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(Adopted
on March 21, 1985 at the 10th Session of the Standing Committee
of the 6th National People's Congress)
CHAPTER
I General Provisions
Article
1. This law is enacted with a view to protect the lawful rights
and interests of the concerned parties to foreign economic contracts
and promote the development of China's foreign economic relations.
Article
2. This law applies to economic contracts (hereinafter referred
to as contracts), concluded between enterprises or other economic
organizations of the People's Republic of China and foreign enterprises,
other foreign economic organizations or individuals, but with the
exception of the international transport contracts.
Article
3. Contracts should be made in conformity with the principles of
equality and mutual benefit, and of achieving unanimity through
consultations.
Article
4. Contracts must be made in accordance with the law of the People's
Republic of China and without prejudice to the public interests
of the People's Republic of China.
Article
5. The parties to a contract may choose the law to be applied to
the settlement of the disputes arising from the contract. In the
absence of such a choice by the parties, the law of the country
which has the closest connection with the contract applies.
Contracts
for Chinese-foreign equity joint ventures, Chinese-foreign co-operative
enterprises and for Chinese-foreign co-operative exploitation and
development of natural resources to be performed within the territory
of the People's Republic of China shall be governed by the law of
the People's Republic of China.
The
international practice may apply in case no relevant provision is
stipulated in the law of the People's Republic of China.
Article
6. When an international treaty that relates to a contract and which
the People's Republic of China has concluded or participated in
has provision(s) that differ from the law of the People's Republic
of China, the provision(s) of the said treaty shall be applied,
but with the exception of clauses to which the People's Republic
of China has declared reservation.
CHAPTER
II Formation of Contract
Article
7. A contract is formed when the clauses of contract are agreed
in written form and signed by the parties. In case one party requests
to sign a confirmation letter when the agreement is reached by the
means of letter, telegram or telex, the contract is only formed
upon the confirmation letter being signed.
Contracts,
which are under the provisions of the law and administrative regulations
of the People's Republic of China, shall be approved by the competent
authorities of the state. They are only formed when the approval
is granted.
Article
8. Appendices specified in a contract are integral parts of the
contract.
Article
9. Contracts that violate the law or the public interests of society
of the People's Republic of China are invalid.
In
a case where any clauses in a contract violate the law or the public
interests of society of the People's Republic of China, the validity
of the contract is not derogated if such clauses are canceled or
revised by the parties through consultations.
Article
10. Contracts concluded by means of fraud or under duress are invalid.
Article
11. The party who bears responsibility for the invalidity of the
contract is obligated to pay the other party for the loss arising
from the invalidity of the contract.
Article
12. Contracts should generally contain the following items:
(1)
The corporate or personal names of the contract parties and their
nationalities, principal place of business or residence addresses;
(2)
Date and place of signature of the contract;
(3)
Type of contract and the kind, scope of the subject matter of the
contract;
(4)
Technical conditions, quality, standard, specifications and quantities
of the subject matter of the contract;
(5)
Time limit, place and method of performance;
(6)
Terms of price, amount and way of payment, and various additional
changes;
(7)
Whether the contract could be assigned or conditions for assignment;
(8)
Compensation and other liabilities for breach of the contract;
(9)
Ways for settlement of disputes in case of disputes arising from
the contract;
(10)
Languages to be used in the contract and their effectiveness.
Article
13. The limits of risks borne by the parties for the subject matter
to be performed should be specified in the contract according to
its requirement; and the coverage of insurance for the subject matter
should be specified when it is necessary.
Article
14. With regard to a contract that needs to be performed continuously
in a rather long period, the parties should set a valid term of
the contract and may also set conditions for extension and early
termination of the contract.
Article
15. A guarantee clause may be agreed upon in the contract by parties.
The guarantor shall undertake responsibility within the agreed scope
of the guarantee.
CHAPTER
III Performance of Contracts and Liabilities for Breach of Contract
Article
16. A contract formed in accordance with law is legally binding.
The parties should fulfil their obligations stipulated in the contract.
No party should arbitrarily alter or terminate the contract.
Article
17. A party may suspend performance of his obligations temporarily
if it is proved by conclusive evidence that the other party cannot
perform his obligations. However, the party who suspends performance
should promptly inform the other party. When the other party provides
a full guarantee of performance of the contract, the party shall
perform the contract. The party who suspends performance of contract,
in case of no conclusive evidence for proving the other party is
not able to perform the contract, shall be responsible for breach
of contract.
Article
18. If a party does not perform the contract or its performance
of the contractual obligations does not conform to the agreed conditions,
that is in breach of contract, and the other party is entitled to
demand compensation for losses or to adopt other reasonable remedial
measures.
If
the losses suffered by the other party still cannot be made up completely
after taking remedial measures, the other party retains the right
to claim for damages.
Article
19. The liability for damages by a party for breach of contract
should be equal to the loss suffered by the other party as a consequence
of the breach. However, such damages may not exceed the loss which
the party in breach ought to have foreseen at the time of the conclusion
of the contract as a possible consequence of the breach of contract.
Article
20. The parties may agree upon in a contract that a certain amount
of liquidated damages will be paid to the other party if one party
breaches the contract; and may also agree upon a method for calculating
the damages arising over such a breach of contract.
The
above-mentioned liquidated damages shall be regarded as compensation
for the loss caused by breach of contract. However, if the liquidated
damages agreed upon in the contract is much more or less than the
loss, the parties may request an arbitration body or court to cut
or increase it appropriately.
Article
21. In a case where both parties are in breach of the contract,
each shall bear corresponding liabilities respectively.
Article
22. A party who suffers losses arising from a breach of contract
by the other party should take appropriate measures in time to prevent
the loss from aggravating. If he fails to adopt appropriate measures
and that aggravates the loss, he shall have no right to claim damages
for the aggravated part of the loss.
Article
23. If a party fails to pay on time the due amount agreed upon in
the contract or any other due amount related to the contract, the
other party is entitled to interest on the amount in arrears. The
method for calculating the interest may be specified in the contract.
Article
24. A party should be exempted from his obligations in whole or
in part in case he fails to perform all or part of his obligations
as a result of a force majeure event.
In
case a party cannot perform his obligations within the time limit
set in the contract due to a force majeure event, he should be relieved
from the liability for delayed performance during the period of
continued influence of the effects of the event. An event of force
majeure means the event that the parties could not foresee at the
time of conclusion of the contract and its occurrence and consequences
cannot be avoided and cannot be overcome.
The
scope of force majeure events may be specified in the contract.
Article
25. The party who fails to perform all or part of the obligations
of the contract because of an event of force majeure should inform
the other party in time so as to mitigate the loss which might possibly
occur to the other party, and should also provide a certificate
issued by the relevant agencies within a reasonable period.
CHAPTER
IV Assignment of Contract
Article
26. When a party intends to assign all or a part of his contractual
rights and obligations to a third party, consent should be obtained
from the other party.
Article
27. As for a contract which, as provided by the law or administrative
regulations, is formed only after getting approval from the competent
authority of the state, the assignment of the rights and obligations
of such contract should be subject to the approval from the original
approval authority, but with the exception of already approved contracts
in which it is otherwise agreed.
CHAPTER
V Modification, Cancellation and Termination of Contract
Article
28. A contract may be modified by the parties through consultations.
Article
29. A party is entitled to inform the other party to cancel the
contract if one of the following situations occurs:
(1)
The expected economic interests are infringed seriously for the
breach of the contract by the other party;
(2)
The other party fails to perform a contract within the time limit
agreed upon in a contract, and still fails again within a reasonable
period of time allowed for delayed performance;
(3)
The whole obligations of the contract cannot be performed due to
the occurrence of a force majeure event;
(4)
The conditions agreed upon in the contract for cancellation of the
contract have arisen.
Article
30. For a contract containing several independent parts, some of
them may be canceled and the others shall remain valid according
to the provisions of the previous article.
Article
31. A contract should be terminated if one of the following situations
occurs:
(1)
The contract has already been performed in accordance with the agreed
conditions;
(2)
The arbitration body or the court decides to terminate the contract;
(3)
The parties agree to terminate the contract through consultations.
Article
32. Notices or agreements for modification or cancellation of the
contract should be made in written form.
Article
33. Contracts that under the provisions of the law and administrative
regulations of the People's Republic of China, are only formed after
getting approval from the competent authority of the State, the
significant modification of such contracts should be approved by
the original approval authority and the cancellations of such contracts
should be filed with the original approval authority.
Article
34. Modification, cancellation or termination of a contract does
not deprive a party of the rights to claim for damages.
Article
35. The clauses agreed to in a contract on the settlement of disputes
shall not become invalid because of the cancellation or termination
of the contract.
Article
36. The clauses agreed to in a contract on settlement of account
and winding-up shall not become invalid because of the cancellation
or termination of the contract.
CHAPTER
VI Settlement of Disputes
Article
37. Any disputes arising from a contract ought to be settled by
the parties, if possible, through consultations or mediation of
a third party.
In
case the parties are unwilling to solve a dispute through consultation
or mediation, or fail to do so, the dispute may, in accordance with
the arbitration clause provided in the contract or the written arbitration
agreement reached by the parties afterwards, be submitted to a Chinese
arbitration body or other arbitration body.
Article
38. In case neither an arbitration clause is provided in the contract
nor a written arbitration agreement is reached afterwards, the parties
may bring suit in the People's Court.
CHAPTER
VII Supplementary Provisions
Article
39. The limitation of action for litigation or arbitration concerning
disputes over a contract of purchase and sale of goods is four years
from the time the party knew or ought to know his rights are infringed.
The limitation of action for litigation or arbitration concerning
disputes over other contracts shall be separately stipulated by
the law.
Article
40. Even if the law makes new provisions, contracts for Chinese-foreign
equity joint ventures, Chinese-foreign co-operative enterprises
and for Chinese-foreign co-operative exploitation and development
of natural resources to be performed within the territory of the
People's Republic of China, which have already been approved by
a competent authority of the State and made, may still be performed
according to the stipulations of those contracts.
Article
41. Contracts made before the enforcement of this law may be governed
by this law in cases where the parties so agree through consultations.
Article
42. Rules for the implementation of this law shall be formulated
by the State Council in accordance with this law.
Article
43. This law shall enter into force on July 1, 1985.
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