Rules Of The Compensation For Obtainable Profit Of Breach Of Contract

The aims of this study on rules of the compensation for loss of obtainable profit are to promote the realization of contractual purpose, encourage trade and carry out the principle of protecting loss of obtainable profit in contract law. The order of the market economy is based on trust. Businessmen conclude a contract is to obtain profits, such as resale profit, operating profit, production profit, and the realization of these profits depends on the full performance of the other party. Any investment project is composed of a chain of contracts. After a factory signs a contract for raw material with a supplier, it will have confidence in the other party that this supplier can fully perform the contract, so the factory will arrange other commercial transactions, such as selling its products, in specific time and space. If the contract for the sale of raw material had not been fully performed, subsequent contract performance would be affected. Then this investment would fail. As a result, businessmen not only cannot get the investment profit, also may be sued by their counterparty. Therefore, studying on the compensation for loss of obtainable profit is good to ensure a high level of trust and encourage trade.Studying on the nature of loss of obtainable profit is to establish a correct concept in which this kind of loss is actual. Thus, the judicial prejudice against the negative loss will be eliminated. The establishment of internal connecting link between default and loss of profit can make the compensation for loss of profit reasonable.Analysis of inherent attributes of contractual obtainable profit is to provide a strong basis to lower the standard of proof. Natural attributes of things influence the formulation and application of law. Future is an attribute of obtainable profit. Another attribute named relative uncertainty is determined by future. The default not only causes the consequence that the observant party cannot obtain the profit, but also makes a proof obstacle to the observant party. Therefore, the study on the relationship between inherent attributes of contractual obtainable profit and standard of proof is good for the observant party to prove the loss.The study on restriction rules to the compensation for loss of obtainable profit has two purposes: on one hand, to balance the interests between the plaintiff and defendant, making the limitation to the scope of compensation reasonable; on the other hand, to sum up experience to provide a set of relatively specific criteria for judgment.these criteria can prevent unwittingly or arbitrarily wrong judgment.The study on calculation method of obtainable profit helps us to figure out what kind of problems happened to those methods, then put forward a series of practical measures, such as what kind of data can become analogical object within analogy method, under what kind of circumstances should the discretion be used and how to prevent the abuse of discretion.The choice of calculation standard will directly influence rationality of calculation results. Therefore, the research on calculation standard is conducive to get scientific results.In order to achieve the purposes above,come to the following conclusions,this paper mainly adopts empirical research method.First,summarize the problems which previous studies concerned.Second,in order to improve pertinence of case study,we need to draw a table to translate the problems summarized into statistical items.Finally,collect and analyze cases,gather statistics,extract typical cases.This study uses"pkulaw","Westlaw China"and some relevant websites."pkulaw"is the most important database of them.Case collection method:conduct full-text searches with“可得利益”,“可得利润”,“预期利益”,“预期利润”and“合同法第一百一十三条第一款”.As of September 25,2013,167 contract dispute cases had been collected from Zhejiang courts.According to the analysis results,153 cases are relevant to statistical items.In practice, contractual obtainable profit is frequently confused with contractual object or performance of contractual obligations and judges’ consciousness of protecting obtainable profit is weak, they have a prejudice against negative losses, although it is written in contract law. There are three reasons for these phenomena: the translation of international treaty is not faithful; the formulation of article of contract law is blurry; judges’ consciousness of opportunity cost is weak. So the relevant word in the first paragraph of article 113 should be “profit”. The viewpoint that from the aspect of contract law loss of contractual obtainable profit is expenditure of opportunity cost without any income can remove bias above thoroughly. Contractual obtainable profit is accounting profit. In accordance with the usual rules of the development of things or special situations especially preparations, creditor can get this kind of profit through production and operation with the performance results. From the point of view of contract law the loss of contractual obtainable profit, substantially, is expenditure of opportunity cost without any income, that is, default result in the loss of opportunity for returning a profit. The loss of opportunity cost is implicit but actual. The compensation for loss of contractual obtainable profit is conversion method of loss of opportunity cost. Characteristics of contractual obtainable profit, namely future and relative uncertainty cause this method a lot of trouble. Because of the disunity of standard, direct and indirect loss shouldn’t be used any more. Obtainable profit is only part of expectation interest. Obtainable profit and chance loss are different names of the same thing from different perspectives. The point that contractual obtainable profit, substantially, is anwartschaftsrecht is a mistake, because someone equates anwartschaftsrecht with expectant right.Actually, only highly uncertain, difficult-to-prove and hard-to-calculate obtainable profits, such as operating profit and production profit, have the low compensation rate problem, not all kinds. Because of the characteristics above, usually judges reject all claims for the following reasons: this obtainable profit is uncertain; not meet the standard of proof, namely, beyond a reasonable doubt; not meet the standard of proof, evidences submitted are insufficient; damages exist, while evidences to prove the amount of damages are insufficient, it is difficult to calculate. To lower proof standard and lift the compensation rate of such obtainable profits, we should introduce reasonable certainty standard, establish rule that distinguishes between testifying damage facts and damage amount, and need greater free evaluation.Because of a lack of specific criterion for judgment of foreseeability, discretion is abused seriously and judicial decisions are not unified. Things like role of contracting parties, contract purpose, agreement descriptions, corpore function, former transactions and negotiation record should be specific criteria for judgment of foreseeability. Usual damages ought to be foreseen by the defaulting party, while compensations for unusual ones depend on the observant party’s prior notice. The defaulting party should not only foresee the type of obtainable profit but also the amount. Subjective standard is the principle of choosing price in mitigation rule in which substitute transactions take place. Judges’ consciousness of mitigation rule, in which capital would be invested in another place, is weak. Consider reasonable idle period of capital when the second mitigation rule is applied. In general, tax benefit wouldn’t be considered in commercial cases. Interim interest wouldn’t be considered, either.In practice, market participants’ consciousness of using stipulated method is weak, so applying this way is less frequent. This calculation method cannot exploit its advantages to the full. Hence, The Contract Law needs indicative article. Analogical calculation method doesn’t contradict evidence relevancy. Plaintiff’s previous profit situation and ones of other business premises are analogical objects. Business conditions of the same industry are also analogical objects, especially, in new business cases. Often the obstacle of using analogical calculation method is the high standard of proof. Supposing obtainable profit exists, while the detailed number is unable or difficult to be figured out, judge should exercise the discretion as the case may be. Because of the lack of considering elements and the restriction of procedural disclosure rules, discretion is easily abused. Listing out the considering elements in the verdict and procedural disclosure of discretion can prevent discretion from being abused. Subjective standard is price standard, objective one as a supplement, and plaintiff has no right to choose. Objective standard restricts subjective one relatively. The observant party has right to choose time standard, but this right is restricted by mitigation rule.