Understanding and application of anticipatory breach of contract in Article 578 of the Civil Code

Article 578 Where a party expressly expresses or shows by his own behavior that he will not perform his contractual obligations, the other party may require him to bear the liability for breach of contract before the time limit for performance expires.

gist of the article

This article is about the provisions of liability for breach of contract in anticipatory breach of contract.

Understanding of the article

This article is basically consistent with Article 108 of the Contract Law, except that the word "Zhi" in Article 108 of the Contract Law "The other party may require it to bear the liability for breach of contract before the expiration of the performance period" is deleted, and the word "requirement" is changed to "request". The revised statement is more accurate and conforms to the essential attribute of the claim.

I. Investigation on Anticipated Default System

Antcpatorybreach of contract, also known as early breach of contract, means that one party explicitly indicates that it will not perform the contract before the contract performance period comes, or indicates through its behavior that it will not perform the contract before the contract performance period comes. Anticipatory breach of contract includes express breach of contract and implied breach of contract. The so-called express breach of contract means that before the expiration of the contract performance period, one party clearly indicates to the other party that it will not perform the contract without justifiable reasons. The so-called implied breach of contract means that before the expiration of the performance period of the contract, one party has conclusive evidence to prove that the other party will default or fail to perform the contract before the expiration of the performance period, and the other party is unwilling to provide the necessary performance guarantee. The remedy of anticipatory breach of contract can be divided into two kinds in function: one is defensive and temporary relief, that is, the right of the parties to suspend or refuse to perform their contractual obligations, and the right of uneasy defense belongs to this kind of relief; The second is offensive relief, including the right to claim performance guarantee, the right to terminate the contract before the deadline and the right to claim damages before the deadline, in which the termination of the contract and damages are the final relief. Anticipated breach of contract and uneasy right of defense are different relief methods and rules designed according to different situations of non-performance risks. There is no system of anticipatory breach of contract in civil law countries, only the system of uneasy defense right, which is stipulated as the system corresponding to the simultaneous performance of defense right.

(A) the system of anticipatory breach of contract stipulated in the Anglo-American legal system

The system of anticipatory breach of contract originated in common law countries, and it originated in the case of 1853, British Auchester v. De Natel. Since then, British courts have followed this precedent and formed a complete set of perfect anticipatory breach of contract system in long-term trial practice. The legislation of anticipatory breach of contract in Anglo-American legal system is most typical and perfect in the United States Uniform Commercial Code. Article 2-6 10 of the Code stipulates the express anticipatory breach of contract: if any party refuses to perform its unexpired contractual obligations, and the breach of contract means that it will cause significant damage to the other party's contract value, the injured party may: (a) wait for the performance of the breaching party within a commercially reasonable time; Or (b) request any remedy for breach of contract according to Article 2-703 or Article 2-7 1 1, even though he has notified the breaching party to wait for its performance and urged it to withdraw the breach; And (c) in any of the above cases, you may stop your own performance of the contract, or specify the goods under the contract or rescue the semi-finished products according to the provisions on the seller's rights in Article 2-704 of this article. Therefore, the Uniform Commercial Code not only affirms the two remedies for express anticipatory breach of contract established by British precedents, but also gives the injured party the right to suspend the performance of contract obligations and bring a lawsuit for breach of contract in the case of express anticipatory breach of contract.

For express anticipatory breach of contract, there are two remedies for the accidental breaching party determined by Anglo-American contract law: one is to accept the express anticipatory breach of contract, immediately terminate the contract and claim damages; Second, we will not accept the express anticipatory breach of contract, stick to the original effect of the contract, and wait for the express anticipatory breaching party to withdraw its expression of breach of contract, so as to gain greater benefits from the performance of the contract.

There are three remedies for implied anticipatory breach of contract: one is to ask the other party to provide sufficient guarantee to fully perform the contract; The second is to suspend the performance of some contractual obligations corresponding to the payment that has not yet been agreed; Thirdly, if the implied anticipatory breaching party refuses to provide performance guarantee, the unintentional breaching party can regard the implied anticipatory breach as an express anticipatory breach and choose the remedy of the express anticipatory breach.

(b) Remedies for Anticipated Breach in the United Nations Convention on Contracts for the International Sale of Goods

1980 The United Nations Convention on Contracts for the International Sale of Goods divides anticipatory breach into anticipatory non-fundamental breach and anticipatory fundamental breach. The convention provides three remedies for anticipatory non-fundamental breach of contract: one is to suspend the performance of obligations and notify the other party. Second, ask the other party to provide sufficient performance guarantee. If the notified party provides full performance guarantee in time, the suspending party shall resume performance. Third, the seller prevents the right of delivery. If the seller has shipped the goods before the buyer's expected non-fundamental breach of contract becomes obvious, it can prevent the goods from being delivered to the buyer, even if the buyer holds the documents entitled to the goods. For the expected fundamental breach of contract, the remedy stipulated in the Convention is to terminate the contract, including: first, to terminate the contract and claim damages; Second, when time permits, notify the other party to provide a guarantee.

China's Contract Law adopts the method of mixed inheritance and acceptance. On the basis of drawing lessons from the civil law system's right of uneasy defense, it also introduces the system of anticipatory breach of contract in the common law system, which is mainly reflected in the provisions of Article 94, Item 2, and Article 108 of the Contract Law. Paragraph 2 of Article 94 of the Contract Law stipulates that before the expiration of the performance period, if one party explicitly expresses or expresses by its own behavior that it will not perform the principal debt, the other party may terminate the contract; Article 108 stipulates that if one party explicitly expresses or indicates by its own behavior that it will not perform its contractual obligations, the other party may require it to bear the liability for breach of contract before the expiration of the performance period. The above clauses all provide for express breach of contract and implied breach of contract.

Second, the relationship between anticipatory breach of contract and uneasy right of defense,

The German Civil Code stipulates the right to postpone the defense for the debtor's benefit in a bilateral contract, among which Article 32 1 stipulates that "(1) a person who has the obligation to pay in advance due to a bilateral contract may refuse the payment he has undertaken to the extent that his claim for payment can be determined to be damaged by the other party's inability to pay after the conclusion of the contract. If the amount payable has been fulfilled or a guarantee has been provided, the right to refuse to pay shall be extinguished. (2) First, the debtor can specify an appropriate period; The other party shall, according to his own choice, simultaneously perform the treatment and payment by collecting money during this period. After the expiration, the payer can terminate the contract. The provisions of Article 323 shall apply accordingly. " Only when the obligation of advance payment is eliminated due to full performance or the occurrence of payment results is only determined by the behavior of creditors, will the specification lose its effectiveness. If you exercise the right of defense for the payer first, it will not have the effect of changing the content of the debt relationship, and the prepayment obligation is the prepayment obligation, which will not be affected.

In China's civil law, the right of uneasy defense and anticipatory breach of contract are both relief systems for anticipatory non-performance, and there is the possibility of overlapping in application requirements and legal effect. How to clarify the relationship between them has always been a concern of civil law scholars in China. Judging from the design of the legal provisions of the civil law system and the common law system on the right of uneasy defense and anticipatory breach of contract, they are similar. Both of them are aimed at the debtor's refusal to perform the contract before the expiration of the contract performance period, and the creditor has the right to refuse to perform the contract obligations. Both of them are remedies for anticipatory breach of contract. However, the two cannot replace each other, and there are the following differences: First, they are different in nature. Anticipated breach of contract belongs to the category of liability system for breach of contract in nature, and the right of uneasy defense belongs to the defense system in nature. Second, the components are different. The right of uneasy defense applies not only to the debtor's objective lack of performance ability, but also to his subjective lack of willingness to perform, while anticipatory breach of contract applies to the debtor's subjective explicit refusal to perform. In the application of the right of uneasy defense, the debtor's expected non-performance is more likely but uncertain; In anticipatory breach of contract, the debtor may be deemed unwilling to perform the contract. Third, the relief measures are different. When exercising the right of uneasy defense, the creditor cannot directly terminate the contract or claim damages, but can only suspend or refuse to perform the contractual obligations under certain conditions. If the creditor wants to use the last resort, he must first negotiate with the debtor to determine whether the debtor's performance is really unexpected. Only when the negotiation results show that the debtor is convinced that it will not substantially perform its contractual obligations can the creditor terminate the contract and claim damages. The quasi-defaulting creditor may directly claim to terminate the contract and require the debtor to bear the liability for breach of contract. Therefore, the right of uneasy defense and anticipatory breach of contract correspond to two sets of rules of "gradual" relief and "direct" relief for anticipatory non-performance respectively. The two sets of rules have their own characteristics in the scope of application and relief mechanism, and each has its own independent functions, which together constitute a unified relief system. Scholars generally believe that it is necessary to keep the right of uneasy defense and the system of anticipatory breach of contract in China's civil code, and to determine their applicable scope and conditions respectively, so as to better connect the relationship between them.

Third, use your own behavior to show that you are not fulfilling your contractual obligations.

Article 578 of the Civil Code stipulates that if one party "shows that it will not perform its contractual obligations by its own actions", the other party may require it to bear the liability for breach of contract before the expiration of the performance period. Theoretically, one party's "non-performance of contractual obligations by his own behavior" is interpreted as "implied", which constitutes implied expected breach of contract, but it is not clearly stipulated in law. From the perspective of comparative law, according to Article 2-609 of the Uniform Commercial Code of the United States, if any party has reasonable reasons to believe that the other party cannot perform normally, it may request the other party to provide appropriate guarantee for normal performance in writing. After receiving the request, if the other party fails to provide appropriate guarantee within a reasonable period of not more than 30 days, this behavior constitutes an expected breach of contract. In fact, this article takes the provision of guarantee as a prerequisite to judge whether the expected breach of contract is established. Therefore, some scholars suggest that the legislation of China's civil code should learn from the provisions of the United States Uniform Commercial Code. In the case that the debtor "explicitly expresses that he will not perform the principal debt by his own behavior", the breaching party should not take providing guarantee as a condition for the establishment of implied anticipatory breach of contract, so as to better balance the interests of both parties. In fact, in order to make a good connection between the system of uneasy defense right and the system of anticipatory breach of contract, Article 528 of the Civil Code stipulates that if one party exercises the right of uneasy defense, and the other party fails to recover its performance ability within a reasonable period of time, and fails to provide appropriate guarantee after the suspension of performance, it shall be regarded as his own behavior indicating that he has failed to perform the main obligations of the contract, and the party who suspends performance may terminate the contract and demand the other party to bear the liability for breach of contract. Because Article 578 of the Civil Code only stipulates that one party constitutes an expected breach of contract, and the other party has the right to claim illegal liability before the expiration of the contract performance period, it is not clear whether the exercise of this right is based on "no guarantee", so the understanding and application of this article may be controversial in theory and practice. We believe that implied breach of contract is mainly due to the debtor's loss of the ability to perform debts in the future and its inability to provide guarantee. If the debtor recovers the ability to perform the debt in time and can guarantee the performance of the debt, it should not constitute an expected breach of contract.

"Non-performance of contractual obligations due to one's own behavior" should be judged by combining the comprehensive factors such as the purpose, nature and performance ability of the parties in a specific case. Take the appeal case of a loan guarantee contract dispute of a company, a bank business department and a hotel company in Hunan as an example. Before the repayment period expires, one party transfers huge assets and replaces a large number of false assets. Does this belong to "showing that you are not fulfilling your contractual obligations by your own actions"? The court held that the borrower transferred its huge effective assets before the repayment period expired and replaced them with bad and untrue assets, which would eventually lead to the suspension of most loans of the bank, seriously threatening the realization of the purpose of the bank loan contract, and constituted an expected breach of contract, and the bank could recover the loans in advance.

Problems needing attention in trial practice

1. If the debtor's intention to refuse to perform is unclear, can the anticipatory breach clause be applied for relief?

In the trial practice, it should be noted that if the debtor's intention of refusing to perform is not clear, the anticipatory breach clause cannot be applied to remedy. In the case that the debtor lacks the will to perform but does not explicitly refuse to perform, the right of uneasy defense can be considered and the other party can be required to provide a performance guarantee. After the suspension of performance, if the other party fails to provide appropriate guarantee within a reasonable period of time, it can be regarded as "failing to perform the contractual obligations with its own behavior", and the party that suspends performance can terminate the contract and demand the other party to bear the liability for breach of contract.

Two, the debtor has fulfilled its main obligations, can you rule out the application of anticipatory breach of contract?

The prerequisite for the application of anticipatory liability for breach of contract is that one of the parties clearly expresses or shows by his own behavior that he will not perform his contractual obligations. If one party has fulfilled the main obligations of the contract, the other party can't, of course, demand the other party to bear the liability for breach of contract before the expiration of the contract performance period according to Article 578 of the Civil Code. In the appeal case of Sino-foreign joint venture contract dispute between an investment company and a metal lighting company, the focus of the dispute is whether the parties can claim the other party's expected breach of contract on the grounds that the other party has not fully fulfilled the contract. The court held that one party to the joint venture contract has delivered the equipment and real estate as capital contribution to the joint venture company for actual use, and only a small part of real estate has not gone through the transfer procedures, and has fulfilled its main obligations rather than failed to fulfill its main obligations, which does not meet the conditions stipulated in the expected breach of contract. The reason why the other party requires it to bear the expected liability for breach of contract cannot be established.