A Study On The Transferring Guarantee System Legal Issues

The origin of the transferring guarantee system can be traced back to Fiducia system in Roman law and Treuhand system in Germanic law around several hundreds of years ago.Since then many countries of civil law system have formed its own distinctive transferring guarantee legal system on the foundation of national conditions and actual needs,such as Germany and Japan. Our country and Germany as well as Japan originate from the similar source of law.Although many similar cases have occurred in the judicial practice,there is no statutory regulation about the transferring guarantee system in our country so far.I have read a lot of judicial precedents to find that the occurrence rate of such cases in our judicial practice is so large especially in recent years with the rapid economic development.However, the judgments of different courts about similar cases are quite different. Some courts hold the opinion that the agreement between the parties violates the provisions of prohibition of liquid.The agreement belongs to the invalid provision. Some other courts think that this is a typical case of the transferring guarantee system and the agreement is valid and effective. In order to stabilize the social order and resolve disputes efficiently and fairly, the Supreme People’s Court reheard the case of Zhu Junfang v. Shanxi Jiahetai Real Estate Co.Ltd.in December 2014.The Supreme Court identified the house sale contract and the loan contract from the perspective of law of obligation and guarantee contract.The both parties signed the house sale contract to ensure the smooth implementation of the loan contract, at the same time the house sale contract set the termination conditions for the loan contract.Both parties had the rights to choose to fulfill or not fulfill the two completely legal and effective contract. The Supreme Court has been fully recognized the effectiveness of loan contract and the terms of which do not violate the prohibition of liquid. Based on the principle of autonomy, the defendant may exercise the right of revocation about the dispute. The effectiveness of the contract can’t be an excuse for refusing to perform the contract.It is also an important embodiment of the principle of good faith in civil law.The interpretation of the Supreme Court about "Zhu Junfang case" to different levels of courts in judicial practice has set an example in dealing with similar cases.However,it does not stop in the academic research about the conflicts of the transferring guarantee system. Some scholars hold the skeptical attitude about the legal basis and the legal relationship of the Supreme Court decision. Although the Supreme Court recognized the validity of the contract and the loan contract, but did not recognize the transferring guarantee system. In the academic circles, there are still some scholars who believe that the house sale contract violates the provisions of prohibition of liquid and the related provisions are null and void. Some scholars believe that this behavior is the transferring guarantee system.Because of the large number of similar cases,it has caused substantial impact on economic development of China.It is necessary to create relevant law to regulate the phenomenon.Although the mortgage guarantee system regulated by our country’s property law is Hypothecation first,Pledge and Lien second.As everyone knows, Pledge and Lien system require that both parties secure possession.Possession of collateral can not only protect the interests of creditors,but also to prevent the debtors from unsafe situation. However, possession of collateral leads to the situation that the property can not be fully utilized, which is not good for the function of usage. If the value of the collateral is relatively high or is being used to create value of real estate, creditors may bring huge loss to the economy. Due to the rapid economy of modern society,the inconvenience obviously can not meet the needs of the society.The disadvantages of Pledge and Lien system also highlight the superiority of the mortgage system. As the core of guarantee system in China,the mortgage system does not require possession of the transfer of the collateral. If the debtor violate credit guaranty for other purposes,the creditor can get the collateral through the provisions of the property law. The mortgage system not only ensures the safety of the transaction, but also plays the usage function well.It seems to be the perfect one.Legal system is changing with the progress of human society.In the world,any system will not permanently show its perfect style. Once the mortgage system regarded as the core of the guarantee system also expose its drawbacks in the process of social progress. Modern society encourages the development of market economy, which requires low transaction cost and high efficiency. Mortgage system, although can play usage function, but the publicity system needs real estate registration procedures resulting in high costs. When the debtor fails to repay the debt timely, it is time for the state organization to use the compulsory execution power according to the civil procedure law. The cost of time and money is very high,which does harm to the development of the economy. On this regard, the mortgage system seems not to be in line with the spirit of the efficiency and economy of the contemporary society.This paper intends to sum up the disputes from the recent judicial practice. On the basis of data I research from the library, the academic circle has not yet given their views on the uncertain problems in dispute.The transferring guarantee system has not been described in the law yet due to the the provisions of prohibition of liquid and numerous clauses as well as publicity issues. Finally, the solution of such cases in our judicial practice and the construction of the guarantee system in our country are proposed in the paper in order to improve the security system of our country.