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Loan Contracts
Civil Code of the People’s Republic of China
(Adopted at the Third Session of the Thirteenth National People’s Congress on May 28, 2020)
Chapter I
General Rules
This Book regulates the civil-law relations arising from contracts.
A contract is an agreement on the establishment, modification, or termination of a civil juristic relationship between persons of the civil law.
An agreement on establishing a marriage, adoption, guardianship, or the like personal relationships shall be governed by the provisions of laws providing for such personal relationships; in the absence of such provisions, the provisions of this Book may be applied mutatis mutandis according to the nature of such agreements.
A contract formed in accordance with law is protected by law.
A contract formed in accordance with law is legally binding only on the parties thereto, unless otherwise provided by law.
Where the parties have a dispute on the understanding of a contract clause, the meaning of the disputed clause shall be determined according to the provisions in the first paragraph of Article 142 of this Code.
Where a contract is made in two or more languages which are agreed to be equally authentic, the words and sentences used in each text shall be presumed to have the same meaning. Where the words and sentences used in each text are inconsistent, interpretation thereof shall be made in accordance with the related clauses, nature, and purpose of the contract, and the principle of good faith, and the like.
For a contract not explicitly provided in this Code or other laws, the General Provisions of this Book shall be applied, and the provisions provided in this Book and other laws on a contract which is most similar to the said contact may be applied
mutatis mutandis.
The laws of the People's Republic of China shall apply to the contracts of Sino-foreign equity joint venture, contracts of Sino-foreign contractual joint venture, or contracts of Sino-foreign cooperation in the exploration and exploitation of natural resources that to be performed within the territory of the People's Republic of China.
Article 468
For a creditor-debtor relation not arising from a contract, the provisions of laws relating to such relations shall be applied; in the absence of such provisions, the relevant provisions of the General Provisions of this Book shall be applied, unless they shall not be applied based on the nature of the creditor-debtor relation.
Chapter II
The parties may conclude a contract in writing, orally, or in other forms.
A writing refers to any form that renders the content contained therein capable of being represented in a tangible form, such as a written agreement, letter, telegram, telex, or facsimile.
A data message in any form, such as electronic data interchange and e-mails, that renders the content contained therein capable of being represented in a tangible form and accessible for reference and use at any time shall be deemed as a writing.
The content of a contract shall be agreed by the parties and generally includes the following clauses:
⑴ name or designation and domicile of each party;
(2) objects;
(3) quantity;
(4) quality;
(5) price or remuneration;
(6) time period, place, and manner of performance;
(7) default liability; and
(8) dispute resolution.
The parties may conclude a contract with reference to the various types of model contracts.
The parties may conclude a contract by making an offer and acceptance or other
means.
Article 469
An offer is an expression of intent to conclude a contract with another person, and the expression of intent shall conform to the following conditions:
(1) the content shall be specific and definite; and
(2) it is indicated therein that the offeror is to be bound by his expression of intent upon acceptance thereof by an offeree.
An invitation to offer is a manifestation that a person expects another person to make an offer to him. Auction announcements, bidding announcements, stock prospectuses, bond prospectuses, fund prospectuses, commercial advertisements and promotions, and mailed price catalogs, and the like, are invitations to offer.
A commercial advertisement and promotion shall constitute an offer if its content conforms to the conditions for an offer.
The time when an offer becomes effective shall be governed by the provisions of Article 137 of this Code.
An offer may be withdrawn. The withdrawal of an offer shall be governed by the provisions of Article 141 of this Code.
An offer may be revoked, unless under any of the following circumstances:
(1) the offeror has explicitly indicated that the offer is irrevocable by specifying a time limit for acceptance or in any other manner; or
(2) the offeree has reasons to believe that the offer is irrevocable and the offeree has made reasonable preparations to perform the contract.
Where an expression of intent to revoke an offer is made in a real-time communication, the content of such expression of intent shall be known to the offeree before the offeree makes an acceptance; where an expression of intent to revoke an offer is not made in a real-time communication, it shall reach the offeree before the offeree makes an acceptance.
An offer becomes invalid under any of the following circumstances:
(1) the offer is rejected;
(2) the offer is revoked in accordance with law;
(3) the offeree makes no acceptance prior to expiration of the time limit for acceptance; orthe offeree materially alters the content of the offer.
An acceptance is an expression of intent of the offeree to accept an offer.
An acceptance shall be made by means of notice, except that an acceptance may be made by performing an act according to the parties5 course of dealing or as indicated in the offer.
An acceptance shall reach the offeror within the time limit specified in the offer.
Where no time limit for acceptance is specified in the offer, an acceptance shall reach the offeror in accordance with the following provisions:
(1) where an offer is made in a real-time communication, acceptance shall be made promptly; or
(2) where an offer is not made in a real-time communication, the acceptance notice shall reach the offeror within a reasonable period of time.
Where an offer is made through a letter or a telegram, the time limit for acceptance shall be counted from the date shown on the letter or the date the telegram is handed in for dispatch or, if no such a date is shown on the letter, from the mailing date shown by the postmark of the letter. Where an offer is made by means of instantaneous communications such as telephone calls, facsimiles, or e-mails, the time limit for acceptance shall be counted from the moment the offer reaches the offeree.
A contract is formed at the time when an acceptance becomes effective, unless otherwise provided by law or agreed by the parties.
Where an acceptance is made by means of notice, the time when the acceptance becomes effective shall be governed by the provisions of Article 137 of this Code.
Where an acceptance notice is not required, the acceptance becomes effective when an act of acceptance is performed according to the parties5 course of dealing or as indicated by the offer.
An acceptance may be withdrawn. The provisions of Article 141 of this Code shall apply to the withdrawal of an acceptance.
Where an offeree makes an acceptance beyond the time limit for acceptance, or where the acceptance is made within the time limit for acceptance but it cannot reach the offeror in time under normal circumstances, such an acceptance constitutes a new offer unless the offeror timely notifies the offeree that the acceptance is effective.
Where an offeree makes an acceptance notice within the time limit for acceptance, if the notice would have reached the offeror in time under normal circumstances but reaches the offeror beyond the time limit for other reasons, the acceptance shall be effective unless the offeror timely notifies the offeree that the acceptance is not accepted as it exceeds the time limit for acceptance.
The content of an acceptance shall be consistent with the content of the offer. Where the offeree proposes in the acceptance any material alteration to the content of the offer, it shall constitute a new offer. An alteration concerning the object of the contract, the quantity, quality, price or remuneration, time period of performance, place and manner of performance, default liability, the methods of dispute resolution, or the like is a material alteration to the content of an offer.
Where an acceptance makes a non-material alteration to the offer, the acceptance shall be effective and the content of the contract shall be as altered by the acceptance, unless the offeror objects in time, or the offer indicates that an acceptance may not make any alteration to the content of the offer.
Where the parties conclude a contract in the form of a written agreement, the contract is formed at the time when the parties all sign, stamp, or put their fingerprints on the memorandum. Prior to signing, stamping, or putting their fingerprints thereon, where one of the parties has already performed the principal obligation and the other party has accepted the performance, the contract is formed at the time of such acceptance.
Where a contract is required to be concluded in writing in accordance with laws or administrative regulations or agreed by the parties and the parties fail to make the contract in writing, if one of the parties has already performed the principal obligation and the other party has accepted the performance, the contract is formed at the time of such acceptance.
Where the parties conclude a contract in the form of a letter, data message, or the like, and a confirmation letter is required to be signed, the contract is formed when the confirmation letter is signed.
Where the information about goods or services published by a party via information network, such as internet, conforms to the conditions for an offer, unless otherwise agreed by the parties, a contract is formed at the time when the other party chooses such product or service and successfully submits the order.
Article 492
The place where an acceptance becomes effective is the place where the contract is formed.
Where a contract is concluded in the form of data message, unless otherwise agreed by the parties, the recipient’s principal place of business is the place where the contract is formed; in the absence of a principal place of business, the recipient’s domicile is the place where the contract is formed.
Where the parties conclude a contract in the form of a memorandum of contract, unless otherwise agreed by them, the place where the contract is finally signed, stamped, or fingerprinted is the place where the contract is formed.
Where the State issues a State purchase order or a mandatory assignment in accordance with the needs such as emergency and disaster relief, pandemic prevention and control, or the like, the persons of the civil law concerned shall conclude a contract in accordance with the rights and obligations provided by the relevant laws and administrative regulations.
The party that has an obligation to make an offer in accordance with the provisions of laws and administrative regulations shall make a reasonable offer in a timely manner.
The party that has an obligation to make an acceptance in accordance with the provisions of laws and administrative regulations shall not reject the reasonable request of the other party to conclude a contract.
A letter of subscription, letter of order, and letter of reservation, and the like, in which the parties agree to conclude a contract within a certain period of time in the future, constitutes a preliminary contract.
Where one of the parties fails to perform the obligation to conclude a contract agreed in the preliminary contract, the other party may request such party to bear the liability for breach of the preliminary contract.
A standard clause refers to a clause formulated in advance by a party for the purpose of repeated use which has not been negotiated with the other party when concluding the contract.
Upon concluding a contract, where a standard clause is used, the party providing the standard clause shall determine the parties’ rights and obligations in accordance with the principle of fairness, and shall, in a reasonable manner, call the other party's attention to the clause concerning the other party’s major interests and concerns, such as a clause that exempts or alleviates the liability of the party providing the standard clause, and give explanations of such clause upon request of the other party. Where the party providing the standard clause fails to perform the aforementioned obligation of calling attention or giving explanations, thus resulting in the other party’s failure to pay attention to or understand the clause concerning his major interests and concerns, the other party may claim that such clause does not become part of the contract.
A standard clause is void under any of the following circumstances:
(1) existence of a circumstance under which the clause is void as provided in Section 3 of Chapter VI of Book One and Article 506 of this Code;
(2) the party providing the standard clause unreasonably exempts or alleviates himself from the liability, imposes heavier liability on the other party, or restricts the main rights of the other party; or
(3) the party providing the standard clause deprives the other party of his main rights.
Where a dispute arises over the understanding of a standard clause, the clause shall be interpreted in accordance with its common understanding. Where there are two or more interpretations of a standard clause, the clause shall be interpreted in a manner unfavorable to the party providing the standard clause. Where a standard clause is inconsistent with a non-standard clause, the non-standard clause shall prevail.
Where a rewarder through making a public announcement promises to pay a reward to anyone who has completed a particular act, the person who has completed the act may request the rewarder to pay.
During the course of concluding a contract, the party that falls under any of the following circumstances and causes loss to the other party shall bear the liability for compensation:
(1) under the guise of concluding a contract, engaging in consultation with malicious intention;
Chapter III
Effect of Contracts
A contract formed in accordance with law becomes effective upon its formation, unless otherwise provided by law or agreed by the parties.
Where there are laws or administrative regulations providing that a contract shall be subject to the approval and other procedures, such provisions shall be followed. Where failure to complete the approval or other procedures is to affect the validity of the contract, the validity of the clauses concerning the performance of an obligation of filing for approval, and the like, and the other relevant clauses in the contract shall not be affected. Where the party obligated to complete application for approval or other procedures fails to do so, the other party may request the former party to bear the liability for breach of such obligation.
Where there are laws or administrative regulations providing that modification, assignment, or rescission of a contract shall be subject to approval or other procedures, such provisions shall be followed.
Where a person without authority concludes a contract in the name of a principal, and if the principal has already started performing the contractual obligations or accepted the performance of the other party, the contract is deemed ratified.
Where the legal representative of a legal person or the responsible person of an unincorporated organization concludes a contract ultra vires, such an act is effective and the contract is binding on the legal person or the unincorporated organization unless the other party knows or should have known that the legal representative or the responsible person acts ultra vires.
Where the parties conclude a contract beyond their scope of business, the validity of the contract shall be determined according to the provisions in Section 3 of Chapter VI of Book One of this Code and this Book, and the contract shall not be determined as invalid solely on the ground that it is beyond their scope of business.
An exculpatory clause in a contract exempting the liability on the following acts are void:
(1) causing physical injury to the other party; or
(2) causing losses to the other party’s property intentionally or due to gross negligence.
Where a contract does not take effect, or is void, revoked, or terminated, the validity of a clause concerning dispute resolution shall not be affected.
The validity of a contract which is not covered by the provisions in this Book shall be governed by the relevant provisions in Chapter VI of Book One of this Code.
Chapter IV
The parties shall fully perform their respective obligations as contracted.
The parties shall comply with the principle of good faith, and perform such obligations as sending notices, rendering assistances, and keeping confidentiality in accordance with the nature and purpose of the contract and the course of dealing .
The parties shall avoid wasting the resources, polluting the environment, or damaging the ecology in the course of performance of the contract.
Where the parties have not agreed on such content as the quality, price or remuneration, or the place of performance, and the like, or the agreement is unclear, after the contract becomes effective, the parties may make a supplementary agreement; where the parties fail to reach a supplementary agreement, such content shall be determined according to the relevant clauses of the contract or the course of dealing.
Where an agreement between the parties concerning the content of their contract is unclear and such content cannot be determined according to the provisions of the preceding Article, the following provisions shall be applied:
(1) where the quality requirements are not clearly stipulated, the contract shall be performed in accordance with a mandatory national standard, or a recommendatory national standard in the absence of a mandatory national standard, or the standard of the industry in the absence of a recommendatory national standard. In the absence of any national or industrial standards, the contract shall be performed in accordance with the general standard or a specific standard conforming to the purpose of the contract.
(2) where the price or remuneration is not clearly stipulated, the contract shall be performed in accordance with the market price in the place of performance at the time the contract is concluded. Where the government-set or government-guided price shall be applied as required by law, the contract shall be performed on such a price.
(3) where the place of performance is not clearly stipulated, the contract shall be performed at the place of the party receiving money where payment of money is involved, or, where real estate is to be delivered, at the place where the real estate is located. For other subject matters, the contract shall be performed at the place where the party performing the obligation is located.
(4) where the period of performance is not clearly stipulated, the debtor may perform his obligations at any time, and the creditor may request the debtor to perform at any time, provided that he shall give the debtor necessary time for preparation;
(5) where the mode of performance is not clearly stipulated, the contract shall be performed in a manner conducive to realizing the purpose of the contract; and
(6) where the allocation of expenses for performance is not clearly stipulated, the expenses shall be borne by the party performing the obligation; where the expenses for performance are increased owing to the creditor’s reason, the creditor shall bear the increased part of the expenses.
Where the object of an electronic contract concluded through internet or other information network is the delivery of goods and the goods are to be delivered by express delivery services, the time of delivery is the time of acknowledging receipt of the goods by the recipient. Where the object of the said electronic contract is the provision of services, the time for provision of the service is the time stated in the automatic generated electronic certificate or physical certificate. Where there is no time stated in such a certificate or the time stated therein is inconsistent with the actual time for provision of the service, the actual time for provision of the service shall prevail.
Where the subject matter of the said electronic contract is delivered by online transmission, the time of delivery is the time when the subject matter of the contract enters the specific system designated by the other party and can be searched and identified.
Where the parties to the said electronic contract agree otherwise on the mode and time of delivery of goods or provision of services, such agreement shall be complied with.
Where a government-set or government-guided price is adopted in a contract, if the said price is adjusted within the delivery period stipulated in the contract, the contract price shall be the price as adjusted at the time of delivery. Where an overdue delivery of the subject matter occurs, the contract price shall be the original price if the price rises at the time of delivery, or the price as adjusted if the price falls at the time of delivery. Where a delayed delivery of the subject matter or an overdue payment occurs, the contract price shall be the price as adjusted if the price rises, or the original price if the price falls.
Where an obligation is payment of money, unless otherwise provided by law or agreed by the parties, the creditor may request the debtor to perform the obligation by the lawful currency of the place of actual performance.
Where a contract has multiple objects and the debtor is required to perform only one of them, the debtor has the right of choice to choose the object to perform, unless otherwise provided by law or agreed by the parties, or otherwise determined by the course of dealing.
Where the party with the right of choice fails to make the choice within the agreed period or upon expiration of the period of performance, and still fails to make the choice within a reasonable period of time after being demanded, the right of choice shall be shifted to the other party.
A party shall promptly notify the other party when exercising the right of choice, and the object of the contract to be performed shall be ascertained at the time when such notice reaches the other party. The ascertained object shall not be changed, unless otherwise consented to by the other party.
Where one of the objects available for choice becomes impossible to perform, the party with the right of choice shall not choose such object to perform, unless the impossibility to perform is caused by the other party.
Where there are two or more creditors, if the object is divisible and each creditor is entitled to the claim in proportion to his own share, then the claim is a claim by share; where there are two or more debtors, if the object is divisible and each debtor assumes the obligation in proportion to his own share, then the obligation is an obligation by share.
Where it is difficult to determine the share among the creditors with a claim by share or the debtors with an obligation by share, each is deemed to have or assume an equal share.
Where there are two or more creditors, and any or all of the creditors may request the debtor to perform the obligation, their claim is a joint and several claim; where there are two or more debtors, and the creditor can request any or all of the debtors to perform the full obligation, the obligation is a joint and several obligation.
A joint and several claim or a joint and several obligation shall be provided by law or agreed by the parties. Where it is difficult to determine the share of obligation among the debtors assuming joint and several liabilities, each debtor is deemed to owe an equal share.
A debtor assuming joint and several liabilities who has assumed obligation in excess of his own share has the right to contribution against the other debtors assuming joint and several liabilities to the extent of the share not performed by the other debtors, and accordingly shall be entitled to the rights of a creditor, provided that the other creditors5 interests shall not be harmed. The defenses of the other debtors assuming joint and several liabilities against the creditor may be asserted against such a debtor.
Where a debtor assuming joint and several liabilities against whom the right to contribution is claimed is unable to perform the share he is liable to assume, the other debtors assuming joint and several liabilities shall be liable for the relevant part of the obligation on a pro rata basis.
Where one of the debtors assuming joint and several liabilities has performed his obligation, offset his obligation, or placed the subject matter of the obligation in escrow, the obligation of the other debtors owed to the creditor is extinguished to the corresponding extent, and such a debtor has the right to contribution against the other debtors in accordance with the provisions of the preceding Article.
Where the obligation of one of the debtors assuming joint and several liabilities is discharged by the creditor, the obligation of the other debtors assuming joint and several liabilities owed to the creditor is extinguished to the extent of the share that such a debtor assumes.
Where the obligation of one of the debtors assuming joint and several liabilities has merged with the claim of the creditor to be held by the same person, after deducting such share of obligation, the creditor’s claim against the other debtors assuming joint and several liabilities continues to exist.
Where a creditor delays in accepting the performance of one of the debtors assuming joint and several liabilities, such delay takes effect on the other debtors assuming joint and several liabilities.
Where it is difficult to determine the share among the creditors with joint and several claims, each creditor is deemed to have an equal share.
A creditor who has accepted the performance of obligation in excess of his own share shall reimburse the other creditors with joint and several claims with him on a pro rata basis.
The relevant provisions on a joint and several obligation in this Chapter may be applied to a joint and several claim mutatis mutandis.
Where the parties agree that the debtor shall perform the obligation to a third person, if the debtor fails to perform the obligation to the third person or the performance does not conform to the agreement, the debtor shall bear default liability to the creditor.
Where it is provided by law or agreed by the parties that a third person may directly request the debtor to perform the obligation to him, and the third person does not explicitly reject it within a reasonable period of time, if the debtor fails to perform the obligation to the third person or the performance does not conform to the agreement, the third person may request the debtor to bear default liability. The defenses that the debtor has against the creditor may be asserted against the third person.
Where the parties agree that the obligation shall be performed by a third person to the creditor, if the third person fails to perform the obligation or the performance does not conform to the agreement, the debtor shall bear default liability to the creditor.
Where a debtor fails to perform an obligation, and a third person has an lawful interest in the performance of the obligation, the third person is entitled to perform it to the creditor on behalf of the debtor, unless the obligation may only be performed by the debtor based on the nature of the obligation, as agreed by the parties, or as provided by law.
After the creditor accepts the performance of such obligation by the third person, his claim against the debtor shall be assigned to the third person, unless otherwise agreed by the debtor and the third person.
Where the parties have mutual obligations to each other and there is an order of performance of the obligations, the parties shall perform the obligations at the same time. Any party has the right to reject the other party's request for performance before the other party performs. Any party has the right to reject the other party's request for the corresponding performance if the other party’s performance does not conform to the agreement.
Where the parties have mutual obligations to each other and there is an order of performance of the obligations, if the party obligated to perform first fails to perform the obligation, the party obligated to perform later has the right to reject the request for performance made by that party. Where the performance of the party obligated to perform first does not conform to the agreement, the party obligated to perform later has the right to reject the request made by the former party for performance of the corresponding obligation.
A party obligated to perform the obligation first may suspend his performance if there is definite evidence proving that the other party falls under any of the following situations:
(1) its operating conditions are seriously deteriorated;
(2) it transfers property or withdraws capital to evade debts;
(3) the good will of its business has been lost; or
(4) there’s another circumstance under which it has lost or is losing its ability to perform the obligation.
A party that suspends the performance with no such definite evidence shall bear default liability.
A party who suspends performance in accordance with the provisions of the preceding Article shall notify the other party in a timely manner. The performance shall be resumed if the other party provides an appropriate bond. After a party suspends its performance, where the other party fails to restore his ability to perform the obligation and fails to provide an appropriate bond within a reasonable period of time, it shall be deemed to be an indication through his act that the party will not perform his principal obligation, and the party that suspends the performance may cancel the contract and may request the other party to bear default liability.
Where a debtor’s performance of an obligation has become difficult owing to the reason that the creditor fails to notify the debtor that it has split into two or more entities, merges with another entity, or changed its domicile, the debtor may suspend performance or place the subject matter in escrow.
A creditor may reject the debtor’s early performance of the obligation, unless the early performance is not detrimental to the interests of the creditor.
Any additional expenses incurred to the creditor due to the debtor’s early performance of the obligation shall be borne by the debtor.
A creditor may reject the debtor’s partial performance of the obligation, unless the partial performance is not detrimental to the interests of the creditor.
Any additional expenses incurred to the creditor due to the debtor’s partial performance of the obligation shall be borne by the debtor.
After a contract becomes effective, any party shall not fail to perform its contractual obligations on the ground that either party’s name or entity name, legal representative, the responsible person, or the person handling the contract has been changed.
After a contract is formed, where a fundamental condition upon which the contract is concluded is significantly changed which are unforeseeable by the parties upon conclusion of the contract and which is not one of the commercial risks, if continuing performance of the contract is obviously unfair to one of the parties, the party that is adversely affected may re-negotiate with the other party; where such an agreement cannot be reached within a reasonable period of time, the parties may request the people’s court or an arbitration institution to rectify or rescind the contract.
The people’s court or an arbitration institution shall rectify or rescind the contract in compliance with the principle of fairness, taking into account the actual circumstances of the case.
Where the parties take advantage of the contract to commit an act that endangers the State’s interests and public interests, the market regulatory authority and other relevant administrative authorities shall be responsible for supervising and handling it in accordance with the provisions of laws and administrative regulations.
Chapter V
Where a debtor’s right against a counterparty, or an accessory right related thereto, has not been claimed against the counterparty owing to the debtor’s indolence, and the enforcement of the creditor’s due claim is thus adversely affected, the creditor may request the people's court to allow him to exercise by subrogation the debtor's claim against the counterparty of the debtor in his own name, unless such claim belongs exclusively to the debtor himself.
The scope of the right of subrogation is limited to the creditor's due claim. The necessary expenses for the creditor to exercise the right of subrogation shall be borne by the debtor.
The counterparty’s defenses against the debtor may be asserted against the creditor.
Prior to the due date of the creditor’s claim, where there exists a circumstance under which the limitation period for the debtor’s principal claim or an accessory claim related thereto is to expire, or the debtor fails to timely declare his claim in a bankruptcy proceeding, and the enforcement of the creditor’s claim is thus adversely affected, the creditor may, by subrogation, request the counterparty of the debtor to perform his obligation to the debtor, declare the debtor’s claim to the bankruptcy administrator, or take other necessary acts.
Article 537
Where the People’s court determines that the right of subrogation has been established, the counterparty of the debtor shall perform the obligation to the creditor. After the performance is accepted by the creditor, the corresponding rights and obligations between the creditor and the debtor, and those between the debtor and the counterparty, are terminated. Where the debtor’s claim or an accessory claim related thereto against the counterparty is subject to preservation or enforcement measures, or where the debtor becomes bankrupt, it shall be dealt with in accordance with the provisions of the relevant laws.
Where a debtor gratuitously disposes of his proprietary rights and interests by waiving his claims, waiving the security for his claims, or transferring his properties without consideration, and the like, or maliciously extends the period of performance of his due claim, and the enforcement of the creditor’s claim is thus adversely affected, the creditor may request the people's court to revoke the debtor's act.
Where a debtor transfers his property at an obviously unreasonably low price, takes another person’s property or provides security for another person’s obligation at an obviously unreasonable high price, and the enforcement of the creditor’s claim is thus adversely affected, the creditor may request the people’s court to revoke the debtor’s act if the counterparty of the debtor knows or should have known such circumstance.
The scope of the right to revocation shall be limited to the creditor’s claim. The necessary expenses for the creditor to exercise the right to revocation shall be borne by the debtor.
The right to revocation shall be exercised within one year from the date on which the creditor knows or should have known the cause for the revocation. The right to revocation shall be extinguished where a creditor does not exercise such right within five years since the date on which the act of the debtor occurs.
Where an act of the debtor adversely affecting the enforcement of the creditor’s claim is revoked, such act does not have legal effect ab initio.
Chapter VI
Modification and Assignment of Contracts
Article 543
The parties may modify the contract upon agreement through consultation. Article 544
Where the content of the contract that the parties agree to modify is not clear, it is presumed that the contract has not been modified.
A creditor may assign his claim in whole or in part to a third person, except that: ⑴ a claim is not assignable by virtue of its nature;
(2) a claim is not assignable as agreed by the parties; or
(3) a claim is not assignable in accordance with law.
Where the parties agree that a non-pecuniary claim may not be assigned, such agreement shall not be asserted against a bona fide third person. Where the parties agree that a pecuniary claim may not be assigned, such agreement shall not be asserted against a third person.
Where a creditor assigns his claim but fails to notify the debtor thereof, the assignment is not effective against the debtor.
The notice of the assignment of a claim may not be revoked, unless consented to by the assignee.
Where a creditor assigns his claim, the assignee shall acquire the accessory right related to the claim, unless the accessory right belongs exclusively to the creditor.
Failure to register the assignment of the accessory right or failure to change the possession thereof shall not affect the acquisition of the accessory right by the assignee.
After a debtor receives a notice of assignment of a claim, the debtor’s defenses against the assignor may be asserted against the assignee.
A debtor may claim a set-off against the assignee under any of the following circumstances:
(1) when the debtor receives the notice of assignment of a claim, the debtor has a claim against the assignor which becomes due prior to or at the same time of the due date of the assigned claim; or
(2) the debtor’s claim and the assigned claim are generated on the basis of the same contract
Article 550
The expenses for performance increased due to the assignment of a claim shall be borne by the assignor.
Where a debtor delegates his obligation in whole or in part to a third person, the consent of the creditor shall be obtained.
The debtor or the third person may demand the creditor to give his consent within a reasonable period of time. Where the creditor makes no indication, it shall be deemed as no consent given.
Where a third person agrees with the debtor to join in the obligation and notifies the creditor thereof, or a third person indicates to the creditor his willingness to join in the obligation, if the creditor fails to explicitly make a rejection within a reasonable period of time, the creditor may request the third person to assume the joint and several obligation with the debtor to the extent of the obligation the third person is willing to assume.
Where a debtor delegates his obligation, the new debtor may assert a defense of the original debtor against the creditor; where the original debtor has a claim against the creditor, the new debtor may not claim a set-off against the creditor.
Where a debtor delegates his obligation, the new debtor shall assume the accessory obligation related to the principal obligation, unless the accessory obligation belongs exclusively to the original debtor.
A party may assign his rights and delegate his obligations under a contract to a third person with the consent of the other party.
Where the rights and obligations under a contract are assigned and delegated together, the provisions on assignment of claims and delegation of obligations shall be applied.
Chapter VII
Termination of Rights and Obligations under a Contract
Article 557
A claim or obligation shall be terminated under any of the following circumstances:
(1) the obligation has been performed;
(2) the obligations are offset against each other;
(3) the debtor has placed the subject matter in escrow in accordance with law;
(4) the creditor has exempted the obligation;
(5) the claim and obligation are merged to be held by the same person; or
(6) any other circumstance under which the parties’ agreement is terminated as provided by law or agreed by the parties.
The relationship of rights and obligations under a contract shall be terminated upon rescission of the contract.
After the parties’ claims and obligations are terminated, the parties shall, in compliance with the principle of good faith and the like, perform such obligations as sending notification, rendering assistance, keeping confidentiality, and retrieving the used items according to the course of dealing.
Upon termination of a claim and an obligation, a right accessory to the claim shall be extinguished concomitantly, unless otherwise provided by law or agreed by the parties.
Where a debtor owes to a creditor multiple obligations of the same kind, and the debtor’s performance is not sufficient to discharge all of the obligations, upon making performance, the debtor shall designate which obligation is to be discharged, unless otherwise agreed by the parties.
Where the debtor fails to make such a designation, the due obligation shall be performed first. Where multiple obligations are all due, the obligation not secured or with the least security shall be performed firs. Where none of the obligations are secured or the obligations are equally secured, the obligation with which the debtor assumes the heaviest burden shall be performed first. Where the burdens are the same, the obligations shall be performed in the order of their due dates. Where the due dates are the same, the obligations shall be performed on a pro rata basis.
In addition to performing the principal obligation, a debtor shall pay to the creditor interests and other expenses related to the enforcement of the obligation. Where the payment is not sufficient to discharge all of the obligations, unless otherwise agreed by the parties, he shall perform the obligation in accordance with the following order:
(1) the relevant expenses incurred by the creditor for enforcing his claim;
(2) the interests; and
(3) the principal obligation.
The parties may rescind the contract upon agreement through consultation.
The parties may agree on the causes for rescission of the contract by a party. When a cause for rescission of contract arises, the party with the right to rescission may rescind the contract.
The parties may rescind the contract under any of the following circumstances:
(1) the purpose of a contract is not able to be achieved due to force majeure;
(2) prior to expiration of the period of performance, one of the parties explicitly expresses or indicates by his act that he will not perform the principal obligation;
(3) one of the parties delays his performance of the principal obligation and still fails to perform it within a reasonable period of time after being demanded;
(4) one of the parties delays his performance of the obligation or has otherwise acted in breach of the contract, thus makes it impossible for the purpose of the contract to be achieved; or
(5) any other circumstance as provided by law.
For a contract under which the debtor is required to continuously perform an obligation for an indefinite period of time, the parties thereto may rescind the contract at any time, provided that the other party shall be notified within a reasonable period of time.
Where a time limit for exercising the right to rescind the contract is provided by law or agreed by the parties, if the parties have not exercised such right upon expiration of the period, such a right shall be extinguished.
Where no time limit for exercising the right to rescind the contract is provided by law or agreed by the parties, such a right shall be extinguished if the party with the right to rescission does not exercise such right within one year after he knows or should have known the causes for rescission, or within a reasonable period of time after being demanded by the other party.
Where one of the parties requests to rescind the contract in accordance with law, the other party shall be duly notified. The contract shall be rescinded at the time the notice reaches the other party, or, where the notice states that the contract shall be automatically rescinded if the debtor fails to perform his obligation within a specified period of time, the contract shall be rescinded when the debtor fails to perform the obligation upon expiration of such specified period of time. Where the other party has objections to the rescission of the contract, either party may request the people's court or an arbitration institution to determine the validity of the rescission.
Where one of the parties, without notifying the other party, requests the rescission of the contract by directly filing a lawsuit or applying for arbitration in accordance with law, and the people’s court or arbitration institution confirms such request, the contract shall be rescinded when a duplicated copy of the complaint or the application letter for arbitration is served on the other party.
After a contract is rescinded, where the obligations have not yet been performed, the performance shall cease; where the obligations have already been performed, the parties may, taking into account the performance status and the nature of the contract, request restoration to the original status or other remedial measures taken, and have the right to request for compensation for losses.
Where a contract is rescinded due to a default, the party with the right to rescind the contract may request the breaching party to bear default liability, unless otherwise agreed by the parties.
After the principal contract is rescinded, a security provider shall still be obligated to secure the debtor’s liability, unless otherwise agreed in the security contract.
Termination of the relationship of rights and obligations under a contract does not affect the validity of the contract clauses regarding settlement and liquidation.
Where the parties mutually owe obligations to each other, and the subject matter of the obligations are of the same kind and quality, any party may offset his obligation against the due obligation of the other party, unless the obligation cannot be offset by virture of the nature of the obligations, or in accordance with the agreements by the parties or the provisions of law.
A party who claims a set-off shall notify the other party. The notice shall become effective when it reaches the other party. No conditions or time limit may be attached to the set-off.
Where the parties mutually owe obligations to each other and the subject matter of the obligations are not of the same kind or quality, the obligations may also be offset upon agreement by the parties through consultation.
Where it is difficult to perform an obligation under any of the following circumstances, a debtor may place the subject matter in escrow:
(1) the creditor refuses to accept the performance without just course;
(2) the creditor cannot be located;
(3) the creditor dies with his heirs or estate administrator not determined, or the creditor loses his capacity for performing civil juristic acts with no guardian determined; or
(4) any other circumstance as provided by law.
Where the subject matter is not suitable for being placed in escrew or the expenses therefor are too high, the debtor may sell the subject matter through auction or sale and place the proceeds thus obtained in escrow in accordance with law.
A subject matter or the proceeds obtained from auction or sale of the subject matter is placed in escrow where the debtor delivers the subject matter or proceeds thereof to the escrow agency in accordance with law.
Where a subject matter or its proceeds has been placed in escrow, the debtor is deemed to have delivered the subject matter to such extent.
After a subject matter is placed in escrow, the debtor shall promptly notify the creditor or the creditor’s heir, estate administrator, guardian, or custodian for his property.
After a subject matter is placed in escrow, the risk of destruction, damage, or loss thereof shall be assumed by the creditor. During the period the subject matter is placed in escrow, the accrued proceeds of the subject matter shall belong to the creditor. The expenses thus incurred shall be borne by the creditor.
The creditor may collect the subject matter placed in escrow at any time, except that where the creditor owes due obligation to the debtor, the escrow agency shall reject the creditor’s request for collecting it before the creditor performs such obligation or providing security therefor.
The creditor’s right to collect the subject matter placed in escrow is extinguished if such right is not exercised within five years from the date the subject matter is delivered to the escrow agency, and such subject matter shall be escheated to the State after the escrow agency’s expenses are deducted. However, where a creditor fails to perform his due obligation to the debtor, or where the creditor waives his right to collect the subject matter placed in escrow in writing to the escrow agency, the debtor has the right to take back the subject matter after paying the escrow agency’s expenses.
Where a creditor exempts part or all of the debtor’s obligations, the claims and obligations shall be terminated in part or in whole, unless the debtor objects within a reasonable period of time.
Article 576
Where a claim and an obligation are merged to be held by the same person, the claim and obligation shall be terminated, unless it is detrimental to the interests of a third person.
Chapter VIII
Default Liability
Where a party fails to perform his contractual obligation or his performance does not conform to the agreement, he shall bear default liability such as continuing to perform his obligations, taking remedial measures, or compensating for losses.
Where a party explicitly expresses or indicates by his act that he will not perform his contractual obligation, the other party may request the former party to bear default liability before expiration of the time period of performance.
Where a party fails to pay the price, remuneration, rent, or interests, or fails to perform another pecuniary obligation, the other party may request for such payment or performance.
Where a party fails to perform a non-pecuniary obligation or his performance does not conform to the agreement, the other party may request for such performance unless:
(1) the performance is impossible either de or de facto;
(2) the object of the obligation is not suitable for a compulsory performance or the expenses for the performance are too high; or
(3) the creditor fails to request for performance within a reasonable period of time.
Where one of the situations specified in the preceding paragraph exists so that the purpose of the contract cannot be achieved, the people’s court or an arbitration institution may terminate the contractual relationship of rights and obligations upon request by a party, but the default liability shall still be borne without being affected.
Article 581
Where a party fails to perform his obligation or his performance does not conform to the agreement, if the obligation shall not be enforced by virtue of the nature of the obligation, the other party may request such party to bear the expenses of a substitute performance by a third person.
Where the performance does not conform to the agreement, default liability shall be borne in accordance with the contract between the parties. Where the default liability is not stipulated or is not clearly stipulated in the contract, and if it cannot be determined according to the provisions of Article 510 of this Code, the aggrieved party may, by virtue of the nature of the object and according to the degree of the loss, reasonably request the other party to bear the default liability such as repair, redoing, replacement, return of the object, decrease in price or remuneration, and the like.
Where a party fails to perform his contractual obligation or his performance does not conform to the agreement, he shall make compensation if, after he has performed his obligation or has taken remedial measures, the other party still suffers loss.
Where a party fails to perform his contractual obligation or his performance does not conform to the agreement so that the other party suffers loss, the amount of compensation shall be equivalent to the loss caused by the breach of contract, including the benefits expected to be obtained should the contract had been performed, except that it shall not exceed the loss that may be caused by the breach that the breaching party foresees or should have foreseen at the time of conclusion of the contract.
The parties may agree that, upon default by a party, a certain amount of liquidated damages shall be paid to the other party according to the circumstance of the breach, or the parties may agree on the method of calculating the compensation for losses arising from the breach.
Where the agreed liquidated damages are lower than the loss caused, the people's court or an arbitration institution may increase the amount upon request of a party. Where the agreed liquidated damages are excessively higher than the loss caused, the people's court or an arbitration institution may make appropriate reduction upon request of a party.
Where the parties agree on the liquidated damages for delayed performance, the breaching party shall continue to perform the obligation after paying the liquidated damages.
The parties may agree that one party deposits earnest money to the other party to secure his claim. An earnest money deposit contract becomes effective upon actual delivery of the earnest money.
The amount of the earnest money shall be agreed by the parties, except that it shall not exceed 20% of the value of the object of the principal contract, and any excessive part does not have the effect as earnest money. Where the amount of the earnest money actually delivered is more or less than the agreed amount, the agreed amount of the earnest money shall be deemed to have been changed.
After a debtor has performed his obligation, the earnest money shall be calculated as part of the price or be refunded. Where a party paying the earnest money fails to perform his obligation or fails to perform it in conformity with the agreement, so that the purpose of the contract cannot be achieved, he is not entitled to request refund of the earnest money. Where a party receiving the earnest money fails to perform his obligation or fails to perform it in conformity with the agreement, so that the purpose of the contract cannot be achieved, he shall refund twice the amount of the earnest money to the other party.
Where the parties agree on both liquidated damages and earnest money, when a party defaults, the other party may choose to apply either the clause on the liquidated damages or the clause on the earnest money.
Where the earnest money is not sufficient to compensate the losses caused by one party’s default, the other party may request compensation for the losses in excess of the amount of the earnest money.
Where a debtor performs his obligation in accordance with the agreement, and the creditor refuses to accept the performance without just cause, the debtor may request the creditor to compensate for any additional expenses.
The debtor does not need to pay interests for the period of delay in acceptance by the creditor.
Where a party is unable to perform the contract due to force maje^^re, he shall be exempted from liability in whole or in part according to the impact of the force majeure, unless otherwise provided by law. The party unable to perform the contract due to force majeure shall promptly notify the other party to mitigate the losses that may be caused to the other party, and shall provide proof of theforce majeure within a reasonable period of time.
Where the force majeure occurs after a party’s delay in performance, such party’s default liability shall not be exempted.
After a party defaults, the other party shall take appropriate measures to prevent further loss. Where the loss is aggravated due to the failure of taking appropriate measures, no compensation shall be claimed for the aggravated part of the losses.
The reasonable expenses incurred by a party in preventing the aggravation of the loss shall be borne by the breaching party.
Where both parties default, each shall bear corresponding liabilities.
Where one party’s default causes loss to the other party, and the other party’s fault contributes to the occurrence of such loss, the amount of compensation may be mitigated accordingly.
A party who breaches a contract due to a third person’s reason shall bear default liability to the other party in accordance with law. The dispute between the breaching party and the third person shall be handled in accordance with the provisions of law or their agreement.
The limitation period for filing a lawsuit or applying for arbitration on a dispute arising from a contract for international sale of goods and a contract for the import and export of technology is four years.
A sales contract is a contract under which a seller transfers his ownership over the subject matter to a buyer who pays the price in return.
A sales contract generally contains clauses specifying the name, quantity, quality, and price of the subject matter, the time period, place, and method of performance, the packaging, the standard and methods for inspection, the mode of settlement, the language used in the contract, the validity thereof, and the like.
Article 597
If the ownership of a subject matter is unable to be transferred owing to the fact that the seller fails to obtain the right of disposal, the buyer may rescind the contract and request the seller to bear default liability.
Where there are laws, administrative regulations prohibiting or restricting the transfer of a subject matter, such provisions shall be followed.
A seller shall perform its obligation of delivering the subject matter or the documents for taking delivery thereof, and transferring the ownership over the subject matter to the buyer.
A seller shall deliver the relevant certificates and information other than the documents for taking delivery of the subject matter to the buyer in accordance with the contract or the course of dealing.
Where a subject matter to be sold involves intellectual property rights, unless otherwise provided by law or agreed by the parties, the intellectual property rights thereof does not belong to the buyer.
A seller shall deliver the subject matter at a time as agreed in the contract. Where a time period for delivery is stipulated in the contract, the seller may deliver the subject matter at any time within such period.
Where there is no agreement between the parties on the time period for delivery or the agreement is unclear, the provisions of Article 510 and Subparagraph (4) of Article 511 of this Code shall be applied.
A seller shall deliver the subject matter at the agreed place of delivery.
Where there is no agreement between the parties on the place of delivery or the agreement is unclear, if it cannot be determined according to the provisions of Article 510 of this Code, the following provisions shall be applied:
(1) where the subject matter needs to be transported, the seller shall consign it to the first carrier for its delivery to the buyer; and
(2) where the subject matter does not need to be transported, if the seller and the buyer know the location of the subject matter when they conclude the contract, the seller shall deliver the subject matter at the said location; if the location of the subject matter is unknown, the seller shall deliver the subject matter at the seller's place of business at the time when the contract is concluded.
Article 604
The risks of destruction, damage, or loss of the subject matter shall be borne by the seller prior to the delivery and by the buyer after the delivery, unless otherwise provided by law or agreed by the parties.
Where a subject matter fails to be delivered within the agreed time limit owing to the buyer’s reason, the buyer shall bear the risks of destruction, damage, or loss of the subject matter from the time he breaches the agreement.
Where a seller sells a subject matter en route that has been consigned to a carrier for transport, unless otherwise agreed by the parties, the risks of destruction, damage, or loss of the subject matter shall be borne by the buyer from the time when the contract is formed.
A buyer shall bear the risks of destruction, damage, or loss of the subject matter when the seller has transported the subject matter to the place designated by the buyer and delivered to the carrier in accordance with the agreement.
Where there is no agreement between the parties on the place of delivery or the agreement is unclear, if the subject matter needs to be transported according to Subparagraph (1) of the second paragraph of Article 603 of this Code, the buyer shall bear the risks of destruction, damage, or loss of the subject matter when the seller consigns the subject matter to the first carrier for transport.
Where a seller has placed the subject matter at the place of delivery in accordance with the agreement or the provisions of Subparagraph (2) of the second paragraph of Article 603 of this Code, if the buyer fails to take delivery thereof in default, the risks of destruction, damage, or loss of the subject matter shall be borne by the buyer from the time the buyer defaults.
A seller's failure to deliver the documents and information of the subject matter in accordance with the agreement does not affect the shift of the risks of destruction, damage, or loss of the subject matter.
Where a subject matter fails to meet the quality requirements so that the purpose of the contract cannot be achieved, the buyer may refuse to accept the subject matter or may rescind the contract. Where the buyer refuses to accept the subject matter or rescind the contract, the risks of destruction, damage, or loss of the subject matter shall be borne by the seller.
Article 611
Where a seller’s performance is not in conformity with the agreement,the assumption of the risks of destruction, damage, or loss of the subject matter by the buyer does not affect the buyer's right to request the seller to bear default liability.
A seller has an obligation to guarantee that no third person has any right over the subject matter delivered, unless otherwise provided by law.
Where, at the time a contract is concluded, the buyer knows or should have known that a third person has a right over the subject matter of the contract, the seller shall not assume the obligation provided in the preceding Article.
Where a buyer has a definite evidence to prove that a third person has a right over the subject matter, he may suspend payment therefor, unless the seller has provided an appropriate bond.
A seller shall deliver the subject matter in conformity with the quality requirements as agreed by the parties. Where the seller provides quality specifications of the subject matter, the subject matter delivered shall conform to the specified quality requirements.
Where there is no agreement between the parties on the quality requirements of the subject matter or the agreement is unclear, if the quality requirements cannot be determined according to the provisions of Article 510 of this Code, the provisions of Subparagraph (1) of Article 511 of this Code shall be applied.
Where a subject matter delivered by the seller fails to meet the quality requirements, the buyer may request the seller to bear default liability in accordance with the provisions of Article 582 to 584 of this Code.
Where the parties agree to alleviate or exempt the seller’s liability for the defects of the subject matter, if the seller, intentionally or by gross negligence, fails to inform the buyer about the defect of the subject matter, he has no right to claim alleviation or exemption of the liability.
A seller shall deliver the subject matter in compliance with the packaging method as agreed in the contract. Where there is no agreement between the parties on the packaging method or the agreement is unclear, if the packing method cannot be determined according to the provisions of Article 510 of this Code, the subject matter shall be packed in a general way, or, in the absence of a general way, in a manner sufficient to protect the subject matter and conducive to saving resources and protecting the ecological environment.
After a buyer receives the subject matter, he shall inspect it within the agreed period for inspection. If there is no agreed period for inspection, the buyer shall inspect it in a timely manner.
Where the parties have agreed on a period for inspection, the buyer shall, within the period for inspection, notify the seller of any inconformity of the subject matter with the agreed quantity or quality. If notice is not given to the seller owing to the buyer’s indolence, the subject matter is deemed to be in conformity with the agreed quantity or quality.
Where the parties have not agreed on a period for inspection, the buyer shall notify the seller of any inconformity of the subject matter with the agreed quantity or quality within a reasonable period of time after he discovers or should have discovered the inconformity. Where the buyer fails to notify the seller within a reasonable period of time or within two years after he takes delivery of the subject matter, the subject matter shall be deemed to be in conformity with the agreed quantity or quality, except that where there is a warranty period within which the quality of the subject matter is guaranteed, the warranty period shall be applied.
Where a seller knows or should have known that the subject matter delivered does not conform to the agreement, the buyer is not subject to the time limit for notification as provided in the preceding two paragraphs.
Where a period for inspection agreed by the parties is excessively short, and it is difficult for the buyer to complete a comprehensive inspection within such a period by virtue of the nature of the subject matter and in accordance with the course of dealing, such period shall be deemed only as a period for the buyer to raise objections to the patent defects of the subject matter.
Where an agreed period for inspection or a warranty period for quality guarantee is shorter than the period provided by the relevant laws and administrative regulations, the latter shall prevail.
Where the parties have not agreed on an inspection period, and the buyer has signed a delivery note, confirmation slip, or the like document on which the quantity, model, and specifications of the subject matter are stated, the buyer shall be presumed to have inspected the quantity and the patent defects of the subject matter, unless there is sufficient evidence to overturn such a presumption.
Where a seller delivers a subject matter to a third person according to the instructions given by the buyer, if the inspection standard agreed between the seller and the buyer are inconsistent with that agreed between the buyer and the third person, the inspection standard agreed between the seller and the buyer shall prevail.
Where, in accordance with the provisions of laws and administrative regulations or as agreed by the parties, the subject matter shall be recycled after expiration of its valid service life, the seller has the obligation to recycle the subject matter by himself or by an authorized third person.
A buyer shall make payment in accordance with the agreed amount and method of payment. where there is no agreement between the parties on the amount of price or the method of payment, or the agreement is unclear, the provisions of Article 510 and Subparagraph (2) and (5) of Article 511 of this Code shall be applied.
A buyer shall make payment at the place agreed in the contract. Where there is no agreement between the parties on the place of payment, or the agreement is unclear, if the place cannot be determined in accordance with the provisions of Article 510 of this Code, the buyer shall make the payment at the seller’s place of business, except that payment shall be made at the place where the subject matter or the document for taking delivery thereof is delivered if the payment is conditioned upon the delivery of the subject matter.
A buyer shall make payment at the time agreed in the contract. Where there is no agreement between the parties on the time for payment, or the agreement is unclear, if the time for payment cannot be determined according to the provisions of Article 510 of this Code, the buyer shall make payment at the same time as it receives the subject matter or the document for taking delivery thereof.
Where the amount of the subject matter delivered by a seller exceeds the agreed amount, the buyer may accept or refuse to accept the excessive part. Where the buyer accepts the excessive part, it shall pay for it at the price agreed in the contract. If the buyer refuses to accept the excessive part, he shall notify the seller in a timely manner.
Any proceeds accrued from the subject matter before delivery shall belong to the seller and any proceeds accrued from the subject matter after delivery shall belong to the buyer, unless otherwise agreed by the parties.
Where a contract is rescinded due to the inconformity of the principal subject matter with the agreed requirements, the effect of the rescission shall be effective against the accessory subject matter. Where a contract is rescinded due to the inconformity of the accessory subject matter with the agreed requirements, the effect of the rescission shall be effective against the principal subject matter.
Where the object of a contract is composed of several subject matters, if one of them fails to conform to the requirements agreed in the contract, the buyer may rescind the part of the contract in connection with that subject matter. However, where separation of the said subject matter from the other subject matters is to markedly harm the value of the subject matters of the contract, the buyer may rescind the contract in connection with the multiple subject matters concerned.
Where the subject matters are to be delivered by installment, if a seller fails to deliver one lot of the subject matters, or has delivered the lot in a manner not in conformity with the agreement, so that the purpose of the contract in connection with the said lot cannot be achieved, the buyer may rescind the part of the contract in connection with the said lot.
Where a seller fails to deliver one lot of the subject matters, or delivered the lot in a manner not in conformity with the agreement, so that the subsequent delivery of the remaining lots cannot achieve the purpose of the contract, the buyer may rescind the part of the contract in connection with the said lot and the remaining lots.
Where a buyer has rescinded a part of the contract in connection with one lot of the subject matters, if the said lot and any other lot are interdependent on each other, the buyer may rescind the contract in connection with all the lots disregarding whether they have been delivered or not.
Where a buyer under an installment contract fails to make payment and the unpaid amount reaches one-fifth of the total price, if the buyer still fails to pay the due installment amount within a reasonable period of time after being demanded, the seller may request the buyer to pay the total sum or he may rescind the contract.
The seller who rescinds the contract may request the buyer to pay a fee for the use of the subject matter.
The parties to a sale by sample shall seal up the sample and may make specifications of its quality. The subject matter delivered by the seller shall be identical in quality with the sample and its specifications.
Article 637
The parties to a sale on trial use may agree on a period for trial use of the subject matter. Where there is no agreement between the parties on the period for trial use or the agreement is unclear, if the period for trial use cannot be determined according to the provisions of Article 510 of this Code, it shall be determined by the seller.
A buyer to a sale on trial use may purchase or refuse to purchase the subject matter within the period for trial use. Where, upon expiration of the period for trial use, the buyer makes no indication as to whether to purchase it or not, the buyer is deemed to have purchased the subject matter.
If a buyer to a sale on trial use has, within the period for the trial use, already made partial payment or has sold, leased, created a security interest in the subject matter, the buyer is deemed to have agreed to purchase it.
Where there is no agreement between the parties to a sale on trial use on the fee for the use of the subject matter, or the agreement is unclear, the seller has no right to request the buyer to pay such fee.
The risks of destruction, damage, or loss of the subject matter shall be borne by the seller within the period for the trial use.
The parties may agree in a sales contract that the seller retains the ownership of the subject matter if the buyer fails to pay the price or perform other obligations.
The ownership of the subject matter retained by a seller, without being registered, shall not be asserted against a bona fide third.
Where the parties agree that the seller shall retain the ownership of the subject matter of the contract, unless otherwise agreed by the parties, the seller has the right to take back the subject matter if the buyer falls under any of the following circumstances before such ownership is transferred and losses are thus caused to the seller:
(1) the buyer fails to make payment in accordance with the contract, and fails to pay it within a reasonable period of time after being demanded;
(2) the buyer fails to fulfill the specific conditions in accordance with the contract; or
(3) the buyer sells, pledges, or otherwise improperly disposes of the subject matter.
The seller may negotiate with the buyer to take back the subject matter. Where such negotiation fails, the procedures for enforcement of security interests may be applied mutatis mutandis.
After a seller has taken back the subject matter according to the first paragraph of the preceding Article, the buyer may request to redeem the subject matter if he eliminates the cause for the seller’s retrieving of the subject matter within a reasonable period of redemption agreed by the parties or set by the seller.
Where a buyer does not redeem the subject matter within the redemption period, the seller may sell the subject matter to a third person at a reasonable price. After deducting from the sale proceeds the amount unpaid by the buyer and the necessary expenses, any balance shall be returned to the buyer; if the sale proceeds are insufficient to cover the unpaid amount and the other necessary expenses, the deficiency shall be paid by the buyer.
The rights and obligations of the parties to a sale through bidding, as well as the procedures for the bidding, shall be governed by the provisions of the relevant laws and administrative regulations.
The rights and obligations of the parties to an auction, as well as the procedures of the auction, shall be governed by the provisions of the relevant laws and administrative regulations.
Where there are provisions of laws governing other non-gratuitous contracts, such provisions shall be followed. In an absence of such a provision, the relevant provisions on sales contracts shall be applied mutatis mutandis.
Where the parties agree to transfer the ownership of the subject matter by barter trade, the relevant provisions on sales contracts shall be applied mutatis mutandis.
Chapter X
Contracts for the Supply and Consumption
of Electricity, Water, Gas, or Heat
A contract for the supply and consumption of electricity is a contract under which a supplier provides electricity to the consumer who pays the price in return.
A supplier providing electricity to the public shall not refuse a reasonable request of a consumer to conclude a contract.
A contract for the supply and consumption of electricity generally contains clauses specifying the mode, quality and time of the supply, the volume, address, and nature of the consumption, the measuring method, the price, the settlement method of electricity fees, the responsibility for the maintenance of electricity supply and consumption facilities, and the like.
The place of performance of a contract for the supply and consumption of electricity shall be agreed by the parties; if there is no agreement between the parties or the agreement is unclear, the place of demarcation of the property rights in the electricity supply facilities shall be the place of performance.
A supplier of electricity shall safely supply electricity in accordance with the quality standard for power supply set by the State and in the agreement. Where a supplier fails to safely supply electricity in accordance with the quality standard for power supply set by the State or in the agreement, thus causing losses to the consumer, the supplier shall bear the liability for compensation.
Where a supplier of electricity needs to cut off electricity supply due to scheduled or unscheduled overhauls of the electricity supply facilities, restriction on electricity consumption in accordance with law, or consumer's illegal consumption of the electricity, and the like, he shall notify the consumer in advance in accordance with the relevant regulations of the State. Where a supplier cuts off the electricity supply without notifying the consumer in advance, thus causing losses to the consumer, the supplier shall bear the liability for compensation.
A supplier of electricity shall rush to repair without delay in accordance with the relevant regulations of the State whenever the electricity supply is cut off due to such reasons as natural disasters. Where the supplier fails to do so and thus causes losses to the consumer, the supplier shall bear the liability for compensation.
A consumer of electricity shall pay the electricity fees in time in accordance with the relevant regulations of the State and the agreement between the parties. Where a consumer fails to pay the electricity fees due, he shall pay the agreed liquidated damages. Where a consumer, after being demanded, still fails to pay the electricity fees and the liquidated damages within a reasonable period of time, the supplier may stop the supply of electricity in accordance with the procedures provided by the State.
Where a supplier stops the supply of electricity in accordance with the provision of the preceding paragraph, it shall notify the consumer in advance.
Article 655
A consumer shall use the electricity in a safe, economical and planned manner in accordance with the relevant regulations of the State and the agreement between the parties. Where a consumer fails to use the electricity in accordance with the relevant regulations of the State or the agreement between the parties, and thus causes losses to the supplier, the consumer shall bear the liability for compensation.
The provisions of the contract for the supply and consumption of electricity shall be applied mutatis mutandis to contracts for the supply and consumption of water, gas, or heat.
A gift contract is a contract under which a donor gives his own property to a donee gratuitously, and the donee indicates his acceptance of the gift.
A donor may revoke the gift prior to the transfer of the rights in the gifted property.
The provisions of the preceding paragraph shall not apply to a notarized gift contract, or a gift contract of a public interest or moral obligation nature that shall, in accordance with law, not be revoked, such as a gift contract for disaster-relief, poverty-relief, disability-relief, or the like purposes.
The gifted property shall go through registration or another procedure if the law so requires.
For a notarized gift contract or a gift contract of a public interest or moral obligation nature that shall in accordance with law not be revoked, such as a contract for disaster-relief, poverty-relief, disability-relief, or the like purposes, where the donor does not deliver the gifted property, the donee may request such delivery.
Where the gifted property that shall be delivered in accordance with the preceding paragraph is destructed, damaged, or lost due to the donor’s intentional act or by his gross negligence, the donor shall bear the liability for compensation.
A gift may be subject to an obligation.
Article 661
Where a gift is subject to an obligation, the donee shall perform the obligation in accordance with the agreement.
A donor is not liable for any defect of the gifted property. Where a gift is subject to an obligation, if the gifted property has defects, the donor shall, to the extent of the attached obligation, bear the same liabilities as a seller.
Where a donor intentionally fails to notify the donee about the defect of the gifted property or has made a warranty therefor, thus causing losses to the donee, the donor shall bear the liability for compensation.
A donor may revoke the gift if the donee has done any of the following acts:
(1) severely infringing upon the lawful rights and interests of the donor or any close relative of the donor;
(2) having an obligation to support the donor but failing to perform that obligation; or
(3) failing to perform the obligation as agreed in the gift contract.
The right to revocation of the donor shall be exercised within one year from the date the donor knows or should have known of the cause for revocation.
Where a donee's illegal act leads to the death or loss of capacity for performing civil juristic acts of the donor, the donor’s heir or legal representative may revoke the gift.
The right to revocation of the donor's heir or his legal representative shall be exercised within six months from the date the heir or the legal representative knows or should have known of the cause for revocation.
Upon revocation of a gift, the person having the right to revocation may request the donee to return the gifted property.
Where a donor’s financial situation markedly deteriorates and his production, business, or family life is thus severely affected, he may cease to perform the obligation of delivering the gift.
Article 667
A loan contract is a contract under which a borrower borrows a loan from a lender and repays the loan with interests when the loan becomes due.
A loan contract shall be made in writing, except for a loan between natural persons who agree otherwise.
A loan contract generally contains clauses specifying the category of the loan, kind of currency, purpose of use, amount, interest rate, term, and the method of repayment, and the like.
Upon concluding a loan contract, a borrower shall, as required by the lender, provide true information about its business activities and financial conditions related to the borrowing to the lender.
The interest on a loan may not be deducted from the principal in advance. Where the interest is deducted from the principal in advance, the loan shall be repaid and the interest shall be calculated according to the actual amount of the loan provided.
A lender who fails to provide the loan at the agreed time and amount and thus causing losses to the borrower shall bear the liability for compensation.
A borrower who fails to take the loan at the agreed time and amount shall pay an interest based on the agreed time and amount.
A lender may inspect and supervise the use of the loan in accordance with the agreement. A borrower shall regularly provide the relevant financial and accounting statements or other materials to the lender in accordance with the agreement.
Where a borrower fails to use the loan for a purpose in accordance with the contract, the lender may stop providing the loan, recall the loan prior to its due date, or rescind the contract.
Article 674
A borrower shall pay the interest within the agreed time limit. Where there is no agreement between the parties on the time limit for payment of interest or the agreement is unclear, if it cannot be determined according to the provisions of Article 510 of this Code, the interest shall be paid at the time the principal is repaid if the term of the loan is less than one year; the interest shall be paid at the end of each full year if the term of the loan is more than one year, and the interest shall be paid when the principal is repaid if the remaining term is less than one year.
A borrower shall repay the loan within the agreed time limit. Where there is no agreement between the parties on the time limits of repayment of the loan, or the agreement is unclear, if it cannot be determined according to the provisions of Article 510 of this Code, the borrower may repay the loan at any time, and the lender may demand the borrower to repay the loan within a reasonable period of time.
A borrower who fails to repay the loan within the agreed time limit shall pay an overdue interest in accordance with the agreement or the relevant regulations of the State.
Where a borrower makes a prepayment of the loan, unless otherwise agreed by the parties, the interest shall be calculated according to the actual duration of the loan.
A borrower may apply to the lender for an extension of the term of the loan before the loan becomes due. The term of the loan may be extended upon consent of the lender.
A loan contract between natural persons is formed at the time when the lender provides the loan.
Usurious loans are prohibited, and the interest rate for lending shall not violate the relevant regulations of the State.
Where there is no agreement on payment of interest in the loan contract, the loan shall be deemed as bearing no interest.
Where the agreement on the payment of interest in a loan contract is unclear, if the parties are unable to reach a supplementary agreement, the interest shall be determined by taking account of the practices of the local area or between the parties such as the method of transaction, course of dealing, the market interest rate, and the like. Where the loan is between nature persons, the loan shall be deemed as bearing no interest.
Suretyship Contracts
Section 1
A suretyship contract is a contract under which a surety and a creditor agree, for the purpose of ensuring the enforcement of an underlying claim, that the surety shall perform the obligation or bear the liability when the debtor fails to perform it when it is due or a circumstance as agreed by the parties occurs.
A suretyship contract is an accessary contract subordinated to a principal claim-obligation contract. Where the principal contract is invalid, the suretyship contract is invalid, unless otherwise provided by law.
Where a suretyship contract is determined to be invalid, the debtor, surety, or creditor who are at fault shall each bear civil liability in proportion to their respective fault.
No State-organ legal person may act as a surety, except that a state organ may, upon approval of the State Council, act as a surety in re-lending of the loans granted by a foreign government or an international economic organization.
No non-profit legal person established for public interest purposes or unincorporated organization may act as a surety.
A suretyship contract generally contains clauses specifying the kind and amount of the principal claim that is secured, the time limit for the debtor to perform the obligation, the modes, scope, and term of the suretyship, and the like.
A suretyship contract may be a contract concluded separately in writing or a guarantee clause in a principal claim-obligation contract.
A suretyship contract is formed when a third person unilaterally makes a guarantee in writing to a creditor who accepts it without making an objection.
Article 686
Suretyship consists of general suretyship and suretyship with joint and several liability.
Where there is no agreement in the surety contract on the form of the suretyship or the agreement is unclear, the surety shall bear the liability as in the form of a general suretyship.
Where the parties agree in a suretyship contract that the surety shall undertake suretyship liability if the debtor is unable to perform his obligation, such a suretyship is a general suretyship.
A surety in a general suretyship may refuse to undertake suretyship liability to the creditor before a dispute arising from the principal contract is adjudicated or arbitrated and where the debtor is still unable to fully perform the obligation after his assets have been enforced in accordance with law, unless one of the following circumstances occurs:
(1) the whereabouts of the debtor have been unknown and there is no property available for enforcement;
(2) the people’s court has accepted the debtor’s bankruptcy petition';
(3) the creditor has evidence to prove that the debtor’s property is insufficient to perform all of the obligations or the debtor loses his capacity to perform the obligation; or
(4) the surety waives his right provided in this paragraph in writing.
Where the parties agree in a suretyship contract that the surety and the debtor shall be jointly and severally liable for the obligation, such a suretyship is a suretyship with joint and several liability.
Where a debtor under a suretyship with joint and several liability fails to perform his obligation due or when a circumstance agreed by the parties occurs, the creditor may request the debtor to perform his obligation, or request the surety to undertake the suretyship liability within the scope of his suretyship.
A surety may request the debtor to provide a counter-security.
A surety and a creditor may, through consultation, conclude a contract of maximum suretyship for floating claims to provide guarantee for the creditor’s claims which will arise consecutively within a certain period of time and the total amount of which is up to the maximum amount of his claims. In addition to applying the provisions of this Chapter, the relevant provisions of Book Two of this Code on the maximum mortgage for floating claims shall be applied mutatis mutandis.
The scope of the suretyship covers the principal claims and the interest thereof, the liquidated damages, compensatory damages, and the expenses for enforcing the claim, unless otherwise agreed by the parties.
The term of suretyship is the period during which the surety shall undertake suretyship liability, and such period shall not be suspended, interrupted, or extended.
A creditor and a surety may agree on the term of suretyship. However, where the expiration date of the agreed term of suretyship is earlier than or the same as the expiration time for performance of the principal obligation, it is deemed as there is no agreement on the term of suretyship. Where there is no agreement between the parties on the term of suretyship or the agreement is unclear, the term of suretyship shall be six months from the date of expiration of the time limit for performance of the principal obligation.
Where a creditor and a debtor fails to agree on the time limit for performance of the principal obligation or the agreement is unclear, the term of suretyship shall be counted from the date when the grace period for the creditor to request the debtor to perform the obligation expires.
Where a creditor of a general suretyship fails to file a lawsuit or apply for arbitration against the debtor within the term of suretyship, the surety no longer bears the suretyship liability.
Where a creditor of a suretyship with joint and several liability fails to request the surety to undertake his suretyship liability within the term of suretyship, the surety no longer bears the suretyship liability.
Where a creditor of a general suretyship files a lawsuit or apply for arbitration against the debtor prior to the expiration of the term of suretyship, the limitation period of the suretyship obligation shall be counted from the date when the surety’s right to refuse to undertake the suretyship liability is extinguished.
Where a creditor of a suretyship with joint and several liability requests the surety to undertake his suretyship liability prior to the expiration of the term of suretyship, the limitation period of the suretyship obligation shall be counted from the date when the creditor requests the surety to undertake his suretyship liability.
Where a creditor and a debtor, without the surety’s consent in writing, agree to alter the content of the principal claim-obligation contract, if the obligation is reduced, the surety shall continue to bear the suretyship liability for the altered obligation; if the obligation is increased, the surety shall not bear the suretyship liability for the increased part.
Where a creditor and a debtor alter the time limit for performance of the principal claim-obligation contract, the term of suretyship shall not be affected unless upon the surety’s written consent.
Where a creditor transfers his claim in whole or part without notifying the surety, such a transfer is not effective against the surety.
Where transfer of a claim is prohibited as agreed between the surety and the creditor, if the creditor transfers its claim without the surety’s written consent, the surety shall no longer bear the suretyship liability.
Where a creditor, without the surety’s written consent, allows the debtor to transfer the obligation in whole or part, the surety shall no longer bear the suretyship liability to the extent of the obligation transferred without his consent, unless otherwise agreed by the creditor and the surety.
Where a third person joins to be one of the debtors, the surety’s liability shall not be affected.
Upon expiration of the time limit for performance of the principal obligation, if the surety of a general suretyship provides to the creditor true information concerning the debtor’s property available for enforcement, but the creditor waives or fails to exercise his right, and thus causing such property to be unenforceable, the surety shall no longer bear liability to the extent of the value of the said property available for enforcement the information of which is provided by the surety.
Where there are two or more sureties guaranteeing one obligation, the sureties shall undertake the suretyship liability in proportion to their share of suretyship in accordance with the suretyship contract. In the absence of such an agreement, the creditor may request any of the sureties to undertake the suretyship liability within the scope of his liability.
After a surety has assumed the suretyship liability, unless otherwise agreed by the parties, the surety has the right to indemnification against the debtor within the scope of his suretyship liability, and may enjoy the right of the creditor against the debtor, provided that the creditors’ interests shall not be harmed.
Article 701
A surety may claim a defense that the debtor has against the creditor. Where the debtor waives his right of defense, the surety shall still have the right to claim such defense against the creditor.
Where a debtor has the right of offset or revocation against the creditor, the surety may refuse to undertake the suretyship liability within the corresponding scope.
A lease contract is a contract under which a lessor delivers the leased object to a lessee for use or for obtaining proceeds， for which the lessee pays the rent.
A lease contract generally contains clauses specifying the name， quantity， purpose of use of the leased object， the term of the lease， rent， and the time limit and method of its payment， and the maintenance of the leased object， and the like.
The term of a lease may not exceed twenty years. If a lease exceeds twenty years， the part beyond twenty years is invalid.
Upon expiration of the lease term，the parties may renew the lease contract， provided that the agreed term of lease may not exceed twenty years from the date of renewal.
The parties’ failure to register the lease contract in accordance with the provisions of laws and administrative regulations does not affect the validity of the contract.
A lease contract with a term exceeding six months shall be made in writing. Where the lease contract between the parties is not in writing， if the term cannot be determined, the lease shall be deemed as a lease with an indefinite term.
Article 708
A lessor shall deliver the leased object to the lessee in accordance with the agreement and keep the leased object fit for the agreed use during the lease term.
A lessee shall use the leased object in a manner as agreed by the parties. Where there is no agreement between the parties on the manner of use or the agreement is unclear, if it cannot be determined according to the provisions of Article 510 of this Code, the leased object shall be used in line with its nature.
Where a lessee uses the leased object in a manner as agreed by the parties or in line with its nature, he shall not bear the liability for the wear and tear on the leased object.
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