Avocat à la Cour d'Appel de Paris
Barrister & Solicitor, Nova Scotia
Of counsel to Kunlun Law Firm, Beijing, China
Interpretations of the Supreme People's Court on Certain Issues concerning the Application of Contract Law of the People's Republic of China (Part Two)
Fa Shi  No. 5
April 24, 2009
(Adopted at the 1462nd meeting of the Judicial Committee of the Supreme People's Court on February 9, 2009)
Announcement of the Supreme People's Court of the People's Republic of China
Interpretations of the Supreme People's Court on Certain Issues concerning the Application of Contract Law of the People's Republic of China (Part Two), which has been adopted at the 1462nd meeting of the Judicial Committee of the Supreme People's Court on February 9, 2009, is now promulgated and shall be effective as of May 13, 2009.
With a view to facilitating the proper adjudication of contractual disputes, in accordance with the Contract Law of the People's Republic of China (hereinafter referred to as the "Contract Law"), we hereby issue the following interpretations on certain issues concerning the application of the Contract Law by People's Courts:
Chapter I Conclusion of a Contract
Where the parties have dispute over whether the contract has enter into effect or not, in case the titles and names of the parties, subject matter and the number thereof can be determined, the people's court shall generally rule that the contract has entered into effect, unless it is otherwise provided for by law or agreed upon by the parties. In case the contract lack for contents other than that as stipulated in the preceding Paragraph, and the parties thereto can not reach an agreement, the people's court shall determine in accordance with relevant provisions of Contract Law such as Article 61, 62, and 125, etc..
Where the parties have not concluded a contract in the form of writing or in the form of oral agreement, but have the intent to do so as presumed from their civil acts, the people's court may rule that a contract has been concluded in "other forms" as stipulated in Paragraph 1, Article 10 of the Contract Law, unless it is otherwise provided for by law.
In case the reward offeror make a public announcement to pay the person who finishes a certain activity and the said person request such payment upon the completion of such activity, the people's court shall uphold such request, unless the reward has one of the circumstances as prescribed in Article 52 of the Contract Law.
In case the contract is concluded in a written form, and the place of conclusion as specified in the contract does not comply with the actual place of signature or seal, the people's court shall rule that the specified place of conclusion is the place of conclusion of the contract; in case the contract does not specify the place of conclusion, and the places of signature or seal are not at the same place, the people's court shall rule that the place of the last signature or seal is the place of concluding the contract.
Where the parties conclude a contract in the form of a contract statement, they shall sign or seal such statement. In case the parties press their fingers on the statement, the people's court shall rule that it has the same legal force as signature or seal.
The party providing the standard terms uses special markings, in respect of clauses excluding or restricting its liabilities, such as words, punctuation, typeface, etc., which are adequate to arouse the other party's attentions, and explain the said standard terms upon the other party's request, the people's court shall rule that it complies with "reasonable manner" as specified in Article 39 of the Contract Law.
The party providing the standard terms shall be responsible for proving that it has reasonably performed its obligation of informing and explaining such clauses.
In case the following circumstances do not violate the mandatory provisions of laws and administrative regulations, the people's court may rule them as "trading customs" as mentioned in the Contract Law:
(1) Practices which are commonly adopted at the local place of the trade, a certain field or a certain industry and is known or should be known by the trading parties at the time of concluding the contract;
(2) Usual Practices which are frequently used by both parties.
With respect of trading customs, the party claiming such customs shall bear the burden of proof.
After a contract which shall come into effect upon approval or registration as prescribed by laws and administrative regulations has been concluded, in case the party responsible for applying for such approval or registration fails to do so according to the provisions of laws and the contract, it is "other conducts which violate the principle of good faith" as prescribed in Item 3 of Article 42 of Contract Law. The people's court may, according to the specific conditions of the case and upon the request of the persons concerned, rule that the persons concerned go through relevant formalities by themselves. The other party shall be responsible for compensating the expenses arising under such circumstance and the actual losses of the persons concerned.
Chapter II Validity of the Contract
Where the party providing the standard terms violates the provisions of Paragraph 1, Article 39 concerning the obligation of informing and explaining, which causes the other party to fail to notice the term excluding or restricting the said party's liabilities and apply for revocation of such standard terms, the people's court shall uphold such application.
Where the party providing the standard terms violates the provisions of Paragraph 1, Article 39 of the Contract Law, and has one of the circumstances as stipulated in Article 40 of the Contract Law, the people's court shall rule that such standard terms are invalid.
According to the provisions of Article 47 and 48 of the Contract Law, the intent to ratify shall come into effect at the time it reaches the persons concerned, and the contract shall come into effect upon its conclusion.
In case an agency with no power concludes a contract on behalf of the principal, the principal's commencement of performance of the contract shall be deemed as ratification of the contract.
After the principal has undertaken the liabilities arising from the valid act of agency in accordance with the provisions of Article 49 of Contract Law, he/she may recover from the agency with no power for losses arising from such act of agency.
Article 14 The term "mandatory provisions" as stipulated in Item 5, Article 52 of Contract Law shall refer to mandatory provisions on validity.
Where the seller enters into several sales contracts in respect of one same subject matter, which do not have the circumstances as stipulated in Article 52 of Contract Law of being invalid, if the buyers can not obtain the ownership of the subject matter according to the stipulation of the contract, and claim for the seller's breach of contract, the people's court shall uphold.
Chapter III Performance of a Contract
The people's court may, according to the specific conditions of cases, name the third party stipulated in Article 64 and 65 of the Contract Law as a third party without independent claim, but may not ex officio name him/her as the defendant or a third party with independent claim of the contractual case.
With respect to a subrogation action which is brought by the creditor against a party overseas, the people's court shall determine its jurisdiction in accordance with the provisions of Article 241 of the Civil Procedure Law of the People's Republic of China.
Where the debtor waive his creditor's right which is not due, waive guarantee on his creditor's right, or extends his performance period for his due creditor's right maliciously, which causes damages to the creditor who file an power of revocation action therefore in accordance with the provisions of Article 74 of the Contract Law, the people's court shall uphold.
With respect to "an obviously unreasonable low price" as stipulated in Article 74 of the Contract Law, the people's court shall make comprehensive consideration and determine based on the general operator's judgment at the locality of the trade and by referring to the guiding price of the price department or the market price at the time and place of the trading and in line with other relevant factors.
In case the trading price is lower than 70% of the guiding price or market price at the time and place of the trading, it may generally be deemed as an obviously unreasonable low price; in case the trading price is 30% higher than the guiding price or market price of the place of trading, it may generally be deemed as obviously unreasonable high price.
In case the debtor purchases others' property at an obviously unreasonable high price, the people's court may revoke such trading in accordance with the provisions of Article 74 of Contract Law upon the creditor's request.
In case the debtor's payments are not adequate to discharge all of the several debts of the same type of the same creditor, debts due shall be of priority to be offset; where several debts are due, debts which lack guarantees for the creditor or which are with the minimum amount of guarantees shall be of priority to be offset; where they are of the same amount of guarantees, debts with large loans shall be of priority to be offset; where the loans are the same, they shall be offset pursuant to the order of their due date; and where the due dates are the same, they shall be offset according to their proportion, unless it is otherwise agreed upon by the creditor and the debtor in respect of the debt discharging and the order thereof.
Article 21 In case the debtor shall pay interests and expenses in addition to principal debt, if his/her payment is not adequate to discharge all the debts and the parties do not have relevant agreement, the people's court shall offset debts according to the following orders:
(1) Relevant expenses for the realization of creditor's right;
(2) Interests thereon;
(3) Principal debts.
Chapter IV Termination of Contractual Rights and Obligations
Article 22 Where one party violates the obligation as stipulated in Article 92 of the Contract Law and causes losses to the other party, and the other party claim for damages for actual losses, the people's court shall uphold.
Article 23 With respect to due creditor's rights which can be offset according to Article 99 of the Contract Law, in case the parties agree that they may not be offset, the people's court may rule that such agreement is valid.
Article 24 Where the parties have dissents in respect of rescission of contract or debt offsetting as stipulated in Article 96 and 99 of the Contract Law, but put forth such dissents and bring a suit with the people's court upon the expiration of the specified dissent period, the people's court shall not uphold; in case there is no dissent period as specified by the parties, and the suit is filed with the people's court three months after receiving the notice of rescission of contract or debt offsetting, the people's court shall not uphold.
Article 25 In accordance with the provisions of Article 101 of Contract Law, when the debtor lodge the object of the contract or the earnings from the auctioning or selling of the object to the drawing department, the people's court shall rule that the drawing is valid.
In case the drawing is valid, it shall be deemed that the debtor has performed its obligations to the extent of the drawing.
Article 26 Where material changes which are unforeseeable by the parties at the time of concluding the contract and which are not caused by force majeure and are not commercial risks happen to objective conditions after the contract has been concluded, and specific performance of the contract will be obviously unfair for one party or can not realize the contractual purposes, if the parties claim with the people's court for alteration of rescission of the contract, the people's court shall determine whether to alter or rescind the contract or not according to the principle of fairness and in line with the actual conditions of the case.
Chapter V Liabilities of Breach of Contract
Where the parties claim with the people's court for adjustment of the default fine according to the provisions of Paragraph 2 of Article 114 of the Contract Law via a counter claim or defense, the people's court shall uphold.
Where the parties claim with the people's court for an increase of the default fine in accordance with the provisions of Paragraph 2 of Article 114 of Contract Law, the amount of default fine upon the increase shall not exceed the amount of actual losses. In case after the default fine has been increased, one party claims for damages from the other party, the people's court shall not uphold.
Where the parties claim that the default fine agreed upon is too high and pray for moderate decrease thereof, the people's court shall, according to the principle of fairness and good faith, based on the actual losses and in light with overall factors such as the performance of the contract, the extent of fault of the parties and anticipated profits thereof, etc., weigh and make a judgment.
In case the default fine agreed upon exceeds 30% of the losses caused, it may generally be deemed as "excessively higher than the losses caused" as stipulated in Paragraph 2 of Article 114 of Contract Law.
Chapter VI Supplementary Provisions
Cases of disputes arising from contracts concluded after the implementation of the Contract Law, which have not undergone the last instance upon the implementation of this Interpretation, shall be governed by this Interpretation; in case they have undergone the last instance prior to the implementation of this Interpretation, if the parties apply for a second instance or it is determined according to trial supervision procedure that they shall be subject to a second instance, they shall no longer be governed by this Interpretation.
Avocat à la Cour d'Appel de Paris
Barrister & Solicitor, Nova Scotia
Of counsel to Kunlun Law Firm, Beijing, China
29 boulevard Raspail 75007 Paris
tel: (331) 45 04 62 52 - fax: (331) 45 44 64 45