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.
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,
👉 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,
👉 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.
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.
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Click here to read part 1 of our series ➡️ https://www.linkedin.com/pulse/civil-code-peoples-republic-china-overview-shift-nicolas-coster.
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Interview with Mr. Nicolas COSTER by DAXUE Consulting regarding
Learn the bankruptcy procedures in China
Please click on the following link for the Podcast:
In this China business vlog, Nicolas Coster, a French business lawyer, talks about the nuances that businesses face when closing a company in China.
1. It is required to apply to the tribunal to file a lawsuit to start the procedure for bankruptcy. So, any third party to which the company owes some money is able to go to the court and apply for bankruptcy.
2. It could be a long process, if you go to a 1-tie city it is possible to close the bankruptcy within six months to twelve months. But if you go to smaller cities, it can last for up to 5 years.
3. For a limited company, the risk for the investor depends if they pay or they didn't pay the registered capital.
4. As for the intangible asset, the liquidator will probably sell them and an auction will be organized; so, some party will be able to buy the intangible asset.