On Rules Of Adjusting The Agreed Too High Liquidated Damages

The discretionary rule of liquidated damages is a special rule that gives judges the freedom to interfere with the parties' contract under certain conditions.In the contract,the parties agree on the excessive amount of liquidated damages.Once a breach of contract is achieved as a condition of cessation,the judge may,on the basis of the parties' request to the court for a discretionary reduction of liquidated damages,reduce the excessive amount of liquidated damages to an appropriate amount by taking into account the principle of fairness and good faith,and restore and realize the case on the basis of respecting the parties' freedom of form and autonomy of will.Substantive justice.The penalty for breach of contract belongs to one of the basic ways of assuming the responsibility for breach of contract in our country,which is agreed by the parties in advance.Before the breach of contract occurs,it mainly acts on exerting psychological deterrence to the breaching party so as to reduce the occurrence of breach of contract and ultimately achieve the purpose of guaranteeing performance;after the breach of contract occurs,it mainly acts on avoiding the difficulty of proving damage and causality,The damage compensation function of the contracting party is one of the basic legal means to maintain the validity of the contract between the parties.With the development of market economy,the complexity and diversity of various economic activities emerge in endlessly.The number of cases involving discretionary damages for breach of contract is huge and high.The role of breach of contract damages is closely related to the amount of breach of contract damages.Too low liquidated damages can not compensate for the loss of the compliance party.Too low cost of breach of contract can not deter,or even encourage the parties to induce breach of contract and damage the trading credit.Although the excessive liquidated damages have an effective psychological deterrence to the breaching party,which reflects the penalty to the breaching party on the basis of compensating for the losses,it is likely to exceed the psychological expectations of the breaching party,violate fairness and become a burden that the breaching party can not bear.Article 114,paragraph 2,of the Contract Law is based on respect for the autonomy of the will of liquidated damages.It stipulates that people's courts or arbitration institutions have the right to adjust the liquidated damages which are too low or too high.Because they are stipulated separately and are not the same,this paper only elaborates on the issue of excessive liquidated damages discretion.The legal provisions on the discretionary reduction of liquidated damages in China are vague and general,and there is no uniform standard for the types and nature of liquidated damages in law.Therefore,in judicial practice,there is no uniform standard for the trial of excessively high liquidated damages in the same type of cases,and different judgments appear.Even in the same type of cases,there are great differences in discretionary penalties for liquidated damages.Contract agreement is the essence of party autonomy and freedom of contract form,which should be respected and abided by.However,once the parties agree on excessive liquidated damages in the contract,it may lead to the injustice of the substantive freedom of the contract.In judicial practice,how to find an appropriate balance of interests between respecting party autonomy and adjusting liquidated damages is a work requiring higher judicial wisdom.When the parties request the court to reduce or exempt the excessive liquidated damages,if the relevant factors and the parties' real meaning are not considered comprehensively,it is possible to make a rigid judgment directly in accordance with the parties' agreement on liquidated damages in the contract or in accordance with the provisions of the law,which will lead to imbalance of interests between the two parties in essence and trample on the good customs.Freedom of contract or too rigid adjudication are likely to have very unjust consequences.The inclination of interest balance to either side will weaken the original intention of liquidated damages system and bring negative and negative consequences.In practice,we should avoid over-protection or over-sanction on either side to maintain substantive fairness and honesty.In Article 3 of the Opinion on Regulating the Adjustment of Breach of Contract Penalty in Commercial Trials,the Shanghai High Court clearly pointed out that "the court should pay attention to respecting the party's autonomy in the examination,make a judgment of excessive amount of breach of contract penalty prudently according to law,rationally adjust the amount of breach of contract penalty,and fairly solve the problem of liability for breach of contract damages".However,in the trial practice,there are still some deviations in the thought of adjusting the penalty for breach of contract reflected in some cases.In addition,in practice,the parties to a large extent hold the mentality that whether the liquidated damages can be remitted or not,they should apply for discretionary reduction first,which leads to a large number of such cases.It is also very difficult to solve this type of problem because of complicated considerations and vague legal provisions.In order to maintain the stability of the order of economic activities and the norms of the legal order,in the case of fully respecting the wishes of the parties and returning to their original intention of making a contract,in order to safeguard the freedom of contract and encourage the development of the market,it is not easy to reduce the liquidated damages agreed upon by the parties.The discretionary reduction of liquidated damages should always be regarded as an exception to contract autonomy.In deciding whether the court should intervene in the adjustment of liquidated damages or not,the extent of the adjustment should take full account of the party's autonomy.Nevertheless,the injustice that absolute freedom may cause cannot be ignored.According to Article 6 of the Guiding Opinion of the Supreme Court,considering the actual needs of China in dealing with the world economic crisis,in order to avoid arbitrary agreement of liquidated damages under the pretext of autonomy of the will,the parties to the contract are squeezed by liquidated damages as a tool for them to obtain windfall profits,the court intervenes in private law autonomy with public power,and rescues the party in breach of contract from the excessive burden of liquidated damages.It has its realistic necessity.This article combines Article 114 of the Contract Law and relevant judicial interpretations and other legal provisions as well as theories and cases to analyze and study the issue of liquidated damages discretion.This paper first analyses and studies the theoretical basis of liquidated damages discretion,and introduces the proper basis of liquidated damages discretion,which is helpful to grasp the basic theory of liquidated damages discretion.Then it discusses the legitimacy and necessity of establishing the rules of the discretionary system of liquidated damages and its specific application in theory.Combining with a large number of cases,this paper finds out the problems and analyzes the causes,and expounds the factors that need to be considered in the practice of liquidated damages discretion.According to the different types of liquidated damages and their respective functional orientations,a comprehensive evaluation is made.Discretionary penalty for breach of contract should be cautiously grasped.Without causing unreasonable and unfair cases beyond the necessary limit,the court should abide by the parties' original intention of making a contract and avoid squeezing the parties' autonomous will space.The determination of the specific amount of liquidated damages can not be simply one-size-fits-all.In cases,judging whether the liquidated damages are too high and the degree of discretion after the liquidated damages are too high should not be limited to comparing actual losses and the amount of liquidated damages.It is necessary to consider comprehensively the intention of the parties when contracting,whether the contract status is equal,whether the contract terms are in form,the specific performance of the contract,the duration of the breach of contract,and the owner.The evaluation will be made after comprehensive evaluation of the intention and the economic situation of the parties concerned.Comparing the discretionary rules of liquidated damages with other relevant rules,it is possible to use liquidated damages with other forms of liability for breach of contract.This paper makes a comparative observation on the discretion of liquidated damages,and makes a commentary and Analysis on the other principles related to the discretion of liquidated damages.Whether the discretion of liquidated damages and the agreement of liquidated damages are appropriate or not need to be based on ensuring the smooth performance of the contract and whether the purpose of compensation can be achieved after the breach of contract,and be confirmed by combining other principles and relevant liability for breach of contract stipulated by law.By comparing the different norms of liquidated damages between the continental law and the common law countries,this paper generally agrees with the punitive nature of liquidated damages in the continental law system,while in the common law system,the punitive nature of liquidated damages is strictly differentiated,and the validity of liquidated damages is only recognized as compensatory,while the punitive function is not recognized.It is limited to damage compensation as the basic form of relief for breach of contract.Punitive liquidated damages,as a means of forcing the debtor to perform the contract and guaranteeing the performance of the contract,are not legitimate.Once the penalty clause agreed by the parties to the contract is punitive,it will be considered invalid.This paper expounds the rules of various countries,and summarizes the desirability of the provisions on discretionary reduction of liquidated damages in various countries,with a view to providing reference for our country in dealing with the adjustment of liquidated damages in judicial practice.Generally speaking,the court should also take care of the individual cases carefully when discounting liquidated damages.As long as the parties' original intention of the contract is not contrary to laws and regulations,and the good customs are not violated,the court should uphold the principle of freedom of contract to maximize respect for the parties' original intention.When the parties propose to the court to reduce the excessive liquidated damages agreed in the contract,they should also take the actual loss as the basis,fully consider the reasonable intention of the parties when making the contract,and make a decision according to the different circumstances of the case,taking into account the performance of the contract,the subjective intention of the parties,the expected interests and other factors.