Civil Code Series II: Changes for PRC Contractual Law Brought by the new Civil Code

Civil Code Series II: Changes for PRC Contractual Law Brought by the new Civil Code

Executive Summary

Civil Code which will take effect on January 1, 2021 endeavors to keep pace with the development of market by bringing some new rules for certain contracts, subsequently affecting certain transactions. With this Article we introduce some new rules in the field of contract law worth your attention.

On May 28, 2020, China’s supreme legislature passed China’s first civil code (“Civil Code”) which comprises of seven chapters plus supplementary provisions. Chapter Three Contract is divided into three subchapters:

  • General Provisions provides for conclusion, validity, performance, modification, termination, liability for breach of contract;
  • Typical Contracts lists 18 typical contracts such as sale contract, lease contract, technology contract, guarantee contract, storage contract, and partnership contract, and the subchapter sets forth more detailed rules for each typical contract;
  • Quasi-contracts contains two forms, one is negotiorum gestio,1 the other is unjust enrichment.

So far, contractual law in China primarily consists of the PRC Contract Law, judicial interpretation, etc. All of them have been incorporated into and supplemented by the Civil Code. Upon taking effect of the Civil Code, it will certainly have influence on foreign-related transactions in China.

We highlight the main changes on contractual law for your reference:

I. Major Innovations Provided by the Civil Code

II. Significant Changes Comparing the Civil Code to Current PRC Contract Law

Note: The underlined content is the expansion upon comparison

1. Expanding Subrogation Right for Creditor

2. Expanding Cancellation Right for Creditor

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We expect many judicial interpretations will appear as guidance for practice once the Civil Code takes effect. Asiallians will keep a close eye on the practical implementations.

Please be advised that it is always appropriate for companies to mechanically follow corresponding legal provisions when drafting a contract, as legal provisions are only basic essential regulation and a contract should always be tailored to the planned specific legal transaction. Further, companies shall always properly safekeep the company chops and make sure the company chops are properly used for executing contracts. 

(1) “Negotiorum gestio” means “where an administrator who does not have statutory or contractual obligations manages the affairs of others to avoid losses to the interests of others, the administrator may request the beneficiaries to reimburse the necessary expenses for managing the affairs; where an administrator suffers losses from management affairs, the administrator may request the beneficiaries to pay appropriate compensation.” Article 979 of the Civil Code

(2) Article 469 of the Civil Code

(3) Article 490 of the Civil Code

(4) Please note this situation is different from parties concluding oral contracts—this situation is where a written contract has been negotiated but not executed properly, Specifically, the situation is for the following two circumstances: 1) where the contract is required to be concluded in written form under laws and regulations, for example, a pledge contract, a lease contract where the lease term more than six months, a technology development contract, a technology transfer contract, a technology license contract, etc, or 2) parties agree to conclude written contract.
In this situation, the contract is considered as being concluded in written form. This is not transfer to oral contract.

(5) Article 491 of the Civil Code

(6) Article 495 of the Civil Code

(7) Article 496 of the Civil Code

(8) “E-contract” means the contract executed (signed/sealed) online, please note this is different from contract in electronic version. The PRC Electronic Signature Law provides the requirements for the qualified execution of contract online. In real world, there are e-signature platforms emerging at a fast rate.

(9) Article 604 of the Civil Code

(10) Article 512 of the Civil Code

(11) Article 536 of the Civil Code

(12) Article 73 of the PRC Contract Law

(13) Article 538-39 of the Civil Code

(14) Article 74 of the PRC Contract Law

Should you need more details, please contact us at asiallians@asiallians.com. As always, Asiallians remains at your service and our teams are currently mobilized in all our offices in China, Hong Kong and Taipei.