Rectification Of Defaulting Party's The Contract-termination Right

The theory of defaulting party's the contract-termination right has been closely related to Article 110 of Contract Law of the People's Republic of China since Xinyu case.This article raises an opinion that defaulting party's termination right in accordance with Article 110 of Contract Law does not exist through the analysis of Xinyu case and observation of current case rulings.The underlying reason of termination in Xinyu case is that the observant party's request of compelling performance is refused and the observant party is unwilling to terminate the contract while it is necessary for the defaulting party to a return to the original state of affairs.The current rulings for excluding compelling performance are not limited within the reason of the high expenses associated with performance in Xinyu;furthermore,the rulings may as well deviate while considering exclusion of compelling performance.Therefore,the author sets Xinyu case as the basic type to induct and deduct the problem of this theory which is that while only one party breaches the contract and part of the contract has been performed,how the contract shall be dealt with when it cannot be continuously performed or terminated since the observant party's request of compelling performance is defended by defaulting party in accordance with the exception in Article 110 of Contract Law and the observant party is unwilling toterminate the contract.In the second chapter,the first section would demonstrate the inapplicability of the approach to nullity and revocation of a contract and point out that the termination of contract is the only and inevitable solution.Moreover,“failing to realise the objectives of the contract” functions as the fundamental element for legal termination rights and ruled termination.For contracts whose unfulfilled obligation has satisfied the standard of “failing to realise the objectives of the contract”,the problems of defaulting party's contract-termination right represented in Xinyu case can has its own legitimacy.The second section mainly raises question over the legal termination approach towards the defaulting party's contract-termination right and points out that applying legal termination right to solve the problems of defaulting party's contract-termination right is not based on law.On the function of rights,legal termination right as a relief right shall not be enjoyed by the defaulting party.Furthermore,legal termination rights requires its elements to be as determinate as possible which proves it unsuitable as a solution for problems of defaulting party's contract-termination right.The third section compares legal termination right and ruled termination regarding effective point,court's discretion and the possibility of revocation by parties and then concludes that ruled termination is a solution beneficial to stablisation of legal termination system as well as implementation of the principle of pacta sunt servanda.Finally,as regards the limitation of ruled termination,the author concluded several limitations by analyzing the characteristic and structure of problems of defaulting party's termination right.More specifically,the initial of formation of problems of defaulting party's termination right is to determine whether it satisfies the exception of compelling performance,especially regarding ‘the high expenses associated with performance','the inappropriateness of compelling performance given the subject matter of the obligation' and ‘failure of the obligee to demandperformance within a reasonable period of time' where the court should be discreet because of discretion.Another precondition of formation of the problem which causes the contract cannot be terminated in a normal way is that the observant party does not exercise its right of termination.The defaulting party files a request for termination of the contract is based on the consideration that the contract must be terminated by the parties.The restrictions on the principle of good faith are considered by the observant party,the defaulting party and the court.The observant party is limited in its ability to break the balance of interests of both parties by not exercising the right to terminate the contract.The restriction on the defaulting party is to limit its ability to partially cancel the contract.The court must balance the strictness of the contract and the freedom of contract in accordance with the principle of good faith.