10 highlights of the Civil Code of the PRC on contracts

On 28 May 2020, the Civil Code of the People's Republic of China (the Civil Code) was adopted at the third session of the 13th National People's Congress, signifying the first Code to be legislated in the People's Republic of China. The Civil Code is separated into 7 distinct Parts comprised of 1260 articles. The largest of these Parts is the Part on Contracts, which is made up of 526 articles.

The Civil Code will be implemented from 1 January 2021, which marks the simultaneous abolishment of the existing Contract Law of the People's Republic of China (the Contract Law). In comparison with the Contract Law, the Part on Contracts is an improvement to the current legislative framework and keeps up with modern legal and social developments while ensuring integrity, transparency and practicality in contractual relationships.

We have selected the following 10 highlights for a brief overview:

1. Change of Nominate Contracts

The Contract Law provides 15 nominate contracts, whereas the Civil Code sets out 19 nominate contracts with the addition of Guarantee Contracts, Factoring Contracts, Realty Property Service Contracts and Partnership Contracts.

2. Quasi-Contract

A new chapter on quasi-contracts has been added to the Part on Contracts, which introduces two types of quasi-contracts: Negotiorum Gestio and Unjust Enrichment.

3. Factoring Contract

The chapter on Factoring Contracts contains articles in relation to the definition and composition of Factoring Contracts, treatment of fictitious accounts receivables, notice to debtor, recourse factoring, non-recourse factoring and repetitive assignment of accounts receivables.

4. Change of circumstances

Article 533 of the Civil Code formally introduces the treatment of unforeseen change of circumstances. Where the basic conditions of a contract undergoes significant change (not commercial risk) which could not have been foreseen at the time of the conclusion of the contract, resulting in the continued performance of the contract being obviously unfair to one of the parties, the adversely affected party may renegotiate with the other party. Where negotiations fail to give rise to an amicable solution, the parties may request the people's court or arbitration institutions to modify or terminate the contract.

This is the first time that this important principle is introduced to legislation, following its establishment by the Supreme Court through case-by-case approvals and judicial interpretations.

5. Guarantee

According to the provisions of the Security Law: "If there is no agreement on the method of guarantee, or if the agreement is unclear, it shall be treated as joint and several guarantee liability." Since the guarantor of a joint and several liability does not have a first-to-file defense, in the event of the debtor's failure to perform, the creditor may demand that the guarantor assumes responsibility for the guarantee. This is more onerous than a general guarantee.

Article 686 of the Civil Code provides that if the parties do not agree on the method of guarantee or the agreement is not clear in the guarantee contract, it shall be treated as a general guarantee. This effectively reduce the guarantor's burden when compared with the existing position under the Security Law.

6. Standard Clauses

Article 686 of Civil Code revised the obligation to inform or explain standard clauses by extending the "exclusion or limitation of its liability" under the Contract Law to "a term that has a substantial interest on the other party". If, as a result of a party's failure to comply with the obligation to inform or explain, the counterparty fails to pay attention to or understand the clause in question, the counterparty may argue that the clause does not constitute a term of the contract. This provision further balances the position of the parties and enhances the protection given to the party with the weaker bargaining power.

7. Electronic Contract

In response to the growing demand for e-commerce, the Civil Code has added specific provisions on the conduct of electronic transactions, conclusion and performance of electronic contracts, and reservation contracts by drawing on the Electronic Signature Law and the provisions of the Judicial Interpretation of the Contract Law.

Contracts are no longer limited to traditional written forms; among other things, electronic data interchange and emails are both legally recognized as valid written forms. It should be noted that the Civil Code explicitly requires electronic contracts to be readily accessible data messages, which requires parties to be aware of data security storage issues when executing electronic contracts.

8. Prohibition of Usury

The Civil Code clearly stipulates that "usurious lending is prohibited, and the interest rate on loans shall not violate the relevant national regulations." This provision is intended to further regulate private lending and to maintain social and financial order. The Civil Code does not, however, directly set out the criteria for judging usurious activities (e.g. the upper limit of the interest rate for borrowing). In practice, it is necessary to refer to the relevant national regulations.

9. Right of rescission for non-pecuniary debt defaulters

As a general rule, the legal right to terminate a contract is vested in the non-breaching party. In the event of a contractual deadlock, Article 580 of the Civil Code provides that, in the event of an impasse, the breaching party may apply to the courts to assist in terminating the contract. This appears to be an exceptional measure and its judicial application remains to be seen.

10. Performance of contracts to third parties

Article 522 of the Civil Code expands on the provisions set out in the Contract Law regarding  the performance of contracts to third parties. Where performance of a contract is to a third party, the third party enjoys the right of refusal, the right to request performance and the right to claim breach of contract in the event of a contractual party's failure to perform its obligations.

The highlights above are only a few of the many changes set out in the Part on Contracts. It should be noted that these provisions remain largely untested and are subject to future judicial interpretation. We will keep a close watch on this space and will provide further updates once the Civil Code enters into force.

Please feel free to reach out to May Lu (May.Lu@simmons-simmons.com) for more information.

2020年5月28日，十三届全国人大三次会议表决通过了《中华人民共和国民法典》（以下简称《民法典》），是新中国第一部以"法典"命名的法律。《民法典》共7编、1260条，其中"合同编"有526条，占据几乎近一半的篇幅。

《民法典》将从2021年1月1日起施行，现有的《中华人民共和国合同法》（以下简称《合同法》）届时将同时废止。在现行《合同法》的基础上，《民法典》合同编根据时代的变化和社会热点做出了积极的回应，在完善立法体系和实践规则的同时又保证了完整性、开放性和实用性。

我们甄选以下10大亮点进行简要介绍：

1. 典型合同的变化

《合同法》规定了15种有名合同；《民法典》合同编规定了19种有名合同，增加了保证合同、保理合同、物业服务合同和合伙合同。

2. 准合同

《民法典》合同编新增加了准合同的章节，并规定了无因管理和不当得利两种准合同类型。

3. 保理合同

《民法典》合同编在有名合同中增加了保理合同，给企业拓宽了融资渠道。相关条款规定了保理的定义、虚构应收账款、保理人对债务人的通知、有追索权的保理、无追索权的保理以及应收账款的重复转让问题。

4. 情势变更

早期最高法院曾通过对个案的批复阐释了情势变更的适用。之后在2008年金融危机时，造成许多合同不能履行，为此最高法院颁布了司法解释确立了情势变更原则。而今年以来，遭受新冠肺炎疫情的影响，诸多合同难以履行，既属于不可抗力，也有因情势变更导致合同不能履行。

现有《民法典》第533条正式规定："合同成立后，合同的基础条件发生了当事人在订立合同时无法预见的、不属于商业风险的重大变化，继续履行合同对于当事人一方明显不公平的，受不利影响的当事人可以与对方重新协商；在合理期限内协商不成的，当事人可以请求人民法院或者仲裁机构变更或者解除合同。人民法院或者仲裁机构应当结合案件的实际情况，根据公平原则变更或者解除合同。"

5. 保证方式

根据之前《担保法》的规定："对于保证方式没有约定或者约定不明时，应按照连带保证责任处理。"由于连带保证责任的保证人没有先诉抗辩权，其责任比一般保证要更为严苛。在债务人没有履行债务的情况下，债权人可以要求保证人承担保证责任。对于保证人来说连带保证责任显然是加大了责任承担。

《民法典》第686条正式规定："当事人在保证合同中对保证方式没有约定或者约定不明确的，按照一般保证承担保证责任。"这一规定显然更为合理。

6. 格式条款

《民法典》第496条修改了格式条款规则中关于提示义务的规定，将《合同法》规定的"免除或者限制其责任"的扩大至"与对方有重大利害关系的条款"。未履行提示或者说明义务，致使对方没有注意或者理解与其有重大利害关系的条款的，对方可以主张该条款不成为合同的内容。这一规定进一步平衡了合同当事人的地位，加强了对于弱势一方的保护。

7. 电子合同

为顺应电子商务和网络日益发展的需求，《民法典》合同编通过借鉴《电子签名法》以及《合同法》司法解释规定，对电子交易行为，对电子合同订立、履行的特殊规则做出规定，增加了预约合同的具体规定。

合同不再局限于传统书面形式，电子数据交换、电子邮件等均可以成为法律认可的有效书面形式，确立了电子合同和纸质合同已经是处于同样的法律地位。需要值得注意的是，《民法典》合同编中明确要求电子合同应是可以随时调取查用的数据电文，这就要求当事人在选择使用电子合同时一定要注意信息安全性和数据保全。

8. 禁止高利贷

《民法典》合同编明确规定："禁止高利放贷，借款的利率不得违反国家有关规定。"这一规定旨在规制民间借贷领域的问题，维护社会和金融秩序。但是对于高利贷的判断标准，也就是借款利率的上限，《民法典》合同编没有直接做出规定，具体实践中还要按照国家的有关规定来进行。

9. 非金钱债务违约方的合同解除权

一般情况下，合同法定解除权应当由非违约方享有。而针对合同僵局，《民法典》第580条规定，在出现合同履行困境的情况下，违约方可以向法院提出解除合同的请求。这是一种例外情形，实际适用效果仍然需要通过司法实践来观察。

10. 向第三人履行合同

《民法典》第522条在《合同法》的基础上规定了完善了向第三人履行合同的规则。在向第三人履行合同的情况下，第三人享有拒绝权、履行请求权以及在债务人不履行债务时的违约责任请求权。

除以上提到的几点之外，《民法典》在合同相关的规定上还有许多值得关注的变化，这些变化也有待于未来实践的考验。在《民法典》正式生效之后，也会出现更多适用新法的案例以及司法解释等，我们也将对此保持持续关注。