Study On The Discretionary Reduction Rules Of Liquidated Damages

Article 114(2)of the Law of Contract establishes the liquidated damages adjustment system.When the agreed liquidated damages are "lower than or excessively higher than" the losses caused,the parties may request the people’s court or the arbitration institution to make adjustment,but it is not clear how to adjust the provisions.Article 29 of the Interpretation(ii)of the Law of Contract establishes the rule of "taking actual losses as the basis and taking other factors into consideration",and clarifies the standard for determining excessive liquidated damages.Whether in theoretical research or judicial practice,it has become a consensus to classify the agreed liquidated damages into compensatory liquidated damages and punitive liquidated damages.But,to compensate for penalty due to breach of contract damages as scheduled,the main function is to fill the loss of the creditor when default,because its are "predict" the parties for breach of contract damages,penalty due to breach of contract and the actual damage will inevitably exists inconsistency between,so you need to judicial power intervention on the reduction.The function of punitive liquidated damages is not to fill the loss,but mainly to deter the debtor and exert psychological pressure on him to ensure the performance of the contract.In case of default,it will be transformed into punishment for the breaching party without requiring actual damage.Therefore,the rule of deducting penalty for breach of contract stipulated in article 29 of the Interpretation(ii)of the Law of Contract can be applied to compensatory liquidated damages,but not punitive liquidated damages.When the people’s court deducts the liquidated damages,it shall take full account of the various factors stipulated in article 29 of the Interpretation(ii)of the Law of Contract.The actual loss of a party is the basis for deducting the penalty for breach of contract.Article 113 of the Law of Contract stipulates that if losses are suffered as a result of breach of contract,the compensation for losses shall be equivalent to the losses caused by breach of contract,including the benefits that can be obtained through performance of the contract.Therefore,when ascertaining the loss of the party concerned,the loss of the party concerned can be completely filled only when the party concerned’s available interest is fully considered,but the available interest should conform to the rules of foreseeable rule and profit and loss offset.In accordance with the principle of adherence to contract,the parties shall perform the contract strictly in accordance with the contract,if the debtor malicious default,serious fault degree,contrary to the principle of good faith,to protect the other party for the trust contract,and shall not be lowered the liquidated damages clause or the reduction of the amplitude,control to punish malicious default.If the creditor is also at fault,according to the principle of balance between profit and loss,the liquidated damages of the debtor may be appropriately reduced.The execution of the contract is also the important factors influencing the penalty due to breach of contract is liable,partial performance,not to simply fails to fulfill its part accounts for the proportion of the overall reduction due to breach of contract,breach of contract amount does not reduce,because for the implementation of the contract but can give the breaching party according to the part fails to fulfill its losses,and appropriate to reduce the amount of liquidated damage.Where the obligor refuses to perform,or enters into a contract knowing full well that the contract cannot be performed,if the obligor has serious subjective malice,it may not deduct the liquidated damages as appropriate.When the penalty is deducted,the case of concluding a contract using a standard contract shall be considered.When the party providing the standard contract breaches the contract,as the maker of the standard contract,the liquidated damages clause belongs to its unilateral formulation,which is within its acceptable scope and may not be deducted.As the receiver of the standard contract,it can only choose to accept the standard terms without any negotiation,which itself may lead to the occurrence of injustice.When the recipient breaches the contract,it should reduce the penalty according to the circumstances,so as to protect the interests of the weaker party.When deducting the liquidated damages agreed upon by the commercial subject,the particularity of commercial custom shall be taken into consideration,and the people’s court shall treat it with caution.According to the provisions of article 114 of the Law of Contract,the people’s court can only apply the rule of deducting liquidated damages from excessively high liquidated damages when a party makes a request.The people’s court has no power to take the initiative to apply the rule of deducting liquidated damages from excessively high liquidated damages.The people’s court does not apply the rule of deducting the liquidated damages at its own initiative.When the people’s court applies the rules and deducts the liquidated damages,it cannot simply deduct the liquidated damages into 130% of the actual losses or 130% of the unpaid items.The 30% standard stipulated by the law is only the standard for determining whether the liquidated damages are too high,rather than the upper limit of the agreed liquidated damages.In the case of private lending,the supreme people’s court limits the maximum legal interest rate of private lending to 24%.If the standard of such cases is not limited,the parties may evade the interest rate provisions with liquidated damages.For other types of cases,the 30% standard is not a fixed standard.It is necessary to make a decision on whether and by how much to reduce the liquidated damages with reference to the factors specified in article 29 of the Interpretation(ii)of the Law of Contract,instead of applying the standard of 30% in all cases.