| When signing a contract,for the parties' fake,damages for breaching the contract will be arranged in advance.It is named agreed sums on breach of contract in Contract Law of People's Public of China.The system of agreed sums on breach also embodies the principle of Freedom of Contract in the scope of compensation for the breach of contract.However,taking the maintenance of fairness and justice in transaction as its own duty,when the agreed sums on breach of contract is overly high or low so as to unbalance the interests between the parties,civil law allows the interference of the courts to adjust the already agreed sums.In China,the system of agreed sums on breach of contract started relatively late,lacking enough practical experience,it inevitably causes problems concerned with notion,regulations,and specific application in the practice of legislation and judicature,among which the most difficult and important issue is how to judge the validity of the agreed sums on breach of contract.As a way of compensation of damages,this system means a lot in social life.Therefore,the existing problems in this system will influence the effect of its application,and then fail to implement its function.So it is necessary to study the system of agreed sums on breach of contract.Taking the system in the United Kingdom as a reference,especially its ancient case law,in the meanwhile referring to related legislation and cases in Japan,German,and Australia,this paper expounds the way to judge the validity of the agreed sums on breach of contract by means of existing law,and the way to reconstruct the legislation of agreed sums on breach of contract in China.In addition,one thing should be clarified is that in the UK Contract Law,the nature of damages paid by the defaulting party to the observant party at the time of breaching of the contract might be recognized as liquidate damage or penalty by the English court,there are two different systems.Therefore,in this article author use agreed compensation on breach of contract as the title,because it is the upper seat concept of the liquidate damage and penalty.Together with the introduction,the full text has seven parts.The introductory part mainly expounds the rules system of the current Contract Law in PRC and Judicial Interpretation of Contract Law II to determine whether the agreed sums on breach of contract are too high,and the problems that exist when these rules are applied.In the first chapter,the author introduces the development of British agreed compensation on breach of contract.This part mainly describes the development of British agreed compensation on breach of contract system before 1801.In the United Kingdom,the agreed compensation on breach of contract system includes a liquidated damages system and a penalty system,but in the early days,there was only penalty system exist.The rules of penalty in the UK contract law have a long history,and its initial development carrier is the penal bond system.A penal bond is made up of a certain amount of money paid to the other party if one party fails to perform the promise.In the sixteenth century,the judicial practice in the United Kingdom gradually began to use the penal bond to guarantee the performance of the debt,and it also has the function of verifying damages.This allows the parties to fully obtain the amount agreed in the guarantee,that is,the penalty for breach of contract,without having to prove that they have suffered losses due to breach of contract.The penal bond can be seem as the origin of the Penalty system for breach of contract in modern UK contract law.Until the end of the seventeenth century,the penal bond was the carrier of the development of the Penalty system for breach of contract.However,the validity of the penal bond has been restricted in the Equity Court for a long time,that is,the Equity Court respects the true intention of the parties,the penal bond should only be regarded as a guarantee,and the penal bond is limited to the debtor has paid damages,interest and expenses.The effect on common law.However,until the 17 th century that the Equity Court sought to provide remedy for the breach of the penalty in the event that the breach of contract was significantly more unreasonable than the actual amount of the damage.Later,even if there is an agreement on breach of contract,the debtor can waive its responsibility to pay the penalty by compensating the actual damage suffered by the creditor.Under the influence of the Equity Court,at the end of the seventeenth century,the English common law court began suspending the lawsuit on the penal bond unless the plaintiff intended to accept the monetary settlement together with interest and other expenses.After both Equity court and common court have denied the validity of the penal bond,it has no longer applicable.Along with the decline of the penal bond system,the development of the penalties for breach of contract in the English common law almost relies on the damage clause in the contract,that is,the terms agreed by the parties in the contract to replace the damages for breach of contract in common law.This development carrier has changed the status of penalty,which is no longer considered the main debt of the contract,nor merely the guarantees for the main debt.From the late eighteenth century,in the case of the debtor's failure to perform the contract,the precedent agreed in the contract that the debtor's default amount paid at the time of default was deemed to be valid as the “liquidate damage”,and in the 1801 Astley v Frances Weldon case,the distinction between the liquidate damage and penalty was established.In the second chapter,the author discusses the basic theory of agreed compensation on breach of contract.This part is the most basic content of the UK agreed compensation on breach of contract.It explains that the English law gives different effects on the liquidate damage and penalty,that is,the liquidate damages are fully valid as a pre-estimation of the losses,and the penalty is a deterrence or a punishment of violation,is completely ineffective.The British contract law denies the theoretical basis of penalty,mainly for three reasons: First,the British common law damage compensation concept think that compensation for breach of contract is for the purpose of filling the damage,not for the purpose of punishing the defaulting party;2.The irrationality of the agreed compensation for breach of contract is the theoretical basis developed in the precedent.The unreasonable amount of damages for breach of contract agreed by the parties is also the basis for denying the validity of this amount;3.It is the public policy in the UK contract law.It is the theoretical basis for negating the validity of contracts in the British contract law,and it is the oldest theoretical basis for negating the effectiveness of penalty of contract.In addition,the scope of the cases that can be applied is also expanding based on the rationality and the enormous influence of the UK's agreed compensation on breach of contract system in the specific application.In English law,the scope of application of the agreed compensation on breach of contract system is initially limited to cases in which the parties to the contract agree that the defaulting party should pay a non-defaulting party when the breach occurs.After the development and confirmation of the British case law,the scope of application of the UK agreed compensation on breach of contract system extends to the two situations that is deprive a party of the amount that should have been granted,and requires the non-defaulting party to have no consideration or to transfer the property at a price lower than the value of the property.Moreover,there is a tendency for the UK's penalty clause system and the applicable rules of the penalty to merge.It is precisely because of the UK contract law for the liquidate damages and penalty.In the third chapter,we distinguish the traditional standard of liquidate damage and penalty.The most controversial issue in the UK's agreed compensation system is the distinction between the liquidate damage and the penalty.This is a matter of constant dispute since the establishment of the distinction between the two.In the nineteenth century,the English common law court established a criterion for seeking the intent of the parties,that is,trying to determine whether the terms of the dispute in the case were liquidate damage or penalty by interpreting the intention of the parties.Then,driven by the precedents of the late nineteenth and early twentieth centuries,in the Dunlop case of 1914,the judges of Dunedin proposed the tradition of distinguishing between liquidate damage and penalty on the basis of the precedent.The standard,and for the entire hundred years thereafter,applies to the case of determining whether the amount agreed in the contract is liquidate damage or penalty.The core content is based on the maximum loss caused by the breach of contract that the contracting party can foresee and can accurately estimate when the contract is concluded,to determine whether the agreed compensation on breach of contract by the parties at the time of conclusion of the contract is a penalty or not.In the following 100 years,it was applied as “ quasi-code” to the case of determining whether the agreed compensation on breach of contract is a penalty.In addition,in the Dunlop case,Judge Atkinson's opinion was not been adopted in the judgment,but was later referred to as a new standard that replaced the traditional distinction standard established by Justice Dunedin.Judge Atkinson proposed that the non-defaulting party has the benefit in the performance of the contract,he believes that the creditor's interest is not necessarily limited to the mere compensation for breach of contract.The criterion for judging whether the amount agreed in the contract is penalty should be the creditor's interests when he performing the contract which is “performance interests” of the parties.In the fourth chapter,the author discusses the presentation,development and establishment of commercial justification.Most of the cases related to items of damages after the Dunlop Case will refer to the traditional criteria established by Judge Dunedin.However,considering the problems possibly caused by the the traditional criteria,from Case Phiplips,in some much more complicated cases British Courts manages to make a broader explanation of criteria put forward by Judge Dunedin.Namely,according to Judge Dunedin's criteria,agreed sums in some cases will be considered as liquidated damage.But regarding the specific condition,the validity of agreed sums will be confirmed,and therefore overthrow the previous conclusion.In the judgment of the Court of Appeal in the Lordsvale case,Judge Colman proposed a standard of commercial justification in which the use of “commercial justification” as a reason to negate the liquidate damage is penalty in the judgment.Judge Colman did not mechanically apply the traditional distinction criteria and directly endorsed the applicable results,but sought to achieve fairness in the specific case.In the subsequent Cine case,Judge Mance reinterpreted the standard of commercial justification,which pointed out in the judgment that the pre-estimation of the real damages and the dichotomy of the penalty did not necessarily cover all the possibilities.It is possible that an article works at the time of default but does not fall into any of the above categories,and such article can be fully justified commercially.In addition,Judge Mance has given the terminology a modern meaning,changing the criteria from “loss of foreseeable contract at the time of contract formation” to “the damages that non-defaulting parties can obtain under common law”,from subjective criteria to objectivity criteria..In the Murray case,Judge Arden proposed a broad standard of justification,extending the “commercial justification” standard to the “legitimateness” standard,which means that the contract is commercially justified one of the ground to prove the distinction between the agreed compensation in the contract and the compensation that parties can obtain under common law,according to the specific circumstances of different cases,the existence of other justifications can also prove the legitimacy of the relevant breach of contract compensation.In addition,Judge Arden provided a detailed set of guidelines that he considered practical and relevant to the issues that the court should ask in such kind of cases.In the judgment of Judge Buxton of this case,his objection always requires comparison of the agreed compensation in the contract and the compensation that parties can obtain under common law,and believes that the method for distinguishing between liquidate damages and penalty should not be limited to one criteria,it's inappropriate.This view is also supported by the judge of Clark in this case,he thinks the result of the comparison between the amount that the defaulting party should pay in case of default and the amount of loss that may be suffered by non-default should be only “relevant” element shall not play conclusive function.Whether the amount be paid while breaching of contract is penalty also needs to consider other issues of the case.After the Murray case,commercial justification standards were applied in many cases,but until 2013 the Cavendish case appealed,there was no precedent to establish explicit standard to make commercial justification coexists with traditional standards,and then construct a broader standard.It was not until the judgment of the Court of Appeal in the Cavendish case that the status of commercial justification was formally established.But the traditional distinction standard has not been completely abolished,and the judges of the Supreme Court of the United Kingdom believe that there is still room for application transitional standard in "simple" cases.At this point,the core content of the traditional differentiation standard constructed by Judge Dunedin was reconstructed.The core content of commercial justification at that time can be summarized as follows: “ If the agreed compensation in the contract is higher than the non-defaulting party' s actual loss,then the agreed compensation shall be recognized as penalty.However,in the case the purpose of the agreed compensation is not to prevent the breach of contract,and there are reasonable grounds to prove that the agreed compensation has commercial justification.” This is also referred to by the British judge as "the modern application of traditional distinction standards."In the fifth chapter,the author discusses the newest standard to distinguish the liquidated damage and default fine.The final judgement in the case of Cavendish and Parking Eye establishes the true test whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.These are the real standard to distinguish the liquidated damage and default fine.Therefore,interest of non-breaching party when performing the legitimate right,instead of the loss anticipated caused by breach when signing the contract,comes into being the standard to judge whether the agreed sums or items of contract is impractical or unreasonable,which in fact increases the interest of non-breaching party.In addition,for the future development of the UK agreed compensation,the judges of the Supreme Court of the United Kingdom believe that the dichotomy of liquidate damage and penalty is still fundamental,and penalty should not be abolished.Moreover,they also think that the scope of application of the UK agreed sums system should not be limited or expanded,and the existing scope of application should be maintained.In the sixth chapter,the author investigates the enlightenment of British agreed sums system on its application and development in China.First of all,based on the specific conditions of legislation system and judicial practice in PRC,after determining the nature of whether liquidate damage is too high,we can refer to the relevant rules in the UK contract law without changing the existing system of regulations,to explain the application of Article 114 of the Contract Law and Article 29 of the Judicial Interpretation II of Contract Law as well as the definition of the meaning and extension of the terms in those article.The specific meaning of "actual loss" shall be the same as the meaning of "loss caused by breach of contract" in the Contract Law;secondly,"the degree of fault of the party" shall not be used as a criterion for determining whether the liquidated damage is reasonable;here,The consideration of "the degree of fulfillment of the contract" can refer to the civil legislation and precedents of the United Kingdom,France and other countries,under the condition of the parties can obtain the benefits by partial performance of the contract to reduce the penalty;fourth,“the capacity of the contracting parties” should not be used as one of the factors to determining whether the liquidated damages are too high.Finally,the scope of the "comprehensive factors" should use amplified interpretation,that is,the actual situation of specific case should be comprehensively considered.Through the way of explanation,try to unify the application of the standard for determining whether the liquidated damages are too high.In addition,in the legislative theory,we should realize the transformation of the legislative guidance from centered on the “balance theory" to “contract interest theory",and replace the “performance interest" with the "actual interest" of the parties as the standard to determine whether the amount of liquidated damage is exorbitant.And also adopt a broad interpretation of the party's performance interests,including not only the “performance of interests” in the usual case,but also the legitimate interests of the parties,such as the subjective interests of the parties which are legitimate and recognized by the court. |
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