Contractual relativity is a doctrine in Chinese laws, it means the contract shall take effect between the contracting parties and shall be binding between the contracting parties, except the laws stipulate otherwise.

According to Article 465 of China Civil Code, acontract established in accordance with the law shall be protected by law. A contract established in accordance with the law shall only be legally binding on the parties, except where otherwise provided by law.

A contract established in accordance with the law is protected by law, which refers to the legal effect that occurs after the contract is established. The parties must be bound by the effect of the contract. If a party fails to perform its contractual obligations or fails to fully perform its contractual obligations after the contract is established in accordance with the law, the law will force it to perform and accept the sanctions of breach of contract. Therefore, the legal effect of a contract refers to the legal binding force of a contract established in accordance with the law on the parties on the one hand, and the protection of the parties’ creditor’s rights based on the contract when the contract is not performed on the other hand. The legal binding force of a contract is limited, that is, it only occurs to the parties to the contract and does not occur to people outside the contract. This is the principle of relativity of the contract, which is the principle that the legal binding force of the contract cannot be extended to other civil subjects outside the parties to the contract. The proviso in the second paragraph of this article means that the principle of relativity of contract can be broken when otherwise provided by law, mainly: (1) In a contract involving another party, if the contract stipulates that rights are created for another person, the debtor shall perform its obligations to the third party, breaking the constraint of the principle of relativity of contract; (2) Debt preservation, that is, the creditor’s right of subrogation and the creditor’s right of revocation are broad forms of guarantee for protecting the creditor’s rights. Once the statutory conditions are met, the creditor can claim the right of subrogation or the right of revocation against the debtor who is not a party to the contract or the counterparty of the disposal behavior; (3) If a third party infringes on the creditor’s rights, the creditor can request the third party outside the contract to bear the tort liability.

A case for example

The plaintiff Liu claimed that he signed an oral sales contract with Liang 3, a person not involved in the case, on August 9, 2016, and that he purchased a car with license plate number Lu C××××× from Liang 3 for RMB 2,000, but Liang 3, a person not involved in the case, did not deliver the car to him. Since the car is now in the hands of Zibo Boshan Great Wall Machinery Co., Ltd. China, which is controlled by the company and the three defendants Liang 1 and Liang 2, Liang filed a lawsuit with the court, requesting the three defendants to deliver the target vehicle.

Court Ruling

The court ruled that a contract established in accordance with the law is only legally binding on the parties. Even if the plaintiff claimed that a sales contract for the vehicle involved in the case was established between him and the third party, the three defendants were not the counterparties of the sales contract and had no legal obligation to deliver the vehicle to the plaintiff. Therefore, the plaintiff had no right to require the three defendants to deliver the vehicle based on the sales contract signed with the third party. The court held that the plaintiff’s claim lacked basis and was not supported.

Lawyer’s Comments

The relativity of contractual liability means that contractual liability can only occur between specific creditors and debtors. People outside the contractual relationship do not bear liability for breach of contract, and the contractual debtor does not bear liability for breach of contract to third parties outside the contractual relationship. In the case where the debt cannot be performed due to the behavior of a third party, on the one hand, the debtor should still bear liability for breach of contract to the creditor. After the debtor assumes the responsibility, he has the right to request compensation from the third party; on the other hand, the creditor can only request the debtor to bear the liability for breach of contract, and cannot bypass the debtor and directly request the third party to perform the contract or bear the liability for breach of contract. The defendant in this case is not a party to the contract in question. Even if the contract cannot be performed due to the defendant’s behavior, the plaintiff has no right to request the defendant to bear responsibility.

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