Chapter Six	195

With regard to the parties to the contract, the remedies as a result of avoidance of a contract are not available in the case where the contract is void for malicious collusion to damage the interests of the State, a collective or a third party. In this situation, the property acquired shall be subject to the State confiscation. It is provided in Article 59 of the Contract Law that if the parties have maliciously conducted collusion to damage the interests of the State, a collective or a third party, the property so obtained shall be turned over to the State or returned to the collective or the third party. Obviously, it is to impose sanction on the wrong doers for the public policy concern.

6. Conditions Affecting the Validity of Contacts

When making a contract, the parties may agree to attach certain conditions on which the contract would be affected. Distinctively, the conditions for a contract in China are tied to effectiveness of the contract, which means that upon the occurrence or non-occurrence of the agreed conditions, the contract may take effect or become null and void. In this sense, a condition may be deemed as a limitation on the validity of the contract. To compare, conditions in American contract law are related to performance. Section 224 of the Restatement of Contracts (2nd) defines the condition as “an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.”79 In China, however, conditions are associated with the effect of contract.

In the Chinese contract literature, a condition is generally defined as the uncertain future fact. A popular view is that a condition as used in contract is an auxiliary clause that is based on the occurrence of uncertain fact to determine the effectiveness of the contract. Thus, for a fact to become a condition, it is required that (a) at the time of contract the occurrence of the fact was uncertain (the past or existing fact is not a condition), (b) the occurrence of the fact is possible (the fact that will never occur or will definitely occur is not a condition), (c) it is unpredictable or uncertain as to when the fact will occur,

(d)the fact is chosen by the parties, not the one provided by the law, and

(e)the fact is legal.80 The Supreme People’s Court is also of opinion that a conditional civil act shall be deemed invalid if the condition is in violation of the law or impossible to happen.81

79See the Second Restatement of Contracts, § 224.

80See Jiang Ping, supra note 55 at p. 36.

81See Supreme People’s Court, Opinions, supra note 9, art. 75.

196 Chinese Contract Law

In addition, the condition in China is divided into effecting (or entry-into- force) condition and dissolving (or come-to-a-stop) condition.82 The effecting condition is the one without which a contract would not take effect. The dissolving condition is just the opposite, and it refers to the one with which the contract would be dissolved. Under Article 45 of the Contract Law, the parties may agree on the conditions upon which the effectiveness of contract is contingent. The contract with an effecting condition shall take effect when such condition is satisfied. The contract that has a dissolving condition shall become null and void at the time such condition takes place.

With an effecting condition, the validity of a contract is contingent upon the occurrence of the condition. If the condition occurs, the contract will become effective, or otherwise the contract will remain ineffective. Because the effecting condition affects the effectiveness of the contract, it is also called “suspensive condition” or “postponement condition.” The very basic idea, as the term itself suggests, is that if an effecting condition is attached to the contract, rights and obligations of the parties are ascertained at the time of contract, but the effectiveness of the contract is suspended (or postponed) until the occurrence of the condition. For example, A asked B to contribute RMB 10 Yuan to buy lottery tickets, and A told B, to which B agreed, that if any of the tickets wins the lottery, they will equally share the prize. Thus there was a contract between A and B to share the money won from the lottery, and the effecting condition is the “winning ticket.” Hence, the contract will not take effect until they have the winning ticket.

A dissolving condition applies to the contract that has taken effect, but when the condition occurs the contract will cease to be effective. Because the dissolving condition determines continuity of the validity of contract, it also named as extinguishing condition, which means that the validity of the contract will be extinguished upon the occurrence of the condition. For example, assume that A agreed to rent his apartment located in the City S to B, and in the lease agreement, B agreed that if C returns to City S, the lease will be terminated. In this situation, the C’s return to City S is the condition upon which the lease agreement between A and B is to be dissolved. Therefore, whenever C returns to City S, the contractual relationship between A and B will be extinguished because the agreed condition is satisfied.

82In American contract law, the condition is classified as condition precedent, concurrent condition and condition subsequent. As Professor Rosett pointed out, condition precedent is en event that must exist or occur before a duty of immediate performance of promise arises. Where the occurrence of an event extinguishes an existent immediate duty to perform, the condition is said to be subsequent. A condition is concurrent if a party’s duty to perform is conditional upon a simultaneous tender of performance by the other. See Rosett & Bussel, Contract Law and Its Application (6th ed.), 693–695 (Foundation Press, 1999).

Chapter Six	197

As far as the form of the agreed condition is concerned, the Contract Law contains no indication about whether the condition must be made expressly or it could be implied. But it might be concluded that if there is a condition, the condition shall be expressed in the agreement because the language of Article 45 of the Contract Law seems to only recognize the condition that agreed by the parties. There is a policy issue in Article 45 as well, which is that the parties are prohibited from manipulating the condition. Under Article 45, if a party, for its own benefit, prevented the condition from occurring without justification, the condition shall be deemed to have occurred, and conversely, if a party unjustly made the condition to occur, the condition shall be regarded as having not occurred.83

In addition to the conditions, the Contract Law also allows the parties to subject the validity of the contract to a time period. A contract to which a time limit is attached means that the validity of the contract is to be affected by the expiration of the time period. Like the condition, the time period is also split into effecting time and dissolving time. Under Article 46 of the Contract Law, the parties may agree on a time period to be attached to the effectiveness of the contract. A contract subject to effecting time period shall be effective when the period expires, and a contract subject to dissolving time limit will become ineffective when the period comes to an end.

The commonality between the time period and the condition is that both are the facts affecting the validity of the contract, but they are different in that the condition is an uncertain fact at the time of contract, while the time period is a certain fact at the time of contract. The certainty of the time period means that the parties knew when concluding the contract that the time would come at the particular point. Assume that A enters into a contract with B to deliver certain goods from A to B. In the contract the parties agree that the contract will ends on the day of the opening ceremony of the 2008 Olympic Game in Beijing. The contract then has a time period because the “2008 Olympic Game” is the event that has a fixed day to open and therefore is certain. If, however, it is agreed that the contract will end on A’s birthday next year, and then the “A’s birthday next year” is not a time period but a condition because A may die anytime before his next birthday, and thus the upcoming “birthday” is uncertain though the actual date of A’s birthday is known.

Note also that the time period attached to a contract is different from time period for performance. As discussed above, the time period attached to a contract concerns the validity of the contract because the contract may become effective or stop being effective upon the expiration of the period. The time period provided for performance, however, deals with the tender of the duty to each other between the contracting parties after the contract takes effect.

83 See the Contract Law, art. 45.

Chapter VII

Performance of Contracts

Contract performance concerns the accomplishment of legal duties or obligations that become due as agreed upon by the parties under the contract. Termed as the conduct of fulfilling contract obligations, performance in China is deemed as the core of contract law because it involves both the completion of the promised obligations and realization of the expected rights. Under the Contract Law, a contract, once it becomes effective, must be properly and completely performed.

At the threshold of discussion, three points need to be stressed. First, as previously discussed, the law in China has a marked tradition of civil law, where statutes play a dominant role. Partly influenced by this tradition, legal principles derived from the statutes are always the center of discussion. It is a very common phenomenon in China that the legal principles are the major content of almost every law textbook. Therefore, this chapter will begin with a review of the principles that govern the performance of contract. Second, the contract performance, as provided in the Contract Law, involves many rules that are typically civil-law-based. It is then conceivable to see the wide difference between civil law and common law in the area of the contract performance. Third, the contract performance, though in principle covered in the General Provisions of the Contract Law, is in great detail prescribed in the Special Provisions of the Contract Law with respect to specific contracts. Our focus, however, is still on the general provisions.