Is the signature of the legal representative not considered corporate debt?

I. Basic Facts

• Parties’ Background Plaintiff A is a distributor of Supplier Company D, responsible for picking up goods from Supplier Company D and reselling them to other customers, bearing all profits and losses on its own. Defendant B was a former colleague of Plaintiff A; in June 2020, Defendant B established Defendant Company C and served as its legal representative until April 2023.
• Transaction Process From 2019 to 2022, the Plaintiff A supplied goods to the Defendant B in accordance with the Defendant’s requirements, either through delivery or self-collection. With respect to the payment terms, initially payments were made by a third-party company E designated by the Defendant B into the account of Supplier Company D (which served as a dedicated distributor account for the Plaintiff A); subsequently, after the establishment of Defendant Company C, payments were redirected to be made from Defendant Company C’s account into Supplier Company D’s account. Supplier Company D issued a distributor certificate to the Plaintiff A.
• Outstanding Debt Situation : As of May 2022, the defendant B had cumulatively owed the plaintiff A RMB 200,000 in goods payments. In March 2024, the defendant B issued a promissory note to the plaintiff A, confirming the outstanding amount and undertaking to repay it in installments. Subsequently, the defendant B made a payment of RMB 10,000 via WeChat Pay, leaving the remaining RMB 190,000 unpaid.
• Relief Sought Plaintiff A has brought an action seeking joint and several liability from Defendant B and Defendant Company C, of which Defendant B formerly served as the legal representative, for the repayment of RMB 190,000, on the ground that the assets of Defendant Company C and Defendant B are commingled and thus they should be held jointly and severally liable.

II. Points of Contention

Is the counterparty to the sales contract established with Plaintiff A Defendant Company C or Defendant B? The line of reasoning is as follows:

1. Whether Defendant B, as an individual, shall independently bear the debt as a party to the contract?
2. Should Defendant Company C be held jointly and severally liable on the grounds of Defendant B’s official conduct (such as serving as the legal representative) or commingling of assets?
3. Does Plaintiff A have standing to bring this action (i.e., does it possess creditor status)?

III. Case Analysis

(1) The counterparty to the sales contract is Defendant B as an individual, not Defendant Company C.

1. The evidence shows that Defendant B, throughout the entire course of the transaction, communicated with Plaintiff A in his personal capacity regarding requirements and delivery matters, and personally executed a promissory note (the content of which makes no reference to Defendant Company C). At trial, Defendant B acknowledged the debt and explained that he used Defendant Company C’s account solely because he was unable to issue a value-added tax invoice in his personal name.

2. Plaintiff A failed to provide sufficient evidence (such as a supply contract or receipt documents signed by Defendant Company C).

It is hereby proven that Defendant Company C is the contracting party. Any acts undertaken by Defendant B during his tenure as the legal representative (such as making payments) do not reflect the company’s intent, and Defendant Company C was incorporated after the commencement of the transactions; moreover, certain transactions are unrelated to the company.

(2) Defendant Company C is not financially intermingled with Defendant B and therefore does not bear joint and several liability.

1. Insufficient evidence: The audio recordings and other materials submitted by Plaintiff A only demonstrate the individual conduct of Defendant B and do not establish that the company’s assets were misappropriated or commingled. Defendant Company C has provided records of shareholder changes (showing that Defendant B withdrew in a certain year), thereby proving that the company operates independently.

2. Lack of Legal Basis: China’s Company Law emphasizes the independent liability of corporate legal persons, and any commingling of assets requires clear evidence (such as the intermingling of bank accounts or the transfer of benefits). In this case, the defendant company C’s payment was deemed to be a payment on behalf of another party and does not constitute asset commingling.

(3) Plaintiff A has standing as a creditor because it is the actual supplier; Supplier Company D serves solely as a collection account under the distributor model, which does not affect Plaintiff A’s individual creditor rights.

IV. Judgment Result

Defendant B shall pay Plaintiff A the sum of RMB 190,000 for goods; Defendant Company C shall not bear joint and several liability.

V. Legal Advice

Based on the judgment in this case and our professional experience, we offer the following legal advice tailored to different parties:

• Recommendations for Creditors (e.g., Plaintiff A) ：
  • Clarify the parties to the contract: At the outset of the transaction, execute a written contract that clearly identifies the counterparty—whether an individual or a company. Avoid relying on verbal agreements or indirect payments to prevent confusion regarding the identity of the contracting parties.
  • Strengthen evidence preservation: Retain all transaction records, such as supply lists, delivery receipts, payment vouchers, and communication records. In this case, although the creditor possesses an IOU, direct evidence is lacking.
  • Evidence-gathering strategy for proving commingling of assets: If asserting joint and several liability of the company and the individual, it is necessary to collect bank account statements and other evidence demonstrating such commingling.
• Recommendations for the Debtor (e.g., Defendant B) ：
  • Distinguish between personal and corporate conduct: As the company’s legal representative, you must strictly separate personal debts from the company’s operations. Avoid using the company account to handle personal matters.
  • Timeliness of debt handling: Debts shall be promptly reconciled and confirmed in writing, with due assurance of accuracy.
  • Company Exit Mechanism: Upon resignation or departure from the company, formal handover procedures shall be completed, and the change in personnel shall be publicly announced.