Announcement of the Supreme People's Court of the People's Republic of China

On December 4, 2023, the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Part of the Civil Code of the People's Republic of China was adopted by the Trial Committee of the Supreme People's Court at its 1889th meeting on May 23, 2023, and is hereby promulgated to come into effect as of December 5, 2023.

This interpretation is formulated in accordance with the Civil Code of the People's Republic of China, the Civil Procedure Law of the People's Republic of China and other relevant laws and regulations, and in the light of court practice, with the aim of correctly deciding cases of contractual disputes and cases of disputes concerning non-contractual obligations and protecting the legitimate interests of the parties in accordance with the law.

Part I. General provisions

Article 1 When interpreting the terms of a contract in accordance with the provisions of Article 142, paragraph 1, and Article 466, paragraph 1, of the Civil Code, the people's court shall determine the meaning of the disputed terms on the basis of the ordinary meanings of the words and phrases, taking into account the relevant provisions, the nature and purpose of the contract, the customary practice and the principle of good faith, and with reference to the context of the contract, the negotiation process and the act of performance, among other factors.
 
Where there is evidence that the parties have a common understanding of the terms of the contract which is different from the ordinary meaning of the words and phrases, the people's court shall not support a party's claim that the terms of the contract should be interpreted in accordance with the ordinary meaning of the words and phrases.
 
Where there are two or more interpretations of a contractual term that may affect the validity of the term, the people's court shall choose the interpretation that favors the validity of the term; in the case of a gratuitous contract, it shall choose the interpretation that is less burdensome for the debtor.

Article 2 The people's courts may recognize the following as " trade practices" within the meaning of the Civil Code, provided that they do not violate the mandatory provisions of laws and administrative regulations and are not contrary to public order and morality:

(i) The usual practice between the parties in the course of their business;
(ii) practices which are customary in the locality or in a particular field or industry of the transaction and which the other party knew or ought to have known at the time of entering into the contract.
 
In the case of a trade practice, the burden of proof is on the party making the claim.


Part II. Formation of contracts

 Article 3 Where there is a dispute between the parties as to whether or not a contract has been formed, and the people's court is able to determine the names of the parties, the subject matter and the quantity, it shall generally find that the contract has been formed. However, unless otherwise provided by law or agreed upon by the parties.

Where a contract can be recognized as having been formed in accordance with the provisions of the preceding paragraph, the people's court shall determine what is lacking in the contract in accordance with the provisions of Articles 510 and 511 of the Civil Code.
 
Where the parties claim that the contract is null and void or request that it be rescinded or terminated, and the people's court finds that the contract has not been formed, it shall consider whether the contract has been formed as the focal point of the trial in accordance with Article 53 of the Provisions of the Supreme People's Court on Certain Provisions Concerning Evidence in Civil Litigation, and may re-designate the period of time for the presentation of evidence in the light of the specific circumstances of the case.



Article 4 Where a contract is formed by means of a bidding procedure and if any parties apply for confirmation that the contract has been formed when the notice of award is received by the successful bidder, the people's court shall grant the application. Where the parties refuse to sign a written contract after the contract has been concluded, the people's court shall determine the content of the contract on the basis of the tender documents, the bidding documents and the notice of award.
 
Where a contract is concluded by means of public bidding, such as live auction or Internet auction, and the parties request to confirm that the contract is formed when the auctioneer drops the hammer and the electronic trading system confirms the transaction, the people's court shall support the request. After the contract is established, the party refuses to sign the confirmation of the transaction, the people's court shall determine the content of the contract on the basis of the auction notice, the bidder's offer.
 
For property rights exchanges institutes and other organizations to hold auctions, listed transactions, if its published auction notices, trading rules and other documents publicly determine the conditions that must be met for the establishment of the contract, the party seeking confirmation of the contract is established, if the conditions are met, the people's court shall support.

Article 5 Where a third party commits fraud or coercion and causes the parties to enter into a contract contrary to their true intentions, the people's court shall, in accordance with the law, uphold the claim of the party who has suffered loss that the third party should be held liable for compensation; if the parties have also acted in violation of the principle of good faith, the people's court shall determine the relevant liability according to the degree of fault of each party. However, if the law or judicial interpretations stipulate otherwise regarding the civil liability of the parties and the third party, they shall be followed.

Article 6 If the parties agree to conclude a contract within a certain period of time in the future in the form of a subscription, order, reservation, etc., or make a deposit to guarantee the conclusion of a contract within a certain period of time in the future, and are able to determine the subject matter of the contract to be concluded in the future, the people's court shall determine that the reservation contract has been established.
 
If a party claims that a reservation contract has been established by signing a letter of intent or a memorandum of understanding that only expresses the intention of the transaction without agreeing to conclude a contract within a certain period of time in the future, or if there is such an agreement but it is difficult to determine the subject matter and subject matter of the contract to be concluded in the future, the people's court shall not support the claim that the reservation contract has been established.
 
If the parties have entered into a subscription, order, booking, etc. on the subject matter of the contract, the quantity, price or remuneration and other main content of the contract in accordance with the conditions for the establishment of the contract as stipulated in paragraph 1 of Article 3 of this Interpretation, without expressly agreeing to enter into a separate contract within a certain period of time in the future, or although there is an agreement, but one of the parties has carried out the act and the other party accepts it, the people's court shall determine that the contract has been established.

Article 7 If, after the reservation contract has entered into force, one of the parties refuses to conclude the present contract or fails to do so by violating the principle of good faith while negotiating for the conclusion of the present contract, the people's court shall find that the party concerned has not fulfilled its obligations under the reservation contract.
 
In determining whether a party has violated the principle of good faith while negotiating for the conclusion of the present contract, the people's court shall take into account such factors as whether the conditions proposed by the party during the negotiation are a clear deviation from the content of the contractual agreement on the reservation, as well as whether the party has made reasonable efforts to carry out the negotiation.

Article 8 If, after the reservation contract has come into effect, one of the parties fails to fulfill its obligation to enter into this contract, and the other party demands compensation for the loss caused thereby, the people's court shall uphold the demand in accordance with the law.
 
If the parties have agreed on the compensation for the losses specified in the preceding paragraph, such agreement shall apply;If there is no agreement, the people's court shall make a decision taking into account factors such as the completeness of the contract and the achievement of the conditions for concluding this contract.

Article 9 If the contract terms comply with the provisions of the first paragraph of Article 496 of the Civil Code, if the parties claim that the contract is not a standard term only on the grounds that the contract is made on the basis of a model contract text or that the parties have clearly agreed that the contract terms are not standard terms, the people's court shall not support it.
 
If a party engaged in business activities claims that the contract terms that it has drawn up in advance and has not negotiated with the other party are not standard terms only on the grounds that they are not actually reused, the people's court shall not support it.Except, however, where there is evidence that the provision was not prepared in advance for reuse.

Article 10 If at the conclusion of the contract, the party providing the standard terms adopts characters, symbols, fonts and other obvious signs which are usually sufficient to attract the attention of the other party, to remind the other party to pay attention to the abnormal terms which exempt or reduce its liability, exclude or limit the rights of the other party and have a major interest in the other party, the people's court may find that it has fulfilled the obligation of presentation provided for in the second paragraph of Article 496 of the Civil Code.
 
If the party providing the standard clause, at the request of the other party, makes a generally understandable explanation in written or oral form to the other party on the concept, content and legal consequences of the abnormal clause in which the other party has a major interest, the people's court may hold that it has fulfilled the obligation of explanation provided for in the second paragraph of Article 496 of the Civil Code.
 
The party providing the standard terms bears the burden of proof that it has fulfilled the obligation of presentation or explanation.For an electronic contract concluded through the Internet or other information network, where the party providing the standard terms claims that it has performed the obligation of presentation or explanation only by means of setting a check box or pop-up window, the people's court shall not support it, except where the evidence provided complies with the provisions of the preceding two paragraphs.

(to be continued) 

Disclaimer: This article is only for academic purpose and not intended for providing any legal advice for any specific cases, individuals or organizations.