CONTRACT LAW OF THE PEOPLE'S REPUBLIC OF CHINA
(Adopted and Promulgated by the Second Session of the Ninth National People's
Chapter Five Amendment and Assignment of Contracts
Article 77 Amendment; Amendment Subject to Approval
A contract may be amended if the parties have so agreed.
Where amendment to the contract is subject to any procedure such as approval or registration, etc. as required by a relevant law or administrative regulation, such provision applies.
Article 78 Ambiguous Amendment Not Effective
A contract term is construed not to have been amended if the parties failed to clearly prescribe the terms of the amendment.
Article 79 Assignment of Rights; Exceptions
The obligee may assign its rights under a contract in whole or in part to a third person, except where such assignment is prohibited:
(i) in light of the nature of the contract;
(ii) by agreement between the parties;
(iii) by law.
Article 80 Duty to Notify When Assigning Rights; Revocation of Assignment Subject to Assignee's Consent
Where the obligee assigns its rights, it shall notify the obligor. Such assignment is not binding upon the obligor if notice was not given.
A notice of assignment of rights given by the obligee may not be revoked, except with the consent of the assignee.
Article 81 Assumption of Incidental Right in Case of Assignment
Where the obligee assigns a right, the assignee shall assume any incidental right associated with the obligee's right, except where such incidental right is exclusively personal to the obligee.
Article 82 Assigned Rights Subject to Accrued Defenses of Obligor
Upon receipt of the notice of assignment of the obligee's right, the obligor may, in respect of the assignee, avail itself of any defense it has against the assignor.
Article 83 Availability of Set-off to Obligor
Upon receipt of the notice of assignment of the obligee's right, if the obligor has any right to performance by the assignor which is due before or at the same time as the assigned obligee's right, the obligor may avail itself of any set-off against the assignee.
Article 84 Delegation of Obligations Subject to Consent by Obligee
Where the obligor delegates its obligations under a contract in whole or in part to a third person, such delegation is subject to consent by the obligee.
Article 85 Availability of Defenses to New Obligor
Where the obligor has delegated an obligation, the new obligor may avail itself of any of the original obligor's defenses against the obligee.
Article 86 Assumption of Incidental Obligation in Case of Delegation
Where the obligor delegates an obligation, the new obligor shall assume any incidental obligation associated with the main obligation, except where such incidental obligation is exclusively personal to the original obligor.
Article 87 Assignment Subject to Approval
Where the obligee's assignment of a right or the obligor's delegation of an obligation is subject to any procedure such as approval or registration, etc. as required by a relevant law or administrative regulation, such provision applies.
Article 88 Concurrent Assignment and Delegation
Upon consent by the other party, one party may concurrently assign its rights and delegate its obligations under a contract to a third person.
Article 89 Provisions Applicable to Concurrent Assignment
Where a party concurrently assigns its rights and delegates its obligations, the provisions in Article 79, Articles 81 to 83, and Articles 85 to 87 apply.
Article 90 Effect of Combination or Division of Contract Party
Where a party has effected combination after it entered into a contract, the legal person or organization of any other nature resulting from the combination assumes the rights and obligations thereunder. Where a party has effected division after it entered into a contract, unless otherwise agreed by the obligee and obligor thereunder, the legal persons or other organizations resulting from the division jointly and severally assume the rights and obligations thereunder.
Chapter Six Discharge of Contractual Rights and Obligations
Article 91 Conditions for Discharge
The rights and obligations under a contract are discharged in any of the following circumstances:
(i) The obligations were performed in accordance with the contract;
(ii) The contract was terminated;
(iii) The obligations were set off against each other;
(iv) The obligor placed the subject matter in escrow in accordance with the law;
(v) The obligee released the obligor from performance;
(vi) Both the obligee's rights and obligor's obligations were assumed by one party;
(vii) Any other discharging circumstance provided by law or prescribed by the parties occurred.
Article 92 Post-discharge Obligations
Upon discharge of the rights and obligations under a contract, the parties shall abide by the principle of good faith and perform obligations such as notification, assistance and confidentiality, etc. in accordance with the relevant usage.
Article 93 Termination by Agreement; Termination Right
The parties may terminate a contract if they have so agreed.
The parties may prescribe a condition under which one party is entitled to terminate the contract. Upon satisfaction of the condition for termination of the contract, the party with the termination right may terminate the contract.
Article 94 Legally Prescribed Conditions Giving Rise to Termination Right
The parties may terminate a contract if:
(i) force majeure frustrated the purpose of the contract;
(ii) before the time of performance, the other party expressly stated or indicated by its conduct that it will not perform its main obligations;
(iii) the other party delayed performance of its main obligations, and failed to perform within a reasonable time after receiving demand for performance;
(iv) the other party delayed performance or otherwise breached the contract, thereby frustrating the purpose of the contract;
(v) any other circumstance provided by law occurred.
Article 95 Time Limit for Termination; Extinguishment of Termination Right
Where the law or the parties prescribe a period for exercising termination right, failure by a party to exercise it at the end of the period shall extinguish such right.
Where neither the law nor the parties prescribe a period for exercising termination right, failure by a party to exercise it within a reasonable time after receiving demand from the other party shall extinguish such right.
Article 96 Termination by Notification; Termination Subject to Approval
The party availing itself of termination of a contract in accordance with Paragraph 2 of Article 93 and Article 94 hereof shall notify the other party. The contract is terminated when the notice reaches the other party. If the other party objects to the termination, the terminating party may petition the People's Court or an arbitration institution to affirm the validity of the termination.
Where termination of a contract is subject to any procedure such as approval or registration, etc. as required by a relevant law or administrative regulation, such provision applies.
Article 97 Remedies in Case of Termination
Upon termination of a contract, a performance which has not been rendered is discharged; if a performance has been rendered, a party may, in light of the degree of performance and the nature of the contract, require the other party to restore the subject matter to its original condition or otherwise remedy the situation, and is entitled to claim damages.
Article 98 Settlement and Winding-up Provisions Not Affected by Discharge
Discharge of contractual rights and obligations does not affect the validity of contract provisions concerning settlement of account and winding-up.
Article 99 Set-off; Set-off Not Subject to Condition
Where each party owes performance to the other party that is due, and the subject matters of the obligations are identical in type and quality, either party may set off its obligation against the obligation of the other party, except where set-off is prohibited by law or in light of the nature of the contract.
The party availing itself of set-off shall notify the other party. The notice becomes effective when it reaches the other party. Set-off may not be subject to any condition or time limit.
Article 100 Set-off Involving Non-identical Subject Matters
Where each party owes performance to the other party that is due, and the subject matters of the obligations are not identical in type and quality, the parties may effect set-off by mutual agreement.
Article 101 Conditions Giving Rise to Right to Place Subject Matter in Escrow
Where any of the following circumstances makes it difficult to render performance, the obligor may place the subject matter in escrow:
(i) The obligee refuses to take delivery of the subject matter without cause;
(ii) The obligee cannot be located;
(iii) The obligee is deceased or incapacitated, and his heir or guardian is not determined;
(iv) Any other circumstance provided by law occurs.
Where the subject matter is not fit for escrow, or the escrow expenses will be excessive, the obligor may auction or liquidate the subject matter and place the proceeds in escrow.
Article 102 Duty to Notify in Case of Escrow
After placing the subject matter in escrow, the obligor shall timely notify the obligee or his heir or guardian, except where the obligee cannot be located.
Article 103 Risk of Loss; Fruits of Subject Matter Accrued during Escrow
Once the subject matter is in escrow, the risk of its damage or loss is borne by the obligee. The fruits of the subject matter accrued during escrow belong to the obligee. Escrow expenses shall be borne by the obligee.
Article 104 Taking Delivery of Subject Matter in Escrow Conditional upon Performance; Time Limit
The obligee may take delivery of the subject matter in escrow at any time, provided that if the obligee owes performance toward the obligor that is due, prior to the obligee's performance or provision of assurance, the escrow agent shall reject the obligee's attempt to take delivery of the subject matter in escrow as required by the obligor.
The right of the obligee to take delivery of the subject matter in escrow is extinguished if not exercised within five years, commencing on the date when the subject matter was placed in escrow. After deduction of escrow expenses, the subject matter in escrow shall be turned over to the state.
Article 105 Release
Where the obligee released the obligor from performance in part or in whole, the rights and obligations under the contract are discharged in part or in whole.
Article 106 Merger of Rights and Obligations
If the same party assumed all the rights and obligations under a contract, the rights and obligations thereunder are discharged, except where the contract involves the interests of a third person.
Chapter Seven Liabilities for Breach of Contracts
Article 107 Types of Liabilities for Breach
If a party fails to perform its obligations under a contract, or rendered non-conforming performance, it shall bear the liabilities for breach of contract by specific performance, cure of non-conforming performance or payment of damages, etc.
Article 108 Anticipatory Breach
Where one party expressly states or indicates by its conduct that it will not perform its obligations under a contract, the other party may hold it liable for breach of contract before the time of performance.
Article 109 Monetary Specific Performance
If a party fails to pay the price or remuneration, the other party may require payment thereof.
Article 110 Non-monetary Specific Performance; Exceptions
Where a party fails to perform, or rendered non-conforming performance of, a non-monetary obligation, the other party may require performance, except where:
(i) performance is impossible in law or in fact;
(ii) the subject matter of the obligation does not lend itself to enforcement by specific performance or the cost of performance is excessive;
(iii) the obligee does not require performance within a reasonable time.
Article 111 Liabilities in Case of Quality Non-compliance
Where a performance does not meet the prescribed quality requirements, the breaching party shall be liable for breach in accordance with the contract. Where the liabilities for breach were not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, the aggrieved party may, by reasonable election in light of the nature of the subject matter and the degree of loss, require the other party to assume liabilities for breach by way of repair, replacement, remaking, acceptance of returned goods, or reduction in price or remuneration, etc.
Article 112 Liability for Damages Notwithstanding Subsequent Performance or Cure of Non-conforming Performance
Where a party failed to perform or rendered non-conforming performance, if notwithstanding its subsequent performance or cure of non-conforming performance, the other party has sustained other loss, the breaching party shall pay damages.
Article 113 Calculation of Damages; Damages to Consumer
Where a party failed to perform or rendered non-conforming performance, thereby causing loss to the other party, the amount of damages payable shall be equivalent to the other party's loss resulting from the breach, including any benefit that may be accrued from performance of the contract, provided that the amount shall not exceed the likely loss resulting from the breach which was foreseen or should have been foreseen by the breaching party at the time of conclusion of the contract.
Where a merchant engages in any fraudulent activity while supplying goods or services to a consumer, it is liable for damages in accordance with the Law of the People's Republic of China on Protection of Consumer Rights.
Article 114 Liquidated Damages; Adjustment; Continuing Performance Notwithstanding Payment of Liquidated Damages
The parties may prescribe that if one party breaches the contract, it will pay a certain sum of liquidated damages to the other party in light of the degree of breach, or prescribe a method for calculation of damages for the loss resulting from a party's breach.
Where the amount of liquidated damages prescribed is below the loss resulting from the breach, a party may petition the People's Court or an arbitration institution to increase the amount; where the amount of liquidated damages prescribed exceeds the loss resulting from the breach, a party may petition the People's Court or an arbitration institution to decrease the amount as appropriate.
Where the parties prescribed liquidated damages for delayed performance, the breaching party shall, in addition to payment of the liquidated damages, render performance.
Article 115 Deposit
The parties may prescribe that a party will give a deposit to the other party as assurance for the obligee's right to performance in accordance with the Security Law of the People's Republic of China. Upon performance by the obligor, the deposit shall be set off against the price or refunded to the obligor. If the party giving the deposit failed to perform its obligations under the contract, it is not entitled to claim refund of the deposit; where the party receiving the deposit failed to perform its obligations under the contract, it shall return to the other party twice the amount of the deposit.
Article 116 Election Between Deposit or Liquidated Damages Clauses
If the parties prescribed payment of both liquidated damages and a deposit, in case of breach by a party, the other party may elect in alternative to apply the liquidated damages clause or the deposit clause.
Article 117 Force Majeure
A party who was unable to perform a contract due to force majeure is exempted from liability in part or in whole in light of the impact of the event of force majeure, except otherwise provided by law. Where an event of force majeure occurred after the party's delay in performance, it is not exempted from liability.
For purposes of this Law, force majeure means any objective circumstance which is unforeseeable, unavoidable and insurmountable.
Article 118 Duty to Notify in Case of Force Majeure
If a party is unable to perform a contract due to force majeure, it shall timely notify the other party so as to mitigate the loss that may be caused to the other party, and shall provide proof of force majeure within a reasonable time.
Article 119 Non-Breaching Party's Duty to Mitigate Loss in Case of Breach
Where a party breached the contract, the other party shall take the appropriate measures to prevent further loss; where the other party sustained further loss due to its failure to take the appropriate measures, it may not claim damages for such further loss.
Any reasonable expense incurred by the other party in preventing further loss shall be borne by the breaching party.
Article 120 Bilateral Breach
In case of bilateral breach, the parties shall assume their respective liabilities accordingly.
Article 121 Breach Due to Act of Third Person
Where a party's breach was attributable to a third person, it shall nevertheless be liable to the other party for breach. Any dispute between the party and such third person shall be resolved in accordance with the law or the agreement between the parties.
Article 122 Election of Remedy in Tort or in Contract
Where a party's breach harmed the personal or property interests of the other party, the aggrieved party is entitled to elect to hold the party liable for breach of contract in accordance herewith, or hold the party liable for tort in accordance with any other relevant law.
Chapter Eight Other Provisions
Article 123 Applicability of Other Laws
Where another law provides otherwise in respect of a certain contract, such provisions prevail.
Article 124 Applicability to Non-categorized Contracts
Where there is no express provision in the Specific Provisions hereof or any other law concerning a certain contract, the provisions in the General Principles hereof apply, and reference may be made to the provisions in the Specific Provisions hereof or any other law applicable to a contract which is most similar to such contract.
Article 125 Contract Interpretation; Language Versions
In case of any dispute between the parties concerning the construction of a contract term, the true meaning thereof shall be determined according to the words and sentences used in the contract, the relevant provisions and the purpose of the contract, and in accordance with the relevant usage and the principle of good faith.
Where a contract was executed in two or more languages and it provides that all versions are equally authentic, the words and sentences in each version are construed to have the same meaning. In case of any discrepancy in the words or sentences used in the different language versions, they shall be interpreted in light of the purpose of the contract.
Article 126 Choice of Law in Foreign-related Contracts; Contracts Subject to Mandatory Application of Chinese Law
Parties to a foreign related contract may select the applicable law for resolution of a contractual dispute, except otherwise provided by law. Where parties to the foreign related contract failed to select the applicable law, the contract shall be governed by the law of the country with the closest connection thereto.
For a Sino-foreign Equity Joint Venture Enterprise Contract, Sino-foreign Cooperative Joint Venture Contract, or a Contract for Sino-foreign Joint Exploration and Development of Natural Resources which is performed within the territory of the People's Republic of China, the law of the People's Republic of China applies.
Article 127 Role of Regulatory Authorities
Within the scope of their respective duties, the authority for the administration of industry and commerce and other relevant authorities shall, in accordance with the relevant laws and administrative regulations, be responsible for monitoring and dealing with any illegal act which, through the conclusion of a contract, harms the state interests or the public interests; where such act constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 128 Dispute Resolution
The parties may resolve a contractual dispute through settlement or mediation.
Where the parties do not wish to, or are unable to, resolve such dispute through settlement or mediation, the dispute may be submitted to the relevant arbitration institution for arbitration in accordance with the arbitration agreement between the parties. Parties to a foreign related contract may apply to a Chinese arbitration institution or another arbitration institution for arbitration. Where the parties did not conclude an arbitration agreement, or the arbitration agreement is invalid, either party may bring a suit to the People's Court. The parties shall perform any judgment, arbitral award or mediation agreement which has taken legal effect; if a party refuses to perform, the other party may apply to the People's Court for enforcement.
Article 129 Time Limit for Action
For a dispute arising from a contract for the international sale of goods or a technology import or export contract, the time limit for bringing a suit or applying for arbitration is four years, commencing on the date when the party knew or should have known that its rights were harmed. For a dispute arising from any other type of contract, the time limit for bringing a suit or applying for arbitration shall be governed by the relevant law.
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