As mentioned in the first article of our series, you know by now that the People’s Republic of China (PRC) has its own Civil Code 📕, effective January 1st, 2021.
Reflecting on its implications on businesses, the third and last article of our series addresses the performance of contracts.
If you have missed our previous publications on this topic, click here for a read 👇.
1. Modification and assignment ✍
A change of name, legal representative, person in charge or person handling the contract does not affect the contract if it is already effective (article 532).
An unforeseeable and significant change of basic contractual conditions, not belonging to commercial risks and making it unfair for a party to perform, can be a ground for renegotiation. In case of failure to renegotiate, the parties could resort to a Court or arbitration (article 533).
A contract can be modified if the parties reach an agreement (article 543).
If not already allowed by law or agreement, assignment of a contract is possible after notification unless the nature of the contract prevents it or it is forbidden by law or agreement (articles 545 and 546).
As for force majeure, it can impact the performance of a contract and exempt the party involved from liability, provided a timely notice is sent (article 590).
2. Suspension of contracts ⏳
It is possible for a party to suspend the performance of a contract if they have conclusive evidence that:
- The business of the other is seriously deteriorating.
- The other is trying to evade debts (property transferring or funds withdrawing to that purpose).
- The other is losing business reputation.
- Other circumstances proving or likely to prove that the other is losing its ability to perform (article 527).
The suspension shall be timely notified, and performance resumed in case of guarantee given by the other party (article 528).
A party can also suspend the performance of a contract if it becomes difficult due to the absence of notification of a division, merger or change in domicile (article 529).
3. Liability ⚠
The consequences of the absence of agreement or unclear agreement as to liability for breach are addressed in article 582, while articles 585 and 586 respectively deals with liquidated damages and security deposits for claims.
Failure to perform its obligations by a party is a breach of contract, involving liability. Remedies include obligation to perform, compensation for loss, or other remedial measures (article 577).
4. Interpretation 💭
Dispute over the understanding of a contractual provision, including discrepancy between multi-lingual versions, is resolved in light of the literal meaning, as well as the nature, the purpose, the usual practices and good faith (articles 466, with reference to article 142).
Standard terms are interpreted based on the usual understanding, except in case of multiple interpretations, where preference is given to the interpretation that favors the party who accepted the standard terms (article 498).
As mentioned previously, the legal ecosystem in the People’s Republic of China is definitely evolving.
At this stage, and since this Civil Code is breaking news, we need to observe and assess the impacts of these new developments, whether on businesses or on individuals.
Is there more codification on the way❓
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