On June 23, 2009, Company B signed a “Joint Exploration Contract for the Prospecting of a Certain Gold Mine” with a certain Armed Police Gold Detachment. The contract stipulated that the Armed Police Gold Detachment would be responsible for all exploration work, while Company B would bear the investment costs during the exploration period. Upon completion of the exploration, the two parties would jointly share the total mineral rights assets in the joint exploration area, with Company B’s share not exceeding 49%. Company B was required to pay a cooperation deposit of 2 million yuan to the Armed Police Gold Detachment. After successful filing of the contract, this deposit would be converted into Company B’s contribution to the joint exploration; if the contract failed to be filed successfully, the full amount of the 2 million yuan deposit would be refunded. Subsequently, due to restrictions imposed by the mining policies of a certain province, the joint exploration contract was not filed with the Provincial Department of Natural Resources and Land. On August 28, 2009, the two parties signed a “Letter of Intent” supplementing the original agreement: matters concerning future cooperation and transfer arrangements after 2010 would be negotiated separately, and the subsequent geological exploration work would be undertaken by the Armed Police Gold Detachment.

On January 18, 2013, Company B transferred the rights and obligations under the aforementioned Letter of Intent to Company A for a consideration of 10 million yuan and entered into a Mineral Exploration Rights Transfer Contract with Company A. The contract stipulated that the payment would be made in two installments: In the first installment, Company A would pay 5 million yuan upfront, and Company B would provide a power of attorney authorizing it to execute the “Mineral Exploration Rights Transfer Contract” signed with a certain Armed Police Gold Detachment, and would also urge that detachment to sign the mineral exploration rights transfer contract with Company A. The second installment of 5 million yuan would be paid within fifteen working days after the mineral exploration rights had been transferred and registered in Company A’s name and all relevant procedures had been completed.

On the same day that Company A and Company B signed the “Mineral Exploration Rights Transfer Contract,” Company A also signed a “Mineral Exploration Rights Transfer Contract” with a certain Armed Police Gold Detachment. On February 1, 2013, the transfer of mining rights was certified at the Provincial Land and Resources Trading Center. The parties agreed that the Armed Police Gold Detachment would transfer to Company A, in one lump sum, the mining rights to a certain gold mine along with the exploration results data. The total transaction price was 23.127 million yuan, of which 19.634 million yuan was to be paid to the land and resources authority as mineral exploration rights fees, and 3.493 million yuan was to be paid to the Armed Police Gold Detachment as the mineral exploration rights transfer fee. In August 2013, Company A filed a lawsuit in court, requesting the annulment of the “Mineral Exploration Rights Transfer Contract” it had signed with Company B on January 18, 2013, and ordering Company B to refund the 5 million yuan already paid and to cease any further payment of the remaining 5 million yuan.

This case primarily concerns whether the mineral exploration rights transfer contract falls under circumstances that render it revocable, as well as the handling of the transfer price following revocation. A revocable contract is one that, during the process of its conclusion, may be revoked pursuant to legal provisions because the parties’ expressions of intent were not genuine or resulted from a serious misunderstanding, leading to an erroneous expression of intent. The key legal characteristics of a revocable contract are as follows: (1) There is a defect in the parties’ expressions of intent; (2) A revocable contract remains valid until it is actually revoked; (3) The revocation of a revocable contract must be effected by the party entitled to revoke exercising their right of revocation; and (4) Any modification or revocation of a revocable contract must be decided by a people’s court or an arbitration institution. 　    

Article 54 of China’s Contract Law specifies three types of contracts that may be rescinded: (1) contracts entered into due to a fundamental misunderstanding; (2) contracts that are manifestly unfair; and (3) contracts entered into by one party through fraud, coercion, or exploitation of the other party’s vulnerable position, resulting in the other party entering into the contract against its true intention. Contracts entered into through fraud or coercion should be categorized into two types: one type involves contracts entered into by one party through fraud or coercion that harm national interests—such contracts should be deemed invalid; the other type involves contracts entered into by one party through fraud or coercion that do not harm national interests but instead only harm the interests of a collective or a third party—such contracts should be treated as rescindable contracts. According to Articles 58 and 59 of the Contract Law, a contract that has been rescinded shall have no legal effect from the outset.

The assignment of a contract refers to a situation in which one party to the contract transfers all or part of its contractual rights, contractual obligations, or both to a third party. Such an assignment constitutes a change in the parties to the contract—meaning that, without altering the substance of the contractual relationship, the identity of either the right-holder or the obligation-holder is modified. According to Article 88 of the Contract Law, with the consent of the other party, a party may assign both its rights and obligations under the contract to a third party. Although the contract in question is titled “Mineral Exploration Right Transfer Contract,” the rights and obligations specified for transfer in the contract between Company A and Company B are clearly set forth in the Letter of Intent, and do not give rise to any significant misunderstanding on the part of Company A. Therefore, the contract in question cannot be rescinded on the ground of substantial misunderstanding.

Although Company B paid a deposit of 2 million yuan when signing the joint exploration agreement with a certain Armed Police Gold Detachment, the contract was not filed with the Land and Resources Department of a certain province, and after signing the contract, the two parties did not proceed with any further joint exploration activities. Moreover, Company B failed to provide evidence to substantiate its investment and also failed to submit any reasonable basis for the pricing stipulated in the contract. Considering that the fair transfer price for the gold mining exploration rights involved in the case, as agreed upon between Company A and the same Armed Police Gold Detachment, was 3.493 million yuan, the 10 million yuan stipulated in the exploration rights transfer contract signed between Company A and Company B is nearly three times the actual transfer price paid by the true rights holder. This clearly constitutes an unfair arrangement and should therefore be revoked.

Article 58 of China’s Contract Law provides: “After a contract is declared invalid or revoked, any property obtained under the contract shall be returned; if such property cannot be returned or there is no need to return it, compensation shall be made at an equivalent value. The party at fault shall compensate the other party for any losses suffered as a result; if both parties are at fault, each party shall bear its respective share of responsibility.” In this case, although the “Exploration Rights Transfer Contract” signed between Company B and Company A has been revoked, both parties should mutually assume the obligation to return what they have received. However, since Company B was not the holder of exploration rights for a certain gold mine, the rights and obligations it transferred to Company A cannot be returned. Given that Company B has already paid part of the exploration rights maintenance fees and basic construction fees to a certain Armed Police Gold Detachment, and Company A, upon acquiring the contractual rights, should pay Company B a corresponding reasonable consideration—in reference to the 3.493 million yuan received by the Gold Detachment from the transfer of exploration rights—rejecting Company A’s claim that Company B should refund the 5 million yuan already paid does not prejudice Company B’s interests.