Study On The Guarantor’s Special Liquidated Damages

Guarantee system and liquidated damages system,in terms of protecting the safety of transactions,play a role that cannot be ignored for the promotion of financing.The guarantor’s special liquidated damages resulting from the combination of the two have positive significance for the timely repayment of creditors’ rights.However,due to the lag of law,for a long time,both judicial practice and theoretical circle have widely differed on the effectiveness of the special liquidated damages.Both the "theories of validity" and "the theories of invalidity" have many supporters,and even these two views have different internal theoretical bases,which generally include the subordination scope and the fairness principle.The many disputes bury huge legal risks for the surety,the creditor and the debtor.Article 3 of the Judicial Interpretation on the Security System of the Civil Code adopts the view of "relative invalidity" as mentioned in Article 55 of the Ninth Civil Summary and based on the subordination scope of guarantee and the fairness principle,specifies for the first time the validity of the guarantor’s special liquidated damages which have caused widespread disputes in practice.That is,if the guarantor offers to assume liability only within the scope that the debtor should assume,the liquidated damages specific to the guarantor will be regarded as invalid by the court.This provision is based on two considerations: firstly,the guarantor’s special liquidated damages belong to the guarantee liability and shall be subject to the mandatory provisions on effectiveness regarding the subordination scope of guarantee;and secondly,out of respect for the autonomy of the parties,the choice of damages is left to the guarantor,and the court will not take the initiative to determine that the special liquidated damages are invalid.However,it is not sufficient to determine whether the guarantor’s specific liabilities for breach of contract fall within the scope of guarantee liabilities and violate the principle of fairness.Article 3 of the Judicial Interpretation on the Security System of the Civil Code,to a large extent,respects the autonomy of the parties,which is of progressive significance and should be commended.However,based on the law policy of protecting the guarantor in the era of the Civil Code,the article neglects the protection of the creditor and debtor,so it is very easy for the guarantor to "break the contract in the name of illegality and invalidity",and even confuses the two different legal relationships and ignores the shackle of "relativity of obligation".The guarantor’s special liquidated damages has the function of performance guarantee under certain circumstances,contains the value of credit enhancement,may facilitate the development of transactions,and reflects the "principle of encouraging transaction".The judiciary shall respect the freedom of contract between the parties.There are two different legal relationships between the guarantor and the creditor,and between the creditor and the debtor,the creditor does not double profit and the guarantor does not bear double liquidated damages,which is in conformity with the principle of fairness.The special liquidated damages are legitimate.However,due to the particularity of commercial guarantee and onerous guarantee,guarantor’s special liquidated damages cannot be allowed to exist in civil guarantee free of charge.The "fatherhood" of the civil law shall be used to limit its application scope.The special liquidated damages of the Guarantor act on three parties simultaneously,shall protect the interested parties through the "Relative Invalidity Theory",the "Rectification Function of the Principle of Good Faith" and the "Discretionary System for Reduction of Liquidated Damages",and shall avoid undue oppression by liquidated damages and reflect justice of law.