Contract and Security Law (合同法律制度、担保法律制度)
This domain tests contract formation, validity, performance, breach and remedies, together with the security devices of guarantee, mortgage, pledge, lien and deposit. The exam favors clear rules on guarantee type, guarantee period and security effectiveness.
Formation and validity
- A contract forms by offer and acceptance. Acceptance generally takes effect when it reaches the offeror; silence is not acceptance unless law or agreement provides.
- Standard terms must be fair. The provider must highlight clauses that exempt or limit its liability; otherwise those clauses may not become part of the contract.
- Fraud or duress generally makes a contract voidable, not automatically void. Contracts violating mandatory provisions or public order are void.
- Liquidated damages may be adjusted if excessively higher than actual loss; judicial practice often uses 30% above loss as a reference.
Security
- Guarantee type: if the contract does not specify general or joint guarantee, it is a general guarantee. A general guarantor may refuse performance until the main debtor’s assets have been enforced; a joint guarantor has no such defense.
- Guarantee period: follow the agreement; if none or unclear, 6 months from expiration of the main debt performance period. It is a preclusive period, not a limitation period.
- Real-property mortgage takes effect on registration. Movable mortgage is effective between the parties on contract formation; registration is needed to oppose third parties. Pledge requires delivery.
- Deposit may not exceed 20% of the main contract amount; the excess is not deposit.
Worked example
A lends B RMB 1 million. C signs: “C guarantees B’s repayment.” No guarantee type or period is stated. B defaults. Because the type is unclear, C is a general guarantor; A must first sue or arbitrate B and enforce, unless B’s whereabouts are unknown or B has no property. The guarantee period is 6 months from the due date; A must claim against C within that period, or C is discharged.
Traps
- Reading “guarantee” as joint guarantee without clear wording.
- Confusing the guarantee period with the limitation period.
- Treating an unregistered movable mortgage as ineffective between the parties.
- Enforcing a deposit above 20% of the main contract amount.