On The Principle Of Changed Circumstances In China’s Contact Law

The principle of changed circumstances is one of the important principles ofcontract fulfillment and also a complex and controversial system. It is recorded in thecivil law and common law countries. Since the "Civil Law" was promulgated andimplemented in China, the role and impact of this principle in the performance of thecontract has gradually been taken seriously in the theoretical and practical circles andhas been responded by the legislature and the highest judicial departments. Constantdiscussions on how to improve the principle of changed circumstances in China’sContract Law and the specific use in judicial practice have always been held amongtheoretians and practitioners. In this paper, we explore the subject and its relatedquestions preliminarily in the following five sections:Section1is the overview of the principle of changed circumstances. This sectiondiscusses three questions:(1) the meaning and applicable scope of the principle ofchanged circumstances,(2) its history and evolution, and (3) the differences betweenthe principle and other related concepts. It is important in the effectiveness ofObligation Law on Contractual Obligations and in balancing the rights and obligationsbetween the parties restricted by Contract Law. In general, if a contract is fair when itis signed but, in the course of its implementation, due to the unexpected changes ofobjective circumstances, e.g., the social environment, a party suffered significantdamage, resulting in the unconscionability of the rights and obligations of the parties,the principle of changed circumstances should apply—referee authorities shouldchange the contents of the contract or terminate the contract so as to balance the prosand cons of interests between the parties. The principle of changed circumstances is ajargon in modern Civil and Commercial Law in the Civil law system. It originatedfrom the works of the Comment Law School in the12th and13th centuries. It has itsdeep roots in both Civil Law and Common Law systems and has evolved over time (Inthe common law system such a principle is known as the "frustration of contract"). It isrelated to force majeure and commercial risk and, at the same time, bears distinctionsfrom them. Especially, commercial risk should be excluded in the application of theprinciple of changed circumstances. Section2discusses the applicable conditions of the principle of changedcircumstances. Rooted in the principle of good faith in the Civil Law, its applicationaims to maintain the actual social fair and justice. Based on this, it allows the law tooverride the autonomous will of the parties restricted by Contract Law and to activelyintervene and interfere the contractual relationship, which thereby prevents andbalances the unjust results when unforeseeable and uncontrollable social changeshappen during the signing and fulfilling of the contract. Therefore, all countries thatrecognize and establish this principle have made strict regulations on its application.Generally speaking, the applicable conditions of the principle of changedcircumstances can be broken down into the following aspects:(1) the circumstanceschange;(2) the change of circumstances can not be imputed to the parties in thecontract;(3) the change of circumstances must take place after the contact becomeslegally and before the eradication of the contract relationship;(4) the changes shouldbe unforeseeable by the contact parties in nature;(5) the changes cannot controlled bythe parties;(6) a continuation of the original validity of the contract of will produceunconscionable results.Section3discusses the legal effect of the principle of changed circumstances. Theapplication of this principle aims to eliminate unfair results due to the changedcircumstances during contact fulfillment. To achieve this, there are three methods:(1)changing the contract,(2) terminating the contract, and (3) relieving the parties of theirresponsibilities. Thus, the legal effects of the principle of changed circumstancesshould also has the forementioned three kinds. However, the levels of these threeeffects are different. The first two are a direct legal effect of the principle of changedcircumstances, whereas relieving the parties of their responsibilities is the rule forevaluating the responsibilities of contact parties in case (1) or (2) takes place.Therefore, strictly speaking, relieving the parties of their responsibilities is only anindirect legal effect. As for the direct legal effects, changing the contract comes first.The contact is terminated when changing the contract alone still cannot avoid unjustresults, should terminate the contract.Section4discusses the theoretical establishment and practical application of theprinciple of changed circumstances in China. This principle is important in China’s lawsystem and it is affirmed by the judicial interpretation of China’s legislature and theSupreme People’s Court. Meanwhile, in China’s judicial practice, it is common to use this principle to solve cases of unfulfilled contacts, caused by unforeseeable socialchanges. Its value in the legal system of China’s socialist market economy has beenever more widely recognized and thus the principle is worthy of attention andapplication. Throughout the legislative and judicial practice of China on the principleof changed circumstances of this useful to explore and try, but compared withforeign-related legislation and practice, there are still large gaps and deficiencies.China has spent efforts in legislative and judicial practices of this principle but still hasdeficiencies and falls behind.Section5contains legislative proposals to the principle of changed circumstancesin China. The legislation of this principle mainly involves two aspects: the selection oflegislative approaches and the design of legislative content. The acceleration of China’scurrent economic and social transformation and the needs of the judicial practicesrequire this principle to play its due role as soon as possible. To achieve this, Chinashould accelerate the legislative process of the principle of changed circumstances. Inconlusion, to improve the principle of changed circumstances in China’s Contract Law,there should not be legislation limitations. Instead, China should learn actively fromthe world’s successful legislative experience and theoretical research and establish astate-of-the-art and intact legal system for the principle of changed circumstances tomake it compatible with other rules in the contact system. Jointly, they will contributeto the development of China’s socialist market economy.