Second Civil Division of the Supreme People's Court: On the Application and Understanding of Discount Compensation

Second Civil Division of the Supreme People's Court: On the Application and Understanding of Discount Compensation

The so-called "compensation for discount" refers to the fact that after the contract is not established, invalid, revoked, or determined to be ineffective, the property acquired by the actor as a result of the contract shall be returned, but where it cannot be returned or it is not necessary to return it, it may be converted according to the value of the property, and the other party may be compensated in monetary terms, so that the property relationship can be restored to its original state.

The so-called non-returnable mainly includes two situations: legal non-returnable and de facto non-returnable:

The first is that the legal non-returnability mainly refers to the fact that the return of property is restricted by law. For example, in the case of bona fide acquisition, where a third party acquires ownership of property through bona fide acquisition, and although the contract in question is later confirmed to be invalid, revoked, or determined to be ineffective, the actor cannot actually return the property because the third party has acquired the property in good faith, and can only compensate the other party at a discount.

The second is the fact that it cannot be returned, including the situation that the subject matter is damaged, lost, or has been mixed or attached, etc., resulting in an objective inability to return, and the original is irreplaceable. For example, after the construction project contract is invalid, and the construction project passes the completion and acceptance, the contractor cannot objectively request the return of the building materials and labor that have become buildings or structures, but may request payment of the project price according to the contract, which is equivalent to compensation for discount; It also includes situations where the nature of the subject property is not suitable for return, such as intangible property or intellectual achievements, such as the invalidity of trademark and patent license contracts, the invalidity of contracts for the provision of services and services such as services, labor services or labor contracts, and the services and services that have been paid cannot be returned objectively. The so-called unnecessary return mainly refers to the fact that although the return of property is not de facto or legally unreturnable, the actual return of property is economically unreasonable and will cause a great waste of resources. For example, in the construction and installation contract, the builder has installed all the equipment required by the building in place according to the contract, and although it is objectively feasible to return all the demolition to the builder, it is not economical for one or both parties, and it will also cause a waste of social resources.

1. The nature of the discount compensation

As a legal consequence specified in Article 157 of the Civil Code, the discount compensation is in the nature of the return of unjust enrichment. If the subject property cannot be returned or there is no need to return it, and the recipient has no lawful basis to obtain the benefits of the subject property of the contract, the loss of the payer shall be compensated in the form of a discount in lieu of the return of the property subject matter of the contract. According to the system of return of unjust enrichment, fault needs to be taken into account when determining the scope of benefits to be returned, but cannot be used as the main consideration, otherwise it will affect the function of discount compensation as an alternative way of property return and restore the property status of the parties to the contract to the state before the conclusion of the contract. Discount compensation has two meanings: one is the function of reasonable evaluation of interests, which allows the adjudicator to make a reasonable evaluation of the value and scope of the interests of the property subject to the contract to be returned; The second is the function of the object of compensation, which indicates that the property interest of the subject matter of the contract at a discounted price is to compensate the party whose interests are impaired due to the invalidity of the original contract.

2. The benchmark time point and discount standard of discount compensation

In order to specifically calculate the value of the property subject matter of the contract, at least two factors need to be considered: the measurement standard and the time point of the value of the property. As for the time of measurement, that is, the price at what point in time should be used to convert the property subject to the contract in money.

Generally speaking, the time of signing the contract, the time of delivery of the property subject to the contract, the time of the judgment on the validity of the contract, and the time of return of the discount compensation can all be used as the conversion basis time points for the discount compensation. This judicial interpretation takes the time point of the judgment on the validity of the contract as the time point for conversion, and mainly considers that the time when the property subject of the contract is delivered to the recipient to the time when the judgment determines that it is unjust enrichment and should be returned to the payer may take a long time, and that changes in economic conditions, price levels and other factors during this period may cause the value of the property subject matter of the contract to increase or decrease, and in the case that the parties do not take the initiative to perform the obligation of discount compensation in a timely manner, the time point determined by the judgment is used as the benchmark time point for measuring the monetary conversion of the value of the property subject to the contract. It can effectively avoid the adverse impact of the above-mentioned value changes on the interests of the parties. With regard to the discount standard for property to be compensated, this Judicial Interpretation adopts the method of having the adjudication organ choose to apply the market value discount standard and other reasonable discount standards based on the objective reality of the property to be returned.

[Generally speaking], if the subject property of the contract can be replaced in the open market, in principle, the monetary compensation shall be calculated at the market price of the substitute. Other reasonable methods are mainly to find a substitute for the subject property of the contract in the open market and the fair value of the property cannot be determined through the market mechanism, in which case the transfer money agreed in the contract between the parties can be used as the basis for the discount compensation, and at the same time, the compensation standard can be comprehensively determined by considering the benefits of the parties in the loss or resale of the subject matter. The insurance money or other compensation obtained by the parties when the subject matter is lost, and the consideration obtained at the time of resale, are all benefits obtained by the parties due to the subject matter. The part of the benefit that is higher or lower than the price shall also be reasonably distributed or shared among the parties, so as to achieve a balance of interests between the parties.

※Reference case: Yibin Building Materials Co., Ltd. v. Yao Mougang et al., a contract dispute case

[Summary of the trial]:

I. Tidal flats are natural resources owned by the state. The act of leasing or subleasing tidal flats and other state-owned natural resources violates the mandatory provisions of laws and administrative regulations, and shall be found invalid in accordance with law. After the contract is invalid, the property acquired as a result of the contract shall be returned; where it cannot be returned or there is no need to return it, compensation shall be made at a discounted price. The party at fault shall compensate the other party for the losses suffered thereby, and if both parties are at fault, they shall each bear corresponding responsibility.

II. The tidal flats of rivers and lakes have important navigable ecological functions and water shoreline ecological functions, and cannot be occupied and abused indiscriminately. The land leased in this case is located on the side of the Minjiang River, a major tributary of the Yangtze River, and is a state-owned tidal flat, and the nearby villagers "habitually use" the tidal flat during the dry season of the river, as long as it does not pose a hazard to the protection of natural resources and the ecological environment, the relevant departments often do not strictly prohibit it, but if the tidal flat is used for production and business activities that damage the ecology and pollute the environment, threatening flood control, water supply and ecological security, it is not allowed by law. After a building materials company "leased" the tidal flat in this case through sublease, it carried out sand and gravel crushing and processing activities, resulting in a large amount of noise and dust pollution, causing harm to the water environment and safety. The people's court confirmed in accordance with the law that the nature of the disputed land is a state-owned tidal flat, which is a natural resource owned by the state, and that no unit or individual may encroach upon or destroy it, and ruled that the contract between the parties with the state-owned tidal flat as the subject matter is invalid, and that the production and business activities carried out on the state-owned tidal flat have been stopped, the state-owned natural resources have been protected, and the ecological function of the shoreline of the Minjiang River and the navigable function of the river have been maintained.

Case Number: :(2017) Chuan 15 Min Zhong No. 673

Transferred from the same judgment rule for similar cases