Economic Contract Law

(Adopted at the Fourth Session of the Fifth National People's Congress and promulgated by Order No.12 of the Chairman of the Standing Committee of the National People's Congress on December 13, 1981, and effective as of July 1,1982) Chapter I General Principles Article 1. This law is formulated for the purpose of ensuring a sound development of the socialist market economy, protecting the lawful rights and interests of parties to economic contracts, safeguarding the social economic order and promoting socialist modernization. Article 2. This law is applicable to contracts signed between legal persons who are equal civil parties, other economic organizations, self-employed workers or traders and rural households operating on contract for the purpose of realizing certain economic goals and clarifying each other's rights and obligations. Article 3. Economic contracts, except those in which accounts are settled immediately, shall be in written form. Documents, telegrams and charts that relate to amendment of a contract and are agreed upon by the parties through consultation are also integral parts of the contract. Article 4. In concluding an economic contract, the parties must comply with laws and administrative regulations. No unit or individual may use a contract to engage in unlawful activities, disrupt social economic order or damage the interests of the state or the public interest, seeking illegal income. Article 5. In concluding an economic contract, the parties must implement the principles of equality and mutual benefit, and achieving agreement through consultation. No party shall impose its will on the other party and no unit or individual may illegally interfere. Article 6. As soon as an economic contract is formed according to the law, it is legally binding, and the parties must fully perform the obligations stipulated in the contract. No party shall unilaterally modify or rescind the contract. Article 7. The following economic contracts are null and void: 1) contracts that violate the law or administrative regulations; 2) contracts that are signed through the use of fraud, duress or similar means; 3) contracts signed by an agent who exceeds the scope of his power of agency or contracts signed by an agent, in the name of his principal, with himself or with another person whom he represents; and 4) economic contracts that violate the interests of the state or the public interest. Economic contracts that are void, from the time they are concluded, have no legally binding force. When a part of an economic contract is confirmed to be void, if the validity of the remainder is not affected, the remainder shall still be valid. A void economic contract shall be confirmed by the people's courts or arbitration agencies. Article 8. The provisions of this law shall apply to all contracts for purchase and sale, construction projects, processing, transportation of goods, supply and use of electricity, storage and safekeeping, lease of property, loans, property insurance and other economic contracts, with the exception of those which are governed by other provisions of law. Chapter II The Conclusion and Performance of Economic Contracts Article 9. An economic contract is formed once both parties have, in accordance with the law, reached agreement through consultation on the principal terms of the contract. Article 10. In concluding an economic contract on behalf of the other party, before the contract directly gives rise to rights and obligations on the part of the authorizing person, the agent must first obtain an authorization from the authorizing person and sign in the name of the authorizing person within the scope of the authority granted. Article 11. If an economic contract concerns any mandatory plan issued to enterprises by the state according to needs, it shall be concluded between the enterprises concerned according to their rights and obligations as prescribed by relevant laws and administrative regulations. Article 12. An economic contract shall contain the following principal terms: 1) the object (referring to goods, labour services, construction projects, etc); 2) the quantity and quality; 3) the price of remuneration; 4) the time limit, place and method of performance; and 5) the liability for breach of contract. Terms that are stipulated by law or that must be included by virtue of the nature of the economic contract and terms that one party insists upon, shall also be principal terms of an economic contract. Article 13. When currency is used to perform obligations under an economic contract, except as otherwise provided by law or administrative regulations, Renminbi must be used for purpose of computation and payment. Except for cases in which the state permits the use of cash to settle debts, settlements must be made by means of transfers between bank accounts or by means of negotiable instrument. Article 14. One party shall pay a deposit to the other party. After the economic contract is performed, the deposit shall be returned or set off against the price. If the party that pays the deposit does not perform the contract, it shall have no right to claim the return of the deposit. If the party that receives the deposit does not perform the contract, it shall return twice the amount of the deposit. Article 15. If a party to an economic contract requests a guarantee, a guarantor may provide the guarantee. When the guaranteed party does not perform the contract, the guarantor shall be required to perform the contract or be held jointly and severally liable according to the terms of the guarantee. Article 16. After an economic contract has been confirmed to be void, the parties shall return to each other any property that they have acquired pursuant to the contract. If one party is at fault, it shall compensate the other party for losses incurred as a result thereof; if both parties are at fault, each party shall be commensurately liable. As to contracts that violate the interests of the state or the public interest, if both parties have acted willfully, the property that has already been acquired or that has been stipulated to be acquired by both parties shall be recovered and turned over to the State Treasury . If only one party has acted willfully, the willful party shall restore to the other party any property acquired from such other party; the party that has not acted willfully shall turn over to the State Treasury any property already acquired from the other party or stipulated to be acquired. Article 17. The terms regarding the quantity, quality, packaging quality and prices of products and the time limit for their delivery in purchase and sale contracts (including contracts for supply, procurement, advance purchase, combination and coordination in purchases and sales, and adjustment) shall be implemented in accordance with the following provisions: 1) The product quantity term shall be concluded through consultation between the supplying and requisitioning parties. The method of measuring product quantity shall be implemented in accordance with state provisions; in the absence of state provisions, implementation shall be in accordance with a method agreed upon by the supplying and requisitioning parties. 2) The product quality and packaging quality terms, where there are mandatory state standards or mandatory trade standards, shall be concluded in accordance with standards not lower than such mandatory state standards or mandatory trade standards; in the absence of mandatory state standards or mandatory trade standards, the terms shall be concluded through consultation between the parties. The supplying party shall be responsible for the product quality and packaging quality and provide the technical data or samples necessary for inspection. The methods of ascertaining product quality through inspection or quarantine shall be carried out in accordance with the relevant provisions approved by the State Council, and, in the absence of such provisions, the methods shall be determined through consultation between the parties. 3) The product price term shall be concluded through consultation between the parties, with the exception of the products for which implementation of state-fixed prices is mandated by the state. In cases where a product is to be supplied on the basis of the state-fixed price, if the state-fixed price is adjusted before the time limit for delivery provided in the contract, the price shall be calculated according to the price at the time of delivery. In the event of late delivery, if the price has risen, the original price shall be implemented; if the price has dropped, the new price shall be implemented. In the event of late taking of delivery of goods or late payment, if the price has risen, the new price shall be implemented; if the price has dropped, the original price shall be implemented. 4) The time limit for delivery (or taking delivery) of the goods shall be carried out in accordance with the stipulations in the contract. If any party requests advancement or extension of the time limit for delivery (or taking delivery) of the goods, it shall reach an agreement with the other party beforehand and then implement it accordingly. Article 18. In contracting for construction projects, including surveys, designs, building and installations, one general contractor may sign a general contract with the construction unit, or several contractors may separately sign contracts with the construction unit. Contracts for major state construction projects shall be concluded in accordance with the procedures stipulated by the state, and in accordance with the investment plan, task plan and other state-approved documents. Survey and design contracts shall provide the time for delivery of the basic survey or design data and design documents (including an estimated budget) to be delivered by both parties, the quality requirements of design work, other conditions for coordination and similar provisions. Building and installation contracts shall clearly provide the scope of the work, the construction work period, the time for beginning and completing intermediate construction projects, the quality of the work, the costs of construction work, the time for delivery of technical data, the responsibilities for supplying materials and equipment, the allocation of funds and settlement of accounts, the inspection and acceptance of the work upon completion, the mutual cooperation by the parties and similar terms. The inspection and acceptance of construction projects upon completion shall be based on work blueprints and written instructions, and on work testing norms and quality inspection standards issued by the state. Article 19. Processing contracts shall be concluded based on the ordering party's requirements as to the kind of goods, the items and the quality and on the contractor's capacity to process, make to order or repair. Except as otherwise provided in the contract, the contractor must use its own equipment, technology and labour force to complete the principal part of the tasks of processing, making to order and repairing and, without the consent of the ordering party, may not assign accepted tasks to a third party. The ordering party shall accept the articles and the results of the work completed by the contractor and shall pay remuneration therefore. The contractor shall promptly inspect the raw and processed materials supplied by the ordering party and, if it is discovered that they do not conform to the stipulations of the contract, the contractor shall immediately notify the ordering party to replace them or supply what is lacking. The contractor may not, without authorization, replace any raw and processed materials supplied by the ordering party and may not covertly exchange components of articles being repaired and violators shall be liable to pay compensation. When the contractor repairs a building or processes a batch of non-standard articles, it shall accept necessary inspection and supervision by the ordering party, but the ordering party may not obstruct the contractor's normal work. The contractor shall strictly comply with the ordering party's request to keep confidential the duplications, designs, translations, tests and inspections of the performance of articles and other tasks contracted for by the contractor. If the ordering party does not take delivery of the ordered goods within six months of the time limit for taking delivery, the contractor shall have the right to sell the ordered goods and, after deducting its remuneration and storage fees from the price obtained, to deposit the remainder in a bank in the name of the ordering party. Article 20. Contracts for transporting goods shall be concluded through consultations between the consignor and the shipper. Any contract involving transshipment shall clearly provide the responsibilities of both parties or all parties and the freight delivery methods. When consigned goods, in accordance with stipulations, require packaging, the consignor must package the goods in accordance with the standards prescribed by the state authorities in charge; in the absence of uniform prescribed packaging standards, packaging shall be carried out in accordance with the principle of securing the safe transport of the goods, or else the shipper has the right to refuse to undertake the shipment. Article 21. Contracts for the supply and use of electricity shall be concluded in accordance with the needs of the electricity user and the electrical supply capacity. The contract shall clearly provide the electrical power, the amount of electricity, the period of use of electricity, the liability for breach of contract and similar terms. Article 22. Contracts for storage and safekeeping shall be concluded through consultation between the parties in accordance with the storing party's plan for storage on consignment and the warehousing capacity of the safekeeping party. Contracts for the storage of odd-lot goods shall be concluded in accordance with the relevant provisions on storage. Contracts for storage and safekeeping shall clearly provide the type, specifications and quantity of goods to be stored and the method of safekeeping, the items to be inspected and the inspection methods, the procedures for depositing and withdrawing the goods from storage, the standards of loss and damage and the handling of loss or damage, the responsibility for expenses and the method of settling accounts, the liability for breach of contract and similar terms. The safekeeping party shall inspect the goods to be put into storage in accordance with the provisions of the contract concerning the packaging exterior and the type, quantity and quality of the goods, and, if it discovers that the goods to be put into storage do not conform to the provisions of the contract, it shall promptly notify the storing party. If, after the safekeeping party has inspected the goods, a discrepancy between the type, quantity or quality of the goods and the provisions of the contract, the safekeeping party shall be liable to pay compensation. The storing party shall provide the safekeeping party with the necessary data for inspecting the goods, or else the safekeeping party shall not be liable to pay compensation should any discrepancy develop between the type, quantity or quality of the goods and the provisions of the contract. Article 23. Contracts for the lease of property shall clearly provide the name, quantity and use of the leased property, the term of the lease, the rent and the time limit for payment of the rent, the responsibility for maintenance and keeping the property in good repair during the term of the lease, the liability for breach of contract and similar terms. The lessor shall, in accordance with the time and standards provided in the contract, turn over the leased property for the use of the lease. If the lessor transfers ownership of the property to a third party, the lease contract shall continue to be effective with respect to the new owner of the property. The lessee may, because of work requirements, assign the use of the leased property to a third party lessee, but it must first obtain the consent of the lessor. If the state has uniform provisions, the rent standard shall be concluded based on such uniform provisions. In the absence of uniform provisions, the rent shall be decided through consultation between the parties. Article 24. Loan contracts shall be concluded in accordance with relevant State Council regulations. The contract shall clearly provide the amount of the loan, use, terms, interest rate, procedures for settling accounts, liability for breach of contract and similar terms. Article 25. A property insurance contract shall be concluded after an insurer agrees to undertake the applicant's insurance request and after an agreement has been reached regarding the provisions in the contract. The insurer shall promptly issue to the applicant an insurance policy or other insurance receipt. The insurance contract shall clearly provide the object of the insurance, the exact location (or the means of transport and voyage), the insured amount, the insured liability, the excluded liability, the method of paying compensation, the method of paying insurance premiums, the beginning and end of the insured term and similar provisions. The policy holder shall protect the safety of the insured property. The insurer may conduct safety inspections of the insured property, and, if it discovers unsafe aspects, it shall promptly notify the policy holder to eliminate them. When a third person should be responsible for paying compensation for losses with respect to insured property, if the policy holder submits a claim against the insurer, the insurer may first make compensation in accordance with the provisions of the contract, but the policy holder must assign its right to cover compensation to the insurer and assist the insurer in recording the compensation from the third person. Chapter III The Modification and Rescission of Economic Contracts Article 26. It shall be permissible to modify or rescind an economic contract if any of the following situations should occur: 1) if both parties agree through consultation and if such modification or amendment would not damage the interests of the state or the public; 2) if force majeure makes it impossible to perform all the obligations in the economic contract; 3) if one party breaches the contract during the time limit agreed to prescribed in the contract. If it is situations 2 and 3 above, one party has the right to notify the other party to have the contract rescinded. If one party suffers losses due to modification or rescission of an economic contract, the party that is responsible, except when it may be excused from liability according to the law, shall be liable to pay compensation. If one party is merged or divided, the party or parties resulting from the change shall assume or share the obligation to perform the contract and shall enjoy its or their due rights under the contract. Article 27. The notice or agreement regarding the modification or rescission of an economic contract shall be in written form (including a document, telegram, etc.). Except when obligations in the economic contracts cannot be fully performed because of force majeure, or when one party breaches the contract within the time limit agreed to, the original economic contract shall continue to be in force. Article 28. After an economic contract is concluded, it may not be modified or rescinded due to a change in the person in charge or in the legal representative. Chapter IV Liability for Breach of an Economic Contract Article 29. If, due to the fault of one party, an economic contract cannot be performed or cannot be fully performed, the party at fault shall be liable for breach of the contract; if both parties are at fault, in accordance with the actual conditions, each party shall be liable in equal measure for the breached contract that is its responsibility. If an individual is directly responsible for dereliction of duty, malfeasance or other unlawful conduct that gives rise to a major accident or severe losses, he or she shall be investigated for economic and administrative liability, and even criminal liability. Article 30. If a party cannot perform an economic contract due to force majeure, it shall promptly notify the other party of the reason why it cannot perform the economic contract or why it needs an extension of the time for performance or for part performance of the economic contract. After it has obtained a relevant certificate, it shall be permitted to extend the time for performance or part performance or not to perform, and it may, in accordance with the circumstances, be partly or completely excused from liability for breach of contract. Article 31. If a party breaches an economic contract, it shall pay breach of contract damages to the other party. If the breach of contract has already caused the other party to suffer losses that exceed the amount of the breach of contract damages, the breaching party shall pay compensation and supplement the breach of contract damages by the insufficient amount. If the other party demands continued performance of the contract, the breaching party shall continue to perform. Article 32. Breach of contract damages and compensatory damages shall be paid within 10 days after liability is clearly established, or else the matter shall be handled as an overdue payment. Article 33. Liability for breach of a purchase and sale contract. 1) Liability of the supplying party: a. If the type, specifications, quantity, quality or packaging of the product does not conform to the provisions of the contract, or if delivery is not made on the date prescribed in the contract, it shall pay breach of contract damages and compensatory damages. b. If the product is sent to the wrong destination or receiving unit (or individual), in addition to being responsible for transportation to the destination or receiving unit (or individual) prescribed in the contract, it shall also be liable for any extra freight and miscellaneous charges incurred as a result thereof; if the error causes overdue delivery, it shall also pay breach of contract damages for overdue delivery. 2) Liability of the requisitioning party: a. If it cancels an order during the contract term it shall pay breach of contract damages and compensatory damages. b. If it fails to make payment or take delivery on the date prescribed in the contract, it shall pay breach of contract damages. c. If it erroneously writes out or at the last moment changes the destination of the goods, it shall be liable for any extra expenses incurred as a result thereof. Article 34. Liability for breach of a construction project contract. 1) Liability of the contractor: a. If, due to the inferior quality of survey and design work or because survey and design documents are not submitted in time, the work period is prolonged and losses are caused thereby, the survey and design unit shall continue to complete the designs and shall reduce or forfeit its survey and design fees and shall even make compensation for the losses. b. If the construction quality does not conform to the stipulations of the contract, the party awarding the contract shall have the right to demand that the project be repaired or redone and reconstructed within a fixed time and without compensation, and if such repair or remedy and reconstruction causes the project to be delivered beyond the deadline, the contractor shall pay breach of contract damages for the overdue performance. c. If the time the project is delivered does not conform to the stipulations of the project, the contractor shall pay breach of contract damages for overdue performance. 2) Liability of the party awarding the contract: a. If the raw and processed materials, equipment, site, funds, technical data, etc. are not supplied according to the time or requirements stipulated in the contract, in addition to accepting a delay in the work deadline, it shall also reimburse the contractor for actual losses from work stoppages and idling of the labour force as a result thereof. b. If construction is stopped or postponed in the course of the work, it shall adopt measures to offset or reduce the losses and at the same time compensate the contractor for losses and actual expenses incurred as a result thereof due to work stoppages, idling of the labour force, changes in transportation, transfers of machinery and equipment, overstocking of materials and components, etc. c. If the plans are modified, the data supplied are not accurate or the conditions for survey and design work are not provided in a timely fashion and, as a result thereof, the survey and design work has to be redone or stopped, or the design revised, it shall pay additional expenses for the amount of work actually expended by the contractor. d. If problems of quality are discovered in the project it has put into use without having inspected it, it shall be held solely responsible. e. If it exceeds the deadline stipulated in the contract for inspection or for paying the construction fees, it shall pay breach of contract damages for overdue performance. Article 35. Liability for breach of a processing contract. 1) Liability of the contracting party: a. If due to improper storage the materials or articles supplied by the ordering party are damaged, lost or destroyed, it shall be liable to pay compensation. b. If the quality or quantity of work delivered to the ordering party is not in accordance with the provisions of the contract, it shall, without charge, undertake to make repairs or supplement the quantity or, depending on the circumstances, reduce remuneration. If the results of the work have a serious defect, it shall also be held liable to pay compensation. 2) Liability of the ordering party: a. If it does not provide the contracting party with raw and processed materials on time or of the requisite quality or quantity and thereby causes a prolonging of the work period, it shall be liable to compensate for any losses. b. If it exceeds the deadline stipulated for taking delivery of the articles ordered or repaired, it shall pay a storage fee to the contracting party for the overdue period. c. If it exceeds the deadline for making payment stipulated in the contract, it shall pay breach of contract damages for overdue payment . Article 36. Liability for breach of a freight transportation contract . 1) Liability of the shipper: a. If it fails to arrange for a vehicle (or ship) for shipment in accordance with the time or requirements of the transportation contract, it shall pay to the consignor breach of contract damages. b. If the goods are shipped to the wrong destination or receiving person, it shall, free of charge, transport them to the destination or receiving person stipulated in the contract. If the goods are delivered after the stipulated time, it shall pay breach of contract damages for overdue delivery. c. If the goods are lost or destroyed, suffer a shortage, deteriorate or are contaminated or damaged in the course of transportation, compensation shall be paid in accordance with the actual loss to the goods (including packaging expenses and freight and miscellaneous expenses). d. If destruction, loss, shortage, deterioration or contamination of or damage to the goods for which the shipper is liable for making compensation occurs during through transshipment, the shipper for the final stage of transport shall make compensation as stipulated and then the shipper for the final stage may pursue reimbursement from any other responsible shipper. e. If, during transportation that is in conformity with the law and the provisions of the contract, destruction, loss, shortage, deterioration or contamination of or damage to the goods is caused by any of the following reasons, the shipper shall no be held liable for breach of contract: (i) force majeure; (ii) the natural characteristics of the goods themselves; (iii) reasonable loss and damage of the goods; or (iv) the fault of the consignor or the recipient of the goods; 2) Liability of the consignor: a. If it does not provide the consigned goods in accordance with the time and requirements stipulated in the contract, it shall pay to the shipper breach of contract damages. b. If it smuggles or conceals dangerous goods among ordinary goods or incorrectly declares the weight of heavy goods, etc. and this causes the chain sling to break, the goods to be broken or damaged, cranes to be overturned or broken, an explosion, corrosion or a similar accident, it shall be liable to pay compensation. c. If defective packaging produces damage and thus causes other goods or means of transport, machinery or equipment to be contaminated, corroded or damaged or causes human casualties, it shall be liable to pay compensation. d. If the goods have been loaded by the consignor at its own special-purpose loading point or at a public special-purpose loading point at a harbour or station or at a special-purpose railway loading point, and if damage or shortage is found upon checking the goods at the unloading point, in circumstances where the vehicle was perfectly sealed or there ae no abnormal conditions, the consignor shall compensate the receiving party for the loss. e. If goods transported in a goods wagon are not accompanied by the certificate of specifications and quality or the laboratory test report, preventing the recipient of the goods from being able to unload the goods, the consignor shall reimburse the shipper for delayed unloading and storage charges as well as breach of contract damages. Article 37. Liability for breach of a contract for the supply and use of electricity. 1) Liability of the supplier of electricity: The supplier of electricity must supply electricity in a safe manner in accordance with power supply standards stipulated by the state and with the stipulations of the contract. If it has cause to restrict electricity, it shall give advance notice to the user of electricity. In the absence of a proper reason for restricting the electricity or if electricity is cut off due to the fault of the supplier of electricity, it shall compensate the user of electricity for the losses caused thereby. 2) Liability of the user of electricity: The user of electricity must use electricity in accordance with the provisions of the contract. If, due to special circumstances, it needs to use more electricity or cannot use electricity in accordance with the time specified, it shall give advance notice to the supplier of electricity. If it does not have a proper reason for the overload of electricity or for not being able to use electricity in accordance with the time stipulated, it shall pay breach of contract damages. The liability for breach of a contract for the supply and use of water or the supply and use of gas may be handled with reference to the provisions of this article. Article 38. Liability for breach of a contract for storage and safekeeping. 1) Liability of the safekeeping party: a. If improper safekeeping during the period of storage of the goods causes destruction, shortage, deterioration or contamination of or damage to the goods, it shall be liable to pay compensation for the losses. If the goods are damaged or deteriorate owing to the packaging not conforming to the stipulations of the contract or due to the valid storage period being exceeded, it shall not be liable to pay compensation. b. If dangerous articles or perishable goods are not handled according to stipulations or are not carefully stored and are thereby damaged, it shall be liable to pay compensation for the losses. c. If the goods are withdrawn from the warehouse or cannot be deposited in storage due to the fault of the safekeeping party, it shall make compensation for the storing party's transportation expenses and pay breach of contract damages in accordance with the provisions of the contract. d. In cases where it is the responsibility of the safekeeping party to transport the goods and it fails to ship them on time, it shall compensate the storing party for losses due to overdue delivery; if it sends them to the wrong destination, in addition to transporting the goods without charge to the destination as stipulated in the contract, it shall also compensate the storing party for the actual losses caused thereby. 2) Liability of the storing party: a. Inflammable, explosive, poisonous and other dangerous articles and perishable articles must be noted in the contract and the necessary date must be provided. Otherwise, if any damage to goods or human casualties is caused thereby, it shall be liable to pay compensation and may even be subject to criminal liability. b. If the weight stored exceeds that agreed upon or the goods are not picked up on time, in addition to the payment of storage fees, it shall also pay breach of contract damages. Article 39. Liability for breach of a contract for the lease of property. 1) Liability of the lessee: a. If improper use and safekeeping of the leased property or failure to maintain and keep it in good repair causes damage to or destruction of the property, it shall be responsible for restoration of the property or payment of compensation. b. If it dismantles or alters a building, equipment, machine and tool or other property without permission, it shall be liable to pay compensation for the losses caused thereby. c. If it sublets the leased property without permission or carries out illegal activities, the lessor shall have the right to rescind the contract. d. If the leased property is not returned on time, in addition to payment of supplemental rental fees, it shall also pay breach of contract damages. 2) Liability of the lessor: a. If it does not provide the leased property in accordance with the time stipulated in the contract, it shall pay breach of contract damages. b. If it does not provide the leased property in accordance with the quality stipulated in the contract, it shall be liable to pay compensation for the losses caused thereby. c. If it does not supply related equipment, accessories, etc. in accordance with the provisions of the contract and thereby causes the lessee to be unable to make timely and regular use of the leased property, in addition to supplying what is necessary in accordance with stipulations, it shall also pay breach of contract damages. d. In the leasing of vessels, vehicles and other large tools, if improper handling by the lessor or the negligence of service personnel causes the period of the lease to be prolonged, it shall pay the lessee breach of contract damages in accordance with the contract or other relevant stipulations. Article 40. Liability for breach of a loan contract. 1) Liability of the lender: If the lender does not make loans in a timely manner in accordance with the provisions of the contract, the leader shall pay breach of contract damages. 2) Liability of the borrower: If the borrower does not repay the loan in accordance with the provisions of the contract, it shall be liable for breach of contract and shall pay additional interest. If the borrower does not utilize the loan, granted because of state policies, in accordance with the provisions of the contract, it shall pay additional interest; the lender shall have the right to recall part or all of the loan ahead of schedule. Article 41. Liability for breach of a property insurance contract. 1) Liability of the insurer: It shall be liable to pay indemnity for the losses caused by an accident within the scope of insured amount. The reasonable expenses paid by the policy holder in order to avoid or reduce the losses within the scope of the insured liability by means of rescue, protection, repair or litigation shall be reimbursed in accordance with the provisions of the contract. If it does not indemnify the policy holder in a timely manner, it shall be liable for breach of contract. 2) Liability of the policy holder: If the policy holder conceals the actual circumstances of the insured property, the insurer shall have the right to rescind the contract or shall not be liable to make indemnity. If the policy holder discovers dangerous circumstances regarding the insured property and does not adopt measures to eliminate them, it shall be held solely liable for any losses from an accident caused thereby, and the insurer shall not be liable to make indemnity therefore. Chapter V Mediation and Arbitration of Economic Contract Disputes Article 42. If disputes over an economic contract develop, the parties may resolve them through consultation or mediation. If the parties are not willing to resolve the disputes through consultation or mediation, or if consultation or mediation is not successful, they may apply to arbitration bodies for arbitration in accordance with the arbitration clauses in the contract or with the written arbitration agreement reached after disputes have developed. If the parties have not included arbitration clauses in their contract and have not concluded a written arbitration agreement after disputes have developed, they may bring a suit in the people's courts. In the case of a decision made after arbitration, the arbitration body shall issue a written arbitration decision. The parties concerned shall obey the decision made by the arbitration body. If one party does not perform the decision of the arbitration bodies within the prescribed time, the other party may apply to a people's court for forced implementation of the decision. Article 43. The deadline for application for arbitration of economic contract disputes is two years and shall begin from the day the parties know or should know their rights have been encroached upon. Chapter VI Administration of Economic Contracts Article 44. The administrative departments for industry and commerce of the people's governments at and above the county level and other departments in charge shall exercise supervision over economic contracts in accordance with their functions prescribed by laws and administrative regulations. Article 45. Acts of using economic contracts to impair the interests of the state or the public interests shall be dealt with by the administrative departments for industry and commerce of the people's governments at and above the county level and other relevant departments in charge in accordance with their functions prescribed by laws and administrative regulations; acts which constitute a crime shall be dealt with according to law. Chapter VII Supplementary Provisions Article 46. The provisions of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests and the Law of the People's Republic of China on Technological Contracts shall apply to economic contracts involving foreign technology. Article 47. This law shall be implemented as of 1st July 1982. [date as received]

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