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The Supreme People’s Court
Interpretations the Supreme People’s Court of Certain Issues Concerning the Application of the Contract Law of the People’s Republic
of China(part One)
FaShi [1999] No.19
December 29, 1999
“The Supreme People’s Court’s Interpretations of Certain Issues Concerning the Application of the Contract Law of the People’s Republic
of China(part One)” is adopted at the 1090th Session of the Adjudication Committee of the Supreme People’s Court on December 1, and
is promulgated now, this law will be effective as of December 29,1999.
Pursuant to The Contract Law of the People’s Republic of China (hereinafter the “Contract Law”), and with a view to facilitating the
proper adjudication of contractual disputes, we hereby promulgate the following interpretations of certain issues concerning the
application of the Contract Law by People’s Courts:
I. Scope of Application of the Law
Article 1
Where a suit is brought to a People’s Court in respect of a dispute arising out of a contract formed after the operative date of the
Contract Law, the provisions of the Contract Law shall apply; where a suit is brought to a People’s Court in respect of a dispute
concerning a contract formed before the operative date of the Contract Law, except otherwise provided herein, the provisions of the
law in effect at the time shall apply, provided that if the law in effect at the time did not provide for such matter, the relevant
provision of the Contract Law may apply.
Article 2
Where a contract was formed before the operative date of the Contract Law, but the prescribed time limit for performance extends beyond,
or commences after, the operative date of the Contract Law, if a dispute arises out of its performance, the relevant provisions of
Chapter Four of the Contract Law shall apply.
Article 3
In determining the validity of a contract formed before the operative date of the Contract Law, if application of the law in effect
at the time leads to its invalidation, but application of the Contract Law leads to affirmation of its validity, the People’s Court
shall apply the Contract Law.
Article 4
After the Contract Law became operative, a People’s Court may only invalidate a contract in accordance with laws adopted by the National
People’s Congress or its Standing Committee, or administrative regulations adopted by the State Council, and may not invalidate a
contract in accordance with any local statutes or administrative rules.
Article 5
Where a People’s Court re-adjudicates a case on which a final judgment has been rendered, the Contract Law does not apply.
II. Time Limit for Action
Article 6
In a dispute arising out of a technology contract, where infringement of the right of a party occurred before the operative date of
the Contract Law, if there was a lapse of more than one year between the date on which the party knew or should have known that its
right was infringed and the operative date of the Contract Law, the People’s Court will no longer enforce such right; where the lapse
was less than one year, the time limit during which the party may bring a suit shall be two years.
Article 7
In a dispute arising out of a technology import/export contract, where infringement of the right of a party occurred before the operative
date of the Contract Law, if there was a lapse of more than two years between the date on which the party knew or should have known
that its right was infringed and the operative date of the Contract Law, the People’s Court will no longer enforce such right; where
the lapse was less than two years, the time limit during which the party may bring a suit shall be four years.
Article 8
The time period of “one year” set out in Article 55 , and the time period of “five years” set out in Article 75 and Paragraph 2 of
Article 104 of the Contract Law are fixed, and are not subject to the rules governing the suspension, termination or extension of
time limit for action.
III. Validity of Contracts
Article 9
Where as set forth in Paragraph 2 of Article 44 of the Contract Law, the relevant law or administration regulation provides that
the effectiveness of a certain contract is subject to completion of the relevant approval procedure, or the relevant approval and
registration procedures, if before completion of court debate by the parties in the trial of first instance, the parties still fail
to carry out the relevant approval procedure, or approval and registration procedures, as the case may be, the People’s Court shall
rule that the contract has not yet taken effect; if the relevant law or administration regulation requires that a certain contract
be registered without subjecting its effectiveness to such registration, then failure to effect registration shall not impair the
effectiveness of the contract, provided that such failure constitutes an impediment to the conveyance of post_title to, or such other
real right in, the subject matter of the contract.
In the case of amendment, assignment or termination of a contract as set forth in Paragraph 2 of Article 77 , Article 87 , and Paragraph
2 of Article 96 of the Contract Law, the provisions of the previous Paragraph apply.
Article 10
Where the parties entered into a contract the subject matter of which was outside their scope of business, the People’s Court shall
not invalidate the contract on such ground, except where conclusion of the contract was in violation of state restriction concerning,
or licensing requirement for, a particular business sector, or in violation of any law or administrative regulation prohibiting the
parties from participation in a particular business sector.
IV. Subrogation
Article 11
Where an obligee is to bring a suit of subrogation pursuant to Article 73 of the Contract Law, the following conditions shall be
met:
(1)
The obligee’s creditor’s right against the obligor is lawful;
(2)
The obligor’s delay in exercising the creditor’s right due to it has caused harm to the obligee;
(3)
The creditor’s right of the obligor is due;
(4)
The creditor’s right of the obligor is not exclusively personal to it.
Article 12
As referred to in Paragraph 1 of Article 73 , a creditor’s right exclusively personal to the obligor means a claim for alimony, child
support, parental support or succession, or, a claim for wage, retirement pension, old age pension, death benefits, relocation allowance
or life insurance, or, a personal injury claim.
Article 13
The article “Where the obligor delayed in exercising its creditor’s right against a third person that was due, thereby harming the
obligee” in Article 73 of the Contract Law refers to the following circumstance: The obligor fails to render performance which is
due to the obligee, and further, it has failed to enforce a creditor’s right which is due to it and which involves the payment of
money against an obligor either through a suit in court or through arbitration, thereby frustrating the obligee’s realization of
the creditor’s right due to it.
Where the secondary obligor (i.e. the obligor of the original obligor) denies that the obligor has delayed in exercising its creditor’s
right due to it, the secondary obligor bears the burden of proof.
Article 14
Where an obligee brings a suit of subrogation pursuant to Article 73 of the Contract Law, jurisdiction shall vest in the People’s
Court in the place where the defendant is domiciled.
Article 15
Where after bringing a suit against an obligor to a People’s Court, an obligee brings a suit of subrogation against a secondary obligor
to the same court, if such suit complies with the provisions of Article 13 hereof as well as the conditions for bringing a suit
set forth in Article 108 of the Civil Procedural Law of the People’s Republic of China, the court shall accept such suit; where
such suit does not comply with Article 13 hereof, the court shall direct the obligee to bring a separate suit to the People’s Court
in the place where the secondary obligor is domiciled.
Before judgment on the suit brought by the obligee against the obligor takes legal effect, the People’s Court adjudicating the suit
of subrogation against the secondary obligor shall stay such suit in accordance with Item (5) of Article 136 of the Civil Procedural
Law of the People’s Republic of China.
Article 16
Where in a suit of subrogation brought to a People’s Court, an obligee names only the secondary obligor as the defendant without also
naming the original obligor as an interested third person, the People’s Court may add the original obligor as an interested third
person.
Where in suits of subrogation brought separately by two or more obligees, the same secondary obligor is named as the defendant, the
People’s Court may combine the suits for adjudication.
Article 17
In a suit of subrogation, if the obligee petitions the People’s Court for preservative measure against the assets of the secondary
obligor, it shall provide appropriate financial assurance.
Article 18
In a suit of subrogation, the secondary obligor may, in respect of the obligee, avail itself of any defense it has against the original
obligor. In a suit of subrogation, where the obligor raises a defense against the obligee’s claim, if the People’s Court affirms
the defense, it shall dismiss the suit brought by the obligee.
Article 19
In a suit of subrogation, if the obligee prevails, the court fee shall be borne by the secondary obligor, and shall be paid in priority
out of the proceeds from the enforced creditor’s right.
Article 20
Where an obligee brings a suit of subrogation against a secondary obligor, and the People’s Court affirms the subrogation, the secondary
obligor shall perform the payment obligation, whereupon the respective obligee-obligor relationships between the obligee and the
obligor, and between the obligor and the secondary obligor, are discharged accordingly.
Article 21
In a suit of subrogation, where the amount in subrogation claimed by the obligee exceeds the amount owed by the obligor or the amount
owed to the obligor by the secondary obligor, the People’s Court shall not enforce the claim to the extent the claimed amount exceeds
the actual amount.
Article 22
In a suit of subrogation, if the obligor also brings a claim against the secondary obligor for the difference between the amount owed
to it and the amount in subrogation claimed by the obligee, the People’s Court shall direct the obligor to bring a separate suit
to the People’s Court with the proper jurisdiction.
Where such suit brought separately by the obligor meets the legally prescribed conditions, the People’s Court shall accept such suit;
the People’s Court accepting the suit brought by the obligor shall stay such suit in accordance with the law pending the legal effectiveness
of the judgment on the suit of subrogation.
V. Cancellation Right
Article 23
Where an obligee brings a suit to enforce its cancellation right pursuant to Article 74 of the Contract Law, jurisdiction shall vest
in the People’s Court in the place where the defendant is domiciled.
Article 24
If in a suit to enforce its cancellation right pursuant to Article 74 of the Contract Law, the obligee only names the obligor as
the defendant without also naming the beneficiary or the assignee as an interested third person, the People’s Court may add such
beneficiary or assignee as an interested third person.
Article 25
Where an obligee brings a suit to enforce its cancellation right pursuant to Article 74 of the Contract Law and petitions the People’s
Court for cancellation of the obligor’s act of waiving its creditor’s right or transferring its property, the People’s Court shall
adjudicate the case to the extent of the amount claimed by the obligee, and if the obligor’s act is canceled in accordance with the
law, such act is of no effect.
Where suits on the same subject matter are filed separately by two or more obligees to enforce their respective cancellation rights,
and the same obligor is named as the defendant, the People’s Court may combine the suits for adjudication.
Article 26
The necessary expenses incurred by the obligee in enforcing its cancellation right, such as attorney’s fee and travel expenses, shall
be borne by the obligor; where the interested third person was also at fault, it shall share such expenses as appropriate.
VI. Interested Third Person in Case of Assignment of Contracts
Article 27
If subsequent to the obligee’s assignment of its contractual right, a suit is brought to a People’s Court in respect of a dispute
between the obligor and the assignee which arose from the performance of the contract, and the obligor raises a defense against the
contractual right of the obligee, it may name the obligee as an interested third person.
Article 28
If with the consent of the obligee, the obligor has delegated its contractual obligation, and subsequently a suit is brought to a
People’s Court in respect of a dispute between the obligee and the delegatee which arose from the performance of the contract, and
the delegatee, in defense against the obligee, avails itself of the obligor’s right against the obligee, it may name the obligor
as an interested third person.
Article 29
If with the consent of the other party, a party concurrently assigned its contractual rights and delegated its contractual obligations
to an assignee, and subsequently a suit is brought to a People’s Court in respect of a dispute between the other party and the assignee
which arose from the performance of the contract, and the other party raises a defense in respect of the rights and obligations under
the contract, it may name the obligor as an interested third person.
VII. Merger of Claims
Article 30
Where at the time the obligee brought a suit to a People’s Court, it made an election of claim in accordance with Article 122 of
the Contract Law, and subsequently it changes its election, if the change is made before the commencement of hearing in the trial
of first instance, the People’s Court shall allow such change. In the event the other party objects to the jurisdiction of the court
and such objection is sustained, the People’s Court shall dismiss such suit.
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