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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by ZHANG Yuejiao and Daniel Arthur LAPRES
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The first discussions in China of the introduction of a legal system of Western inspiration go back to the 19th century. For instance, Tan Zitong (1865-1898), an official at the Qing court, recommended that the feudal system of governing China be replaced by an appropriate Western system of legal administration.1
In 1904, before the overthrow of the Qing dynasty seven years later, the Imperial Law Codification Commission was founded to consider adoption of appropriate foreign legal concepts, but it was not until the mid 1930s, when the Nationalist regime was already in disarray, that a series of six codes were completed, including a civil code and a code of civil procedure.2 The direct source of inspiration for these Codes was Japanese law of the time, itself grounded to a certain extent in German law and to a lesser extent in French sources.3
The Chinese Soviet Republic (1931–1934) implemented a legal system inspired by disparate sources including communist ideology (both Russian and nationalist), Qing Code norms and remnants of the Nationalist legal reforms.
But after the Communist Revolution, all the laws of the prior regime were repealed and, though some 150 laws were adopted under the new regime, authority was actually exercised on political considerations.
Prior to the launching of the reform and opening up movement, no citizen could bring an action before the Chinese courts to enforce rights to property.
But the implementation of a socialist market economy has induced the instauration of property rights and the development of civil rights. Provisions in the Constitution of 1982 were adopted for this purpose.
The General Principles of Civil Law (the GPCL)4 became effective as of January 1, 1987 and represent a milestone in the development of Chinese law. It remains debatable whether the foreign influences colour Chinese civil law as closer to the common law or to the civil law legal families. The better view is likely that Chinese civil law is sui generis.
While there is continuous discussion of the adoption of a “civil code”, there remains for the time being an intertwining of norms on the major topics of civil law: constitutional protections for private property and rights of access to courts for wrongs causing harm to private rights, the Contract Law 5 and its antecedents, the Property Law adopted in 2007 6 and its antecedents, and the Trust Law.7
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The GPCL cover some but not all the subjects found in a typical Western European civil code. In particular, the GPCL contains chapters on citizens’ civil rights,8 legal persons, legal acts and agency, civil liability,9 limitation periods,10 and the application of Chinese law in civil relations involving foreigners.
Parties to a civil relationship have equal status.11
In civil activities, the principles of free will (zi yuan), fairness (gong ping), equivalent value for the price (deng jia you chang), honesty (cheng shi) and trustworthiness (xin yong) must be respected.12
The lawful civil rights and interests of citizens and legal persons are protected by law, and no organization or individual may infringe upon them.13 Lawfully established contracts are protected by law.14
Civil conduct must respect social ethics and must not harm the public interest, undermine State economic plans or disrupt social economic order.15
Where no provisions of law govern any conduct or situation, they are appreciated in the light of State policies.16
Except as otherwise stipulated by law, the GPCL apply to civil activities within the People’s Republic of China (the PRC).17
The age of majority in China is 18 years.18
The people’s congresses of the national autonomous areas may, in accordance with the principles of the GPCL, enact adapting or supplementary regulations to accord with the characteristics of the local nationalities.19
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According to article 71 of the GPCL, “property ownership” means the owner’s rights to lawfully possess, utilize, profit from and dispose of property.
State property is owned by the whole people. It is sacred and inviolable and no organization or individual may seize, encroach upon, privately divide, retain or destroy it.20
According to article 74 of the GPCL, property of collective organizations of the working masses includes:
A citizen’s personal property includes his/her lawfully earned income, housing, savings, articles for daily use, objects, books, reference materials, trees, livestock, as well as means of production the law permits a citizen to possess.21
Citizens have the right to inherit property.22
Property may be owned jointly by two or more citizens or legal persons. There are two kinds of joint ownership: co-ownership by shares, and common ownership. Each of the co-owners enjoys rights and assumes obligations with respect to joint property in proportion to their shares.23 Each of the common owners enjoys the rights and assumes the obligations that arise in connection with the joint property. Co-owners have the right to withdraw their own shares of the joint property and to transfer them subject to the other co-owners’ right of pre-emption on equivalent terms.24
Articles 94 through 97 of the GPCL guarantee protection to copyrights, patents, trademarks and rights of discovery.
Citizens’ personal rights include the right to life and health,25 to determine, use or change their personal names,26 to the exclusivity of their portrait,27 and to protection of their reputation28 and their honour.29
Lawfully concluded contracts enjoy protection under the law.30
Women enjoy civil rights on the basis of equality with men.31
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The debts of an individual business32 or a lease-holding farm33 household are secured with the individual’s property if the business is operated by an individual and with the family’s property if the business is operated by a family.34
In individual partnerships, the property accumulated in partnership operations belongs to all the partners and it is under their unified management and use.35 The operational activities of an individual partnership are decided jointly by the partners, each of whom has the right to carry out and supervise those activities. All partners bear civil liability for the operational activities of personnel acting within the scope of partnership business.36
Among themselves, the partners account for their partnership’s debts in proportion to their respective contributions to its capital or according to their agreement otherwise, but they are jointly liable toward creditors.37
Legal persons are organizations that enjoy civil rights and have capacity for civil conduct.38
A legal person’s domicile is where its main administrative office is located.39
An enterprise as legal person must limit its operations to those within the range approved and registered.40
Enterprises as legal persons bear civil liability for the acts of their legal representatives and other personnel in the context of the enterprise’s operations.41 Enterprises owned by the whole people, as legal persons, bear civil liability within the limits of the property that the State authorizes them to manage.
Enterprises under collective ownership are liable on the property they own.42
Enterprises as legal persons as well as their legal representatives may suffer administrative sanctions and in appropriate cases they are exposed to pursuits under the criminal law for the following acts:
Independently funded official organs also qualify as legal persons.44
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Two or more enterprises or enterprises and institutions may engage in an economic association that independently bears civil liability and qualifies as a legal person.45 Or they may conduct joint operations without qualifying as a legal person.46
Legal acts are those that establish, change or terminate civil rights and obligations. They may be carried out by individuals or legal persons;47 they must be genuine and they may not violate the law or the public interest.48
Unless a particular form is required by law, legal acts may be in written, oral or in another form.49
Except in accordance with the law or unless the interested party consents, legal acts may not be altered or rescinded.50
Where the person performing a legal act seriously misunderstands its contents or where it is obviously unfair, it may be set aside by a people’s court.51
Legal acts performed under the guise of legitimate acts but concealing illegitimate purposes are void.52
Legal acts may be carried out through agents for whose acts within the scope of their authority their principles bear liability.53
Agencies are classified as entrusted, statutory or appointed. For business purposes, entrusted agencies that arise when a principal entrusts the agent with powers to act on its behalf are especially significant.54
Unless required by law to be in writing, the accomplishment of legal acts may be entrusted to an agent in writing or orally. Powers of attorney must clearly state the agent’s name, the entrusted tasks and the scope and duration of the power, and they must be signed or sealed by the principal. If the authority conferred is not clear, the principal and the agent are liable jointly towards third parties for their consequent losses.55
Where a principal is aware that an unauthorized legal act is being executed in its name but fails to repudiate it, the principal’s consent is deemed to have been given. An agent may be liable toward the principal for failure to perform its duties, thus causing it damage. If a third party is aware that a purported agent has no such power and yet joins it in a civil act and thus harms other people, the third party and the purported agent may be held jointly liable.56
If an agent is aware that the matters entrusted are illegal but still carries them out, or if a principal is aware that its agent’s acts are illegal but fails to object to them, the principal and the agent may be held jointly liable.57
Except in emergency circumstances in order to safeguard the principal’s interests, or with the latter’s consent, an entrusted agent may not assign its duties to a third party.58
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An entrusted agency ends under any of the following circumstances:
In this context, it is considered that when a special relationship of rights and duties arises between parties, the party assuming obligations is the “obligor” (zhai wu ren) and the party enjoying rights is referred to as the “obligee” (zhai quan ren).60 Obligees have the right to demand that obligors fulfil their obligations as specified by the relevant contract or legal provisions.61 The GPCL elevate obligees’ rights to the status of “civil rights”.
When there are two or more obligors or obligees to a relationship, they assume liabilities or benefit in proportion to their shares of the total.62
Joint obligees are entitled to demand that the obligor fulfil its obligations in accordance with the relevant agreement or legal provisions. Each of the joint obligors may be required to perform the entire obligation, while claiming against the other joint obligors to assume their share of the obligation.63
Provisions of international treaties concluded or acceded to by the PRC prevail over conflicting provisions in the civil law of China.64
The ownership of immovable property is governed by the law of the place where it is situated.65
Except as otherwise stipulated by law, the parties to a contract involving foreign interests may choose the law applicable to settlement of their contractual disputes. If the parties to a contract involving foreign interests have not made a choice of law, that of the country to which the contract is most closely connected is applied.66
In matters of tort, the law of the place where an infringing act takes place applies to claims for consequent damages. If both parties are citizens of the same country or have established domicile in another country, the law of their own country or the country of domicile may be applied.
Acts committed outside the PRC in violation of foreign laws may not ground actions in China unless they also violate Chinese law.67
The application of foreign laws or international practice may not violate the public interests of the PRC.68
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Citizens and legal persons that do not fulfil their obligations may be held liable.69
Acts that may give rise to civil liability include:
State organs or their personnel may be held liable if, while executing their duties, they illegally impinge on the rights and interests of others.77
Justifiable defence78 and emergency79 are excuses that exempt the authors of illegal acts from civil liability. In the event of a victim’s contributory negligence, the liability of the tortfeasor may be reduced.80 Except as otherwise provided by law, an event that is unforeseeable, unavoidable and insurmountable is an excuse for failure to perform legal duties.81
If two or more persons acting together infringe upon another person’s rights and cause damage, they may be held jointly liable.82
Article 134 of the GPCL provides that the remedies available in the event of tortious liability are the following:
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Without a regime of ownership of property from 1949 until the new Constitution of 1982, there was scarce need within China for a law governing contracts.
As the authorities began encouraging private initiative and opened the borders to foreign trade and investment after 1978, there did arise a need for a set of rules governing contracts with foreign parties, which prompted the adoption of the so-called Three Laws: the Economic Contract Law of 1982,83 the Law on Economic Contracts Involving Foreign Interests,84 and the Law on Technology Contracts.85
In drafting the new legislation to unify the rules governing contracts, the Chinese legislators referred extensively to the UNIDROIT Principles of International Commercial Contracts.86
The Contract Law, adopted in 1999, replaces all of the Three Laws.87 It is divided into a first set of rules generally applicable to contracts, and then stipulates detailed rules for specific types of contracts. In addition to setting down general principles for the conclusion and implementation of contracts, the first part stipulates norms with respect to their conclusion, validity, performance, modification, assignment and termination as well as the liabilities arising from breaches.
Among the 14 types of special contracts treated in the second part of the Contract Law, contracts of sale and those for loans, which are transversal in their applications, are presented below, whereas the other rules are integrated into the chapters that concern them more particularly.88
The Contract Law protects the rights to conclude contracts and to enter them voluntarily.89
The parties abide by the principle of fairness in prescribing their respective rights and obligations90 as well as the principle of good faith in exercising their rights and performing their obligations.91
Contracts may not violate applicable laws and regulations, or social ethics, nor may they disrupt social and economic order or harm the public interest.92
Lawfully formed contracts are binding on the parties and are protected by law.93
Where another law contains provisions with respect to contracts other than those in the Contract Law, such other provisions apply.94
The Contract law introduces a concept of unjust enrichment by stipulating that profits acquired improperly and without a lawful basis, resulting in another person’s loss, must be returned.95 Also, those who act as manager or provide services to protect another person’s interests when they are not legally or contractually obligated to do so, are entitled to claim from the beneficiary the expenses necessary for such assistance.96
4.1.1. Formation
Unless a particular form is required by laws or regulations, contracts may be concluded in writing or orally or in any other form,97 including by an electronic message provided that its contents can be expressed in a tangible form.98
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Contracts are concluded by the exchange of an offer and its acceptance.99
An offer indicates that upon acceptance by the offeree, the offeror will be bound and its terms must be specific and definite.100
A commercial advertisement is deemed to be an offer if its contents meet the requirements of an offer.101
Offers become effective upon receipt by the offeree.
When a contract is concluded by the exchange of electronic messages, if the recipient of an electronic message has designated a specific system to receive it, the time when the electronic message enters into such specific system is deemed to be its time of arrival; if no specific system has been designated, the time when the electronic message first enters into any of the recipient’s systems is its time of arrival.102
Unless they are stated to be irrevocable or the offeree has reason to regard the offer as irrevocable and has undertaken preparation for performance,103 offers may be revoked, provided that the notice reaches the offeree before it has sent its acceptance.
Acceptance is manifested by notice, except where conduct suffices in accordance with the relevant usage or “as indicated in the offer”.104
A contract is formed once the acceptance becomes effective once it reaches the offeror. Where the acceptance does not require notification, it becomes effective once an act of acceptance is performed in accordance with the relevant usage or as required by the offer.105
To be effective, an acceptance’s terms must be identical to those of the offer. When an acceptance contains changes in the subject matter, quantity, quality, price or remuneration, time, place and method of performance, liabilities for breach of contract or method of dispute resolution, it is treated as a counter-offer.106
Where a contract is concluded by a memorandum of agreement, it is formed when it is signed or sealed by the parties.107
The place where the acceptance becomes effective is the place of formation of a contract.
Where a contract is concluded by the exchange of electronic messages, the recipient’s main place of business is the place of formation of the contract; if the recipient does not have a main place of business, its habitual residence is the place of formation of the contract. If the parties have agreed otherwise, such agreement prevails.108
Where a contract is concluded by a memorandum of contract, its place of formation is the place where the parties sign or seal the contract.109 Where a contract is to be concluded in writing as required by the relevant law or administrative regulation or as agreed by the parties, but they fail to do so, where one party has performed its main obligation and the other has accepted the performance, there is deemed to be a contract.110
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Where a contract is to be concluded by a memorandum of contract, if prior to signing or sealing of the contract, one party has performed its main obligation and the other party has accepted the performance, the contract is formed.111
Where a contract is concluded by way of standard terms,112 the party supplying the standard terms must abide by the principle of fairness in defining the parties’ rights and obligations and must call the other party’s attention to the provisions whereby it has excluded or limited its liability.113
If a party to the negotiation of a contract acts in bad faith, it may be held liable for damages caused to the other parties.114
A party may not disclose or improperly use any trade secret that has come to its attention in the course of negotiating a contract, regardless of whether a contract is formed.115
4.1.2. Validity
Unless its administrative approval or registration is a condition of entry into effect, a lawfully formed contract becomes effective upon its formation.116 The Supreme Court has greatly attenuated the possible consequences of this provision by allowing the parties to rectify the situation.117
Where in order to further its own interests, a party has improperly impaired the satisfaction of a condition precedent or subsequent, the condition is deemed to have been satisfied; where a party has improperly facilitated the satisfaction of a condition, the condition is deemed not to have been satisfied.118
No general provision in the Contract Law prohibits indefinite term contracts.
A contract concluded by an unauthorized agent is not binding on the putative principal unless the latter ratifies it or unless it was reasonable for the other party to believe that the person performing the act had authority.119
Where the legal representative or the person-in-charge of a legal person or an organization of any other nature concludes a contract while acting beyond his/her authority, unless the other party knew or should have known it, the commitment is valid.120
The Contract Law does not provide an explicit solution where property is transferred without the owner’s authorization. Article 51 stipulates that the contract is valid once the person with authority has ratified it, or if the person lacking the power to dispose of it when the contract was concluded has subsequently acquired such power.
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In any of the following circumstances, a purported contract would be invalid:
Where parties enter into contracts beyond the scope of their businesses, the people’s courts do not invalidate them on such ground alone.122
A party may not exclude its own liability for personal injury caused to the other party or for property loss caused due to its intentional misconduct or gross negligence123 and, in the case of standard form contracts, the party imposing the form may not exclude its liability, increase the liabilities of the other party, or deprive it of any of its material rights.124
If a contract is concluded due to a material mistake or if its terms are grossly unconscionable at the time of its conclusion, and provided the aggrieved party initiates its action within one year from the date when it knew or should have been aware of the cause of the complaint, the contract may be amended or cancelled by a people’s court or arbitration panel.125
An invalid or cancelled contract is not legally binding ab initio. Where a contract is partially invalid, and the validity of the remaining provisions thereof is not affected, they are nevertheless valid.126
The invalidation, cancellation or discharge of a contract does not impair the validity of the contract provision concerning the method of dispute resolution, which exists independently in the contract.127
Upon invalidation or cancellation of their contract, the parties must make restitution of any property transferred under its terms; where restitution in kind is not possible or necessary, reparations are paid in money.128
4.1.3. Interpretation
Where the parties disagree over the interpretation of a contractual term, its meaning is determined according to the words used in the contract, the relevant provisions and the purpose of the contract, as well as in accordance with the relevant usages and the principle of good faith.129
Where a contract was executed in two or more languages and it provides that all versions are equally authentic, the words and sentences in each version are construed to have the same meaning and, in cases of discrepancies, they are interpreted in light of the contract’s purpose.130
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If a term in a standard form contract is subject to two or more interpretations, it is read against the party stipulating it.131
If a contract contains ambiguous terms regarding quality, time for performance, place of performance or price, and the intended meaning cannot be determined from the context of relevant terms in the contract, and if the parties cannot reach an agreement through consultation, the GPCL stipulate the following rules.
If quality requirements are unclear, State quality standards apply and, in their absence, recourse is had to generally applicable standards. Where the time limit for performance is unclear, the obligor may fulfil its obligations at its own convenience and the obligee may also demand performance at any time subject to giving sufficient notice to the obligor. If the place of performance is unclear, and the obligation consists in the payment of money, the performance is carried out at a place where it conducts its activities; if the payment is other than money, the performance is carried out where the party fulfilling the obligations conducts its affairs. Indeterminate prices are settled by reference to the market price or the price of a similar article or service. 132
If a term of a contract that has already entered into effect reveals itself to be unclear or missing, the rules for resolving the situation are slightly more detailed.133 For matters of price, reference is made to the prevailing market price at the time the contract was concluded. For matters of place of performance, if the obligation is delivery of immovable property, performance is carried out at the place where the immovable property is located, and for any other subject matter, performance is carried out at the place where the obligor is located. As to the method of performance, it must be conducive to realizing the purpose of the contract. Finally, if the party responsible for the expenses of performance was not clearly prescribed, the party with the obligation to perform bears the expenses.134
Unless their contract stipulates otherwise, the parties enjoy the right to use scientific and technological research achievements arising in connection with the contract’s performance.135
4.1.4. Performance
In performing their contracts, the parties must abide by the principle of good faith, and fulfil their obligations in light of the contract’s nature and purpose and in accordance with the relevant usages.136
Contracts may be stipulated for third party beneficiaries but they cannot bring actions for their enforcement.137
Where no order of performance is stipulated in the contract, the parties perform their reciprocal obligations simultaneously. Where a party does not fully perform, the other is entitled to refuse to perform.138
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The party required to perform first may suspend its performance if it has conclusive evidence establishing that the other party is in any of the following situations:
Except where the obligee’s interests would suffer, it may not reject the obligor’s early or partial performance.140
Where the manner in which a debtor’s exercise of its rights causes harm to any of its creditors, the latter may, subject to certain conditions, petition the people’s court for protective measures. Where the debtor does not exercise its rights against a third party as they mature, the creditor may petition the people’s court to be subrogated in such rights.141 This situation would arise if the debtor fails to enforce a claim for money against either through a suit in court or through arbitration.142 Where a debtor dilapidates its property or estate causing harm to its creditors, the people’s courts may cancel such acts.143
4.1.5. Transfer of ownership
Unless the law stipulates otherwise or the parties concerned have agreed on other arrangements, the ownership of property obtained by contract or by other lawful means is transferred simultaneously with the property itself.144
4.1.6. Assignment
Except where excluded by law, by their agreement or by the nature of their contract, and subject to giving notice to the other party, the parties may assign their rights in whole or in part to third parties.145
Delegations by a party of its obligations under a contract are subject to the consent of the other party.146
Only upon consent by the other party may a party concurrently assign its rights and delegate its obligations to a third person.147
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4.1.7. Discharge of rights and obligations
The rights and obligations under a contract are discharged in any of the following circumstances:
The parties may prescribe conditions under which one party is entitled to terminate the contract.149
The parties may terminate a contract if:
Termination by a party under such circumstances is effective upon receipt of notice by the other party.151
Where each party has outstanding obligations toward the other, and their subject matters are identical in type and quality, either party may, except in the event of prohibition by law or of impracticality in light of the nature of the contract, set its obligation off against the other party’s.152
4.1.8. Liability for breach of contract
If a party wrongfully fails to perform its obligations or performs them in a manner not in compliance with the contract, it may be liable to complete or remedy its performance as well as to pay damages.153
Where a party expressly states or indicates by its conduct that it will not perform its obligations, it may be held liable for its anticipatory breach of contract.154
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The wrongful failure to pay a price or an amount of remuneration is remedied by its payment in full. Where a non-monetary obligation is breached, the other party may require specific performance, except where:
The parties may stipulate the measures to be implemented in the event of quality deficiencies. The aggrieved party may, depending on the nature of the subject matter and the degree of loss, require the other party to repair, replace, make or take back such object, or reduce its price.156
Damages are intended to compensate losses and lost profits resulting from the breach that were foreseen or should have been foreseen by the party in breach at the time of conclusion of the contract.157
The parties may stipulate liquidated damages but, where the actual loss resulting from the breach varies from that amount, the parties may petition the people’s court or an arbitration institution for an adjustment. Where liquidated damages are stipulated for delayed performance, the breaching party must also complete performance.158
A party that takes a deposit but fails to perform its obligations must pay to the other party an amount equal to twice the deposit.
Where there occurs any objective circumstance that is unavoidable and insurmountable, and that was unforeseeable at the time of contracting, the affected party may suspend or terminate its performance subject to giving notice to the other party.159
Parties that are victims of breaches of contracts must mitigate their losses.160
Where a breach of contract results in personal injury to a party or damage to its property interests, it has the choice of claiming based on the contract, or instead of claiming in tort based on the violation of any other applicable law.161
4.1.9. Choice of law in foreign-related contracts
Except as otherwise provided by law, parties to a foreign-related contract may select its applicable law. In the absence of such a choice, the contract is governed by the law of the country with the closest connections.
Chinese law is mandatorily applicable to contracts in numerous areas of activity within Chinese territory. For instance, sino-foreign equity joint venture (EJV) and cooperative joint venture (CJV) contracts must be submitted to Chinese law, as must contracts for sino-foreign joint exploration and development of natural resources.162
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4.1.10. Dispute resolution
Parties to contracts may resolve their disputes through settlement or mediation.
They may agree to submit disputes to arbitration institutions in China and such agreements are binding.
Parties to a foreign-related contract may designate a Chinese institution or a foreign arbitration institution.
Where there is no arbitration agreement, either party to the contract may bring a suit before the people’s courts.163
4.1.11. Limitation periods
Limitation periods vary depending on the nature of the contract.
For instance, with respect to international sales of goods or technology import/export contracts, the time limit for bringing a lawsuit or applying for arbitration is four years from the date when the party knew or should have known that its rights had been harmed.
4.2. Specific contracts
4.2.1. Sales contracts
Sales contracts are those whereby the seller agrees to transfer to the buyer title to the object of the contract, and the buyer agrees to pay the price.164 Except where another law contains provisions specifically applicable to certain contracts for value, all such contracts are governed by the relevant provisions governing sales contracts.165 The rules governing sales contracts are applicable to barter transactions involving transfers of title to goods.166
The seller must have title to the object of the sale contract.167
Except as otherwise provided by law or agreed by the parties, title to the object passes at the time of its delivery.168
The parties may stipulate that title to the object sold remains with the seller until the buyer has paid the price or has performed other obligations.169
The principal duties of the seller are to deliver to the buyer the object of the sale or the documents enabling the buyer to take possession thereof, as well as to transfer title.170
Except as otherwise provided by law or agreed by the parties, intellectual property contained in objects that are sold does not vest in the buyer.171
Where the contract prescribes a period during which delivery is to take place, the seller may deliver at any time during the delivery period.172
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If the time of delivery is not clearly prescribed, the seller may deliver and the buyer, subject to providing a reasonable time for preparation, may require performance at any time.173
If an object is in the possession of the buyer before the contract is concluded, delivery is deemed to have occurred when the contract goes into effect.174
The seller must deliver the contractual goods at the stipulated place. If the place of delivery is not stipulated and cannot be ascertained using the generally applicable rules of interpretation, then:
Except as otherwise imposed by law or agreed by the parties, the risk of damage to or loss of contractual goods passes at the time of their delivery176 and, if the buyer is responsible for any delay in delivery, it bears such risk from the contractual date for delivery.177
Where the goods sold are in the possession of a carrier and unless otherwise agreed by the parties, the risk of damage or loss passes to the buyer from the time of the contract’s formation.178
Failure by the seller to deliver documents in accordance with the contract does not affect the passing of risk in the goods.179
If the buyer rejects the goods for good cause, the risk continues to be borne by the seller.180
The passage of risk to the buyer does not deprive it of any rights to hold the seller liable for non-conformity of the goods.181
Except as otherwise provided by law, the seller warrants that the goods are free from any third party claims.182
The seller must deliver goods that comply with quality requirements stipulated in the contract.183 In the absence of such specifications, the goods must satisfy any applicable State standards or industry standards and, in their absence, customary standards or any particular standards consistent with the purpose of the contract.184
Upon receipt of the contractual goods, the buyer must inspect them within the time stipulated in the contract and, in the absence of such stipulation, the buyer must do so in a timely manner.185
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In the event of deficiencies, they must be notified to the seller within the inspection period lest the buyer lose its right to claim for the nonconformities. 186 Where no inspection period is stipulated, the buyer must notify the seller within a reasonable time from the date when the buyer discovered, or should have discovered, the quality or quantity deficiency. If the buyer fails to notify the seller of its complaint within a reasonable period and at the most within two years from receipt of the goods, their quantity and quality are deemed to comply with the contract.187 Where the seller knew or should have known of the non-conformity of the goods, these time limits do not apply.188
The buyer must pay the price in the stipulated amount. If no price is specified in the contract, it is deemed to correspond to the prevailing market price at the place of performance at the time the contract was concluded.189 The price is paid at the place indicated in the contract. In the absence of such stipulation, payment must be made at the seller’s place of business. But, if the parties have agreed that payment is conditional upon delivery of the goods or documents, the price is paid at the place where such delivery occurs.190
The buyer must pay the price at the time specified in the contract. If the time of payment is indeterminate, the buyer must pay in exchange for the goods or documents.191
Where the contractual goods are comprised of elements any of which do not comply with the contract, the buyer may terminate the part of the contract relating to such elements, unless there would result a significant reduction in the value of the goods.192
In contracts stipulating partial deliveries, non-delivery or improper delivery of any instalment may justify cancellation of that instalment or of the entire contract if its purpose has been frustrated by the failed partial shipment.193
In instalment sales, if the buyer fails to make payments as they become due, and if the amount in arrears reaches one fifth of the total price, the seller may require payment in full or terminate the contract.194
4.2.2. Loan contracts
Contracts for loans of money must be in writing, except where the loan is between natural persons who have agreed otherwise. They include stipulations concerning the loan’s type, currency, purpose, amount, interest rate, term and method of repayment.195
The Contract Law specifically provides that secured interests arising in connection with loans are governed by the Law on Secured Transactions.196
In entering into a contract for loan of money, the borrower must provide true information concerning its business operations and financial conditions.197
No interest may be deducted in advance from the principal.198
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Where the lender fails to make the loan amount available on the prescribed date and in the prescribed amount, thereby causing loss to the borrower, it must pay compensation. Where the borrower fails to draw down as agreed, it must nevertheless pay the interest on the prescribed date and in the prescribed amount.199
The lender is entitled to monitor the use of the funds in accordance with the contract.200
The borrower must periodically provide the lender with financial and accounting reports in accordance with the contract.201 Where the borrower fails to use the proceeds for the prescribed purpose, the lender may withhold funding, call the loan, or terminate the contract.202
Where the time of repayment is not stipulated and cannot be determined, the borrower may repay at any time, whereas the lender may demand repayment within a reasonable time.203
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Article 13 of the 1982 Constitution guaranteed that “the State protects the right of citizens to own lawfully earned income, savings, houses and other lawful property.”
The amendment of April 12, 1988 to article 10 of the Constitution of 1982 served mainly to provide for transfers of land-use rights. The amended article stipulates as follows:
Land in cities is owned by the State.
Land in the rural and suburban areas is owned by collectives except for those portions which belong to the State in accordance with the law; house sites and privately farmed plots of cropland and hilly land are also owned by collectives.
The State may, in the public interest and in accordance with the provisions of law, expropriate or requisition land for its use and provide compensation for the land expropriated or requisitioned.
No organization or individual may appropriate, buy, sell or unlawfully transfer land in other ways. The right to the use of the land may be transferred in accordance with the law.
In 2004, article 13 was changed to read as follows: 204
Citizens’ lawful private property is inviolable.
The State, in accordance with law, protects the rights of citizens to private property and to its inheritance.
The State may, in the public interest and in accordance with law, expropriate or requisition private property for its use and shall provide compensation for private property that is expropriated or requisitioned.
In the meantime, a web of specific laws each dealing with certain aspects of property acquisition and transfer were treated in texts covering land and real estate development, contracts for goods and services, intangible rights in financial instruments and intellectual property, and secured interests in property.
The Property Law finally adopted in 2007 does not cancel or replace all previous laws with respect to property rights. Article 8 of the Property Law stipulates that conflicts about property between the Property Law and prior texts on the subject are resolved in favour of the earlier texts. On the other hand, under article 178 of the Property Law, in case of any discrepancy between the Law with respect to Secured Transactions and the Property Law, the provisions of the latter prevail.
5.1. General principles
The Property Law applies to civil relationships arising from the ownership and use of property, which is defined as including “movable” (dong chan) and “immovable” (bu dong chan) property.
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While the State or collectives “own” all land, they concede “usufructuary rights” to its possession, to its use and to its benefits. Usufructuary rights may last for terms as long as 70 years, such as in the case of residential housing. The legislators recognize the need to decide what are the conditions of renewal of the terms of the usage rights, since the ease of renewal changes the value of the rights. Automatic renewal would move the basket of usufructuary rights close to “ownership”. But, for the time being, the initiative is left with the lower levels of governments to determine the conditions of renewal of most land-use rights.
The expression “property rights” designates “the rights enjoyed by the obligee directly and exclusively to control specific property including ownership (suo you quan), usufructuary interests (yong yi wu quan) and secured interests (dan bao wu quan) in property rights”.205
The property rights of the State, of collectives, and of individuals are protected by law.206
The Property Law does not further define the types and contents of property rights that instead are stipulated in other laws.207
The exercise of property rights must remain within the limits of laws and morals and may not entail harm to public interests or the rights and interests of others.208
Except as otherwise provided among the parties concerned, when property is transferred, its annexes follow.209
5.2. Protection of property rights
An owner has the right to recover property from a person in possession but without rights.210
If property rights are infringed or likely to be infringed, the obligee may demand remedial measures.211
Where immovable or movable property is damaged, the obligee may request repairs, remake, replacement or restoration.212
Where anyone suffers harm due to infringements of its property rights, it may claim damages from the wrongdoer and claim other civil remedies.213
If an infringement of property rights violates administrative regulations, it may give rise to administrative sanctions as well as imputation of civil liability. Where a crime is constituted, pursuits before the people’s courts may be undertaken.214
5.3. Ownership and usufructuary rights
The owner of immovable or movable property enjoys the rights to its possession, its use, its disposition and the profits it generates.215
Owners may create usufructuary and secured interests with regard to their immovable and movable property.
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Usufructuary interests listed in Part 3 of the Property Law are:
Within the limits of the law, holders of usufructuary interests are entitled to possess, use and profit from immovable or movable property owned by others.216
Holders of usufructuary and secured interests may not, while exercising their own rights, harm those of the owner.217
The owner of a property is entitled to its natural benefits. Except as otherwise agreed by the parties, where there are both a titleholder and a holder of usufructuary interests, the natural benefits accrue to the holder of the latter. Where the parties have not reached on agreement on this point or where their agreement is unclear, then trade practice governs.218
No institution or individual may occupy, divide, withhold or damage State-owned property.219
5.4. State property
Urban land is owned by the State.220
The State also owns such rural land and land on the outskirts of cities as is specifically attributed to it.221
The radio spectrum222 as well as mineral resources, waters and sea areas belong to the State.223
No one may obtain ownership of immovable or movable property that is exclusively owned by the State.224
No institution or individual may occupy, divide, withhold or damage State-owned property.225
Except as otherwise provided, the State of Council, on behalf of the State, exercises ownership of State properties.226
State organs and organizations under State control exercise the rights to possess, to use and to dispose of the immovable or movable properties under their direct control in accordance with the law and relevant regulations issued by the State Council.227
The State Council and local people’s governments are responsible for enterprises that are funded by the State, and they enjoy the rights and interests of capital contributors pursuant to the applicable laws and administrative regulations.228
The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) reinforces the administration and supervision of State-owned properties.
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When derelictions of duties or abuses of powers cause losses to State-owned property, their authors are liable for reparations. In cases of transfers of State-owned property at abnormal prices, private partitions, grants of sureties in breach of the regulations on administration of the State-owned properties, mergers and divisions, or nonarm’s length transactions, the responsible parties are liable.229
5.5. Property of collectives
With respect to collectively owned property, the following matters are decided by the collective’s members:
Urban collectives enjoy the right to possess, utilize, dispose of and obtain benefit from their properties.231
Collectively owned properties may not be occupied, divided, withheld or damaged by any organization or individual. Where decisions of collective economic organizations, villagers’ committees or other principals infringe upon the rights and interests of members of the collective, they may sue before the people’s courts to obtain their cancellation.232
5.6. Private property
Individuals may own immovable and movable property, such as income, houses, consumer goods, production tools and raw materials.233 Their lawful savings, investments and returns are protected by law.234
The property of individuals may not be illegally occupied or damaged by any organization or individual.235
The State, collectives and individuals may make contributions to constitute limited liability companies, joint stock limited companies or other enterprises. Where immovable or movable property of the State, of collectives or of individuals is contributed as investments in enterprises, the investors enjoy, in accordance with their agreement or in proportion to their contributions, rights and assume the correlative obligations for the major decisions and for the appointment of managers.236
Enterprises that have legal personality enjoy rights, in accordance with the applicable laws and administrative regulations and with their articles of association, to possess, utilize, derive profit from and dispose of their immovable and movable property. Legal persons other than enterprises enjoy the rights to their immovable and movable properties stipulated in the applicable laws and administrative regulations and in their articles of association.237
Immovable and movable property lawfully owned by social communities is protected by law.238
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5.7. Natural resources
Organizations and individuals may occupy, use and profit from natural resources owned by the State or used by collectives.239
Lawfully obtained rights to minerals, to mine, to draw water and to engage in aquaculture and fishing from inland waters and beaches are protected by law.240
Unless otherwise provided by law, the State introduces the system of compensated use of natural resources.241
In exercising its rights, the holder of usufructuary interests must respect the regulations for the protection and reasonable exploration of resources.
Other rights holders may not intervene in the usufructuary rights holder’s exercise of its rights.242
5.8. Expropriation
If the expropriation of immovable or movable properties entails the termination of usufructuary interests, their holders are entitled to compensation.243
In the public interest, collectively owned land, houses and other immovable property owned by organizations and individuals may be expropriated by an administrative organ acting within the scope of its authority.
When collectively owned land is expropriated, those who are dispossessed must be given compensation for the land expropriated, subsidies for resettlement, compensation for the fixtures and the crops on land and for the amount of lost premiums for the farmers’ social security. The amounts must be paid in full in order to guarantee their normal lives and safeguard their rights and interests.244
Where houses and other immovable properties of institutes and individuals are expropriated, compensation for demolition and resettlement must be paid according to law; where individual residential householders are expropriated, their right to equivalent housing must be respected.245 In emergencies, immovable or movable property may be requisitioned in similar conditions.246 No institution or individual may withhold, misappropriate or embezzle compensation for expropriation.247
5.9. Joint ownership
The Property law complements the GPCL’s provisions governing joint ownership.
In the absence of agreement of the parties, express or implied, on whether their joint property is held in co-ownership or common ownership, it is deemed, except where there exists a family relation among the co-owners, to be held under coownership. 248 In the absence of express agreement, the shares of co-owners are proportionate to their capital contributions and, where there are no such investments, they are deemed to be equal.249
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Owners may agree that their joint immovable or movable property may not be partitioned, but subsequently for important reasons agree to do so. In the absence of agreement, co-owners may at any time demand a partition but owners in common may only require partition if the basis for joint ownership perishes or there are important reasons for partitioning the property. Remedies are available if the partition results in damages to other owners.250
If no agreement can be reached on the manner of partitioning joint property, and if the property may be divided without entailing its depreciation, the partition is carried out. Where the joint property is difficult to divide, and even though it may be depreciated, the property is liquidated. The proceeds first serve to cover any expenses and debts, and any surplus is distributed among the joint owners in proportion to their shares of the property. Joint owners share losses arising from any defects in parts of the property belonging to any of their number.251
Vis-à-vis third parties, and unless otherwise provided by law or where the third party is aware of a different state of affairs, joint owners enjoy joint creditors’ rights and they bear joint liability in connection with debts arising from the property.252
In internal affairs, within co-ownerships, and except as otherwise agreed by the coowners, they each have creditor’s rights and assume liabilities in proportion to their shares. In common ownerships, for internal matters, each of the owners in common jointly enjoys creditors’ rights and bears debts.253
The same rules apply to usufructuary and secured interests jointly owned by two or more organizations or individuals.254
5.10. Establishment, modification, transfers and lapses of property rights
5.10.1. Immovable property
The establishment, modification, transfer and lapse of rights in immovable property take effect upon their execution as between the parties but are binding upon third parties only upon registration in accordance with applicable laws and regulations.255 Immovable property is registered with the registration department where it is located.256
The immovable property registration system is nationwide and imposed by laws and administrative regulations.257
The Immovable Property Register attests the existence of property rights.258
The ownership certificate of immovable property that is issued by the registration authority evidences ownership in the referenced immovable property. In the event of conflict between its information and that recorded on the register, the latter prevails.259
In sales of houses or other immovable property, the parties may apply to the competent registration office to pre-register their title. Thereafter, the disposal of the property without consent of the buyer on the pre-notice registration is of no effect.260
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Any registrant that files false information is liable to pay compensation to those who suffer consequent damage.261
Where a mistake by the registration department causes damage to others, it is liable to pay compensation while being entitled to recourse against those responsible in fact.262
Registration charges are determined according to quantity and may not be charged according to the size, volume or price of the immovable property. Standards are set by the competent departments of the State Council and their offices in charge of regulating prices.263
5.10.2. Movable property
Except as provided otherwise by law, transfers of movable property take effect upon delivery.264 But if the obligee is already in possession of movable property before the creation or transfer of the right therein, the property rights become effective upon entry into effect of the legal act.265
Where a third party is in possession of movable property before the creation or transfer of the rights therein, its delivery may be replaced by assignment of the right to require delivery to the person entitled to possession.266
Where movable property is assigned, the assignor must deliver it to the assignee, though the parties may agree that the assignor will retain possession, and in such case the property rights are vested at the time of entry into effect of the agreement.267
In the case of the establishment, modification, transfer and lapse of the property rights as a result of a judgment of the people’s court or an arbitration award, the expropriation decision of the people’s government is deemed to have entered into effect on the date of the judgment or that of the expropriation decision of the people’s government.268
5.10.3. Secured interests in property
Unless otherwise stipulated by law, holders of secured interests have priority over unsecured creditors.269
5.10.4. Guarantees
As guarantee contracts are ancillary, and unless otherwise stipulated by law, when their corresponding principal contracts are void, so are they.270
Unless otherwise agreed in the contract, secured interests concern the principal creditor’s rights and compensation for damages.271
In the event of destruction, loss or requisition of mortgaged property, the mortgagee has priority with respect to any compensation.272
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If a creditor permits the debtor, for whom a third party has given its guarantee, to transfer its debt without the written consent of the guarantor, the latter is discharged of its obligation.273
Where a debt is secured by property as well as by a personal guarantee, and if the debtor defaults, the creditor enforces its claim according to the agreement; in the absence of agreed procedures, and where the debtor has itself provided the property security, the creditor enforces its claim against that property. Where a third person provides the property security, the creditor may enforce its claim from such property security or request the third party to give a personal guarantee.274
Secured interests lapse under any of following circumstances:
5.10.5. Mortgages
A mortgage arises when a debtor or a third party secures the creditor’s rights with property while keeping it in its possession such that, if the debtor defaults, the creditor has priority in satisfying its claim from the proceeds of liquidation of the property.276
The following types of property may be mortgaged:
A mortgagor may simultaneously mortgage all its property listed above.277
The mortgage of a house entails that of the land-use rights to the lot it occupies. Conversely, when the land-use rights to a lot are mortgaged, the houses thereon are included in the mortgage. Even if the appropriate formalities are not carried out, the mortgages are nevertheless deemed to be valid.278
Where factories and other buildings of town, township or village enterprises are mortgaged, the land-use rights to the land are included in the mortgage.279
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The following property rights may not be mortgaged:
Mortgage contracts must be concluded in writing.281
The mortgagor and the mortgagee may not stipulate that, in the event of default on the debt, ownership of the mortgaged property will be transferred to the creditor.282
Where a party mortgages houses and fixtures, land-use rights to lots for construction and those to barren lands, buildings, ships and aircrafts under construction, the mortgage contract becomes effective as of the date of registration against third parties in good faith.283 Where a party mortgages production equipment, raw materials, semi-finished products and finished products, buildings, ships and aircrafts under construction or means of transportation, the mortgage contract becomes effective against third parties in good faith as of the date of registration.
Where enterprises, small businesses and rural contractors mortgage movable property, the contracts must be registered. They enter into effect upon registration. If a party does not register the mortgage, it may not resist claims of third parties in good faith. Even if the mortgage is registered, this does not protect against the claims of third parties, which have paid consideration and obtained the mortgaged property in the ordinary course of business.284
If a mortgagor has leased the mortgaged property before the execution of the mortgage, the lease continues in effect. If a mortgagor leases property after the creation of the mortgage, the lease cannot defeat the mortgagee’s rights.285
During the term of mortgage, the mortgagor may not, unless the debts are cleared and the mortgage lapses, transfer the mortgaged property without consent of the mortgagee. If a mortgagor transfers mortgaged property with the consent of the mortgagee during the term of the mortgage, the proceeds must be used to liquidate the claim secured by the mortgage. If the proceeds exceed the claim, the balance belongs to the mortgagor; the debtor remains liable for any shortfall.
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The rights under a mortgage may not be transferred separately from the creditor’s rights, nor used to secure other creditors’ rights. Unless otherwise stipulated by laws or agreed by the parties, if the creditor’s right is transferred, the rights under the mortgage follow.286
Where a mortgagor’s acts are likely to cause the value of the mortgaged property to decline, the mortgagee may demand that the mortgagor cease the conduct. Where the value of the mortgaged property has declined, the mortgagor may be obliged to restore its value or provide security corresponding to the amount of its depreciation. Where a mortgagor fails to comply, the mortgagee may request anticipatory liquidation.287
The mortgagee that is not paid at maturity of the obligation may agree with the mortgagor to be paid out of the proceeds from the conversion of the property or from its auction or sale. Within one year after they know, or should have known, of the event, adversely affected creditors may request the people’s courts to cancel the agreement. If the mortgagee and mortgagor fail to reach an agreement, the mortgagee may bring a lawsuit in the people’s courts.288
When enterprises, small businesses and rural contractors mortgage equipment, raw materials, semi-finished products and finished products, the mortgage may only be foreclosed if:
If the mortgaged property is seized by a people’s court upon default of a debtor, the mortgagee is entitled to all the fruits of the mortgaged property.290
If the proceeds from auctions or sales of mortgaged property exceed the claims, the balance accrues to the mortgagor but shortfalls remain for the account of the debtor.291
Where the same property is mortgaged to two or more creditors, the proceeds from the auction or sale of the mortgaged property are disbursed as follows:
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Even if land-use rights with respect to construction lots are mortgaged, houses built on the land subsequently are not mortgaged. Where it is necessary to auction the land-use rights to mortgaged lots, the newly built houses on the land may be sold together with the mortgaged property, but the mortgagees have no priority over the proceeds from the houses.294
Where mortgaged land-use rights to barren land or to land occupied by factories and other buildings of township or village enterprises are foreclosed, the collective ownership and the uses of the land may only be altered in conformity with the applicable legal procedures.295
A mortgage for a maximum amount for a specified term may be given on property, and in the event of default of the debtor, the mortgagee has priority in satisfying its entire claim from the property’s proceeds.296
Unless otherwise agreed by the parties, where part of a claim secured by a mortgage of maximum amount is transferred before the claim is terminated, the right of mortgage of maximum amount does not follow.297
Before the determination of a claim secured by a mortgage of maximum amount, a mortgagor and mortgagee may change the term, scope and maximum amount of the claim through agreement, provided that the change does not cause any detriment to other mortgagees.298
Mortgages are terminated under any of the following circumstances:
5.11. Protection of the good faith taker of property
According to article 106 of the Property Law, if immovable or movable property is transferred by a person without the power to do so, the rightful owner is in principle entitled to its recovery. But transferees obtain title provided that:
5.12. Possession
Where possession of immovable property or movable property arises from contract, the rights to use and to profit from the property and the liabilities of the parties are defined in the contract.
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Where possessors in bad faith cause damage to immovable or movable property, they may be held liable to provide compensation.299
Persons in possession of immovable or movable property must upon request of the right holder return the property together with any profits generated. Bona fide possessors may deduct expenses necessary for maintenance of the property.300
Where immovable or movable property is damaged or lost, the possessor must, upon request of the affected right holder, transfer to it any insurance indemnification, damages or compensation.301
Where immovable or movable property is seized by the use of force, the original possessor is entitled to request its return. In the event of any infringement to possession, the possessor is entitled to demand its cessation. In the event of any damage incurred from seizure or obstruction, the possessor is entitled to compensation. The right to require restitution of property lapses if the possessor has not exercised its right within one year of the date of the wrong.302
5.13. Lost property
The rightful owner may recover property that has been stolen or lost. Where such property has been transferred, the rightful owner may reclaim it within two years from the date on which it knew or should have known of the loss or theft.303
The finder of lost property must notify the person entitled to it to take it back or must turn it over to the public security department.304
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The introduction of the trust into Chinese law has been an important step in the establishment of a modern financial system, in particular for real estate management. Still, the difficulties of governance of the conditions of its operation, and of constancy of application of rules to individual cases, arise from its disassociation from its origins in the common law and its evolution therein over several hundred years.
Article 32 of the Trust Law defines a trust as:
an act in which the trustor, on the basis of confidence in the trustee, entrusts certain property rights it owns to the trustee and the trustee manages or disposes of the property rights in its own name in accordance with the intentions of the trustor and for the benefit of the beneficiary or for specific purposes.
It applies to trust activities within Chinese territory.
The establishment of a trust must serve a legitimate purpose305 while complying with the principles of autonomy, equality, honesty and trustworthiness, and avoiding harm to the State or to social public interests.
Trusts must be reduced to written form.306 A trust contract comes into existence when it is concluded. A trust established in other written forms is created when the trustee promises to accept the trust.
A trust can only be created with respect to lawfully owned property307 that has been duly registered where required308 (though this defect can be remedied subsequent to the creation of the trust).
In the event of harm caused by the trustor to the interests of any creditor, the latter may apply to the people’s court to have the trust cancelled subject to a limitation period of one year after the problem was known or should have been known.309
Trust property must not be mingled with the trustee’s own property.310
Property may be put into trust by any natural or legal person with full civil capacity or other organizations established according to law.311
Article 20 provides that the trustor has the right to know how the trust property is managed as well as to know its income and expenses, and may consult and duplicate trust accounts.
The trustor has the right to ask the trustee to change the manner of management of the trust property if the methods prevent the realization of the purposes of the trust or are not in accordance with the interests of the beneficiary due to special causes that were not foreseen when the trust was established.312
Under article 22 of the Trust Law, where the trustee disposes of the trust property in a manner contrary to the purposes of the trust or causes losses through violations of its duties or improper handling of trust affairs, the people’s court may, subject to a one-year limitation period, order the withdrawal of the measures or the reversion of the trust property and may order the payment of compensation.
Trustees may be natural or legal persons.313
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Trustees must abide by the provisions of the trust. They must handle trust affairs in the interests of the beneficiaries. They must act honestly, cautiously and effectively.314
Trustees must not take advantage of the trust property to seek personal profits and may be required to disgorge ill-begotten gains.315
Except as the trust documents prescribe otherwise, or with the approval of the trustor or the beneficiary, trustees may not conclude transactions involving their own property and trust property or transactions between the trust properties of different trustors. Transactions must be based on fair market values.316
The Trust Law covers situations of joint trustees and imputes to them correlative joint responsibilities and liabilities.317
Trustees must keep complete records of their handling of trust affairs and must report to their trustors and beneficiaries every year on their management, disposition and utilization of trust property and on the related income and expenses.318
Trustees have an obligation to the trustor and beneficiary to keep secret the handling of trust affairs and the related materials.
Trustees pay trust benefits to the beneficiaries from the trust property.319
Trustees are remunerated according to the provisions of the trust.320
Trustees may resign, subject to approval of the trustor and the beneficiary.321 The duties of trustees end upon their death, bankruptcy, or incapacity to carry out civil acts.322
If the duties of a joint trustee end, the trust property continues to be managed by the other trustees.
Beneficiaries may be natural or legal persons or other organizations established according to law.
Trustors may be the beneficiaries of their trusts, and indeed may be their only beneficiaries.Trustees may be beneficiaries, but may not be the only beneficiary of the same trust.323
Unless the trust documents provide otherwise, the beneficiary enjoys the usufructuary rights under the trust from the day on which the trust takes effect .324
Unless otherwise stipulated in the trust documents, joint beneficiaries enjoy the trust’s benefits in equal proportions.325
Beneficiaries may waive their rights under the trust. The attribution of abandoned usufructuary rights proceeds in the following order:
Unless there are restrictive provisions in the trust documents, usufructuary rights to a trust may be transferred and inherited.327
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Unless otherwise provided in the trust documents, trustors may rescind a trust if they have become its only beneficiary.328
Where the beneficiaries have seriously infringed upon the rights of the trustor or upon those of any of the other joint beneficiaries, as well as in such other circumstances as are prescribed in the trust documents,329 trustors may rescind the trust, change beneficiaries, or dispose of their usufructuary rights.
Trusts terminate under any of the following circumstances:
In such event, the trust property belongs to the persons indicated in the trust documents and otherwise it passes in the following order: beneficiaries or their heirs; then trustors or their heirs.331
In principle, trust property may not be seized except:
If the people’s court allows execution against trust property, the person who has the right to own the trust property is the person against whom the order is executed.333
The trustee of a terminated trust has a right of retention against the property of the trust for unpaid compensation.334
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China’s development of a civil law affords a unique experience in the idealization of law. Since the beginning of the 20th century, Chinese scholars have been studying foreign legal systems to distill the rules to write onto a blank page. The choices of the Chinese legislators indicate an appreciation of which note might be taken abroad.
The creation of Chinese civil law typifies the empirical approach of the reform movement. While contemporary Chinese law imports a concept as characteristic of the common law as the trust, because it facilitates the intermediation of savings toward investment, it borrows from the civil law the designation of “usufructuary” for that which is actually quasi-legal title, or even legal title in process, to formalize the privatization of land and real property.
1 Yan Fu (1853–1931) translated a number of Western works on law and government into Chinese. Wu Ting Fang (1842–1922) who served in the Guomindang government of Jiang Jie Shi (Chiang Kai Shek) proposed a transplanting of English law into China as a means of introducing democracy.
2 The other codes concerned code administrative and organic law, commercial law, criminal law and criminal procedure. The Six Codes were imposed on the territory of Taiwan by Jiang Jie Shi after his retreat from the Mainland and they remain the backbone of the legal system of the Republic of Taiwan.
3 But the confucianization of the codes is reflected for instance in the rules that family members could refuse to testify against one another, that crimes against family members attracted aggravated punishments and that mutilation or excavation of a corpse carried with it severe criminal punishment.
4 The GPCL were adopted at the Fourth Session of the Sixth NPC and were promulgated on April 12, 1986.
5 The Contract Law was adopted and promulgated by the Second Session of the Ninth NPC on March 15, 1999 with effect as of October 1, 1999.
6 The Property Law was adopted at the Fifth Session of the Tenth NPC on March 16, 2007, it was promulgated on the same date and it came into effect on October 1, 2007.
7 The Trust Law was adopted and promulgated by the Standing Committee of the NPC on April 28, 2001 and it entered into effect on October 1, 2001.
8 Civil rights include property ownership and related property rights, creditors’ rights, intellectual property rights and personal rights.
9 Civil liability is characterized as arising from either breaches of contract or from infringements of rights.
10 These matters are treated in the chapters on dispute settlement.
11 Article 3 of the GPCL.
12 Article 4 of the GPCL.
13 Article 5 of the GPCL.
14 Article 87 of the GPCL.
15 Article 7 of the GPCL.
16 Article 6 of the GPCL.
17 Article 8 of the GPCL.
18 Article 11 of the GPCL. Persons who have reached 16 but not 18 years of age and whose main sources of income are their own labour are deemed to have full capacity for civil conduct. According to article 12, minors aged 10 or over may engage in civil activities appropriate to their age and intellect.
19 Such norms are submitted to the Standing Committee of the NPC for approval or for recording, whereas those formulated by the people’s congresses of autonomous prefectures or autonomous counties are submitted to the standing committee of the people’s congress in the relevant province or autonomous region for approval, article 151 of the GPCL.
20 Article 73 of the GPCL.
21 Article 75 of the GPCL.
22 Article 76 of the GPCL.
23 These principles are reiterated in the Property law’s articles 94 and 95.
24 Article 78 of the GPCL. This rule is reiterated in article 102 of the Property Law.
25 Article 98 of the GPCL.
26 Article 99 of the GPCL.
27 Article 100 of the GPCL.
28 Article 101 of the GPCL.
29 Article 102 of the GPCL.
30 Article 85 of the GPCL.
31 Article 105 of the GPCL.
32 Article 26 of the GPCL defines “individual” businesses as those run by individual citizens that are lawfully registered and approved to engage in industrial or commercial operation within the sphere permitted by law.
33 Article 27 of the GPCL defines “lease-holding farm households” as the members of a rural collective economic organization who engage in commodity production under a contract and within the spheres permitted by law. Under the Property Law, the approach is referred to as “land contract management”.
34 Article 29 of the GPCL.
35 Article 30 of the GPCL defines “individual partnerships” as two or more citizens associated in a business and working together, with each providing funds, material objects and techniques according to an agreement.
36 Article 34 of the GPCL.
37 Article 35 of the GPCL.
38 Article 36 of the GPCL.
39 Article 39 of the GPCL.
40 Article 42 of the GPCL.
41 Article 43 of the GPCL.
42 Article 48 of the GPCL.
43 Article 49 of the GPCL.
44 Article 50 of the GPCL.
45 Article 51 of the GPCL.
46 Article 52 of the GPCL. Unless joint liability is specified by law or by agreement, each party to the association bears, in proportion to its contribution to the capital or according to the agreement made, civil liability within the limits of the property it owns or manages.
47 Article 54 of the GPCL.
48 Article 55 of the GPCL.
49 Article 56 of the GPCL.
50 Article 57 of the GPCL.
51 Article 59 of the GPCL.
52 Article 58 of the GPCL.
53 Article 63 of the GPCL.
54 Article 64 of the GPCL. A statutory agent exercises the agency powers prescribed by law, whereas an appointed agent exercises those power, attributed by a people’s court or other appointing unit.
55 Article 65 of the GPCL.
56 Article 66 of the GPCL.
57 Article 67 of the GPCL.
58 Article 68 of the GPCL.
59 Article 69 of the GPCL.
60 Article 84 of the GPCL.
61 Article 84 of the GPCL.
62 Article 86 of the GPCL.
63 Article 87 of the GPCL.
64 International practice may be applied to a matter for which there is no provision in either the law of the PRC or any international treaty it has concluded or acceded to, article 142 of the GPCL.
65 Article 144 of the GPCL.
66 Article 145 of the GPCL.
67 Article 146 of the GPCL.
68 Article 150 of the GPCL.
69 Article 106 of the GPCL.
70 Article 117 of the GPCL.
71 Article 118 of the GPCL.
72 Article 119 of the GPCL.
73 Article 120 of the GPCL.
74 If a carrier or warehouseman is responsible, the manufacturer or seller shall have the right to demand compensation for its losses, article 122 of the GPCL.
75 Article 123 of the GPCL.
76 Article 124 of the GPCL.
77 Article 121 of the GPCL.
78 Article 128 of the GPCL.
79 Article 129 of the GPCL.
80 Article 131 of the GPCL.
81 Articles 107 and 153 of the GPCL.
82 Article 130 of the GPCL.
83 The Law was adopted by the Fourth Session of the Fifth NPC, it was promulgated on December 13, 1981 and it entered into effect on July 1, 1982.
84 The Law was adopted by the Tenth Session of the Standing Committee of the Sixth NPC, was promulgated on March 21, 1985 and entered into effect on July 1, 1985.
85 The Law was adopted by the 21st Session of the Standing Committee of the Sixth NPC, was promulgated on June 23, 1987 and entered into effect on November 1, 1987.
86 For a comparison of the Contract law’s rules and those in the UNIDROIT model rules, see Zhang Yuqing and Huang Danhan, The New Contract Law in the People’s Republic of China and the UNIDROIT Principles of International Commercial Contracts: A Brief Comparison, at http://www.unidroit.org/english/publications/review/articles/2000-3.htm.
87 Article 428 of the Contract Law.
88 For example, leases are presented in the chapter on Real Estate, those on financial leases, in the chapter on Trade Finance, those on contracts for work, in the chapter on Labour Law, those on construction projects, in the chapter on Project Finance, those on transportation, warehousing and brokerages in the chapter on Marketing, and those on technology in the chapters on Intellectual Property and International Trade.
89 Articles 3 and 4 of the Contract Law.
90 Article 5 of the Contract Law.
91 Article 6 of the Contract Law.
92 Article 7 of the Contract Law.
93 Article 8 of the Contract Law.
94 Article 123 of the Contract Law.
95 Article 92 of the Contract Law.
96 Article 93 of the Contract Law.
97 Article 10 of the Contract Law.
98 This includes telegrams, facsimile transmission, electronic data exchanges and electronic mail, etc., article 11 of the Contract Law.
99 Article 13 of the Contract Law.
100 Article 14 of the Contract Law.
101 A delivered price list, announcements of auction, calls for tender and prospectuses are considered to be invitations to treat, article 15 of the Contract Law.
102 Article 16 of the Contract Law.
103 Articles 19 and 20 of the Contract Law.
104 Article 22 of the Contract Law.
105 Articles 25 and 26 of the Contract Law.
106 Articles 30 and 31 of the Contract Law.
107 Article 32 of the Contract Law.
108 Article 34 of the Contract Law.
109 Article 37 of the Contract Law.
110 Article 36 of the Contract Law.
111 Article 36 of the Contract Law.
112 Standard terms are provisions prepared in advance by a party for repeated use and which are non-negotiable.
113 Article 39 of the Contract Law.
114 Article 42 of the Contract Law.
115 Article 43 of the Contract Law.
116 Article 44 of the Contract Law.
117 Clause 9, Supreme People’s Court (SPC), Interpretations of Certain Issues Concerning the Application of The Contract Law, Judicial Interpretations (1999) No. 19 that were adopted at the 1090th Session of the Adjudication Committee of the SPC on December 1, 1999. If the relevant law or regulation requires that a certain contract be registered without subjecting its effectiveness to such registration, then generally failure to register does not impair the effectiveness of the contract, but the omission constitutes an impediment to the conveyance of title to, or other real right in, the subject matter of the contract.
118 Article 45 of the Contract Law.
119 Articles 48 and 49 of the Contract Law.
120 Article 50 of the Contract Law.
121 Article 52 of the Contract Law.
122 Contracts in violation of State restrictions or licensing requirements or of any law or regulation prohibiting the parties from participation in a particular business sector would be declared invalid on this ground alone, clause 10, SPC, Interpretations of Certain Issues Concerning the Application of The Contract Law, Judicial Interpretations (1999) No. 19 that were adopted at the 1090th Session of the Adjudication Committee of the SPC on December 1, 1999.
123 Article 53 of the Contract Law.
124 Article 40 of the Contract Law.
125 Articles 54 and 55 of the Contract Law.
126 Article 56 of the Contract Law.
127 Article 57 of the Contract Law.
128 Article 58 of the Contract Law.
129 Article 125 of the Contract Law.
130 Article 125 of the Contract Law.
131 Article 41 of the Contract Law.
132 Article 88 of the GPCL.
133 Article 61 of the Contract Law.
134 Article 62 of the Contract Law.
135 Article 88 of the GPCL.
136 Article 60 of the Contract Law.
137 Article 64 of the Contract Law.
138 Article 66 of the Contract Law.
139 This rule is not applicable where the right against the third party is personal to the debtor, article 68 of the Contract Law.
140 Articles 71 and 72 of the Contract Law.
141 The right may not be exclusively personal to the obligor, such as would be claims for alimony, child support, parental support or succession or claims for wages, pensions, death benefits, relocation allowance or life insurance or a personal injury claim, article 73 of the Contract Law, see also clause 11, SPC, Interpretations of Certain Issues Concerning the Application of the Contract Law, Judicial Interpretations (1999) No. 19 that were adopted at the 1090th Session of the Adjudication Committee of the SPC on December 1, 1999.
142 This rule is not applicable where the right against the third party is personal to the debtor, article 68 of the Contract Law. Articles 71 and 72 of the Contract Law. Clause 13, SPC, Interpretations of Certain Issues Concerning the Application of the Contract Law, Judicial Interpretations (1999) No. 19 that were adopted at the 1090th Session of the Adjudication Committee of the SPC on December 1, 1999.
143 Article 74 of the Contract Law.
144 Article 72 of the GPCL.
145 Articles 79 and 80 of the Contract Law.
146 Article 84 of the Contract Law.
147 Article 88 of the Contract Law.
148 Article 91 of the Contract Law.
149 Article 93 of the Contract Law.
150 Article 94 of the Contract Law.
151 Article 96 of the Contract Law.
152 Article 99 of the Contract Law.
153 Article 107 of the Contract Law.
154 Article 108 of the Contract Law.
155 Article 110 of the Contract Law.
156 Article 111 of the Contract Law.
157 Article 113 of the Contract Law.
158 Article 114 of the Contract Law.
159 Article 117 of the Contract Law.
160 Article 114 of the Contract Law.
161 Article 122 of the Contract Law.
162 Article 126 of the Contract Law.
163 Article 128 of the Contract Law.
164 Article 130 of the Contract Law.
165 Article 174 of the Contract Law.
166 Article 175 of the Contract Law.
167 Article 132 of the Contract Law.
168 Article 133 of the Contract Law.
169 Article 134 of the Contract Law.
170 Article 135 of the Contract Law.
171 Article 137 of the Contract Law.
172 Article 138 of the Contract Law.
173 Article 139 of the Contract Law.
174 Article 140 of the Contract Law.
175 Article 141 of the Contract Law.
176 Article 142 of the Contract Law.
177 Article 143 of the Contract Law.
178 Article 144 of the Contract Law.
179 Article 147 of the Contract Law.
180 Article 148 of the Contract Law.
181 Article 149 of the Contract Law.
182 Article 150 of the Contract Law.
183 Article 153 of the Contract Law.
184 Article 62 of the Contract Law.
185 Article 157 of the Contract Law.
186 Article 158 of the Contract Law.
187 However, if there is a warranty period stipulated in the contract, that duration is applicable, article 158 of the Contract Law.
188 Article 158 of the Contract Law.
189 Articles 62 and 159 of the Contract Law.
190 Article 160 of the Contract Law.
191 Article 161 of the Contract Law.
192 Article 165 of the Contract Law.
193 Article 166 of the Contract Law.
194 Article 167 of the Contract Law.
195 Article 197 of the Contract Law.
196 Article 198 of the Contract Law.
197 Article 199 of the Contract Law.
198 Article 200 of the Contract Law.
199 Article 201 of the Contract Law.
200 Article 202 of the Contract Law.
201 Article 202 of the Contract Law.
202 Article 203 of the Contract Law.
203 Article 206 of the Contract Law.
204 The most recent amendment to the Constitution was adopted at the Second Session of the Tenth NPC and it was promulgated for implementation on March 14, 2004. The Constitution was originally adopted at the Fifth Session of the Fifth NPC and promulgated for implementation on December 4, 1982.
205 Article 2 of the Property Law.
206 Article 4 of the Property Law.
207 Article 5 of the Property Law.
208 Article 7 of the Property Law.
209 Article 115 of the Property Law.
210 Articles 33 and 34 of the Property Law.
211 Article 35 of the Property Law.
212 Article 36 of the Property Law.
213 Article 37 of the Property Law.
214 Article 38 of the Property Law.
215 Article 39 of the Property Law.
216 Article 117 of the Property Law.
217 Article 40 of the Property Law.
218 Article 116 of the Property Law.
219 Article 56 of the Property Law.
220 Article 47 of the Property Law.
221 Article 47 of the Property Law.
222 Article 50 of the Property Law.
223 Article 46 of the Property Law.
224 Article 41 of the Property Law.
225 Article 56 of the Property Law.
226 Article 45 of the Property Law.
227 Articles 53 and 54 of the Property Law.
228 Article 55 of the Property Law.
229 Article 57 of the Property Law.
230 Article 59 of the Property Law.
231 Article 61 of the Property Law.
232 Article 63 of the Property Law.
233 Article 64 of the Property Law.
234 Article 65 of the Property Law. Individuals may also inherit property.
235 Article 66 of the Property Law.
236 Article 67 of the Property Law.
237 Article 68 of the Property Law.
238 Article 69 of the Property Law.
239 Article 118 of the Property Law.
240 Article 123 of the Property Law.
241 Article 119 of the Property Law.
242 Article 120 of the Property Law.
243 Article 121 of the Property Law.
244 Article 42 of the Property Law.
245 Article 42 of the Property Law.
246 Article 44 of the Property Law.
247 Article 148 of the Property Law provides for cases in which, prior to expiration of the term of the right to the use of land for construction, it is necessary in the public interest to retract such land-use rights; in such cases, a compensation must be paid.
248 Article 103 of the Property Law.
249 Article 104 of the Property Law.
250 Article 98 of the Property Law.
251 Article 100 of the Property Law.
252 Article 102 of the Property Law.
253 Article 102 of the Property Law. Co-owners who cover debts in excess of their proportion of the joint property may exercise recourses against the other co-owners.
254 Article 105 of the Property Law.
255 Articles 14 and 15 of the Property Law. State-owned natural resources are not subject to registration, article 9 of the Property Law.
256 Article 10 of the Property Law.
257 Article 10 of the Property Law.
258 Article 16 of the Property Law.
259 Article 17 of the Property Law.
260 Article 20 of the Property Law.
261 Article 21 of the Property Law.
262 Article 21 of the Property Law.
263 Article 22 of the Property Law.
264 Article 23 of the Property Law.
265 Article 25 of the Property Law.
266 Article 26 of the Property Law.
267 Article 27 of the Property Law.
268 Article 28 of the Property Law.
269 Article 170 of the Property Law.
270 Article 172 of the Property Law. In such cases, the debtor, the guarantor or the creditor bear civil liability in proportion to their respective faults.
271 Article 173 of the Property Law.
272 Article 174 of the Property Law.
273 Article 175 of the Property Law.
274 Article 176 of the Property Law. The third party would then have a right of recourse against the debtor.
275 Article 177 of the Property Law.
276 Article 179 of the Property Law.
277 Article 180 of the Property Law.
278 Article 182 of the Property Law.
279 Article 183 of the Property Law.
280 Article 184 of the Property Law.
281 Article 185 of the Property Law.
282 Article 186 of the Property Law.
283 Articles 187 and 188 of the Property Law.
284 Article 189 of the Property Law.
285 Article 190 of the Property Law.
286 Article 191 of the Property Law.
287 Article 193 of the Property Law.
288 Article 195 of the Property Law. Market prices are used as references for liquidating the mortgaged assets.
289 Article 196 of the Property Law.
290 Article 197 of the Property Law.
291 Article 198 of the Property Law.
292 If mortgages are registered in the same order, the proceeds are distributed in proportion to the claims.
293 Article 199 of the Property Law.
294 Article 200 of the Property Law.
295 Article 201 of the Property Law.
296 Article 203 of the Property Law.
297 Article 204 of the Property Law.
298 Article 205 of the Property Law.
299 Article 242 of the Property Law.
300 Article 243 of the Property Law.
301 Article 244 of the Property Law.
302 Article 245 of the Property Law.
303 Article 107 of the Property Law. Where transferees purchased the property through auction or from a professional operator, they are entitled to compensation for the amount paid.
304 Article 109 of the Property Law. Lost property not claimed within six months of the date of issue of the lost property notice is forfeited to the State, article 13 of the Property Law.
305 Article 6 of the Trust Law.
306 Article 8 of the Trust Law.
307 Article 7 of the Trust Law.
308 Article 10 of the Trust Law.
309 Article 12 of the Trust Law.
310 Articles 14 and following of the Trust Law.
311 Article 19 of the Trust Law.
312 Article 21 of the Trust Law.
313 Article 24 of the Trust Law.
314 Article 25 of the Trust Law.
315 Article 26 of the Trust Law.
316 Article 28 of the Trust Law.
317 Articles 31 and 32 of the Trust Law.
318 Article 33 of the Trust Law.
319 Article 34 of the Trust Law.
320 Article 35 of the Trust Law.
321 Article 38 of the Trust Law.
322 Article 39 of the Trust Law.
323 Article 43 of the Trust Law.
324 Article 44 of the Trust Law.
325 Article 45 of the Trust Law.
326 Article 46 of the Trust Law.
327 Article 48 of the Trust Law.
328 Article 50 of the Trust Law.
329 Article 51 of the Trust Law.
330 Article 53 of the Trust Law.
331 Article 53 of the Trust Law.
332 Article 17 of the Trust Law.
333 Article 56 of the Trust Law.
334 Article 57 of the Trust Law.