing from the provisions on ultra vires external guaranty contracts in China, China Taiwan and Foreign Countries, the author reach the conclusion that external guaranty contract which beyond the scope of managerial range of corporation stipulated in articles of association is valid.Second, the validity of external guaranty contract by corporate sectors which did not regulated in articles of association. Through studying on the involving external validity of articles of association, the examining duty of third person, distinguishing the internal resolution and external guaranty, the author hold the view that external validity of articles of association and examining duty of third person is not reasonable. Moreover, the validity of guarantee contract may vary on different circumstances.Third, the validity of ultra vires external guaranty contract, which concluded by directors or managers. Studying on ultra vires act of directors or managers, the author holds that ultra vires act of directors or managers should not be treated as agent act, and the external guaranty contract is valid, the protection of benefits of third person in good faith should be strengthened.Fourth, the validity of external guaranty contracts where there is a deficient article of association. The author tries to elaborate the issue through deficient article of association, resolving right on external guaranty, the restriction on board of directors by profit-making principle. The validity of contract may vary on different situation. By researching on the validity of external guaranty contracts, this paper aims at solving problems on corporation practice. By solving the problems, the author hopes the benefit balance between corporation, shareholders and third person, the security and stability of business transaction gets maintained. China’s external guaranty system can be improved through practice.