Introduction 9
4. Enactment of the General Principles of Civil Law
Before the TCL was adopted, the NPC passed the General Principles of Civil Law of the People’s Republic of China on April 12, 1986 (Known as 1986 Chinese Civil Code). There may have many reasons for the adoption of the Civil Code. The most compelling one was the need for a unified national legislation that regulates civil affairs (rights and obligations) taking place in the economic reform and establishes a common legal norm for the nation’s booming civil activities to follow.31 Another reason seemed to be that both the ECL and the FECL had provided useful experiences for the legislators to identify the legal issues involving civil matters and to regulate some of the civil matters in a relatively comfortable way.
Originally, a comprehensive civil code was intended. Between 1980 and 1982, four drafts of the civil code were made and all of them were named as “Civil Law of People’s Republic of China”. To be more specific, the 1980 draft (August 15, 1980) had 6 parts and 501 articles,32 and the 1982 draft (May 1, 1982) consisted of 8 parts and 465 articles.33 But at that time, many argued that it was still too early to adopt a comprehensive civil code because there were many uncertain factors arising from the on-going economic reform. As a compromise, therefore, a simplified civil code was adopted in the name of the “General Principles”.
It is typical in Chinese legislation process that no provision will be adopted unless and until the top legislators (mostly the members of the Standing Committee of the National People’s Congress) are sure that (a) the provision is not in conflict with the national policy (set forth by the Communist Party),
(b) substance of the provision is not too controversial and (c) the application of the provision will not cause any social unstability.
Nevertheless, the Civil Code, effective on January 1, 1987, was indeed the most important piece of civil law legislation in the modern China. It marked the new era of the Chinese civil law legislation, in which for the first time since 1949 China began to have its statutory civil law. According to Professor James Gordley at Boat Hall in Berkeley, “with the enactment of the Chinese Civil Code, systems of private law modeled on those of the West will govern nearly the entire world.”34 Though termed as General Principles, the Civil
31See Wang Jiafu, supra note 12 at pp. 24–25.
32See He Qinghua, supra note 10, Volume III at pp. 371–435.
33See id. at pp. 560–622.
34See James Gordley, the Philosophical Origins of Modern Contract Doctrine, 1 (Clarendon Press, Oxford, 1991).
10 Chinese Contract Law
Code from its adoption has become the very basic law that governs and regulates personal and property relationships between citizens, citizens and legal persons, and between legal persons.35
The Civil Code contains ten articles on contract, and most of these articles deal with principal rights and obligations pertaining to a contract. In common with the civil law tradition, the Civil Code characterizes contract as a major component of obligatio (Zhai). Originated in Roman law, the term obligatio refers to both rights and obligations (obligatio civilis) created by certain civil relations such as contract (obligatio ex contractu), torts (obligatio ex delicto), or unjust enrichment (obligatio quasi ex contractu).
Under the Civil Code, the obligatio is a special relationship of rights and obligations established between the parties concerned, under either the agreed terms (contract) or legal provisions (torts). The party entitled to the rights shall be the obligee (creditor), and the party assuming the obligations shall be the obligor (debtor).36 The Civil Code further provides that the obligee shall have the right to demand that the obligor fulfill his obligations as specified by the contract or stipulated by law.37
The Civil Code did have many flaws. In its provision dealing with the coverage of the Civil Code for example, there are two major issues that cause many criticisms. The first one is the use of citizenship to define the individual subject (person) of the civil relations. Article 2 of the Civil Code provides that the civil law of the People’s Republic of China regulates property and personal relationships between citizens, legal persons, and between citizens and legal persons of equal civil status.38 The problem is that by using the term “citizen”, it would limit the general application of the Civil Code to Chinese nationals. Also as many argued, the “citizen” is a constitutional or political term other than a civil legal term. The second issue is the miss-out of the nonlegal persons (e.g. partnership) as the civil subjects, which makes the coverage of the Civil Code actually incomplete.
35On April 2, 1988, the Supreme People’s Court issued “Opinions (Provisional) on Several Matters Concerning Application of the General Principles of the Civil Law of China”. The Opinions consist of 8 parts and 200 articles, which were deemed as the primary legal document guiding the courts all over the nation to deal with civil law matters. The Opinions were revised on December 5, 1990, and the revised Opinions contain 230 articles in total. A full context of the 1990 Opinions in Chinese is available at http://www.law-lib.com/ law/law_view.asp?id 15743.
36See General Principles of Civil Law of the People’s Republic of China (GPCL) art. 84. An English translation of the full text of the GPCL is available at http://www.qis.net/ chinalaw/prclaw27.htm.
.37 See id.
38 See id.
Introduction 11
5. The Unified Contract Law
The fast-going economic reform in China posed great challenges to the coexistence of different contract laws that caused difficulties in application. In 1993, the Standing Committee of the NPC decided to start drafting the Contract Law to unify the nation’s contact law regime. The first draft was submitted to the Legislative Affairs Commission of the Standing Committee of the NPC in January 1995. And then four drafts were made thereafter in October 1995, June 1996, May 1997 and August 1998 respectively. The August 1998 draft was also published nationwide for comments and suggestions from the public on September 7, 1998. The Standing Committee of the NPC then made four reviews of draft before it was submitted to the vote in the NPC’s General Assembly Meeting in March 1999.39
It is worth mentioning that during the drafting of the Contract Law, the Chinese legislative body, at the first time, invited scholars and lawyers from the west to offer comments and opinions. In October 1997 and December 1998, the Legislative Affairs Commission sent two delegations to the United States, Canada, the United Kingdom and Germany to visit universities, institutes, government agencies, courts, companies and law firms in these countries. The purpose of the visit was aimed at “directly taking foreign laws as references”.40 In addition, the Office of Legislative Affairs Commission also invited a group of American Lawyers in Beijing through Amcham – Beijing (American Chamber of Commerce in Beijing) to discuss the draft contract law and to offer advisory opinions on certain matters in the draft such as provisions on “offer and acceptance”.
The Contract Law consists of 23 chapters and 428 articles, which are divided into three parts, namely, General Provisions, Specific Provisions, and Supplementary Provisions.41 In the Specific Provisions, 15 types of the contracts are listed and addressed separately. Under the Chinese jargon, the 15 contracts listed in the Contract Law are the named contracts, and any others will then be deemed unnamed contracts.42 Literally speaking, the named contracts
39See Mo Zhang, Freedom of Contract with Chinese Characteristics: A Closer Look at China’s New Contract Law, 14 Temple Int’l & Comp. L. J. 2, 237(2000).
40See Wang Shengming, supra note 24 at pp. 102–103.
41The General Provisions cover purposes, applications, and principles of the Contract Law, formation, effect, performance, or termination of the contract, and remedies for breach of the contract. The Specific Provisions deal with 15 different contracts such as sales, technology, and transportation. The supplementary Provisions state residual matters such as effective day of the Contract Law as well as repeal of three existing contract laws.
42The 15 named contracts are: Sales; Supply and Use of Electricity, Water, Gas and Heating; Donation; Loans; Lease; Financial Leasing; Work; Construction; Transportation; Technology; Storage; Warehousing; Commission, Brokerage; and Intermediation.
12 Chinese Contract Law
are considered as being used more frequently than the unnamed contracts. With regard to the law applicable to the unnamed contracts, the Contract Law adopts a doctrine of “application by analogy”. According to Article 124 of the Contract Law, any contract that is not addressed explicitly in the Specific Provisions of this Law or in other laws shall apply the provisions of the General Provisions of this Law, and the most similar provisions in the Specific Provisions of this Law or in other laws.
Historically, as noted, the modern Chinese Law has a civil law (continental law) origin and many of legal principles contained in the Chinese legislation are rooted in Roman law, or more specific the German Law and Former Soviet Union Law (which has a French Law base). This scenario, however, seemed to have changed. As noted, in recent years, China has shown increasing interest in directly borrowing rules and legal concepts from common law system.43 The Contract Law typically reflects this trend.
Several changes can be seen from the Contract Law. First, the Contract Law itself is a hybrid of civil law and common law literature, though the civil law tradition still dominates. For example, the Contract Law adopts the concept of “anticipatory repudiation” which is borrowed from American contract law.44 Article 94 of the Contract Law provides that a contracting contract may rescind the contract if . . . (b) the other party to the contract expresses explicitly or indicates through its acts, before the performance period expires, that it will not perform its major contractual obligations. Article 108 further provides that where one party to a contract expresses explicitly or indicates through its conduct that it will not perform the contract, the other party may hold it responsible for the breach of contract before the performance period expires. More discussion about this article will be covered in other chapter of the book.
Another example is the provision of offer and acceptance, which is for the first time provided in the Chinese contract legislation.45 Under Article 13 of the Contract, parties shall enter into a contract in the form of an offer and acceptance. It is also provided in Article 14 that offer is a manifestation of
43The invitation of a group of US attorney in Beijing to discuss the draft contract was a clear signal that taking foreign law as reference has become a major part of the process of China’s legislation.
44See also Liming Wang, China’s Proposed Uniform Contract Code, 31 St. Mary’s Law Journal, 7, 7–17 (1999).
45Note that consideration is not required in making a contract in China. Therefore, a mutual assent through offer and acceptance needs not be supported by consideration in order for a contract to be valid.
Introduction 13
intention to make a contract with others, and its contents must be definite and certain with an indication that the offeror will be bound upon acceptance. Article 15 classifies as an invitation for offer the price quotation forms, auction notice, public notice for bids, prospectuses as well as commercial advertisements. Acceptance is defined in Article 21 as the manifestation of offeree’s assent to an offer.
Second, the Contract Law attempts to be more market-economy oriented than previous contract legislation that bore the marks of planned economy. China used to be a country of centrally planned economy where the government plans played decisive role in the nation’s economy. After its opening up to the outside world, China has made dramatic efforts in transforming from a panned economy to a market economy. Therefore, the Contract Law seems to diminish the idea that contracts are the vehicle of carrying on the state economic plan and the contracting parties are mandated to implement the state economic plan through the contracts.
On the other hand, however, the Contract Law remains to contain provisions of state-plan-related contract. An example is Article 38. It provides that the relevant legal persons or other organizations shall enter into contracts between them in accordance with their rights and obligations as stipulated by relevant laws and administrative regulations when the State issues a mandatory task or a State purchasing order upon necessity. Taken literally, application of Article 38 would have three limitations: (1) it only applies to legal persons or other organizations, not natural person; (2) the legal persons or other organizations must be those who are affected by the State task or purchasing order; and (3) the State task must be mandatory and the purchasing order must be made by the State.
Third, the Contract Law adopts provisions from international treaties or conventions in an effort to be in compliance with China’s treaty obligations and to be in line with the internationally accepted practices. For instance, Articles 17 (Withdrawal of Offer), 18 (Revocation of Offer), and 31 (Acceptance with Additional or Modified Terms) of the Contract Law are correspondingly in consistence with Articles 15 (b), 16 (a), and 19 (a)(b) of 1980 UN Convention on Contracts for the International Sale of Goods (CISG), to which China became a member in December 1986.
In addition, under Article 11 of the Contract Law, the written forms of contracts are referred to the forms that can display the described contents visibly, such as written contractual agreement, letters and electronic data text (including telegram, telex, fax, EDI and E-mails). This provision is basically originated from the 1996 E-Commerce Model Law of United Nations Commission on International Trade Law (UNCITRAL). More over, Chapter 9 (Contract for Sales) of the Contract Law is primarily rested on CISG as well as UNIDROIT Principles of International Commercial Contracts.
14 Chinese Contract Law
6. Adoption of the Ideology of “Governing the Country by Law”
The contract law legislation, though not systematically complete yet, may serve as an indicator that China has been making efforts trying to establish a rule-based regime for the civil matters. In fact, since early 1990s, there has been an increasing advocacy for construction of legal infrastructure in the nation, and the purpose of which is to promote the idea that the country shall be governed by law. From the viewpoint of the west, what lacks in China generally is the “rule of law” – a commonly used but poorly defined phrase in the west.46 From Chinese point of view, however, the preliminary stage for the rule of law is to have the laws, and China now is in that stage.47
Despite that the concept of the rule of law may differ between the east and the west, in China it normally refers to as “governing the country by law”. It is also the rhetoric that the modern Chinese leaders commonly use to differentiate themselves from the past, the Mao era in particular, when the country was actually ruled by men. There are four basic elements that are commonly defined in China as the core for a rule-based system, and the elements are:
(1) there must be laws to follow, (2) laws must be observed, (3) enforcement of laws must be strict, and (4) violation of laws must be dealt with.48
In order to manifest the commitment of the Chinese government to the ideology of “governing the country by law”, the Constitution of China (1982) was then amended on March 15, 1999. In the 1999 Amendment, article 5 of the Constitution (1982) is changed to include the following sentence: “ The People’s Republic of China is committed to governing the country according to law and building the socialist country ruled by law.”49 No matter how the language used here is to be interpreted, this Constitutional article is acclaimed in China to be the base on which the future Chinese legal system stands.50
Logically, therefore, to the extent that the country is to be ruled by law, the law of contract would play a vital role in regulating the civil affairs in the
46See Barry M. Hager, the Rule of Law: Defining it and Defending it in the Asian Context, the Rule of Law, Perspectives from the Pacific Rim published by the Mansfield Center for Pacific Affairs 1–10 (2000).
47See Xin Chunying, supra note 4 at pp. 338–353.
48See also Albert H.Y. Chen, Toward A Legal Enlightenment: Discussion in Contemporary China on the Rule of Law, the Rule of Law, Perspectives from the Pacific Rim published by the Mansfield Center for Pacific Affairs 13–14 (2000).
49See Article 5 of the Chinese Constitution (as amended 1999), the Constitution of the People’s Republic of China, (Law Press, 2000).
50See Yin Xiaohu, see supra note 11, at pp. 281–284.