Conditional Contract:Default Liability In Breach Of Condition

There are few words in China law referring to the conditional contract except for the conditional juristic act in General Principles of the Civil Law of the People’s Republic of China and conditional contract in Contract law, which are too general and brief to offer any guidance to legal practice. Besides, the academic studiesin such area are even less. Generally speaking, the conditions in contract consist of two parts:what is the condition; and what effect the condition has. In Chinese law, contracting parties will negotiate the condition itself according to their willing; but the effect of the condition should be in accordance with the legal rules.Along with economic globalization, the contracting parties have growing willing in designing the contract in details to make sure they can legalize their ideas at the most in dealings. As the result, the conditions in contract are more and more complex and various.Traditionally, the typical conditions in conditional contracts are "if it rains tomorrow" or "if my son can get the admission of college", conditions like these are always contingences upon the occurrence of certain contracting events precedent to the effectiveness of a written contract, which differ from the contractual obligations.In breach of such kind of condition, the party in default will be liable for negotiation cost according to the culpa in contrahendo theory and the working-out principle which a promisor prevents or hinders the occurrence or fulfillment of a condition in a contract, and the condition would have occurred or would have been fulfilled except for such hindrance or prevention on the part of the promisor, then the performance of the condition is excused and the liability of the promisor is fixed regardless of failure to fulfill the condition.Nevertheless, recently as contracting parties would like to grant conditions more personalized effects by designing the conditions in detail, the effects of conditions vary from different types of conditions. Such as the postponing effect can be granted on the whole contract or alternatively on the specific right and obligation, one example of which is the Valuation Adjustment Mechanism (VAM). In VAM, the parties insert such a provision like "I will transfer the shares of the target company once the target company can gain the profits at certain rate"; in order to allocate the risks, the occurrence of conditions can be promised by one party, like "One party should be responsible for the governmental approval" and now the condition is also an obligation. In the result, the conditions can be categorized by the elements that have an influence on the conditions, in this way, it helps illustrate the legal rules and eliminates the potential uncertainties in economic transactions. The effects of conditions like above are obviously come from the contract instead of the legal obligations constructed by the good faith and fair dealing principle, for which the liability from such breach should be no more explained according to the culpa in contrahendo theory.In order to solve the problems above and figure out how to apply the default liability in breach of the conditions, my article will be divided into3parts:Chapter One:Recent problems:the new challenges for traditional conditional contract liability system. In this chapter, we will begin with the basic conceptions of conditional contract, by explaining the conception and theoretic categories of conditions, we make the foundation of our topic. In analyzing the shortcomings of the liability system, in which the possibility and necessity of introducing the conditional liability system lies.Chapter Two:The variety and category of condition effectsin legal practice. In this chapter, we will try to categorize the conditions in light of the condition system in common law. Firstly in establishing the standards, we compare the different standard in Chinese law and common law and select those elements that of great importance to the effect of conditions; Secondly, by making use of the standard, we make sure the effect of each category with the whole law logic in mind; Lastly, we introduce the liability system in common law system in avoidance of possible misunderstanding as a reference.Chapter Three:The feasibility of introducing the default liability in breach of the conditions. Based on what we talked in chapter two, the feasibility is illustrated in three dimensions:the freedom of contract principle, the rules on how to apply default liability and the legal practice response. In the principle, we underlying the importance of freedom of contact in conditional contract. At last, we put forward the idea that the default liability will coordinate with the liability from the culpa in contrahendo theory in breach of the conditions in conditional contract.