Contract Law of the People's Republic of China

Contract Law of the People's Republic of China

Contract Law of the People's Republic of China

Order of the President [1999] No.15

March 15, 1999

The Contract Law of the People's Republic of China, adopted at the Second Session of the Ninth National People's Congress of the People's Republic of China on March 15, 1999, is hereby promulgated and shall take effect as of October 1, 1999.

Jiang Zemin, President of the People's Republic of China

Contract Law of the People's Republic of China

(Adopted at the Second Session of the Ninth National People's Congress on March 15, 1999)

Contents
General Provisions
Chapter I General Rules
Chapter II Conclusion of Contracts
Chapter III Effectiveness of Contracts
Chapter IV Performance of Contracts
Chapter V Modification and Assignment of Contracts
Chapter VI Termination of Contractual Rights and Obligations
Chapter VII Liability for Breach of Contract
Chapter VIII Miscellaneous
Specific Provisions
Chapter IX Sales Contracts
Chapter X Contracts for Supply and Consumption of Electricity, Water, Gas or Heat
Chapter XI Donation Contracts
Chapter XII Loan Contracts
Chapter XIII Lease Contracts
Chapter XIV Financial Leasing Contracts
Chapter XV Contracts for Works
Chapter XVI Construction Project Contracts
Chapter XVII Transportation Contracts
Chapter XVIII Technology Contracts
Chapter XIX Deposit Contracts
Chapter XX Warehousing Contracts
Chapter XXI Commission Contracts
Chapter XXII Brokerage Contracts
Chapter XXIII Intermediation Contracts
Supplementary Provisions

General Provisions

Chapter I General Rules

Article 1 The Contract Law of the People's Republic of China (hereinafter referred to as the "Law") is enacted in order to protect the legitimate rights and interests of parties to contracts, maintain the social-economic order and promote the socialist modernization.

Article 2 For the purpose of the Law, a contract refers to an agreement on the establishment, modification or termination of a civil right-obligation relationship between natural persons, legal persons or other organizations as subjects with equal standing.
Agreements concerning personal relationships such as marriage, adoption and guardianship shall be governed by other applicable laws.

Article 3 The parties to a contract shall have equal status in law. Neither party may impose its will on the other party.

Article 4 Parties shall have the right to voluntarily conclude a contract in accordance with the law, in which no entity or individual may illegally interfere.

Article 5 Parties shall observe the principle of fairness in defining their respective rights and obligations.

Article 6 Parties shall observe the principle of good faith in exercising their rights and performing their obligations.

Article 7 When concluding and performing a contract, the parties shall abide by the laws and administrative regulations and respect public morals, and shall neither disrupt the socio-economic order nor damage the public interests.


Article 8 A legally established contract shall be legally binding on the parties. The parties shall perform their respective obligations as agreed, and shall not unilaterally modify or rescind the contract.
A legally established contract is protected by law.

Chapter II Conclusion of Contracts

Article 9 When concluding a contract, the parties shall have appropriate capacity for civil rights and capacity for civil conduct.
A party may authorize an agent to conclude a contract on its behalf in accordance with the law.

Article 10 The parties may conclude a contract in written, oral or other forms.
A contract shall be concluded in written form if the laws or administrative regulations so provide or if the parties so agree.

Article 11 The written form refers to any form that can show the described contents visibly, such as written contractual agreements, letters and electronic messages (including telegrams, telexes, fax, electronic data interchange and e-mails).

Article 12 The contents of a contract shall be agreed upon by the parties, and shall generally contain the following clauses:
1. titles or names, and domiciles of the parties;
2. subject matter;
3. quantity;
4. quality;
5. price or remuneration;
6. time limit, place and method of performance;
7. liability for breach of contract; and
8. methods of dispute resolution.
The parties may conclude a contract by reference to the model text for each type of contract.

Article 13 The parties shall conclude contracts in the manner of offer and acceptance.

Article 14 An offer is a manifestation of intent to conclude a contract with other parties. The manifestation of intent shall comply with the following provisions:
1. its contents shall be specific and definite; and
2. it indicates that the offeror will be bound by it upon its acceptance by the offeree.

Article 15 An invitation to offer is a manifestation of intent of a party to invite other parties to make the party in question an offer. Mailed price catalogs, public announcements of auction and tender, prospectuses and commercial advertisements are invitations to offer.
Where the contents of a commercial advertisement comply with the terms of an offer, it shall be deemed as an offer.

Article 16 An offer becomes effective when it reaches the offeree.
If a contract is concluded in the form of electronic messages, and the recipient has designated a specific system to receive the electronic messages, the time when the electronic messages enter the system shall be the time of arrival; if no specific system is designated, the time when the electronic messages first enter any of the recipient's systems shall be deemed as the time of arrival.

Article 17 An offer may be withdrawn. The withdrawal notice shall reach the offeree before or at the same time when the offer reaches the offeree.

Article 18 An offer may be revoked. The revocation shall reach the offeree before the offeree dispatches an acceptance of the offer.

Article 19 An offer shall not be revoked under either of the following circumstances:
1. the offeror indicates a fixed time limit for acceptance or otherwise expressly indicates that the offer is irrevocable; or
2. the offeree has reasons to believe that the offer is irrevocable and has made preparations to perform the contract.

Article 20 An offer shall be null and void under any of the following circumstances:
1. a notice of rejection reaches the offeror;
2. the offeror revokes the offer in accordance with the law;
3. the offeree fails to make an acceptance within the time limit for acceptance; or
4. the offeree substantially alters the contents of the offer.

Article 21 An acceptance is a manifestation of intent of an offeree to assent to an offer.

Article 22 An acceptance shall be made in the form of notice, except where, in accordance with the trade practices or as indicated in the offer, an acceptance may be made by performance of an act.

Article 23 An acceptance shall reach the offeror within the time limit fixed in the offer.
Where no time limit is fixed in the offer, an acceptance shall reach the offeror in accordance with the following provisions:
1. if the offer is made verbally, the acceptance shall be made promptly except as otherwise agreed by the parties; and
2. if the offer is made in a form other than verbal communication, the acceptance shall reach the offeror within a reasonable period of time.

Article 24 Where an offer is made in a letter or a telegram, the time limit for acceptance commences from the date shown in the letter or from the moment the telegram is handed in for dispatch. If no such date is shown in the letter, the time limit commences from the date shown on the postmark of the envelope. Where an offer is made by means of instantaneous communication, such as by telephone or facsimile, the time limit for acceptance commences from the time the offer reaches the offeree.

Article 25 A contract is established when the acceptance becomes effective.

Article 26 An acceptance becomes effective when the acceptance notice reaches the offeror. If an acceptance does not need notification, it becomes effective when an act of acceptance is performed in accordance with trade practices or as required in the offer.
Where a contract is concluded in the form of electronic messages, the time when an acceptance arrives shall be governed by the provisions of Paragraph 2 of Article 16 of the Law.

Article 27 An acceptance may be withdrawn. The notice of withdrawal shall reach the offeror before or at the time when the notice of acceptance reaches the offeror.

Article 28 Where an offeree makes an acceptance beyond the time limit for acceptance, the acceptance shall constitute a new offer unless the offeror informs the offeree that the said acceptance is effective.

Article 29 If an offeree, within the time limit for acceptance, dispatches an acceptance which would under normal circumstances be able to reach the offeror in due time but for other reasons reaches the offeror beyond the time limit, the acceptance shall be effective except where the offeror informs the offeree in a timely manner that the acceptance is not accepted because it exceeds the time limit for acceptance.

Article 30 The contents of an acceptance shall be consistent with those of the offer. If the offeree substantially modifies the contents of the offer, it shall constitute a new offer. A modification relating to the subject matter, quantity, quality, price or remuneration, time limit, place and method of performance, liability for breach of contract and methods of dispute resolution shall constitute a substantial modification to the contents of an offer.

Article 31 An acceptance containing non-substantial modifications to the contents of the offer shall be nevertheless effective, and the contents of the contract shall be subject to those of the acceptance, except where the offeror objects in time or the offer has indicated that an acceptance shall not contain any modification at all to the contents of the offer.

Article 32 Where the parties conclude a contract in the form of a written contractual agreement, the contract is established when both parties sign or affix their seals thereon.

Article 33 Where the parties conclude a contract in the form of a letter, electronic message or otherwise, they may require that a letter of confirmation be signed before the conclusion of the contract. The contract shall be established when the letter of confirmation is signed.

Article 34 The place where an acceptance takes effect shall be the place of establishment of the contract.
If a contract is concluded in the form of electronic messages, the primary place of business of the recipient shall be the place of establishment of the contract. If there is no primary place of business, the habitual residence of the recipient shall be the place of establishment of the contract. Where the parties have agreed otherwise, the place of establishment shall be subject to the agreement.

Article 35 Where the parties conclude a contract in a written contractual agreement, the place of establishment of the contract shall be the place where both parties sign or affix their seals on the contract.

Article 36 Where a contract is required to be concluded in written form as provided for by the laws and administrative regulations or as agreed by the parties, and the parties fail to conclude the contract in written form but one party has performed its principal obligations which have been accepted by the other party, the contract shall be deemed as established.

Article 37 A contract concluded in a written contractual agreement shall be deemed as established if, before the signing or sealing of the contract, one party has performed its principal obligations and the other party has accepted the performance.

Article 38 In the case that the State, based on necessity, issues a mandatory assignment or a state procurement order, the relevant legal persons or other organizations shall conclude contracts based on the rights and obligations as provided for by the relevant laws and administrative regulations.


Article 39 Where standard terms are adopted in a contract, the party providing the standard terms shall observe the principle of fairness in defining the rights and obligations of the parties, draw the attention of the other party in a reasonable manner to the terms that exclude or restrict the other party's liabilities, and explain the standard terms at the request of the other party.
Standard terms are clauses which are prepared in advance for repeated use by a party and which are not a result of consultation with the other party in concluding a contract.

Article 40 Where a standard term falls under any of the circumstances provided in Articles 52 and 53 of the Law, or the party providing such term exempts itself from its liabilities, increases the liabilities of the other party, or excludes the primary rights of the other party, the term shall be null and void.

Article 41 If a dispute over the understanding of a standard term occurs, the term shall be interpreted based on general understanding. Where there are two or more interpretations for such term, the interpretation unfavorable to the party providing such term shall be preferred. Where the standard terms are inconsistent with non-standard terms, the latter shall be adopted.

Article 42 A party shall be liable for damages if it falls under any of the following circumstances when concluding a contract, thereby causing any losses to the other party:
1. negotiating the contract in bad faith under the pretext of concluding a contract;
2. deliberately concealing important facts relating to the conclusion of the contract or providing false information; or
3. performing any other act against the principle of good faith.

Article 43 Business secrets acquired by a party during the course of concluding a contract shall not be disclosed or improperly used, regardless of the establishment of the contract. The party who discloses or improperly uses such business secrets, thereby causing any losses to the other party, shall be liable for damages.

Chapter III Effectiveness of Contracts

Article 44 A legally established contract shall become effective upon the establishment thereof.
With regard to contracts which shall only take effect upon the completion of approval or registration procedures as provided for by the laws or administrative regulations, such provisions shall govern.

Article 45 Parties may agree that the effectiveness of a contract be subject to certain conditions. A contract with conditions for its entry into force shall become effective upon satisfaction of such conditions. A contract with conditions for its dissolution shall become null and void upon satisfaction of such conditions.
Where a party improperly prevents the satisfaction of a condition for its own interests, such condition shall be deemed to have been satisfied. Where a party improperly facilitates the satisfaction of a condition, such condition shall not be deemed to have been satisfied.

Article 46 The parties may agree on fixing a time limit for the effectiveness of a contract. A contract subject to a time limit for its coming into effect shall come into effect upon expiration of the time limit. A contract with a time limit for its termination shall become null and void upon expiration of the time limit.

Article 47 A contract concluded by a person with limited capacity for civil conduct shall be effective after being ratified by the person's statutory agent, provided that a purely beneficial contract or a contract concluded corresponding to the person's age, intelligence or mental health condition need not to be ratified by the statutory agent thereof.
The counterparty may urge the statutory agent to ratify the contract within one month, and if the statutory agent fails to indicate a decision, it shall be deemed as a refusal of ratification. A bona fide counterparty has the right to rescind the contract before the contract is ratified. The rescission shall be made by means of notification.

Article 48 Without ratification by the principal, a contract concluded in the name of the principal by a person who has no power of agency, who oversteps the power of agency, or whose power of agency has expired shall have no binding force on the principal, and the person shall be held liable therefor.
The counterparty may urge the principal to ratify the contract within one month, and if the principal fails to indicate a decision, it shall be deemed as a refusal of ratification. A bona fide opposite counterparty has the right to rescind the contract before it is ratified. The rescission shall be made by means of notification.

Article 49 Where a person who has no power of agency, oversteps the power of agency, or whose power of agency has expired concludes a contract in the principal's name, and the counterparty has the reason to believe that the person has the power of agency, such act of agency shall be effective.

Article 50 Where the legal representative or the responsible person of a legal person or other organization oversteps the power thereof and concludes a contract, such act of representation shall be effective except where the counterparty knows or ought to have known that the legal representative or the responsible person is overstepping the power thereof.

Article 51 A contract under which a person without the right of disposition disposes of the property of another person shall be valid upon the ratification by the person with such right or upon the acquisition of such right by the person without such right after the conclusion of the contract.

Article 52 A contract shall be null and void under any of the following circumstances:
1. the contract is concluded by means of fraud or coercion by one party, thereby damaging the interests of the State;
2. malicious collusion is conducted to damage the interests of the State, a collective group or a third party;
3. an illegitimate purpose is concealed under the guise of legitimate forms;
4. the public interests are damaged; or
5. the mandatory provisions of the laws and administrative regulations are violated.

Article 53 The following exclusion clauses in a contract shall be null and void:
1. those involving personal injury to the other party; and
2. those involving property damage to the other party as a result of deliberate intent or gross negligence.

Article 54 A party shall have the right to request a people's court or an arbitration institution to modify or revoke the following contracts:
1. those concluded as a result of serious misunderstanding; and
2. those that were obviously unfair at the time of conclusion.
Where a party induces the other party to conclude a contract against its true intentions by fraud, coercion or taking advantage of the other party's unfavorable position, the injured party shall have the right to request a people's court or an arbitration institution to modify or revoke the contract.
Where the party makes a request for modification, the people's court or the arbitration institution shall not revoke the contract.

Article 55 The right to revoke a contract shall be extinguished under either of the following circumstances:
1. a party having the right to revoke the contract fails to exercise the right within one year from the date when it knew or ought to have known the cause for revocation; or
2. a party having the right to revoke the contract waives such right by express statement or by conduct after knowing the cause for revocation.

Article 56 A contract that is null and void or revoked shall have no legal binding force ab initio. If part of a contract is null and void without affecting the validity of the other parts, the other parts shall remain valid.

Article 57 If a contract is null and void, revoked or terminated, it shall not affect the validity of the clauses on the methods of dispute resolution which independently exists in the contract.

Article 58 The property acquired as a result of a contract shall be returned after the contract is confirmed to be null and void or has been revoked; where the property cannot be returned or the return is unnecessary, it shall be reimbursed at its estimated price. The party at fault shall compensate the other party for losses incurred as a result. If both parties are at fault, both parties shall bear their respective liabilities accordingly.

Article 59 If the parties have maliciously colluded to damage the interests of the State, a collective group or a third party, the property thus acquired shall be turned over to the State or returned to the collective group or the third party.

Chapter IV Performance of Contracts

Article 60 The parties shall fully perform their obligations as agreed.
The parties shall, observing the principle of good faith, perform such obligations as notification, rendering assistance and maintaining confidentiality based on the nature and purpose of the contract and in accordance with trade practices.

Article 61 Where, after a contract becomes effective, there is no agreement in the contract between the parties on the terms regarding quality, price or remuneration or place of performance, or such agreement is unclear, the parties may supplement the terms by agreement. In the case of failure to reach a supplementary agreement, the terms shall be determined in accordance with the relevant clauses of the contract or trade practices.

Article 62 Where the relevant terms of a contract are unclear, and cannot be determined in accordance with the provisions of Article 61 of the Law, the following provisions shall apply:
1. if the quality requirements are unclear, the national standards or trade standards shall apply; in the absence of national standards or trade standards, general standards or specific standards in conformity with the purpose of the contract shall apply;
2. if the price or remuneration is unclear, the market price of the place of performance at the time of conclusion shall apply; if the government-fixed price or government-directed price shall be followed in accordance with the law, the relevant provisions shall apply;
3. if the place of performance is unclear, and the payment is in monetary terms, the performance shall be effected at the place of the party receiving the payment; if real property is to be delivered, the performance shall be effected at the place where the real property is situated; in the case of other subject matters, the performance shall be effected at the place of the party fulfilling the obligations;
4. if the time of performance is unclear, the obligor may at any time fulfill, and the obligee may also demand at any time the fulfillment of, the obligations, provided that a time limit for necessary preparation shall be given to the obligor;
5. if the method of performance is unclear, performance shall be rendered in a manner which is conducive to realizing the purpose of the contract; and
6. if the party responsible for the expenses for performance is unclear, the expenses shall be borne by the party fulfilling the obligations.

Article 63 Where the government-fixed price or government-directed price shall be followed in a contract, if the said price is re-adjusted within the time limit for delivery as stipulated in the contract, the payment shall be calculated based on the price at the time of delivery. If the delivery of the subject matter is delayed and the price has risen, the original price shall be adopted; if the price has dropped, the new price shall be adopted. In the event of a delay in taking delivery of the subject matter or making payment, if the price has risen, the new price shall be adopted; if the price has dropped, the original price shall be adopted.

Article 64 Where the parties agree that the obligor performs obligations for a third party, if the obligor fails to perform the obligations for the third party or the performance does not comply with the terms of the contract, the obligor shall be liable to the obligee for breach of contract.

Article 65 Where the parties agree that a third party performs obligations for the obligee, if the third party fails to perform the obligations or the performance does not comply with the terms of the contract, the obligor shall be liable to the obligee for breach of contract.

Article 66 Where both parties have obligations towards each other and there is no order of priority in respect of the performance of the obligations, the parties shall perform the obligations simultaneously. One party has the right to reject the other party's request for performance before the other party's performance of the obligations. One party has the right to reject the other party's corresponding request for performance if the other party's performance does not comply with the terms of the contract.


Article 67 Where both parties have obligations towards each other and there is an order of priority in respect of the performance of the obligations, if the party which shall render its performance first has not rendered the performance, the other party has the right to reject the former's request for performance. If the party which shall render its performance first does not meet the terms of the contract when fulfilling the obligations, the other party has the right to reject the corresponding request for performance.

Article 68 The party which shall render its performance first may suspend the performance if it has conclusive evidence that the other party falls under any of the following circumstances:
1. the other party's business conditions are seriously deteriorating;
2. the other party has transferred its property and taken out its capital secretly to evade debts;
3. the other party loses its business creditworthiness; or
4. other circumstances showing that the other party loses or will possibly lose its capability to perform its obligations.
Where a party suspends performance without conclusive evidence, it shall be liable for breach of contract.

Article 69 A party to a contract suspending its performance in accordance with the provisions of Article 68 of the Law shall inform the other party of such suspension in time. It shall resume performance when the other party provides an adequate guarantee. After the suspension of the performance, if the other party does not restore its capacity for performance and does not provide an adequate guarantee within a reasonable period, the party suspending performance may rescind the contract.

Article 70 If the obligee does not notify the obligor of its division, combination or change of domicile, thereby making it difficult for the obligor to perform the obligations, the obligor may suspend the performance or have the subject matter in escrow.

Article 71 The obligee may reject an advance performance by the obligor, except where the advance performance does not damage the interests of the obligee.
Any additional expenses incurred by the obligee from the obligator's advance performance shall be borne by the obligor.

Article 72 The obligee may reject partial performance by the obligor, except where the partial performance does not damage the interests of the obligee.
Any additional expenses incurred by the obligee from the obligator's partial performance shall be borne by the obligor.

Article 73 If the obligor neglects to exercise its due claims, thus damaging the interests of the obligee, the obligee may petition a people's court to subrogate it to the claims of the obligor, unless such claims belong exclusively to the obligor.
The subrogation shall be exercised to the extent of the obligee's claims. The necessary expenses incurred by the obligee in exercising the subrogation shall be borne by the obligor.

Article 74 If the obligor waives its due claims or transfers its property gratis, thus damaging the interests of the obligee, the obligee may petition a people's court to revoke the obligor's act. If the obligor transfers its property at an obviously unreasonable low price, thus damaging the interests of the obligee, and the transferee knows of such situation, the obligee may also petition a people's court to revoke the obligor's act.
The right of revocation shall be exercised to the extent of the obligee's claims. The necessary expenses incurred by the obligee in exercising the right of revocation shall be borne by the obligor.

Article 75 The right of revocation shall be exercised within one year from the date the obligee is aware or ought to be aware of the cause for revocation. If the right of revocation is not exercised within five years from the date the act of the obligor takes place, the right of revocation shall be extinguished.

Article 76 Once a contract becomes effective, neither party may refuse to perform its obligations thereunder on grounds of any change in its name or change of its legal representative, responsible person, or the person handling the contract.

Chapter V Modification and Assignment of Contracts

Article 77 A contract may be modified if the parties reach a consensus through consultation.
If the laws or administrative regulations provide that modification of a contract shall be subject to approval or registration procedures, such provisions shall govern.

Article 78 If the modified contents of a contract have not been agreed upon clearly by the parties, the contract shall be presumed as not having been modified.

Article 79 The obligee may assign, in whole or in part, its rights under a contract to a third party, except under any of the following circumstances:
1. the rights under the contract shall not be assigned in light of the nature of the contract;
2. the rights under the contract shall not be assigned in accordance with the agreement between the parties; or
3. the rights under the contract shall not be assigned in accordance with the law.

Article 80 An obligee to assign its rights shall notify the obligor. The assignment is not binding on the obligor without such notification.
The obligee's notice of assignment of rights shall not be revoked, unless agreed by the assignee.

Article 81 If the obligee assigns its rights, the assignee shall acquire the collateral rights relating to the claims, except where the collateral rights belong exclusively to the obligee.

Article 82 Upon receipt of the notice of assignment of the claims, the obligor may advance to the assignee its defense against the assignor.

Article 83 If, upon receipt of the notice of assignment of the claims, the obligor has any claims against the assignor which are due prior to or at the same time as the assigned claims, the obligor may claim an offset from the assignee.

Article 84 If the obligor assigns its obligations under a contract, in whole or in part, to a third party, it shall obtain consent from the obligee first.

Article 85 If the obligor assigns its obligations, the new obligor may claim defense of the original obligor against the obligee.

Article 86 If the obligor transfers its obligations, the new obligor shall assume the collateral obligations relating to the principal obligations, except where the obligations are exclusively assumed by the original obligor.

Article 87 Where the laws or administrative regulations provide that the assignment of rights or transfer of obligations shall be subject to approval or registration procedures, such provisions shall govern.

Article 88 Either party to a contract may transfer its contractual rights and obligations collectively to a third party with the consent of the other party.

Article 89 Where contractual rights and obligations are collectively transferred, the provisions of Articles 79, 81 to 83, and 85 to 87 of the Law apply.

Article 90 If a party to a contract undergoes a combination after the contract is concluded, the legal person or any other organization established after the combination shall exercise the contractual rights and perform the contractual obligations.
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