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1. Offer

In Article 14 of the Contract Law, an offer is defined as “a manifestation of an intent showing the desire to enter into a contract with others.” Thus, there are two elements that an offer must contain: a manifestation of intent and desire to make a contact with others. In addition, to constitute an offer, the intent so manifested must meet the two requirements set forth in Article 14:

(a) the contents shall be concrete and definite and (b) the offeror shall be bound by his manifestation of the intent upon acceptance by an offeree.2

For purposes of making an offer, the intent of offeror may be expressed either orally or in writing. It is unclear under the Contract Law whether the intent could also be inferred from the conduct of the offeror, but according to the scholarly interpretation, in the absence of express intent, such intent could be presumed though the offeror’s conduct in light of the usage of transactions.3 In other words, if it could be reasonably believed from the offeror’s conduct that the offeror has the intent to make a contract, a contractual obligation may arise upon effective acceptance by the other party.

In the west, there exist both subjective and objective tests for determining the intent. The subjective test focuses on the actual intent of the parties, while the objective test relies on the outward manifestation of a party’s intent. Simply put, the difference between the two tests is that under the subjective test, what really matters is what was intended rather than what a party reasonably believed was said and done.4 Literally, there are no such tests in China, but it seems that the Contract Law has made the actual intent an essential element of an offer because it stresses the “desire to enter into a contract with others.”

Chinese scholars have been debating on to whom the offer should be made. The center of the debate is whether the offer must be made to a specific (or identified) person. One opinion is that since an offer indicates the offeror’s intent to make a contract, the offer should be made to the specific person with whom the offeror wishes to deal, or otherwise it should not be deemed as an offer. The opposite opinion takes the view that the offeree may not have to be specific because in a market economy where the fair competition is the goal to achieve, an offer should not necessarily be limited to the specific person.5

2 See id., art. 14.

3See Wang Liming, Study on the Contract Law (Vol. I), 206–207 (People’s University Press, 2002).

4See Robert Scott and Jody Kraus, Contract Law and Theory (3rd Ed), 238–239 (LexisNexis, 2002).

5 See Wang Liming, supra note 3, at p. 208.

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Loosely speaking, the Contract Law does not require that an offer be made to specific person. The majority opinion, nevertheless, is in favor of the “specific person” doctrine though the specific person may not necessarily be just one person. According to the majority, the reason why the offeree must be specific is that unless the offeree is specific it will hardly predict who would be the intended person to whom the offer is made. On the other hand, if an offer is allowed to be made to a non-specific person, it may result in a dilemma in which the offeror would face multi contracts because it is very likely that the acceptance is made by several non-specific persons of whom the offeror may not even know.6

Further it is also argued that provision of offer in the Contract Law shall be construed with reference to Article 14 of the 1980 United Nations Convention on Contracts for the International Sale of Goods (CISG).7 Under Article 14(1) of the CISG, a proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. Article 14(2) explicitly provides that a proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.8

In addition, the Contract Law does not specify what would constitute “concrete and definite” contents that an offer must contain. In general, an offer would be considered concrete if it embraces the very basic items that are sufficient to form the contract. To determine whether an offer is definite would depend on how a reasonable person with general knowledge related to the specific industry or products would think. In other words, an offer would be deemed definite if the contents of the offer could be ascertained under the standard of ordinary person. According to some Chinese scholars, the “concrete and definite” would mean that the contents of an offer are clear enough to make the offeree understand not only the offeror’s true intent, but also the major terms that would be contained in the contract to be concluded.9

6 See Wang Liming, id at pp. 208–209.

7See Zhou Xiaoyan & Geyi, Comparative Analysis on the Contract Law of the People’s Republic of China, 49–50 (China Foreign Economic Relations and Trade Publishing House, 2003).

8See United Nations Convention on Contracts for the International Sale of Goods (1980), O.R. 178–190; Docy. Hist. 766–778.

9See Jiang Ping, Detailed Explanation to Contract Law of China, 14–15 (China University of Political Science and Law Publishing House, 1999).

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1.1. Offer and Invitation for Offer

We have already noted that an offer is “a manifestation of intent”. But not every manifestation of intent will constitute an offer. Thus it is important that in order to become an offer, the manifestation must be made to the effect that it is understood by other person that the intent so manifested is to ask for a deal making. If a manifestation of intent contains no clear indication to make a contract or it is simple to pass on business information or advertise products or services, the manifestation would not be considered as an offer.

A manifestation of intent that is not sufficient to be an offer is often labeled as an invitation for offer. The Contract Law has a special provision that explicitly involves invitation for offer. In Article 15 of the Contract Law an invitation for offer is defined as a manifestation of intent indicating the desire to receive offers from others. Article 15 further provides that price catalogs mailed or delivered, public notice of auction, invitation to bid, prospectus and commercial advertisements as such are invitations for offer.10 But, it should be noted that Article 15 has made an exception to commercial advertisement. Although in general the commercial advertisement is not an offer, it shall be deemed as an offer under Article 15 if its contents conform to the provisions regarding offer, namely “concrete and definite”.

A debatable question concerning advertisement is the advertisement for reward. In the context of the Contract Law, Article 15 covers only commercial advertisement. According to Advertisement Law of the People’s Republic of China (1994), the commercial advertisements refer to those for which a commodity producer or service provides pays, and by which the same, through certain media or forms, directly or indirectly introduces his commodities to be sold or services to be provided.11 Apparently, the advertisement for reward is not characterized as commercial one. Therefore, it becomes questionable as to what nature an advertisement for reward would have and what effect it will produce.

The debate on the advertisement for a reward divides Chinese contract scholars into two groups. One group argues that an advertisement for reward is an offer because it is made to the public to ask for performance as requested. Under this argument, to perform what the reward is set for will constitute an acceptance and a contractual relationship will be established when the performance sought by the reward is complete. But what seems unclear is

10See the Contract Law, art. 15.

11See Article 2 of Advertisement Law of the People’s Republic of China. The Advertisement Law was adopted on October 27, 1994 and took effect February 1, 1995.

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whether it is essential that the offeree complete performance with the knowledge of the offer in order to receive the reward.12

The other group disagrees. They argue that the contract theory of “mutual consent” does not apply to the advertisement for reward. Scholars in this group believe that a reward advertisement is not an offer but a unilateral conduct by which the advertiser makes request to the general public for specific performance. Under the unilateral conduct doctrine, once the advertisement for reward is made, the advertiser shall be bound by the advertisement regardless of the performer’s actual knowledge of the advertisement. In addition, since the advertisement for reward is not an offer, no acceptance is required. Therefore, the advertisement for reward may not be withdrawn after it is made and whoever completes the required performance will be entitled to the reward.13

The following case is illustrative as to how the reward advertisement is dealt with in the people’s courts.

Li Min v. Zhu Jinhua and Li Shao Hua

Tian Jin Intermediate People’s Court, 1984, reported in the Gazette of the Supreme People’s Court, II – 199514

On March 30, 1983, defendants Zhu Jinhua and Li Shao Hua went to Tian Jin Peace Theater for a movie. After the movie, Zhu Jinhua left behind in the seat his briefcase that contained the document for the delivery of a car and other items worth RMB 800,000. Zhu Jinhua was asked by defendant Li Shaohua to arrange for the delivery of the car on behalf of Luo Yang Electric Company in He Nan Province. Plaintiff found the briefcase in the theater. After the theater was empty and no body came back to claim the lost briefcase, plaintiff took it and had it kept in the custody of Wang Jia Ping who was a policeman (named as third party in the case). When Zhu Jinhua realized that the briefcase was lost, he tried to retreat it but was unsuccessful.

On April 4 and 5, Defendant Zhu Jinhua published a notice in the “lost and found” section of “Today’s Evening Paper” – a very popular newspaper in the City of Tian Jin. The same notice was also published in “Tian Jin Daily” on April 7. In the notice, Zhu Jinhua indicated respectively that whoever found and returned the briefcase would receive “a reward” and “significant award”. But nothing happened after the notice was made. April 12, defendant Li Shaohua who came to Tianjin from He Nan, published another notice in his name in the “Today’s Evening Paper” for the same purpose, in which the term “significant reward” was changed to “the reward of RMB 15,000 to the person who returns the lost briefcase within a week after the notice”.

12See Kong Xiangjun, Difficult Cases in Contract Law, Analysis and Legal Research, 93–94 (People’s Court Publishing House, 2000).

13See id.

14See Gazette of the Supreme People’s Court (1995).

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In the evening on April 12, plaintiff Li Min saw Li Shaohua’s notice in the newspaper. Li Min then told Wang Jiaping about the reward and asked him to contact Li Shaohua. On April 13, Wang Jiaping called Li Shaohua and two of them agreed to exchange the lost briefcase with the reward of RMB 15,000. When they met at the agreed place, however, defendants changed their mind and refused to give plaintiff RMB 15,000. After an unsuccessful mediation by a local police department, plaintiff brought the lawsuit against defendants for the RMB 15,000 in the People’s Court of He Ping District.

In his claim, plaintiff asserted that defendants’ failure to make payment of RMB 15,000 to plaintiff breached their obligation arising from the notice. Defendant Zhu Jinhua argued that because nobody responded to his notices in the newspapers on April 4, 5 and 7, they believed that the only way to make the finder of the lost briefcase to show up was to specify the reward amount. For that reason, Zhu Jinhua argued, the promise to give RMB 15,000 was not their true intent and therefore it was reasonable for them to refuse to pay. Defendant Li Shaohua contended that as a police, Wang Jiaping should not keep the lost briefcase in his custody, instead he should try to find the owner or turn the lost item over to relevant authority. Defendant Li Shaohua argued that since Wang Jiaping did not fulfill his duty, plaintiff’s request for the reward should be denied.

The trial court found that the document for the delivery of a car and other items in the lost briefcase belonged to Luo Yang Electric Company and were the property of the Company. Based on its findings, the court held that plaintiffs’ failure to find the owner or to turn the lost property over to the relevant authority was contrary to the public morals. According to the trial court, plaintiff should be able to find out who would be the owner of the lost property because the document and items in the briefcase clearly indicated the name of Luo Yang Electric Company. The trial court further held that as a policeman, Wang Jiahua should make all efforts to find the owner, and failure to do so constituted a violation of his duty. The trial court then denied plaintiff’s claim on the grounds that the monetary reward in the notice was not the manifestation of true intent of the dependents, and therefore should be held to have no legal effect.

On appeal, the Intermediate People’s Court of Tianjin reversed the trial court’s judgment. The Intermediate Court was of opinion that the trial court’s determination about “not the manifestation of defendants’ true intent” was not supported by sufficient evidence and lacked legal authority. In its reversal, the Intermediate Court held that in accordance with the basic principle of the General Principles of Civil Law of China, defendants’ notice indicating the reward and the money amount in the reward should be considered as legally valid.15

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It seemed that the Intermediate People’s Court of Tian Jin in Li Min case based its decision on the contract theory. The rationale underlying its holding was that an advertisement for a reward, once made, would create a right-obligation relationship between the party who makes the advertisement and the party who performs duty requested by the advertisement, and as long as this relationship

15The case was settled between the parties under the auspice of the Intermediate Court. Under the settlement, Plaintiff received a onetime payment of RMB 8,000.

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does not violate law in its formality and contents, it should be held valid. Therefore, if the reward advertiser fails to perform what he has offered in the reward advertisement, the offeree has the right to demand the offeror to perform. But the Court’s holding seemingly had implied that the offeree’s knowledge about the offer before the offeree’s performance would be irrelevant.

Another noteworthy point is the distinction between offer and invitation for offer because sometimes the two are so closely intertwined that it is difficult to differentiate one from the other. For example, Article 16 of the Contract Law on the one hand regards commercial advertisement as an invitation for offer, and on the other hand intends to treat some commercial advertisements as offers by exceptions. This is a typical reflection of the open-ended nature of the matter as to what would be an offer and what would be an invitation for offer.

In an attempt to help draw a line between offer and invitation for offer, Chinese contract law scholars have been making efforts to provide a guideline doctrinally for this matter. Although scholars differ from each other in what should be included in the guideline, a general consensus is that the following tests should help tell offer from invitation for offer.16

The first test is the test of intent. Under this test, the question concerning an offer or an invitation for offer is to be determined by looking at the intent manifested by the party. If a party indicates, orally or in writing, that he will be bound by the terms and conditions in the proposal for a deal, the proposal shall constitute an offer. If however, the proposal only states the party’s intent to invite other party to make an offer, the proposal is not an offer. Such intent may also be determined by the party’s conduct or specific statement. For instance, if the phrase “for reference only” is being used, no offer is made. Similarly, when there is a statement saying that the proposal so made shall not be interpreted as an “offer,” then there is no offer.

The second test is to look at whether the contents of a proposal contain major terms of a contract. If the proposal has specified the major terms, it would imply that the party making the proposal intends to enter into a contract with others, and the proposal is made to invite an acceptance. The reason is that an offer is aimed at making a contract with others while an invitation for offer only represents an early stage of preparation for negotiation. For purposes of making an offer, the major terms generally include name, price, quantity as well as specification of the object (e.g. a certain product).

16Generally, see Wang Liming, Study on the Contract Law, supra note 1 at pp. 213–222; Kong Xiangjun, Difficult Cases in Contract Law, Analysis and Legal Research, supra note 10 at pp. 63–64; and Yang Lixin, Implementation and Application of the Contract Law, 39–40 (Jilin People’s Publishing House, 1999).

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However, even if the proposal contains the major terms, when the party making the proposal explicitly single out in the proposal that he will not be bound by the terms of the proposal or the terms need to be further negotiated, the proposal shall still not be regarded as an offer.

The third test concerns the usage of the transactions in the industry or the prior dealings between the parties. This test essentially focuses on the history of business dealings and the common practices in the said transactions. As an example illustrative of this test, assume that party A and party B have been engaged in purchasing certain product for quite a long time, and assume also that the specification and price of the product have never been changed during their previous dealings. Under this circumstance, if party A proposes to buy the same product from party B without stating specification and price but only the quantity amount, the party A’s proposal will then be deemed as an offer though in normal situation it will not.

The forth test is the provision of law. If there is a clear indication in the law as to what should be considered as an invitation for offer, the law must be followed. For instance, in Article 15 of the Contract Law, price catalogs mailed or delivered, public notice of auction, invitation for bid, prospectus are explicitly listed as invitation for offer. Also, as a practical matter, the commercial advertisement is generally deemed as invitation for offer. But since the Contract Law is being criticized to be vague in what would constitute an exception to the commercial advertisement, scholars are trying to identify the situations under which invitation for offer could be more clearly defined. One proposal suggests that the manifestation of the intent made by the supplier through public advertisement or price catalog or display for purposes of supplying product or service at the special price shall be presumed as an offer.17

On June 1, 2003, the Supreme People’s Court issued the “Explanations to Several Questions Concerning the Application of Law in Adjudicating the Disputes Arising from the Contracts for Sales of Commercial Housing”.18 In the Explanations, the Supreme People’s Court attempts to classify as an offer certain advertisement for the sale of housing. According to the Supreme People’s Court, the advertisement or advertising materials for sale of housing are generally the invitation for an offer. However, if the said advertisement or advertising materials contain specific and certain illustration and promises

17See Liang Huixing, Proposed Draft of the Civil Code of China, Art. 845. 165 (Law Press, 2003).

18The term “commercial housing” (Shang Pin Fang) means the housing available for sale on the market, and most of them are residence housing. The housing in China used to be allocated by government or work units to the users but now the government or units allocated housing are being replaced by commercial housing.