A Liquidated Damages System

As an ancient system of contract law, modern system of liquidated damages, which has its origin in Roman law, is still widely applied in the trade practice in each country. As an important component of civil and commercial law, contract law is the basic law which reforms the economic relations. Contract law takes an irreplaceable role in standardizing the market subjects and their economic behavior, maintaining market order and promoting economic growth. Liabilities for breach of contract are the core contents of contract law, while the payment of liquidated damages, as one of the main ways of assuming the liabilities for the breach of contract, is the quantification and monetization of the liabilities for the breach of contract. Thus, the system of liquidated damages, which is one of the basic systems of contract law, also plays an important role in contract law. As an important remedial right of the parties to a contract, liquidated damages have long been attached great attention to by the legal circle. With the establishment and perfection of the market economy, the legal position of the system of liquidated damages becomes increasingly prominent. For a long time, however, many contents of the system of liquidated damages have not been clarified, because the academic circle didn't make thorough and meticulous research in the system, they just referred to liquidated damages while researching contract law and liabilities for breach of contract. Besides, most of the contents of liquidated damages they discussed are similar without creativity and development. So there exist great divergences in some theoretical problems, and there exist, both practically and theoretically, some vague views on the quality, regulation and application of liquidated damages.Through the analysis of the basic theoretical issues of liquidated damages, this dissertation expounds the meaning, feature, quality, categorization, significance as well as the application of liquidated damages. Employing comparative study, this dissertation also probes into the applicable principle of liquidated damages at a micro-level by comparing laws and uniform international trade law of representative countries. On the basis of comparing liquidated damages with other remedial methods, this dissertation puts forward some suggestions on perfecting the system of liquidated damages in China. This dissertation is divided into four parts:Part one is about the basic theoretical issues of the system of liquidated damages. At first, the author defines the meaning of liquidated damages. Liquidate damages is an amount of money agreed upon by both parties to a contract which one will pay to the other upon breaching the agreement or if a lawsuit arises due to the breach. The author analyzes the legal features of liquidated damages. The amount of liquidated damages is agreed upon by both parties to a contract; liquidated damages are the money one party will pay to the other upon breaching the agreement; the payment of liquidated damages is a separate payment from the act of performance; the payment of liquidated damages is a form of liability of breaching a contract; the provisions of liquidated damages have the feature of autonomy and subordination. Secondly, the author expounds emphatically the quality of liquidated damages, introduces different kinds of views about the nature of liquidated damages, and proposes that the quality of liquidated damages should be of compensation and punishment. Thirdly, the author introduces the categorization of liquidated damages. There are compensatory and punitive liquidated damages, statutory and agreed liquidated damages. At last, the author discusses the legal significance of the system of liquidated damages.Part two investigates the system of liquidated damages from the perspective of comparative law. Civil law countries and common law countries are different in economic system, law concept, legislative technology and cultural traditions. Employing comparative study, this part probes into the applicable principle of liquidated damages at a micro-level by comparing laws of France, Germany, Great Britain and America. The author analyses and studies the quality, categorization, state intervention, amount adjustment as well the application of liquidated damages. Drawing on the advanced experiences from abroad and combining the actual conditions of China, this dissertation is expected to be helpful to perfect the system of liquidated damages in China. The liquidated damages system aims to maintain market order, prompt economic growth, realize fair justice and protect interests of the parties. We should learn from the advanced experience of other countries in system concept and legislative technology. The quality of liquidated damages should be of compensation and punishment. The applicable conditions of liquidates damages should be clear. We must think about the relationship between liquidated damages and other remedies. Court may intervene the liquidated damages in appropriate and limited way.Part three is about the application of liquidates damages. Firstly, the author analyses the applicable conditions of liquidates damages. The terms of liquidated damages must be effective. One part breaches the agreements. Then the author compares liquidated damages with other ways of assuming liabilities for breach of contract. In real life, breach of contract causes different damages to the parties because the conditions and circumstances of concluding and completing the contract are different. In this case, various remedial measures function in accordance with different breaches of contract and their consequences. As one of the remedial measures, liquidated damages can not take the place of other remedial measures. In practice, unilaterally emphasizing the effects of liquidated damages while neglecting the roles of other remedial measures is unfavorable to protecting the interests of creditors and maintaining the order of transaction. So a correct understanding of the connection and difference between liquidated damages and other remedial measures and the handling of superposition of liquidated damages and other remedial measure, especially when the claims are overlapping, are greatly beneficial for safeguarding the creditor's interests. In this part, the author discusses the relation of liquidated damages to damages, down payment, substantial performance as well as dissolution of contract.Part four discusses the improvement and suggestions of liquidated damages. Firstly, the author introduces the legislative status. Secondly, the author points out the deficiencies of the system. With the development of social economy, the system of liquidated damages needs improving and perfecting. At last, the author puts forward his own suggestions and views on perfecting the system of liquidated damages in our country. The quality of liquidated damages should be of compensation and punishment. Parties have the right to make agreement about compensatory or punitive. The liquidated damage is presumed to compensation without agreement. The author proposes the constitutive elements of liquidated damages. The system of liquidated damages should include the following main contents: (1) the parties to a contract may agree upon an amount of liquidate damages which one will pay to the other upon breaching the agreement, while parties have the right to decide compensation or punishment of the liquidate damages; (2) after the payment of punitive liquidated damages, the other party still has the right to ask the defaulting party to perform the contract or compensate for the loss; (3) punitive liquidated damages shall not exceed 20% of the total contract target; (4) If the parties to a contract think that the agreed liquidated damages is so low or high that their rights and obligations are excessively unbalanced, the may plead the court or arbitrary institutes for proper addition or reduction.