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Preservation of Contractual Rights 1. The Right of Revoke (or Cancel) Juristic Act which prejudicial to the Creditor’s Right 2.The Right of Subrogation.

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Presentation on theme: "Preservation of Contractual Rights 1. The Right of Revoke (or Cancel) Juristic Act which prejudicial to the Creditor’s Right 2.The Right of Subrogation."— Presentation transcript:

1 Preservation of Contractual Rights 1. The Right of Revoke (or Cancel) Juristic Act which prejudicial to the Creditor’s Right 2.The Right of Subrogation 3. Guaranty Contractual Rights and Secured Transaction

2 The Accomplishment of the Creditor’s Right What is a liability? –Right, obligation, and liability A right is a interest awarded, recognized, and protected by law. A duty or obligation is a burden to do or refrain from doing enforced by law. A liability is an imputation levied by law when an obligor fails to perform its obligation. –Compulsory performance –Damages Recovery Pecuniary damage Manner to take a liability –Personal liability –Property liability Range of liability –Liability limited –Liability without limited

3 X (Creditor) Y (Debtor) Mortgagor Debtor of Y Creditor of Y Guarantor (surety) The Right of Subrogation The right of Revocation (Cancellation) Passively impaired X’s right Positively impaired X’s Right MortgageGuarantee

4 The Right to Cancel Juristic Act Harming the Creditor’s Right in PRC Contract Law Article 74 Obligee's Right to Cancel Manifestly Unreasonable Act by Obligor –Where the obligor waived its creditor's right against a third person that was due or assigned its property without reward, thereby harming the obligee, the obligee may petition the People's Court for cancellation of the obligor's act. Where the obligor assigned its property at a low price which is manifestly unreasonable, thereby harming the obligee, and the assignee was aware of the situation, the obligee may also petition the People's Court for cancellation of the obligor's act. The scope of cancellation right is limited to the extent of the obligee's right to performance. The necessary expenses for the obligee's exercise of its cancellation right shall be borne by the obligor. Article 75 Time Limit for Exercising Obligee's Cancellation Right –The obligee's cancellation right shall be exercised within one year, commencing on the date when it became, or should have become, aware of the cause for cancellation. Such cancellation right is extinguished if not exercised within five years, commencing on the date of occurrence of the obligor's act.

5 The Right to Revoke Juristic Act Prejudicial to the Creditor’s Right in ROC Civil Code Article 244 –If a gratuitous act done by the debtor is likely to be prejudicial to the rights of the creditor, the creditor may apply to the court for the revocation of such act. If a non-gratuitous act done by the debtor is likely to be prejudicial to the rights of the creditor and the debtor knew of it at the time of doing that act, the creditor may apply to the court for the revocation of such act, provided that the party profited by the act (the beneficiary) also knew of the circumstances on the receipt of the interests. –The provisions of the preceding two paragraphs do not apply to the act done by the debtor, if the object of which is not on the property or is only prejudicial to the prestation of delivering a specific thing. –When the creditor applies to the court for the revocation according to the provision of the first or the second paragraph, he may also apply for ordering the beneficiary or the person who acquires the object afterwards (the afterwards acquiring person) to restore to the status quo ante, except the afterwards acquiring person did not know of the ground for revocation at the time of acquiring. Article 245 –The claim for revocation in the provisions of the preceding article shall be extinguished by prescription if not exercised within one year from the moment when the creditor knew of the ground for revocation, or shall be extinguished after ten years from the date of doing the act.

6 The Right to Revoke Juristic Act Harming the Creditor’s Right in Japan Civil Code Article 424 Revocation of a Juristic Act Prejudicial to the Obligee –The obligee may petition the court to revoke the juristic act that is made by the obligor with a knowledge of the act being prejudicial to the obligee. However, if the person, who benefits from the act directly or receives the benefit subsequently, has no knowledge about the fact being prejudicial to the obligee when the act is made or he receives the benefit subsequently, the right can not be exercised. Article 425 Effectiveness of Revocation –The right of revocation provided in the preceding article is effective for the interest of all obligees. Article 426 Extinctive Prescription –The right of revocation provided in article 424 shall be extinguished if it is not exercised within two years from the moment when the obligee knew of the ground for revocation, or shall be extinguished after twenty years from the date of doing the act.

7 The Right to Revoke (Cancel) a Juristic Act Definition –The right of revocation can be defined as a right of petition to the court to invalidate the obligor’s juristic act which is positively prejudicial to the obligee’s benefit to accomplish its creditor’s right. Gratuitous Act –Elements The juristic act is done by the debtor, the juristic act is a gratuitous act, and the juristic act is likely to be prejudicial to the rights of the creditor. (ROC) Where the obligor waived its creditor's right against a third person that was due or assigned its property without reward, thereby harming the obligee, the obligee may petition the People's Court for cancellation of the obligor's act. (PRC) – Effect The creditor may apply to the court for the revocation of such act. When the creditor petitions to the court for the revocation, he may also apply for ordering the beneficiary or the person who acquires the object afterwards (the afterwards acquiring person) to restore to the status quo ante, except the afterwards acquiring person did not know of the ground for revocation at the time of acquiring. (ROC)

8 The Right to Revoke (Cancel) a Juristic Act A Non-gratuitous Act –Elements the juristic act is done by the debtor, the juristic act is a non- gratuitous act, the juristic act is likely to be prejudicial to the rights of the creditor, the debtor knew of it at the time of doing that act, and the party profited by the act (the beneficiary) also knew of the circumstances on the receipt of the interests. (ROC) Where the obligor assigned its property at a low price which is manifestly unreasonable, thereby harming the obligee, and the assignee was aware of the situation. (PRC) The juristic act is made by the obligor with a knowledge of the act being prejudicial to the obligee. (Japan)

9 The Right to Revoke (Cancel) a Juristic Act –Effect The creditor may apply to the court for the revocation of such act. When the creditor applies to the court for the revocation, he may also apply for ordering the beneficiary or the person who acquires the object afterwards (the afterwards acquiring person) to restore to the status quo ante, except the afterwards acquiring person did not know of the ground for revocation at the time of acquiring. (ROC) The right of revocation provided in the preceding article is effective for the interest of all obligees. (Japan)

10 The Right to Revoke (Cancel) a Juristic Act Limitation –Do not apply to the act done by the debtor, if the object of juristic act is not to transfer a property or the act is only prejudicial to the prestation of delivering a specific thing. (ROC) –The provisions of the preceding two paragraphs do not apply to the act done by the debtor, if the object of which is not on the property or is only prejudicial to the prestation of delivering a specific thing. (PRC) –However, if the person, who benefits from the act directly or receives the benefit subsequently, has no knowledge about the fact being prejudicial to the obligee when the act is made or he receives the benefit subsequently, the right can not be exercised. (Japan)

11 The Right to Revoke (Cancel) a Juristic Act –Time Period The claim for revocation in the provisions of the preceding article shall be extinguished if not exercised within one year from the moment when the creditor knew of the ground for revocation, or shall be extinguished after ten years from the date of doing the act. (ROC) The right of revocation provided in article 424 shall be extinguished if it is not exercised within two years from the moment when the obligee knew of the ground for revocation, or shall be extinguished after twenty years from the date of doing the act. (Japan) The obligee's cancellation right shall be exercised within one year, commencing on the date when it became, or should have become, aware of the cause for cancellation. Such cancellation right is extinguished if not exercised within five years, commencing on the date of occurrence of the obligor's act. (PRC)

12 The Right of Subrogation Definition –The Right of subrogation can be defined as a right awarded the obligee a legal status to exercise the rights of obligor where the obligor delayed in exercising its right against a third person that was due, thereby harming the obligee. Elements –The obligor owns a creditor’s right against a third person. –The obligor neglects to exercise its creditor’s right. –The obligor’s delay in exercising its creditor's right harms the obligee’s right. –The obligor’s delay in exercising its creditor's right causes a hazard of extinction of the obligor’s right.

13 The Right of Subrogation Manner to exercise the right of subrogation –The obligee may petition the People's Court for subrogation (PRC) –The obligee may exercise the right of subrogation without a ratification of court. (ROC). – Before the creditor’s right is due, the obligee cannot exercise the right provided in the preceding paragraph except exercising it through a litigation except an act of preservation.(Japan) Limitations –except rights which are exclusively belonged to the debtor. (ROC Civil Code Article 242); except where such creditor's right is exclusively personal to the obligor.(PRC) –The scope of subrogation is limited to the extent of the obligee's right to performance. (PRC Contract Law Article 73) –So long as the debtor is not in default, the creditor shall not exercise the right specified in the preceding article, except those rights which are exclusively for the preservation of the rights of the said debtor. (ROC Civil Code Article 243)

14 The Right of Subrogation in PRC Contract Law Article 73 Subrogation; Limitation –Where the obligor delayed in exercising its creditor's right against a third person that was due, thereby harming the obligee, the obligee may petition the People's Court for subrogation, except where such creditor's right is exclusively personal to the obligor. –The scope of subrogation is limited to the extent of the obligee's right to performance. The necessary expenses for subrogation by the obligee shall be borne by the obligor.

15 The Right of Subrogation in ROC Civil Code Article 242 –The creditor may, in order to preserve his prestation, exercise in his the name of himself any right of the debtor which the debtor neglects to exercise, except rights which are exclusively belonged to the debtor. Article 243 –So long as the debtor is not in default, the creditor shall not exercise the right specified in the preceding article, except those rights which are exclusively for the preservation of the rights of the said debtor.

16 The Right of Subrogation in Japan Civil Code Article 423 –The obligee may, in order to preserve his creditor’s right, exercise any right of the debtor except rights which are exclusively belonged to the debtor. –Before the creditor’s right is due, the obligee cannot exercise the right provided in the preceding paragraph except exercising it through a litigation except an act of preservation.

17 Guaranty of Contractual Rights Mortgage –In realty ROC Civil Code Article 860: a mortgage is the right to receive performance of an obligation from the price of sale of the real property which has been treated as security for the obligation by the debtor or by the third party, without transferring its possession. PRC Guarantee Law Article 33 The mortgage prescribed in this Law, means a guarantee that a debtor or a third party does not transfer the possession of the property listed in. Japan Civil Code Articles 369~ –In rights ROC Civil Code Article 883: The provisions of the present chapter concerning mortgage shall apply mutatis mutandis to the mortgage specified in the preceding article and to statutory mortgage. Japan Civil Code Articles 369II PRC Guarantee Law Article 34 –In chattels ROC Secured Transaction Act. PRC Guarantee Law Article 34 Japan Manufactory Place Mortgage Law

18 Guaranty of Contractual Rights PRC Guarantee Law Article 34 –The following properties may be mortgaged: 1. the house and other land fixtures owned by the mortgagor; 2. the machine, transportation means and other property owned by the mortgagor; 3. the state-owned right to the use of land, house and other land fixtures which the mortgagor is entitled to dispose of pursuant to the law; 4. the state-owned machine, transportation means and other property which the mortgagor is entitled to dispose of pursuant to the law; 5. the right to the use of land on the unreclaimed land such as unreclaimed mountains, unreclaimed valleys, unclaimed hills or unreclaimed beaches which is contracted for management by the mortgagor in accordance with law and is agreed to mortgage by the contractee; or 6. other property which may be mortgaged in accordance with the law.

19 Guaranty of Contractual Rights PRC Guarantee Law Article 35 –The obligatory right guaranteed by the mortgagor shall not exceed the value of the gage. –After the property is mortgaged, the surplus part that the said property is more than the obligatory right guaranteed, may be mortgaged once more, but shall not exceed the surplus part. PRC Guarantee Law Article 36 – If the house upon the state-owned land obtained according to the law is to be mortgaged, the right to the use of the state-owned land within the scope the house occupies shall be mortgaged at the same time. –If the right to the use of state-owned land obtained by way of transfer according to the law, when mortgaged the house upon the said state- owned land shall be mortgaged at the same time. –The right to the use of land of enterprises of a township (town) or village shall not be mortgaged separately. If the buildings of enterprises of township (town) or village such as a plant is to be mortgaged, the right to the use of the land within the scope it occupies shall be mortgaged at the same time.

20 Guaranty of Contractual Rights PRC Guarantee Law Article 37 –The following properties shall not be mortgaged: 1. the ownership of land; 2. the ownership of the lands owned by collectives such as cultivated land, house sites, private plots of cropland and hilly land shall not be mortgaged, except that prescribed in item 5 of Article 34, paragraph 3 of Article 36 of this Law; 3. the facilities for education, the facilities for public health and medicine and other facilities for social benefit of the institutions or social units for purpose of public interest such as schools, kindergartens or hospitals; 4. the properties whose ownership or right to use is uncertain or in dispute; 5. the properties sealed up, distrained or regulated; or 6. other properties which shall not be mortgaged pursuant to law.

21 Guaranty of Contractual Rights Pledge –In chattels or Movables Article 884: –pledge of personal property is the right to take possession of the personal property delivered by the debtor or a third party as security for a claim of prestation, may receive performance of the said prestation from the prices of sale of such personal property. PRC Guarantee Law Article 63: –The pledge of movables described in this Law, means that the debtor or the party delivers his movables to the creditor for possession, and takes the said movables as the guarantee of the obligatory right. When the debtor does not perform the debt, the creditor shall be entitled to have right to keep the said movables to offset or have priority insatisfying in the claim out of proceeds from the value amount of the auction or sale of the said movables. –The debtor or the third party prescribed in the proceeding paragraph shall be a pledgor, the creditor shall be a pledgee, the movables delivered shall be the pledgings. Japan Civil Code §§352~355

22 Guaranty of Contractual Rights –In realty Japan Civil Code §§356~361 –In rights ROC Civil Code Article 900 –A transferable claim of prestation and other rights may be the object of a lien. PRC Guarantee Law Article 75 –The following rights may be pledged: 1. a bill of exchange, check, promissory note, bond, deposit receipt, bill of lading or warehouse receipt; 2. the share or share paper which may be assigned according to the law; 3. the property right of the exclusive right to use trademark, patent right, copyright which may be assigned according to the law; or 4. other rights which may be pledged according to the law. Japan Civil Code §§362~368

23 Guaranty of Contractual Rights Right of Retention –ROC Civil Code Article 928 The creditor, who is in possession of a personal property belonging to his debtor, may retain the same on the fulfillment of all the following conditions before debtor's prestation has not been preformed: –(1) When the claim of prestation is matured. –(2) If there is a nexus between the creation of the claim of prestation and the personal property, and –(3) If the possession of the personal property did not originate from a tort. –PRC Guarantee Law Article 82 The lien prescribed in this Law means that, according to the provisions of Article 84 in this Law, the creditor possess the property of the debtor according to the agreement of the contract, if the debtor does not perform the debt pursuant to the time limitation agreed in the contract, the creditor shall be entitled to have right to have a lien on the said property according to this Law, to keep the said property to offset or have priority in satisfying for the claim out of proceeds from the value amount of the auction, sale of the said property. –Japan Civil Code §§362~368

24 Guaranty of Contractual Rights Lien –Japan Civil Code §§362~368 Secured Transaction in other special laws –Secured trust Customary Law (or Case Law) in Taiwan and Mainland China –Trust receipt Taiwan Secured Transaction Law –Japan Enterprise Bond Guarantee Law

25 Guarantee Contract

26 Korea Credit Guarantee Fund (Appellee, Plaintiff, Guarantor) Kim Jeong-man (Appellant, Defendant, Guarantor) Yoon Jong-wook (the Debtor, borrower) Korea Exchange Bank (the creditor, lender) Loan for consumption Claimed for indemnity Guarantee Credit guarantee agreement

27 Guarantee Contract Surety or Guarantor –The term surety is commonly used as a synonym for guarantor, although at one time the term surety primarily described a guarantor whose liability arose by deed. [See K. P. McGuinness, The Law of Guarantee (2nd ed.) (Toronto: Carswell, 1996) at p. 25] –Under American law, there is a technical distinction between suretyship and guarantee. In Canada, suretyship is not considered to be a form of undertaking distinguishable from a guarantee. However, some early Canadian cases use the word surety to refer to what is now called an indemnity. (See Campbell v. McIsaac (1873), 9 N.S.R. 287 (C.A.), per Shaw C.J.) Throughout this paper, surety and guarantor are used interchangeably.

28 Guarantee Contract Co-Sureties (Joint, Several and Joint and Several) –Several liability arises when two or more persons make separate promises to another. The promises are cumulative, and payment or performance by one does not discharge the other, unless there is total payment or performance. –Parties are jointly liable when two or more persons promise to do the same thing. Since there is only one promise, performance or payment by one discharges the other. Joint and several liability arises when two or more persons make one promise to do the same thing and also make separate promises to do the same thing. –In most standard forms of guarantees, the obligations of the co- sureties are stated to be joint and several. The distinction between joint and several and joint promises can be significant.

29 Guarantee Contract Korea Civil Code Article 448 (Right of Reimbursement among Co-sureties) –(1) Where there are several sureties, one of whom has effected performance in excess of the share incumbent on him, the provisions of Article 444 shall apply mutatis mutandis. Article 444Article 444 –(2) Where the principal obligation is indivisible or each surety has assumed the obligation for which they are jointly and severally liable to each other or with the principal obligor, and one of the sureties has effected performance in excess of the share incumbent on him, the provisions of Articles 425 through 427 shall apply mutatis mutandis. Articles Articles

30 Guarantee Contract Korea Civil Code Article 444 (Right of Reimbursement of Nonfiduciary Surety) –(1) In a case where a person who has become surety without the request of the principal obligor, has performed the obligation or has otherwise, at his own expense, procured the discharge of the principal obligor, the latter is liable to indemnify the surety to the extent that he was enriched as of the time of discharge. –(2) In a case where a person has become surety against the will of the principal obligor, has performed the obligation or has otherwise at his own expense procured the discharge of the principal obligor, the latter is liable to indemnify the surety only to the extent that the latter is still being enriched. –(3) If, in the preceding paragraph, the principal obligor claims that he had, prior to the demand for indemnification, a good cause for set-off against the obligee, the claim, which would have been extinguished by such set-off, shall be transferred to the surety.

31 Financial Leasing Transaction

32 Financial Leasing Definition of Financial Leasing Contract –A financial leasing contract is a contract whereby the lessor, upon purchase of the lessee-selected lease item from a lessee-selected seller, provides the lease item to the lessee for its use, and the lessee pays the rent. (PRC Contract Law Article 237) –A financial leasing contract is a contract whereby the lessor, upon purchase of the lessee-selected lease item from a lessee-selected seller, provides the lease item to the lessee for its use, and the lessee pays the rent. (PRC Contract Law Article 237) –UNDROIT Convention on International Financial Leasing –PRC Contract Law, Chapter Fourteen Financial Leasing Contracts

33 Definition of Financial Leasing Contract A financial leasing contract is a contract whereby the lessor, upon purchase of the lessee-selected lease item from a lessee- selected seller, provides the lease item to the lessee for its use, and the lessee pays the rent. (PRC CL Article 237) A financial leasing contract is a contract whereby the lessor, upon purchase of the lessee-selected lease item from a lessee- selected seller, provides the lease item to the lessee for its use, and the lessee pays the rent. (PRC CL Article 237)

34 Unidroit Conventions on International Financial Leasing Article I para. 2 2.The financial leasing transaction referred to in the previous paragraph is a transaction which includes the following characteristics: –(a) the lessee specifies the equipment and selects the supplier without relying primarily on the skill and judgment of the lessor; –(b) the equipment is acquired by the lessor in connection with a leasing agreement which, to the knowledge of the supplier, either has been made or is to be made between the lessor and the lessee; and –(c) the rentals payable under the leasing agreement are calculated so as to take into account in particular the amortization of the whole or a substantial part of the cost of the equipment. 3. This Convention applies whether or not the lessee has or subsequently acquires the option to buy the equipment or to hold it on lease for a further period, and whether or not for a nominal price or rental. 4. This Convention applies to financial leasing transactions in relation to all equipment save that which is to be used primarily for the lessee's personal, family or household purposes.

35 Financial Leasing Loan for Consumption LenderBorrower Sale of the Leased Item Pay rental Seller Lessor Purchaser (Owner of the Leased Item) Lessee Possessor of the Leased Item Delivery and Conveyance of Ownership

36 Attributes of Finance Lease Type contract –Lease –Loan for consumption –Sale –Financial Leasing (PRC) Non-type Contract (ROC & Japan)

37 Attributes of Finance Lease The financial leasing enterprise could be defined as an enterprise which provides funds to purchase a thing and then leases it to an enterprise who needs to use the thing after it gains the ownership of the thing leased, rather than directly loans money to the enterprise which needs funds. Such transaction indeed dose not violate the mandatory, public policy, or good moral. The transaction dose not have no any advantage to the industrial and commercial activities in this country. The purpose of financial leasing transaction is to finance the lessee and so does the loan for consumption. However, both juristic acts are tremendously different. In terms of the attributes of financial leasing, it shall be interpreted as a non-type contract similar to lease because the allocation of profit and hazard to the thing leased differs from that in loan for consumption. Taiwan Supreme Court Civil Decision Tai-shang No. 482 (2004).

38 Loan for Consumption Delivery and Conveyance of ownership Sale of Goods Amortization of loans Mortgage in a chattel Lender Mortgagee Borrower Mortgagor Purchaser (Owner and Possessor) Seller

39 Sale of Goods by installment Payment of Price Seller (Owner) Purchaser (Possessor) Delivery Conveyance of ownership subject to a condition precedent

40 Loan for Consumption Borrower (Actual owner of a real property) Lender Trustee (nominal owner) Conveyance of ownership subject to a conduction subsequent Secured Trust Bona Fide Purchaser Conveyance of ownership Sale Can the actual owner claim the bona fide purchaser to eradicate the title record in official register?

41 Lease Loan for Consumption LenderBorrower The First Sale of the Machines Pay rental Seller (Hon Ying Co.) Purchaser Appellee Owner of the Machines Lessor Seller (Wholesale) Obligor Possessor of the Machines Lessee Purchaser Delivery and Conveyance of Ownership Appellant (President Co.) Obligee Compulsory Execution The Third Party Objection The Second Sale of the Machines Conveyance of Ownership Payment of Price

42 ROC Civil Code Article 761 The transfer of rights in rem of personal property will not effect until the personal property has been delivered. However, if the transferee has been in possession of the personal property, the transfer effects when the parties agree to such transfer. In the transfer of a right in rem of personal property, where the transferor is still in possession of it, a contract causing the transferee to acquire its indirect possession may be made between the parties in the place of its delivery.

43 ROC Civil Code Article 87 A fictitious expression of intent made by the expresser in collusion with other party is void, but the voidance can not be a valid defense against any bona fide third party. If the fictitious expression of intent was intended to conceal another juridical act, the provisions of the act with respect to such another juridical act shall apply.

44 The lessee’s rights in financial Leasing Lessee's Assumption of Buyer's Rights –Under the sales contract concluded by the lessor according to the lessee's selection of the seller and the lease item, the seller shall deliver the subject matter to the lessee in accordance with the contract, and the lessee enjoys the rights of the buyer in respect of taking delivery of the subject matter. (PRC Contract Law Article 239) –Under the sales contract concluded by the lessor according to the lessee's selection of the seller and the lease item, the seller shall deliver the subject matter to the lessee in accordance with the contract, and the lessee enjoys the rights of the buyer in respect of taking delivery of the subject matter. (PRC Contract Law Article 239)

45 The lessee’s rights in financial Leasing Lessee's Assumption of Buyer's Remedies in Case of Seller's Non- performance –The lessor, the seller and the lessee may agree that any claim arising from the seller's non-performance of its obligations under the sales contract will be made by the lessee. Where the lessee makes such a claim, the lessor shall provide assistance.. (PRC Contract Law Article 240) –The lessor, the seller and the lessee may agree that any claim arising from the seller's non-performance of its obligations under the sales contract will be made by the lessee. Where the lessee makes such a claim, the lessor shall provide assistance.. (PRC Contract Law Article 240)

46 Amendment of Sales Contract Certain Amendment of Sales Contract Subject to Consent by Lessee –Absent consent by the lessee, the lessor may not amend any lessee-related term in the sales contract concluded by it according to the lessee's selection of the seller and the lease item.. (PRC Contract Law Article 241) –Absent consent by the lessee, the lessor may not amend any lessee-related term in the sales contract concluded by it according to the lessee's selection of the seller and the lease item.. (PRC Contract Law Article 241)

47 Title to the lease item Exclusion of Lease Item from Bankruptcy Assets of Lessee –Title to the lease item vests in the lessor. In case the lessee enters into bankruptcy, the lease item is not part of its bankruptcy assets.. (PRC Contract Law Article 242) –Title to the lease item vests in the lessor. In case the lessee enters into bankruptcy, the lease item is not part of its bankruptcy assets.. (PRC Contract Law Article 242)

48 Rent Determination of Rental Components –Unless otherwise agreed by the parties, the rent under a financial leasing contract shall be determined based on the major portion of or full costs of purchasing the lease item and the lessor's reasonable profit.. (PRC Contract Law Article 243) –Unless otherwise agreed by the parties, the rent under a financial leasing contract shall be determined based on the major portion of or full costs of purchasing the lease item and the lessor's reasonable profit.. (PRC Contract Law Article 243)

49 Warranty for fitness Lessor Not Liable for Non-fitness of Lease Item; Exceptions –Where the lease item does not comply with the contract or is not fit for the intended purpose, the lessor is not liable, except where the lessee relied on the skills of the lessor in selecting the lease item or the lessor interfered in the selection thereof.. (PRC Contract Law Article 244) –Where the lease item does not comply with the contract or is not fit for the intended purpose, the lessor is not liable, except where the lessee relied on the skills of the lessor in selecting the lease item or the lessor interfered in the selection thereof.. (PRC Contract Law Article 244)

50 Warranty by Lessor The lessor shall give warranty in respect of the lessee's possession and use of the lease item. (PRC Contract Law Article 245) The lessor shall give warranty in respect of the lessee's possession and use of the lease item. (PRC Contract Law Article 245)

51 Liability for Injury Lessor Not Liable for Damage or Injury –If while in the possession of the lessee, the lease item caused personal injury or property damage to any third person, the lessor is not liable. (PRC Contract Law Article 246) –If while in the possession of the lessee, the lease item caused personal injury or property damage to any third person, the lessor is not liable. (PRC Contract Law Article 246)

52 Maintenance Obligations Lessee's Obligation of Due Care; Maintenance Obligations –The lessee shall keep (or keep it in his custody) and use the lease item with due care. –While in possession of the lease item, the lessee shall perform the obligations of maintenance and repair thereof. (PRC Contract Law Article 247) –While in possession of the lease item, the lessee shall perform the obligations of maintenance and repair thereof. (PRC Contract Law Article 247)

53 Lessor' s Remedies Lessor' s Remedies in Case of Non- payment by Lessee –The lessee shall pay the rent in accordance with the contract. Where the lessee fails to pay the rent within a reasonable period after receiving demand for payment from the lessor, the lessor may require payment of the full rent; or it may terminate the contract and repossess the lease item. (PRC Contract Law Article 248)

54 Refund Partial Refund in Case of Termination by Lessor –Where the parties agreed that title to the lease item will vest in the lessee at the end of the lease term, and after paying a major portion of the rent, the lessee is unable to pay the remaining balance, resulting in the lessor's termination of the contract and repossession of the lease item, if the value of the repossessed lease item exceeds the rent owed by the lessee and other expenses, the lessee may require partial refund. (PRC Contract Law Article 249)

55 Ownership of Lease Item Ownership of Lease Item at End of Lease Term –The lessor and the lessee may agree on the ownership of the lease item at the end of the lease term. –Where ownership of the lease item was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, title to the lease item shall vest in the lessor. (PRC Contract Law Article 250) –Where ownership of the lease item was not prescribed or clearly prescribed, and cannot be determined in accordance with Article 61 hereof, title to the lease item shall vest in the lessor. (PRC Contract Law Article 250)


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