Article 15: People's courts shall not be confined to the name used in the contract, but shall be based on the content agreed in the contract. Where the rights and obligations asserted by the parties are inconsistent with those determined on the basis of the content of the contract, the people's court shall determine the actual civil legal relationship between the parties in light of facts such as the background of the contract, the purpose of the transaction, the structure of the transaction, the performance of the transaction, and whether the parties have fictitious transaction targets.
【Purpose of the Article】
This article is about the inconsistency of the name of the contract.
【Overview of Provisions】
The inconsistency between the name and the reality of the contract is a legal phenomenon in practice, which can be roughly divided into two situations: one is that the name of the contract is inconsistent with the content agreed in the contract; The other is that the legal relationship asserted by the parties is inconsistent with the rights and obligations agreed in the contract. The above two situations are different in terms of legal attributes: the former involves the issue of contract interpretation, that is, how to understand the special agreement of the parties in the contract, such as the name of joint operation, actual loan, name of cooperative development, actual loan, etc., often involves the determination and understanding of the minimum guarantee clause. The latter involves the problem of the parties concealing their true intentions with false intentions, and there are often situations where the two parties conduct transactions with fictitious transaction targets or make false representations in order to avoid supervision. Obviously, the provisions of Article 146 of the Civil Code should apply to the situation where the parties conceal their true intentions with false intentions. However, unlike the "yin-yang contract", in such a situation where the name does not match the reality, since only one contract is concluded between the parties, rather than more than two contracts, it is more difficult for the people's court to determine whether it constitutes a false expression of intent. To this end, this article specifically points out that the civil legal relationship between the parties shall be determined based on the facts such as the background of the contract, the purpose of the transaction, the structure of the transaction, the performance of the transaction, and whether the parties have fictitious transaction objects, and determine whether the contract is established and its validity accordingly.
【Controversial Views】
One view is that adjudicators, based on their concept of "foresight", should not break through basic legal common sense on the grounds that "the life of law lies in experience rather than logic". After finding that a legal act is invalid on the grounds of false conduct, the basic legal theory of the relativity of contract is broken when it is determined that the actor and a third party have established a concealed act. "The contract is the true expression of the intention of both parties", the expression of intent and the contract text carrying the content of the expression of intent form a natural close alliance, and the understanding of the expression of intent should be limited to the scope of the contract text, and factors other than the contract text do not constitute legal elements. Another view is that in the face of complex contract texts, a single or one-sided interpretation method is obviously not applicable, and penetrating review and systematic interpretation are imperative, including identifying the contract relationship based on the same standard of expression of intent, mining legal facts by appropriately expanding the subject matter of litigation, examining and judging the efficiency of the performance process and expression of intent, and respecting the market value judgment of the transaction structure.
[Understanding and Application]
1. The basic types that do not match the name and the reality
A contract is essentially an agreement between the parties. One of the criteria for whether the parties' unanimous expression of intent can be binding on both parties is whether the expression of intent is genuine. Meaning expression is true refers to the effect meaning of the expression behavior that truly reflects the inner heart of the ideographer. According to the provisions of Articles 143, 146, 147 and 148 of the Civil Code, civil juristic acts that are intended and can trigger the establishment, modification and termination of civil rights and civil obligations between the parties require the authenticity of the parties' expressions of intent. If the expression of intent is not true, the civil acts of the parties cannot constitute civil juristic acts. In other words, the civil act cannot trigger the effect of establishing, modifying, or terminating the corresponding civil rights and civil obligations between the parties. The untruthfulness of the expression of intent refers to the inconsistency between the intention of the parties and the expression (non-genuine expression of intent, lack of meaning). Normally, the meaning and the expression are consistent, but there are often inconsistencies between the two, which is the inconsistency of the meaning expression. The inconsistency of the expression of meaning means that the internal meaning of the signifier is inconsistent with the external expression. There are two specific situations: inconsistencies without true intentions and inconsistencies with true intentions (deliberate). The former is such as error or miscommunication, and the latter is such as a reservation of sincerity or false representation. It should be noted that the inconsistency of the expression of intent with genuine intention (intentional) can be divided into two situations: individual and collusion. Separate inconsistencies of intent are also known as reservations of sincerity or reservations of the heart. Reservation of true intention refers to the concealment of the true intention in the heart of the signifier and the expression of intention that is inconsistent with his true intention. As for the motive of the signifier, it is not asked. According to the general theory, there are three constituent elements of a genuine reservation: an expression of meaning; It must be inconsistent with the meaning; The expressor must know that the meaning is inconsistent with the expression. The civil laws of all countries hold that an expression of intent is not invalid because of a reservation of good faith, except in cases where the counterparty knows the true intention of the expressor or can know it. The circumstances contained in this article are not genuine reservations. Further, in judicial practice, the inconsistency of conspiracy's sincere expression of intent can be divided into two types: one is the false expression of intent that lacks true expression, i.e., the "yin-yang contract" or "black-and-white contract" in practice. The second is the act of false expression of intent that lacks real effect meaning, which is often the transaction between the two parties with fictitious transaction targets or false representations in order to avoid supervision. For example, in the case of a financial lease or a loan, the parties may achieve their goals by fictitious transaction targets, while in some financing trade and bill list transactions, there may be cases where the parties make false representations in order to evade supervision. This article is to regulate the act of falsely expressing intent that lacks real effect meaning, that is, the name does not match the reality. Discrepancy between name and reality is a legal phenomenon, not a legal concept. According to the summary of practice, the discrepancy between name and reality can be roughly divided into the following two situations.
First, the name of the legal act (contract) is inconsistent with the actual legal act (the content agreed in the contract). Due to a misunderstanding of the nature of the legal act, or out of the motive of circumventing jurisdiction, the name of the contract text signed by the parties is different from the actual content of the contract. This mainly involves the issue of contract interpretation, that is, how to understand the special agreement of the parties in the contract. Articles 21 to 24 of the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Contracts Involving State-owned Land Use Rights stipulate that the nature of a contract shall be subject to the true intentions of the parties and the content of the contract, and cannot simply be determined by the name of the contract agreed upon by the parties themselves.
Second, the legal relationship asserted by the parties is inconsistent with the rights and obligations agreed in the contract. In terms of legal attributes, the parties conceal their true intentions with false intentions. It is worth mentioning that in recent years, there have been a gradual emergence of multiple forms of hypocrisy. For the purpose of diversifying risks, the parties lengthen the transaction chain, and the subjects of rights and obligations are dispersed into the transaction link, creating multiple false representations among multiple entities, which can be called a situation where the legal relationship asserted by the parties is inconsistent with the transaction structure. Obviously, the provisions of Article 146 of the Civil Code should apply to the situation where the parties conceal their true intentions with false intentions. It should be noted that, unlike the "yin-yang contract", in such a situation where the name does not match the facts, since only one contract is concluded between the parties, rather than more than two contracts, it is more difficult for the people's court to determine whether it constitutes a false expression of intent. To this end, this article specifically points out that the civil legal relationship between the parties shall be determined based on the facts such as the background of the contract, the purpose of the transaction, the structure of the transaction, the performance of the transaction, and whether the parties have fictitious transaction objects, and determine whether the contract is established and its validity accordingly. In other words, once it is determined that the contract formally concluded between the parties is not the true expression of the intention of the parties, the true expression of the intention of the parties should be determined first, and then the validity of the contract should be determined by the true expression of intention. However, in this process, there may also be situations where the formal contract is a true expression of the intention of one party, but not the true intention of the other party. In this case, it may involve either the rescission of the contract (material misunderstanding) or the invalidity of the contract.
II. Determination of True Expression of Intent
False representation refers to the inconsistency of the true intention of the conspiracy, that is, the inconsistent expression of intent of the expressor and the counterpart. The original intention of the conspiracy between the parties is not to establish a corresponding legal relationship, so a false representation is invalid between the parties. In terms of hypocrisy, there are hidden acts. Concealment acts, also known as concealment acts, refer to other legal acts in which the parties to the false expression of intent have other intentions in their hearts. For example, if it is expressed as a sale, but the essence is a gift (if the price is zero), the gift is hidden. The effect of concealment depends on the provisions of the law on the concealment. The premise of concealment is that there is a false representation between the parties, and the parties may claim that the effect of the false representation between the parties (internal effect) is as mentioned above. As to the validity of the false representation in relation to a third party (external effect), the distinction between the third party and whether the third party is bona fide is different: if the third party is aware of the existence of a false representation between the parties, the false representation is invalid; If a third party is bona fide, the invalidity of a false representation shall not be used against the third party. If it is necessary to sacrifice the interests of the parties in order to protect public credit and the security of transactions, the position of representation should be adopted. For example, for stock subscriptions that are highly public in nature and behaviors that require a high degree of transaction security (such as bills), the parties may not claim invalidity on the grounds of false representation. As to when the third party must be bona fide, it should be subject to its interest in the effect of the false representation. The reason why the civil laws of various countries basically adopt the position that a false representation cannot be invalidated against a bona fide third party is the protection of the security of the transaction and the interests of the bona fide third party. The institutional value of this position also exists in the circumstances provided for in this article.
It is worth mentioning that, as mentioned above, after determining that a legal act is invalid on the grounds of false acts, it is found that the actor and a third party have established a hidden act, which breaks through the basic legal theory of the relativity of contracts. However, the biggest difficulty in practice lies in how to identify the real rights and obligations, contractual relationships and transaction purposes among different contract texts and numerous and intertwined clauses. Due to the lack of theoretical and practical preparation of this aspect of the thinking method, it is easy to fall into the "identification trap" after entering the "contract maze" of transaction structure, resulting in deviations in contract understanding and interpretation. There is no necessary one-to-one correspondence between the text of the contract and the elements of the contract, or between the expression of intent and the terms of the contract. A contract text may contain a contract with complete elements, a contract with several complete elements, or only some elements of the contract. A contract clause can express a complete expression of intent, or it can express several expressions of intent, or several contract clauses can express a complete expression of intent. In practice, the separation of the expression of intent from the contract text makes the contract text combine into different forms in the transaction structure. Therefore, in a complex transaction model, although the text is independent, it is difficult to say that the meaning contained in it is completely independent. Further, the separation of the expression of intent from the contract text may lead to an unreasonable conclusion or an imbalance of rights and obligations in the literal interpretation of the contract text, and the overall purpose of the transaction (the purpose of the contract) must be interpreted to correct the conclusion of the literal interpretation. It is necessary to prudently break through the formal interpretation framework of the contract, go deep into the purpose of the transaction and expand to the overall goal, and supplement the interpretation provisions of the Civil Code on the expression of intent in a systematic way of interpretation.
[Practical issues]
First of all, the inconsistency between the name of the contract and the content agreed in the contract text mainly involves the interpretation of the contract. Such inconsistencies may be caused either inadvertently by the parties due to a lack of legal expertise or by the deliberate choice of other names by the parties for some particular purpose. However, regardless of the reason, the determination of the nature of the contract is mainly based on the content of the contract, rather than the name chosen by the parties for the contract, and the name of the contract usually has limited significance for the characterization of the contract. The content of the contract is the structure of the rights and obligations agreed between the parties. When interpreting the content of the contract, special attention should be paid to how to understand certain special clauses and special provisions in the contract text. For example, in the case of joint venture, actual loan, cooperative development, actual loan, etc., it often involves the identification and understanding of the minimum guarantee clause in the contract text. The minimum guarantee clause usually refers to the clause that one party invests in the consortium or real estate development project, shares the profits but does not bear the liability for losses, and still recovers its capital contribution and receives fixed profits when the consortium or real estate development project loses money. According to Article 23 of the Interpretation of the Supreme People's Court on Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Contracts Involving State-owned Land Use Rights, if the parties to a contract for the cooperative development of real estate stipulate that the parties to provide funds do not bear the operational risks and only receive a fixed amount of currency, it shall be deemed to be a loan contract. The basis for this determination scheme is Article 12 of the Judicial Interpretation, which stipulates that a contract for the joint development of real estate refers to a contract entered into by the parties with the provision of land use rights and funds as joint investment, sharing profits and risks, and the joint development of real estate as the basic content. Among them, sharing profits and risks are essential elements of a cooperative real estate development contract, and the purpose of the parties to jointly fund and cooperate is to jointly share the economic benefits brought by the results of cooperation. Correspondingly, the adverse consequences of cooperation should also be borne jointly, which is the inherent requirement and concrete embodiment of the principle of consistency of civil rights and obligations. Under this premise, although the parties have entered into a contract called a "contract for the joint development of real estate", the content of the contract reflects that the party providing the funds does not bear the business risk and only receives a certain amount of currency, which is consistent with the content of the loan contract. Therefore, it can be seen that the parties to such a contract for the joint development of real estate actually want to conclude a loan contract, and the court should recognize the contract as a loan contract. Of course, although the simple name of the contract usually does not have much value for the characterization of the contract, when the court is unable to determine the nature of the contract based on the content of the contract, the name chosen by the parties for the contract may become a manifestation of the true intention of the parties, thus playing a role in the characterization of the contract. However, in this case, the contract name is not directly used to characterize the contract by going beyond the content of the contract, but after exhausting the examination of the content of the contract, the name of the contract is used as a reference standard to ascertain the true intention of the parties.
Secondly, if the legal relationship asserted by the parties is inconsistent with the rights and obligations agreed in the contract text, it mainly involves the problem of the parties concealing the true expression of intent by false expressions of intent. In practice, there are often situations where the parties conduct transactions with fictitious subject matter of the transaction. For example, in a case called a financial lease that is actually a loan, the parties may achieve their goals by fictitious transaction targets. In order to establish a sale-leaseback financial lease contractual relationship, the lessee shall transfer the ownership of the subject matter to the lessor, and if the subject matter is fictitious and the lessor has not obtained ownership, the sale-leaseback financial lease contractual relationship cannot be established. If the lessor has already paid the nominal "price" for the purchase of the subject matter, it should be deemed to be a loan contract relationship because there is only the flow of funds between the two parties. According to Article 737 of the Civil Code, the text of the financial lease contract entered into by the parties in the form of fictitious leased objects is a false expression of intent and should be deemed invalid. In addition, the parties may also make false representations in order to circumvent supervision, for example, in some financing trade and bill list transactions, there may be situations where the parties adopt false representations in order to evade supervision. In this case, the parties' expression of intent reflected in the contract text is obviously false, and the court needs to comprehensively determine the true intention of the parties in combination with other factors.
Obviously, the court should apply the provisions of Article 146 of the Civil Code to the situation where the parties conceal their true intentions with false intentions. According to this article, civil juristic acts carried out by the actor and the counterpart with false expressions of intent are invalid, while the validity of civil juristic acts concealed by false expressions of intent shall be handled in accordance with the relevant legal provisions. The typical application of Article 146 of the Civil Code is the "yin-yang contract" in practice, that is, there are two or more copies of the contract between the parties. However, it should be noted that, unlike the "yin-yang contract", in such a situation where the name does not match the facts, only one contract text is concluded between the parties, not two or more contract texts. Therefore, it is more difficult for judges to determine whether it constitutes a false expression of intent. To this end, this article specifically points out that the civil legal relationship between the parties shall be comprehensively determined based on the facts such as the background of the contract, the purpose of the transaction, the structure of the transaction, the performance of the transaction, and whether the parties have fictitious transaction objects, and whether the contract is established and valid. For example, in a financing trade case called a sale, which is actually a loan, the parties often enter into a multi-party framework agreement in advance, and the conclusion and performance of the sales contract are to achieve the content of the framework agreement. At the same time, the parties will indicate in the framework agreement that one party has a need for funds, one party guarantees the supply of funds, and the other party (or parties) provides a channel for the flow of funds. It can be seen that the sale and purchase contract is concluded to achieve the financing objectives of the parties in the framework agreement. In addition, from the perspective of transaction structure, there is a closed or quasi-closed transaction loop in financing trade, that is, the contracts between the participants of a series of contracts are connected end-to-end to form a closed loop, so that funds flow from the buyer (lender) to the seller (borrower) through the channel party or directly to the seller (borrower), and from the seller (borrower) through the channel party or directly to the buyer (lender). From the point of view of the performance and the subject matter, the parties often deliver the goods through the certificate of transfer of the right to the goods, etc., and the subject matter has not been transferred from the beginning, and the buyer does not pay attention to the type, quantity, quality, etc. of the subject matter, and even the subject matter of the sale does not exist at all. For example, although the parties have made deliveries in the form of a certificate of transfer of rights, there is no such goods in the warehouse as recorded on the certificate of transfer of rights. Therefore, on the basis of comprehensive consideration of the facts such as the background of the contract, the purpose of the transaction, the structure of the transaction, the performance and the subject matter, it should be determined that the civil legal relationship between the parties is a loan relationship, and the multiple sales contracts concluded by the parties are invalid due to the establishment of false expressions of intent.
It should be noted that once it is determined that the text of the contract formally concluded between the parties is not the true expression of the intention of the parties, the content of the true expression of intention of the parties should be determined first, and then the validity of the contract concluded by the true expression of intention should be determined. However, in this process, there may also be situations where the formal contract text is the true expression of the intention of one party, but not the true intention of the other party. In this case, it may involve either the rescission of the contract (e.g., a material misunderstanding as provided for in Article 147 of the Civil Code) or the invalidity of the contract (e.g., the agreement of the two or more parties as stipulated in Article 134 of the Civil Code is not satisfied).