Analysis of the legal effect of the unfulfilled arbitrary conditions of the agreement

How to determine the validity of the arbitrary conditions agreed in the contract is a difficult issue in judicial practice. For example, the parties to a contract agree in the contract that the contract shall come into force upon receipt of an advance payment from one party and that the party shall have an obligation to pay the advance payment to the other party. If the party with the "obligation" to pay the advance does not take the initiative to make the advance payment effective, the validity of the contract will be deadlocked. At this time, the following questions will arise: First, when the fulfillment of the "condition" is decided by one of the parties to the contract, can the provisions of Article 158 of the Civil Code on conditional legal acts be applied? Second, whether the contract will take effect when the "condition" is not fulfilled? Third, if the party that determines whether the "condition" is fulfilled refuses to fulfill the "condition", does it need to bear the liability for negligence in contracting? The above issues are all controversial. The author combs and analyzes this issue and tries to clarify the common disputes in judicial practice.

One

The legal nature of arbitrary conditions

There are three views on whether arbitrary conditions constitute "conditions" in conditional legal acts as provided for in Article 158 of the Civil Code:

The first view is that the arbitrary condition is essentially an uncertain matter that makes the validity of the contract depend on whether one party is a specific act, so it is a condition for effectiveness, and the rules of the Civil Code on the conditions for entry into force should be applied.

The second view is that arbitrary conditions will make whether the contract can take effect completely depend on its unilateral expression of intent, and if the objective requirement of the conditions is violated, it will lead to uncertainty as to whether the contract can take effect, and the principle of good faith is violated, and the contract should be regarded as unconditional.

The third view is that if the agreed act is an obligation to be performed by the parties, then the act is not an uncertain fact that determines the validity of the civil legal relationship, and cannot become a legal condition, but the provisions on legal acts with a time limit can be referred to.

The author believes that the above three views should be combined.

First, Article 158 of the Civil Code and Article 24 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Civil Code of the People's Republic of China only exclude two situations: that no conditions may be attached due to the nature of the legal act and that the attached conditions cannot occur. Arbitrary conditions do not fall under the above two statutory exclusions.

Second, according to the theoretical definition of conditions, conditions should meet the four characteristics of voluntary agreement of the parties, future contingent facts, ancillary expression of intent, and legality. When it is agreed that the act of one of the parties is the "condition" for the contract to take effect, the agreement is a product of the autonomy of the parties, and there is no prohibition by laws and regulations. When the law or related contract has imposed obligations on the party for a specific act, that is, when the performance of a specific act is an existing obligation, the actor shall carry out the act in accordance with the law or in accordance with the contract, and the achievement of the "condition" has normative certainty, and the contract cannot be deemed to be effective with conditions, but should be deemed to be effective with a time limit. However, if the party has no obligation to perform a specific act, or the contract that has not yet entered into force stipulates that it has an obligation to perform the act, that is, the obligation is only an obligation, and the party has no actual obligation to perform the specific act, whether the act can be carried out is contingent, and the definition of a conditional legal act is met.

Third, the second view in practice regards the arbitrary condition as an invalid condition only from an academic point of view, which has no legal basis, and denies that it is a condition on the grounds that the performance of one of the parties is not certain is contrary to the essential attributes of the condition. The characteristics of the conditions are inherently uncertain. In the case of the parties voluntarily attaching conditions, it is the original intention of the parties to give appropriate uncertainty to the contract to take effect, and there is no question of violating the principle of good faith.

Two

The legal effect of the unfulfilled arbitrary condition

When one of the parties refuses to perform a specific act, there are two views on the validity of the contract at that time:

The first view is that if the positive act of one of the parties is the condition for taking effect, if the party fails to fulfill the effective condition by way of omission, it falls under the situation of "the party improperly prevents the fulfillment of the condition for its own interests" in Article 159 of the Civil Code, and the condition shall be deemed to have been fulfilled, that is, the contract has taken effect.

The second view is that if the parties agree to take the performance of one party as a condition for the contract to take effect, it is actually that the parties voluntarily give the party the right to decide whether the contract is effective by their own acts, and if the party refuses to perform the act, it is an act of exercising the right to dispose of the validity of the contract, and the provisions of conditional legal acts should be applied to make the contract ineffective.

In the author's view, the above two perspectives provide solutions from different perspectives, and the core lies in how to determine "unduly preventing conditional fulfillment". It is generally believed that the reason for the fulfillment of the conditions is that the party's act of preventing the fulfillment of the conditions is reprehensible, violates the requirements of the principle of good faith, and has a serious impact on the reasonable trust of the other party, and requires relief. Therefore, if there is no corresponding past performance practice between the parties, and it is agreed that one of the parties can use its own conduct as a condition for the contract to take effect, it should be deemed that the party has the right to choose whether the contract is effective, and the party's refusal to perform the specified act is in fact an exercise of rights, which is justified, and the other party can reasonably foresee the risk that the contract will not take effect at the time of the conclusion of the contract, and it should not be deemed to "unduly prevent the fulfillment of the conditions" , and the general provisions of conditional legal acts should be directly applied so that the contract does not take effect.

However, if the parties have corresponding performance habits, or the other party has strong reasonable expectations or other performance and performance preparations due to other acts of the party, such as the parties have relevant trading habits or have reached multiple related contracts, etc., the failure of the parties to perform the specified acts may violate the requirements of the principle of good faith, and the conditions should be formulated as fulfilled in order to balance the interests of both parties. Assuming that the contract signed by the parties is a contract for the sale of raw materials, and the parties have signed a processing contract before the contract, and the contract for the sale and purchase of raw materials is signed for the performance of the processing contract, the seller has reasonable grounds to rely on the buyer to pay the advance payment within the agreed time and has made preliminary preparations for the performance of the contract for the sale and purchase of raw materials, and if the buyer fails to pay the corresponding amount, the contract shall still be presumed to be effective.

Three

Legal liability for failure to fulfill arbitrary conditions

When the party that determines whether the conditions are fulfilled refuses to perform the specified act and the conditions cannot be fulfilled, the legal liability of the party shall be determined by distinguishing whether the contract is in force or not. In the event that the contract is made into effect by exception, if the party with the obligation to perform fails to perform the contract within the agreed time limit, it will bear the corresponding liability for breach of contract.

Under normal circumstances, because the contract has not taken effect, the party that takes its own behavior as a condition for the contract to take effect is obviously not liable for breach of contract, but its refusal to make the contract effective still damages the reasonable expectations of the other party to a certain extent, and wastes the cost of negotiation, and may violate the pre-contractual obligations and bear the liability for negligence in concluding the contract. The parties to bear the liability for contractual negligence shall meet the following conditions at the same time:

First, the contract is determined not to take effect. That is, the parties express their non-performance of the agreed conditions by their own behavior, resulting in the final and definite non-entry into force of the contract. In this case, it is necessary to exclude the situation where the party has temporarily failed to perform the act. If the party who determines whether the conditions have been fulfilled has only failed to perform the act within a certain period of time, it cannot be presumed that it refuses to fulfill the conditions, and after a certain period of time, the other party shall urge and grant a certain grace period, and only if the conditions have not been fulfilled after the expiration of the grace period, the contract shall be deemed to be ineffective.

Second, there is no justifiable reason for the non-performance of the act by a party whose performance is a condition for its validity. Contractual negligence liability is essentially based on the principle of good faith to protect the rights and interests of the injured party. Whether there should be corresponding responsibility for the failure to conclude a contract in the process of concluding a contract should be judged in light of individual cases and different situations, and the autonomy of the parties should be balanced. After all, unlike a contract that has not yet been formed, the parties have reached a certain agreement on the content of the contract and have certain reasonable expectations that the contract may take effect. Therefore, if the party refuses to fulfill the terms of the contract without reasonable reasons, there is a possibility of abuse of rights and should bear the corresponding liability.

Third, the non-performing party should have certain reasonable expectations for the contract to take effect. What is compensated by the liability for contractual negligence is the cost paid by the parties for the conclusion of the contract, which implies the reasonable expectations of the parties as to the possibility of performance. Therefore, if the parties have expressly agreed that the validity of the contract depends entirely on the behavior of one party, and there is no corresponding obligation clause, the parties have the right to decide the validity of the contract on their own, and no additional liability should be attached at this time.

To sum up, when the contract stipulates that the conduct of one party is a condition for the contract to take effect, the relevant provisions of the Civil Code on conditional legal acts should be applied for review. In the event that there is a serious damage to the reasonable reliance of one party between the parties or one party has performed the contract based on reasonable reliance, if the performing party fails to perform the corresponding acts, it may constitute "undue obstruction of the fulfillment of the conditions", which is pretended to be the fulfillment of the conditions and makes the contract effective. In addition, the general provisions on conditional legal acts shall be applied, and it shall be found that the conditions have not been fulfilled. However, if the non-performing party has reasonable expectations and the performing party refuses to perform the specified act without justifiable reasons, the performing party shall bear the corresponding liability for contractual negligence and appropriately compensate for the contractual losses suffered by the non-performing party.

Relevant Laws

Article 158 of the Civil Code of the People's Republic of China: Civil juristic acts may be conditional, except where conditions may not be attached on the basis of their nature. Civil juristic acts with conditions for taking effect take effect when the conditions are fulfilled. Civil juristic acts with conditions for rescission shall become invalid when the conditions are fulfilled.

Article 159 of the Civil Code of the People's Republic of China: Where a party improperly prevents the fulfillment of a condition for its own benefit, it is deemed that the condition has been fulfilled;

Article 24 of the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the General Provisions of the Civil Code of the People's Republic of China" Article 24: Where the conditions attached to a civil juristic act cannot occur, and the agreement of the parties is a condition for taking effect, the people's court shall find that the civil juristic act is not effective;