Perspectives on Chinese contract law: Performance and breach

INTRODUCTION This chapter discusses three important issues regarding performance and breach of contract under Chinese law. The first one is concerned with contracts in favor of third parties, under which a third party not only benefits from the performance of the contract, but also has a right to demand performance from the debtor and claim liability for breach of contract when the debtor fails to provide the promised performance. The second issue covers two related principles: the principle of anticipatory breach and that of defense of insecurity, both of which deal with a situation where it is evidenced before the expiration of the time of performance that the debtor will either fail or likely fail to provide the promised performance. The third issue is the doctrine of change of circumstances, which grants the parties a right to apply to the court for modification or termination of their contract when a certain unforeseeable change of circumstances renders the continuance of the promised performance unfair to one party or the purpose of the contract unrealizable. Despite the differences in these three areas of law relating to performance and breach of contract, they were all new innovations to Chinese contract law upon the promulgation of the 1999 Contract Law of the People’s Republic of China (CCL) as developed by subsequent judicial interpretations. Contracts in favor of third parties, the principle of defense of insecurity and the principle of change of circumstances were introduced from the Germanic civil law system to Chinese law, while the principle of anticipatory breach followed the concept of anticipatory repudiation found in the common law system. It is of both theoretical and comparative significance to probe the details about how these foreign principles have been transplanted and subsequently applied under Chinese law. CONTRACTS IN FAVOR OF THIRD PARTIES Relevant Law The CCL covers two types of contracts involving a third party: a contract involving performance to a third party (Article 64) and a contract involving performance by a third party (Article 65). CCL Article 64 is relevant to the issue of contracts in favor of third parties.