On The Breach Of Contract Responsibility

The issue of penalty has consistently been one of the major focuses ofdiscussion and study of contract laws by scholars. There were variousargumentations about this issue in the academia, but because of the effectof different opinions of the two law systems, the plan of legislation ofsocialist states and the different contents of China's three contract laws,there have always been divergence among such argumentations. Althoughthere is unified provision and the legislation mode under the plannedsystem has been dismissed after the promulgation of China's existingcontract law, the effect of the divergence between the two law systems isstill functioning and even is reflected in the existing contract law. Thus thedivergence has not been solved yet. The issue of how to define penaltyaccurately is the basis for solution of the theoretical divergence and thecritical step for judicial unification.The first issue is the legal definition of penalty, which is still vacant inChina's contract law. This article brings forth a definition of penalty from thepoint of view of evolution of the concept and in light of the China's actuality.However, it requires not only literal consistency but also uniform cognitionof its content to really unify the concept of penalty. The unification ofconcept involves mainly the provisions for penalty and the method ofpayment. If the cognition on such issues is unified, it will not be easy to findthe legal characteristics of the penalty.From the above standpoints, the following issues are worth of consideringand analyzing theoretically: whether the function of penalty falls withinliabilities for breach of contract or security of debts or both;whether thepenalty is compensative or punitive or both;which character is of moreimportance if it has the both characters. These two issues, related witheach other closely, are two core issues of the concept of penalty. Theargumentation in this respect varies greatly with different countries, and thecognition about the two issues differs sharply among China's academia.The author argues that fundamentally the liquidated damage is a method ofundertaking liability for breach of contract without the function of security.China's contract laws emphasize the compensative character of penalty,and at the same time adopt its punitive function to a limited extent.Beginning with other method of remedy for liabilities of breach contract, thisarticle discusses the relationship between the penalty and four sorts ofmethod of remedy: damage compensation, specific performance,rescission of contract and earnest money, with a view to solving some legalissues applicable to actual living. This article also analyzes some issues ofapplication worthy of attention by taking specific cases as examples.In order to claim a penal clause, there is no need to prove the existenceand amount of losses suffered by the plaintiff. As to the fault of thebreaching party to be proved or not, it depends on the different types ofbreaches of contracts. The parties concerned can freely agree uponpenalty, which represents the freedom of contract. But these do notnecessarily mean that the penalty may not be readjusted. Chinese lawsadopt the principle of interfere in the provisions of penalty and thus formour own characteristics. Additionally, the readjustment of sum of penaltymust be executed on the basis of certain procedure and condition. It will begreatly favorable to judicial practice, and such issues are of particularimportance in maintaining lawful rights of the parties concerned. By suchmeans we may also realize the legal significance of the penalty.