Change Of Circumstances

A lawfully established contract shall be legally binding on the parties thereto,which is the fundamental principle of legal system of market economy. Everyadvanced legal system has been run under the principle. According to the Article8ofContract Law of the People’s Republic of China, A lawfully established contract shallbe legally binding on the parties thereto, each of whom shall perform its ownobligations in accordance with the terms of the contract, and no party shallunilaterally modify or terminate the contract. Therefore, the principle also has beenadopted by our country.Generally speaking, each of party shall perform its own obligations in accordancewith the terms of the contract in process of transaction which lead to a result that eachof party shall assume the risk made by changed circumstance. If failed to do so, thedefault party shall bear the liabilities for breach of contract. However, an objectivefact can not be ignored is that the promise has been made based on comprehensionand anticipation at that time when the contact has lawfully been established. Differentcontracts would be made under different situation. Even no contract would be signed.After entering the contract, whether the contract shall be keep on performingwhen it is extremely difficult for one party to perform the contract due to the fact thatthere is a huge change on social and economic environment is in question. Whichlegal effect will be happen depends on the explanation of doctrine of change ofcircumstance. Generally speaking, doctrine of change of circumstance means that unforeseeablecircumstance happened which is out of parties mind or circumstance changed whichcan not be attributed to each of parties which shake the foundation of contract.Continually bound by the contract will not be in accordance with principle of goodfaith (The principle can also be explained as obvious unjust or unbalance ofconsideration). Hence, the unfavorable party is entitled to modify or terminate thecontract.As an ancient regime, it has been taken for granted that doctrine of change ofcircumstance was created by Glossators on13thcentury. Nowadays, doctrine ofchange of circumstance has played a very important role in modern civil law system.Doctrine of change of circumstance has not been adopted by Chinese ContractLaw. In2009, in order to deal with the financial crisis, the Supreme Court of Chinaadopted the principle which had been provided in Judicial Explanation of ContractLaw. As a new regime, how we can apply for the doctrine generated a universallyheated discussion.First of all, the Judicial Explanation holds the view that change of circumstanceshall be distinguished from force majeure and commercial risk which shall be furtherdiscussed. As the only disclaimer provided by Contract Law, the force majeure issimilar to change of circumstance in many ways. A clear distinction between forcemajeure and change of circumstance will lead to a narrow application for doctrine ofchange of circumstance which gives rise to the query and criticism by experts whoappeal to modify. Meanwhile, commercial risk is not a legal term. How can we put itin a right position in current legal system? Is it possible for us to make objectivecriteria for the price fluctuation in market? These problem deserve an intensivelystudy.According to the Judicial Explanation, two conditions shall be met whenapplying the doctrine of change of circumstance. One is unconscionability. The otheris that it is impossible to achieve the purpose of the contract. The article absorbs theessence from doctrine of change of circumstance in civil law system and frustration ofcontract in common law system. It is difficult to distinguish doctrine of change of circumstance from force majeure due to the fact that the article is not made in areasonable way, which leads to an incorrect application in judicial practice. Hence, itis necessary to modify the article.Meanwhile, doctrine of change of circumstance has been regarded as a specialrule which shall be developed by judgments. In view of the case, we can put them intocategorization. Only then can we assure the unification and justice in judicial practice.Above all, it is still necessary for us to rethink and rectify the mistakes we havemade in comprehension and application, although the doctrine of change ofcircumstance has been established in Judicial Explanation of Contract Law. My essayaims at putting forward some perspective based on detailed studies of two legalsystems, PICC and PECL as a reference to improve the Judicial Explanation.The first section mainly describe the historical development of doctrine of changeof circumstance in civil law and common law system as well as its application andimprovement in law-developed country. It also emphasize on taking study on Article313of BGB, legislation and judicial practice in France as well as frustration ofcontract in Britain and U.S.The second section is in purpose to comparing doctrine of change ofcircumstance with the other rule, such as force majeure and commercial risk. In theprocess of comparison, the same point will be found and difference will bedistinguished.The third section will summarize and analyze the key factors and legal effect ofdoctrine of change of circumstance in Chinese current law regulations through thecomparison with those countries mention above in order to find out the room toimprovement as well as rethinking the mistakes we have made in judicial practice.