Copyright 2013 by Stanford University
XCMG Construction Machinery Co., Ltd.
v.
Chengdu Chuanjiao Industry and Trade Co., Ltd. et al.,
A Sale and Purchase Contract Dispute
Guiding Case No. 15
(Discussed and Passed by the Adjudication Committee of the Supreme People’s Court
Released on January 31, 2013)
CHINA GUIDING CASES PROJECT
English Guiding Case (EGC15)
April 10, 2013 Edition*
* The citation of this translation of the Guiding Case is: 《徐工集团工程机械股份有限公司诉成都川交工
贸有限责任公司等买卖合同纠纷案》(XCMG Construction Machinery Co., Ltd. v. Chengdu Chuanjiao Industry
and Trade Co., Ltd. et al., A Sale and Purchase Contract Dispute), CHINA GUIDING CASES PROJECT, English
Guiding Case (EGC15), Apr. 10, 2013 Edition, available at http://cgc.law.stanford.edu/guiding-cases/guiding-case-
15.
This document was primarily prepared by Yale Fu, Oma Lee, Joelle Tjahjadi, Randy Wu, ZHANG
Xiaomeng, and ZHANG Xinyu. The document was finalized by Dimitri Phillips and Dr. Mei Gechlik. Minor
editing, such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the
headings to correspond with those boldfaced in the original Chinese version, was done to make the piece more
comprehensible to readers. The following text, otherwise, is a direct translation of the original text and reflects
formatting of the Chinese document released by the Supreme People’s Court.
The following Guiding Case was discussed and passed by the Adjudication Committee of the Supreme
People’s Court of the People’s Republic of China and was released on January 31, 2013, available at
http://www.chinacourt.org/article/detail/2013/02/id/893723.shtml. See also《最高人民法院关于发布第四批指导
性案例的通知》(The Supreme People’s Court’s Notice Concerning the Release of the Fourth Batch of Guiding
Cases), Jan. 31, 2013, available at http://www.chinacourt.org/article/detail/2013/02/id/893718.shtml.
2013.04.10 Edition
Copyright 2013 by Stanford University
2
Keywords
Civil Affiliate Companies Commingling of Personalities
Joint and Several Liability
Main Points of the Adjudication
1. The overlap or commingling of personnel, business, finance, and other aspects of
affiliate companies that leads to the impossibility of separating out properties and the loss of
independent personalities constitutes the commingling of personalities.
2. If affiliate companies that commingle personalities seriously harm the interests of their
creditors, the affiliate companies bear joint and several liability among themselves for the
external debt.
Related Legal Rule(s)
Article 4 of the General Principles of the Civil Law of the People’s Republic of China
Article 3, Paragraph 1 and Article 20, Paragraph 3 of the Company Law of the People’s
Republic of China
Basic Facts of the Case
Plaintiff XCMG Construction Machinery Co., Ltd. (徐工集团工程机械股份有限公司)
(hereinafter referred to as “XCMG Co.”) claimed: Chengdu Chuanjiao Industry and Trade Co.,
Ltd. (成都川交工贸有限责任公司) (hereinafter referred to as “Chuanjiao Industry and Trade
Co.”) was behind in its payment for goods. Chengdu Chuanjiao Construction Machinery Co.,
Ltd. (成都川交工程机械有限责任公司) (hereinafter referred to as “Chuanjiao Machinery
Co.”), Sichuan Ruilu Construction Engineering Co., Ltd. (四川瑞路建设工程有限公司)
(hereinafter referred to as “Ruilu Co.”), and Chuanjiao Industry and Trade Co. had commingled
personalities. The personal property of the de facto control person of the three companies,
WANG Yongli, and the shareholders of Chuanjiao Industry and Trade Co., were commingled
with the assets of the companies; they should all bear joint and several liability for the clearance
of debts. Plaintiff XCMG Co. requested that Chuanjiao Industry and Trade Co. be ordered to
pay the owed amount of RMB 10,916,405.71 plus interest and that Chuanjiao Machinery Co.,
Ruilu Co., WANG Yongli, and other individuals bear joint and several liability for the clearance
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3
of the aforementioned debts.
Defendants Chuanjiao Industry and Trade Co., Chuanjiao Machinery Co., and Ruilu Co.
claimed: Although the three companies were related, they were not commingled; Chuanjiao
Machinery Co. and Ruilu Co. should not bear liability for clearing the debts of Chuanjiao
Industry and Trade Co.
WANG Yongli et al. defended their position, claiming: the personal property of WANG
Yongli et al. was not commingled with the property of Chuanjiao Industry and Trade Co.;
[WANG et al.] should not bear liability for clearing the debts of Chuanjiao Industry and Trade
Co.
The court handled the case and ascertained: Chuanjiao Machinery Co. was formed in
1999; its shareholders were the Second Sichuan Road and Bridge Construction Company,
WANG Yongli, NI Gang, YANG Honggang, etc. In 2001, [the constitution of] the shareholders
changed to [comprise] WANG Yongli, LI Zhi, and NI Gang. In 2008, the shareholders changed
again to WANG Yongli and NI Gang. Ruilu Co. was formed in 2004; its shareholders were
WANG Yongli, LI Zhi, and NI Gang. In 2007, [the constitution of] the shareholders changed to
[comprise] WANG Yongli and NI Gang. Chuanjiao Industry and Trade Co. was formed in 2005;
its shareholders were WU Fan, ZHANG Jiarong, LING Xin, GUO Shengli, TANG Weiming,
WU Jing, and GUO Yin; HE Wanqing became a shareholder in 2007. In 2008, [the constitution
of] the shareholders changed to [comprise] ZHANG Jiarong (owning a 90% share) and WU Fan
(owning a 10% share), with ZHANG Jiarong being WANG Yongli’s wife.
In terms of company personnel, for all three companies, the company manager was
WANG Yongli, the person in charge of finances was LING Xin, the cashier accountant was LU
Xin, and the manager of industry and commerce procedures was ZHANG Meng. There was a
situation where the management personnel of all three companies had overlapping appointments.
For example, GUO Shengli concurrently held the positions of deputy general manager of
Chuanjiao Industry and Trade Co. and the sales manager of Chuanjiao Machinery Co., and the
decision to relieve GUO Shengli of his position as deputy general manager of Chuanjiao Industry
and Trade Co. was made by Chuanjiao Machinery Co.; WU Fan was both the legal
representative of Chuanjiao Industry and Trade Co. and also the executive manager of the
integrated department of Chuanjiao Machinery Co.
In terms of company business, the scopes of the three companies’ businesses as registered
with the industry and commerce administration departments involved construction machinery
and partially overlapped. The business scope of Chuanjiao Industry and Trade Co. completely
overlapped with that of Chuanjiao Machinery Co. Chuanjiao Machinery Co. was the sole
distributor for XCMG Co. in the Sichuan region (except for Panzhihua). But the three
companies all carried out related business, and there was a situation in which these companies
used [sets of] uniformly formatted Business Manual of the Sales Division, Secondary
Distribution Agreement, and settlement accounts. When publicized externally, the three
companies were not clearly distinguished. On December 4, 2008, the Chongqing Municipality
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Notary Office issued a Notarial Certificate, which recorded:
According to an Internet inquiry, Chuanjiao Industry and Trade Co. and Ruilu Co.
jointly recruited employees on relevant websites, and the telephone numbers, fax
numbers, and other contact methods that they left were the same. The recruitment
information for Chuanjiao Industry and Trade Co. and Ruilu Co. included a large
amount of promotional contents on Chuanjiao Machinery Co.’s course of
development, primary business, and corporate spirit; a part of Chuanjiao Industry
and Trade Co.’s recruitment information was entirely dedicated to introducing
Ruilu Co.
In terms of company finances, the three companies shared a common settlement account.
There were transactions reaching amounts as high as hundreds of millions of yuan [conducted]
through the bank cards of LING Xin, LU Xin, TANG Weiming, and GUO Shengli. The source
of capital included the funds of the three companies. WANG Yongli’s signature was the sole
basis of the external payments [made]; some of the receipts issued by Chuanjiao Industry and
Trade Co. to its customers carried its own financial seal, while others carried Ruilu Co.’s
financial seal. Under the circumstances where all [three companies] had signed contracts and
conducted business transactions with XCMG Co., the three companies jointly issued Instructions
to XCMG Co. in August 2005, stating that Chuanjiao Machinery Co. had expanded its business
and registered two other companies. [Therefore,] they requested that all creditor claims and
debts and sales volume be calculated in the name of Chuanjiao Industry and Trade Co., and
expressed that thereafter all business transactions be conducted in the name of Chuanjiao
Industry and Trade Co. as much as possible. In December 2006, Chuanjiao Industry and Trade
Co. and Ruilu Co. jointly issued an Application to XCMG Co., requesting, for the reason of
unified accounting, that the business performance and accounts for 2006 be calculated under the
name of Chuanjiao Industry and Trade Co.
[The court] also ascertained that on May 26, 2009, LU Xin stated, while being questioned
by the Economic Investigation Branch of the Public Security Bureau of Xuzhou Municipality:
Chuanjiao Industry and Trade Co. had already collapsed but its registration had not been
cancelled.1 [The court] further ascertained that the payment for goods not yet received by
XCMG Co. was actually RMB 10,511,710.71.
Results of the Adjudication
On April 10, 2011, the Intermediate People’s Court of Xuzhou Municipality, Jiangsu
Province, rendered the (2009) Xu Min Er Chu Zi No. 0065 Civil Judgment:
1. Chuanjiao Industry and Trade Co. is to pay XCMG Co. RMB 10,511,710.71 as
1 Translators’ note: though the term “垮” translates literally to “collapse,” here it likely means “insolvent”.
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5
payment for goods, as well as interest on the overdue payment, within ten days after the
judgment comes into effect.
2. Chuanjiao Machinery Co. and Ruilu Co. bear joint and several liability for the
clearance of the aforementioned debts of Chuanjiao Industry and Trade Co.
3. The litigation claim of XCMG Co. against WANG Yongli, WU Fan, ZHANG Jiarong,
LING Xin, GUO Shengli, TANG Weiming, GUO Yin, HE Wanqing, and LU Xin is
rejected.
After the judgment was pronounced, Chuanjiao Machinery Co. and Ruilu Co. appealed,
claiming that the determination of the first instance judgment that the personalities of the three
companies were commingled was a type of unclear ascertainment of facts and that the
determination that Chuanjiao Machinery Co. and Ruilu Co. bore joint and several liability for the
debts of Chuanjiao Industry and Trade Co. lacked legal basis. XCMG Co. replied, requesting
that the first-instance judgment be upheld. On October 19, 2011, the High People’s Court of
Jiangsu Province rendered the (2011) Su Shang Zhong Zi No. 0107 Civil Judgment: reject the
appeal and uphold the original judgment.
Reasons for the Adjudication
In its effective judgment, the court opined:2 as to the scope of the appeal, the focus of the
dispute in the second instance was whether Chuanjiao Machinery Co. and Ruilu Co. had
commingled personalities with Chuanjiao Industry and Trade Co. and whether they should bear
joint and several liability for clearing the debts of Chuanjiao Industry and Trade Co.
Chuanjiao Industry and Trade Co. had commingled personalities with Chuanjiao
Machinery Co. and Ruilu Co. First, the three companies commingled personnel. The three
companies had the same general manager, person in charge of finances, cashier accountant, and
manager of industry and commerce procedures. Other management personnel were also in a
situation of having overlapping appointments. The appointment and dismissal of Chuanjiao
Industry and Trade Co.’s personnel was in a situation of being determined by Chuanjiao
Machinery Co. Second, the three companies commingled business. The actual operations of the
three companies all involve businesses related to construction machinery, and during the
distribution process, there was the situation where sales manuals and distribution agreements
were shared. There was commingling of information in their public announcements. Third, the
three companies commingled finances. The three companies used shared accounts and WANG
Yongli’s signature served as the basis for the specific use of funds. [Thus, the companies] were
unable to prove that their funds and allocations were separate [from one another’s]. The creditor
2 Translators’ note: the Chinese text does not specify which court opined. Given the context, this should be
the High People’s Court of Jiangsu Province.
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claims and debts, company performance, accounts, and rebates between the three companies and
XCMG Co. were all calculated under the name of Chuanjiao Industry and Trade Co. Hence, the
characterization factors of personality (personnel, business, and finance, etc.) showed a high
degree of commingling, resulting in an inability to distinguish individual property; [the three
companies] had already lost their independent personalities, constituting the commingling of
personalities.
Chuanjiao Machinery Co. and Ruilu Co. should bear joint and several liability for
clearing the debts of Chuanjiao Trade and Industry Co. A company’s independent bearing of
liability as a legal person is premised upon its independent personality. Article 3, Paragraph 1 of
the Company Law of the People’s Republic of China (hereinafter referred to as the “Company
Law”) stipulates:
A company is an enterprise legal person, has the independent property of a legal
person, and enjoys the property rights of a legal person. A company is liable for
its debts to the extent of its entire property.
A company’s independent property is the material guarantee of its independent bearing of
liability. The independent personality of a company also manifests itself prominently in the
independence of property. When affiliate companies are unable to separate their properties and
lose their independent personalities, they lose the basis for bearing liability independently.
Article 20, Paragraph 3 of the Company Law stipulates:
When a company’s shareholders abuse the independent status of the corporate
legal person and the limited liability of shareholders, avoid debts, and seriously
harm the interests of the creditors, the shareholders should bear joint and several
liability for the company’s debts.
In this case, although the three companies were registered at industrial and commercial
registration departments as enterprise legal persons independent of each other, they in fact had
blurry boundaries and commingled personalities among themselves. Chuanjiao Industry and
Trade Co. bore the debts of all affiliate companies but was unable to clear the debts and also
allowed the other affiliate companies to avoid huge debts, seriously harming the interests of the
creditors. The aforementioned conduct violated the purpose of establishing the legal person
system and violated the principle of good faith. The nature of [Chuanjiao Industry and Trade
Co.’s] conduct and the harmful results were comparable to the situation stipulated in Article 20,
Paragraph 3 of the Company Law. Thus, by referring to Article 20, Paragraph 3 of the Company
Law, Chuanjiao Machinery Co. and Ruilu Co. should bear joint and several liability for clearing
the debts of Chuanjiao Industry and Trade Co.