Foolproof: How to draft commercial contracts

On May 10 2012, the Supreme People's Court (SPC) published the Interpretation on Issues Relevant to the Application of the Law in Trials of Disputes over Sale and Purchase Contracts (关于审理买卖合同纠纷案件适用法律问题的解释), which became effective as of July 1 2012. Four areas of the Interpretation are most likely to affect foreign businesses in China, especially companies involved in the sale and purchase of goods in China on a commercial scale. These include the formation of valid sale and purchase contracts – and in particular reservation contracts. It also covers calculating the damages for breach of contract, clarifying the rule on the determining period for inspection of commodities and multiple sales of the same commodities.

    The PRC Contract Law (中华人民共和国合同法) came into force on October 1 1999 and contains both general provisions on contracts and special provisions on specific types of contracts, including sale and purchase contracts. Chapter 9 of the Contract Law contains 46 special provisions on sale and purchase contracts. The Law provides that “sale and purchase contracts are contracts upon which the seller transfers the ownership of the subject matter to the buyer and the buyer makes payment for it” (Article 130).