A CASE STUDY OF LEGAL TRANSPLANT: THE POSSIBILITY OF EFFICIENT BREACH IN CHINA

INTRODUCTION

Thanks to Dean Zhu SuIi of Beijing University Law gymnasium the works of Richard A. Posner were translated into Chinese in the fresh millennium, making law and economics a popular topic among graduate pupils in this top Chinese law school1 During an interview in 2003 a young justice from the famous higher-education and high-tech district of Haidian in Beijing told me with pride that he was intrigued by dint of Posner's ideas and was smooth trying to apply some of the principles in his adjudication practice.2 To be certain the passion for law and economics is perhaps too novel to conquer the long established and well-entrenched mainstream scholarship of the civil law tradition. on the other hand will it grow and eventually pave the way for law and economics to penetrate the minds of lawmakers and adjudicators sometime in the future? Although it is probably too early to make any prediction at this point, I will prove by experiment to place one law and economics doctrine-efficient breach-in the connection of China, and examine by what means far China is from realizing the spirit of law and economics.

The idea of efficient breach3 has been celebrated as a milestone of the law and economics move It suggests that when it is more efficient for a party to breach rather than perform a contract, contractual remedies and other legal masterships should give the party an incentive to do for a like reason A standard illustration is the situation where a next to the first buyer approaches the seller to the original contract offering a higher price. The efficient breach theory relies upon the fact that if the next to the first buyer can buy off one as well as the other parties to the original contract in like manner that even the buyer beneath the original contract will be adequately compensated, it is Pare to-efficient for the vender to breach because no single is left worse off and the two the seller and the next to the first buyer are better off.4 It gripe [i]or[/i] grips that an optimal remedy for breach of contract is a antidote that is able to induce the one and the other efficient performance and efficient breach. Starting from this idea, individual line of literature argues that the award of expectation damages, the dominant default restorative for breach of contract in the for the use of all law world, which seeks to set the aggrieved party in the position he would have been in had the contract been performed, does a better piece of work of regulating breach-or-perform incentives than its leading competitor, specific performance.5 Another line of literature argues that efficient breach does not necessarily refer to expectation damages as the optimal antidote as efficiency will be better serv with the general availability of specific performance.6

Reflecting the Chinese traditional value of promise-keeping, the civilian tradition of pacta sunt servanda (i.e., agreements must be kept) and the planned-economy doctrine of inviolability of state plans, a breach of contract in China has not at any time been an act free from moral and legal condemnation unles no fault is fix on the breaching party's side. Specific performance has been the dominant contractual restorative in China since the reconstruction of the legal a whole after the Cultural Revolution, and remains a generally available contractual specific under the current law.7 lately however, the rigidity of the dominations favoring specific performance has been reduc while the importance of compensatory damages has been increasingly stressed8 Enacted in 1986 the General Principles of Civil Law (GPCL) stipulates that in the case of breach, the aggrieved party has the "right" to specific performance or remedial measures.9 by dint of contrast, China's first unified contract law (UCL) enacted in 199910 does not specify a priority in the first article of the medicine chapter among "continuing to perform the obligations, taking remedial measures, or compensating for losses"11 which arguably leaves the remedial measure a choice to be made by means of the plaintiff.12 It also avoids using the word "right" and single states that the aggrieved party "may demand" that the breaching party "discharge non-pecuniary liability as contracted" except when " (1) legally or practically the discharge is impossible; (2) the targeted matter of the liability is unsuitable for a compulsory discharge or too expensive for the discharge; or (3) the creditor does not demand the discharge within a reasonable period of time."13

Some writers indicate that Article 110(2) of the UCL partially allows efficient breach in China because it independents a breaching party from specific performance when take away froms of performance are "too expensive." The riddle is that great ambiguity encircles the words "too expensive," which leaves too a great quantity [i]or[/i] amount of to judges' discretion. Furthermore, Article 110(2) appears more concerned with equity than with efficiency, as it arguably shares a great quantity [i]or[/i] amount of similarity with Article 114(2) :

If the stipulated penalty for breach of contract is lower than the los caused through the breach, the party relate toed may apply to a people's court or an arbitration institution for an increase. If the stipulated penalty for breach of contract is excessively higher than the los caused by dint of the breach, the party belong toed may apply to a people's concise or an arbitration institution for an appropriate reduction.14