A report delivered at the Second Session of the Ninth National People's Congress on March 9, 1999 in Beijing

1. The Scope of Application

The Draft Contract law stipulates that a contract means an agreement whereby the subjects with equal status, that is, natural persons, legal persons and other organizations, establish, alter or terminate civil right - creating an obligatory relationship between them. This provision is made in accordance with the General Principles of the Civil Law: First, what the contact applies to is civil relationship between subjects with equal status. The administrative activities of the government to maintain economic order according to law come under the category of administrative relationship, not civil relationship and are therefore governed by administrative laws, not by the contract law; the internal managerial relationships of legal persons and other organizations are governed by laws on companies or enterprises, not by the contract law, either. Secondly, the contract law mainly governs the economic and trade relationship between legal persons and other organizations, at the same time including the contractual-legal relationship arising from marriage, adoption, guardianship, etc. are not governed by the contract law. Compared with that of the three existing contract laws, the scope of application of the Draft Contract Law is appropriately enlarged.

2. The Basic Principles

The basic principles of the Contract Law provided for the Draft Contract Law are as follow: First, equality and voluntariness. With equal legal status, the parties to contract enjoy according to law the right to conclude a contract voluntarily. No party may impose his own will on another and no unit or individual may illegally interfere. Secondly, fairness, honesty and good faith. Both parties shall observe the principle of fairness in determining their rights and obligations and shall comply with the principles of honesty and good faith in exercising their right and performing their duties. Thirdly, observation of law. In concluding and performing a contract, the parties shall observe the law and administrative regulations, respect social ethics and they may not disrupt public and economic order or impair public interests.

The principle of voluntariness embodies the fundamental characteristics of civil activities and is therefore the unique principle of civil legal relationship that distinguishes it from administrative and criminal legal relationship, and it is also the objective requirement for developing the socialist market economy. The parties involved have the right to conclude a contract according to their own will. However, they shall exercise this right in accordance with law. Both the contents of the contract and the procedures for concluding it shall be in conformity with the law and administrative regulation. The contract concluded in violation of the compulsory provisions of the law and administrative regulations is invalid. If the law or administrative regulations provide that a contract shall take effect upon going through such procedures as approval or registration, such provisions shall be observed. Where a mandatory task is assigned or a procurement order is given by the State in light of need, the legal persons or other organizations concerned shall conclude a contract on the basis of the rights and obligations provided for in relevant laws and regulations.