Fa Fa [1996] No.19

Effective Date: 27th May 1996

In order to ensure the correct trial and judgment on the disputed cases over the contracts for financial leasing and protect the legal rights and interests of the litigants, and pursuant to the provisions of related 
laws of the People’s Republic of China as well as on the basis of the experience gained in the trial practice, we hereby issue the following rules:

Article 1 The litigants of the disputed case over the contract for financial leasing shall include the leasor 
and the lessee. Whether the supplier must be one of the litigants or not shall be decided by the court according to the actual circumstances of the case. However, if 
arbitration clause is included in the contract, the supplier shall not be determined to be one of the 
litigants. 

Article 2 When the lessee in the contract for financial leasing is not the user who actually uses the leased 
property, the court may determine the user to be one of the litigants in the case according to the related 
facts. 

Article 3 The litigants in the disputed case over the contract for financial leasing, may choose through 
negotiation the court in the place substantially associating to the controversy to have the jurisdiction 
over the case. If the litigants do not choose the court with jurisdiction, the court in the place of residence of the defendant or the place of the performance of the contract shall have the jurisdiction over the case. The place where the leased property is used shall be deemed to be the place of the performance of the contract for financial leasing. 

Article 4 The litigants in the disputed case for the contract for financial leasing relating to the foreign 
interests may choose through negotiation the law applicable to the dispute over the contract. If the 
litigants do not choose such law, the law in enforcement in the place of residence of the lessee shall be 
applicable to the case. 

Article 5 If the items involved in the contract for 
financial leasing shall have been approved by the 
related authorities but actually have not been approved, 
such contract shall be held null and void. 
Article 6 If one of the following circumstances exists, 
the contract for financial leasing shall be deemed to be 
invalid contract:
(1) The leasor has no right to do business within the 
scope of financial leasing;
(2) The lessee and supplier swindles the fund of the 
leasor through malicious collaboration;
(3) The contract sidesteps the law and regulations of 
the State in the form of the contract for financial 
leasing; and
(4) The contracts that shall be deemed to be null and 
void in accordance with the related laws and 
regulations.
Article 7 The contract for financial leasing, after 
being deemed to be null and void, shall be handled 
respectively according to the following circumstances:
(1) If the invalidity of the contract is caused due to 
the fault of the lessee, and the leasor do not claim for 
returning the leased property to it, the leased property 
may not be returned to the leasor, but the lessee shall 
make compensation for the damages caused to the leasor 
due to the faults of the lessee;
(2) If the invalidity of the contract is caused due to 
the fault of the leasor, and the lessee claims for 
returning the leased property to the leasor, the leased 
property may be returned to the leasor, and the leasor 
shall make compensation for the damages caused to the 
lessee due to the faults of the leasor, if any; and
(3) If the invalidity of the contract is caused due to 
the faults of both the leasor and lessee, the leased 
property may be returned to its owner, and each party 
shall bear the responsibilities for compensating for the 
damages corresponding to its own faults.
If the leased property is in use currently and is 
producing economic benefits, the leasor and lessee may 
decide through negotiation whether the leased property 
shall be returned. If the negotiation fails, the court 
shall make a ruling based on the facts.
Article 8 If the State’s agencies act as guarantor after 
it was stipulated in the Opinions of the Supreme 
People’s Court on Some Issues Concerning the 
Implementation of the General Principles of the Civil 
Law of the People’s Republic of China (trial 
implementation), such guarantor shall be deemed null and 
void. If the invalidity of the guarantor has caused 
damages to the creditor, the State’s agency that has 
provided the guarantee shall bear corresponding 
responsibility for compensation.
Article 9 The leased property purchased from foreign 
countries and for which the litigants in the contract 
for financial leasing agreed in the contract to pay the 
rent in foreign currency, such contract shall be deemed 
valid.
Article 10 Before the completion of the performance of 
the contract for financial leasing, the lessee, without 
prior consent of the leasor, provides mortgage against 
the leased property, transfers or subleases it to 
others, or makes investment based on the leased property 
and holds shares in a venture, his acts shall be deemed 
null and void, and the leasor has right to take back the 
leased property and claim damages if any from the 
lessee. The third party has right to request the lessee 
to make compensation for damages caused to it. 
Article 11 If the leasor illegally interferes in the 
normal use of the leased property by the lessee, or 
takes back the leased property without prior consent of 
the lessee, and such act has resulted in damage to the 
lessee, the leasor shall bear the responsibilities for 
compensation.
Article 12 If the supplier delayed in the delivery of 
the goods, or the quality or quantities of the delivered 
goods is not in accordance with the agreement, or other 
acts in breach of the supply contract, the claims for 
the damage shall be handled in consideration of the 
following different circumstances:
(1) For the supply contract or lease contract where the 
transfer of claim is stipulated, the leasor shall enjoy 
and exercise the claim right, and the lessee shall 
provide necessary evidences; and
(2) If the transfer of claim is stipulated in the supply 
contract or lease contract, the lessee shall directly 
lodges claim to the supplier.
Article 13 Where one of the following circumstances 
exists, the leasor shall bear the responsibilities for 
compensation when the lessee is unable to lodge claim to 
the supplier or the compensation provided by the 
supplier is insufficient for the damage caused due to 
the quantity or quality of the leased property:
(1) According to the lease contract, the leasor has 
selected the supplier or leased property completely 
based on its own knowledge and judgement for the lessee;
(2) The leasor has appointed the supplier or leased 
property; and
(3) The leasor, not subject to the approval of the 
lessee, has changed the supplier or leased property 
chosen by the lessee;
Save as stated in the above, the leasor shall generally 
not bear any responsibilities for the quantity or 
quality of the leased property.
Article 14 Where the lessee has no faults, the cost 
incurred and the result produced in the claim against 
the supplier shall be respectively born and enjoyed by 
the lessee. If the non-claim or overdue claim is caused due to the faults of the leasor, the leasor shall bear the corresponding responsibility.

Article 15 Where claim is lodged against the supplier for the quality or quantity, and the leasor has not any faults, the exercise of the right of the leasor to collect the rent to the lessee shall not be affected.

Article 16 Where lessee has not paid the partial or whole rent as agreed in the contract, such acts shall be deemed illegal and the lessee shall pay the rent according to the contract, overdue interests and make compensation for the damage to the leasor accordingly.

Article 17 Where the lessee goes bankrupt, the leasor may take back the leased property, or request the court that accept the bankruptcy case to auction the leased property, and apply the incomes from the auction for repayment of the debts of the lessee due to the leasor. 
Where the value of the leased property is greater than the credit of the leasor, the amount above the credit shall be returned to the lessee. Where the value of the leased property is less than the credit, the part of the debt that is not repaid, shall enter the liquidation procedure as general credit or shall be paid off by the guarantor of the lessee.

Article 18 Where the lessee goes bankrupt, the leasor may, as the creditor for the bankruptcy, declares its credit, and participate into the bankruptcy. Where a third party has provided security for the credit of the leasor, the leasor also may request the guarantor to perform his obligations as a guarantor. 

Article 19 If the credit of the leasor is not satisfied completely, the leasor may request the guarantor to pay off the shortfalls. 
Article 20 Where the leasor has decided not to participate in the bankruptcy procedure, he shall inform 
the guarantor of the lessee in time, and the guarantor may declare his credit equal to the amount of the debt under his guarantee and participate in the distribution of the insolvent properties.
Article 21 The limitation of action for the litigants in the contract for financial leasing to request the court 
to protect the rights thereof shall be governed by the provisions of Article 135 of the General Principles of the Civil Law of the People’s Republic of China.