Is a Contract Void in China If a Crime Was Involved?

Before the Civil Code

Before the Civil Code took effect in 2021, several Supreme People's Court (SPC) instruments already said that a civil contract involving a crime is not necessarily void.

The 2015 SPC Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (the "Private Lending Rules") provided in Article 13 that where a borrower's or lender's conduct is suspected of being, or has been found by an effective judgment to be, a crime, the loan contract is not automatically void; its validity is to be determined under the Contract Law. The same article said that a guarantor cannot escape liability merely by pointing to the crime: liability depends on the validity of the loan and guarantee contracts and the parties' fault. These rules survived the two 2020 revisions (the provision is now Article 12).

The SPC's 2019 Minutes of the National Courts' Work Conference on Civil and Commercial Trials (the "Ninth Minutes") played a decisive role in unifying how courts handle cases where criminal and civil issues overlap. Article 30 told courts to assess carefully the nature of a "mandatory provision", considering the interest it protects, the legal consequences of the violation and the protection of transaction security, and to explain their reasoning in the judgment. It also listed which provisions affect validity and which are merely regulatory.

The Civil Code and the SPC's interpretation on contracts

With the Civil Code and the SPC's Interpretation on Several Issues Concerning the Application of the General Provisions of the Contracts Part of the Civil Code (the "Contracts Interpretation"), a broad consensus emerged: a contract is not void merely because a crime is involved; its validity is determined under civil law.

Article 153 of the Civil Code is the key provision:

A civil juristic act that violates a mandatory provision of a law or administrative regulation is void, unless that mandatory provision does not lead to the invalidity of the act. A civil juristic act that violates public order or good morals is void.

Compared with Article 52 of the old Contract Law, the Civil Code, following Article 153 of the 2017 General Provisions of the Civil Law, added the proviso "unless that mandatory provision does not lead to the invalidity of the act". This makes clear that violating a mandatory provision does not necessarily void a contract, and leaves room for judicial interpretation.

To avoid every regulatory breach voiding a contract, Chinese courts had long distinguished between mandatory provisions affecting validity and mandatory provisions of a regulatory nature. Only a breach of the first kind made a contract void. The distinction became courts' main tool for balancing regulatory order against freedom of contract and transaction security. Instead of asking only whether conduct was unlawful, courts asked whether the violation was serious enough to require setting aside the whole transaction. That shift from formal to substantive assessment explains why a contract linked to serious wrongdoing, even a crime, is not necessarily void.

Article 16(1) of the Contracts Interpretation provides that where a contract violates a mandatory provision of a law or administrative regulation, a court may find that the contract is not void under the proviso to Article 153 if imposing administrative or criminal liability on the wrongdoer achieves the purpose of the mandatory provision, and one of the following applies:

1. the provision protects public order, but the actual performance of the contract has only a minimal effect on public order, and invalidity would produce an unfair result;
2. the provision protects state interests such as tax or land-transfer fees, or the interests of other parties rather than the contracting parties, and upholding the contract does not defeat that purpose;
3. the provision requires one party to strengthen risk control or internal management, the other party could not or need not check compliance, and invalidity would unfairly burden that other party;
4. a party violated the provision when signing, could later have cured the violation, but in bad faith did not; or
5. other situations provided by law or judicial interpretation.

The Contracts Interpretation does not use the "affecting validity" and "regulatory" labels, but it makes the same point: even where a contract violates a mandatory provision, it can remain valid if administrative or criminal liability for the wrongdoer is enough to achieve the provision's purpose.

1. Gan v. Li and Liu (guarantee dispute)

Case database no. 2024-08-2-104-001; Fengtai District People's Court, Beijing, (2022) Jing 0106 Min Chu No. 18585.

Trusting the defendants Li and Liu, the plaintiff entered into a property purchase arrangement and paid money to a third person, Shen. Li and Liu gave the plaintiff a written guarantee assuming unlimited joint and several liability. The plaintiff later discovered the fraud, and Shen was convicted of fraud. In the guarantee dispute, the court upheld the plaintiff's claim under the guarantee.

The court held: where one party commits criminal fraud, the other party's expression of intent is not genuine, which in civil law is fraud making the contract voidable at the deceived party's option. It does not necessarily make related civil contracts void. If the victim does not rescind and no other ground of invalidity exists, the related contracts are valid, and the victim's claim against the guarantor should be upheld.

2. Liu v. a Beihai property development company (loan dispute)

Case database no. 2025-16-2-103-001; retrial by the Supreme People's Court, (2023) Zui Gao Fa Min Zai No. 176.

The company's former shareholders had asked Wei to arrange a replacement business license and company seal and to handle a registration change. Wei used this access to forge documents and company seals, became the company's registered legal representative, fabricated shareholder resolutions, and in the company's name signed a loan agreement and a land mortgage agreement with Liu, who paid the loan. When the loan fell due, the company did not repay, and Liu sued. Wei was later convicted of contract fraud and ordered to return the money to Liu.

The civil case went through a first-instance judgment, a retrial at the intermediate court, a retrial at the higher court and finally a retrial at the SPC, which reinstated the Nanning Intermediate Court's judgment ordering the company to repay principal and interest and pay damages for breach.

The SPC held:

1. The loan agreement was valid. Liu had checked with due care before lending. The company, after learning that Wei had become legal representative by improper means, took no effective step such as correcting the registration or issuing a public statement, and had to bear the civil consequences.
2. Wei's crime did not by itself make the contract void. In cases where criminal and civil issues overlap, civil liability must be determined from the facts and evidence in the civil case, not simply taken from an earlier criminal judgment. Although the criminal judgment found that Wei had defrauded Liu of RMB 19.2 million and that Liu was the victim, whether Wei acted personally or on behalf of the company was, as far as Liu was concerned, a question for civil evidence and civil law. Wei's signing was sufficient to represent the company, so the company bore the consequences. Wei's criminal liability and the civil consequences of the same act were not in conflict. Having paid Liu, the company, which ultimately suffered the loss from the crime, can seek compensation from Wei.

3. A Sichuan investment company v. a Chengdu property company (property sale dispute)

Case database no. 2025-16-2-091-001; retrial by the Supreme People's Court, (2023) Zui Gao Fa Min Zai No. 50.

Bai, the chairman and legal representative of a Chengdu property company, had a duplicate company seal and finance seal made without authorization and, in the company's name, signed a contract selling the 5th and 6th floors of a building to a Sichuan investment company. The buyer paid the first installment by transfer cheque into an account Bai had opened in the company's name; the money was moved out the same day. Bai was later convicted of occupational embezzlement, and the illegal gains were ordered confiscated. The property company refused to recognize the sale, and the buyer sued to confirm the contract and enforce it. On retrial, the court upheld the buyer's claims.

The SPC held that Bai's embezzlement concerned the internal relationship between Bai and the company. It did not affect the validity of a contract Bai signed as legal representative without exceeding that authority, and the company bore the resulting civil liability. Upholding the contract and requiring performance served sound corporate governance, lower transaction costs and market order.