Application of the Defaulting Party's Right to Rescind the Contract in Chinese Civil Code

Shiyu Wu; Yinglai He

doi:10.54097/rpt0bx10

Authors

Shiyu Wu
Yinglai He

DOI:

https://doi.org/10.54097/rpt0bx10

Keywords:

Defaulting party; right to rescind contract; efficient breach; breach of contract liability.

Abstract

The issue of "whether the defaulting party has the right to rescind the contract" in Article 580, paragraph 2 of Civil Code of the People’s Republic of China (abbreviated as Chinese Civil Code) has given rise to many controversies. After organizing the practice cases, the focus of the controversy should be placed on the basis of the legitimacy of the right, that is, in the event of a material breach of contract and other circumstances, can be considered to give the defaulting party "the option of remedy means for breach of contract". Although this system is similar to the theory of "efficient breach" in the common-law system, there are significant differences in the specific application of the two systems. It should be further clarified that the party in breach of contract enjoys not the right to terminate the contract, but the right to rescind. And the subject who has the right to exercise this right is the defaulting party itself rather than the people's court or arbitration institution. When applying the system, in addition to considering the scope of cases specified in Chinese Civil Code, it should also be combined with the relevant provisions of the Minutes of Civil and Commercial Trial Work Conference of the National Court. Only when the defaulting party subjectively meets the requirements of "there is no malicious breach", "the conduct of the abiding party is contrary to the principle of honesty and credibility", and objectively meets the requirements of "obviously unfair to the defaulting party" and "the purpose of the contract cannot be achieved", can the defaulting party rescind the contract. As an innovative right, the defaulting party's right to rescind the contract must be exercised across a number of legal hurdles. Only in this way can the fairness of the transaction and the order of the market be safeguarded, and the right to rescind the contract be ensured that it does not become a legal tool for evading responsibility.

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References

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[2] Tian Meng, Research on Deadlocked Contract recession Rules, masteral dissertation, Anhui University, 2023，pp.17-23.

[3] Yi Jia，Study on the Right to rescind the Contract of the Defaulting Party under the Vision of Chinese Civil Code, masteral dissertation, Lanzhou University, 2023, pp.18-21.

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[7] Cases in the period of the Contract Law that support the exercise of the right of rescission by the defaulting party include: Beijing Third Intermediate People's Court (2018) Beijing 03 Min-End No. 3178 Civil Judgment.Shanghai No.1 Intermediate People's Court (2010) Civil Judgment No. 1191. Jilin Higher People's Court (2020) Ji min-End No. 409 Civil judgment;Zhejiang High People's Court (2020) Zhejiang Min-end 777 civil judgment；Anhui Province Chizhou Area Intermediate People's Court (2018) Wan17 Min-End No. 419 civil judgment。

[8] Cases against the defaulting party's exercise of the right of termination during the period of the Contract Law include: the Hubei Higher People's Court (2014) E Minyi Final No. 00077 Civil Judgment; and the Shenzhen Intermediate People's Court of Shenzhen City, Guangdong Province (2015) SZZFH Tizi No. 10 Civil Judgment.

[9] Cases from Chinese Civil Code period supporting the exercise of the right of rescission by the defaulting party include: Shanghai No. 1 Intermediate People's Court (2021) Shanghai Civil Final No. 2526 Civil Judgment; Jilin Province Tonghua Intermediate People's Court (2023) Ji05 Civil Final No. 686 Civil Judgment; Liaoning Province Anshan Intermediate People's Court (2022) Liao03 Civil Final No. 4266 Civil Judgment; Qingdao Intermediate People's Court (2022) Lu02 Civil Final No. 10113 Civil Judgment; and Qingdao Intermediate People's Court (2022) Lu02 Civil Final No. 10113 Civil Judgment. Civil Judgment No. (2022) Lu 02 Civil Final 10113 of Qingdao Municipal Intermediate People's Court, Shandong Province.

[10] Cases against the defaulting party's exercise of the right to rescind during Chinese Civil Code period include: Liaoning Province Shenyang City Heping District People's Court (2023) Liao 0102 Minchu 8367 Civil Judgement; Jilin Province Yanbian Korean Autonomous Prefecture Intermediate People's Court (2023) Ji 24 Minzhu 641 Civil Judgement; Beijing Municipal No. 3 Intermediate People's Court (2021) Jing 03 Minzhu 18421 Civil Judgement Civil Judgment No. (2021) Su 06 Civil Final 3352 of Nantong Intermediate People's Court, Jiangsu Province.

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[35] Article 59 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Contract Section of Chinese Civil Code of the People's Republic of China, "Where one of the parties requests the termination of the contractual relationship of rights and obligations in accordance with paragraph 2 of article 580 of Chinese Civil Code, the people's court shall generally take the time when the copy of the complaint is served on the other party as the time when the contract rights and obligations are terminated. According to the specific circumstances of the case, if other time is more consistent with the principle of fairness and good faith, the people's court may take such time as the time of termination of the contract rights and obligations, but it shall fully explain the reasons in the judgment document."