Are Verbal Contracts Enforceable Under PRC Law?
Quick Answer
Yes, verbal contracts are generally enforceable under PRC law, but with important limitations that make them substantially riskier for foreign companies than written contracts. The PRC Civil Code recognizes three forms of contract: written, verbal, and other forms (including implied conduct). Article 469 of the Civil Code explicitly provides that parties may conclude a contract in written, verbal, or other forms, and a verbal agreement is binding if the essential elements of a contract are present — the parties have the requisite legal capacity, the agreement is reached through mutual consent (offer and acceptance), the subject matter is lawful, and the intentions are genuine. However, there are significant categories of contracts that must be in writing to be enforceable, including contracts involving real property, equity transfers, Sino-foreign joint ventures, technology import and export, and contracts with a value exceeding certain thresholds in regulated industries. For foreign companies, relying on verbal agreements with Chinese partners creates substantial legal risk — proving the existence and terms of a verbal agreement in a Chinese court is challenging, and the statute of limitations for verbal contracts may be shorter in practice due to evidentiary difficulties. The prudent approach is to memorialize all material agreements in writing, even when the parties have a long-standing and trusting relationship.
Detailed Answer
Legal Basis for Verbal Contracts Under PRC Law
The PRC Civil Code adopts a broad and flexible approach to contract formation. Article 469 states: “The parties may conclude a contract in written, verbal, or other forms.” This provision reflects the civil law principle that the parties’ mutual assent — rather than compliance with formalities — is the essence of a binding contract. A verbal contract is formed when one party makes an offer and the other party accepts it, even if the acceptance is given verbally, through conduct, or through other non-written means. The key is the existence of a “meeting of minds” on the essential terms: the subject matter, quantity, price, and performance timeline.
The Supreme People’s Court has recognized the enforceability of verbal contracts in numerous judicial interpretations and guiding cases. In a 2020 guiding case, the SPC held that a verbal agreement between a foreign buyer and a Chinese supplier for the sale of goods was enforceable, even though the parties had not signed a written contract, because the conduct of the parties — delivery of goods, acceptance, and partial payment — demonstrated the existence of a contractual relationship. The court relied on the principle of good faith (诚信原则) and the parties’ actual conduct to fill in the gaps left by the absence of written terms. This case illustrates that Chinese courts are willing to enforce verbal contracts where the parties’ conduct clearly indicates the existence and basic terms of an agreement.
However, the legal recognition of verbal contracts does not mean they are as enforceable as written contracts in practice. The burden of proving the existence and terms of a verbal contract falls entirely on the party asserting the contract. Without written evidence, the claiming party must rely on witness testimony, circumstantial evidence, partial performance, or admissions by the other party. Chinese courts are generally cautious about accepting verbal contract claims, particularly when the amount in dispute is substantial or the alleged terms are complex. The court’s attitude is often summarized as “written evidence above verbal testimony” (书证优于人证) — documentary evidence carries more weight than oral testimony, and courts prefer corroborating documentary evidence even for allegedly verbal agreements.
Categories of Contracts That Must Be in Writing
The Civil Code and other PRC laws and regulations specify several categories of contracts that must be in writing to be enforceable. For contracts falling into these categories, a purely verbal agreement is void, and the parties cannot rely on the verbal agreement to establish their rights and obligations. The most important categories for foreign companies are:
Contracts involving real property must be in writing. This includes sales of real estate, leases of real property (particularly for terms exceeding six months), mortgages, and easements. A verbal agreement to buy or sell real estate in China is unenforceable regardless of the parties’ intentions. For commercial leases, while a verbal lease of less than six months may be enforceable, leases for longer terms must be in writing. Many foreign companies have learned this lesson the hard way after investing in leasehold improvements based on a verbal understanding with a landlord, only to find the lease unenforceable when a dispute arises.
Equity transfer agreements are subject to strict writing requirements. The transfer of equity in a Chinese company — whether a WFOE, joint venture, or domestic company — must be in writing and must comply with the company’s articles of association and the applicable provisions of the Company Law. A verbal agreement to transfer equity is void, and the intended transferee has no legal claim to the equity even if it paid consideration. This requirement is designed to protect third parties who rely on the company’s registered shareholder register and to ensure compliance with foreign investment and industry access rules.
Sino-foreign joint venture contracts and cooperative venture contracts must be in writing and must be approved by the relevant authorities. The Law on Sino-Foreign Equity Joint Ventures and the relevant implementing regulations specify that the joint venture contract, the articles of association, and all material amendments must be in writing and approved by the Ministry of Commerce (MOFCOM) or its authorized local counterpart. A verbal agreement between the joint venture partners regarding management rights, profit distribution, or technology licensing is void and cannot be enforced against the joint venture or its other shareholders.
Technology import and export contracts must be in writing and registered with the relevant authorities. China’s Technology Import and Export Regulations require that contracts for the transfer or licensing of patents, know-how, software, and other technology from foreign to Chinese entities must be in writing and registered with the Ministry of Commerce. Verbal technology licensing agreements are void, and the foreign technology provider has no right to royalties or other compensation under an unregistered verbal agreement. This is a particularly dangerous trap for foreign companies that engage in verbal discussions about technology sharing before a formal written agreement is signed — if the Chinese partner uses the technology based on a verbal understanding, the foreign company may have no legal recourse.
Guarantee and surety agreements must be in writing. Under the Civil Code’s security provisions, a guarantee contract must be in writing to be enforceable. This means that a verbal promise by a Chinese parent company to guarantee its subsidiary’s obligations, or a verbal personal guarantee by a Chinese individual, is unenforceable. Foreign companies should insist on a written guarantee agreement, executed by the guarantor’s authorized representative and affixed with the guarantor’s company seal (if the guarantor is a legal person).
Proving a Verbal Contract in Chinese Courts
For contracts that do not require writing, the party seeking to enforce a verbal agreement faces a significant evidentiary burden. Chinese courts follow a “preponderance of evidence” standard for civil cases, meaning the claiming party must convince the court that the existence of the verbal agreement is more likely than not. In practice, courts look for corroborating evidence that supports the claimed verbal agreement.
Partial performance is the strongest form of corroborating evidence. If one party has delivered goods, provided services, or made payments consistent with the alleged verbal agreement, the court will infer that an agreement existed. Documentary evidence of partial performance — invoices, delivery receipts, payment records, bank statements — is particularly persuasive. For this reason, foreign companies that find themselves in a relationship based on verbal agreements should create documentary trails for all payments and deliveries, even if no written contract exists.
Written communications between the parties that reference the verbal agreement can also support its existence. Emails, WeChat messages, letters, and notes that mention the terms of the agreement — even if they do not constitute a formal contract — can be introduced as evidence. WeChat messages are increasingly accepted by Chinese courts as evidence of contractual agreements, provided their authenticity can be verified. Foreign companies should be careful to preserve all written communications with Chinese partners, as these may be the only evidence of the parties’ intent if a dispute arises.
Witness testimony can support a verbal contract claim, but Chinese courts give less weight to witness testimony than to documentary evidence. Witnesses who are independent third parties — not employees or affiliates of the claiming party — are more credible than interested witnesses. Written witness statements prepared in advance carry less weight than live testimony subject to cross-examination. For significant verbal agreements, foreign companies should consider recording relevant conversations (subject to China’s consent-to-recording laws, which require the consent of at least one party to the conversation) or confirming the agreement in writing after the verbal discussion.
Admissions by the opposing party are the most powerful evidence of a verbal agreement. If the Chinese partner has acknowledged the existence of the verbal agreement in any written communication — even in a context where it is disputing particular terms — the court may treat this as conclusive evidence of the agreement’s existence. Similarly, if the Chinese partner has partially performed under the alleged agreement, this constitutes a de facto admission. Foreign companies should document any admissions by the counterparty regarding the existence or terms of a verbal agreement.
Strategic Considerations for Foreign Companies
Given the legal enforceability but practical difficulty of proving verbal contracts in China, foreign companies should adopt a prudent approach. The single most important rule is: get it in writing. For any commercial agreement with a Chinese partner, insist on a written contract signed by both parties and sealed with the Chinese partner’s company seal. This applies to all material agreements — supply agreements, distribution agreements, service agreements, licensing agreements, confidentiality agreements, and amendments to existing agreements. The cost of drafting a written contract is a small fraction of the cost of litigating a verbal contract dispute.
For agreements that are concluded verbally in the normal course of business — such as purchase orders placed by telephone — follow up immediately with a written confirmation. Send an email or WeChat message confirming the terms discussed: “Confirming our telephone discussion today: we agreed to purchase 1,000 units of product A at RMB 500 per unit, delivery by August 30.” Request acknowledgment of the confirmation. If the counterparty responds without objecting to the terms, the written confirmation may be treated as evidence of the agreement, and in some cases may itself constitute a written contract.
Be particularly cautious about verbal agreements during the negotiation phase. Chinese business culture often relies on verbal understandings and face-to-face discussions as a prelude to formal contracting. While a verbal understanding during negotiations is not normally binding — because the parties have not yet reached final agreement — the line between negotiation and agreement can blur, particularly if one party begins partial performance based on a verbal understanding. Foreign companies should make clear in all pre-contractual communications that no agreement is binding until a written contract is signed by both parties.
Finally, be aware that the statute of limitations (诉讼时效) for contract claims under PRC law is three years from the date the party knew or should have known that its rights were infringed, under Article 188 of the Civil Code. For verbal contracts, this limitation period can be more difficult to establish because the date of breach may be less clear than in a written contract with specified performance dates. Foreign companies should not delay in asserting their rights under verbal agreements — the longer the delay, the more difficult it becomes to prove the agreement’s terms and the more likely the court will find the claim time-barred.
Exceptions and Special Cases
There are several exceptions and special cases that foreign companies should be aware of regarding verbal contracts in China. First, contracts concluded through conduct (事实合同) are distinct from verbal contracts and may be easier to prove. If the parties have consistently behaved as if a contract exists — regular deliveries, payments, and communications consistent with a trading relationship — a Chinese court may recognize a contractual relationship based on the parties’ conduct even without any verbal or written agreement. This principle is recognized in Article 490 of the Civil Code, which provides that a contract may be formed through conduct if one party has performed its principal obligations and the other party has accepted the performance.
Second, contracts for immediate performance (即时结清的合同) are often treated more leniently. Transactions that are performed and paid for immediately — such as buying goods at a retail store or paying for a service at the time of delivery — are typically valid even if only verbal or implied. The writing requirement applies primarily to contracts that create ongoing obligations or involve significant value transfers. However, even for immediate performance transactions, a written receipt or invoice is advisable as evidence of the transaction.
Third, the validity of a verbal agreement can be affected by the parties’ subsequent conduct even after a dispute arises. If the parties enter into a written settlement agreement that references the verbal agreement, the written settlement may be treated as confirmation of the underlying verbal agreement. Similarly, if the parties treat a verbal agreement as binding by performing under it for an extended period, the court may hold that the verbal agreement is enforceable under the principle of good faith and the prohibition of inconsistent conduct (禁止反言).
In conclusion, while PRC law recognizes verbal contracts as generally enforceable, the practical realities of proving and enforcing such agreements make written contracts the far safer choice for foreign companies operating in China. The Chinese legal system’s emphasis on documentary evidence, the strict writing requirements for certain categories of contracts, and the inherent ambiguity of verbal agreements create substantial risk for parties that rely on verbal understandings. The modest upfront cost of documenting agreements in writing is a small price to pay for the legal certainty and enforceability that written contracts provide.
China Gateway 360 provides remote China market entry support for foreign firms, including PRC contract law guidance, written agreement drafting, and ongoing compliance management. Contact our team for a consultation on your China contract needs.
