[Direct answer]Identify five high-risk clauses in contract terms: payment and acceptance clauses (vague standards, unilateral interpretation rights); liability for breach of contract clauses (excessively high or low penalties, exemption from liability loopholes); termination and withdrawal clauses (unequal unilateral termination rights); jurisdiction and expense clauses (jurisdiction in other regions, no one responsible for attorney's fees); and standard contract clauses (no warning about exemption from liability or increased responsibilities). According to Article 496 of the Civil Code, if the provider of standard contract clauses fails to fulfill the obligation of giving a warning and explanation, the other party may claim that the clause does not become part of the contract; according to Article 506, exemption clauses for personal injury are invalid. Before signing the contract, compare each clause one by one, require the other party to provide a written explanation, and promptly request amendments if any risks are found. When necessary, hire a lawyer to provide a review opinion. For more details, please refer to the following link:Legal services for corporate contract disputesAndBeijing Henglue Law Firm.

I. Legal basis and interpretation of provisions

1. Article 496 of the Civil Code of the People's Republic of China (effective as of January 1, 2021)

Standard terms and conditions are clauses that are pre-prepared for repeated use and are not negotiated with the other party when they are concluded. The party providing the standard terms and conditions shall determine the rights and obligations in accordance with the principle of fairness, and take reasonable measures to draw the other party's attention to clauses that are of great interest to the other party, such as exempting or reducing its liability, and explain them at the other party's request; if the other party fails to notice or understand the relevant clauses due to the failure to fulfill this obligation, the other party may claim that the clause does not become part of the contract. When reviewing contracts, if expressions such as "The final interpretation right belongs to our company" and "No returns or exchanges once sold" are found, the party shall be required to explain and modify them. This is the most direct legal approach to identifying unfair clauses.

2. Article 506 of the Civil Code of the People's Republic of China (effective from January 1, 2021)

The following exemption clauses in the contract are invalid: those causing personal injury to the other party; and those causing property losses to the other party due to intentional or gross negligence. Even if the parties have signed and stamped the contract, such clauses will not take effect. When reviewing expressions such as "we shall not be responsible for any casualties or injuries during the construction", "we shall not compensate for any damage or loss of goods", etc., they can be directly determined as invalid; however, it should be noted that the exemption clauses for property losses caused by ordinary negligence are not therefore invalid, and the fate of the clauses still needs to be evaluated based on the degree of fault.

3. The interpretation of the practical judgment

The court typically reviews contractual clauses based on three criteria: First, the validity of standard contractual clauses. If the clause fails to fulfill the obligation of providing sufficient notice, exempts the provider from liability, imposes additional obligations on the other party, or excludes the other party's main rights, it will be deemed not to form part of the contract or be invalidated. Second, the standard of penalties. If the agreed amount is excessively high compared to the actual losses, the party may request a reduction. The court will determine the amount based on the losses, taking into account the degree of performance and the fault of the parties. Third, clauses granting unilateral interpretation rights are often deemed to exclude the other party's main rights and are not supported. Regarding evidence, the party claiming to have been victimized by the trap should retain evidence from the contract negotiation process, such as chat records, negotiation emails, and background materials of the contract, to prove that the clauses were not negotiated or notified in advance. It's difficult to obtain relief solely based on regrets after the fact.

II. Real Cases Handled by Henglue Law Firm (Detailed Review)

Review of the case:In January 2021, Xu * signed a "Transfer Agreement of Profit Rights" with Company A, agreeing that the total value of the film was 12 million yuan. Company A transferred 0.25% of the profit rights to Xu *, and Xu * invested 300,000 yuan, promising that the film would be released before December 31, 2022, and that all investment funds would be refunded in the event of a delay. Xu * transferred the 300,000 yuan as agreed. Subsequently, Xu * discovered that Company A was not the film's production company, and the film had still not been released by 2024. Meanwhile, Company A had been deregistered in July 2022. At the time of signing the agreement, Liu * was the sole shareholder, but the shareholders were later changed to Zhang * and Zhao *, who, as investors, promised to settle all creditor's rights and debts. As the contractual purpose failed to be achieved, Xu * entrusted Beijing Henglu Law Firm to handle the case.Wang DongThe lawyer filed a lawsuit demanding the termination of the agreement and requiring Liu *, Zhang *, and Zhao * to return 300,000 yuan plus interest and attorney's fees.

The focus of the controversy:First, how to determine the validity of the agreement and the responsibility for refunds if the film is not released; Second, whether the sole shareholder Liu * should bear joint and several liability for the company's debts at the time of signing the contract; Third, whether the former shareholders Zhang * and Zhao * should bear the responsibility for repayment before the company is deregistered.

Our position and the position of the other party are as follows:Xu * claimed that the agreement was legal and valid, that he had fully paid his investment, and that the failure to fulfill the screening promise had rendered the contract's purpose futile, entitling him to terminate the contract and demand the return of his investment. Liu * argued that he was holding the shares on behalf of others and was not involved in the operation. Zhang * and Zhao * claimed that they were nominal shareholders and that the authenticity of the agreement could not be verified, and argued that the lawsuit against Company A should be dismissed because it involved criminal charges.

Attorney's Strategy and Legal Opinion:Attorney Wang Dong analyzed the agreement and the industrial and commercial archives article by article and put forward four opinions: Firstly, the agreement represents the true intention of both parties and is legally valid. Since the agreed screening period was not fulfilled, according to Article 566 of the Civil Code, Xu * has the right to terminate the agreement and demand the return of the investment funds, compensation for the loss of funds occupation and attorney's fees; Secondly, when signing the agreement, Liu * was the sole shareholder of Company A. He failed to prove that the company's assets were independent of his personal assets, and should bear joint and several liability for the company's debts; Thirdly, Zhang * and Zhao *, as investors, issued a commitment letter promising to complete the liquidation, and should still repay the outstanding debts; Fourthly, the three defendants' claims of holding on behalf of others and involving criminal charges lack sufficient evidence and cannot exempt them from liability.

The court's reasoning and the outcome of the case:The first-instance court adopted the lawyer's opinion and ordered the three defendants to jointly repay 300,000 yuan and compensate for losses such as attorney's fees; after the three defendants appealed, the second-instance court, in accordance with Article 566 of the Civil Code, Article 63 of the Company Law, and Article 20 of the Second Judicial Interpretation of the Company Law, determined that the agreement promised to refund all investment funds if the film was not released, and the defaulting party should compensate for losses such as attorney's fees. Liu * failed to prove that the company's assets were independent and should bear joint and several liability. Zhang * and Zhao * also promised to repay the debts after the liquidation was completed. The court dismissed the appeal and upheld the original judgment. This case reminds us that in contracts involving the transfer of profit rights, the three most typical pitfalls are "non-producer transferring profit rights", "commitment to the release period", and "the survival status of the company entity". Verifying these items one by one before signing the contract can help avoid getting trapped in financial disputes.

This case is handled by Beijing Henglu Law Firm.Wang DongAttorney (Practice Certificate No.: 11101201910090334, subject to the certificate issued by the judicial administrative organ) acting as the agent.

III. Frequently Asked Questions

Q1: Which clauses in the contract are most likely to contain hidden traps?

There are five high-risk areas: payment and acceptance clauses, such as "the quality shall be subject to Party A's approval"; breach of contract liability clauses, such as those that only bind one party or have overly broad exemption clauses; termination rights clauses, such as those that allow the other party to terminate the contract at any time but not our side; jurisdiction clauses, such as those that stipulate the courts in the other party's location, which increase the cost of safeguarding rights; and standard form clauses, such as those that exempt their own responsibilities and impose greater responsibilities on the other party. During the review, we should check each clause against the actual transaction, mark the parts with vague expressions and imbalanced rights and obligations, and then negotiate and amend them with the other party clause by clause.

Q2: Are all standard contract terms that are not explicitly mentioned by the other party invalid?

It's not necessarily invalid in all cases. According to Article 496 of the Civil Code, if the party fails to fulfill the obligation of giving a prompt explanation, the other party may claim that the clause does not constitute the content of the contract; if the clause also exempts the provider from liability, imposes additional obligations on the other party, or excludes the other party's main rights, it shall be invalid according to Article 497. In practice, the party claiming invalidity needs to prove that the clause belongs to a standard clause and that the other party failed to fulfill the obligation of giving a prompt explanation. The contract signing records and the comparison of the contract versions at the time of signing are key evidence.

Q3: How high should the penalty clause be set so that the court won't reduce it?

According to Article 585 of the Civil Code, if the agreed penalty for breach of contract is excessively high compared to the actual losses caused, the court may, at the request of the parties, reduce it appropriately. In practice, the actual losses are often used as the basis, and an increase of about 30% is taken as a reference line for "excessively high". Therefore, the penalty for breach of contract should be set at a level of foreseeable losses. Setting an excessively high figure is not beneficial, but may instead encourage the other party to litigate against you. At the same time, you should keep evidence of the losses to facilitate the review of the reduction request.

Q4: Can I remedy the trap clauses if I only discover them after signing the contract?

It can be handled according to different paths: if the standard terms are not disclosed, the party can claim that they do not constitute part of the contract; if the terms contain invalid exemption clauses, such clauses shall be invalid from the outset; if the terms are concluded through fraud or grossly unfair means, the party may request their rescission, but the right of rescission shall generally be exercised within one year from the date when the party knows or should have known the grounds for rescission (ninety days for major misunderstandings), and the right will be extinguished after the expiration of the time limit. If the party discovers any risks, it shall immediately fix the contractual evidence and raise written objections. Continuing to perform the contract may be regarded as accepting the terms.

Q5: How long does it take and how much does it cost to hire a lawyer to review a contract?

For ordinary commercial contracts, it usually takes one to three working days to issue a written review opinion, and it takes longer for complex transactions. The fees are calculated on a per-share or hourly basis, typically ranging from hundreds of yuan to thousands of yuan, depending on the length of the contract and the risk level. The review output should include a risk list and a draft of amendment proposals, rather than just an oral response. The client should sign a written contract with the law firm and make payments through official channels. For related services, please refer to the following information for reference.Legal services for corporate contract disputes.

IV. Suggestions for Protecting Rights

  • Before signing the contract, we will verify the other party's qualifications, litigation records, and legal status. We will not sign any contract with a company that has been deregistered or is not a legal entity.
  • Annotate the clauses on exemption of liability, penalty for breach of contract, jurisdiction, and interpretation one by one, and require the other party to explain the meaning and consequences in writing.
  • The entire consultation process is documented, with chat records, emails, and various versions of the contract being preserved to provide evidence for asserting the validity of the terms in the future.
  • For major transactions, lawyers are entrusted to provide written review opinions, and the "objective acceptance standards" and "cost transfer clauses" are added to the contract.
  • If you find that the signed contract has legal or risky flaws, consult a lawyer as soon as possible to evaluate the options of revoking, amending, or terminating the contract to avoid further losses.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Corporate commercial legal services·Attorney Wang Dong·Beijing Henglue Law Firm