The “Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Principles of the Civil Code” has come into effect on March 1, 2022.
The Supreme People’s Court released the “Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the General Principles of the Civil Code” (Fa Shi [2022] No. 6) (hereinafter referred to as the “Interpretation “) on Feb. 24, 2022, which has come into effect on March 1, 2022. Herein below is the introduction and analysis regarding 2 key articles related to commercial contracts.
- Determination of a “Substantial misunderstanding”
According to Article 19 of the “Interpretation”, a “Substantial misunderstanding” refers to where a person has a mistaken understanding of the nature of his/her act, the counterparty or the variety, quality, specification, price or quantity, etc. of the subject matter, and he/she will not make a corresponding expression of intent according to the common understanding if such mistaken understanding does not occur.
Compared with Article 71 of the “the Opinions of the Supreme People’s Court on Several Issues Concerning the Implementation of the General Principles of the Civil Law (for Trial Implementation)”(Fa [Ban] Fa [1988] No. 6), which stipulates that where a person has a mistaken understanding of the nature of his/her act, the counterparty or the variety, quality, specification or quantity, etc. of the subject matter, and the consequences of the act are contrary to his/her own intentions and cause greater losses, may be deemed as a “Substantial misunderstanding”, the aforementioned Article 19 has made 3 changes:
(1) To delete the “greater losses” as one of the must factor on determining the consequences.
(2) To add the “price” into the scope of the object of misunderstanding.
(3) To further clarify the meaning of the “consequences of the act are contrary to his/her own intentions”, that is, “he/she will not make a corresponding expression of intent according to the common understanding if such mistaken understanding does not occur.”
In addition, it should be pointed out that Article 19 of the “Interpretation” has added an exception for the party requesting the court to revoke the civil juristic act on the grounds of “Substantial misunderstanding”, that is, “unless it is determined by the transaction practices that the person has no right to claim revocation.”
- The rule to deal with a single entrusted agent’s unauthorized exercise where there are several entrusted agents exercise the power of agency jointly
Article 25 of the “Interpretation” stipulates that in the event that several entrusted agents exercise the power of agency jointly, if one or several of them exercise the power of agency without negotiating with other entrusted agents, the case shall be handled in accordance with the provisions of Articles 171(unauthorized agency) and 172 (apparent agency) of the Civil Code. This article originates from Article 79 of the “Fa [Ban] Fa [1988] No. 6”, that is, “in the event that several entrusted agents jointly exercise the power of agency, if one or several of them exercise the power of agency without negotiating with other entrusted agents, and the act has infringed the principal’s rights and interests, the entrusted agent who carries out the act shall bear the civil liability.”
In view of the two articles, there is a significant change. Article 79 of the “Fa [Ban] Fa [1988] No. 6” does not identify the nature of such act, and it only stipulates the burden of liability. In judicial practice, such act would be deemed as an apparent agency in the majority cases in the past. However, Article 25 of the “Interpretation” has identify the nature of such act, which could be determined as an unauthorized agency or an apparent agency. Because of the nature of such act could be determined, the consequences and liabilities would be different in dealing with similar cases.