The Application Of The Changed Circumstances Rule

Fa Shi [2009] No.5Article26establishes the formal status of the changed circumstancesrule in the field of contract law, but puzzled by the complexity and abstraction of the changedcircumstances rule, justices hesitate to apply it, even wince. Therefore, we should useinterpretive theory to discuss the applicable issues of the changed circumstances rule, and itmaybe has a long way to go. Synthesizing domestic theories, practical experience andjudgment on comparative law, this article strive to explore and interpret the applicable issuesof the changed circumstances rule. The article is comprised of4parts, as follows.Part I: The premise and purpose of the application of the changed circumstances rule. Thepremise of the application of the changed circumstances rule contains disaster period, alsoincluding peacetime which provides soils for the wide application of the rule. The ultimategoal of the changed circumstances rule is in order to balance the interests among parties.Acting as the exception of “validity of contract”, it is also a rational allocation mechanism ofthe unforeseen.risks.Part II: The generally applicable requirements of the Changed Circumstances rule. Therequirements contain six elements below:(a) It should have no legal or agreed risk allocationrules. The Changed Circumstances rule is a complementary rule, which is the last resort ofcontract relief. Thus, for the Changed Circumstances rule, legal or agreed risk allocation rulesare prior.(b) It should have the significant change of objective circumstances. In China, theChanged Circumstances rule only adjusts the significant change of the contract basis orenvironment, and the Supreme Court who excludes "force majeure" from the objectivecircumstances is wrong.(c) It should require the Changed Circumstances which occur afterthe establishment of the contract before the completion of the contract. In the meantime, if thedebtor delays in performing or the creditor delays in taking delivery, unless the changedcircumstances have nothing to do with the delay, there is no applicable space of the ChangedCircumstances rule.(d) It should be unforeseen when the parties make the contract. Thejudgment of foreseeability should be based on not only the actual situation, but also thestandard whether it is overcritical.(e) It should be no imputation of the occurrence of thecircumstances. Parties should be responsible for the risks they incur. Similarly, when the actitself is a violation, it is usually exclude the application of the changed circumstances rule.(f) It should have the necessity to rebalance the rights and obligations. The ChangedCircumstances rule is the exception of the principle of adherence to contract. So only in theparticular occasions where the rights and obligations are in the case of a serious imbalance,there is the necessity to admit the Changed Circumstances rule.Part III: the categorized application of the changed circumstances rule. Categorizing thechanged circumstances rule can help weaken the abstraction of it, thereby reduce thedifficulty of its application, and clear the scopes and requirements of it. In our country,whether we analyze the changed circumstances rule from the point of semantics, theperspective of comparative law, or the attitude of the Supreme Court itself, CategorizingChanged Circumstances rule is reasonable and necessary. At present, China should Categorizethe changed circumstances rule as the impracticability rule and the frustration of purpose rule.Because the issue of impossibility has been regulated by the force majeure rule, theimpracticability rule only remedies objective impracticability, and just regulates it in a narrowsense. As far as the frustration of purpose rule, such as “the purpose of the contract should befinal purpose” and "the primary purpose should be substantively frustrated" in American law,and "the purpose of the contract should be known by parties" in German law are all withreference significance."Contract Law" Article94has some similarities with the frustration ofpurpose rule, but to analyze the matter from the point of legislative history or judicialapplication, it should not be classified as the frustration neither.Part IV: the legal effect of the changed circumstances rule.(a) Setting up the obligationof renegotiation can provide the institutional framework for the autonomous transactionsamong the parties. It will establish a platform among the parties, and prompt the interests toflow again through parties’ autonomous consultation. Accordingly, although Fa Shi [2009] No.5Article26doesn’t rule the obligation of renegotiation, Chinese law should acknowledge itthrough interpretive theory.(b) In accordance to the principle of maintaining the effectivenessof the original contract within the maximum range, modification of contract is prior. Onlywhen the modification still cannot eliminate the inequity, the dissolution will be adopted. Themeans to change a contract is diverse, but the change also must be careful. In a general way,the parties’ integral economic situation should not be the factor which justices use to considerwhether the contract should be changed.