Nonperformance of contractual duty

1
Nonperformance of contractual duty

• Delay to Perform
• Anticipatory Repudiation

2
Delay to Perform
3
The elements for liability of delay in performance
4
The period for performance lapsed

• Definite time for performance
• Where there is a definite period fixed for the
  performance of an obligation, the debtor is
  responsible for the default from the moment when
  such period lapses. (ROC Civil Code Article 229
  Para1)
• Where a definite time for the performance of a
  claim is fixed, the obligor shall be responsible
  for delay as from the lapse of such time. (Korea
  Civil Code Article 387 Para 1 Japan Civil Code
  Article 412 Para 1)

5
The period for performance lapsed

• No definite time for performance
• ROC Civil Code
• When there is no definite period fixed for the
  performance of the obligation, the debtor is
  responsible for the default from the moment when
  the time expires which had been set by the
  creditor to demand the performance after the
  creditor has notified him of the demand. (ROC
  Civil Code Article 229 Para2)
• If there is a period fixed for the performance
  in the notice of the preceding paragraph, the
  debtor is responsible for the default from the
  moment when such time expires. (ROC Civil Code
  Article 229 Para3)
• The effect of instituting an action for
  performance and the service of the complaint, or
  the service of an order for payment according to
  the hortatory process, or any other similar act
  is equivalent to a notice. (ROC Civil Code
  Article 229 Para2)

6
The period for performance lapsed

• Korea Japan Civil Code
• Time for performance is uncertain
• If an indefinite time for the performance of a
  claim is fixed, the obligor shall be responsible
  for any delay as from the time when the obligor
  has become aware of the arrival of the time for
  performance. (Korea Civil Code Article 387 Para
  1 Japan Civil Code Article 412 Para 2)
• There is no agreed time for performance
• If a time for the performance of a claim is not
  fixed, the obligor shall be responsible for the
  delay as from the time when demand for
  performance has been made upon him. (Korea Civil
  Code Article 387 Para 2 Japan Civil Code Article
  412 Para 3)

7
Imputable to the obligor

• The debtor is not being responsible for the
  default if the prestation has not been made by
  reason of circumstances to which he is not
  imputed. (ROC Civil Code Article 230)
• Where the obligor do not perform in compliance
  with tenor of the obligation, the obligee may
  claim damage. If the performance became
  impossible and it is imputable to the obligor,
  the effect is the same. (Japan Civil Code Article
  415)
• If an obligor fails to perform in accordance with
  the tenor and purport of the obligation, the
  obligee may claim damages However, this rule
  shall not be applied to cases where performance
  has become impossible and the impossibility is
  not due to the obligor's intention or negligence.
  (Korea Civil Code Article 390)

8
Imputation for Agent and Assistant

• A debtor shall be responsible for the intentional
  or negligent acts of his agent and of the person
  performing the obligation for him to the same
  extent as he is responsible for his own
  intentional or negligent acts. Unless otherwise
  agreed upon by the parties. (RCC Article 224)

9
Effect of delay of performance
10
Case Study

• X sold his store building to Y and agreed to
  deliver the store to Y in Jan 1. Y entered into
  a lease effective in Feb 1 to lease out the store
  to Z for two years with the rent 30,000 per
  month. The lease provided that if Y didnt
  deliver the store to Z for use as restaurant in
  the Feb 1, Y shall pay 20,000 as liquidated
  damage to Z. However, until May 1, X had yet to
  deliver the store to Y and Z could not open his
  restaurant on schedule. What are the legal
  relationships between X and Y, and Y and Z?

11
The right to claim performance

• Korea Japan
• (1) If an obligor does not perform his obligation
  voluntarily, the obligee may apply to a court for
  compulsory performance thereof However, this
  shall not apply to cases where the nature of an
  obligation does not so permit.
• (2) If the obligation mentioned in the preceding
  paragraph has a juristic act for its subject,
  application may be made to a court for a decision
  which shall act as a substitute for a declaration
  of intention by the obligor if it has an act
  which is not entirely personal to the obligor for
  its subject, application may be made to a court
  to compel performance by a third person at the
  expenses of the obligor.
• (3) Where the obligation has nonfeasance for its
  subject matter, and the obligor has violated it,
  application may be made to a court to have that
  which has been violated by the obligor removed at
  the obligor's expense, and that reasonable
  precautionary steps be taken against future
  repetition.
• (4) The provisions of the preceding three
  paragraphs shall not be prejudicial to the claim
  of damages. (Korea Civil code Article 389 Japan
  Civil Code 414)

12
The right to claim performance

• PRC Contract Law
• A party fails to perform its obligations under a
  contract, or rendered non-conforming performance,
  it shall bear the liabilities for breach of
  contract by specific performance, cure of
  non-conforming performance or payment of damages,
  etc. (Article 107)
• Monetary Specific Performance
• If a party fails to pay the price or
  remuneration, the other party may require payment
  thereof. Article 10
• Non-monetary Specific Performance
• Where a party fails to perform, or rendered
  non-conforming performance of, a non-monetary
  obligation, the other party may require
  performance, except where
• (i)  performance is impossible in law or in fact
• (ii)  the subject matter of the obligation does
  not lend itself to enforcement by specific
  performance or the cost of performance is
  excessive
• (iii)  the obligee does not require performance
  within a reasonable time. (Article 110)

13
Claim Damages

• ROC Civil Code
• Non-Monetary Debt
• Claim damage arising from default
• When the debtor is in default, the creditor is
  entitled to claim compensation for any injury
  arising therefrom. (Article 231)
• The obligors liability foster to force majeure
  liability
• So long as the default continues, the debtor
  under the preceding paragraph shall also be
  responsible for any injury arising from
  circumstances of force majeure,
• unless he can prove that the injury would have
  been sustained, even if he had performed in due
  time. (Article 231)

14
Claim Damages

• Refuse the performance and claim substitute
  damage
• If the performance after the default is of no
  interests to the obligee, the obligee may refuse
  the performance, and claim substitute
  compensation for the injury arising from the
  non-performance. (Article 232)
• Monetary Debt - claim interest
• ROC Civil Code Article 233
• Where the object of an obligation in default is a
  payment of money, the creditor may claim interest
  for the default.
• The interest shall be calculated at the statutory
  rate, but if the agreed rate of interest is
  higher, this higher rate shall apply.
• The obligee is not entitled to claim interest for
  the interest of default.
• if the obligee can prove other damages sustained,
  he may claim compensation as well.

15
Claim Damages

• Korea Japan Civil Code
• Non-Monetary Debt
• Where the obligor do not perform in compliance
  with tenor of the obligation, the obligee may
  claim damage. (Japan Civil Code Article 415)
• If an obligor fails to perform in accordance with
  the tenor and purport of the obligation, the
  obligee may claim damages (Korea Civil Code
  Article 390)

16
Claim Damages

• Monetary Debt - claim interest
• Korea Civil Code Article 397 Japan Civil Code
  419)
• (1) The amount of damages for non-performance of
  a monetary debt shall be determined by the legal
  rate of interest. However, in a case where there
  exists an agreed rate of interest which does not
  exceed the limitation provided by Acts and
  subordinate statutes, that agreed rate of
  interest shall prevail.
• (2) With regard to the damages mentioned in the
  preceding paragraph, the obligee is not bound to
  prove the actual damages nor can the obligor set
  up the absence of negligence as a defense.

17
Claim Damages

• PRC Contract Law
• A party fails to perform its obligations under a
  contract, or rendered non-conforming performance,
  it shall bear the liabilities for breach of
  contract by specific performance, cure of
  non-conforming performance or payment of damages,
  etc. (Article 107)
• Where a party failed to perform or rendered
  non-conforming performance, if notwithstanding
  its subsequent performance or cure of
  non-conforming performance, the other party has
  sustained other loss, the breaching party shall
  pay damages. (Article 112)

18
Terminate the contract

• Interest of performance still exists after delay
  
• The other party delayed performance of its main
  obligations, and failed to perform within a
  reasonable time after receiving demand for
  performance. (PRC Contract Law Article 94
  Subparagraph 3)
• When a party to a contract is in default, the
  other party may fix a reasonable period and
  notify him to perform within that period. If the
  party in default does not perform within that
  period, the other party may rescind the contract.
  (ROC Civil Code Article 254)

19
Terminate the contract

• Where a party to a contract is in default, the
  other party may fix a reasonable period and
  notify him to perform within that period. If the
  party in default does not perform within that
  period, the other party may rescind the contract.
  (Japan Civil Code Article 541)
• If one of the parties does not perform his
  obligation, the other party may fix a reasonable
  period and give peremptory notice demanding its
  performance, and may rescind the contract, if no
  performance is effected within such period
  Provided, That if the obligor declares in advance
  his intention that he will not effect such
  performance, no peremptory notice shall be
  required. (Korea Civil Code Article 544)

20
Terminate the contract

• Interest of performance does not exists after
  delay
• the other party delayed performance thereby
  frustrating the purpose of the contract. (PRC
  Contract Law Article 94 subparagraph 4)
• If according to the nature of the contract or the
  expression of intent of the parties, the purpose
  of the contract can not be accomplished if not
  performed within the fixed period, and if one of
  the parties does not perform the contract within
  that period, the other party may rescind the
  contract without giving the notice specified in
  the preceding article. (ROC Civil Code Article
  255)

21
Terminate the contract

• Where according to the nature of the contract or
  the declaration of intention of the parties, the
  purpose of the contract can not be accomplished
  if not performed in specific day or within the
  fixed period, the other party may rescind the
  contract without giving the notice specified in
  the preceding article if one of the parties does
  not perform the contract after lapse of that
  period,. (Japan Civil Code Article 542)

22
Terminate the contract

• If, according to the nature of the contract or by
  a declaration of intention of the parties, the
  objective for which the contract has been entered
  is unattainable unless it is performed at a
  designated time and date or within a designated
  period, and one of parties has not effected
  performance on his part, the other party may,
  without giving the notice mentioned in the
  preceding Article, rescind the contract. (Korea
  Civil Code Article 545)

23
Effect of Termination

• Unless otherwise provided by the act or by the
  contract, each party shall, in case of
  rescission, restore the other party to his status
  quo ante according to the following rules
• (1) Each party shall return the prestation
  received to the other party.
• (2) If the prestation received consisted of
  money, interest calculated from the time of
  receipt shall be added.
• (3) If the prestation received consisted of
  service or of the use of a thing, the value of
  such service or use at the time of receipt shall
  be reimbursed in money.
• (4) If a thing to be returned has produced
  profits, such profits shall be returned.
• (5) If necessary or beneficial expenses of the
  thing to be returned have been paid, such
  expenses may be claimed for to the extent to
  which the other party is benefited at the time of
  return.
• (6) If a thing to be returned has been damaged or
  destroyed or cannot be retuned owing to any other
  cause, its value shall be reimbursed. (RCC
  Article 259)

24
Effect of Termination

• The exercise of the right of rescission does not
  prejudice to the claim for compensation. (RCC
  Article 260)
• Upon termination of a contract, a performance
  which has not been rendered is discharged if a
  performance has been rendered, a party may, in
  light of the degree of performance and the nature
  of the contract, require the other party to
  restore the subject matter to its original
  condition or carry out other remedies, and is
  entitled to claim damages. (PCL Article 97) 

25
Damage
26
Methods of Damage

• Restoration to the status quo before the injury
• Unless otherwise provided by the act or by the
  contract, a person who is bound to make
  compensation for an injury shall restore the
  injured party to the status quo before the
  injury.
• If the restoration of the status quo ante shall
  be paid in money, interest shall be added from
  the time of the injury.
• Under the circumstances of the first paragraph,
  the creditor may claim the necessary expenses for
  restoration instead of the restoration. (RCC
  Article 213)

27
Methods of damage

• Compensation in money
• Delay to restore
• If the person who is bound for the restoration of
  the status quo ante does not perform his
  obligation within a reasonable period fixed by
  the creditor, the latter may claim compensation
  in money for the injury sustained. (RCC Article
  214)
• Impossible or impractical to restore
• If it is impossible or obviously and greatly
  difficult for the restoration of the status quo
  ante, the injury sustained shall be compensated
  in money. (RCC Article 215)

28
Scope of Damage

• The injury suffered and the interests lost
• Unless otherwise provided by the act or by the
  contract, the compensation shall be limited to
  the injury actually suffered and the interests
  which have been lost. (RCC Article 216 Para1)
• The interests lost includes expectation interest
• Interests which could have been normally expected
  are deemed to be the interests which have been
  lost, according to the ordinary course of things,
  the decided projects, equipment, or other
  particular circumstances. (RCC Article 216
  Para2)
• The doctrine of set-off of lost and interest
• If there are injury suffered and interests
  acquired derived from the same reason, the
  interests acquired shall be deducted from the
  amount of the compensation claimed. (RCC Article
  216-1)

29
Duty of Mitigation

• Duty of Mitigation or Comparative Negligence
• If the injured person has negligently contributed
  in causing or aggravating the injury, the court
  may reduce or release the amount of the
  compensation. (RCC Article 217 Para 1)
• Where a party breached the contract, the other
  party shall take the appropriate measures to
  prevent further loss where the other party
  sustained further loss due to its failure to take
  the appropriate measures, it may not claim
  damages for such further loss. (PCL Article 119
  Para 1)

30
Duty of Mitigation

• Cost to mitigate damage
• Any reasonable expense incurred by the other
  party in preventing further loss shall be borne
  by the breaching party. (PCL Article 119 Para2)
• Constructive Negligence
• If the reason of a grave injury was unknown to
  the debtor and the injured person has omitted to
  call the attention of the debtor beforehand, or
  to avert, or mitigate the injury, the injured
  person will be deemed to be negligently
  contributed in the injury. (RCC Article 217 Para
  2)

31
Duty of Mitigation

• Agents and Assistants Negligence
• The provisions of the preceding two paragraphs
  shall apply mutatis mutandis to the situation
  when the agent of the injured person or the
  person performing the obligation for the injured
  person has negligently contributed to the injury.
  (RCC Article 217 Para 3)

32
Liquidated Damage

• General provision of liquidated damage
• The parties may agree on a liquidated damage to
  be paid by the debtor in case the debtor does not
  perform the obligation. (RCC Article 250I)
• The parties may prescribe that if one party
  breaches the contract, it will pay a certain sum
  of liquidated damages to the other party in light
  of the degree of breach, or prescribe a method
  for calculation of damages for the loss resulting
  from a party's breach. (PCL Article 114 para1)
• Liquidated damage do not prejudice the right to
  claim performance
• Where the parties prescribed liquidated damages
  for delayed performance, the breaching party
  shall, in addition to payment of the liquidated
  damages, render performance. (PCL Article 114
  para3)

33
Liquidated Damage

• Punitive damage agreed by the parties is lawful
• Unless otherwise agreed upon by the parties, the
  liquidated damage shall be deemed to be the total
  amount of damages due to the non-performance.
  (RCC Article 250II)
• Specific liquidated damage for delay or imperfect
  performance
• If it is agreed that the liquidated damage shall
  be paid when the debtor does not perform the
  obligation at the agreed time or in the agreed
  way, this penalty shall be deemed to be the total
  amount of damages due to this non-performance,
  besides the creditor may claim for the
  performance. (RCC Article 250II)

34
Liquidated Damage

• Set-off of liquidated damage and performance
• If the obligation has been partially performed,
  the court may reduce the liquidated damage
  proportionately as the interests received by the
  creditor due to the partial performance. (RCC
  Article 251)
• Adjustment of liquidated damage
• If the agreed liquidated damage is
  disproportionately high, the court may reduce it
  to a reasonable amount. (RCC Article 252)
• Where the amount of liquidated damages prescribed
  is below the loss resulting from the breach, a
  party may petition the People's Court or an
  arbitration institution to increase the amount
  where the amount of liquidated damages prescribed
  exceeds the loss resulting from the breach, a
  party may petition the People's Court or an
  arbitration institution to decrease the amount as
  appropriate.(PCL Article 114 para2)

35
Damage Rule in PRC Contract Law

• Amount of damage
• Expectation interest
• Where a party failed to perform or rendered
  non-conforming performance, thereby causing loss
  to the other party, the amount of damages payable
  shall be equivalent to the other party's loss
  resulting from the breach, including any benefit
  that may be accrued from performance of the
  contract. (Article 113 Para 1)
• Limitation foreseeablility
• provided that the amount shall not exceed the
  likely loss resulting from the breach which was
  foreseen or should have been foreseen by the
  breaching party at the time of conclusion of the
  contract. (Article 113 Para 1)
• Punitive damage (twice of contract price, Law of
  the People's Republic of China on Protection of
  Consumer Rights article 49)
• Where a merchant engages in any fraudulent
  activity while supplying goods or services to a
  consumer, it is liable for damages in accordance
  with the Law of the People's Republic of China on
  Protection of Consumer Rights. (Article 113 Para
  2)

36
Anticipatory Repudiation
37
Case Study

• In September 5. Defendant sold 1,000 stones of
  cotton to Plaintiff for RMB 220 per stone, total
  amount 22,000. The date of delivery is December
  15. Plaintiff paid 4,000 as earnest money to
  Defendant upon conclusion of the contract. Five
  days later, Plaintiff resold the 1,000 stones of
  cotton to Meifong Co. for 300 per stone and
  agreed to pay 20 of price as liquidated damage
  if it breaches the contract. On September 25,
  Defendant called Plaintiff and said that it will
  not be able to deliver the cotton because the
  production of cotton plants fell sharply due to
  abundant precipitation in this season.

38

• Plaintiff looked into Defendants cotton
  plantation and found that the production is same
  as usual. The genuine reason for Defendants
  refusal to honor the contract was the rise of
  cotton price. Evidence showed that Defendant sold
  the same cotton to the other company, on
  September 20, for higher price than that in the
  contract with Plaintiff. After failure to obtain
  Defendants assurance for performance, Plaintiff,
  on October 10, sued Defendant for specific
  performance and, if performance is impossible,
  for reimbursement of twice of earnest money and
  damage equal to the liquidated damage plaintiff
  paid for Meifong Co.. Do Plaintiffs claims have
  legal basis to support?

39
Anticipatory Repudiation in China

• Types of anticipatory repudiation
• Express anticipatory repudiation
• One party expressly states that it will not
  perform its obligations under a contract
• Implied anticipatory repudiation
• One party indicates by its conduct that it will
  not perform its obligations under a contract

40
Anticipatory Repudiation in China

• Effect of anticipatory repudiation
• specific performance OR payment of damages
• The other party may hold it liable for breach of
  contract before the time of performance. (Article
  108)
• If a party fails to perform its obligations under
  a contract, it shall bear the liabilities for
  breach of contract by specific performance, or
  payment of damages. (Article 107)

41
Anticipatory Repudiation in China

• Terminate the contract
• The aggrieved party may terminate a contract if
  before the time of performance, the other party
  expressly stated or indicated by its conduct that
  it will not perform its main obligations.
  (article 94, subparagraph 2)

42
Anticipatory Repudiation in China

• Claim damages after termination
• Upon termination of a contract, a performance
  which has not been rendered is discharged if a
  performance has been rendered, a party may, in
  light of the degree of performance and the nature
  of the contract, require the other party to
  restore the subject matter to its original
  condition or otherwise remedy the situation, and
  is entitled to claim damages.( Article 97)

43
Earnest Money
44
PRC Guarantee Law

• Article 89 The parties may agree that one
  party will pay the deposit to another party as
  guarantee. After the debtor performs the debt,
  the deposit shall offset the value amount or be
  returned. If the party who pays the deposit does
  not perform the debt, he shall not be entitled to
  have right to demand the deposit to be returned
  if the party who accepts the deposit does not
  perform the debt, he shall return twice the
  amount of the deposit.
• Article 90 The deposit shall be agreed in
  writing. The parties shall agree the time
  limitation to pay the deposit in the deposit
  contract. The deposit contract shall be effective
  as the date of actual payment of the deposit.
• Article 91 The amount of the deposit shall be
  determined by the parties, but shall not exceed
  20 percent of the target amount of the master
  contract.

45
PRC Contract Law

• Article 115     DepositThe parties may prescribe
  that a party will give a deposit to the other
  party as assurance for the obligee's right to
  performance in accordance with the Security Law
  of the People's Republic of China. Upon
  performance by the obligor, the deposit shall be
  set off against the price or refunded to the
  obligor. If the party giving the deposit failed
  to perform its obligations under the contract, it
  is not entitled to claim refund of the deposit
  where the party receiving the deposit failed to
  perform its obligations under the contract, it
  shall return to the other party twice the amount
  of the deposit.
• Article 116     Slection Between Deposit or
  Liquidated Damages ClausesIf the parties
  prescribed payment of both liquidated damages and
  a deposit, in case of breach by a party, the
  other party may elect in alternative to apply the
  liquidated damages clause or the deposit clause.

46
ROC Civil Code

• Article 248
• When one of the parties to a contract receives
  earnest money from the other, the contract is
  presumed to be constituted.
• Article 249
• Unless otherwise agreed upon by the parties, the
  following rules apply to the earnest money
• (1) When the contract has been performed, the
  earnest money shall be returned or treated as one
  part of the payment.
• (2) If the contract cannot be performed owing to
  a circumstance to which the party who gave the
  earnest money is imputed, such party shall not
  claim for the return of the earnest money.
• (3) If the contract cannot be performed owing to
  a circumstance to which the party who received
  the earnest money is imputed, such party shall
  return double amounts of earnest money.
• (4) If the contract cannot be performed owing to
  a circumstance to which neither of the parties is
  imputed, the earnest money shall be returned.

47
Korea Civil Code

• Article 565 (Earnest Money)
• (1) If one of the parties to a contract of sale
  has delivered, at the time of entering into the
  contract, money or other things under the name of
  down payment, assurance deposit, etc. to the
  other party, unless otherwise agreed upon between
  the parties, the deliverer by giving up such
  money, and the receiver by repaying double such
  money, may rescind such contract before one of
  the parties has initiated performance of the
  contract.
• (2) The provisions of Article 551 shall not apply
  to the case mentioned in the preceding paragraph.
  

48
Japan Civil Code

• Article 557 (Earnest Money)
• (1) If the buyer delivered earnest money to the
  seller, the buyer may give up earnest or the
  seller may repay twice of earnest money to
  rescind the contract before one of the parties
  initiates performance of the contract.
• (2) The provisions of Article 545 subparagraph 3
  shall not apply to the case in the preceding
  paragraph.