Research on the Judicial Application of Chinese Financial Regulatory Rules in Contract Validity Determination

Abstract

To maintain contractual autonomy and prevent excessive intrusion of public law into the private law domain, China's Civil Code should maintain basic hierarchical restrictions on normative documents intervening in the determination of juridical acts' validity. However, the financial sector involves significant national security concerns, risk prevention faces knowledge barriers, traditional regulation is inadequate, and specialized legislation has gaps. To implement the concept of penetrative financial regulation, financial regulatory rules should be allowed to intervene in the determination of financial contract validity. Constrained by the hierarchical limitations of China's Civil Code, past judicial practice has developed four referral pathways: performance obstacles, illegal purposes, violation of superior law authorization, and harm to public interests. The current mainstream referral pathway relies on Article 153(2) of China's Civil Code regarding invalidity due to violation of public order and good customs. As a "bridge" connecting public and private law, the principle of public order and good customs can indeed enrich and expand the civil law system. However, its drawbacks include a failure to distinguish between commercial and civil public order and good customs, leading to tendencies of oversimplified application, and inconsistent judgments in similar cases resulting in insufficient judicial stability. The innovation of this paper lies in proposing a legal customs pathway that provides a more certain and professionally tailored pathway. Unlike the uncertain and subjective application of public order and good customs, the legal customs pathway, based on Article 10 of China's Civil Code, establishes clear evidentiary standards and industry-specific professional norms. This dual-referral system with distinct primary-secondary hierarchy not only enhances judicial predictability but also respects the special nature of commercial transactions. To enable financial regulatory rules to intervene more scientifically and reasonably in the determination of commercial contract validity, Article 10 of China's Civil Code on legal customs sources can be utilized to innovate the "illegal invalidity" pathway. The professionalism of the financial industry requires its practitioners to have general trust in financial regulatory rules as important policy-oriented documents and to repeatedly apply them in transactions within a certain spatiotemporal scope. This indicates that compliance with financial regulatory rules is a customary practice in financial commercial transactions, meeting the elevation conditions for legal customs. Ultimately, contracts violating financial regulatory rules can be deemed invalid for violating legal customs. Its specific application model can refer to the evidentiary model for legal customs in the Supreme People's Court's Interpretation on Several Issues Concerning the Application of the General Provisions of China's Civil Code. The legal customs pathway can form a dual referral system with clear primary and secondary distinctions alongside the public order and good customs pathway, providing sufficient theoretical support for financial regulatory rules to intervene in the determination of commercial contract validity.