Newsletter
PARTIAL AMENDMENT TO THE CIVIL CODE BOOK OF OBLIGATIONS
A partial amendment to the Civil Code Book of Obligations was passed by the Legislative Yuan on April 2, and announced by the president on April 21. It will take effect on 5 May, 2000 and will be retroactive in effect. Major content of the amendments pertaining to guaranty contracts are outlined below:
A provision is added that the rights of the guarantor may not be waived in advance except where otherwise provided by law. This provision is added to protect the guarantor, since in actual practice many guaranty contracts contain clauses requiring the guarantor to waive all rights in advance. Once this new provision becomes effective only the right of beneficum ordinis can be waived in advance. Although some court opinions in recent years have held that a guarantor may waive certain of his rights in advance, such court opinions may no longer be applicable once the amendment takes effect.
A provision is added that the obligation of the principal debtor to the creditor may be the object of a set-off by the guarantor. Originally, opinions had diverged on whether such a set-off could be claimed, so this provision was added to clarify the issue.
Provisions are added for employment suretyship. Employment suretyship is a widespread practice in Taiwan dating back many years, and is therefore incorporated in this amendment. An employment suretyship is a contract whereby one of the parties agrees to accept the obligation to pay compensation for damages to the other party in the future event that an employee of the other party should, by his acts on the job, become liable for such damages. To prevent the surety from bearing excessive liability, the scope of the liability is specifically limited to future liability incurred by the employee for damages caused by his acts on the job. Furthermore, the surety becomes liable only after the employer has exhausted other possible means of obtaining compensation without success.
Since the amendment is retroactive in effect, even guaranty/surety contracts concluded prior to the amendment will be subject to its constraints. Its impact on creditors will be enormous. Therefore, financial institutions engaged mainly in credit extension and other entities that rely on guaranty/suretyships would be well advised to reexamine the content of their contracts in light of the amendment and to plan appropriate responses.