The Research On The Legal Effect Of Statutory Termination Of Contract-Focus On "Impossibility Of Restitution"

The ambiguity of Article 97 under PRC Contract law leads to the difficulty of application of legal effect of contract termination.This paper focuses on the“impossibility of restitution” after contract termination and aims to conduct research on the application of the obligation of value compensation as well as the rule of risk bearing in the event of impossibility of restitution.Chapter One of this paper is concentrated on the macro theory of legal effect of contract termination,which analyzes several mainstream theories in the academic circle.As Chapter One considers,the theory of return relationship is the most appropriate theory and shall be deemed as the fundamental theory of this paper.Chapter Two of this paper analyzes and discusses the nature,content and application of restitution after contract termination.Under the theory of return relationship,restitution is based on Article 97 under PRC Contract Law and falls into the scope of right of the obligatory claim.With reference to foreign legislation and based on the framework of PRC Contract Law,the scope of restitution shall not be limited to the return of original object and shall include return of equivalent objects,fruits and benefits of use.The fruits to be returned shall be calculated from the date the receiving party accepts the object,which shall not be affected by the intention of the receiving party.With respect to the place of restitution,unless otherwise agreed by2 both parties,the mirror image rule shall be applied to determine the place of restitution according to the place of obligation performance under the original contract,so as to ensure that the risk allocation during the return process is consistent with that during the performance of the original contract.Unless otherwise agreed by both parties,the time period of restitution shall also be the time period of obligation performance under the original contract,and the return obligation after contract termination shall apply the legal effect of acceptance in default and the principle of concurrent restitution by analogy.Since there is an identity between the return obligation and the obligation under the original contract,the guarantee for performance of the obligation under the original contract shall also be the guarantee for performance of the obligation of restitution.Chapter Three of this paper conducts a detailed study on the foreign legislation with respect to impossibility of restitution after contract termination both vertically and horizontally,including CISG,DCFR,the USA Contract Law and the German Law of Obligations,and summarizes and analyzes relevant legislation model.Accordingly,Chapter three summarizes the common application rules in the event of impossibility of restitution,so as to provide reference for the following parts of this paper.Chapter Four of this paper focuses on the application of the value compensation obligation.After the termination of contract,if it is impossible for the receiving party to perform the obligation of restitution,then generally the receiving party shall compensate the value of the received object by means of money.The amount of value compensation shall be determined according to the object value of the received object on the date of specific performance or the date when the obligation of restitution expires.Notwithstanding that the non-breaching party would suffer losses due to the full performance of the original contract(i.e.he/she has entered into a losing contract),the contract price shall not be used to limit the amount of value compensation which the non-breaching party is entitled to request.In the event of flawed performance,the rule of price reduction shall be applied by analogy to relieve the receiving party’s obligation of value compensation.The obligation of value compensation shall beexcluded in one of the following circumstances:(i)the impossibility of restitution is attributed to the obligee under the return relationship(the giving party);(ii)the obligor under the return relationship(the receiving party)is entitled to terminate the contract,and with respect to the object,the obligor has performed the duty of care to his/her affairs,provided however that,such favor to the termination right holder shall be only limited to the phase before the termination right holder knows or should know the termination causes.The obligor under the return relationship is obliged to return the alternative interests to the original object to the obligee,but the interests the termination right holder(also the obligor under the return relationship)has gained from the disposal of the original object before he/she knows or should know the termination causes shall not be returned to the obligee.In addition,the obligor under the return relationship shall compensate the interests which shall be collected but actually not collected to the oblige;at the same time,the obligor under the return relationship shall also have the right to claim necessary costs for maintaining the original object against the oblige.With regard to beneficial costs for improving the original object,the compensate obligation of the obligee under the return relationship shall be limited to the extent of the actual interests he/she can gain as a result of such beneficial costs.Chapter Five of this paper is concentrated on the application of risk bearing rules in the event of impossibility of restitution.If the object is damaged or lost due to accident,the receiving party’s right to termination shall not be eliminated,and the liability for impossibility of restitution shall fall into the scope of the legal effect of termination.However,if the damage and loss of the object constitute termination causes,the receiving party shall bear the risks and lose the termination right.The rule of re-transfer of risk as set forth in Article 148 under PRC Contract Law is justified,which shall be construed to apply to circumstances where the seller’s fundamental breach leads to the statutory termination of contract.The buyer shall bear the risk upon he/she constitutes fundamental breach.In the event that both the seller and buyer have constituted fundamental breach and therefore both the seller and buyer have the right to termination,assumptions about cause and effect can be used to modify therule of re-transfer of risk,i.e.if the risk causing the damage and loss of the object only occurs in the buyer’s location,then the risk shall not be re-transferred to the seller;if the risk causing the damage and loss of the object also occurs in the seller’s location,then the risk shall be transferred to the seller.