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Judicial Interpretation on Several Issues Regarding Application to PRC Contract Law (II) 最高人民法院关于适用《中华人民共和国合同法》若干问题的解释（二）
June 30, 2009
Released on May 13, 2009, and effective as of the same date
With immediate effect, the Supreme People's Court (SPC) on May 13, 2009, issued the judicial interpretation on application to the PRC Contract Law (Contract Law-JI). This new Contract Law-JI mainly discusses five issues in aspects of (1) Conclusion of Contract, (2) Effectiveness of Contract, (3) Performance of Contract, (4) Termination of Right and Obligation in the Contract and (5) Liability for Breach of Contract.
(1) Conclusion of Contract:
- Unless provided by laws and regulations, the people’s court can recognize that the contract is entered as other forms where no written or oral contract exists but can conclude from the civil acts that the Parties have entered into a contract;
- If the place where the contract is agreed to be signed is not the same as the one where the contract is actually signed, the people's court shall recognize the contract is signed in the place agreed by the Parties. If there is no agreed place in the written contract or the contract is signed in different places, the people's court shall recognize the place where the contract is finally signed as the contract signing place;
- When people enter into a written contract, the Parties could sign or seal the contract. If the Parties use a fingerprint to sign a contract, the people's court shall also recognize its effectiveness as signing or sealing the contract;
- As long as any one of the following circumstances that occurs does not breach the compulsory provisions of laws and administrative regulations, the people's court could recognize it as the "transaction practices":
- Such behavior is normally adopted in the transaction place, in certain industry or area, and the Parties knew or should have known such behavior when the contract is entered into; or
- The behavior is usually used by the Parties.
(2) Effectiveness of Contract:
- This Contract Law-JI further clarifies that where a contract is entered into in the name of a principal by a person who has no power of agency but the principal has already started performing the obligation of the contract, this shall be deemed as the principal ratifying the contract. And thus, the contract is effective.
Facing the long-standing transaction challenge that the vendor enters into several contracts with several purchasers against only one subject matter and in order to legally protect the safety of the transaction Parties, this Contract Law-JI states that under this situation, the people's court shall support the claim of liability for breach of contract brought by the purchasers who couldn't get the subject matter based on the contract entered into with the vendor. - This is a remedy against the multiple disposition of one subject matter (including movables and premises).
(3) Termination of Right and Obligation in the Contract:
- This Contract Law-JI introduces the concept of "Substantial Change of Circumstances." Where:
- 1) the unexpected and substantial circumstance, which are not caused by the force-majeure and can not be attributable to the commercial risks, occurs after the contract is entered into and;
- 2) Continuing to perform the contract will be obviously unfair to the Party or the aim of the contract can not be realized, based on the principal of fairness, the people's court could determine in accordance with the actual situations, either changing or dissolving the contract against the change or dissolution claim brought by the parties. The principle of substantial change of circumstance is an exception to the idea where the contract shall be adhered to.
(4) Liability for Breach of Contract:
- This Contract Law-JI specifically provides a clear standard that where the liquidated damages agreed by the Parties exceed 30% of the loss caused, it should be deemed as being excessively higher than the loss caused according to Article 114 of the Contract Law. And the Party may petition a people's court or an arbitral institution to reduce the amount appropriately.