On Limitation Of Actions System Concerning Contract Invalidation

Because of the particularity of an invalid contract, a considerable controversy is generated on the issue of applicable limitation of action. This paper analyses with the limitation of invalid contract in deep from Theoretical point of view. The paper can divide into 3 parts:The first part analyses the theoretical demonstration that whether an invalid contract should apply limitation of action. There are two theories about whether invalid contract should apply limitation of action: negative theory, positive theory. Negative theory have two viewpoints, the first point consider that the confirmation of invalid contract should not be confined to time. The reasons are: The first, invalid contract is illegal. It could be limited by limitation of action as long as illegal fact exists. The second, the objective of limitation of action is to push forward the parties to exercise their rights. But the subject of the invalid contract confirmation which is court doesn't fit that objective. The third, confirmation of the invalid contract does not apply limitation of action conform to the overall legal orders. Author analyses above reasons and believe that although invalid contract is illegal, The illegality is the judge of negative value and the judge of value should consider lots of factor. For the later two reasons author think that the subject of invalid contract are parties in most cases and limitation of invalid contract is not the acceptance of illegal fact because if the limitation exceed a specified period, duties produce the right of defense but not change the illegal fact to legal fact. The second negative theory regards that instead of limiting by limitation of actions, the confirmation of the invalid contract which belongs to right of formation should be limited and adjusted by scheduled period. But author believe that the confirmation of invalid contract doesn't belong to right of formation and need be limited by scheduled period because the confirmation need approved by court and can't change the rights and obligation according parties'declaration of will along. From the protection of the stability of transactions and the "Civil Law", positive theory holds the point that the confirmation of the invalid contract should be limited by limitation of action. The author believes that these two aspects alone was not sufficient proofs, limitation of invalid contract has its own theoretical basis. In this part, this paper describe that invalid contract should be applied to limitation of action. The first reason is, confirmation of invalid contract is in conformity with the principle of economics. According Coase theorem, we can generate the following conclusion that the purpose of legal adjusting the relationship between transactional costs and efficiency is to establish the legal system through which reduce cost and increase efficiency. There is a relationship between the cost and efficiency in the area of limitation of invalid contract. The reason is that once the court regards the contract between parties is an invalid contract, need the requirement for restitution of property between the parties and back to the beginning state of the contract. Then costs generated in the recovery process are often higher than the cost generated in the continue process, and the benefits generated during transaction process could be suffered. The second reason is there is conflict between the value of order and value of justice about limitation of invalid contract. The principle of resolving conflicts is to see which value has high rank and minimize the interested sacrifice when making choice. The value of order is the basis and value of justice is based on it. The best way to adjust their contradiction is the establishment of the prescription system. Prescription system shows the coordination between two different values by stipulating not only the time when obligee could exercise his right, but also suspension, suspension and extension of the limitation. Both mediation system in procedural law and obtain prescription in international law prove that legal maintains fair value in maximum based on protecting the value of order. If invalid contract does not apply limitation of action, then the fact is that the justices of some people are protected with the expense of the legal order of value. That is an realization approach by sacrificing one value to exchange for another value. That could often get less benefit than the cost and generate greater harm. Hence, the introduction of lawsuit prescription system to confirm the invalid contract finds a balance between the order and justice, reconciles their contradiction, and maximize implement the distribution of benefits and risks.The second part demonstrates the applicable of claim of restitution of property after confirmation of invalid contract. There are two theories about whether claim of restitution of property should apply limitation of action: negative theory and positive theory. Some scholars who hold the negative theory believe that claim of restitution of property after the confirmation of invalid contract is just a kind of corrective actions but not remedies right; The other scholars think that the limitation of claim of restitution of property will make illegal status is not corrected and that claim should apply limitation of action for that it belongs to real rights. The author analyzes the problem in two ways, if the return of property is res incorporeal, resulting in the unjustified enrichment claim, the limitation should apply; if there is a res corporeal, from the relevant provisions of China's current law and scope of limitation of actions and the property of real right claim, the limitation should be applied.Part III focuses on start period of the limitation of invalid contract. The start period of limitation of invalid divided into three cases, First, start from court or arbitration body find the contract invalid. This case usually occurs in the situation that the parties think their contracts are valid and the court asked the other party to perform the contract. During proceeding the case, if court found that the contract parties signed is invalid, it will declare the contract is invalid according the procedures, so there is no starting problem of limitation. The second, start from the invalid contract request by contract's parties of the contract. The start period of this kind of case should be 2 years from the time limit expiration of the contract, and should not be from the starting date of the contract. There are two main reasons to do so, one reason is invalid contract is invalid from the staring day, that is it against the legal interests on the protection of law from starting day. If the parties don't know the contract is invalid and the deadline for performance has passed two years, a absurdity situation that contract doesn't fulfill but the limitation has passed will appear. Another reason is that if one part of contract parties know the contract is invalid but the other part don't know that, the ignoratio know the damage consequence after they fulfilled. Then calculating two years from the performance is also reasonable.Third, start from the request day of invalid contract by the third part which is interested parties to the contract. This should be the performance of the contract against the state, the collective and third part. Starting point of limitation should be from the state, the collective and third part know the date of the violation within two years. The start period of the limitation of the claim after the confirmation of invalid contract should divide into two case, first is starting period of the limitation of the claim of return of property and another is starting period of damages claims limitation period. Author thinks that both cases should start from the contract confirmed by a court or arbitration body.