Law of Obligation in China and France

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Law of Obligation in China and France

Introduction

To begin with, the concept of obligation applied primarily to the duty to pay any funds that had been stipulated in the provisions of certain written instruments. The document has to be completed under the seal so as to be deemed legally binding. Nowadays, the term “obligation” sets out the legal requirements for a person to partake in a specific action due to their agreement with another person or since they are required to do so by law. The legal or moral obligation that forces a person to perform, and the likely ramifications of failing to comply, are referred to as obligations. An obligation would also be referred to as a legal responsibility to carry out the terms of a contract, a commitment, or the law. Duty is a substitute for obligation in the broadest sense of the words. To go a little more technical, obligation means the legal ties that compel parties to accomplish a task, carry out an activity, or pay a certain amount of cash in conformity with the traditions and country’s laws whereby the agreement was entered into by both parties. It is also possible to term to an obligation in terms of the document or object through which one side verifies the agreement or contract. Also, when a civil obligation is comparable to a bond in that it has a liability that incorporates a term for payment or fulfilment, obligations continue to exist. Even though the acts stated in a bill may well be needed, unlike an obligation, a bill normally does not contain restrictions or consequences, which is how it distinguishes from an obligation. A further way to characterize an obligation is an action that attaches one party to the next under the threat of a financial penalty if the deed is not completed. This paper seeks to make a comparison between the French and the Chinese law of obligation in a broader sense.

In its most technical definition, the term “obligation” pertains to a signed and sealed document. Obligation, according to Black’s Law Dictionary, is a legal or moral responsibility to accomplish or refrain from performing a particular act. According to certain legal academics, such as Fredrick Pollock, obligation is simply another synonym for duty. Historically, the legal notion of obligation stems from early Roman law, which asserts that obligations are the connection of vinculum juris, or legal inevitability, that exists between at least two people or entities.

Formation of Contracts

France

When determining whether a contract has been formed, the Principles of European Contract Law (PECL) Chapter 2, Section 2 and the Uniform Commercial Code UCC Part 2, Article 2 present a general framework of two expressions of will, an offer and an acceptance. The implementation of this method is supported for two primary reasons: first, it has been embraced by the greater part of judicial systems; and second, it makes it easier for the sides, judges, and arbitrators to analyze the development of the contract (Fauvarque-Cosson, 2017). While not always challenging to establish, it can be hard to distinguish between an offer and an acceptance, particularly when talks are lengthy and detailed. In such circumstances, nevertheless, a contract will not be prevented from being concluded, even if the precise instant of completion could not be recognized with certainty or the offer and acceptance could not be easily distinguished. Naturally, the fact that both sides are carrying out their obligations under the contract is sufficient evidence that the transaction was signed at a certain point in the past. A few of the broad requirements of the PECL regulating the creation of the contract, as well as the UCC’s long-standing recognition of this practice difficulty, are found in the PECL. PECL Articles 2:101 and 2:211 established a concept that is comparable to the one described in UCC section 2-204 and the Restatement (Second) of Contracts section 22; both are found in the United States Code. As a result, it is possible to subject each stage of the contractual formation process to the standard offer and acceptance structure, with certain modifications. The premise that a contract does not use the general routine and is, as a result, closed without distinguishing between the offer and the acceptance does not diminish the importance of the rules established in Chapter 2 of the Private International Contracts Law (PECL) (Fauvarque-Cosson, 2017). Nonetheless, it should be noted that if there exists no offer and no acceptance, determining the particular moment at which the contract is made may be exceptionally hard. In any situation, unless there is clear evidence to the contrary, the contract must only be considered concluded whenever there is adequate agreement between the two parties and also when both sides execute their obligations under the contract. Worth noting that the basic principle of contract entailed in the PECL encompasses not only the legal system constructs of bilateral and unilateral contracts, but also the civilian conceptual frameworks of contracts with reciprocal obligation and unilateral promises, which are both conclusive even if the promiser does not accept them, but which are not regarded contracts.

Article 2:201 of the PECL outlines the absolute necessities of fundamental characteristics that need to be present in order for a proposition to be deemed to be a legitimate offer (Viscasillas, 2001). Specifically, the following characteristics should always be met: 1. the parameters should be sufficiently specific; and 2. the promisee should desire for the offer to culminate in an agreement if the other party agrees it (that is, it has to indicate the intention of the offeror to be bound in case of its acceptance.) The PECL and UNIDROIT Fundamentals Article 2.2 does not contain any standards for the concreteness of an offer, in contrast to the Contracts for the International Sale of Goods (CISG), which does. It pursues the basic norm of civil law systems, that demands that contracts and, by extension, offers include what is termed as ssentiala negotii, which are terms that are required to be included in all negotiations. However, the PECL employs a strategy that has more flexibility than that of common law systems, where the parties’ will (that is, their agreement) as well as their desire to be bound by that contract are both required aspects for a contract to be formed and to be completed. If some gaps exist under the PECL, they are covered by implied terms, the rational principle of the case, customary usages, practices set forth between the parties, or by the tribunal if it is competent to determine an adequate remedy.

According to the CISG, in order for an offer to be regarded adequately precise, it has to specify the items, the amount, and the value being offered (Rowan, 2017). By not defining the key components required for the execution of the agreement, the PECL has not only taken a more rational and realistic strategy, particularly in view of the fact that the PECL pertains to civil and commercial contracts in addition to business contracts, however it has bypassed several of the issues that occurred under the CISG, particularly those relating to open price contracts.

China

In the case of China, The Contract Law of China (CLC) has implemented a number of major revisions to the regulations governing contract creation. For instance, a contract can now be formed in any way that is desired. Unlike previous contract laws, like the Foreign Economic Contract Law (FECL) and Economic Contract Law (ECL), which required that commitments be in writing, the CLC permits contracts to be formed orally or through any other means other than writing (Chen, 2001). Writings are defined as any form that can display the composition of the description in a visible manner, something like a written contractual agreement, letters, and datatelex messages. In order to prevent disagreements over the fundamental and essential provisions of a contract, the Chinese term ying in the ECL has been omitted from the CLC in order to prevent such disagreements. The CLC states that the participants must agree on the content of a contract, but it suggests particular basic phrases that might be used as a guide.

Under Article 12, contracts must entail the key conditions: 1) the appellation or title of the stakeholders and their residential area; 2) the subject area (including volume and quality); 3) the cost; 4) the timeframe, location, and technique of performance; 7) the legal responsibility for contract breach; and 8) the methodologies of resolving disputes (including arbitration).   It appears that the CLC has completely re-evaluated its position on the question of compulsory or obligatory terms. For example, unlike with the UCC, that needs a quantitative term, the CLC does not demand any necessary conditions for a contract (Yuqing & Danhan, 2000). Moreover, if a contract has a value greater than a specific threshold, there is an obligation that it be in paper under the CLC. Additional objective pursued by the CLC is modernization, which is reflected in the rules that govern the drafting of contracts. Participants now have the option of entering into a contract through the use of electronic data.  A computer network to obtain electronic data can be stipulated by the offeree; when there exists no predefined computer system, the proposal becomes effective when a user logs in with any computer network that is possessed by the offeree; otherwise, the offer will become efficacious when a user logs in to any computer network that is possessed by the offeree. Certainly, the CLC has a positive mentality toward the modernization of electronic transmissions and the advancement of technology in general. The fact that the European Court System of Appeals has yet to provide a formal validation of modern technology, despite the fact that electronic trading is extremely prevalent in Europe, is intriguing. Electronic commerce, on the other hand, is a relatively new concept in China.

Whereas many businesses continue to operate in the conventional manner, when it comes to contract creation, Chinese contract law is extremely advanced in comparison to other jurisdictions. An organized campaign to reduce the dominance of large corporations over regular customers has gained significant momentum in China over the recent past. Taking note of this viewpoint, the CLC requires the entity which supplies a typical boiler-plate contract form to clarify the provisions in line with the concept of fairness, as well as to attract the other party’s awareness to the exemption or limitation of liability in a sensible manner. ‘0’ is the number zero. Despite the fact that the CLC makes no mention of consumer rights, the fundamental objective of this rule is self-evident. Providing extra-legal instruments for avoiding monopolistic exploitation and demonstrating modernization characteristics, this clause is particularly relevant in China, where antitrust law is virtually non-existent, and displays a modernization trait (Hsu, 2007). The common terms are to be defined in accordance with the general comprehension whenever a disagreement arises over their interpretation.  In the event of a conflict between two or more possible interpretations, the interpretation that is undesirable to the side providing the general terms shall be put forward. If the standard terms are in conflict with the non-standard terms, the non-standard terms will be applied instead. Considering that state-owned corporations in China have greater power, capacity, and impact than independent businesses or persons, the author believes that this is a reasonable approach to take. As a result, it is reasonable to try to achieve a more equitable distribution of negotiating power by restricting the usage of standard contracts which are pre-formulated.

Validity of the Contract

France

According to French tradition, a court evaluating an unclear contractual clause should first ascertain the sides’ true personal intent, instead of simply construing the agreement’s actual language in an objective fashion, before proceeding. In contrast to the Anglo-American idea of reading obscure clauses in the way in which a “reasonable person” could comprehend them, this has generally been regarded as unjust. Nevertheless, if it is not possible to ascertain the parties’ common intent, under the new article 1188, the contract is to be construed in the light of the perspective that a sane individual in the very same position would give to the agreement in the first place. If there is any uncertainty about the validity of standard form arrangements (contrats d’adhésion), new article 1190 states that the agreement is to be read in favor of the entity who submitted it in the first place.

Outright nullity (in the case of contracts that infringes a law protecting the common interest), which could be demanded by anyone who can illustrate an interest and the prosecuting attorney, is distinguished from relative nullity (which could only be demanded by the individual whom law is supposed to protect) (Grundmann & Schäfer, 2017). Absolute nullity can be demanded by anyone who can illustrate an interest and the prosecuting attorney. Someone who would otherwise be allowed to claim the nullity of a contract may submit a written request to the party seeking to have the contract confirmed or to take legal action to invalidate the contract in less than six months, having failed which that individual will be barred from litigating to claim the invalidity. A contract shall be declared concluded if an act for nullity is not filed after six months of the contract being entered into. According to the new article 1186, a properly established agreement could also become expired (caduc) when one of its fundamental elements is no longer present. If the performance of many agreements is required for the completion of a single trade, and one of those contractual agreements fails to fulfil, every one of the contractual agreements whose functioning is deemed impossible by the failing to deliver the contract which failed to fulfil and all of the contractual agreements for which the contractual obligation which failed to fulfil was a defining condition of the permission of an entity are also rendered caduc; even so, this only happens if the party to a contract against whom such caducité is invoked was an entity to the money transfer in question.

China

The CLC stipulates that if an agreement is completed in compliance with the law, it will become justifiable at the establishment period, unless an approval or registering process is needed first. Similar to a lease purchase agreement, it becomes enforceable when it is registered with the appropriate government agency (Chen, 2001). Based on the most recent CLC Article 52, there exist five specified instances in which an agreement can be declared “invalid.”   ‘One being the use of deception and intimidation by a single side to hurt the government’s interests.’ In the previous times, if there was any evidence of misconduct or intimidation, a contract was automatically declared worthless. 115 The CLC imposes a restriction. Only if the Government’s interests are jeopardized is the agreement deemed invalid and null and void. 136 In contrast to France, fraud that is flagrant will result in the cancellation of an agreement.” Deception does not have a separate classification under Chinese legal standards. The second condition that can invalidate a contract is malevolent cooperation, which is when two or more parties conspire to hurt the interests of the country, a group of people, or a third party.”  This is the third form of voidable contract: one which has an illicit goal that is disguised underneath the pretence of lawful conduct “gambling contracts, property purchase contracts, and weapons sales contracts, which are all forbidden by law in China (Zhang, 2019). Fourth, there are those that hurt the general welfare, and finally there are those who break the law and regulations that are in place. When a contract is fully met by one entity against the other side’s actual intent via scam, threat of force, or exploitation of an uncomfortable situation, the harmed side will have the right to mandate that the agreement be modified or revoked by a court or adjudication organization, according to Article 54 of the Convention on Contracts for the Protection of Civil Liberties. If one side is aware that the other side is in a precarious situation, he or she may not take advantage of that vulnerability for his or her own gain. The Chinese government has made it clear that such an action is not permitted (Hsu, 2007). Nonetheless, under the CLC, judges are not supplied with any specific instructions or unified formulas to follow in order to ascertain the validity of a contract incorporating these difficulties.

Liability for Breach of Contract

France

Even if most people believe that courts do not have the authority to change the conditions of the agreement, everybody thinks that when a commitment is unfulfilled, judges should take action (Garello, 2002). The French contract law makes a clear distinction between two types of situations: Either there is a case of force majeure or there is a case of improper behavior that results in the omission of execution.   Apart from that, in the event of poor performance, it will be necessary for someone to determine if the broken commitment was a promise to provide anything (obligation de résultat, like the promise to construct a residence) or a commitment to do his or her utmost (obligation de moyen such as the commitment of a medical practitioner to do her utmost to cure her clients). Which entities are most vulnerable to the utilization of the force majeure defence and what follows if the obligor fails to meet his or her obligations? When it comes to defining what constitutes “force majeure,” the French legal system is unusually stringent. In order for the task to be considered technically unfeasible, the occurrence has to be irresistible (nobody can be requested to do whatever is inconceivable), unanticipated (probable risks may be covered against and safeguards can be undertaken), and beyond the control of either party (to avoid any moral danger challenge). This extremely restrictive method is often rationalized by the need to increase the safety of a corporation, and it is hard to reconcile with a Paretian method because the law declines to consider the expense of executing in this situation, as is the case herein. If the presence of a force majeure can be demonstrated, the offeror will be released of her need to fulfil her obligations (Grundmann & Schäfer, 2017). Due to the nullity of the agreement, the victim will be unable to seek compensation. This presents an unanswered question, nevertheless: What takes place as a result that the complainant fails to keep his or her promise? In order to answer such question, the French legal system employs a concept known as the theory of risks. Those who follow this philosophy believe that when the offeror (A) is unable to execute owing to force majeure, the offeree (B) is also not obligated to deliver. According to the French lawyer, his (B’s) obligation to execute vanishes because there is no longer a justification for it. As a result, A is responsible for the risk of force majeure. Now, because A was unable to prevent the non-performance (remember that it was unanticipated, impossible to prevent, and even beyond control), we cannot really conclude that A was the least expensive risk-bearer in this situation. The answer in this case seems to have been motivated by the logical reasoning of contractual relationships: As long as a contract is simply an offer and acceptance, one cannot reasonably expect B to accomplish if A fails to fulfil her obligation.

To return to the subject of contract liability, if the offeror is unable to explain oneself, the sanction34 is, in essence, particular performance of the agreement (Garello, 2002). Particular performance is treated on a same footing with damages in the Civil Code (arts.1142 and 1184), yet it has been pointed out as the most important punishment by the legal community. If the complainant seeks compensation, the court can substitute specific performance for those losses. If the complainant requests specific performance, the judge cannot impose fines in lieu of those damages, which is a good example of the primacy accorded in concept to specific performance. With an economic standpoint, it has been maintained by both parties (Paretian and Austrian) that particular performance does have some benefits over costs, in notably that it spares the court of a challenging task: determining whether or not to award damages. To determine the level of a damage, which would be a subjective process by its very nature. This will naturally raise the amount of certainty that the entities will have in the successful completion of the contract. Even if rigorous compliance is the law, it does not follow in each and every occasion, and in fact, typically, the judge awards damages more frequently than he or she orders performance in most cases.  Certainly, there are instances when performing is either impossible or not recommended. The utilization of physical restraint against the offeror will not be recommended—and may not even be permitted—in this situation (Grundmann & Schäfer, 2017). Considering the economic implications, this can be rationalized by the fact that compelled labor is of inferior quality. If the court does not order particular compliance, the consequence will be rescinding (resolving) the agreement and/or awarding damages. The complainant of the breach must petition the court for rescinding the decision. “However, in general, judges are reluctant to cancel a contract; instead, they opt to save the agreement by delaying the deadline or paying damages,” says the author.   If they do choose to terminate the deal, the impact will be retroactive: everything will continue as if the agreement had never been signed in the first place (Rowan, 2017). As a result, the rule of restitution damages is used in this situation. This is not a Pareto-efficient solution for a violation of the agreement. In the final and most common scenario, damages are awarded without the agreement being terminated (Le Coq, 2017). As stated in Article 1149 of the Civil Code, “damages payable to the lender cover, in essence, the loss incurred and the gains foregone…” In other terms, the amount of losses awarded ought to be equal to the price of the promise; as a result, the anticipated damages criterion is used in this case (Garello, 2002). It is commonly known that this rule is Paretian optimal in terms of efficiency. Upon closer examination of the appraisal of losses, it can be seen that the law attempts to prevent some opportunistic behaviour on the side of the plaintiff by providing her with incentives to depend on the commitment with caution. As a result, only obvious and foreseeable losses will be reimbursed by the monetary damages that are granted (art. 1150 and art. 1151 C.civ.) If a loss is unexpected, there is no reimbursement, which is in complete accordance with the safety of expectations metrics: If you breach a promise, you must be prepared for the consequences. Another point that is that noteworthy is the severity of the error will determine the number of damages awarded. This is yet another example of a regulation that is difficult to reconcile with Paretian optimal solutions, but which makes sense in terms of anticipation protection since you want to be harsher against those who purposefully mislead some genuine hopes in the first place. Furthermore, it should be remembered that if a promisor does not follow his/her word, the promisor may be subject to some form of criminal prosecution.  Lastly, with regards to the French law, and in contrast to the practice in other nations, it is the responsibility of the jufge rather than the jury’s responsibility to determine the number of damages to be awarded. From the standpoint of expectation safety, the first approach appears to be superior, as one can anticipate greater stability on the part of the judge than can be expected from a jury. That in turn may encourage the use of alternative dispute resolution methods, which would lower transaction fees.

China

Liability for contract breach is addressed in Chapter VII of the CLC. When one contracting party does not complete its responsibilities or fails to act in a way that satisfies the agreement’s requirements, that side is liable for contract breach, which may include continued performing of obligations, adopting mitigation actions, or compensation for damages (Zhang, 2019). According to Article 113, in the event that one contracting party underperforms the contractual agreements or its outcomes fails to appease the contractual terms and induces losses towards the other entity, the level of pay for losses will be equivalent to the damages caused by the contract breach, along with the interest’s payables after the execution of the contract, given that it does not surpass the likely damages resulting from the contract breach which has been predicted or foreseeable.

The aim of the legislation, like that of the U.C.C. and the CISG, is putting the offended person in the situation he ought to have been in if the breaching entity had fulfilled the agreement (Chen, 2001). The CLC also compels the offended party to make a sensible attempt to offset losses. Nevertheless, unlike with the U.C.C., the CLC lacks clear clauses that specify the exact number of monetary penalties. A more precise technique of calculating damages is not provided by the CLC. Article 112 states that if one contracting side underperforms a contract duty or its execution fails to fulfil the agreement’s requirements, the party must reimburse the other person for the damages after fulfilling its responsibilities or taking remedial steps. The CLC, once again, fails to explain the definition or extent of “other losses” in this provision, which is a major flaw. It can be deduced from Article 113 that “other losses” could entail both direct and indirect losses. The issue of uncertainties occurs because there is no precise rule for estimating losses. Due to the lack of a thorough quantification for losses and the lack of a legal notion of incidental and consequential losses, complainants in China have a difficult time recovering their entire losses in a lawsuit. Nevertheless, it appears that at the very least, direct damages can be recovered. There exist two sorts of market price solutions under the U.C.C. depending on seller and buyer breaches. “If any party failed to repay charges or compensation, the other party may ask for payment,” according to Article 109 of the CLC. Whenever the buyer breaches the agreement, the seller has the right to demand for the cost. This appears to be the same as the seller’s price action under U.C.C. 2-709. However, under the U.C.C., price action is now mainly restricted to circumstances where reselling of the products is impossible, unless the buyer has accepted the items or the goods have been damaged after potential loss has been transferred to the buyer.” These restrictions do not apply to the CLC. Because China does not offer a resale solution for violation of a sales agreement, the CLC does not stipulate that resale is a requirement for a price solution.

When it comes to the buyer’s rights in the event of a breach of quality agreements, CLC Article 111 states, “[if the quality fails to satisfy the stated objectives, culpability for the contract breach shall be borne in line with the sides’ arrangement.” If there is no consensus in the deal as to liability for contract breach, or if such an arrangement is vague, or if it cannot be ascertained in line with the requirements of Article 61, the offended person may, in light of the nature of the item and the magnitude of the damages, sensibly opt to ask the other person to carry the expenses for the contract breach, like repair work, simply replacing, or compensating. Furthermore, there is no explicit CLC guideline that explains how to reduce the price properly. As a result, the CLC’s approach to reparations for quality faults is likewise clouded. CISG Article 50, on the other hand, authorizes a decrease of the contract value in proportion to the price of the non-conforming products on the day of delivery compared to the price of the items on the very same date if they had complied to the agreement. Civil law systems have used this strategy for a long time. Another method is applied in U.C.C. 2-714(2), however the language of 2-714 has generated some confusion in establishing the costs of the goods acquired and as warranted. 210 According to the CLC, specific performance is still a viable option, but not the primary one. Particula performance used to be very essential and was seen to be the first line of defense. Currently, financial damages are the preferred option. Courts only require specific performance in rare circumstances; for example, if two state-run firms sign an agreement based on a state plan, particular performance may be necessary. In such cases, the judge will decide on particular performance rather than monetary compensation.

Contract Termination and Cancellation

France

The persons are released from their duties when the contract is terminated (Le Coq, 2017). Cancellation comes into force for the foreseeable in agreements with successive or instalment execution; the sides’ obligations stop at the time of service of the terminating processes or at the time of notification of any spontaneous termination. If the agreement has been partially fulfilled, nothing traded between the sides gives rise to restoration or reimbursement as long as they complied with the sides’ obligations hereunder.

Contract termination clauses must specifically identify the contract agreements whose non-performance will result in contract termination. Unless it has been decided that cancellation might occur simply because of non-performance, the agreement can only be terminated after the delivery of a notification to comply that has not been followed. Only a notification to fulfil that explicitly notifies the lender of the discontinuation clause qualifies for this reason. Termination goes into effect only when the debtor is really notified and when the notification is received.

China

The CLC lays out seven conditions under which an agreement’s rights and responsibilities might be cancelled (Chen, 2001). The first occurs when debt responsibilities have been met in line with the agreement’s requirements. The second situation is when an agreement has been cancelled. The third scenario is that if a debt can be offset, the obligation can be terminated. The fourth, a new update that may be useful to the obligor, establishes discontinuation when the obligor has placed the item in accordance with the law. Creditors are the fifth and sixth criteria. Whenever a creditor excludes debt or when the lender’s rights and debt responsibilities are guaranteed by the same individual, the contract is ended. The six scenarios listed above are representative but not exhaustive. The last requirement is a corrective provision that specifies that additional events specified by law or agreed upon by the sides could also result in discontinuation. The CLC, unlike with the U.C.C. or the CISG, places a premium on good faith even after an agreement has been cancelled. A party must carry out responsibilities like giving notice and assistance, as well as withholding information, as per the contract. In China, there exists two methods for terminating a contract: unilateral and bilateral termination. A party may terminate an agreement under the following situations, according to Article 94 of the CLC: 1) if the agreement’s intent cannot be f