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Nonperformance of contractual duty

Nonperformance of contractual duty. Delay to Perform Anticipatory Repudiation. Delay to Perform. The elements for liability of delay in performance. The period for performance lapsed. Definite time for performance

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Nonperformance of contractual duty

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  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 didn’t 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 obligor’s 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 • Agent’s and Assistant’s 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 Defendant’s cotton plantation and found that the production is same as usual. The genuine reason for Defendant’s 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 Defendant’s 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 Plaintiff’s 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 ifbefore 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.

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