The guarantee period, the limitation of action for guaranteed debts, and the limitation of action for principal debts are all related to a certain period, and there are countless internal connections among the three. Before the Civil Code came into force, China's "Guarantee Law" and "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the" Guarantee Law of the People's Republic of China "did not explicitly stipulate the concept of" guarantee period ". The relevant provisions of the Guarantee Law also confuse the relationship between the guarantee period and the guarantee debt litigation. Therefore, in both academic and theoretical terms, there are many disputes regarding the understanding and application of these three legal concepts, and the related judicial cases of guaranteed debt have also been one of the difficult issues in judicial trials. The introduction of the Civil Code clarifies the concept of "guarantee period" and clarifies the connections and differences between the above legal concepts. Based on the relevant provisions of the Civil Code and a legend, the author will attempt to clarify and elaborate the meaning, connection, and distinction of the guarantee period, the limitation of action for guaranteed debts, and the limitation of action for principal debts.

 

1、 Warranty period

 

Article 692 of the Civil Code defines the meaning of the guarantee period for the first time, and clarifies that the guarantee period belongs to a fixed period. The first paragraph of this article stipulates: "The guarantee period is the period during which the guarantor assumes the guarantee liability, without any suspension, interruption, or extension.".

 

According to Paragraph 2 of Article 692 of the Civil Code, the guarantee period is divided into an agreed guarantee period and a statutory guarantee period based on whether there is an agreement between the parties. If the parties have an agreement on the duration of the guarantee, the agreement shall prevail; However, if there is no agreement or the agreement is unclear, the legal guarantee period will be enforced, and the legal guarantee period is six months.

 

In addition, the guarantee period does not vary depending on the guarantee method. Therefore, whether it is a general guarantee or a joint and several liability guarantee, the starting point of the guarantee period is not different, and is calculated based on the starting point of the agreed or statutory guarantee period.

 

2、 Limitation of Action for Guaranteed Obligations

 

The creditor requests the guarantor to perform the guaranteed debt, which is also a right of claim. Therefore, the limitation of action for the guaranteed debt, like the limitation of action for the main debt, also applies to the three-year general limitation of action, but the starting point of the two is different. The limitation of action for the principal debt shall be calculated from the date of expiration of the principal debt performance period. If the principal debt performance period is not agreed upon, it shall be calculated from the date of expiration of the grace period for performance granted by the creditor to the debtor. The starting point of the limitation of action for guaranteed debts varies depending on the type of guarantee. Specifically:

 

（1） Limitation of action for general guarantees

 

The limitation of action for a general guaranty shall be calculated from the date on which the guarantor's right to refuse to assume the guaranty liability expires. "The extinguishment of the right to refuse to assume suretyship responsibility" refers to the extinguishment of the general guarantor's right of first action defense. The so-called right of first action defense, in brief, refers to the right enjoyed by a general guarantor to not request the general guarantor to assume suretyship responsibility until the debtor is unable to perform the debt without bringing a lawsuit or arbitration against the debtor and legally enforcing the debtor's property. Due to the existence of the right of first action defense, there is a significant difference in the starting rule between the limitation of action for general guarantees and the limitation of action for joint and several liability guarantees. The limitation of action for general guarantees usually goes through a waiting period of "first action", and the length of waiting time depends on the actual situation of the case.

 

（2） Limitation of Action for Joint and Several Liability Guarantee

 

The limitation of action for a guarantee of joint and several liability shall be calculated from the date on which the creditor requests the guarantor to assume the guarantee liability. Unlike ordinary guarantors, joint and several liability guarantors do not enjoy the right of first action defense. In other words, the creditor can directly request the joint and several liability guarantor to assume the guarantee liability. Once the creditor requests the guarantor to assume responsibility during the guarantee period, and the guarantee period becomes ineffective due to the completion of the historical mission, the limitation of action for jointly and severally liable guaranteed debts begins to be calculated.

 

3、 The Relationship and Difference between the Warranty Period and the Limitation of Action for Guaranteed Obligations

 

（1） The Relationship between the Warranty Period and the Limitation of Action for Guaranteed Obligations

 

The guarantee period and the limitation of action for the guaranteed debt are both the time limits for the exercise of rights. The connection between the two is that creditors must claim their rights according to law during the guarantee period. If the creditor claims rights against the guarantor during the guarantee period, the limitation of action shall be calculated according to Article 694 of the Civil Code; "If the creditor does not claim rights, the guarantor will no longer assume responsibility, and there will be no issue of applying the limitation of action for guaranteed debts.".

 

（2） The Difference between the Warranty Period and the Limitation of Action for Guaranteed Obligations

 

The main differences between the guarantee period and the limitation of action for guaranteed debts are:

 

Whether it can be freely agreed upon by the parties.

 

The period of guarantee may be freely agreed upon by the parties. If the parties have not agreed or the agreement is not clear, the legal guarantee period will be enforced. The limitation of action for guaranteeing debt belongs to the right created by law and cannot be freely agreed upon by the parties.

 

The legal period varies in length.

 

The statutory guarantee period is six months, while the limitation of action for guaranteed debts is three years.

 

Whether the legal period can be changed is different.

The guarantee period is a fixed period without any suspension, interruption, or extension. The limitation of action for guaranteed debts may be suspended, interrupted, and extended.

 

4. The starting point is different.

 

The legal guarantee period is calculated from the date on which the main debt performance period expires or the main debt performance grace period expires. The starting point of the limitation of action for guaranteed debts varies depending on whether the guarantee method is a general guarantee or a joint and several liability guarantee. For details, see "Limitation of Action for Guaranteed Obligations" in Part II of this article, which will not be repeated here.

 

The consequences of the expiration of a period are different.

 

Upon expiration of the guarantee period, if the creditor fails to claim rights within this period, the guarantee liability shall be extinguished; "Upon the expiration of the limitation period of action, if the creditor requests the guarantor to assume liability, the guarantor has the right to raise a limitation defense. The warranty liability itself does not extinguish, but the warranty obligation has become a natural obligation and is no longer protected by legal enforcement.". Of course, the guarantor can later waive the benefit of the statute of limitations through written or actual performance of the guaranteed obligation.

 

6. Does the court proactively identify differences.

 

According to Article 193 of the Civil Code, the court does not actively review and apply the statute of limitations. As for the guarantee period, according to Article 34, paragraph 1, of the "Interpretation of the Supreme People's Court on the Application of the Civil Code of the People's Republic of China Concerning the Guarantee System" (hereinafter referred to as the "Interpretation of the Civil Code Guarantee System"), the court should actively investigate whether the guarantee period has expired and whether the creditor has exercised its rights in accordance with the law during the guarantee period.

 

4、 Illustrate the connection and distinction between the guarantee period, the limitation of action for guarantee debts, and the limitation of action for main debts

 

The above analysis analyzes the meaning, main connections, and differences of the warranty period, the limitation of action for guaranteed debts, and the limitation of action for principal debts. Below, a legend will be used to intuitively understand the connection and distinction between them.

 

 

 

According to the above figure:

 

The icon ① shows the agreed warranty period. Generally speaking, the creditor and the guarantor will agree that the guarantee period is calculated from the date of expiration of the autonomous debt performance period. However, there are also cases where creditors and guarantors may agree that the beginning and/or end of the guarantee period is earlier or later than the expiration date of the main debt performance period. The author subdivides these special cases into [1]:

 

"First, if the guarantee period starts earlier than the expiration date of the main debt performance period, but ends later than the expiration date of the main debt performance period, and the agreed period is a" period date "(referring to two time points for the start and end of the guarantee period, such as the agreed guarantee period from May 1, 2019 to May 1, 2020), the agreed start period is invalid, but the end period is valid.". For example, if both parties agree that the guarantee period is from May 1, 2019 to May 1, 2020, and the expiration date of the main debt performance period is December 1, 2019, then the "beginning of the guarantee period" in icon ① is invalid on May 1, 2019, and the guarantee period should start from December 1, 2019, the expiration date of the main debt period, and end on May 1, 2020.

 

Secondly, the guarantee period starts earlier than the expiration date of the main debt performance period, but ends later than the expiration date of the main debt performance period. The agreed period is "period" (referring to a period of time calculated from a certain point in time, such as the agreed guarantee period of one year from the date of providing the loan). As the previous example has changed, both parties agree that the guarantee period is one year from the date of providing the loan, that is, May 1, 2019. The agreed one-year "period" is valid, but the agreed guarantee period starting from May 1, 2019 is invalid. The guarantee period shall be calculated from December 1, 2019, the date of expiration of the main debt performance period, for one year to December 1, 2020.

 

Third, if the guarantee period agreed between the parties is earlier than or expires at the same time as the main debt performance period, it is deemed that there is no agreement, and the statutory six-month guarantee period will be enforced at this time, as shown in Figure ③.

 

Fourth, the beginning of the agreed guarantee period is later than the expiration date of the main debt performance period. This agreement does not violate legal principles and does not conflict with other rules in application, and should be effective.

 

The icon ② shows the legal guarantee period. According to the relevant provisions of the Civil Code, in cases where the parties have no or unclear agreement on the guarantee period, the legal guarantee period is mandatory. The legal guarantee period starts from the date of expiration of the autonomous debt performance period, and the period is six months.

 

Icon ③ is deemed to have no agreed warranty period, and the statutory warranty period is mandatory. As mentioned earlier, this will not be repeated.

 

Icon ④ shows the guarantee period for which the main debt performance period has not been agreed. According to Article 692 (3) of the Civil Code, "If there is no agreement or unclear agreement between the creditor and the debtor on the time limit for the performance of the main debt, the guarantee period shall be calculated from the date of expiration of the grace period for the creditor to request the debtor to perform the debt.". In other words, if the creditor and the debtor have not agreed on a debt performance period, or if the agreement is not clear, the creditor should give the debtor a reasonable grace period, and the guarantee period starts from the date of expiration of the debt performance grace period.

 

Icon ⑤ shows the limitation of action for general guaranteed debts. As mentioned earlier, the limitation of action for general guaranteed debts starts from the date on which the guarantor's right of first action defense is extinguished. Both the agreed guarantee period (Figure ①), the statutory guarantee period (Figure ② and ③), and the guarantee period for which the main debt performance period is not agreed (Figure ④) are general guarantees, so their common ground is that the guarantor enjoys the right of first instance defense. The "action" in the right of first action defense must be exercised during the warranty period, and the "action" not only includes litigation or arbitration proceedings, but also generally, through enforcement procedures. Therefore, the duration of the right of first instance defense is a relatively long period of time, and the initial period of its rights should be a certain point in the guarantee period, and the final period should generally be the end date of the enforcement process.

 

As for how to define the "end date of enforcement proceedings", the answer is provided in Article 28, paragraph 1, of the Interpretation of the Civil Code Guarantee System, which states, "In general guarantees, creditors apply for enforcement of the debtor's property according to effective legal documents, and the starting time of the limitation of action for guaranteed debts is determined according to the following rules:

 

（1） "If the people's court makes a ruling to terminate the current execution procedure, or makes a ruling to terminate the execution in accordance with the provisions of Items 3 and 5 of Article 257 of the Civil Procedure Law, the calculation shall begin from the date when the ruling is served on the creditor;";

 

（2） "If the people's court fails to make the ruling referred to in the preceding paragraph within one year from the date of receiving the application for enforcement, the calculation shall commence from the date of receiving the application for enforcement by the people's court for one year, unless the guarantor has evidence to prove that the debtor still has property available for enforcement.".

 

In addition, according to Article 28, paragraph 2, of the Interpretation of the Security System of the Civil Code, there are exceptions to the starting time of the limitation of action for general guaranteed debts. That is, when the creditor can prove that there are circumstances specified in the proviso to Article 687, paragraph 2, of the Civil Code, there is no need to go through enforcement procedures, but the calculation begins from the date the creditor knows or should have known of the situation. The exception provided for in the proviso to Article 687, Paragraph 2 of the Civil Code is "... (1) the debtor's whereabouts are unknown and there is no property available for enforcement; (2) the people's court has accepted the debtor's bankruptcy case; (3) the creditor has evidence to prove that the debtor's property is insufficient to fulfill all of its debts or is unable to fulfill its obligations; and (4) the guarantor waives the rights specified in this paragraph in writing.".

 

Figure ⑥ shows the limitation of action for joint and several liability guaranteed debts. The guarantor of joint and several liability does not have the right of first action defense. Therefore, compared to the limitation of action for general guaranteed debts, the calculation of the limitation of action for joint and several liability guaranteed debts is relatively simple, that is, from the date when the creditor requests the guarantor to assume the guarantee liability. It should be noted that the creditor's request for the guarantor to assume joint and several guarantee responsibilities should also be filed within the guarantee period. Note that as shown in the figure, the pink arrow of "Request for Warranty Liability Date" in icon ⑥ is drawn within the agreed warranty period (green braces) and the statutory warranty period (red braces) (for convenience, the case of a warranty period without an agreed main debt performance period is not taken into account) to emphasize this issue.

 

Icon ⑦ Limitation of Action for Main Debt. The limitation of action for the principal debt shall commence from the date of expiration of the term of the principal debt, and a three-year general limitation of action shall apply. "If there is no agreement or unclear agreement between the creditor and the debtor on the time limit for the performance of the main debt, the creditor may grant the debtor a reasonable grace period. Upon the expiration of the grace period for the performance of the main debt, the limitation of action for the main debt shall commence to count.".

 

5、 Summary and Suggestions

 

（1） Summary

 

Through the above legal analysis and illustration, it can be seen that the warranty period, the limitation of action for guaranteed debts, and the limitation of action for principal debts have both internal connections as the link between the three, and there are relatively obvious differences. It is particularly important to clarify the connections and differences between the three.

 

The guarantee period is a very important connecting link. Generally speaking, the guarantee period starts from the expiration date of the main debt performance period, that is, it starts from the date of the commencement of the limitation of action for the main debt, and it also connects and affects when the limitation of action for the guarantee debt starts to calculate.

 

In addition, in the same case, the limitation of action for principal debt and the limitation of action for guaranteed debt are relatively independent. Although generally, the limitation of action for both is three years, their respective starting points are different. Generally speaking, when the limitation of action for the principal debt starts to be calculated, the limitation of action for the guaranteed debt has not yet started to be calculated, especially in the case of general guarantees with a "first action" precedent. Therefore, it is usually the case that the limitation of action for the main debt expires before the limitation of action for general guaranteed debt and joint and several liability guaranteed debt.

 

（2） Recommendations

 

 

 

Based on the above analysis, the author suggests that:

 

On the one hand, for creditors, at the beginning of the calculation of the limitation of action for the principal debt, they should immediately take action to ensure that, as far as possible, they can file a lawsuit or arbitration against the debtor in the general guarantee at the beginning of the guarantee period, or file a claim against the jointly and severally liable witness for their joint and severally liable guarantee liability, in order to avoid the elimination of the guarantee liability due to the failure to claim rights after the guarantee period has passed. Of course, at the same time, attention should also be paid to whether the limitation of action for the principal debt has passed, in order to avoid the loss of the right to victory.

 

On the other hand, for the debtor or guarantor, they should be able to understand and be adept at using the respective meanings and applicable rules of the limitation of action for the main debt, the limitation of action for the guaranteed debt, and the guarantee period to calculate and analyze the limitation of action for the main debt or the guaranteed debt, and whether the guarantee period has passed, based on the request of the creditor. If it has already passed, the defense of no longer assuming the main debt repayment responsibility or guarantee responsibility can be raised accordingly.

 

Notes and References

 

[1] See Gao Shengping, "Understanding and Application of the Civil Code Guarantee System and Its Supporting Judicial Interpretation," China Legal Publishing House, March 2021 edition, pp. 168-169.