Lift The Legal Effect Of Breach Of Contract

The termination legal system of contract intends to release the parties out of regional contract and protect the benefit of observant party and punish the default party. The termination of contract includes the termination based on agreement and law. The termination based on law includes the termination caused by breaching the contract or not. The termination based on agreement reflects the principle of contract autonomy and the legal consequence can be handled by the parties. The termination not caused by breaching the contract shall not put the liability on the parties since the termination is not caused by the fault of parties. So the focus of termination of contract is the legal consequence of termination caused by breaching the contract.The retrospective effect of termination of contract relates directly the specific legal consequence of termination, so the definition of retrospective effect is the first question which shall be discussed. There are four theories of retrospective effect of termination, that direct effect theory, indirect effect theory, compromise effect theory and clearing relationship theory. Clearing relationship theory is a new theory and the current theory in German. This theory makes up the legal defect of direct effect theory and can realize the value and function of termination of contract more effectively than indirect effect theory and is more stable than the compromise effect theory. As the clearing relationship theory is more reasonable than other three theories, our country shall learn from it.Based on the clearing relationship theory, the specific legal consequence of termination of contract is different from these based on other three theories. Repristination is the main content of clearing relationship theory. The understanding of repristination shall not limit to the return of original subject and the contract type of return. So the repristination shall be understood broadly that give priority to the return of original repristination and take the value compensation as the complement.Direct effect theory denies the applying jointly of termination of contract and compensation for damages and only one of them shall be applied in one case. Some countries has broken through it in legislation but can not give a explanation to the logic. The clearing relationship theory makes up this defect and establishes the foundation of logic for applying jointly of the termination of contract and compensation for damages. Based on the clearing relationship theory, the scope of compensation shall be in accordance to the standard of performing benefit. Furthermore, the acquirability benefit and other expenses caused by breaching the contract shall be included in the specific scope of compensation.The penalty is a method of compensation for the damages which is provided in the agreement. According the direct effect theory, the contract shall be termination from beginning, so the penalty has lost the base of applying. The clearing relationship theory has made up this drawback and protects the benefit of observant party more powerfully and punishes the fault party which realizes the value and function of termination system of contract.