On The Adjustments To Promissory Liquidated Damages

In Chinese history, since the Han Dynasty at the latest, till the Three Kingdoms, Jin Dynasty and the Northern and Southern Dynasties, there are always specific provisions in various types of contracts, stating that neither side can pull back and the side who regrets will be punished or The side who does not compensate after the expiration will the penalized. And so on. Chinese contract system was further improved during the Sui and Tang dynasties. According to excavated contract documents, most of them contain such clauses like the penalty from the first regretting side will be given to the other side who does not regret and After the contract is legislated into coupons, neither side can pull back, and the one who regrets will be punished with double fines and so on. Such provisions are known as the punishment for breach of contract and are considered to be the security provisions. They are to guarantee the contracts to be performed. This type of civil practice had been continued until the Qing Dynasty and the period of the Republic of China. Chinese original contract legislation provided with Liquidated damages system, and has always been stressing the punitive and legal nature of liquidated damages, which is subject to our original planned economic system. As China's development of reform and opening--up, the prosperity of market economy and the promulgation and implementation of Contract Law, Chinese liquidated damages system has made a significant change. It expands the freedom of every party in transactions, reduces the intervention of states and allows the parties making appointments on the penalty freely, which has a great significance in giving full play to the autonomy of the contract parties to encourage them to carry out a wide range of transacting activities. However, when it sets up the promissory liquidated damages system, Contract Law also clarifies the legal adjustments to promissory liquidated damages. Article 114, Section 2 of Contract Law states that When the promissory liquidated damages is lower than the losses, the parties may request to the people's court or arbitration agencies to increase the penalty sum; when the promissory liquidated damages is much more than the losses, the parties may request to the people's court or arbitration agencies for an appropriate reduction. This provision provides the contract parties with the right to request the authority to increase or decrease the promissory liquidated damages through arbitration or lawsuit proceedings in condition of its being too low or too high. However, the law has not any specific provisions about the adjusting extent or procedure and there is no uniform standard in practice. Scholars from states have a considerable controversy over the nature of promissory liquidated damages and the relational theory of actual performance between the promissory liquidated damages and the payment of damages. Most scholars believe the liquidated damages provided in Article 114, Section 2 of Chinese Contract Law, to be based on the principle of compensatory liquidated damages in real spiritual terms. Some scholars agree with it as punitive promissory liquidated damages; some argue that the promissory liquidated damages have both the compensatory and punitive properties. Different understandings based on promissory liquidated damages also cause different results in the application. Scholars have little study and have not reached a consensus about whether the adjustments to promissory liquidated damages are reasonable, how the states in the world put forward their adjustments or what characteristics those rules of adjustments to promissory liquidated damages provided in Chinese Contract Law have. As for the issues above, the author will put forward the perfection of Chinese rules of adjustments to the promissory liquidated damages and give a clear distinction between compensatory Liquidated damages and punitive damages, from the analysis on the Legitimacy of adjustments to promissory liquidated damages, the analysis of rules of adjustments to promissory liquidated damages in China, combined with the comparative study on the adjustments to promissory liquidated damages in the two Legal Systems. The author also determine different proportions based on different natures of liquidated damages which makes Article 114 of Chinese Contract Law more operational and unifying in practice.Starting from the demonstration about the legitimacy of the adjustments to promissory liquidated damages in first chapter, the full text focuses on the evolution of promissory liquidated damages system in China, its characteristics, natures and values and also analyzes the reasonableness of the adjustments to promissory liquidated damages. This article elaborates four types of characteristics: The amount of promissory liquidated damages is determined by consultations between the two parties; Promissory liquidated damage is a certain amount of money or other payment; the payment of liquidated damages is independent form the performance of acts; the payment of liquidated damages is a kind of civil liability. The analysis on the inherent nature of the liquidated damages has revealed that Chinese Contract Law provides liquidated damages with the natures of compensation and penalty, but the basic nature of it is the nature of compensation. At the same time, there is also analysis about the value of rapid and convenient compensation of promissory liquidated damages to the parties and its function of urging them to play the role of its obligations under the contract and securing punitive liquidated damages and the courts and arbitral bodies' principle of utility. Finally, this chapter finds the basis of the legitimacy of adjustments to promissory liquidated damages from the freedom of contracts and the value of the law. Intervention and adjustments to promissory liquidated damages are reasonable and it just can demonstrate the spirit that the principle of justice should appropriately restrict on the principle of freedom in contract, reflect the prohibition to the abuse of the contract rights in law.Chapter two inspects the rules of adjustments to promissory liquidated damages in the two Legal Systems, finds out that, in generally speaking, civil law countries will not completely deny the agreement of the two parties just because the liquidated damages is too high or too low, but they will achieve its adjusting purpose by defaulting on the adjustment to the amount of it; British & American law achieves its adjusting purpose through the denial to the punitive nature displayed by the too high liquidated damages. These find out the empirical method basis for the adjustments to liquidated damages in China.Chapter Three observes Chinese adjustments to liquidated damages from the explaining perspective. Chinese original contract legislation provided liquidated damages system, and had always been stressing the punitive and legal nature of it. The text comments on the justice provisions of the law for Article 31 of The Economic Contract Law, Article 17 of The Regulations on Contracts of Farm and Sideline Products, Article 35 of The Regulations on Contracts of Industrial and Mineral Products, Article 20 of Foreign Economic Contract Law and Article 114 of Contract Law, and explains clearly the specific provisions of the adjustments to promissory liquidated damages in Chinese law. The author does some analysis research and puts forward own point of view on the comparative standards of adjusting the level of promissory liquidated damages and the range of increasing and reducing it starting from the studies on the substantive rules of adjustments to promissory Liquidated damages and own opinion about the procedures of liquidated damages adjustments to.Chapter Four is about the improvement of the rules of adjustments to liquidated damages in China. In practice, there are some major shortcomings in promissory Liquidated damages system provided in Contract Law: It does not formulate the nature of promissory liquidated damages clearly, which causes difficulties in the application. The law does not make a definite provision on how to increase or decrease promissory liquidated damages and lacks some procedural requirements on adjusting the amount of it. Generalization and carelessness to provisions about the responsibility for liquidated damages in Contract Law is the main source causing the deficiencies of the liquidated damages system. In particular, the key problem is that there is no specific provision of the nature of liquidated damages and the adjustments to it, which easily make misunderstanding. The author believe that scientific context in civil law countries should be referred when China's actual conditions is under consideration, to revise Chinese Contract Law from the aspects such as clarifying the nature of promissory liquidated damages, determining the amount of promissory liquidated damages and the application of other remedies for breach of contract according to different natures, clearly setting up the range of adjustments to Liquidated damages in amount and so on. So that Contract Law will reach its Legislative purpose of making clear distinction between two types of liquidated damages and makes the adjustments more operational in order to fully reflect the principles of freedom of contract, maintaining a fair, just and efficient development of l market economy...