On The Adaptation Of Long-term Contracts

Long-term contracts are of great importance in the business world, but legal doctrine still ignore their characteristics. The result is a discrepancy between economic practical reality and legal doctrine. Long-term contract is not a legal term of art, thus it's hard to get a generally accepted definition. The article illustrates the long-term contracts with their four key characteristics which are relational; long-term duration; incomplete; and commercial. The characteristics of long-term contracts can justify an adaptation of the contract in situations where adaptation of a different contract could not be justified.The article analyzes the methods for adapting long-term contracts at length, including commonly used adaptation clauses, renegotiation to conclude a new agreement to adjust the long-term contract, intervener clauses and court imposed adjustment of long-term contract.The article insists that for all these methods there exists a close relationship, thus the methods can be integrated into three levels. The adaptation clauses as the ex ante arrangement of the parties to the long-term contract obviously stands on the first level. The parties again can reach an agreement ax post by voluntarily negotiation, this functions as the last resort of the parties can be placed in the second level. Unlike the above two methods of parties'autonomy, legal adaptation based on the principle of changed circumstances is supplementary, thus in the third level.The Contract Law of China gives effect to the adaptation clauses and recognizes incomplete contracts as biding, moreover it also makes the variation of contract made by the parties valid. However, our Contract Law has no provision of the principle of changed circumstances. After a close examine to the legal doctrine and judicial practice, the article believes the scholars commonly advocates for the principle, while the courts are hesitated to apply to this principle with very strict standard although they don't deny it. However, this results in the rare application of the principle, thus impairs the function of the principle to facilitate the adaptation of long-term contracts as the method of the third level..The article advocates that the principle of changed circumstances must be incorporated in our Contract Law so as to complete the three-level structure of the adaptation of long-term contracts, and suggest the requisites to apply the principles with reference to the legislation and legal doctrine of both Germany, Japan, and the provisions of Hardship in Principles of International Commercial Contracts. The duty to renegotiate should be prescribed as the first effect of the principle of changed circumstances, along with the traditional effects of adaptation and termination. The duty to renegotiate should be a duty to act not a duty to get a result. Renegotiations must be in good faith, or suffer liability.