218 AM.U.INT'L L.REV. [15:209 parties from different countries."Provisions of the Convention and the Code may overlap to some extent.The operation of the Conven- tion,however,does not preclude the operation of the Code in all cir- cumstances.In fact,the Code may provide supplementary rules to the Convention where the Convention either:(1)expressly excludes coverage of certain matters;(2)is silent with regard to an area cov- ered by the Code;or(3)where the PRC has varied the provisions of the convention to give effect to the operation of certain provisions of the Code. Uncertainty in the meaning of "inconsistency"can also lead to joint operation of the Convention and Code in certain circumstances. For example,Article 21 of the Convention regulates the effect of a late acceptance of an offer.Under this provision,a late acceptance is effective if the offeror promptly informs the offeree of the former's intention to accept the late acceptance.On the other hand,if the of feror fails to respond to the late acceptance,the late acceptance is deemed to be invalid."Article 28 of the Code of Contract Law also regulates the effect of a late acceptance and,in effect,gives rise to a presumption that a late acceptance not accepted by the offeror con- stitutes a new offer."It is questionable whether this provision is con- sistent with Article 21 of the Convention for the two provisions can 32.See generally C.CIv.L.,supra note 3,art.142 (setting forth the choice of law rules). 33.See.e.g..Vienna Sales Convention,supra note 1,art.4(a)(providing that the Vienna Sales Convention is not concerned with determinations involving the validity of contractual provisions,such as exclusion clauses or of any commercial usage).Moreover,the Vienna Sales Convention expressly removes itself from con- sideration of the issues regarding the transfer of property in the goods sold.See id. art.4(b). 34.See,e.g..C.CoNT.L.,supra note 2,art.16(discussing a mode of receipt of offers,data-telex,which the Vienna Sales Convention does not address). 35.See id.art.21(1)(noting that the offeror may express his or her intention to accept the offeree's late acceptance either orally or through other means). 36.See id.(implying that without the offeror's acceptance,the offeree's late acceptance is ineffectual). 37.See id.art.28(providing that late acceptance by the offeree is regarded as a new offer,unless the offeror informs the offeree promptly of the former's accep- tance of the late acceptance)
AM. U. INTL L. REV. parties from different countries." Provisions of the Convention and the Code may overlap to some extent. The operation of the Convention, however, does not preclude the operation of the Code in all circumstances. In fact, the Code may provide supplementary rules to the Convention where the Convention either: (1) expressly excludes coverage of certain matters;"3 (2) is silent with regard to an area covered by the Code;14 or (3) where the PRC has varied the provisions of the convention to give effect to the operation of certain provisions of the Code. Uncertainty in the meaning of "inconsistency" can also lead to joint operation of the Convention and Code in certain circumstances. For example, Article 21 of the Convention regulates the effect of a late acceptance of an offer. Under this provision, a late acceptance is effective if the offeror promptly informs the offeree of the former's intention to accept the late acceptance. On the other hand, if the offeror fails to respond to the late acceptance, the late acceptance is deemed to be invalid. 6 Article 28 of the Code of Contract Law also regulates the effect of a late acceptance and, in effect, gives rise to a presumption that a late acceptance not accepted by the offeror constitutes a new offer. 7 It is questionable whether this provision is consistent with Article 21 of the Convention for the two provisions can 32. See generally C. Civ. L., supra note 3, art. 142 (setting forth the choice of law rules). 33. See, e.g., Vienna Sales Convention, supra note 1, art. 4(a) (providing that the Vienna Sales Convention is not concerned with determinations involving the validity of contractual provisions, such as exclusion clauses or of any commercial usage). Moreover, the Vienna Sales Convention expressly removes itself from consideration of the issues regarding the transfer of property in the goods sold. See i. art. 4(b). 34. See, e.g., C. CONT. L., supra note 2, art. 16 (discussing a mode of receipt of offers, data-telex, which the Vienna Sales Convention does not address). 35. See id. art. 21(1) (noting that the offeror may express his or her intention to accept the offeree's late acceptance either orally or through other means). 36. See id. (implying that without the offeror's acceptance, the offerec's late acceptance is ineffectual). 37. See id. art. 28 (providing that late acceptance by the offeree is regarded as a new offer, unless the offeror informs the offeree promptly of the former's acceptance of the late acceptance). [15:209
1999] PRC CODE OF CONTRACT LAW 219 lead to different consequences if more communications between the parties follow the dispatch of the late acceptance.Legal liability may arise under the Code,from the new offer and subsequent communi- cations between the parties.Whether or not the possibility of such consequence amounts to inconsistency between the Convention and the Code is unclear.Overlapping between the Convention and the Code or joint operation between them is possible in such cases.Ac- cordingly,the position of priority to the Convention,granted in Arti- cle 142 of the GPCL,may not offer answers to all possible relation- ships between the Convention and the Code.This Essay compares the Convention and the Code to examine both the consistencies and inconsistencies in terms of supplementary functions between them. III.THE MAKING OF A CONTRACT OF SALE UNDER THE CODE OF CONTRACT LAW A.OVERVIEW The making of a contract involves several aspects of contract law: the capacity of the parties to make a contract,the process of negoti- ating a contract,and the validity of a contract.The Vienna Sales Convention regulates the process of negotiating a contract,while the Code of Contract Law regulates the capacity and validity issues.The Code addresses the various matters affecting the formation of con- tracts in Chapter Two.These provisions are meant to serve as the general principles,not only to contracts for the sale of goods.but also to any other contracts regulated by the Code.In this sense,the Code provisions affecting contract formation are much more detailed than their counterparts in the Convention.where only ten articles regulate the formation of contract."The sections of the Code that regulate the validity of contracts,including the capacity to contract. 38.See id.arts.9-43. 39.See Vienna Sales Convention,supra note 1,arts.14-24 (setting forth the requirements under the Vienna Sales Convention for the proper formation of a contract). 40.See C.CONT.L.,supra note 2,arts.44-59 (providing the factors that must be used to determine whether a contract was established under the law and should be given effect)
PRC CODE OF CONTRACTLAW i19 lead to different consequences if more communications between the parties follow the dispatch of the late acceptance. Legal liability may arise under the Code, from the new offer and subsequent communications between the parties. Whether or not the possibility of such consequence amounts to inconsistency between the Convention and the Code is unclear. Overlapping between the Convention and the Code or joint operation between them is possible in such cases. Accordingly, the position of priority to the Convention, granted in Article 142 of the GPCL, may not offer answers to all possible relationships between the Convention and the Code. This Essay compares the Convention and the Code to examine both the consistencies and inconsistencies in terms of supplementary functions between them. III. THE MAKING OF A CONTRACT OF SALE UNDER THE CODE OF CONTRACT LAW A. OVERVIEW The making of a contract involves several aspects of contract law: the capacity of the parties to make a contract, the process of negotiating a contract, and the validity of a contract. The Vienna Sales Convention regulates the process of negotiating a contract, while the Code of Contract Law regulates the capacity and validity issues. The Code addresses the various matters affecting the formation of contracts in Chapter Two.38 These provisions are meant to serve as the general principles, not only to contracts for the sale of goods, but also to any other contracts regulated by the Code. In this sense, the Code provisions affecting contract formation are much more detailed than their counterparts in the Convention, where only ten articles regulate the formation of contract." The sections of the Code that regulate the validity of contracts,' including the capacity to contract, 38. See id. arts. 9-43. 39. See Vienna Sales Convention, supra note 1, arts. 14-24 (setting forth the requirements under the Vienna Sales Convention for the proper formation of a contract). 40. See C. CONT. L., supra note 2, arts. 44-59 (providing the factors that must be used to determine whether a contract was established under the law and should be given effect). 1999] 2 19
220 AM.U.INT'L L.REV. [15:209 do not have a counterpart in the Convention B.CAPACITY TO CONTRACT The capacity to contract under the Code is regulated by Articles 2, 9,and 47 through 50.These provisions are supported in large part by the applicable provisions of the GPCL,"which regulate the capacity of a natural person and the capacity of a legal person."Other or- ganizations"which can be a contracting party under Article 2 of the Code are not defined in the GPCL,seeing that it covers only the or- ganization that meets the requirements for a legal person under Chi- nese law.Attempts to define the capacity of such organizations may therefore result in disagreement.The absence of adequate definition creates some uncertainty in the application of the Code of Contract Law. The capacity to contract under the Code of Contract Law may be discussed from three perspectives:capacity of a natural person,ca- pacity of a legal person,and capacity of other organizations."The following is a summary of the capacity of the three aforementioned contracting party types based on an analysis of the GPCL and the Code.First,a natural person of at least eighteen years of age who does not suffer any mental disability is capable of entering into a contractual relationship on his or her own free will.The threshold age may,in certain circumstances,be reduced to sixteen years,"and 41.See John Mo,General Principles of Civil Law,in CHINESE LAW 95 (Wang Guiguo John Mo eds.,1999)(discussing,in depth,the civil capacity of a natural or legal person under the GPCL and a general review of the GPCL). 42.See C.CIv.L.,supra note 3,arts.9-15(covering the capacity of minors and individuals with mental illness). 43.See id.arts.36-53 (regulating the capacity of organizations,as well as state-owned and other enterprises). 44.See C.CONT.L.,supra note 2,art.2 (stating that a contract can be made between these individuals or entities). 45.See C.CIV.L.,supra note 3,art.11 (noting that eighteen year-olds are con- sidered adults with the ability to perform civil acts independently).See generally C.CONT.L.,supra note 2,art.9(stating that "parties shall have appropriate civil capacity of right and civil capacity of conduct."). 46.See C.CIv.L.,supra note 3,art.11 (providing that a sixteen year-old that supports himself or herself financially is deemed competent for the purpose of en-
AM. U. INT'L L. REV. do not have a counterpart in the Convention. B. CAPACITY TO CONTRACT The capacity to contract under the Code is regulated by Articles 2, 9, and 47 through 50. These provisions are supported in large part by the applicable provisions of the GPCL,4' which regulate the capacity of a natural person42 and the capacity of a legal person. 4 1 "Other organizations" which can be a contracting party under Article 2 of the Code are not defined in the GPCL, seeing that it covers only the organization that meets the requirements for a legal person under Chinese law. Attempts to define the capacity of such organizations may therefore result in disagreement. The absence of adequate definition creates some uncertainty in the application of the Code of Contract Law. The capacity to contract under the Code of Contract Law may be discussed from three perspectives: capacity of a natural person, capacity of a legal person, and capacity of other organizations." The following is a summary of the capacity of the three aforementioned contracting party types based on an analysis of the GPCL and the Code. First, a natural person of at least eighteen years of age who does not suffer any mental disability is capable of entering into a contractual relationship on his or her own free will.'5 The threshold age may, in certain circumstances, be reduced to sixteen years,46 and 41. See John Mo, General Principles of Civil Law in CHINESE LAW 95 (Wang Guiguo & John Mo eds., 1999) (discussing, in depth, the civil capacity of a natural or legal person under the GPCL and a general review of the GPCL). 42. See C. Civ. L., supra note 3, arts. 9-15 (covering the capacity of minors and individuals with mental illness). 43. See id. arts. 36-53 (regulating the capacity of organizations, as well as state-owned and other enterprises). 44. See C. CONT. L., supra note 2, art. 2 (stating that a contract can be made between these individuals or entities). 45. See C. Civ. L., supra note 3, art. 11 (noting that eighteen year-olds are considered adults with the ability to perform civil acts independently). See generally C. CONT. L., supra note 2, art. 9 (stating that "parties shall have appropriate civil capacity of right and civil capacity of conduct."). 46. See C. Civ. L., supra note 3, art. 11 (providing that a sixteen year-old that supports himself or herself financially is deemed competent for the purpose of en- 220 [15:209
1999] PRC CODE OF CONTRACT LAW 221 even be as low as ten years old."A similar rule is present in the common law principles of contract relating to purchase of necessar- ies by a minor."Children under ten years of age are deemed,how- ever,to have no capacity to contract in the PRC."The fixed thresh- old of ten years old differentiates the Chinese law goveming the capacity of a minor from the comparable common law rules where such a definite threshold is not found.A person with "limited civil capacity"is only capable of understanding the nature and conse- quence of some of his or her own acts and may enter into certain contractual relationships appropriate to his or her mental state.The validity of a contract made by such a person is normally conditioned on the retrospective approval of the person's legal agent or guardian, unless the contract is merely beneficial to such person or is appropri- ate for his or her age,intelligence and mental state."A natural person who is represented by an agent in the making of a contract is not li- able for any act of the agent that exceeds the agent's authority,un- less the act is supported by an ostensible authority that was reasona- tering into a contract). 47.See id.art.12(implying that a ten year-old may conclude certain contracts suitable for one of his or her age and intelligence). 48.See generally Fawcett v.Smethurst,84 L.J.K.B.473(1914)(holding that a minor who rented a car that was damaged in his care was not liable to its owner because of "onerous,"a contract term placing the car at the minor's risk;absent this term,the court said,the hiring of the car,if considered necessary,thereby cre- ated liability for the minor defendant);see also Ryder v.Wombwell,4 L.R.-Ex.32 (1868)(holding that a minor who had not paid for items of jewelry and a goblet supplied to him was not liable for their value to the plaintiff because they were not "necessaries").The Wombwell court discussed the general rule of law in England that an infant cannot bind himself by contracting with another,unless the contract is one for“necessaries..”See id.at38. 49.See C.Crv.L.,supra note 3,art.12 (requiring that children below the age of ten years must in all circumstances have legal representation). 50.See id.art.13(requiring that in all other contractual transactions,the per- son of limited competence must be represented by his or her legal representative). 51.See C.CoNT.L.,supra note 2,art.47 (providing that a good faith con- tracting party may withdraw from his or her contract with a person of"limited civil capacity"before the contract is ratified). 52.See id.art.48 (including those acts by an agent whose term of agency had expired at the time of contract)
PRC CODE OF CONTRACTLAWir even be as low as ten years old."' A similar rule is present in the common law principles of contract relating to purchase of necessaries by a minor." Children under ten years of age are deemed, however, to have no capacity to contract in the PRC." The fixed threshold of ten years old differentiates the Chinese law governing the capacity of a minor from the comparable common law rules where such a definite threshold is not found. A person with "limited civil capacity" is only capable of understanding the nature and consequence of some of his or her own acts and may enter into certain contractual relationships appropriate to his or her mental state.!' The validity of a contract made by such a person is normally conditioned on the retrospective approval of the person's legal agent or guardian, unless the contract is merely beneficial to such person or is appropriate for his or her age, intelligence and mental state." A natural person who is represented by an agent in the making of a contract is not liable for any act of the agent that exceeds the agent's authority,'2 unless the act is supported by an ostensible authority that was reasonatering into a contract). 47. See id. art. 12 (implying that a ten year-old may conclude certain contracts suitable for one of his or her age and intelligence). 48. See generally Fawcett v. Smethurst, 84 L.J.K.B. 473 (1914) (holding that a minor who rented a car that was damaged in his care was not liable to its owner because of "onerous," a contract term placing the car at the minor's risk; absent this term, the court said, the hiring of the car, if considered necessary, thereby created liability for the minor defendant); see also Ryder v. Wombwell, 4 L.R.-Ex. 32 (1868) (holding that a minor who had not paid for items of jewelry and a goblet supplied to him was not liable for their value to the plaintiff because they were not "necessaries"). The Wombwell court discussed the general rule of law in England that an infant cannot bind himself by contracting with another, unless the contract is one for "necessaries." See id. at 38. 49. See C. CIv. L., supra note 3, art. 12 (requiring that children below the age of ten years must in all circumstances have legal representation). 50. See id. art. 13 (requiring that in all other contractual transactions, the person of limited competence must be represented by his or her legal representative). 51. See C. CONT. L., supra note 2, art. 47 (providing that a good faith contracting party may withdraw from his or her contract with a person of "limited civil capacity" before the contract is ratified). 52. See id. art. 48 (including those acts by an agent whose term of agency had expired at the time of contract). 1999]
222 AM.U.INT'L L.REV. [15:209 bly relied upon by a bona fide third party.The presumption of an ostensible authority in the Code of Contract Law is an innovation in the principles of agency law and appears to have no basis in the GPCL which is deemed to be the foundation for all civil and com- mercial laws in the PRC."Amendment of the GPCL's rules of agency may only be a matter of time.The foregoing principles also determine whether a contract governed by the Vienna Sales Conven- tion,which is silent on these matters,was made by persons with the capacity to contract. Second,a legal person under Chinese law is an organization that is capable of enjoying and exercising civil rights,as well undertaking and performing civil duties independently.A legal person,there- fore,must:(1)be established pursuant to the law;(2)have the nec- essary property or funds;(3)have its own name,organization,and place of business;and(4)be capable of undertaking civil liability independently.A legal person can be an institution set up under the relevant law;or alternatively,one that meets the aforementioned re- quirements.A legal person may also be required to register with the relevant government authority if the law so prescribes."A partner- ship or a joint operation constituting a new economic entity and sat- isfying the four requirements shall be regarded as a legal person un- 53.See id.art.49 (stating that an act of an agent,done without appropriate authority and falling outside authority or after the expiry of authority,is valid if it is reasonable for the party dealing with the agent to believe the existence of a valid authority). 54.See C.CIv.L.,supra note 3,arts.16-19,63-70 (setting forth the rules of agency and guardianship in the GPCL). 55.See id.art.36(noting that a legal person may contract with others immedi- ately upon its inception;and,conversely it loses the right to contract upon its ter- mination). 56.See id.art.37(11)(stating the first of four factors that must be satisfied be- fore an entity can be classified as a"legal person"). 57.See id.art.37(2). 58.See id.art.37(3). 59.See C.CIv.L.,supra note 3,art.37(4). 60.See id.art.50(noting that all government agencies,unlike all institutions or associations,enjoy automatic "legal person"status upon their establishment). 61.See id
AM. U. INT'L L. REV. bly relied upon by a bona fide third party. 3 The presumption of an ostensible authority in the Code of Contract Law is an innovation in the principles of agency law and appears to have no basis in the GPCL which is deemed to be the foundation for all civil and commercial laws in the PRC.54 Amendment of the GPCL's rules of agency may only be a matter of time. The foregoing principles also determine whether a contract governed by the Vienna Sales Convention, which is silent on these matters, was made by persons with the capacity to contract. Second, a legal person under Chinese law is an organization that is capable of enjoying and exercising civil rights, as well undertaking and performing civil duties independently." A legal person, therefore, must: (1) be established pursuant to the law; 16 (2) have the necessary property or funds;57 (3) have its own name, organization, and place of business;" and (4) be capable of undertaking civil liability independently. ' 9 A legal person can be an institution set up under the relevant law; or alternatively, one that meets the aforementioned requirements." A legal person may also be required to register with the relevant government authority if the law so prescribes. 6' A partnership or a joint operation constituting a new economic entity and satisfying the four requirements shall be regarded as a legal person Lin- 53. See id. art. 49 (stating that an act of an agent, done without appropriate authority and falling outside authority or after the expiry of authority, is valid if it is reasonable for the party dealing with the agent to believe the existence of a valid authority). 54. See C. Civ. L., supra note 3, arts. 16-19, 63-70 (setting forth the rules of agency and guardianship in the GPCL). 55. See id. art. 36 (noting that a legal person may contract with others immediately upon its inception; and, conversely it loses the right to contract upon its termination). 56. See id. art. 37(1 1) (stating the first of four factors that must be satisfied before an entity can be classified as a "legal person"). 57. See id. art. 37(2). 58. See id. art. 37(3). 59. See C. Civ. L., supra note 3, art. 37(4). 60. See id. art. 50 (noting that all government agencies, unlike all institutions or associations, enjoy automatic "legal person" status upon their establishment). 61. See id. [15:209