Comparison and Analysis of the Dissolution of Sales Contracts
Author of article: Lawyers of Shandong Win & Win Co. Law Firm
Summary of content: In international trade, because one party breached the contract, the other party had to request the cancellation of the contract. However, under what circumstances, the aggrieved party can request the termination of the contract and can obtain the support of the court or arbitration tribunal. Regarding the statutory right of termination of the non-defaulting party, all countries have stipulated relatively strict conditions. However, due to the inconsistency of contract laws and legal systems of various countries, there are large differences in the regulations of different countries for contract termination. Below, the author will make a comparative analysis of contract termination from the British Contract Law, the United Nations Convention on the Sale of Goods and the Chinese Contract Law.
Keywords: breach of contract, termination of contract, conditions for termination;
1. English law on the termination of contracts.
(1) Conditions and guarantee clauses.
The British “Goods Sale Act 1979” divides contract terms into three categories, one is conditions, another is warranties, and the third is innominate terms. The parties to the contract violated different clauses, and the consequences are also different. It is important to distinguish the nature of contract terms. The breach of contract itself does not terminate the contract. It only gives one party the option to terminate the contract and, if the breach is very serious, terminate the contract.
1. Under what circumstances can the terms of conditions be regarded as guarantee terms.
The second paragraph of Article 11 of the Law on the Sale of Goods of 1979 stipulates that “the clause that the seller needs to perform in the sales contract is a conditional clause, and the buyer can waive this conditional clause, or the buyer will be deemed to have violated the guarantee clause for the seller’s violation of the conditional clause. The contract can be terminated without this basis.” This article gives the buyer the option. Even if the seller violates the terms of the contract, the contract may not necessarily be terminated. The buyer has the right to waive the right to terminate the contract, or it is deemed that the seller has violated Guarantee clauses without requiring termination of the contract. The third paragraph of Article 11 stipulates, “Whether the terms stipulated in the contract are conditions or guarantee clauses. If the terms of the contract are violated, the other party can be given the right to terminate the contract. If the guarantee clause is violated, the other party will be given the right to claim compensation, but not to refuse The right to terminate the contract of goods shall be based on the interpretation of the contract in each case; a clause may be a conditional clause, even if it is called a guarantee clause.” This clause stipulates conditions or guarantee clauses, which are not rigid and cannot be written only literally Look, but from the terms of the contract, the environment in which the contract is concluded, and the purpose for specific analysis.
2. Is “time” a clause of contract performance?
“The most basic elements of contract performance are the time of performance, the place of performance, and the subject matter of performance. But is the time of performance the fundamental terms of the contract? Will failure to perform on schedule cause the other party to have the right to terminate the contract? Historically, common law has adopted In a strict way, time is considered to be an essential element of the contract, unless the parties have express intentions to the contrary. If one party fails to perform the contract within the specified time, the other party may consider the contract to be destroyed and thus enjoy the right to terminate the contract. However, equity has been adopted. The opposite rule, according to the law of equity, unless the parties have provisions to the contrary, time is not a requirement of the contract. According to Article 41 of the Property Law of 1925, the rules of equity are superior to the rules of common law, so in the contract, time generally does not constitute a fundamental clause .”
According to the first paragraph of Article 10 of the British Contract Law, “unless the terms of the contract have different provisions, the time of payment is not the main clause of the contract.” The second paragraph of Article 10 stipulates that “for the “time” in other terms For the important terms of the contract, you need to look at the specific provisions of the contract.” Therefore, we can see that for “time”, the English law is relatively not strict. The payment time is not an important clause of the contract. If one party delays the payment, the other party shall not Cancel the contract, unless there are provisions to the contrary in the contract. The principle of party autonomy mainly stipulated in English law, whether the other party can terminate the contract in violation of other provisions on time depends on the specific provisions of the contract.
In the case of Decro-Wall International Co., Ltd. v. Marketing Practitioner Co., Ltd., Decro-Wall International Co., Ltd. (plaintiff) was a French company. He signed a contract with Marketing Practitioner Co., Ltd. (the defendant) to allow the defendant to sell its products as For exclusive distributors in the United Kingdom, the defendant should pay within 90 days. However, although the plaintiff never suspected that the defendant would pay, the defendant always delayed the payment, and the defendant should pay an additional £20 (bank loan interest) for each delay. The account was not charged to the defendant’s account, but to the plaintiff’s account. The plaintiff filed a lawsuit on the grounds that the defendant destroyed the contract. The court ruled that, according to Article 10 of the English Contract Law, the time of payment is not a conditional clause of the contract, unless otherwise stipulated in the contract. In this case, the two parties did not stipulate the time of payment as a conditional clause. Therefore, the delayed performance in this case did not result in a fundamental breach of the contract, and the plaintiff had no right to terminate the contract.
(2) Anticipated breach of contract
Anticipated breach of contract means that if one party clearly indicates that he will not perform the contract before the time limit for performance of the contract arrives, the result is that the other party is likely to lose the benefits expected when the contract is concluded. If one party is expected to breach the contract, can the other party definitely terminate the contract?
In a two-year and three-month charter party (the charterer has the right to choose the length of time), it is stipulated that the rent is paid every half month. The charterer has always paid on time as agreed in the contract, but due to an error by the bank, a payment was delayed, and the owner requested the ship to be recovered on the grounds of expected breach of contract. The judge believes that the primary obligation of the lessee is to pay the rent on time according to the agreement. The payment method is installment payment, which is paid every half month. During the lease term, the lessee makes at least 42 payments and at most 54 payments. The delay of one payment does not mean Fundamental breach of contract in law. In the Frost v. Knight case, one party had married a third person and was unable to fulfill the promise to marry the other party. Knight’s actions constitute an expected breach of contract. Therefore, we believe that under the British contract law, even if one party is expected to breach the contract, for example, the seller does not deliver the goods and the buyer does not pay for the goods, can the opposite party be able to terminate the contract? We should not only look at whether the defaulting party expects to violate the contract provisions, but also whether the parties stipulate this clause as a substantive and important clause in the contract, whether one party expects the breach to be serious enough to prevent the other party from achieving the purpose of signing the contract. Whether to notify the party in breach of the period within which the contract will be performed.
The injured party has the right to rescind the contract due to one party’s misrepresentation and induce the other party to conclude the contract. In the Whittington v Seal-Hayne case, the plaintiff, a poultry breeder, was lured by the defendant to sign a house lease contract. The plaintiff mistakenly believed that the house was clean. Because of the uncleanness of the house, the contaminated water source, the plaintiff and family members were sick, the poultry had been inedible or died. Therefore, the plaintiff has the right to terminate the contract.
In the case of Bissett v Wilkinson, the seller admitted that he told the buyer that he believed that his piece of land in New Zealand “can raise 2,000 sheep” and that the buyer was not an experienced farmer, so he believed him and bought it. Piece of land. As a result, the buyer found that the land did not have such a bearing capacity, so the buyer claimed that the contract should be terminated due to the seller’s misrepresentation. The judge ruled that the buyer lost the case. The verdict is that in a lawsuit for dissolution of a contract, just like in a lawsuit requiring actual performance, when a misstatement is used as the basis of the relying party’s lawsuit, it is necessary to clarify whether the statement is a statement of specific facts or opinions Statement. Because the wrong view has caused the other party’s trust, but the other party has no right to trust it unless there is fraud.
In these two cases, why can the first plaintiff rescind the contract, but why can’t the second plaintiff rescind the contract? The criterion is: first, whether the misrepresentation substantially deprived the plaintiff of the purpose of the contract. Because according to the principle of good faith, both parties to a transaction should fulfill their obligation to inform truthfully. If one party concludes the transaction by fraud, the injured party cannot achieve the fundamental purpose of the contract. Second, whether the false statement is a fictitious part of the fact or an expression of one’s own opinions or ideas. If the facts are fabricated, it is obviously deliberate fraud, and the injured party should have the right to terminate the contract. If it is to express one’s own opinion, even if the contract is not fulfilled after the performance of the contract, the injured party cannot terminate the contract. Thirdly, depending on the status of both parties to the transaction, if the seller is an expert on the product, and the buyer does not understand the product, listens to the seller’s opinion, and buys the product and suffers serious losses in the end, the buyer has the right to terminate the contract. Conversely, if the buyer has professional knowledge and is fully capable of independently assessing the quality of the subject matter, and ultimately suffers damage, the contract cannot be terminated. In Case 1, because land is an important foundation for raising poultry, land pollution has substantially deprived the plaintiff of the purpose of entering into the contract, so the plaintiff can terminate the contract. In the second case, the seller only expressed his own speculation on the value of the land, not a statement of facts. Therefore, he did not defraud the buyer, and the buyer has no right to terminate the contract.
(4) Frustrated performance.
Frustration in performance occurred after the contract was established, but because of subsequent changes in the environment, the contract could not continue to be performed, or it had deprived the commercial purpose of the contract. Frustrated performance mainly includes: (1) The subject matter of the contract has been destroyed or is no longer available. (2) Due to changes in the law or due to war, the performance of the contract will become illegal. (3) The commercial purpose of the contract cannot be achieved. (4) The basic event on which the contract exists has not occurred. (5) Government intervention or delay.
In the Kaylor v Caldwell case, the plaintiff agreed to lease a concert hall to the defendant for a concert. However, the day before the concert, the concert hall was destroyed by a fire, and the defendant cancelled the contract. The plaintiff filed a lawsuit for rent. . It was judged that the lease contract was frustrated due to the fire, and the defendant had no obligation to pay rent. “The seller and the buyer reached a peanut sale, and the contract stipulated that the peanuts should be shipped from the Port of Sudan to the Port of Hamburg from November to December 1956 in accordance with CIF terms. On October 7, 1956, the seller ordered a ship to ship from the Port of Sudan as agreed. According to the agreement of the parties, the ship should take the Suez Canal. However, due to Israel’s invasion of Egypt on November 2, 1956, the Suez Canal was forced to close the navigation and could only bypass the Cape of Good Hope. However, the seller refused to do so. The buyer sued and the seller was frustrated by the contract. The judge ruled that the contract was not frustrated.”
Therefore, it is meaningless to claim that the contract must be terminated by frustrated performance because an event that occurred after the contract was signed has substantially prevented the performance of the contract or continued to perform the contract.
2. The provisions of the United Nations Sales Convention.
(1) Fundamental breach of contract.
Article 64 Paragraph 1 of the Convention may invalidate the contract under the following circumstances: (a) the buyer’s failure to perform any of its tasks in the contract or this Convention is tantamount to a fundamental breach of the contract; or (b) the buyer is not the seller Perform the obligation to pay the price or receive the goods within the additional time specified in Article 63(1), or the buyer declares that he will not do so within the specified time. In an international sales contract, the buyer’s main obligation is to pay for the goods on time in accordance with the contract. If the seller delivers the goods in accordance with the contract, but the buyer does not pay the payment on time in accordance with the contract, or does not pay the payment at all, the seller can declare the contract invalid. Similarly, in order to ensure the performance of the contract, the seller can also specify additional time for the buyer to perform its obligations. If the buyer still fails to perform its obligations, the seller can declare the contract invalid.
The buyer, Article 49, paragraph 1, of the Convention may declare the contract invalid under the following circumstances: (a) the seller’s failure to perform any of its obligations in the contract or this Convention is tantamount to a fundamental breach of the contract; or (b) if non-payment occurs In the case of goods, the seller does not deliver the goods within the additional time specified in Article 47(1), or the seller declares that he will not deliver the goods within the specified time. In an international sales contract, the seller’s main obligation is to deliver the goods in accordance with the contract. If the delivered goods do not conform to the contract, or the goods are not delivered on time, so that the buyer is essentially deprived of the purpose of signing the contract, the buyer has the right to declare the contract invalid. Similarly, in order to ensure the performance of the contract, the buyer stipulates additional time for the seller to perform the contract, but the seller still fails to perform the contract, the buyer has the right to terminate the contract.
Article 25 of the “Convention” defines “fundamental breach of contract” as: “The result of one party’s breach of contract, if the other party suffers damages, so as to actually deprive him of what he is entitled to expect under the contract, that is the fundamental Breach of contract, unless the party who violated the contract did not foresee and there is no reason for an equally qualified and reasonable person to be in the same situation to foresee such an outcome.”
According to this clause, “actual deprivation” is because the purpose of the contract is to realize that the seller sells the products, and the buyer wants to obtain the products he needs. If one party does not follow the provisions of the contract, the breach of contract will render the other party unable to achieve the purpose of the contract. Here, the price, time, quantity, etc. stipulated in the contract may actually deprive one party of the purpose of the contract. In terms of time, some internationally traded products have large price changes in the international market, or require very seasonal products. Delivery time becomes an important clause of the contract. If delivery is delayed, it may cause greater losses to the buyer. The buyer has the right to request the cancellation of the contract based on “actual deprivation” of what it is entitled to expect under the contract.
(2) Expected breach of contract.
Article 72 of the “Convention” states: “(1) If it is clear that one party will fundamentally violate the contract before the date of performance of the contract, the other party can declare the contract invalid. (2) If time permits, intend to declare the contract invalid. One of the parties must give a reasonable notice to the other party so that he can provide sufficient assurance for the performance of his obligations. (3) If the other party has stated that he will not perform his obligations, the provisions of the preceding paragraph shall not apply.
Anticipating breach of contract, the regulations are stricter, and “obviously sees” that if one party must have sufficient evidence to show that it can clearly see that the other party has fundamentally breached the contract. Second, unless the situation is urgent, the party intending to declare the contract invalid must give notice in advance. If the counterparty provides a performance bond, the contract shall not be declared invalid. At the same time, in order to ensure the timely exercise of legal rights by the observant party, it is also stipulated that if the breaching party has declared that it will not perform its contractual obligations, the observant party does not need to perform the notification obligation.
3. Chinese contract law regulations.
(1) Statutory termination clause
Article 94 of my country’s “Contract Law” stipulates the conditions for legal termination. The parties may terminate the contract under any of the following circumstances: (1) The purpose of the contract cannot be achieved due to force majeure; (2) Before the performance period expires, one of the parties clearly expresses or shows by its own behavior that it will not perform its main obligations; (3) The parties One party delays the performance of the debt and fails to perform the debt within a reasonable period after being urged; (4) One of the parties delays the performance of the debt or has other breaches of the contract that makes it impossible to achieve the purpose of the contract; (5) Other circumstances prescribed by law.
We can see that among the statutory conditions for termination, my country’s legislation regards force majeure as the statutory condition for contract termination. This clause does not exist in the United Nations Sales Convention. The second article of statutory termination of the contract is expected breach of contract, that is, before the performance period of the contract arrives, one party clearly and positively indicates to the other party that it will no longer perform the contract, so the other party can directly terminate the contract. However, the United Nations Convention on the Sale of Goods stipulates that one party clearly sees that the other party will fundamentally violate the contract, and the party can declare the contract invalid. That is, before the arrival of the contract performance period, one party discovers that the other party has a situation that will fundamentally violate the contract, for example, serious insufficient performance ability, loss of commercial credit, etc., and the contract can be declared invalid. “The debtor is delayed in performance. If the performance period is stipulated in the contract and the performance period expires and the debtor fails to perform, the creditor may cancel the contract without urging. The debtor does not perform fully, and the debtor performs the contract with the intention of full payment, but its performance is not If the purpose of the contract is inconsistent, if the debtor can still achieve the purpose of the contract after the correction, but the performance of the correction is delayed, the creditor can terminate the contract after the non-periodical debt performance is delayed. If the contract cannot be corrected or the debtor refuses to make the correction or the performance of the correction is delayed to the creditor If there is no interest, the creditor may terminate the contract without urging.”
(2) Interpretation of the statutory cancellation clause.
According to Article 26 of the “Judicial Interpretation of the Contract Law (2)”, “After the establishment of the contract, there are major changes that are not a commercial risk caused by force majeure that cannot be foreseen by the parties when the contract is concluded. If one of the parties is obviously unfair or unable to achieve the purpose of the contract, and the party requests the people’s court to modify or terminate the contract, the people’s court shall determine whether to modify or terminate the contract based on the principle of fairness and in light of the actual circumstances of the case.” This article stipulates that “significant changes” shall include three Item. First, it is unforeseeable, and it must be because the parties cannot reasonably foresee it based on their own industry experience. Second, non-force majeure has expanded the scope of events, even if they can be overcome and avoided. Third, “not a commercial risk”. Commercial risk is an inevitable risk of commercial operations. Therefore, the contract cannot be terminated by avoiding or reducing the risk of one party to the contract, otherwise the seriousness of the contract will be affected. This article is similar to the contract frustration in the British contract law. Justice Simon said: “The frustration of the contract occurred when an event occurred (both parties had no fault in this, and the contract did not provide for it), which seriously changed the ability of both parties to sign the contract. The nature of the rights or obligations that are reasonably predicted (not only costs or obligations), so in the new environment, it will be unfair to require both parties to comply with the contract.”
Article 24 of the “Judicial Interpretation of the Contract Law (2)” stipulates that, “Although the parties have objections to the termination of the contract stipulated in Article 96 of the Contract Law, they will not object until the expiration of the agreed period of objection and file a lawsuit in the people’s court. The people’s court does not support the case; if the parties did not agree on an objection period, the people’s court would not support the case if the parties did not agree on a period of objection, and the people’s court did not file a lawsuit until three months after the notice of termination of the contract arrived.”
This article makes more specific provisions for the objection period of the statutory right of cancellation, clearly stipulating that one party terminates the contract in accordance with Article 96 of the Contract Law. If the contract stipulates the objection period, the other party does not agree to terminate the contract. , You must file a lawsuit in the court during the opposition period. If the contract does not specify the objection period and the other party does not agree to terminate the contract, it must bring a lawsuit to the court within three months of the date of service of the termination notice, otherwise the right to win the case will be lost.
4. Concluding remarks.
It can be seen that my country’s contract law has fully borrowed the provisions of the United Nations Convention on the Sale of Goods on the termination of contracts, and has supplemented the provisions on “force majeure”. It has also learned from the British theory of “contract frustration”. The purpose of flexible use is to fully guarantee the fairness of both parties to the transaction and maintain the economic order of the society. However, the rules for dissolving contracts are relatively loose, which is not conducive to the stability of transactions, violates the principle of freedom of contracts, and is also detrimental to China’s foreign economic and trade development. Therefore, as my country becomes a major international trade country, we must fully consider the characteristics of the international economy and trade, take into account the seriousness of guaranteeing the performance of the contract, and use the statutory termination clause to cancel the contract to make Chinese enterprises aware of the risks and risks of the international market. Challenges, so as to constantly learn to resist business risks, can Chinese companies grow rapidly in the international market. The internationalization of my country’s contract law will also enable more international companies and enterprises to choose to apply Chinese contract law to resolve disputes when signing contracts with Chinese companies, thus accelerating the development of my country’s market economy.