Once a contract is made legally, contracting parties shall implement and such contract is respected by third parties. As stated in Civil Code 2015 (“CC”): “Each commitment or agreement that does not violate regulations of law and is not contrary to social ethics shall be bound by contracting parties and must be respected by other entities”. However, in the implementation process, the contract can be amended, which means, rights and obligation of parties can be amended accordingly.
Due to the fact that
the contract is result of before agreement, amendment shall follow certain
conditions. According to laws, parties may agree to amend a contract.
Enterprises need to pay attention to some following issues when amending the
contract in the implementation process:
Firstly, entities
participating in contract
amendment is the matter which enterprises need to notice. Both contract and
supplemental agreement are made on behalf of the parties, which means between
two juridical persons. In reality, juridical persons only carry out
transactions through representatives, it may be legal representative or
authorized representative. Therefore, entities participating in contract
amendment shall be representative of juridical persons. A civil transaction
entered into and performed with a third person by a representative in
accordance with his/her scope of authorization shall give rise to rights and
obligations of the principal. Regarding consequence of civil transactions made
by unauthorized persons or by representatives beyond scope of representation,
such civil transactions shall not give rise to rights and obligations of the
principal or not give rise to rights and obligations of the principal with
respect to that part of the transaction which exceeded the scope of
representation, except for any of the following cases: (i) The principal
recognizes the transaction or gives consent; (ii) The principal knows it
without any objection within an appropriate time limit; (iii) It is the
principal’s fault that the other party does not know or is not able to know
that the person entering into and performing the civil transaction therewith
was unauthorized or beyond his/her scope of representation. In above
circumstances, the unauthorized person must fulfill the obligations to the
person with which he/she transacted or the obligations owning to the person
with which he/she transacted in respect of the part of transaction which is
beyond the scope of representation, unless such person knew or should have
known that the representative was unauthorized or the scope of representation
was exceeded but still transacted. A person having transacted with above
representative has the right to terminate unilaterally the performance or to
terminate the made civil transaction or to terminate the civil transaction with
respect to that part which is beyond the scope of representation or with
respect to the entire transaction and to demand compensation for any damage,
except that such person knew or should have known that that the representative
was unauthorized or the scope of representation was exceeded or the case of
which the principal recognizes the transaction or gives consent. If above
representatives and the other party in a civil transaction deliberately enter
into and perform such transaction and thereby cause damage to the principal,
they must jointly compensate for the damage.
Form of agreement on
amending contract is the second matter which needs to be taken into
consideration. Amendment shall comply with the form of the initial contract.
For instance, if the initial contract is made in written, notarized, certified,
registered, the amendment shall follow such forms. The form of contract shall
be the conditions for its effectiveness in cases where it is provided by law.
Therefore, the form of amended contract shall be the conditions for its
effectiveness in cases where it is provided by law. In invalid contracts, the
general rule is restoring everything to its original state and returning to
each other what have received. The condition for the contract of non-compliance
with form recognized by the Court’s decision is that one party or the parties
has fulfill at least two third of the obligation contract. However, not one
party or the parties fulfilling at least two third of the obligation contract
will naturally make such contract invalid but there must go through the Court. Specifically,
according to request of one party, after fully considering conditions mentioned
above, the Court shall make a decision on recognizing the validity of such
contract. This principle also applies to contracts amendment. It is important
that parties to consult with lawyers at early stage to anticipate matters of
dispute and clearly have clauses drafted to avoid potential future disputes.
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