Meaning
A statutory provision in Chinese civil law governs the unilateral offset of matured mutual obligations of the same type. Under Article 568 of the Civil Code of the People’s Republic of China, a party may declare a set-off by notifying the other party when both debts are due and their subject matters are of the same nature. This legal mechanism operates without requiring the consent of the counterparty, provided the statutory conditions are met.
Statutory Condition
Mutual debts must be liquidated, due, and capable of performance before a party can execute this right. Under Article 568, the party exercising the set-off sends a written notice which takes effect upon arrival. The obligation does not require a court order to be discharged.
Operational Constraint
Set-off is barred if the nature of the obligation, the agreement of the parties, or specific statutory exclusions prevent it. In industrial supply transactions, Article 568 cannot be invoked if the contract explicitly prohibits unilateral offsets for raw material invoices. A party attempting an offset must verify the contract for such clauses.
Furthermore, obligations that cannot be seized or those involving personal performance are excluded from this mechanism. This ensures that essential supply lines are not disrupted by sudden unilateral accounting adjustments.
Enforcement Record
The execution of this right relies on clear proof of the delivery of the notice. Written records must establish that the counterparty received the notification. Courts in China inspect the delivery receipt to confirm the discharge of the debt.
