made by the seller with regard to housing and related facilities within the scope of the for-sale residential housing development plan, and these illustration and promises will materially affect conclusion of the purchase contract of the housing as well as the purchase price, the advertisement or advertising materials shall be deemed as on offer. The Supreme People’s Court further indicates that in this situation, the advertisement and advertising materials shall become the contents of the contract even if they are not included in the contract, and the party who fails to adhere with these contents shall be liable for breach of the contract.19

1.2. Legal Effect of Offer

An important issue is the time for an offer to take effect. Under the Contract Law, an offer, once made, will not become effective until it is received. It should be noted that with regard to an offer, a so-called “Arrival Rule” rather than “Mail Box” rule is applied in China.20 Article 16 of the Contract Law provides that an offer becomes effective when it reaches the offeree.21 A critical term that is used in this regard is “arrival time”. In Chinese judicial practice, to determine the time of “arrival”, the court will look at whether the offer has arrived in the place that is controllable by the offeree, not necessarily in the hand of the offeree.22

If, however, the offer is made through the means of data-telex, and the recipient has designated a specific system to receive the data-telex, the time of arrival of the offer will be the time when the data-telex enters into the system. But when no specific system is designated, the time when the data-telex first enters to any of the recipient’s systems shall be deemed as the time of arrival.23 It is commonly understood that the system as used in Article 16 refers to computer system though Article 16 does not specify it.

Under the Contract Law, when an offer takes effect, it may not be withdrawn, and the offeror would be bound by it unless offeror had indicated in advance that he would not be bound by the offer. But, if offeror does not

19See the Supreme People’s Court, the “Explanations to Several Questions Concerning the Application of Law in Adjudicating the Disputes Arising from the Contracts for Sales of Commercial Housing”. Available at http://www.law-lib.com/law_view.asp?id 74535 (last visit December 20, 2003).

20“Mail Box” rule means that an offer will become effective at the time it is mailed, while under Arrival Rule the offer is effective upon its arrival at the offeree.

21See the Contract Law, art. 16.

22See Economic Law Chamber of the Supreme People’s Court, Contract Law Explanation and Application, 116–117 (Xinghua Publishing Press) (1999).

23See Article 16 of the Contract Law.

take place before the offer becomes effective. Because the Contract Law does not impose any restriction on the withdrawal of offers, it is generally understood that any offer could be withdrawn before the offeree receives it.

For an offer to be withdrawn, it is important that a notice is made timely. The key is that offeree receives the withdrawal notice before or at the same time the offer reaches the offeree. What is unclear, however, is whether the notice should be made in writing or it could be made orally, e.g. by telephone. The Contract Law contains no provision in this regard, but a commonly acceptable practice is that the withdrawal should be made in the way comparable to that the offer is made. To be more specific, if the offer is made in writing, the withdrawal notice shall also be made in writing; an oral notice of withdrawal may be acceptable if the offer is made orally.

1.3.2. Revocation of Offer

An offer may not be withdrawn after it takes effect, but it may be revoked. The revocation of an offer, if made effectively, will also terminate the offer. According to Article 18 of the Contract Law, an offer may be revoked if the revocation reaches the offeree before the offeree dispatched an acceptance of the offer to the offeror.25 Therefore, a revocation may only occur after the offer becomes effective and before the acceptance is sent out. Once again, it is also questionable whether the revocation should be made in writing or it could be made orally, though the trend has been in favor of writing.

But, not every offer could be revoked. Pursuant to Article 19 of the Contract Law, an offer may not be revoked under either of the following two circumstances: (a) the offeror has specified a time limit for the acceptance, or has explicitly indicated in any other means that the offer is irrevocable; or (b) the offeree has reasons to rely on the offer as being irrevocable and has made preparation for the fulfillment of the contract.26

Article 19 (a) applies when there is a fixed time for the acceptance. Under Article 19 (a), the offeror may not revoke the offer before the time for acceptance expires. The reason is that by providing time limit for the acceptance the offeror has promised to the offeree that the offer would remain effective during the specified time period, and relied on such promise the offeree may decide to accept the offer at any time within the time limit. Therefore, it can logically be concluded that Article 19 (a) has its focus on the offeror’s intent.

On the other hand, Article 19 (b) places the irrevocability of an offer on the belief of the offeree. There seem to have three conditions under which the Article 19 (b) exception could be triggered. The first condition is that the offer

25See id. art. 18.

26See id., art. 19.

102 Chinese Contract Law

contains neither time limit for the acceptance nor any other means indicating that the offer is irrevocable. Or otherwise, it may fall within Article 19 (a). The second condition refers to the reasons for which the offeree believes that the offer is irrevocable. Although the Contract Law does not tell what would constitute the reasons, a general understanding is that if the words or phrases used in the offer or the previous dealings are so obvious or so persuasive that the offeree has a strong belief that the offer would not be revocable within a reasonable period of time, the reasons as such would then exist for purposes of Article 19 (b). The third condition is related to the second one, which is that in reliance on his belief, the offeree has done preparation work for the performance of the contract.

Note that Article 19 is regarded by some scholars in China as a legal source to impose pre-contractual liability upon the party who is at fault. The argument is that since the question concerning revocability of an offer arises in the negotiation stage for making a contract, an offer as being irrevocable does not necessarily mean that the offeror must fulfill his contractual obligations under the terms and conditions specified in the offer. Rather it would only be interpreted to mean that the offeror might be held liable for damages the offeree may have suffered due to the offeror’s revoking of the offer. Therefore, the liability so imposed on the offeror is based on the offeror’s fault in the preliminary contract making stage, i.e. breach of the promise not to revoke the offer.27

1.3.3. Void Offer

Under the Contract Law, an offer is terminated when the offer becomes null and void. According to Chinese scholars, a void offer would mean that the offer has lost its legal effect and is not binding to anyone. Further more, when an offer is null and void, the offeree’s power to accept the offer would cease to be effective, and in this case therefore, even if an acceptance is timely made, it will not result in a contract.28 To simplify, a void offer deprives the offeree of the power or ability to accept the offer.

Article 20 of the Contract Law specifies four situations under which the effect of an offer will be affected. As listed in Article 20, an offer becomes null and void if (a) a notice to reject the offer has reached the offeror; (b) the offeror has revoked the offer in accordance with the law; (c) the offeree fails to make an acceptance to the offer before the time for acceptance expires; or

(d) the offeree has substantially altered the contents of the offer.29

Pursuant to Article 20 (a), an offer will be terminated if rejected by the offeree. The rejection occurs when the offeree does not accept the terms and

27See Wang Liming, Study on the Contract Law (Vol. I), supra note 3 at pp. 230–231.

28See id. at p. 231.

29See the Contract Law, art. 20.