Rules of the Supreme People's Court on Some Issues Concerning the Trial on the Disputed Cases over the Contracts for Financial Leasing

Fa Fa [1996] No.19
　　
　　
　　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.