Chinese Civil Law (中国民法)

Target Readers

This book is intended for readers who are interested in Chinese civil law. The author tries to describe and interpret Chinese civil law in light of the latest legislation, case law, and legal doctrines. It may be of particular interest to lawyers, legal scholars, and law students all over the world. The author promises to update the book regularly in order to keep up with all the changes.

Citation Issues

• Citation of Primary Sources:

Please note that all the English translations of provisions of Chinese law and court decisions quoted or cited in this book are produced by the Lawinfochina (北大法宝), subject to some necessary revisions in the author's considered opinion. If you want to read the unrevised version of the English translations, please visit the Lawinfochina at <http://en.pkulaw.cn/>. If you intend to read the Chinse text of the legal provisions, please visit the Information Bank on Chinese Laws and Regulations (中国法律法规信息库) at <http://law.npc.gov.cn/FLFG/index.jsp>. You may also have access to the Chinese text of the court decisions at the China Judgements Online (中国裁判文书网) <http://wenshu.court.gov.cn/>. In each section, the most important legal provisions are quoted in a box for the purpose of highlighting while less important ones are directly quoted or cited in the main text.

• Citation of Secondary Sources:

Secondary sources (books, articles, etc.) cited in this book are listed in the endnote.

Abbreviations

• NPC (National People's Congress 全国人民代表大会)
• SC-NPC (Standing Committee of the National People's Congress 全国人民代表大会常务委员会)
• SPC (Supreme People's Court 最高人民法院)

Part 1 Introduction

Chapter 1 What Is Chinese Civil Law?

1. Defining Civil Law in the Context of China

In China, civil law (民法) is defined by statute in terms of the spectrum of social relationships that it intends to regulate. Article 2 of The General Provisions of the Civil Law of 2017 (民法总则) (hereinafter The General Provisions of 2017) provides as follows

Civil law governs the personal relationships and property relationships among civil subjects with equal status, that is, among natural persons, legal persons, and unincorporated organizations.

Based on this article, we can discuss some distinguishing features of Chinese civil law as follows:

(1) Private Law vs. Public Law

Law can be divided into two basic categories, i.e. public law and private law. According to the dominant doctrine in China, public law is intended to regulate those social relationships to which the state (or the governmental agency) is one of the two parties while private law shall regulate other social relationships. The former relationships can be referred to as "public law relationships" whereas the latter "private law relationships". Sometimes, however, the state (or the government agency) and a private entity may enter into a transaction as equal parties, meaning the former does not exercise any power over the latter. For instance, that a government agency purchases a small number of pencils from a nearby supermarket still falls into the category of private relationships. Nonetheless, if the agency intends to purchase an amount of goods that exceed the statutory limit, then the private contractual relationship will be transformed into an administrative contractual relationship to which The Government Procurement Law of 2002 (政府采购法) shall apply. The Government Procurement Law undoubtedly falls under public law in that the process of procurement is heavily regulated by the authorities and administrative punishments may be imposed on lawbreakers. Hence, the line between public law relationships and private law relationship may sometimes be very subtle.

Be that as it may, it is indisputable that civil law belongs to private law. This is because civil law is mainly aimed at balancing the interests of private entities with equal status, meaning in a civil law relationship neither of the parties can exercise any power over the other. The primary goal of the civil law is to promote 'autonomy of private law' (私法自治), which means that, in order to create a relationship of rights and obligations, individuals shall enjoy the power to make their own decisions and shall assume their own responsibilities accordingly.

Common examples of public law include, inter alia, The Constitution of 1982 (宪法), various administrative laws and regulations (e.g. The Government Procurement Law), and The Criminal Law of 1997 (刑法) .

The real benefit of making such a demarcation between public law and private law lies in the fact that there are different procedures for remedies in the event that a dispute arises. In case there is a dispute between civil subjects with equal status, they may settle the dispute out of court or file a civil litigation before the court in accordance with The Civil Procedure Law of 1991 (民事诉讼法). If private entities feel that their lawful rights and interests are infringed upon by a "concrete administrative act" (具体行政行为) on the part of an administrative organ or any civil servant thereof, they are entitled to either apply for administrative reconsideration (行政复议) to the competent authorities or file an administrative action before the court.The former shall be done in compliance with The Administrative Reconsideration Law of 1999 (行政复议法) while the latter The Administrative Procedure Law of 1990 (行政诉讼法). In cases where crimes are involved, the police, the procuratorate and the court shall exercise their power respectively in accordance with The Criminal Procedure Law of 1979 (刑事诉讼法).

(2) Scope of Civil Subjects

Civil subjects (民事主体) refer to the parties who are allowed to enjoy rights and assume obligations under a civil law relationship. Before 2017, only two types of civil subjects were provided by statute. Article 2 of The General Principles of the Civil Law of 1986 (民法通则) (hereinafter The General Principles of 1986) provides, civil law "shall govern property relationships and personal relationships between civil subjects with equal status, that is, between citizens, between legal persons and between citizens and legal persons." Therefore, private entities other than citizens (natural persons) or legal persons such as partnerships are excluded from the scope of civil subjects.

However, this definition has clearly ignored the fact that many unincorporated organizations do exist in China and they have been engaged in business transactions actively since more than two decades ago. Accordingly, article 2 of The General Provisions 2017 has rightfully expanded the scope of civil subjects and added a third type, i.e. "非法人组织", meaning organizations without juridical personality (or simply unincorporated organizations).

Subjects of a civil law relationship, i.e. natural persons, legal persons and unincorporated organizations, will be discussed in detail in Part 2.

(3) Scope of Private Law Relationships

A variety of social relationships exists in society, such as those arising out of social intercourse, emotional support, and friendships. However, not all of those relationships ought to be regulated by civil law. The social relationships that civil law intends to regulate are confined to personal relationships (人身关系) and property relationships (财产关系).

A personal relationship is a type of social relationship that is inseparable from the person, that has personal interests as its content, and that does not directly involve property interests. It can be sub-divided into the relationship of personality (人格关系) and the relationship of status (身份关系). A relationship of personality is established for the purpose of protecting a natural person's personality interests (人格利益) such as his or her "rights of life, bodily integrity, health, name, portrait, reputation, honor, privacy, and marital autonomy" (article 110, paragraph 1 of The General Provisions of 2017) or protecting the rights of a legal person or an unincorporated organization to its "name, reputation, and honor, among others" (paragraph 2). A relationship of status arises out of the need to protect status-related interests which are generated "from marriage or family relations" (article 112 of The General Provisions of 2017).

Property relationship is kind of social relationship that is formed when people control or transfer property. For that reason, property relationship can be sub-divided into two types: dominion-related property relationship (支配型财产关系) and circulation-related property relationship (流转型财产关系). Those two may also be referred to as property ownership relationships (财产归属关系) and property circulation relationships (财产流转关系). The former are established in order to answer the question of who owns or is entitled to use the property, i.e. who has the right to own, utilize, seek profits from and/or dispose of property. Contrariwise, the latter are related to the question of how to transfer the ownership of property voluntarily through contracts or involuntarily just by the law itself. For that reason, the former are mainly governed by The Real Right Law of 2007 (物权法) while the latter by The Contract Law of 1999 (合同法) and The Tort Liability Law of 2009 (侵权责任法法).

2. The Evolution of Chinese Civil Law

Throughout the long imperial period of Chinese history, China used to regulate civil affairs such as marriage and trade via the joint use of criminal law and "礼" (code of etiquette or system of rites). Civil law, which embodies the notions of personal freedom, equality, rights, and obligations, etc., was alien to an agrarian society which was mainly based on a self-sufficient natural economy.

In the late Qing Dynasty (1840-1911), China has suffered a series of humiliating defeats by Western powers, which compelled the then Chinese government to establish a Western-style legal system. By the end of 1910, the Draft Civil Law of the Great Qing Dynasty (大清民律草案) had been completed. However, this draft failed to be promulgated due to the collapse of the Qing Dynasty.

The first Chinese civil law, officially referred to as The Civil Code of the Republic of China (中華民國民法), was promulgated by the KMT government in the period 1929-1930. In 1949, however, the newly established communist Chinese regime abolished all legislation that the KMT government had enacted, which led China into a period of roughly three decades (1949-1981) without civil law, except for Matrimonial Law (婚姻法) promulgated in 1950.

In 1978, under the leadership of Deng Xiaoping, China initiated the "reform and opening-up" policy. In order to build a market-oriented economy, a modern civil law system is indispensable. Hence, since the 1980s, China has begun to promulgate a series of civil law statutes, which are listed as follows:

• 1981: The Economic Contract Law (经济合同法) (replaced by The Contract Law of 1999)（合同法）
• 1985: Law on Economic Contracts Concerning Foreign Interests (涉外合同法) (replaced by The Contract Law of 1999)（合同法）
• 1985: Law on Succession (继承法)
• 1986: The General Principles （民法通则）(partially replaced by Th General Provisions of 2017)（民法总则）
• 1987: Law on Technological Contract (技术合同法) (replaced by The Contract Law of 1999)（合同法）
• 1991: Adoption Law (收养法)
• 1995: The Guarantee Law (担保法) (partially replaced by The Real Right Law of 2007)（物权法）
• 1999: The Contract Law（合同法）
• 2007: The Real Right Law（物权法）
• 2009: The Tort Liability Law (侵权责任法法)
• 2010: Law on Choice of Law for Foreign-related Civil Relationships (涉外关系法律适用法)
• 2017: The General Provisions（民法总则）

In a word, although a Chinese Civil Code of the 21 century is currently unavailable, the enactment of The General Provisions of 2017, which is intended as the first Book of the Civil Code, was a very promising start. According to the CCP Central Committee Decision concerning Some Major Questions in Comprehensively Moving Governing the Country According to the law Forward (中共中央关于全面推进依法治国若干重大问题的决定) of 2014, it is expected that China will have a new Civil Code around 2020.

Key Terms in Chapter 1

Chinese civil law (中国民法)

public law (公法)

private law (私法)

civil subjects (民事主体)

personal relationships (人身关系)

property relationships (财产关系)

the relationship of personality (人格关系)

the relationship of status (身份关系)

dominion-related property relationships/property ownership relationships (支配型财产关系/财产归属关系)

circulation-related property relationships/property circulation relationships (流转型财产关系/财产流转关系)

Chapter 2 The Logical Structure of Chinese Civil Law

1. The Basic Structure

According to The Explanation about The Draft General Provisions of the Civil Law of the People's Republic of China (关于《中华人民共和国民法总则（草案）》的说明) which was published by the National People's Congress in 2016, the upcoming Chinese Civil Code will codify the existing single civil statutes and will probably be structured as follows:

Table 2.1. The Structure of the Upcoming Chinese Civil Code

	Civil Code	Based on	Status
	Book 1 The General Provisions (总则编)	The General Principles	Promulgated
Law of Property	Book 2 Contracts (合同编)	Contract Law	Pending
	Book 3 Real Rights (物权编)	Real Right Law	Pending
	Book 4 Tort Liability (侵权责任编)	Tort Liability Law	Pending
Law of Status	Book 5 Marriage and Family (婚姻家庭编)	Matrimonial Law Adoption Law	Pending
	Book 6 Succession (继承编)	Law on Succession	Pending

2. Explanation of the Basic Structure

As explained in Section 1(3) of Chapter 1, civil law is mainly concerned with property relationships and personal relationships.

Property relationships consist of property ownership relationships and property circulation relationships. Specifically, the former shall be governed by Book 3 Real Rights (Real Right Law) whereas the latter by Book 2 Contracts (Contract Law). Since those two areas of law are purely related to property (either the control of property or the modes of acquiring property), they are often described together as the "law of property" (财产法).

In Germany or in legal systems that are influenced by German law, contracts, negotiorum gestio, unjust enrichment, and torts are considered to be the primary four causes of establishing an obligatio (债), i.e. an obligation. Hence, rules concerning those four causes are traditionally stipulated by the same Book in a civil code, i.e. The Law of Obligations (债法), which regulates the relations between obligor and obligee. Compared with the cases to which rules of negotiorum gestio and unjust enrichment shall apply, those that are governed by contract law and tort law account for the vast majority. For that reason, the upcoming Chinese Civil Code provides for the law of contract and torts in two separate Books, i.e. Book 2 and Book 4, with a view to stressing their outstanding positions in a modern market economy. This approach also renders the traditional General Provisions of the Law of Obligations (债法总则) redundant. Accordingly, rules of negotiorum gestio and unjust enrichment have been conveniently placed in Book 1 (article 121 and article 122 respectively of The General Provisions of 2017) and many rules traditionally found in the Book of the Law of Obligations are stipulated by Book 2 and Book 4. Since Book 4 is also related to property (loss shifting involuntarily), it falls into the category of the law of property as well. In a word, Book 2 to Book 4 are the law of property. The reason why Book 4 is not placed next to Book 2 but after Book 3 is that Tort Liability Law is also considered as a general law of protecting civil rights and interests and providing remedies. Since both personality rights and property rights are protected under the law of torts, it appears logical to place Book 4 immediately after Book 3.

Personal relationships are composed of the relationship of personality and that of status. As far as the former is concerned, it is necessary for civil law to define the scope of rights and interests of personability. Since personality interests are inseparable from persons, they are often provided together with civil subjects in Book 1 The General Provisions. To be specific, civil subjects are provided for by Chapter 2 (Natural Persons), Chapter 3 (Legal Persons) and Chapter 4 (Unincorporated Organizations) and personality rights by Chapter 5 (Civil Rights). When it comes to the relationship of status, applicable rules are mainly provided for by Book 5 and Book 6, which fall under the same category of the "law of status" (身份法). The former governs the relationship between parents and children, that between husbands and wives, that of maintenance and other family relationships while the latter regulates the transmission or redistribution of property on the death of its owner to the heir or beneficiary. Those two Books are created separately from Book 2 to Book 4, not because they are irrelevant to property, but due to the fact that they are closely related to the status of kinship.

Another feature of the upcoming Civil Code is that it places the law of property (Book 2 to Book 4) before the law of status (Book 5 and Book 6). This can be explained by the unique technique of codification, i.e. the structure of a civil code should be based on the principle of "from abstract issues to concrete issues" and "from general issues to special issues". Compared to the law of property, the law of status is much more concrete and special in that it involves many property relationships between family members. Hence, it might seem more logical if the law of status were placed after the law of property in a civil code.

Key Terms in Chapter 2

the law of property (财产法)

the law of status (身份法)

the law of obligations (债法)

negotiorum gestio (无因管理)

unjust enrichment (不当得利)

Chapter 3 The Source of Chinese Civil Law

1. Defining the Source of Chinese Civil Law

In China, the source of law (法源), also termed fons juris, usually refers to something that manifests applicable legal norms or something that provides authority for administrative or judicial decisions. Generally speaking, we should ask how the law is created and presented in order to identify the source of law. As far as the source of civil law is concerned, the questions need to be asked are which rules should be cited by judges as the basis for decisions and how those rules should be systemized in light of their sources. The source of Chinese civil law is provided for by article 10 of The General Provisions of 2017 as follows

Civil disputes shall be resolved in accordance with the law; or if there is no provision of law applicable to a case, the case may be decided according to a custom, but the custom must not be contrary to public order or good morals.

Specifically, article 10 has three important layers of meaning:

• (1) It has specified the sources of civil law (private law) and the order of application (law first, customs second);
• (2) As far as the schools of legal thoughts are concerned, it has combined the analytic school of law ("the law") and the historical school of law ("custom");
• (3) In terms of legal methods, it has overcome the problems faced by the 19th-century legal positivism and confirmed the existence of a gap in law, meaning customs should be used to fill the gap in law and the court is not allowed to deny making a decision in the event that there is no provision of law applicable to a case in question.

2. The Law

Aforesaid article 10 requires that civil cases should be decided in light of "the law" (法律) as a matter of principle. In order to figure out the meaning of "the law", we should answer the following questions step by step.

(1) How does the legislative power is distributed in China?

This question should be answered in light of the legislative bodies and their powers in China. China is a single unitary state, which is composed of the Central Government and local governments. The latter consist of 34 provincial local jurisdictions - 23 provinces (Jiangsu, Hebeing, Zhejiang, Taiwan, etc.), 4 municipalities directly under the jurisdiction of the Central Government (Beijing, Shanghai, Tianjin, and Chongqing), 5 autonomous regions (Inner Mongolia, Xinjiang, Ningxia, Guangxi, and Tibet) and 2 special administrative regions (Hong Kong and Macau). Except for Hong Kong and Macau, the laws and regulations enacted by the Central Government (hereinafter central legislation) shall apply to all local governments as a matter of principle. Each provincial government, delegated by the Central Government, may enact its own rules (hereinafter local legislation) to govern its own affairs within its jurisdiction. In principle, local legislation must not be inconsistent with or in contradiction to central legislation.

(2) Then, who are the "legislators" and what is "the law"?

According to article 2 of The Constitution of 1986, all power in China belongs to the people and people exercise state power through electing deputies to the National People's Congress (hereinafter NPC) and local people's congresses at various levels. Article 3, paragraph 3 of the aforesaid law states, "All administrative, judicial and procuratorial organs of the state are created by the people's congresses to which they are responsible and by which they are supervised." Hence, by definition, the NPC and local people's congresses are organs with supreme state power or supreme power within a local jurisdiction, which are superior to any other executive or judicial branches at the same level. Their permanent bodies are the Standing Committee of the National People's Congress (hereinafter SC-NPC) and standing committees of local people's congresses. The NPC and the SC-NPC exercise the legislative power of the state (article 58 of the aforesaid law) while local people's congresses exercise the local legislative power within their jurisdictions (article 96 of the aforesaid law). It ought to be noted that standing committees of local people's congresses do not have any legislative power. The NPC "shall enact and amend the basic laws on, inter alia, criminal matters, civil matters, and state authorities" (article 7, paragraph 2 The Law on Legislation of 2015), whereas the SC-NPC "shall enact and amend laws other than those that should be made by" the NPC (paragraph 3 of the aforesaid article). The statutes enacted by the NPC and the SC-NPC are described together as "法律", meaning "the law" in its narrowest and strictest sense (hereinafter national legislation). In addition, the SC-NPC has the power to interpret a law in case either "The specific meaning of any provisions of a law requires further clarification" or "Any new circumstances appearing after the promulgation of a law require clarification of the basis for the application of the law" (article 45 of the aforesaid law). The interpretations of a law made by the SC-NPC (hereinafter legislative interpretations (立法解释)) shall have the same authority as the law (article 50 of the aforesaid law).

In addition to national legislation, there is also delegated legislation in China. Article 65 of the aforesaid law states that the State Council (the highest executive branch in China) "shall enact administrative regulations (行政法规) in accordance with the Constitution and the law" for the purpose of either implementing the law (national legislation) or regulating "matters within the administrative functions and powers of the State Council as set out in Article 89 of the Constitution". Besides, the departments and ministries of the State Council and local people's governments (local executive branches) have the power to enact departmental rules (部门规章) and the rules of local governments (地方政府规章), which can be described together as "administrative rules" (行政规章), in order to implement laws and regulations of a higher authority (articles 80-82 of the aforesaid law). In this sense, administrative rules are a more detailed form of delegated legislation.

Local people's congresses have the power to enact "local regulations" (地方性法规). Article 72 of the aforesaid law provides that provincial people's congresses "may, according to the specific circumstances and actual needs of the administrative region, enact local regulations, provided that such regulations do not contravene the Constitution, laws, and administrative regulations". Since local people's congresses are superior to local governments, the rules of local governments are often delegated legislation secondary to local regulations.

The legal authority of various laws, regulations, and rules are ranked as follows:

• The Constitution shall have the supreme legal authority, and no laws, administrative regulations, local regulations ... or rules may contravene the Constitution (article 87 of the aforesaid law);
• The authority of laws, including legislative interpretations, shall be higher than that of administrative regulations, local regulations, and rules (article 88, paragraph 1 of the aforesaid law);
• The authority of administrative regulations shall be higher than that of local regulations and rules (article 88, paragraph 2 of the aforesaid law);
• The authority of local regulations shall be higher than that of the rules of local governments at the same level and at a lower level (article 89, paragraph 1 of the aforesaid law).
• Departmental rules and the rules of local governments shall have equal authority among themselves (article 91 of the aforesaid law).

The aforementioned laws, regulations, and rules are all made by either legislative bodies or delegated executive bodies. In addition to this, the Supreme People's Court (hereinafter SPC) also plays a role in the making of law - it has the power to enact judicial interpretations (司法解释) in order to correctly apply the law to a specific case (article 104 of the aforesaid law). Unfortunately, The Law on Legislation of 2015 itself has not clarified the legal authority of judicial interpretations. Since the SPC is inferior to either the NPC or the SC-NPC, it is logical to infer that the authority of judicial interpretations is secondary to laws and legislative interpretations. Lower people's courts at various levels do not have the power to issue judicial interpretations.

The "legislators" and the authority of various laws, regulations, rules, and interpretations are presented as follows:

	legislative branch	executive branch	judicial branch	legal authority
central legislation	The Constitution			in descending order
	national laws/legislative interpretations		judicial interpretations
		administrative regulations
		departmental rules
local legislation	local regulations
		rules of local government

(3) Which law, among all central and local legislation, provides authority for civil judicial decisions?

Neither The General Principles of 1986 nor The General Provisions of 2017 have clarified what "the law" should be as far as the application of civil law is concerned. Nevertheless, the SPC issued The Provisions on Citation of Such Normative Legal Documents as Laws and Regulations in the Judgments (关于裁判文书引用法律、法规等规范性法律文件的规定) in 2009. Article 4 of the said Provisions stipulates that "a civil judgment shall cite laws, legislative interpretations or judicial interpretations, and may directly cite the administrative regulations, local regulations" that should be applied. Hence, as a matter of the fact, the SPC thereby treats its judicial interpretations as authoritative as national laws and legislative interpretations in a trial.

Besides, laws, legislative interpretations and judicial interpretations have a higher legal authority than administrative regulations and local regulations. The wording "shall" in the said article 4 suggests that the court is obliged to apply laws and interpretations first when there are available, whereas the wording "may" therein leaves it to the discretion of the court to decide whether to cite a particular regulation or not.

Administrative rules have the lowest legal authority in a trial. Article 6 of the aforementioned Provisions rules that where the normative documents other than those as prescribed by the said Articles 4 are confirmed as legal and effective upon examination in accordance with the needs for the trial, such normative documents may be taken as an authority for the reasoning behind a decision. Therefore, although administrative rules cannot be directly cited in a trial, they can play a supportive role in the formation of a decision if they are considered by the court to be legal and effective.

(4) Can the court cite The Constitution directly?

As mentioned before, The Constitution shall have the supreme legal authority, and no laws, regulations or rules may contravene the Constitution (article 87 of The Law on Legislation). Hence, in a narrow sense, The Constitution does not fall under the said "laws". Nonetheless, just like national laws, The Constitution shall also be promulgated and amended by the NPC (article 62 of The Constitution). Hence, it was once debatable whether the court is allowed to cite The Constitution directly in the trial of civil cases.

This topic is closely related to the famous case of Qi Yuling v. Chen Xiaoqi et al., which is also well-known in China as the "Qi Yuling Case" (齐玉苓案). Qi Yuling (plaintiff) and Chen Xiaoqi (one of the defendants) were students from the same middle school - The Eighth Middle School of the Tengzhou City in Shangdong Province (hereinafter Middle School). In the Secondary Technical School Entrance Examination of 1990, Qi Yuling passed the examination and admitted into the Jining Commercial School of Shandong Province (hereinafter Commercial School) whereas Chen Xiaoqi failed the examination. However, Chen Xiaoqi' father managed to bribe some officials of the Middle School into sending Qi Yuling's admission notice to Chen Xiaoqi. Later, Chen Xiaoqi attended the Commercial School, assuming the identity of Qi Yuling. After graduation, Chen Xiaoqi found a job in Bank of China Shandong Tengzhou Branch. On January 29, 1999, Qi Yuling, who found out the truth, filed a claim against Chen Xiaoqi et al., demanding them to cease the acts of infringement, extend a formal apology, and pay RMB 160,000 (for pecuniary losses) and RMB 400,000 (for nonpecuniary losses) in compensation. Qi Yuling claimed that she suffered huge losses due to the fact that her right of the name (姓名权) and right to receive education (受教育权) had been infringed upon. In the same year, Zaozhuang Intermediate People's Court (the trial court) made a judgment, ordering the defendants to cease the acts of infringement and pay damages totaling RMB 35,000 for the plaintiff's nonpecuniary losses, but denying the plaintiff's claim that her right to receive education had been infringed upon. Qi Yuling remained unconvinced by the judgment of the trial court and appealed to Shandong High People's Court (the appellate court). The right to receive education is a fundamental right which is provided for by article 46, paragraph 1 of The Constitution - "Citizens of the People's Republic of China have the duty as well as the right to receive education." In contrast, a person's right of the name is only a civil right, as evidenced by article 99, paragraph 1 of The General Principles of 1986, which states, "Citizens shall enjoy the right of the name and shall be entitled to determine, use or change their names in accordance with relevant provisions; interference with, usurpation of and false representation of another’s name shall be prohibited." The appellate court was unsure of whether Qi Yuling's constitutional right to receive education should be protected in a civil litigation. Hence, the appellate court submitted this case to the SPC and asked the SPC for its opinions about this issue. On August 13, 2001, the SPC replied as follows

Upon deliberation, we hold that, according to the facts of the case in question, Qi Yuling's fundamental right to receive education, which is provided for by The Constitution, has been infringed upon by Chen Xiaoqi et al. through encroachments on Qi Yuling's civil right of the name, resulting in concrete harmful consequences. Hence, Chen Xiaoqi et al. shall be held liable for Qi Yuling's losses.

 In accordance with the SPC's opinion, the appellate court gave the judgment in favor of Qi Yuling.

The Qi Yuling Case was regarded as a landmark decision where the court cited The Constitution directly in a civil case, which many believed would begin the process of "judicialization of The Constitution" (宪法司法化). If this were the case, then many other fundamental rights stipulated by The Constitution such as the right of suffrage (选举权), the right to be elected (被选举权), the right of labor (劳动权), the right of freedom of speech etc. could be equally protected through civil litigations. Unfortunately, the Qi Yuling Case has remained the only case that ever cited The Consitution directly since 2001. The seemingly promising process of "judicialization of The Constitution" finally ceased when the SPC revoked its reply of 2001 in 2008.

Above all, it is now clear that "the law" in article 10 of The General Provisions of 2017 does not include The Constitution. That is to say, The Constitution is not a source of civil law. Hence, it cannot be cited directly in a civil decision.

Traditionally, fundamental rights under a constitution are regarded as rights that are intended to protect people's liberty and property against encroachments done by the government, so that people shall enjoy a certain degree of freedom without interference from the government. Recently, it is believed that fundamental rights also constitute an objective order of constitutional values, which are objective norms ought to be abided by when legislative, executive and judicial branches perform their duties, with a view to protecting people against encroachments done by either the authorities or by other people (third parties). Hence, fundamental rights should still be protected by civil law, though in a more indirect way. To be specific, two techniques are available to the accomplishment of such a purpose. They are:

• Constitutional Interpretation (合宪性解释). The court has a duty to interpret a provision of civil law in accordance with the provisions and spirit of The Constitution so that the purpose of the target civil law would not go against that of The Constitution. In so doing, a harmony could be achieved between The Constitution and civil law.
• Third-party Effect of Fundamental Rights (基本权利的第三人效力). Fundamental rights under The Constitution shall have some "indirect effect" on third parties beyond a citizen and the state. This suggests that the court could protect people's fundamental rights against third parties through "general clauses" (概括条款) or "uncertain legal terms" (不确定法律概念) in civil law. For instance, some employers may include a clause in the labor contract, which provides that the female employee is not permitted to give birth to a baby within a certain period of time. Would such a clause be legally binding? If we look at The Labor Contract Law of 2012, it is silent on this issue. But it does say that a labor contract is void if it "breaches the mandatory provisions of laws or regulations" (article 26). Then, we can find that women enjoy the fundamental right to child-bearing (生育权) as provided for by article 51 of The Law on the Protection of Women's Rights and Interests, which is a supplementary statute to The Consitution of 2004. The said article 51 is obviously a mandatory provision of law. Reading the aforesaid two articles together, it becomes clear that the clause in the labor contract is void. In this indirect way, the female employee's fundamental right to child-bearing is protected under labor contract law (a special branch of civil law).

3. The Custom

According to the drafters of The General Provisions of 2017, "the custom" (习惯) refers to folkways (民间习惯) or trade usages (商业惯例) that are commonly adopted and observed in a defined locality or in a specific profession or business. In order for a custom to qualify as a source of law, it must satisfy two conditions: first, the practice of the custom has already become a long and unvarying habit; second, ordinary people widely and firmly believe that it has the force of law.

The application of a custom must be subject to two limitations: first, the essential precondition for applying a custom is that there is no provision of "the law" applicable the case in question; second, the application of a custom must not go counter to public order or good morals.

4. The Guiding Case System in China - A Shift towards the Anglo-American Legal Tradition?

In 2010, the SPC issued The Provisions on Case Guidance (关于案例指导工作的规定) (hereinafter PCG), establishing the guiding case system (指导性案件制度) in China for the first time. According to article 2 of the PCG, guiding cases refer to those closed judgments : "(1) that have attracted wide attention from society; (2) that have cited legal provisions which are too abstract or vague; (3) that are representative in nature; (4) that have involved difficult, complicated or novel issues; or (5) that have other features of a guiding function." Article 3 provides, "The Supreme People's Court shall establish a Case Guidance Office to be in charge of the selection, examination and reporting for approval of guiding cases." As regards the legal authority of guiding cases, article 7 states, "When trying similar cases, people's courts at all levels shall use the guiding cases issued by the Supreme People's Court as a reference."

In 2015, the SPC enacted The Detailed Rules for the Implementation of the Provisions of on Case Guidance (《关于案例指导工作的规定》实施细则) (hereinafter IPCG), in order to strengthen the guiding case system. Three key provisions regarding the application of a guiding case need to be highlighted as follows:

• Obiter dicta should not be cited. Article 9 states, "Where a case being tried by a people's court at any level is similar to a guiding case issued by the Supreme People's Court in terms of basic facts and application of law, a judgment shall be rendered by reference to the ratio decidendi of the judgment in the relevant guiding case."
• A guiding case should be quoted (引述) rather than cited (引用). Article 10 provides, "Where a people's court at any level refers to a guiding case in the trial of a similar case, it shall quote the guiding case as the judgment's reasoning, instead of citing it as the basis for the judgment."
• The number of the guiding case should be quoted as well. Part of article 11 stipulates, "Where any relevant guiding case is quoted in the written judgment, the number of the guiding case and its key points of judgment shall be quoted in the judgment's reasoning."

A guiding case shall cease to be effective under either of the following two circumstances where: "(1) it conflicts with a new law, administrative regulation or judicial interpretation; or (2) it is replaced with a new guiding case." (article 12 of the IPCG). In this regard, it seems that the legal authority of a guiding case is inferior to that of a national law, administrative regulation and judicial interpretation, but it is superior to that of local regulations and administrative rules.

The next question is whether the guiding case system in China indicates a shift towards the Anglo-American legal tradition. Admittedly, the guiding case system is similar to the common law system to the extent that cases can be the source of law. However, the two systems differ significantly in the following aspects:

• The processes of formulating the case law. In China, a guiding case may be decided by a court at any level, which is later chosen and published by the SPC. In the US, however, the precedents are established by earlier decisions of the superior courts.
• The legal authority. In China, the guiding case system is secondary to the statutory system, meaning guiding cases have lower legal authority than central legislation. The fundamental basis that can be cited for a decision is still "the law" rather than the guiding case. A guiding case qualifies as "a source of law" inasmuch as it plays an important role in the reasoning behind a decision. However, it is not a true source of law because it cannot be cited as the basis for a decision. In contrast, "the American legal system is primarily a case law system", meaning case law is the major source of law as far as subject matters governed by decisional law are concerned and it also affects statutes significantly because "statutes are also subject to binding and authoritative interpretation by the courts".

Hence, the said guiding case system looks very similar to ancient Chinese case systems, which were secondary and supplementary to statutory codes. Therefore, it would be better to say the guiding case system is a closer step towards ancient Chinese legal tradition than to say it is a shift towards the common law system such as the American law.

Chapter 4 The Basic Principles of Chinese Civil Law

1. Introduction

The principle refers to "a basic rule, law, or doctrine", especially "one of the fundamental tenets of a system". Hence, the principles of civil law are the fundamental tenets and norms of civil law, which penetrates the entire civil law system, providing the starting point for the legislation, interpretation, application, and study of civil law. In other words, those principles reflect the basic values and spirit of civil law.

In China, the principles of civil law are provided for by article 4 to article 9 of The General Provisions of 2017. They are the principle of equality (平等原则), the principle of free will (自愿原则), the principle of fairness (公平原则), the principle of bona fides or good faith (诚信原则), the principle of adherence to law and public order and good morals (守法与公序良俗原则), and the principle of greenness (绿色原则).

In particular, the principles of civil law play an essential role in the trial of civil cases in two aspects:

• Interpretation. When a certain provision of civil law is too vague that it could be understood in two or more ways, the court should choose the one that is best in line with the principles of civil law.
• Gap-filling. Where there is a gap in a civil statute, the court should employ the principles of civil law to fill the gap.

We will discuss those principles one by one next.

2. The Principle of Equality

Article 4 of The General Provisions of 2017 provides

Civil subjects are equal in legal status in civil activities.

The principle of equality suggests that all civil subjects, no matter whether they are legal persons, natural persons, or unincorporated organizations, no matter how large the legal person's scale is or how rich it is, no matter whether a natural person is a man or woman, old or young, and poor or rich, no matter what business an unincorporated organization is doing, when they are engaged in civil activities, they are equal in legal status among one another, and their legitimate rights and interests are equally protected by law. One important implication of the principle of equality is that, in a civil law relationship, one party cannot impose its will on the other.

3. The Principle of Free Will

Article 5 of The General Provisions of 2017 provides

Civil subjects shall conduct civil activities under the principle of free will, and create, modify, or terminate civil law relationships according to their own wills.

The principle of free will, also termed the principle of the autonomy of the will (意思自治原则) or private autonomy (私法自治原则), refers to the tenet that civil subjects are entitled to be engaged in civil activities according to its own will, i.e. they are entitled to decide whether to create, modify or terminate a civil law relationship and what the content is about.

This principle manifests itself in various branches of civil law, such as the freedom of ownership (所有权自由), meaning the owner of a property, within the boundaries of the law, may possess, utilize, enjoy benefits from and dispose of the property freely (article 39 of The Real Right Law of 2007); the freedom of testament (遗嘱自由), meaning a testator may decide freely who would obtain the ownership of his/her property after death (article 16 of The Law on Succession of 1985). However, the most essential one is the freedom of contract (契约自由), which is also termed autonomy of the parties. It refers to the tenet that, based on the meeting of minds, parties may enjoy rights and assume obligations through the conclusion of a contract, which is composed of four layers of meaning:

• freedom of conclusion (缔结自由), meaning parties are free to decide whether to enter into a contract;
• freedom of choosing the opposite party (相对人自由), meaning parties are free to choose with whom he/she is willing to enter into a contract;
• freedom of the content (内容自由), meaning parties are free to formulate the content of a contract; and
• freedom of the form (方式自由), meaning a contract can be formed simply by the meeting of minds, i.e. it is not necessary to enter into a contract through a certain form.

The principle of private autonomy was developed in a laissez-faire economy of the 19th century, which had contributed considerably to the liberation of individuals from the bounds imposed on by feudal identities and laws, the abolishment of the doctrine of the chartered corporation, the protection of private property, the promotion of the freedom of business, the protection of individual freedom and dignity, and the development society, economy and culture. In modern times, however, there are imbalances in bargaining power between corporate employers and employees and between producers/sellers and consumers. Strict adherence to the principle of private autonomy would ignore such imbalances and would fail to respect the free will of the weaker party. Hence, the state often intervenes in the fields of labor relationships and consumption relationships by enacting labor and consumer protection laws and regulations, in order to restore the imbalances and respect the true will of the weaker party. In China, there are Labor Law of 1994 (劳动法, amended in 2009), Labor Contract Law of 2007 (劳动合同法, amended in 2012), and The Law on the Protection of Consumer Rights and Interests of 1993 (消费者权益保护法, amended in 2013), etc.

An important implication of the principle of free will is "self-responsibility" (自己责任), meaning civil subjects should be responsible for the consequences of civil activities that they are engaged in out of their free will. If they promise to fulfill a contractual obligation, they should be subject to liability for breach of contract; if they do harm to another's property or person intentionally or negligently, they have to pay compensation to the victim. In a word, the freedom of behavior is necessarily accompanied by the responsibility for the consequences of such behavior.

4. The Principle of Fairness

Article 6 of The General Provisions of 2017 provides

Civil subjects shall conduct civil activities under the principle of fairness, and rationally determine the rights and obligations of each party.

The principle of fairness requires that when they are engaged in civil activities, civil subjects should determine the rights and obligations of each party justly, equitably and reasonably in light of the notion of fairness, and should be responsible for the consequences of civil activities in a fair way. It suggests that the normative benchmark against which the rights and obligations between parties are distributed and adjusted is the balance of interests (利益均衡) - in cases where the rights and obligations are considerably imbalanced, such an imbalance should be rectified in accordance with the principle of fairness. For instance, in the field of contract law, there is a doctrine of the "change of circumstance" (情势变迁). It is provided for by article 26 of The Interpretation II of Several Issues concerning the Application of the Contract Law (关于适用《中华人民共和国合同法》若干问题的解释(二) ) (hereinafter Contract Law Interpretation II), which reads as follows

Where any major change which is unforeseeable, is not a business risk and is not caused by a force majeure occurs after the formation of a contract, if the continuous performance of the contract is obviously unfair to the other party or cannot realize the purposes of the contract and a party files a request for the modification or cancelation of the contract with the people's court, the people's court shall decide whether to modify or cancel the contract under the principle of fairness and in light of the actualities of the case.

Another well-known example is equitable liability (公平责任) under tort law. Article 24 of The Tort Liability Law of 2009 reads as follows

Where neither the victim nor the actor is at fault for the occurrence of damage, both of them may share the losses based on the actual situations.

5. The Principle of Bona Fides (Good Faith)

Article 7 of The General Provisions of 2017 provides

Civil subjects shall conduct civil activities under the principle of bona fides, being honest and keeping promises.

The principle of bona fides is often regarded as the "king provision" (帝王条款) of the civil law, especially the law of obligations. However, it is commonly agreed that it is almost impossible to give a clear definition of bona fides. This is because it is a term that is full of strong moral elements, changing with times. The drafters of The General Provisions of 2017 believe that the principle of bona fides demands civil subjects

• to be honest and provide true information concerning themselves to the other party when conducting negotiations;
• to keep promises and perform obligations honestly after entering into a legal relationship with others;
• to cooperate with others and protect the trust and reasonable expectations of the others;
• to respect the legitimate rights and interests of others and safeguard public interest;
• to enjoy rights with good faith and avoid abuse of right;
• to avoid circumventing the law or misconstruing clauses of a contract deliberately; etc.

6. The Principle of Adherence to Law and Public Order and Good Morals

This principle consists of two sub-principles, namely the principle of adherence to law and the principle of public order and good morals. These two sub-principles are closely associated with each other. Hence, they are provided for in the same article - article 8 of The General Provisions of 2017 - as follows

Civil subjects shall not conduct civil activities in violation of the law, nor contrary to public order or good morals.

(1) The Principle of Adherence to law

Civil law provisions can be categorized as either "jus dispositivum" (law subject to the dispensation of the parties) (任意法) or "jus cogens" (compelling law) (强行法). A jus dispositivum is a legal provision that can be dispensed with or amended by mutual agreements of the parties. The other way around, a jus cogens is a compelling and mandatory legal provision that cannot be dispensed with or amended by the free will of the parties. The "law" therein only refers to the jus cogens. The majority of civil law provisions fall under the category of the jus dispositivum, which is intended to promote private autonomy and individual freedom as far as possible. However, individual freedom is not without limits. Although civil law is private law in nature, it is also aimed at safeguarding the basic social order of life and production and protecting the basic interests of the state. Jus cogens is enacted just for such a purpose, which establishes a statutory boundary within which private autonomy is legally permitted.

Part 3 Contract Law

The Legal Effect of Cancelling A Contract

In China, termination of a contract (合同终止) is a broad term which means the ending of contractual rights and obligations. Cancellation (or dissolution) of a contract (合同解除) is only one of the seven causes of terminating a contract. Article 91 of The Contract Law of the People's Republic of China (中华人民共和国合同法) (hereinafter The Contract Law) provides as follows

The rights and obligations under a contract shall be terminated under any of the following circumstances where: (1) the obligations have been performed as agreed upon; (2) the contract has been cancelled; (3) the obligations have been offset against each other; (4) the obligor has deposited the subject matter in escrow with a public authority in accordance with the law; (5) the obligee has released the obligor of its obligation; (6) the rights and obligations have vested in one party; (7) any other circumstances for termination as stipulated by the laws or agreed upon by the parties occur.

When reading the above article 91 closely, it becomes clear that all the seven circumstances except for item (2) shall terminate a contract with a prospective effect, either because the purpose of the contract has been realized or at least has not been frustrated (items (1), (3), (4) and (5)) or because it becomes meaningless or unnecessary for the contract to exist (items (6) and (7)). By contrast, the purpose of cancellation of a contract is different from that of other causes of ending a contract. The Contract Law adopts the principle of "pacta sunt servanda" (契约严守), as evidenced by article 8, paragraph 1 of the said law, which provides, "A lawfully established contract shall be legally binding on the parties thereto, each of whom shall perform its own obligations in accordance with the terms of the contract, and no party shall unilaterally modify or terminate the contract." In most of the cases, parties are willing to enter into a contract because both of them believe they will gain more benefits than if there were no such a contract. However, after the contract is concluded, circumstances may change rapidly way beyond expectations, which may render the performance of the contract impossible or unnecessary or may frustrate the purpose of the contract. In such cases, strict adherence to the principle of "pacta sunt servanda" would not be of benefit to the parties concerned or would even damage the public interest. For that reason, The Contract Law creates a special regime of cancellation of a contract.

Cancellation of a contract can be based on either an agreement or statutory provisions. Article 93 of The Contract Law provides, "The parties to a contract may cancel a contract if they reach an agreement. The parties may agree upon conditions under which either party may cancel the contract. Upon satisfaction of the conditions, the party who has the right of cancellation may cancel the contract."

Article 94 provides for the causes of statutory cancellation of a contract, which reads as follows

The parties to a contract may cancel the contract under any of the following circumstances where: (1) it becomes impossible to achieve the purpose of the contract due to force majeure; (2) prior to the expiration of the term of performance, the other party expressly states, or indicates through its conduct, that it will not perform its main obligation; (3) the other party, who delays performance of its main obligation, still fails to perform within a reasonable period of time after such performance has been demanded; (4) the other party delays performance of its obligations, or breaches the contract in some other manner, rendering it impossible to achieve the purpose of the contract; (5) other circumstances as provided by law occur.

The legal effect of cancellation of a contract is provided in article 97 of the aforesaid law, which states as follows

After the cancellation of a contract, performance shall cease if the contract has not been performed; if the contract has been performed, a party may, in accordance with the circumstances of performance or the nature of the contract, demand the other party either to make restitution in kind and/or to take other remedial measures, and such party shall also have the right to claim compensation for losses from the other party.

As far as the interpretation of the said article 97 is concerned, two major doctrines have developed by Chinese contract law scholars, i.e. the direct effect theory (直接效果说) and the compromised theory (折中说). Prof. Jianyuan Cui (崔建远) is a staunch advocate for the former theory while Prof. Shiyuan Han (韩世远) is a leading protagonist of the latter theory. The direct effect theory is currently the dominant doctrine.

According to the direct effect theory, the cancellation of a contract will terminate the contract retrospectively as if it were "void" ab initio. To be specific, the effect has two layers of meaning: on the one hand, parties to the contract shall be released from their contractual obligations if the contract has not been performed yet; on the other hand, each party shall have the right to claim against the other party the returning of its belongings (所有物返还请求权) if the contract has already been performed. Such a claim is a claim based on a real right (物上请求权), the legal effect of which is superior to that of a claim based on an obligatio (债权请求权). Therefore, "to make restitution in kind" (恢复原状) in the said article 97 should be interpreted as "to claim the returning of the belongings", which is a claim based on the real right (ownership). Specifically, if the subject matter tendered is a chattel (movable property), then the possession of the chattel shall be transferred to the original owner; if it is a real estate (immovable property) tendered through registration, then the registration shall be corrected. The rationale behind this interpretation is that Chinese law does not recognize the abstract nature of the juristic act of real right (物权行为之无因性). Put another way, the juristic act of an obligatio (债权行为) (i.e. a contract) is the fundamental basis for conveying the real right of a property. Absent such a basis (e.g. due to being declared void ab initio or being cancelled), the conveyance would become groundless and the real right would be seen as unconveyed ab initio.

Nonetheless, the direct effect theory is subject to some qualifications. On the one hand, some special clauses of the contract are not affected by the cancellation. Article 98 of the said law provides, "The termination of rights and obligations under a contract shall not affect the effect of clauses that related to the final settlement of accounts and winding-up." On the other hand, the cancellation of a contract in some cases has no retrospective effect. In cases where it is impossible or unnecessary to make restitution in kind, the cancellation of a contract will not only have a prospective effect. Hence, the said article 97 makes it clear that when to make restitution in kind is possible due to the "circumstances of performance or the nature of the contract", one party may demand the other party to "take other remedial measures". Those terms need to be explained in detail as follows.

• According to the drafters of The Contract Law, "in accordance with circumstances of performance" means to take into account the implications of the performed obligations for the obligee. If the parties' interests could be well or better protected without making restitution in kind, then other remedial measures would become more feasible; if the parties' interests would be harmed absent making restitution in kind, then they could demand restitution.
• The wording "nature of the contract" suggests that parties shall "take other remedial measures" rather than "make restitution in kind" if it is impossible or difficult to make restitution in light of the nature of the contract. In light of contract law theories, a contract can be either a one-off contract (一时的合同) or a continuing contract (继续性合同). A one-off contract refers to those contracts whose purpose can be achieved through a one-off delivery or payment, such as contracts of a sale, a gift, an exchange, and work. A continuing contract means those contracts under which the performance of the obligations is continuing throughout the term of the contract, such as contracts of a partnership, lease, employment, lending for consumption or use, and deposit. In cases where a continuing contract is involved, it is impossible to make restitution in kind because services provided or things consumed cannot be returned any longer. As a result, parties can only demand each other to take other remedial measures.
• According to the drafters, "other remedial measures" normally include repairing, substituting, reworking, or reducing the price or remuneration.

In contrast, the compromised theory holds that the cancellation of a contract does not have a retrospective effect. Specifically, it suggests of two layers of meaning: on the one hand, obligations that have not been performed yet will immediately terminate upon the cancellation of the contract (the same as the direct effect theory); on the other hand, obligations that have already been performed will not become extinct but will be transformed into new obligations of restitution derived from the original contract. Since the performed part of the original contract will not terminate retrospectively but still exist in the form of new obligations of restitution, the claim for restitution in kind can only be interpreted as a claim based on an obligatio rather than that based on a real right. For that reason, the real right (ownership) of a property conveyed before the cancellation of the contract will not be affected. The original owner of a property can only regain the ownership of the property if its claim for restitution is successful.

Now let's discuss the similarities and differences between the above two theories. In the event that the contract has not been performed yet, there is almost no difference between them. Both suggest that the cancellation of a contract in such a case only has prospective effect. However, in cases where the contract has been performed, the two theories differ significantly. The direct effect theory holds that in one-off contracts cancellation will have retrospective effect whereas the compromised theory says the opposite. The key difference is concerned with the meaning of "restitution in kind". While the former theory regards restitution as a claim based on a real right, the latter treats it merely as a claim based on an obligatio. This difference has significant implications in at least two scenarios as follows:

• Bankruptcy. Article 38 of The Enterprise Bankruptcy Law of 2006 provides, "After the people's court accepts an application for bankruptcy, where what the relevant obligor occupies is not its own property, the owner of the property may take it back through the bankruptcy administrator unless it is separately prescribed by the present Law." Hence, if the direct effect theory were taken, one party, who is the original owner of the property, would be allowed to take it back from the insolvent party after cancelling the contract. However, if the second theory were adopted, such party would not be allowed to take it back directly, meaning such party would become only one of the many obligees that have a legitimate claim against the insolvent party.
• Property conveyed to a third party. In order to strike a balance between the protection of ownership and the safety of transactions, The Real Right Law of 2007 adopts the regime of acquisition in good faith (bona fides) (善意取得) in cases where a person sells another's property to a third party without authorization. According to article 106 of the said law, such third party shall obtain the ownership of the property, (1) if it was in good faith at the moment of assigning the property, (2) if the property was conveyed at a reasonable price, and (3) if the property was assigned in light of statutory procedures. If such conditions are satisfied, the original owner of the property will lose its ownership permanently and will only be allowed to claim damages from the unauthorized seller. If the direct effect theory were taken, the ownership of a property will be automatically restored to the original owner after cancelling the contract. In such a case, a third party could only obtain the ownership of the property if it had been in good faith. However, should the compromised theory be accepted, the ownership of a property will not be affected by the cancellation of the contract. Therefore, the party to the contract who has obtained the ownership of the property has full right to sell it to a third party, irrespective of whether such third party was in good faith or not.

When taking into account all the aforementioned points, it seems that the direct effect theory keeps a better balance than the compromised theory between the protection of ownership and the safety of transactions. The former tends to protect ownership unless third parties in good faith are involved, thus protecting the safety of transactions in a proportional way. In contrast, the latter may protect transactions even when third parties are in bad faith, thus making the protection of the safety of transactions in an excessive way. This may exlain why the direct effect theory is the dominant doctrine in China as far as the interpretation of article 97 of The Contract Law is concerned.