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

2013.04.10 Edition

Copyright 2013 by Stanford University

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

2013.04.10 Edition

Copyright 2013 by Stanford University

4

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”.

2013.04.10 Edition

Copyright 2013 by Stanford University

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.

2013.04.10 Edition

Copyright 2013 by Stanford University

6

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

responsibilities 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

responsibilities. 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 responsibilities

independently. Article 20, Paragraph 3 of the Company Law stipulates:

When a company’s shareholders abuse the independent status of the enterprise

legal person and the limited responsibilities 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 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.