International Business Lawyer, Business Attorney, Fukuda Law Firm, San Francisco, California

CONTRACT LAW OF THE PEOPLE'S REPUBLIC OF CHINA

Continued from Chapters 9 - 17 in Part 2

PART 3: Chapters 18 - 23

Chapter Eighteen - Technology Contracts

Section One - General Provisions

Article 322 Definition of Technology Contract

A technology contract is a contract whereby the parties prescribe their rights and obligations in respect of the development or transfer of technology, or in respect of technical consulting or service.

Article 323 General Requirements Concerning Technology Contract

Conclusion of a technology contract shall be conducive to the advancement of science and technology, and expedite the conversion, application and dissemination of scientific and technological achievements.

Article 324 Terms of Technology Contract; Patents

Terms of a technology contract shall be prescribed by the parties, and generally include the following:

(i) project name;
(ii) contents, scope and requirement of the subject matter;
(iii) the plan, schedule, period, place, territory and method of performance;
(iv) confidentiality of technical information and materials;
(v) allocation of responsibilities for risks;
(vi) ownership of the technology and allocation of benefits accrued therefrom;
(vii) standard applicable to and method of acceptance test;
(viii)price, remuneration or licensing fee and the method of payment;
(ix) liquidated damages or method for calculation of damages;
(x) method of dispute resolution;
(xi) definition of terms and phrases.

The parties may agree to include the following materials relating to the performance of the contract as an integral part thereof: technical background information, feasibility studies and technical evaluation report, project task matrix and project plan, technical standard, technical specifications, original design and technique documents, as well as other technical documentation.

Where the technology contract involves any patent, it shall set forth the name of the invention/innovation, the patent applicant and the patentee, the date of application, the application number, patent number and the term of the patent.

Article 325 Payment Method; Royalty

The method for payment of the price, remuneration or licensing fee under a technology contract shall be prescribed by the parties, who may prescribe lump-sum payment based on one-time calculation or installment payment based on one-time calculation, and may also prescribe royalty payment or royalty payment plus advance payment of initial fee.

Where a royalty payment method is prescribed, the royalty may be calculated as a percentage of the product price, any increase in product value resulting from exploitation of the patent or use of the technical secret, profit, or product sales, and may also be calculated by any other method prescribed by the parties. The royalty rate may be fixed or subject to annual increase or decrease.

Where a royalty payment is prescribed, the parties shall prescribe in the contract a method for inspection of the relevant accounting books.

Article 326 Employee-developed Technology; Definition

Where the right to use and the right to transfer employee-developed technology belong to a legal person or an organization of any other nature, the legal person or organization may enter into a technology contract in respect of such employee-developed technology. The legal person or organization shall reward or remunerate the individual(s) who developed the technology with a percentage of the benefits accrued from the use and transfer of the employee-developed technology. Where the legal person or organization is to enter into a technology contract for the transfer of the employee-developed technology, the employee-developer has the right of first refusal under the same conditions.

An employee-developed technology is a technology developed in the course of completing a task assigned by a legal person or an organization of any other nature, or developed by primarily utilizing the material and technical resources thereof.

Article 327 Non-employee-developed Technology

The right to use and the right to transfer non-employee-developed technology belong to the individual developer, who may enter into a technology contract in respect thereof.

Article 328 Individual's Rights with Respect to Technology Developed Thereby

The individual who developed the technology is entitled to identify himself as the developer in the documentation related thereto, and to receive honor certificate and reward.

Article 329 Invalidity of Technology-monopolizing and Infringing Contract

A technology contract which illegally monopolizes technology, impairs technological advancement or infringes on the technology of a third person is invalid.

Section Two - Technology Development Contract

Article 330 Definition of Technology Development Contract

A technology development contract is a contract concluded in respect of the development of a new technology, product, technique or material and the associated system.
Technology development contracts include commissioned development contracts and cooperative development contracts.
A technology development contract shall be in writing.

A contract on the conversion of a scientific achievement with potential for industrial application is governed by reference to the provisions applicable to technology development contracts.

Article 331 Obligations of Commissioning Party

The commissioning party under a commissioned development contract shall, in accordance with the contract, provide development funds and pay remuneration; supply technical materials and original data; complete its tasks of cooperation; and accept the developed technology.

Article 332 Obligations of Developer in Commissioned Development

The developer under a commissioned development contract shall, in accordance with the contract, prepare and implement the development plan; use development funds in a reasonable manner; timely complete the development and deliver the developed technology, as well as provide the relevant technical materials and necessary technical guidance so as to help the commissioning party master the developed technology.

Article 333 Commissioning Party's Breach

Where the commissioning party breached the contract, thereby causing stoppage, delay or failure of the development, it shall be liable for breach of contract.

Article 334 Developer's Breach

Where the developer breached the contract, thereby causing stoppage, delay or failure of the development, it shall be liable for breach of contract.
Article 335 Obligations of Parties in Cooperative Development

Parties to a cooperative development contract shall, in accordance with the contract, make investment, including investment in the form of technology; participate in the development by performing their respective tasks; and cooperate with each other in the development.

Article 336 Breach of Cooperative Contract

Where a party to a cooperative development contract breached the contract, thereby causing stoppage, delay or failure of the development, it shall be liable for breach of contract.

Article 337 Termination of Contract in Case Technology Becomes Public

Where the technology which is the subject matter of a technology development contract was made public by a third person, thereby rendering performance of the technology development contract no longer meaningful, the parties may terminate the contract.

Article 338 Allocation of Responsibility for Risk of Failure; Duty to Inform upon Discovery of Circumstance Which May Lead to Failure

If in the course of implementing a technology development contract, the development failed in whole or in part due to any insurmountable technical difficulty, allocation of the responsibility for such risk shall be prescribed by the parties. Where the allocation of responsibility for such risk was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, it shall be shared by the parties in a reasonable manner.

Where a party discovers any circumstance which may lead to the failure of the development in whole or in part as described in the previous paragraph, it shall timely notify the other party and take the appropriate measures to mitigate loss; where the party failed to timely notify the other party and take the appropriate measures, thereby causing further loss, it shall be liable for such further loss.

Article 339 Right to Patent Application in Commissioned Development

Unless otherwise agreed by the parties, the right to apply for patent on the invention/innovation resulting from a commissioned development belongs to the developer. Where the developer is granted a patent, the commissioning party may exploit such patent free of charge.
Where the developer is to assign the right to apply for patent on the invention/innovation resulting from the commissioned development, the commissioning party has the right of first refusal under the same conditions.

Article 340 Right to Patent Application in Cooperative Development

Unless otherwise agreed by the parties, the right to apply for patent on the invention/innovation resulting from a cooperative development belongs to the parties therein jointly. Where a party is to assign its joint patent application right, the other parties have the right of first refusal under the same conditions.

Where a party in the cooperative development declares a waiver of its joint patent application right, the other party may apply by itself, or the other parties may jointly apply, as the case may be. Where a patent is granted on the invention/innovation, the party waiving its patent application right may exploit such patent free of charge.
If a party in the cooperative development does not consent to the application for patent, the other party or parties may not apply for patent.

Article 341 Right to Use or Transfer Technical Secret

The right to use and transfer the technical secret resulting from a commissioned or cooperative development, and the method for allocation of benefits accrued therefrom shall be prescribed by the parties. Where such matters were not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, all of the parties are entitled to use and transfer the technology, provided that the developer in a commissioned development may not transfer the technology to a third person before it delivers the technology to the commissioning party.

Section Three - Technology Transfer Contracts

Article 342 Types of Technology Transfer Contract

Technology transfer contracts include contracts for the assignment of patent, assignment of patent application right, transfer of technical secrets, and patent licensing.
A technology transfer contract shall be in writing.

Article 343 Limit on Scope of Implementation May Not Restrict Competition

A technology transfer contract may set forth the scope of exploitation of the patent or the use of the technical secret by the transferor and the transferee, provided that it may not restrict technological competition and technological development.

Article 344 Term of Patent Licensing Contract May Not Exceed Patent Term

A patent licensing contract is only valid during the term of the patent. Where the term of the patent expires or the patent is invalidated, the patentee may not enter into a patent licensing contract with any other person in respect thereof.

Article 345 Obligations of Patent Licensor

The transferor under a patent licensing contract shall, in accordance with the contract, license the patent to the transferee, deliver the technical materials related to the exploitation of the patent, and provide the necessary technical guidance.

Article 346 Obligations of Patent Licensee

The transferee under a patent licensing contract shall exploit the patent in accordance with the contract and may not license the patent to any third person except as provided in the contract; and shall pay the licensing fee in accordance with the contract.

Article 347 Obligations of Transferor of Technical Secret

The transferor under a contract for transfer of technical secret shall, in accordance with the contract, supply the technical materials, provide technical guidance, and warrant the practical applicability and reliability of the technology, and shall abide by its confidentiality obligations.

Article 348 Obligations of Transferee of Technical Secret

The transferee under a contract for transfer of technical secret shall, in accordance with the contract, use the technology, pay the licensing fee and abide by its confidentiality obligations.

Article 349 Warranty of Title, Completeness, Correctness and Effectiveness

The transferor under a technology transfer contract shall warrant that it is the lawful owner of the technology provided, and shall warrant that the technology provided is complete, free from error, effective, and capable of achieving the prescribed goals.

Article 350 Transferee's Confidentiality Obligations

The transferee under a technology transfer contract shall, to the prescribed extent and within the prescribed period, abide by its confidentiality obligations in respect of the non-public and secret portion of the technology provided by the transferor.

Article 351 Transferor's Liabilities for Breach

Where the transferor failed to transfer technology in accordance with the contract, it shall refund the licensing fee in part or in whole, and shall be liable for breach of contract; where the transferor exploited the patent or used the technical secret beyond the prescribed scope, or unilaterally allowed the patent to be exploited or the technical secret to be used by a third person in breach of the contract, it shall cease the breach and be liable for breach of contract; where the transferor breached any prescribed confidentiality obligation, it shall be liable for breach of contract.

Article 352 Transferee's Liabilities for Breach

Where the transferee failed to pay the prescribed licensing fee, it shall pay the overdue licensing fee and pay liquidated damages in accordance with the contract; where it failed to pay the overdue licensing fee and liquidated damages, it shall cease exploitation of the patent or use of the technical secret, return the technical materials, and be liable for breach of contract; where the transferee exploited the patent or used the technical secret beyond the prescribed scope, or allowed the patent to be exploited or the technical secret to be used by a third person without consent by the transferor in breach of the contract, it shall cease the breach and be liable for breach of contract; where the transferee breached any prescribed confidentiality obligation, it shall be liable for breach of contract.

Article 353 Transferor Liable in Case of Infringement; Exception

Where the exploitation of the patent or the use of the technical secret by the transferee in accordance with the contract infringes on the lawful interests of any other person, the liability shall be borne by the transferor, except otherwise agreed by the parties.

Article 354 Sharing of Improvement

The parties may, on the basis of mutual benefit, provide in the technology transfer contract for the method of sharing any subsequent improvement resulting from the exploitation of the patent or use of the technical secret. If such method was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, neither party is entitled to share any subsequent improvement made by the other party.

Article 355 Applicability of Other Laws or Administrative Regulations

Where the relevant laws or administrative regulations provide otherwise in respect of technology import/export contracts or in respect of patent contracts or contracts for patent application, such provisions prevail.

Section Four - Technical Consulting Contracts and Technical Service Contracts

Article 356 Definitions of Technical Consulting and Technical Service Contracts

Technical consulting contracts include contracts for provision of feasibility studies, technical forecast, specialized technical investigation, and analysis and evaluation report, etc. in respect of a particular technical project.

A technical service contract means a contract whereby one party solves a particular technical problem for the other party by utilizing its technical knowledge, excluding a contract for construction project or a contract of hired work.

Article 357 Obligations of Client under Technical Consulting Contract

The client under a technical consulting contract shall, in accordance with the contract, describe the problem on which consultancy is sought, provide the technical background information as well as related technical materials and data; and accept the work product from, and pay the remuneration to, the consultant.

Article 358 Obligations of Consultant under Technical Consulting Contract

The consultant under a technical consulting contract shall complete the consulting report or answer the question within the prescribed period; the consulting report submitted shall comply with the requirements set forth in the contract.

Article 359 Remedies for Breach; Consultant Not Liable for Loss

Where the client under a technical consulting contract failed to provide the necessary materials and data in accordance with the contract, thereby impairing the progress and quality of the work, or failed to accept or delayed in accepting the work product, it may not claim refund of the remuneration paid, and shall pay any unpaid remuneration.
Where the consultant under the technical consulting contract failed to provide the consulting report within the prescribed period or the consulting report submitted does not comply with the contract, it shall be liable for breach of contract by way of reducing or foregoing the remuneration, etc.
The client under a technical consulting contract shall bear the loss resulting from any decision made by it based on the complying consulting report and opinion provided by the consultant, except otherwise agreed by the parties.

Article 360 Obligations of Client under Technical Service Contract

The client under a technical service contract shall, in accordance with the contract, provide the working conditions and complete its tasks of cooperation; accept the work product and pay the remuneration.

Article 361 Obligations of Service Provider under Technical Service Contract

The service provider under a technical service contract shall, in accordance with the contract, complete the services, solve the technical problem, warrant the quality of its work, and communicate the knowledge for solving the technical problem.

Article 362 Remedies for Breach

Where the client under a technical service contract failed to perform its contractual obligations, or rendered non-conforming performance, thereby impairing the progress and quality of the work, or failed to accept or delayed in accepting the work product, it may not claim refund of the remuneration paid, and shall pay any unpaid remuneration.
Where the service provider under a technical service contract failed to complete services in accordance with the contract, it shall be liable for breach of contract by way of forgoing the remuneration, etc.

Article 363 Ownership of New Technology in Connection with Technical Consulting/Service Contract

In the course of performing a technical consulting contract or a technical service contract, any new technology developed by the consultant or service provider utilizing the technical materials and working conditions provided by the client belongs to the consultant or service provider. Any new technology developed by the client utilizing the work product provided by the consultant or service provider belongs to the client. However, if the parties agree otherwise in the contract, such provision prevails.

Article 364 Technology Intermediary Service or Technical Training

Where a relevant law or administrative regulation provides otherwise in respect of technology intermediary service contracts or technical training contracts, such provisions prevail.

Chapter Nineteen - Safekeeping Contracts

Article 365 Definition of Safekeeping Contract

A safekeeping contract is a contract whereby the depository keeps the deposit delivered by the depositor, and eventually returns it thereto.

Article 366 Safekeeping Fee

The depositor shall pay the safekeeping fee to the depository in accordance with the contract.

Where the safekeeping fee was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, the safekeeping is gratuitous.

Article 367 Formation of Safekeeping Contract

A safekeeping contract is formed upon delivery of the deposit, except otherwise agreed by the parties.

Article 368 Deposit Voucher

Upon the depositor's delivery of the deposit to the depository, the depository shall issue a deposit voucher thereto, except otherwise provided by the relevant usage.

Article 369 Place and Manner of Safekeeping

The depository shall keep the deposit with due care.

The parties may prescribe the place and manner of safekeeping. The place and manner of safekeeping may not be changed without authorization, except in an emergency situation or for the purpose of safeguarding the depositor's interests.

Article 370 Depositor's Obligation to Inform

Where the deposit delivered by the depositor has defects or requires special safekeeping measures in light of its nature, the depositor shall inform the depository of the relevant situation. Where the depositor failed to inform, thereby causing damage to the deposit, the depository is not liable for damages; where the depository sustains any loss as a result, the depositor shall be liable for damages, except where the depository was, or should have been, aware of the situation and failed to take remedial measures.

Article 371 Delegation of Safekeeping Prohibited Except with Prior Agreement

The depository may not delegate safekeeping of the deposit to a third person, except otherwise agreed by the parties.

Where the depository delegated safekeeping of the deposit to a third person in violation of the previous paragraph, thereby causing damage to the deposit, the depository shall be liable for damages.

Article 372 Use of Deposit Prohibited Except with Prior Agreement

The depository may not use, or allow to be used, the deposit, except otherwise agreed by the parties.

Article 373 Depository's Obligations in Case of Third Party Claim

Where a third person makes a claim on the deposit, the depository shall perform its obligation of returning the deposit to the depositor, except where an order of preservation or enforcement is carried out in respect of the deposit in accordance with the law.

Where a third person has initiated a suit against the depository or has applied for attachment of the deposit, the depository shall timely notify the depositor.

Article 374 Depository Liable in Case of Damage or Loss; Exception

If the deposit was damaged or lost due to improper safekeeping by the depository during the deposit period, the depository shall be liable for damages, provided that if the safekeeping is gratuitous, and the depository has established that it was without gross negligence, it is not liable for damages.

Article 375 Depositor's Obligation to Declare Valuable Deposit

Where the depositor is to deposit money, securities, or any other valuable item for safekeeping, it shall make a declaration to the depository on such item, which shall be inspected or sealed by the depository. Where the depositor failed to make such declaration, upon damage to or loss of the deposit, the depository may indemnify the depositor to the extent of the value of a regular item.

Article 376 Retrieval of Deposit

The depositor may retrieve the deposit at any time.

Where a deposit period was not prescribed or clearly prescribed, the depository may require the depositor to retrieve the deposit at any time; where a deposit period was prescribed, absent special cause, the depository may not require the depositor to retrieve the deposit before the end of the deposit period.

Article 377 Depository's Obligation to Return Deposit and Fruit

At the end of the deposit period, or if the depositor retrieves the deposit before the end of the deposit period, the depository shall return the original item together with any fruit thereof to the depositor.

Article 378 Safekeeping of Fungible Items

Where the depository keeps money deposit, it may return money of the same type and quantity. Where the depository keeps any other fungible item, it may return any item of the same type, quality and quantity in accordance with the contract.

Article 379 Time of Payment of Safekeeping Fee

Under a safekeeping contract for value, the depositor shall pay to the depository the safekeeping fee at the prescribed time.
Where the time of payment of the safekeeping fee was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, the safekeeping fee shall be paid at the same time the deposit is retrieved.

Article 380 Depository's Lien in Case of Non-payment

Where the depositor fails to pay the safekeeping fee and other expenses, the depository is entitled to a possessory lien on the deposit, unless otherwise agreed by the parties.

Chapter Twenty - Warehousing Contracts

Article 381 Definition of Warehousing Contract

A warehousing contract is a contract whereby the warehouser stores the goods delivered by the depositor, and the depositor pays the warehousing fee.

Article 382 Effectiveness of Warehousing Contract

A warehousing contract becomes effective upon its formation.

Article 383 Storage of Hazardous Material

Where the depositor intends to store any hazardous material which is inflammable, explosive, toxic, corrosive, or radioactive, etc., or any material susceptible to deterioration, it shall describe the nature of the goods and provide the relevant information.

Where the depositor violates the previous paragraph, the warehouser may reject the goods and may also take the appropriate measures to prevent loss at the depositor's expense.

Where the warehouser is to store any hazardous material which is inflammable, explosive, toxic, corrosive, or radioactive, etc., it shall be equipped with the appropriate safekeeping conditions.

Article 384 Inspection by Warehouser; Passing of Responsibility

The warehouser shall, in accordance with the contract, conduct warehouse-in inspection of the goods. Where in the course of such inspection, the warehouser discovers any non-compliance of the goods, it shall timely notify the depositor. After inspection and acceptance by the warehouser, if any non-compliance in respect of the type,
quantity or quality of the goods occurs, the warehouser shall be liable for damages.

Article 385 Warehouse Receipt

Upon the depositor's delivery of the goods, the warehouser shall issue thereto a warehouse receipt.

Article 386 Contents of Warehouse Receipt

The warehouser shall sign or seal the warehouse receipt. The warehouse receipt shall set forth the following:

(i) name and domicile of the depositor;
(ii) the type, quantity, quality, and packing method of the goods, and the number of packages thereof and the marks thereon;
(iii) the depletion standard for the goods;
(iv) the warehousing facility;
(v) the warehousing period;
(vi) the warehousing fee;
(vii) if the goods are insured, the insured amount, term of insurance and the name of the insurer;
(viii)the preparing and issuing person and place and date of preparation and issuance.

Article 387 Nature and Assignability of Warehouse Receipt

The warehouse receipt is the voucher for retrieving the goods. Where the depositor or holder of the warehouse receipt has endorsed the warehouse receipt and the warehouser has signed or sealed thereon, the right to retrieve the goods may be assigned.

Article 388 Warehouse Receipt Holder's Right to Inspect

Upon request by the holder of the warehouse receipt, the warehouser shall allow him to inspect the goods or take samples therefrom.

Article 389 Obligation of Warehouser to Notify in Case of Damage

Where the warehouser discovers that the warehoused goods are deteriorating or are otherwise damaged, it shall timely notify the depositor or holder of the warehouse receipt.

Article 390 Warehouser's Obligations and Rights in Respect of Deteriorating Goods

Where the warehouser discovers that the warehoused goods are deteriorating or are otherwise damaged, thereby endangering other goods and normal safekeeping, it shall demand disposal of the goods by the depositor or the holder of the warehouse receipt as necessary. In an emergency situation, the warehouser may dispose of the goods as necessary, provided that thereafter it shall timely notify the depositor or holder of the warehouse receipt of the situation.

Article 391 Warehousing Period

Where the warehousing period was not prescribed or clearly prescribed, the depositor or holder of the warehouse receipt may retrieve the goods at any time, and the warehouser may require the depositor or holder of the warehouse receipt to retrieve the goods at any time, provided that the other party shall be given the time required for preparation.

Article 392 Retrieval of Goods

At the end of the warehousing period, the depositor or holder of the warehouse receipt shall retrieve the goods by presenting the warehouse receipt to the warehouser.
Where the depositor or holder of the warehouse receipt delays in retrieving the goods, additional warehousing fee shall be charged; where the goods are retrieved before the end of the warehousing period, the warehousing fee shall not be reduced.

Article 393 Placing Goods in Escrow in Case of Failure to Retrieve

At the end of the warehousing period, if the depositor or holder of the warehouse receipt failed to retrieve the goods, the warehouser may demand retrieval within a reasonable period, and if the goods are not retrieved at the end of such period, the warehouser may place the goods in escrow.

Article 394 Warehouser's Liabilities in Case of Damage to Goods

Where the goods were damaged or lost during the warehousing period due to improper safekeeping by the warehouser, it shall be liable for damages.

If the goods deteriorated or were damaged due to their nature, non-conforming packing method, or storage beyond their shelf-life, the warehouser is not liable for damages.

Article 395 Provisions Governing Safekeeping Contracts Applicable

A matter not provided for in this Chapter shall be governed by the relevant provision applicable to safekeeping contracts.

Chapter Twenty One - Agency Appointment Contracts

Article 396 Definition of Agency Appointment Contract

An agency appointment contract is a contract whereby the principal and the agent agree that the agent will handle the principal's affairs.

Article 397 Scope of Appointment

The principal may specifically appoint the agent to handle one or more of its affairs, or generally appoint the agent to handle all of its affairs.

Article 398 Principal's Obligation to Prepay Expenses

The principal shall prepay the expenses for handling the entrusted affair. Any expense necessary for handling the entrusted affair advanced by the agent shall be repaid with interest by the principal.

Article 399 Agent's Obligation to Follow Instruction; Deviation from Instruction

The agent shall handle the entrusted affair in accordance with the instruction of the principal. Any required deviation from the principal's instruction is subject to consent by the principal; in an emergency where the agent has difficulty contacting the principal, the agent shall properly handle the entrusted affair, provided that thereafter the agent shall timely notify the principal of the situation.

Article 400 Delegation of Agency Subject to Consent; Exceptions

The agent shall personally handle the entrusted affair. Subject to consent by the principal, the agent may delegate the agency to a third person. If the delegation is approved, the principal may issue instructions concerning the entrusted affair directly to the delegate, and the agent is only responsible for its selection of the delegate or its own instruction thereto. Where the agency is delegated without consent, the agent shall be liable for any act of the delegate, except in an emergency where the agent needs to delegate the agency in order to safeguard the interests of the principal.

Article 401 Agent's Obligation to Inform

Upon request by the principal, the agent shall report on the progress of the entrusted affair. Upon discharge of the agency contract, the agent shall render an account of the entrusted affair.

Article 402 Agent's Act Binding on Principal; Exceptions

Where the agent, acting within the scope of authority granted by the principal, entered into a contract in its own name with a third person who was aware of the agency relationship between the principal and agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person.

Article 403 Agent's Non-performance toward Principal Due to Act of Third Person; Non-performance toward Third Person Due to Act of Principal

Where the agent entered into a contract in its own name with a third person who was not aware of the agency relationship between the agent and the principal, if the agent failed to perform its obligation toward the principal due to any reason attributable to such third person, the agent shall disclose the third person to the principal, allowing it to exercise the agent's rights against such third person, except where the third person would not have entered into the contract with the agent had it known the identity of the principal.

Where the agent failed to perform its obligation toward the third person due to any reason attributable to the principal, the agent shall disclose the principal to the third person, allowing the third person to select in alternative either the principal or the agent as the other contract party against whom to make a claim, provided that the third person may not subsequently change its selection of the contract party.

Where the principal exercises the rights of the agent against the third person, the third person may avail itself of any defense it has against the agent. Where the third person selects the principal as the other party to the contract, the principal may avail itself of any defense it has against the agent as well as any defense the agent has against the third person.

Article 404 Property Acquired by Agent

Any property acquired by the agent in the course of handling the entrusted affair shall be turned over to the principal.

Article 405 Remuneration to Agent

Upon completion of the entrusted affair by the agent, the principal shall pay the remuneration thereto. Where the agency appointment contract is terminated or the entrusted affair is not capable of being completed due to any reason not attributable to the agent, the principal shall pay to the agent an appropriate amount of remuneration. If the parties have agreed otherwise, such agreement prevails.

Article 406 Liability of Agent; Unauthorized Act

Under an agency appointment contract for value, if the principal sustains any loss due to the fault of the agent, the principal may claim damages. Under a gratuitous agency appointment contract, if the principal sustains any loss due to the agent's intentional misconduct or gross negligence, the principal may claim damages.
Where the agent acted beyond the scope of authorization, thereby causing loss to the principal, it shall pay damages.

Article 407 Agent Entitled to Indemnification in Case of Loss

In the course of handling the entrusted affair, if the agent sustains any loss due to a reason not attributable to itself, the agent may seek indemnification from the principal.

Article 408 Additional Appointment by Principal Subject to Consent

Subject to consent by the agent, the principal may, in addition to appointing the agent, also appoint a third person to handle the entrusted affair. If such appointment results in loss to the agent, it may seek indemnification from the principal.

Article 409 Joint and Several Liability of Joint Agents

Where two or more agents jointly handle the entrusted affair, they are jointly and severally liable to the principal.

Article 410 Right to Terminate at Any Time

Either the principal or the agent may terminate the agency appointment contract at any time. Where the other party sustains any loss due to termination of the contract, the terminating party shall indemnify the other party, unless such loss is due to a reason not attributable to the terminating party.

Article 411 Discharge Due to Incapacitation

An agency appointment contract is discharged when either the principal or the agent is deceased or incapacitated or enters into bankruptcy, except where the parties have agreed otherwise, or where discharge is inappropriate in light of the nature of the entrusted affair.

Article 412 Agent's Obligations in Case of Principal's Incapacitation

Where discharge of the agency appointment contract due to the death, incapacitation or bankruptcy of the principal will harm the principal's interests, the agent shall continue to handle the entrusted affair before an heir, legal agent or liquidation team thereof takes over the entrusted affair.

Article 413 Heir's Obligations in Case of Agent's Incapacitation

If the agency appointment contract is discharged as a result of the death, incapacitation or bankruptcy of the agent, the heir, legal agent or liquidation team thereof shall timely notify the principal. Where discharge of the agency contract will harm the principal's interests, before the principal makes any care-taking arrangement, the heir, legal agent or liquidation team of the agent shall take the necessary measures.

Chapter Twenty Two - Trading-Trust Contracts

Article 414 Definition of Trading-Trust Contract

A trading-trust contract is a contract whereby the trustee-trader conducts trading activities in its own name for the trustor, and the trustor pays the remuneration.

Article 415 Expenses Borne by Trustee-trader

The expenses incurred by the trustee-trader in the course of handling the entrusted affair shall be borne by the trustee-trader, except otherwise agreed by the parties.

Article 416 Trustee-trader's Obligation to Exercise Due Care

Where the trustee-trader is in possession of the trust item, it shall keep the trust item with due care.

Article 417 Disposal of Defective Trust Item by Trustee-trader

If a trust item was defective, perishable or susceptible to deterioration at the time it was delivered to the trustee-trader, upon consent by the trustor, the trustee-trader may dispose of the item; where the trustee-trader is unable to contact the trustor in time, it may dispose of the trust item in a reasonable manner.

Article 418 Pricing of Trust Item

Where the trustee-trader is to sell the trust item below, or buy the trust item above, the price designated by the trustor, it shall obtain consent from the trustor. If such sale was effected without consent by the trustor, and the trustee-trader made up the deficiency on its own, it is binding on the trustor.

Where the trustee-trader sold the trust item above, or purchased the trust item below, the price designated by the trustor, the remuneration may be increased in accordance with the contract. Where such matter was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, the benefit belongs to the trustor.

Where the trustor gives special pricing instruction, the trustee-trader may not make any sale or purchase in contravention thereof.

Article 419 Trustee-trader Acting as Purchaser or Seller

Where the trustee-trader is to sell or purchase a commodity the price of which is fixed by the market, the trustee-trader may act as the purchaser or seller itself, unless the trustor has otherwise manifested its intention.

Where the trustee-trader is in a situation described in the previous paragraph, it may still require payment of remuneration from the trustor.

Article 420 Trustor's Obligation to Take Delivery; Trustee-trader's Remedies in Case of Trustor's Failure to Take Delivery

Once the trustee-trader purchased the trust item in accordance with the contract, the trustor shall timely take delivery. Where after receiving demand from the trustee-trader, the trustor refuses to take delivery without cause, the trustee-trader may place the trust item in escrow in accordance with Article 101 hereof.

Where the trust item fails to be sold or the trustor withdraws it from sale, the trustee-trader may place the trust item in escrow in accordance with Article 101 hereof if the
trustor fails to retrieve or dispose of it after receiving such demand from trustee-trader.

Article 421 Trustee-trader's Rights and Obligations as Party to Contract with Third Person

Where the trustee-trader entered into a contract with a third person, it directly enjoys the rights and assumes the obligations thereunder.

Where the third person failed to perform its obligations, thereby causing damage to the trustor, the trustee-trader shall be liable for damages, except otherwise agreed by the trustee-trader and the trustor.

Article 422 Trustee-trader's Right to Remuneration; Possessory Lien in Case of Non-payment

Where the trustee-trader has completed the entrusted matter or has partially completed the entrusted matter, the trustor shall pay the appropriate remuneration thereto. Where the trustor fails to pay the remuneration within the prescribed period, the trustee-trader is entitled to a possessory lien on the trust item, except otherwise agreed by the parties.

Article 423 Provisions Governing Agency Appointment Contracts Applicable

A matter not provided for in this Chapter shall be governed by the relevant provision applicable to agency appointment contracts.

Chapter Twenty Three - Brokerage Contracts

Article 424 Definition of Brokerage Contract

A brokerage contract is a contract whereby the broker presents to the client an opportunity for entering into a contract or provides the client with intermediary services in connection with the conclusion thereof, and the client pays the remuneration.

Article 425 Broker's Obligation to Provide True Information

The broker shall provide true information concerning matters relevant to the conclusion of the proposed contract.

Where the broker intentionally concealed any material fact or provided false information in connection with the conclusion of the proposed contract, thereby harming the client's interests, it may not require payment of any remuneration and shall be liable for damages.

Article 426 Broker Entitled to Remuneration

Once the broker facilitated the formation of the proposed contract, the client shall pay the remuneration in accordance with the brokerage contract. Where remuneration to the broker was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, it shall be reasonably fixed in light of the amount of labor expended by the broker. Where the broker facilitated the formation of the proposed contract by providing intermediary services in connection therewith, the remuneration paid to the broker shall be equally borne by parties thereto.

Where the broker facilitated the formation of the proposed contract, the brokerage expenses shall be borne by itself.

Article 427 Broker Entitled to Reimbursement in Case of Failure to Conclude Proposed Contract

Where the broker failed to facilitate the formation of the proposed contract, it may not require payment of remuneration, provided that it may require the client to reimburse the necessary brokerage expenses incurred.

SUPPLEMENTARY PROVISIONS

Article 428 Effectiveness; Repealing Certain Laws

This Law shall take effect as from October 1, 1999, and the Economic Contract Law of the People's Republic of China, the Foreign-related Economic Contract Law of the People's Republic of China, and the Technology Contract Law of the People's Republic of China shall be repealed simultaneously.

Continued from Chapters 9 - 17 in Part 2