Public Policy And The Validity Of Contract

Art. 52 (5) of the 1999 Contract Law of the People's Republic of China states that a contract infringing mandatory provisions of the laws and administrative regulations shall be null and void. As a frequently quoted clause, it has drawn wide attention, if not controversy, because of the problems arising from the theory and practice. After this, Art. 4 of Interpretation I of the Supreme People's Court of Several Issues concerning the Application of the Contract Law of the People's Republic of China(hereinafter"Interpretation I of the Contract Law of the People's Republic of China")makes this clause clear that the mandatory provisions shall be limited to the laws promulgated by the National People's Congress and its Standing Committee and administrative regulations enacted by the State Council. But this approach based on the distinction of hierarchies of mandatory rules has not eliminated the problem that the effects of the contracts are negatively evaluated. Hence, Art. 14 of Interpretation II of the Supreme People's Court of Several Issues concerning the Application of the Contract Law of the People's Republic of China(hereinafter"Interpretation I of the Contract Law of the People's Republic of China") prescribed that"mandatory rules"means the mandatory rules in effect, restricting the scope of mandatory rules that may void contracts. However, it seems that this approach is less effective than the approach of Interpretation I, since it could not even provide the standard that may distinguish mandatory rules in effect and mandatory rules in management. Thus not only did the declarations of Interpretation I of the Contract Law of the People's Republic of China and Interpretation II of the Contract Law of the People's Republic of China, with their limitations on mandatory rules, fail to out the fundamental difficulties of Art. 52 (5), but they also brought more confusions for the judicial practices. The United States Restatement of the Law Second on Contracts (hereinafter"Restatement (Second) of Contracts") has adapted another approach that contracts are unenforceable on grounds of public policy. In this paper, I would like to reacquaint the validity of contracts in the perspective of the Restatement (Second) of Contracts. Through the study on the approach of public policy and the validity of contracts stated in the Restatement (Second) of Contracts, this paper aims to provide a proper approach for the legislation of Chinese Contract Law.This Paper is consisted of three parts, which are introduction, main body and conclusion. The main body could be divided into four chapters.Chapter One mainly introduces three basic concepts of contract, the validity of contracts and public policy. Then it talks about the character of the contracts contrary to public policy in the perspective of the difference and connection between illegality and violation of public policy.Chapter Two gives an introduction to the terms that are unenforceable on grounds of public policy stipulated in the Restatement (Second) of Contracts. First, it introduces the general provision provided in Art. 178 (1), which prescribes two reasons of unenforceability of contracts on grounds of public policy: (1) in violation of legislation and (2) in violation of public policy. Second, this chapter analyses the validity of the contracts against public policy derived from the legislation. At last, it discusses the relationship between public policy developed by court i.e. the policies against restatement of trade, impairment of family relations and interference with other protected interests, and the validity of contracts.Chpater Three is about the four types of mitigating techniques under Restaement (Seocnd) of Contracts. Because of numerous contracts that are unenforceable on grounds of public policy, in some cases, refusal to allow a party to enforce an agreement on grounds of public policy seems unduly harsh. In order to coordiante the tension between public policy and freedom of contract, Restatement (Second) of Contracts have used several mitigating techniques, which allows a party to recover damages if the party was excusably ignorant, or allows the devision of the contracts into pairs of parts, or makes exceptions where a party has performed or exceptions of denial to grant restitution.Fourth Chapter first focuses on the problems that Chinese Contract Law is facing with both in theory and in practice regarding the validity of contracts, and then introduces the four approaches to deal with these problems proposed by academics, followed with the advantages and disadvantages of those approaches. In the end, taking into consideration the relevant stipulations stated in Restatement (Second) of Contracts, the paper gives suggestions on the necessity to strictly restrict the legislation on invalidity of contracts and learn from the balance of interests and mitigating techniques of the Restatement (Second) of Contracts, so that the fundamental purpose of civil law, to protect the private autonomy, could be achieved.