Introduction
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 👇.
Part 1 ➡️ https://www.linkedin.com/pulse/civil-code-peoples-republic-china-overview-shift-nicolas-coster.
Part 2 ➡️ https://www.linkedin.com/pulse/civil-code-peoples-republic-china-contracts-part-2-nicolas-coster/?trackingId=vCgrQd61KAmv137hhDhW3Q%3D%3D
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).
Conclusion
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❓
To know more about Chinese law developments, follow us!
#china #legal #costerassociates
Introduction
As mentioned in our first article on this topic, you know that the People’s Republic of China (PRC) has its own Civil Code 📕, entering into force on January 1st, 2021.
To continue reflecting on this change, let’s focus now on the implications of the PRC Civil Code on businesses.
As a business, you need to enter into agreements with your partners and clients, and hence formalize your contracts with them.
Part III of the Civil Code, with 525 articles, precisely deals about contracts, the topic of this article.
Let’s address here in this part 2 the general principles of concluding contracts.
1.Principles ⚖️
Contracts are defined as agreements between civil subjects, establishing, modifying or terminating a civil legal relationship (article 464).
As such, they are submitted to the general principles that emerge more generally from the Civil code, namely:
👉 compliance with laws,
👉 good faith,
👉 fairness,
👉 confidentiality and protection of trade secrets,
👉 importance of trade practices,
👉 environmental concerns.
Lawfully concluded contracts being binding on the parties (article 465), special attention shall be paid to their drafting.
2.Conclusion of contracts 🖊️
A contract is concluded when an acceptance meets an offer or by other methods (article 471). It can be done in writing (tangible document or verified electronic data), oral or in some other form (article 469).
This gives a hint on the willingness to encompass contracts in a broad spectrum and stresses their important as a consequence.
The following provisions should generally be included in a contract (article 470):
👉 names and headquarters of the parties,
👉 subject matter,
👉 quantity,
👉 quality,
👉 price or remuneration,
👉 time limit, place and method of performance,
👉 liability for breach,
👉 dispute settlement method.
A supplementary agreement can be concluded in case of absence or unclear provisions about quality, price or remuneration, or place of performance. Otherwise, the relevant terms of the contract or trading practices shall apply (article 510).
3.Focus on standard terms 📄
Standard terms are allowed, provided they are fair, and appropriate information is shared with the other party, especially for instance on the exclusion or mitigation of liability (article 496).
Unreasonable exemption or reduction of liability, or major rights limitation and liability increase for the other, are grounds for invalidity of standard terms (article 497).
4.Typical contracts 🔍
After detailing the general principles, the Civil Code addresses a range of typical contracts (from article 595 to 978), defining them and explaining their specificities: sales, loan, guarantee, construction, technology, warehousing, intermediary, partnerships, etc.
Conclusion
Due to its significance, the Contracts’ section of PRC Civil Code is an evidence of the emphasis placed on the subject area.
It tackles contracts in a comprehensive way, from conclusion to termination.
➡️ Next up, stay tuned for part 3, the last of our series on PRC Civil Code, focusing on contracts’ performance.
To know more about Chinese law developments, follow us!
Click here to read part 1 of our series ➡️ https://www.linkedin.com/pulse/civil-code-peoples-republic-china-overview-shift-nicolas-coster.
#china #legal #costerassociates
LE CRÉDIT SOCIAL CHINOIS
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