On Gap-filling And Contract Adjustment Of Long-term Contract

The change of market makes modern business more and more complicated. The traditional “delivery vs. cash” business model fades, while the model which focuses on long-term cooperation arises. The merchants more concentrate on the stable and perennial business relationship which means win-win cooperation. Meanwhile, the un-predictable market and long-term relationship leads to unsound arrangement on future potential accident. The merchants can only make strategy when accident happens. So in long-term contracts, the party always have a leeway to the unpredictable affair. As to settlement of dispute, they hope to fix it by agreement. Because of business cooperation and special reliance and trust between the parties, unlegal factors are preferred more than legal factors.As the manage tool of transaction, contract reflects the long-term transaction. Long-term contract can ensure the cooperation relationship and lower the transaction cost. In order to restrain the opportunism of the party, ensure long-term cooperation and lower transactional cost, the party always bind each other by long-term contract. As the long duration of contract makes even more difficult to predict the potential accident, the party prefer to make a re-negotiation clause, sometimes the contract even have no clause to this circumstance which leads to a gap in contract. No matter the gap is on purpose made or re-negotiation clause, we can say the party have foreseen the potential accident. They just cannot see its affection on the transaction. So under this situation, is it appropriate to apply the doctrine of change of circumstances on long-term contract? If not, what system or method should be built to adjust contract and fill the gap in the contract?This essay is going to research on how to fill the gap in long-term contract and adjust the contract when contracting circumstances change.This essay is divided into six parts. The first part will discuss the basic issue about long-term contract. Strictly speaking, long-term contract is not a traditional catalog of contract. It obviously differs from the temporary contract. This part will discuss the characteristic of long-term contract from long-term transaction. Then the long-term contract will compare to the continuing contract, in order to know what long-term contract is. Then the author will bring out what issue long-term contract faces in adjustment and gap-filling.The second part introduces incomplete contract theory and relational contract theory. We will know more about long-term contract from incomplete contract theory and why the gap should be filled. The relational contract theory will tell us what characteristics make the long-term contract differ from temporary and why these characteristics should be considered when adjust the contract and fill the gap in contract.The third part focuses on the doctrine of change of circumstances. The application of doctrine of change of circumstances requires the party haven't foreseen the potential accident when executes the contract. But as we know, the contracting party of long-term contracts are rational merchants who have good knowledge of the industry. They can foresee the potential accident relate to the transaction. So we must make clear the boundary between foreseeable and unforeseeable. Thus, we will discuss the judgement of foreseeability.The forth part will discuss the gap-filling of long-term contract. This part will compare the method of gap-filling in civil law system and common law system. According to the characteristics of long-term contract, we can see the gap-filling method of common law system can better realize the purpose of long-term contract.The fifth part focus on the adjustment of long-term contract. The re-negotiation clause is hard to be enforced by the court, but when the accident happens, the court must adjust the contract. Under this circumstance, is it appropriate to enforce the party to make an agreement? Can this agreed obligation be made to a general obligation in long-term contract? If the re-negotiation fails, can the court intervene into the contractual relationship to adjust the right and obligation of the party? These questions will be addressed by this part.The sixth part is the summary of this essay.