Release time: 2016-12-21
Pursuant to the PRC, Contract Law (the Contract Law), the following interpretation on issues relevant to the application of the Contract Law by people's courts are made in order to correctly try contract dispute cases:
1. Applicable Scope of the Law
Article 1 If a dispute arising from a contract formed after the implementation of the Contract Law is brought before the people's court, the provisions of the Contract Law shall be applied. If a dispute arising from a contract formed before the implementation of the Contract Law is brought before the people's court, the laws and regulations prevailing at the time shall be applied, unless otherwise stipulated herein. If there were no laws and regulations at the time governing the issue(s) in dispute, the relevant provisions of the Contract Law may be applied.
Article 2 The relevant provisions of Part Four of the Contract Law shall be applied to disputes arising from the performance of a contract which was formed before the implementation of the Contract Law but whose time limit for performance stipulated in the contract straddles the implementation date of the Contract Law or whose time limit for performance falls after the implementation of the Contract Law.
Article 3 When confirming the validity of a contract formed before the implementation of the Contract Law, the people's court shall apply the Contract Law if the contract would be considered invalid if the law prevailing at the time is applied, but would be considered valid if the Contract Law is applied.
Article 4 After the implementation of the Contract Law, people's courts shall base themselves on laws formulated by the National people's Congress and its Standing Committee and/or administrative regulations of the State Council when confirming the invalidity of a contract, and not on local regulations or administrative rules and regulations.
Article 5 When retrying a case in which a final ruling was rendered before the implementation of the Contract Law, the people's court shall not apply the Contract Law.
2. Statute of Limitations on Actions
Article 6 The people's court shall not protect the rights of a party to a technology contract dispute, if the fact of the infringement upon the party's rights occurred before the implementation of the Contract Law and more than one year has elapsed between the time the party knew or ought to have known that their rights were infringed and the date of implementation of the Contract Law. If the time elapsed does not exceed one year, the statute of limitations for the institution of an action shall be two years.
Article 7 The people's court shall not protect the rights of a party to a technology import or export contract dispute, if the fact of the infringement upon the party's rights occurred before the implementation of the Contract Law and more than two years have elapsed between the time the party knew or ought to have known that their rights were infringed and the date of implementation of the Contract Law. If the time elapsed does not exceed two years, the statute of limitations for the institution of an action shall be four years.
Article 8 The period of "one year" stipulated in Article 55 and the period of "five years" stipulated in Article 75 and the second paragraph of Article 104 of the Contract Law are immutable periods of time not governed by the provisions on the tolling, interruption or extension of the statute of limitations.
3. Validity of Contracts
Article 9 In accordance with the second paragraph of Article 44 of the Contract Law, if laws or administrative regulations provide that a contract becomes effective only after the approval procedures or the procedures for approval and registration etc. are carried out, the people's court shall determine a contract to have not become effective if the parties concerned have failed to carry out the approval procedures or the procedures for approval, registration, etc. before the conclusion of argumentation in the court of first instance. If laws or administrative regulations provide that procedures for the registration of a contract shall be carried out but do not provide that the contract shall become effective after registration, the failure of the parties to carry out registration procedures shall not affect the validity of the contract, but ownership of and other rights in rem over the subject matter of the contract may not be assigned.
Such circumstances as the amendment, assignment or termination of a contract enumerated in the second paragraph of Article 77, Article 87 and the second paragraph of Article 96 of the Contract Law shall be handled on the basis of the provisions of the preceding paragraph.
Article 10 The people's court shall not declare a contract invalid because a party exceeded its scope of business in concluding it, unless such party violated State regulations which subject the business so engaged in to restrictions or to the grant of franchises, or the provisions of laws or administrative regulations which prohibit such business.
4. Right of Subrogation
Article 11 For an obligee to institute a subrogation action in accordance with Article 73 of the Contract Law, the following conditions shall be met:
1. the obligee's claim against the obligor is lawful;
2. the obligor's negligence in exercising their own matured claim causes injury to the obligee;
3. the obligor's own claim has matured; and
4. the obligor's claim is not personal to the obligor.
Article 12 The phrase "such claim is personal to the obligor" mentioned in the first paragraph of Article 73 of the Contract Law means that such claim is a claim for payment arising from a maintenance relationship between spouses, a parent's maintenance relationship towards their children, a child's maintenance relationship towards their parents or a succession relationship, or a claim for labour remuneration, retirement pension, old age pension, survivor's pension, relocation expenses, life insurance indemnification, personal injury indemnification, etc.
Article 13 The phrase "If the obligor neglects to exercise their own matured claim, thereby causing injury to the obligee" mentioned in Article 73 of the Contract Law refers to the failure of the obligor both to perform their matured obligation toward the obligee and to institute court or arbitral proceedings against their own obligor to assert their own matured claim involving a monetary payment, thereby causing the obligee's matured claim to be incapable of realization.
If the secondary obligor (i.e. the obligor of the obligor) holds that the obligor was not negligent in exercising their matured claim, the burden of proof is on him.
Article 14 If the obligee institutes a subrogation action in accordance with Article 73 of the Contract Law, the competent court shall be the people's court of the place where the defendant is domiciled.
Article 15 If the obligee sues the obligor before a people's court and subsequently institutes a subrogation action against the secondary obligor in the same people's court, such second action shall be placed on the docket and accepted if the provisions of Article 13 hereof and the requirements for the institution of actions stipulated in Article 108 of the PRC, Civil Procedure Law are complied with. If the second action does not comply with Article 13 hereof, the obligee shall be informed that they should institute a separate action in the people's court of the place where the secondary obligor is domiciled.
The people's court which accepted a subrogation action shall suspend the proceedings in the said action in accordance with Item (e) of Article 136 of the PRC, Civil Procedure Law until the ruling in the action brought by the obligee against the obligor has become legally effective.
Article 16 If the obligee institutes a subrogation action in a people's court with the secondary obligor as defendant, but does not name the obligor as a third party, the people's court may join the obligor as a third party.
If two or more obligees institute subrogation actions against the same secondary obligor, the people's court may consolidate the actions into one trial.
Article 17 If the obligee petitions a people's court to issue an order for preservation against the secondary obligor's property during a subrogation action, they shall provide appropriate security in the form of property.
Article 18 During a subrogation action, the secondary obligor may raise against the obligee the defences available to them against the obligor.
If the obligor raises an objection to the claim of the obligee during a subrogation action, and the objection is sustained after investigation, the people's court shall rule to dismiss the obligee's action.
Article 19 If the obligee in a subrogation action prevails, the court costs shall be borne by the secondary obligor and be paid on a priority basis from the realized claim.
Article 20 If, having tried a subrogation action brought against the secondary obligor by the obligee, the people's court determines that the obligee does have a right of subrogation, the secondary obligor shall perform the obligation of payment towards the obligee, and the corresponding claim-debt relationships between the obligee and the obligor and between the obligor and the secondary obligor shall be extinguished as at that time.
Article 21 If in a subrogation action the amount of the obligee's subrogated claim exceeds the amount of the debt owed by the obligor or the amount of the debt owed by the secondary obligor to the obligor, the people's court shall not support the part in excess.
Article 22 If in a subrogation action the obligor institutes an action against the secondary obligor for the part of the claim in excess of the amount of the obligee's subrogated claim, the people's court shall inform the obligor that they should institute a separate action in the competent people's court.
If the action instituted by the obligor complies with the legal requirements, the people's court shall accept it. The people's court accepting the obligor's suit shall suspend the proceedings in the action in accordance with the law until the ruling in the subrogation action has become legally effective.
5. Right of Annulment
Article 23 If the obligee institutes an annulment action in accordance with Article 74 of the Contract Law, the competent court shall be the people's court of the place where the defendant is domiciled.
Article 24 If the obligee institutes an annulment action in accordance with Article 74 of the Contract Law and only names the obligor as defendant, without naming the beneficiary or the assignee as a third party, the people's court may join the beneficiary or the assignee as a third party.
Article 25 If the obligee institutes an annulment action in accordance with Article 74 of the Contract Law and petitions the people's court to annul the obligor's act of waiving their claim or assigning their property, the people's court shall conduct a trial in respect of the part for which the obligee asserts their right of annulment. If the act is annulled in accordance with the law, it shall be void ab initio.
If two or more obligees institute an annulment action against the same obligor in respect of the same subject matter, the people's court may consolidate the actions into one trial.
Article 26 Such necessary expenses as attorney fees, travel expenses, etc. incurred by the obligee in exercising their right of annulment shall be borne by the obligor. If a third party is at fault, they shall bear an appropriate share of such expenses.
6. The Third Party in a Contract Assignment
Article 27 If the obligee assigns their contractual rights to a third party and a subsequent dispute between the obligor and the assignee concerning performance of the contract is brought before the people's court, and the obligor raises a defence against the rights of the obligee, the obligee may be named a third party to the action.
Article 28 If the obligor assigns their contractual obligations with the consent of the obligee and a subsequent dispute between the assignee and the obligee concerning performance of the contract is brought before the people's court, and the assignee raises a defense in respect of the rights of the obligor against the obligee, the obligor may be named as a third party to the action.
Article 29 If a party to a contract assigns all their rights and obligations under the contract to an assignee with the consent of the other party and a dispute between the other party and the assignee concerning performance of the contract is brought before the people's court, and the other party raises a defence in respect of the rights and obligations under the contract, the assignor may be named as a third party to the action.
7. Concurrent Right To Petition
Article 30 When instituting an action in the people's court in accordance with Article 122 of the Contract Law, if the obligee modifies their claim after electing the type of liability and before the first hearing, the people's court shall give its permission. If the other party raises an objection concerning jurisdiction and their objection is sustained after investigation, the people's court shall dismiss the action.
