Study On The Termination Of The Equity Transfer Contract Of Installment Payment

The Supreme People’s Court Guidance Case No.67 establishes that in the equity transfer contract of installment payment,when the transferee’s overdue payment amount reaches one-fifth,the referee rule of Article 167 of the Contract Law is not applicable,which is intended to restrict the exercise of the right to terminate the commercial contract.However,the reasons described in the judgment are unreasonable,including that installment sales contract generally aims at life consumption,and the equity transfer contract of installment payment has three special characteristics different from general installment purchase and the right of rescission should be restricted due to the consequences of the termination.It is difficult to guide the judicial practice in the future.Combined with the current situation of practice,the law applicable to the termination of the equity transfer contract of installment payment is very controversial.The focus of the case is concentrated on the condition and the legal effect of exercising the rescission right.The dissolving of the equity transfer contract of installment payment is a loophole in the commercial law,so it is necessary to find a way to fill the loophole with the method of interpretation to highlight the particularity of the application of the commercial contract law.The property rights of equity determine that the transfer of equity can be applied to the provisions of the Contract Law on the termination of the contract,while the non-property rights determine that the provisions of the civil law should be applied in combination with the Company Law and the special properties of relevant commercial contracts.Regarding the conditions for the exercise of the right to terminate the contract of the equity transfer,the dispute is whether the transferor can exercise the rescission right stipulated in Article 167 of the Contract Law.Since the provisions of Article 167 do not reflect the special protection for consumers neither in theory nor in practice,it is impossible to conclude that the scope of application of article 167 is limited to the consumer contract.In conjunction with the legislative purpose of Article 167,the constitutive elements of the right of rescission shall be filled in by vulnerabilities,and it may be concluded that the exercise of the right of rescission shall meet the requirements of the reminder and the grace period for performance.This kind of contract is equivalent to the sales contract with equity as the subject matter.The termination of the equity transfer contract can be guided to the sales contract in accordance with Article 174 of the Contract Law.Although the delivery of equity is special,the equity transfer contract of installment payment can meet the essential characteristics of the installment purchase,which means delivering the subject matter first.At the same time,the two have the same transaction structure in which the seller grants the buyer credit and bears the risk of price recovery.Since the similarity judgment of the analogy application is satisfied,the termination of the equity transfer contract of installment payment can be applied analogously to Article 167.But the equity transfer contract is a commercial contract,which pursues efficient and reasonable allocation of efficiency and social resources.The right externalism after the delivery of equity will generate reasonable trust of the counterpart,which will result in high cancellation costs.It can be seen that the equity transfer contract cannot absolutely apply to the cancellation right of installment purchase contract,and exercising of the rescission right should be appropriately restricted in consideration of its particularity.Applying the interpretation method of interest measurement,the restriction principle is to take into account the interests of the contract performance and the company on the premise of ensuring the interests of the transferor,and excluding the application of the right of revocation of Article 167 in exceptional circumstances.The restriction method is to set the sequence of exercising the two rights of requesting full payment and termination of the contract,or the company will pay the equity transfer payment and recover the compensation from the transferee when the contract termination damages the company’s interests.The judicial practice should follow the principle of curing the defects in contract performance instead of terminating the contract.In terms of the legal effect of termination of the equity transfer contract,the responsibility for the restitution and compensation for damages stipulated in Article 97 of the Contract Law are applied.The member property of the equity determines that the equity is attached to the company.The effect of the termination is specific due to the provisions of the Company Law.The particularity of restitution is reflected in the need to fully return equity and fruits.The scope of the equity fruits includes dividends,bonus,capital reserves turned into stock,surplus reserves allocation,etc.The validity of the contract signed by the transferee on behalf of the company shall not be affected.At the same time,there may be two kinds of obstacles to the return of equity: one is the restriction clause of the company law on equity transfer,including the restriction of shareholders’ preemptive right and the proportion and time limit of equity transfer.The second is that the transferee transfers the equity to a third person,which constitutes good faith.At this time,priority should be given to protecting corporate compatibility and the third party’s reliance interest.The transferor can ask the transferee for discount compensation.As for damages,the liquidated damages agreed by the parties in advance shall be applied first.The application of deducting the penalty in the equity transfer contract should be restricted in principle,but not completely excluded.The criteria of “excessively higher” losses should be flexibly adjusted according to commercial practices.In the case where the liquidated damages or calculation method of damages is not agreed in advance,the loss of the profit available to the transferor needs to be determined by the difference between the contract price of the equity and the market price.In addition,after the equity is delivered,the transferee may abuse the shareholder’s rights or management rights to damage the interests of company or other shareholders.The company shall act as the entity or the shareholder file a representative action for infringement damage in accordance with the provisions of the company law.