Freedom of contract is a borrowed concept. China did not accept it in the planned economy era. In the light of such historical background, it is not difficult to understand why the draftsmen sought to declare it expressly in the Contract Law. Legal textbooks on contract law published in China often devote a substantive part of the introductory chapter to discussing the justification for this concept.
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Freedom of contract
It is interesting to see the way in which Chinese academics explain the concept of freedom of contract to students. The following is a typical one.
Freedom of contract is the core principle of the modern civil law and contract law. Contractual obligations are self-imposed. People are free to make any promise they wish, or refrain from
making any promise they do not wish. Hence, individuals should be free to prescribe the scope and contact of the contracts they make. This is the underlying justification for the doctrine of
freedom of contract. Intrinsic in the doctrine of freedom of contract is that, so long as it does not violate the law and is not against the public interest, a contract reached by the parties
is legally binding and has the force of law and it should be recognized by law and be enforceable in court. The doctrine is entirely consistent with the classical essence of a free economy, as
Adam Smith advocated that,
Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his
industry and capital into competition with those of any other man, or order of men. (Source: http://www.archive.org/stream/adamsmithmoderns00smaluoft/adamsmithmoderns00smaluoft_djvu.txt)
The doctrine can be found in article 1134 of the French Civil Code:
Agreements lawfully entered into take the place of the law for those who have made them. They may be revoked
only by mutual consent, or for causes authorized by law. They must be performed in good faith.
The classic exposition of the dichotomy between private and public rights is that for private persons, they may do anything they choose which the law does not prohibit, while for public bodies the rule is the opposite, such that any action to be taken must be justified or authorized by positive law. The doctrine of freedom of contract as expressed in terms of the freedom to enter into contract, freedom to choose contractual parties and freedom to decide the content and the form of contract is exactly an application of the principle of private law autonomy.
The doctrine of freedom of contract presumes that an individual is the ‘legislator’ of his own interests. Respecting the contract means respecting the laws. Based on this principle, an individual can establish rights and obligations in the realm of civil law according to his own will. This concept is premised on dividing a human society into three spheres, namely, the state, the society and the individual. The individual sphere is free from interference by the state or the society. Within this sphere, an individual has absolute freedom to act, for otherwise, a society could not exist. Freedom is a birthright of the individual; unless expressly restricted by law, an individual’s freedom should not be restricted.
The essential elements of the doctrine of freedom of contract under Chinese law include: (1) the freedom to make a contract or not to make any contract; (2) the freedom to choose with whom one should contract; (3) the freedom to decide the contents of the contract; (4) the freedom to decide the mode in which the contract is to be made; and (5) the freedom to decide the dispute resolution mechanism to be stipulated into the contract.
The freedom of contract is often subject to various restrictions, for example:
- Mandatory obligations: In order to safeguard the legal interests and social and public interests of vulnerable groups, the contracting parties are sometimes required to observe certain mandatory obligations. For example, public utilities in China, such as water supply, electricity, gas, public transport, are prohibited from refusing consumers’ offers.
- Standard form contracts: The use of standard form contracts by business operators greatly restricts the choice of customers, who are in the weaker bargaining position. Most service providers such as banks, telecommunications operators and insurance companies insist on adopting pre-printed standard form contracts. The inequality in bargaining power is adjusted by legislation.
- Protection of vulnerable groups generally: The typical example is consumers and employees (see, for example, the Consumer Protection Law, the Labour Law and the Labour Contract Law).
Online discussion 1.2
Freedom of contract
Modern contract law was created in the 19th century as an affirmation of the concept of freedom of contract. In recent years, legislators have been creating laws to restrict freedom, particularly in the areas of consumer protection and labour law. Where should we draw the line? Please express your view.