Preface

With the vast growth of Chinese economy in the world for the past decades, the rising interest in Chinese law and legal system in the international community is fascinatingly accelerated. It is not only because the opening-up policy that China has been vigorously pursuing since 1979 has awaken the country that used to be commonly described by the west as the far-east “sleeping lion”, but also because there has been an increasing need generated by business drives as well as commercial and other interests in the west for actively dealing with China. However, partly due to the language barriers that prevent many in the west from knowing China on the first hand basis, and partly, perhaps most importantly, because the Chinese ideology and system to certain extent look fundamentally different from those with which people from west are familiar.

A British businessman and ambitious investor who worked in China for sixteen years trying to figure out the myth of the country encountered by foreigners was on the one hand amazed by the rapid changes that took place in China everyday, and on the other hand still from time to time found himself frustrated, desperately struggling for the glory that had been hoped. In his book, named ‘Mr. China”, he began his China story with the following very interesting comments:

“The idea of China has always exerted a pull on the adventurous type. There is a kind of entrepreneurial Westerner who just can’t resist it: red flags, a billion bicycles and the largest untapped market on earth. What more could they want? After the first few visits, they start to feel more in tune and experience the first stirrings of a fatal ambition: the secret hope of becoming the ‘Mr. China’ of their time, the zhongguo tong, or ‘Old China Hand’ with the inside track in the Middle Kingdom. In the end, they all want to be Mr. China. They want to be like Marco Polo roaming China as the emissary of the Kublai Khan. Or

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the first pioneering mill owners lolling about in the opium dens in Shanghai, dreaming of the fortune to be made if every Chinese would add an inch to his shirttails. . . . And of the countless businessmen who come to China with high hopes of the ‘billion three market’, how many long to become the ultimate China hand, the only outsider, the first and only laowai to crack China? But in the end, it’s an illusion.”1

For foreign lawyers, especially lawyers from the west, things become even more complicated. First of all, Chinese law and legal system look remote to them not in terms of geographical distance but in terms of legal substances. Many legal concepts that they deal frequently with at home may not be seen in Chinese law, and reversely there are legal terms that are common in China but may have no equivalent in any foreign legal system. Secondly, Chinese law and legal system are embedded with the tradition that evolved from the country’s several-thousand-year history and still affects the way the legal norms are observed and enforced. The most distinctive tradition is the Confucianism that greatly emphasizes the moral standards over the formal law. Thirdly, social and political structure of the nation, particularly the oneparty dominated government, sharply differentiates China from many other countries where the constitutional framework of separation of powers serves as the foundation on which the law and legal system are premised.

Therefore, knowing China is one thing, but understanding China is another. According to Professor John H. Merryman of Stanford, there are three highly influential legal traditions in the contemporary world, namely civil law, common law, and socialist law.2 China obviously is regarded as the country that falls within the category of “socialist law” tradition. Although the rationality of such division is subject to debates, the countries that seem to bear the “socialist law tradition” are clearly separated from the rest of the world. A remarkable nature of the “socialist law tradition” is, as described by many, its underlying attitude that all law is an instrument of economic and social policy.3 But despite the distinction, the “socialist law tradition” is characterized in general as the principles of socialist ideology plus civil law tradition, which was labeled as the product of the Russian October Revolution 1917.4

The modern Chinese law and legal system are, as a matter of fact, in an evolving stage without a definite model of tradition. Before 1949, China was in a nearly 40-year period (since 1911) of warlord chaos, anti-Japanese war and then civil law, during which the country was struggling both internally

1 See Tim Clissold, Mr. China, preface (Robinson, 2004).

2See John Henry Merryman, The Civil Law Tradition (2nd ed), 1 (Stanford University Press, 1985).

3 See id., at 4.

4 See id.

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and externally for peace and stability, and thus the development of law and legal system was barely in anybody’s mind although the Code of Six Laws (Liu Fa Quan Shu) was adopted by the nationalist government.5 After 1949 until 1979, China was dragged into nowhere by Chairman Mao’s philosophy of political struggle with a failed attempt to find a real socialist system for the country. Since 1979, the opening-door policy has led China to move toward prosperity. In the meantime, the country has been rebuilding its legal system under the doctrine of “Chinese reality with reference to foreign laws and legal systems”. As a result, numerous laws and regulations were adopted and many of them, as they can be easily discerned, were the mixture of legal rules and methodologies of different countries or legal systems.

But, in a broad sense, Chinese legal system has an origin of civil law tradition. It is mainly because in the modern history, China was strongly influenced by such civil law countries as Germany and Japan. In addition, in early 1950’s, China made all efforts to base its laws and legal system on the model of the former Soviet Union, which was basically still the French style civil law tradition. For example, in contrast to the common law countries where the court decisions are the major sources of law, China has a statutorily based legal system, which means that the courts, when making decisions, are primarily, if not only, bound by the statutes. Another example is the structure of the statute. Almost every major laws of China have a general part (also called general provisions) that addresses the general principles of the law and the principles are required to be applied crossly with the particular provisions of the law. This structural distinction has its root in German law (e.g. the German Civil Code).

Still, a common viewpoint from many foreign observers is that China is lack of the rule of law. However, it seems to be a misconception that China has no law at all despite that the term of the rule of law is being interpreted in different ways. The fact is that in the past two decades, China has been in the stage of mass legislation and as a result, thousand of laws in the form of statutes were adopted in the country. A closer look at the laws enacted by the National People’s Congress of China further reveals that many of the laws are well written both structurally and in substance. The major challenge facing China in the process of development of the rule of law actually is how to effectively enforce the laws. It would require China not only to build a system under which the laws will be fairly implemented, but also to establish a mechanism

5The Six Laws were Constitutional Law, Civil Law, Criminal Law, Civil Procedure Law, Criminal Procedure Law, and Administrative Law. Note that the early version of the Six Laws had Commercial law instead of Administrative Law.

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by which the public awareness of the importance of the observance of laws will be significantly increased.

This book is intended to provide an insight view of Chinese legal system through the law of contract for at least two reasons. First, the contract is the area where the basic economic order and business transactions structure of China are generally affected. It is also the area in which the effectiveness of the legal system of the country is tested. Second, contract law is one of the frontiers in China that often directly involve international business dealings and engage the people’s courts in dispute settlement process that has foreign litigants or foreign elements. Of course, the focus of the book is on the theories that are developed in China in all areas of contract and the practices in which the matters of contract are actually dealt with.

The book begins with a review of the legislative history of contract law in the country, and then moves onto an analysis on the Chinese nature of contracts. With regard to the contract system in China, all discussions in the book are primarily based on the Contract Law that was adopted in 1999. The Contract Law is divided into two parts: general provisions and specific provisions, but the book mainly covers the general provisions because the general provisions are deemed as the core of the Contract Law though the specific provisions have their significance as applied to each particular type of contract. From Chapter III, each chapter of the book has a special concentration on certain subject of the law of contract, such as formation, defenses, performance, assignment, breach and remedies, as well as third parties. The last chapter of the book addresses the issues in international contracts since those issues are provided separately in the Contract Law due to the foreign nature of such contracts.

An attempt is made to include as many cases as possible in the book to help illustrate how the Contract Law is applied in the people’s courts adjudicating contract cases. But keep in mind that case law is not an authoritative legal source in China because of its civil law tradition. And additionally, in the past, the cases rendered by the people’s courts were not published in the country. For the need of legal study and research, scholars had endeavored to publish certain selected cases, but many of these cases contained no name of the parties and the key facts were edited to avoid referring to the parties involved in the cases. The underlying notion was that a civil litigation between the parties was the private matter of the parties and was not supposed to be made public without the consent of the parties. Therefore, the cases decided by the people’s courts were not deemed as public records in China.

Even for the selected cases that were published, there was barely any reasoning in the court decisions. Historically, a typical Chinese people’s court decision was short and normally had three parts: statement of facts alleged by each of the parties and found by the court, statement of applicable provisions of law, and rulings of the court. What was lack then was the analytical reasoning

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on which the court relied to render its decision. There were at least two attributes to this phenomenon. First, since the court was not expected to make its decision available to anybody other than the parties, it would be practically easier for the court to just tell the parties what the decision is without giving any reasons. Second, in many cases the decision was actually determined by a trial committee in the court, not by the judge himself, and therefore it did not necessarily reflect the position or opinion of the judge himself who handled the case. Another concern in this regard was, perhaps, the appellate review of the case upon appeal. Since the reasoning would require the creative thinking of the judge, it might be the most obvious part subject to the review by the appellate court. In many courts, the rate of reversal by the appellate division served as an indicator of the merits of the performance of the judge.

Nevertheless, as part of its efforts for judicial reform, the Supreme People’s Court has been making a hard push in the judiciary for being transparent by requiring the people’s courts to do two things: (a) to make the court decisions public and (b) to add legal reasoning into the decisions. In April 2003, the Supreme People’s Court itself started to publish its decisions, and in the meantime the Supreme People’s Court periodically published as models the selected decisions made by lower people’s courts. According to the Supreme People’s Court, the purpose for doing this was, among others, to improve the quality of the writing of the judicial decisions and help maintain the impartiality of the judiciary by making the court decisions under the public review. In order to achieve this goal, it is critical that the judge through the legal reasoning tells why the decision shall be made in certain way.

At this point, however, not every case of all people’s courts is yet to be published. Therefore, a certain number of the cases used in this book were not published. But the good thing is that to get access to the unpublished cases from the courts now is generally not an offense to anyone. It then can be predicted that more and more cases will be published in China in the near future. In any event, it should, once again, note that no case at higher level of the people’s courts of China could become precedent to bind lower courts although the decisions made by the Supreme People’s Court may have strong effect of guidance to all people’s courts.

Mo Zhang

Summer 2005

Philadelphia / Beijing

Acknowledgements

Thanks to Professor Robert Reinstein, Dean of Temple University Beasley School of Law, who guided me into the field of academia and greatly inspired my interest in international and comparative law research and teaching, I found myself significantly benefited from the cross-culture studies in laws and legal systems. This book would obviously be impossible without his valuable advice and stimulating encouragement.

I am deeply indebted to Professor Jiang Ping of China University of Political Science and Law. It was him who opened up my mind to the beauty of legal study and research, and it was him who enlightened my desire to become a legal professional. My debt also goes to professor Jacques deLesile of University of Pennsylvania School of Law, from whom I have learned a great deal in the course of pursuing comparative legal endeavor.

I am particularly grateful to Jeff Dunoff, Klein Professor of Law of Temple University Beasley School of Law, who not only helps me effectively grasp the essence of complicated legal issues but also advises me how to write legal piece elegantly and precisely. Special appreciation is due to Professors Jane Baron and Eleanor Myers of Temple Law School for their thoughtful comments and advice. I also owe thanks to Charles Fishman, Adelaide Ferguson, Tarry Mahony, as well as Mary Cao with whom I have worked for many years, for their gracious support.

My deepest thanks go to my wife, Frances who deserves much more than a mere acknowledgement, and to whom I owe too much.