Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law: A Chinese Law Perspective 9811991065, 9789811991066

Table of contents :
Contents
1 Introduction Definition of the Theme and Proposal of the Research Questions
1 Research Questions
2 Current Situation of Theoretical Research
3 Research Methods
4 Basic Structure
2 Formation of the Intermediate Field of Contract Law and Tort Law
1 Distinction Between Contract and Tort
1.1 Contractual Obligations vs. Statutory Obligations
1.2 Erga Omnes Right vs. Relative Right or Right vs. Interest
1.3 Expectation Interests vs. Inherent Interests
1.4 Summary
2 Expansion of Contract Law and Tort Law
2.1 Functional Preset and Normative Structure
2.2 Expansion of Contract Law
2.3 Expansion of Tort Law
2.4 Summary
3 Typological Composition of Intermediate Field of Contract Law and Tort Law
3.1 Reasons for the Formation of Intermediate Field
3.2 Basic Forms of the Intermediate Field
3.3 Summary
4 Summary of the Chapter
3 Legal Regulation at Pre-contractual Stage
1 Pre-contractual Relationship and Pre-contractual Liability
1.1 Pre-contractual Relationship
1.2 Pre-contractual Obligation
1.3 Pre-contractual Liability
1.4 Summary
2 Imputation Standards for Pre-contractual Liabilities
2.1 General Intentional Liability?
2.2 Contractual Liability Without Culpa?
2.3 Summary
3 Assumption of Pre-contractual Liability
3.1 Liability Forms
3.2 General Damages
3.3 Gain-Based Damages
3.4 Summary
4 Pre-contractual Liabilities and Civil Liability System
4.1 Pre-contractual Liabilities and Liabilities for Breach of Contract
4.2 Pre-contractual Liabilities and Tortious Liabilities
4.3 Pre-contractual Liabilities and Liabilities for Restitution of Unjust Enrichment
4.4 Summary
5 Summary of the Chapter
4 Legal Regulation in the Overlapping Field at the Stage of Performance of Contract
1 The Protective Duties at the Stage of Performance of Contract
1.1 Connotation and Types of Protective Duty in Contract
1.2 The Positioning of Protective Duty in Contract
1.3 Protective Duty in Contract
1.4 Legal Consequences of Breach of Protective Duty in Contract
1.5 Summary
2 Concurrence of the Liability for Breach of Contract and Tortious Liability
2.1 Normative Significance of Concurrent Liability for Breach of Contract and Tortious Liability
2.2 Distinction Between Liability for Breach of Contract and Tortious Liability in the Context of Chinese Law
2.3 Development of Concurrence of Liabilities in Chinese Legal Practice
2.4 Reflection on the Concurrence of Claims
2.5 Summary
3 Third Party Issues Related to Performance of Contract
3.1 Role of Contract in Protection of a Third Party
3.2 Interference with Contractual Claims by a Third Party
3.3 Summary
4 Summary of the Chapter
5 Legal Regulation on Courtesy Relationships
1 Distinction Between Act of Courtesy and Legal Transaction
1.1 Definition of Act of Courtesy
1.2 Judgment of “Intention to Be Legally Bound”
1.3 Borderlines Between Gratuitous Contract and Act of Courtesy
1.4 Summary
2 Legal Construction of Act of Courtesy
2.1 Nature of Courtesy Relationships
2.2 Content of Courtesy Relationships
2.3 Liabilities for Damages Arising from Courtesy Performance
2.4 Theory of Act of Courtesy and Chinese Judicial Practice: Taking Carpool in Good Faith as an Example
2.5 Summary
3 Summary of the Chapter
6 Systematization of Legal Regulation in the Intermediate Field Between Contract Law and Tort Law
1 Normative Objectives of Legal Regulation in the Intermediate Field
1.1 Distinction between Creation of Rights and Interests and Relief for Rights and Interests
1.2 Characteristics of the Relief for Rights and Interests in the Intermediate Field
1.3 Summary
2 Theoretical Attempts to Systematize the Legal Regulation in the Intermediate Field
2.1 Proposal of “Third Way” and Criticism of It
2.2 Attempt of Normative Integration and Extension of Its Significance
2.3 Theoretical Attempt of Full Normative Integration Theory
2.4 The Significance and Expansion of Normative Integration
2.5 Path Choice of the Systemization of the Intermediate Field
2.6 Summary
3 System Effect of Modes of Regulation in the Overlapping Field
3.1 Experience of Liability Integration in Comparative Law
3.2 “Consequence Mode” of Liability Integration
3.3 Legislative Choice from the Perspective of Liability Integration
3.4 Summary
4 Summary of the Chapter
Conclusion
Causes and Characteristics of Intermediate Field Between Contract Law and Tort Law
Normative Goal and Regulation Mode of Intermediate Field
System Effect of Regulation Mode in the Intermediate Field
References

Citation preview

Jiayong Zhang

Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law A Chinese Law Perspective

Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law

Jiayong Zhang

Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law A Chinese Law Perspective

Jiayong Zhang School of Law Zhongnan University of Economics and Law Wuhan, China Translated by Shiquan Sun School of Foreign Studies Zhongnan University of Economics and Law Wuhan, China

The English version of this volume has been supported by the Fundamental Research Funds for the Central Universities, Zhongnan University of Economics and Law “Research on Legal Translation: A Comparative Law Perspective” (Grant Number.2722021AJ010), and “Study on the National Language Security Strategies” (Grant Number.2722022FJ031). ISBN 978-981-19-9106-6 ISBN 978-981-19-9107-3 (eBook) https://doi.org/10.1007/978-981-19-9107-3 Jointly published with Huazhong University of Science and Technology Press The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the print book from: Huazhong University of Science and Technology Press. Translation from the Chinese Simplified language edition: “合同法与侵权法中间领域调整模式研究” by Jiayong Zhang, © Huazhong University of Science and Technology Press 2016. Published by Peking University Press. All Rights Reserved. © Huazhong University of Science and Technology Press 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Contents

1 Introduction Definition of the Theme and Proposal of the Research Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Research Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Current Situation of Theoretical Research . . . . . . . . . . . . . . . . . . . . . . . 3 Research Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Basic Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Formation of the Intermediate Field of Contract Law and Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Distinction Between Contract and Tort . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Contractual Obligations vs. Statutory Obligations . . . . . . . . . . . . 1.2 Erga Omnes Right vs. Relative Right or Right vs. Interest . . . . . 1.3 Expectation Interests vs. Inherent Interests . . . . . . . . . . . . . . . . . . 1.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Expansion of Contract Law and Tort Law . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Functional Preset and Normative Structure . . . . . . . . . . . . . . . . . . 2.2 Expansion of Contract Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Expansion of Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Typological Composition of Intermediate Field of Contract Law and Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Reasons for the Formation of Intermediate Field . . . . . . . . . . . . . 3.2 Basic Forms of the Intermediate Field . . . . . . . . . . . . . . . . . . . . . . 3.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Summary of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 3 8 9 11 11 12 27 41 50 51 52 55 66 83 84 84 88 90 91

3 Legal Regulation at Pre-contractual Stage . . . . . . . . . . . . . . . . . . . . . . . . 93 1 Pre-contractual Relationship and Pre-contractual Liability . . . . . . . . . 94 1.1 Pre-contractual Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 1.2 Pre-contractual Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 1.3 Pre-contractual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 1.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 v

vi

Contents

2 Imputation Standards for Pre-contractual Liabilities . . . . . . . . . . . . . . . 2.1 General Intentional Liability? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Contractual Liability Without Culpa? . . . . . . . . . . . . . . . . . . . . . . 2.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Assumption of Pre-contractual Liability . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Liability Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 General Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Gain-Based Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Pre-contractual Liabilities and Civil Liability System . . . . . . . . . . . . . . 4.1 Pre-contractual Liabilities and Liabilities for Breach of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Pre-contractual Liabilities and Tortious Liabilities . . . . . . . . . . . . 4.3 Pre-contractual Liabilities and Liabilities for Restitution of Unjust Enrichment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Summary of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Legal Regulation in the Overlapping Field at the Stage of Performance of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Protective Duties at the Stage of Performance of Contract . . . . . . 1.1 Connotation and Types of Protective Duty in Contract . . . . . . . . 1.2 The Positioning of Protective Duty in Contract . . . . . . . . . . . . . . 1.3 Protective Duty in Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Legal Consequences of Breach of Protective Duty in Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Concurrence of the Liability for Breach of Contract and Tortious Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Normative Significance of Concurrent Liability for Breach of Contract and Tortious Liability . . . . . . . . . . . . . . . . 2.2 Distinction Between Liability for Breach of Contract and Tortious Liability in the Context of Chinese Law . . . . . . . . . 2.3 Development of Concurrence of Liabilities in Chinese Legal Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Reflection on the Concurrence of Claims . . . . . . . . . . . . . . . . . . . 2.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Third Party Issues Related to Performance of Contract . . . . . . . . . . . . . 3.1 Role of Contract in Protection of a Third Party . . . . . . . . . . . . . . 3.2 Interference with Contractual Claims by a Third Party . . . . . . . . 3.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Summary of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

120 121 134 143 145 145 147 159 165 166 167 176 181 186 188 193 194 194 209 234 243 288 291 291 296 307 320 328 330 331 355 378 379

Contents

5 Legal Regulation on Courtesy Relationships . . . . . . . . . . . . . . . . . . . . . . 1 Distinction Between Act of Courtesy and Legal Transaction . . . . . . . . 1.1 Definition of Act of Courtesy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Judgment of “Intention to Be Legally Bound” . . . . . . . . . . . . . . . 1.3 Borderlines Between Gratuitous Contract and Act of Courtesy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Legal Construction of Act of Courtesy . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Nature of Courtesy Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Content of Courtesy Relationships . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Liabilities for Damages Arising from Courtesy Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Theory of Act of Courtesy and Chinese Judicial Practice: Taking Carpool in Good Faith as an Example . . . . . . . . . . . . . . . . 2.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Summary of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Systematization of Legal Regulation in the Intermediate Field Between Contract Law and Tort Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Normative Objectives of Legal Regulation in the Intermediate Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Distinction between Creation of Rights and Interests and Relief for Rights and Interests . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Characteristics of the Relief for Rights and Interests in the Intermediate Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Theoretical Attempts to Systematize the Legal Regulation in the Intermediate Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Proposal of “Third Way” and Criticism of It . . . . . . . . . . . . . . . . . 2.2 Attempt of Normative Integration and Extension of Its Significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Theoretical Attempt of Full Normative Integration Theory . . . . 2.4 The Significance and Expansion of Normative Integration . . . . . 2.5 Path Choice of the Systemization of the Intermediate Field . . . . 2.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 System Effect of Modes of Regulation in the Overlapping Field . . . . . 3.1 Experience of Liability Integration in Comparative Law . . . . . . 3.2 “Consequence Mode” of Liability Integration . . . . . . . . . . . . . . . 3.3 Legislative Choice from the Perspective of Liability Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Summary of the Chapter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

vii

383 384 384 394 398 407 408 409 413 416 430 438 439 443 444 444 455 459 460 461 475 481 483 486 496 497 497 506 521 537 538

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547

Chapter 1

Introduction Definition of the Theme and Proposal of the Research Questions

When we continue to deviate from the classical theories of contract and tort, can we still consider them to be a theory of “contract” or “tort”? —The author

1 Research Questions Contract law and tort law are two core fields of the traditional law of obligations. It is generally believed that contract law protects expectation interests and tort law protects inherent interests. However, in practice, almost all contracts may simultaneously trigger the protection of expectation interests and inherent interests, resulting in the interconnection between contracts and torts. With the weakening of the basis of the legitimacy of will theory, contracts have been objectified or socialized, and contract law has taken the liability of maintaining the obligation set by free will and has taken the liability of the reliance protection. The expansion of the protective duties of contract extends its scope of protection to areas where tort law otherwise governs. On the contrary, the tort law incorporates the contractual relationship into its regulative scope to determine the duty of care. It also extends the protection scope to pure economic interests, the “exclusive field” of traditional contract law. The interests arising from the contractual relationship (the contractual claims) also become the object protected by tort law (interference with claims by a third party). The tortious liability can be limited or exempted by agreement in advance, and the settlement of tort is identical to replacing the tort with contract. Such a staggering situation that has resulted in the so-called “gray zone”,1 where the boundaries between contract law and tort law are blurred, is called the “intermediate field” in this book.

1

See Oliver Moréteau, Revisiting the Grey Zone Between Contract and Tort: The Role of Estoppel and Reliance in Mapping Out the Law of Obligation, in Helmut Koziol & Barbara C. Steininger ed., Tort and Insurance Law Yearbook: European Tort Law 2004, Springer Wien, New York, 2005, p. 61.

© Huazhong University of Science and Technology Press 2023 J. Zhang, Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law, https://doi.org/10.1007/978-981-19-9107-3_1

1

2

1 Introduction Definition of the Theme and Proposal of the Research …

The intermediate field of contract and tort law takes two forms: the fuzzy field and the overlapping field. The fuzzy field involves the definition of the nature of the object to be regulated, which typically relates to contracting contact relation and courtesy relation. Different definitions of such relations may affect the construction or application of relevant laws. Whether such relations should be included in contract law or tort law involves the law implementation in the form and the appropriateness of regulation effects. In contrast, there is no direct relationship between the overlapping field and the legal determination of the field to be regulated because the overlapping field falls within the regulation scope of both contract law and tort law in accordance with the construction logic of these two norms even if the most stringent criteria are adopted. The typical forms of the overlapping field are the protective duties of contract and the concurrent liability for breach of contract and tort. Although it is possible to determine a boundary based on a particular function preset, its accuracy and appropriateness are still problematic. The determination of the boundary between contract and tort has always been a common problem faced by all countries’ legislation, judicature, and law theories. There are two core problems to be solved in the intermediate field between contract law and tort law in terms of law theory: one is how to treat the complementary relationship between contract law and tort law; the other is how to deal with the different legal consequences when an act satisfies the constitutive requirements of the norms in both fields.2 For example, when contract law extends its regulative force to the scope in which the contractual relationship has not been established or the obligation has been performed, the “contractual effect without contract” will arise. In this case, it is necessary to coordinate its relationship with the representative “extra-contractual liability”, that is, the tortious liability. In addition, as different fields of law, contract law and tort law don’t stand to one another. Instead, they may affect each other in certain circumstances. For example, although compensation for personal injury is only provided in tort law, it is applicable where a contractual liability relates to compensation for personal injury; conversely, although the invalid agreement on the exemption from liability for personal injury is provided in contract law, it should also apply to the tortious liability. The general provisions on the effects of obligations are usually the product of legislative techniques extracting common norms from specific norms of contract law or tort law, which does not necessarily mean the remaining rules are opposed to each other just because they belong to a particular field. Further analysis is needed where the law is applied. In a sense, the two questions aforementioned may simply be the two sides of the same coin. In the case of an overlapping field between contract law and tort law, whether the coexistence (a concurrence of claims or Anspruchs Normen Konkurrenz) or the exclusion (Gesetzeskonkurrenz), when legal norms apply, should be considered depends on the solution to the first question, given the choice of legal effects in the sense of judicial adjudication. If we agree that the substantive goal of the remedy for the rights and interests should take precedence over the normative form under 2

See Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), Zhang Baoxin Trans, Law Press China, 2001, p. 505.

2 Current Situation of Theoretical Research

3

certain conditions, the specific application of law may make different evaluations on the differences in independent effects of the two laws. And this, beyond the traditional theory of concurrent liability, is the basic idea of Anspruchs Normen Konkurrenz, or the full normative integration theory. The legal practice also partly leads in this direction. For example, according to Anspruchs Normen Konkurrenz, the effect of concurrent liability should be the maximum benefit the obligee can obtain in accordance with different norms of a claim (which is different from the concurrence of claims to determine the full remedy effect in accordance with the norms chosen). At the same time, the judicial practice expands its usual scope of protection in a single lawsuit, such as protecting the mental distress in the case of breach of contract and considering the damage of performance interest in the lawsuit for tort. While traditional legislation centred on the normative nature is based on interfering acts, such expansion is often based on the modern legal objective, that is, the protection of the aggrieved party. The underlying change will inevitably result in more common grounds between contract and tort in terms of liability norms, thereby expanding the scope of the intermediate field, leading to more blurred boundaries between contract and tort. If the overlapping field reflects on the institutions in terms of the logical construction of contract and tort law, the fuzzy field raises new questions regarding institutional construction beyond the boundary of these two laws: What are the characteristics of the intermediate field between contract law and tort law? What effects does this intermediate field have on the institutional construction of the two laws? How can we assess the significance and limitation of the distinction between tort and contract? and What arrangements might be made for the legal regulation mode in the intermediate field? If we do not evaluate or reflect on the above-mentioned changes and their subsequent consequences in contract and tort law, the system of the Civil Code of the People’s Republic of China and its inherent balance of interests will be inevitably confusing. Only when the institutional effect is caused by the change of specific modes of regulation can the changes be appropriately evaluated.

2 Current Situation of Theoretical Research Understanding contracts and torts should start from their practical orientation.3 Generally speaking, the scope of foreign scholars involved in this problem and the method used is relatively affluent. American scholar Hillman introduced and reviewed the contemporary contract theory in detail. In his opinion, contract law is a mixture of contradiction and difference, which is composed of special rules regulating different kinds of contracts and contains many exceptions and contrary principles. Although they reflect the normative choice of the society, a highly abstract 3

Laws formulated in accordance with the normative nature must have their functional presuppositions, and different functions are regulated in different ways; the greater the functional difference, the more meaningful the distinction is, and vice versa.

4

1 Introduction Definition of the Theme and Proposal of the Research …

core contract theory cannot explain all subjects of contract law, so both the theory and norms should be affluent.4 The British scholar Atiyah briefly analyzed three purposes of a contract: performance of promise and maintenance of expectation interests, prevention of unjust enrichment, and the prevention of some types of damages, and he also discussed the possible interconnection between contract and tort.5 The Contract Law Theory, edited by the Canadian Scholar Benson, reflects the new thinking of British and American scholars in this field, which can be said to continue and extend the topics opened up by Hillman.6 The book Philosophy and The Law of Torts, edited by American Scholar Gilbert J. Postma, reflects the philosophical thinking of British and American scholars in tort law, with ethical, economic, philosophical, legal empirical analysis, and other research methods interwoven.7 It is worth noting that the Canadian scholar Ernest J. Weinrib essentially deduced the private law foundations of Aristotle’s Corrective Justice Theory and Immanuel Kant’s Theory of Rights from the perspective of tort law and tried to explain the private law system from within the private law.8 In contrast, the American scholar James Gordley used the material of the multi-jurisdiction private law system to argue that the fundamental theories of Aristotle’s Philosophy (especially the ideas of distributive justice and exchange justice) are the basis of modern private law, including contracts and torts.9 Although they have different perspectives, they focus on the grafting between philosophical thinking and institutional construction. The discussion on the relationship between contract and tort reached a climax in the 1970s in foreign countries, especially in the United States, because of Gilmer’s highly provocative speech “The Death of Contract”. Since Gilmer argued that modern contract theory had been reabsorbed into the trend of traditional tort law, there is much debate about how to view the relationship between the current contract and tort. Similarly, at the same time, the German scholar Canaris published his influential book Die Vertrauenshaftung im deutschen Privatrecht,10 which established the independent status of the Vertrauenshaftung from the perspective of the reliance protection and then led to a discussion on the feasibility of “the third way” out of the solution of contract and tort. Unlike the situation abroad, Chinese scholars pay little attention to the function of contract and tort law. Professor Li Yongjun discussed the roles of the contract system in protecting transactions to pursue the objectives of private law, maximize 4

Robert A. Hillman, The Richness of Contract Law: An Analysis and Critique of Contemporary Theories of Contract Law (12th ed.), 1997. 5 Atiyah: Introduction to Law of Contract, Zhao Xudong, He Shuailing & Deng Xiaoxia Trans, Law Press, 2002, pp. 34–35. 6 Peter Benson, ed., The Theory of Contract, Yi Jiming Trans, Peking University Press, 2004. 7 Gilbert J. Postma, Philosophy and the Law of Torts, Chen Min & Yun Jianfang Trans, Peking University Press, 2005. 8 Ernest J. Weinrib, The Idea of Private Law, Xu Aiguo Trans, Law Press, 2007. 9 James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, Zhang Jiayong Trans, Law Press China, 2007. 10 Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, Müchen 1971.

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the economic value and, effectively use resources, and so on.11 But he didn’t analyze the compatibility of these different functions. Professor Wang Liming argued for multiple functions of tort law, discussing functions such as compensation, protection, and creation of rights, maintenance of freedom of acts, sanctions and education, prevention and containment,12 but he also didn’t analyze the compatibility among these functions. At the same time, the scholars mentioned above have not discussed connections between the functions and the designs of specific rules of contract and tort law, especially the discussion of the distinction and connection among the functions of contract and tort law.13 Because of the lack or insufficiency of this overall function, the academic community in China has not been able to carry out systematic thinking on the functions of contract and tort law, which remains at the stage of a simple introduction or interpretation of the system. The distinction between contract law and tort law is the common tradition of the two legal systems, but as its foundation, the distinction between contract and tort has changed in modern times in a way that is different from what it was before the twentieth century. In other words, the objects regulated by contract and tort law are different only in the core part, and outside this core is a widespread intermediate field. Based on the need to protect the legitimate interests of the aggrieved party, the theoretical and practical communities try to redivide the boundary between contract law and tort law by applying the relevant theories or normative designs such as culpa in contrahendo, injuring performance, the interference with claims (inducing breach of contract), protective duty, information liability. In legislation, the systems of culpa in contrahendo, injuring performance, and interference with claims have been established, among others, in Chinese Contract Law, Anti-Unfair Competition Law, Labor Contract Law. In theory, some scholars have also studied the blurring of the boundary between tort and breach of contract and its effect in the process of discussing the expansion of contractual liability, focusing on the duty of care for safety14 ; Other scholars have addressed the relationship between contract law and tort law in aspects of protection, confidentiality, and disclosure when discussing the collateral obligations of contracts.15 However, the existing legal systems and theories still focus on the core areas of contracts and torts and have not yet brought these questions into the overall perspective of the regulation in the intermediate field. The less attention paid to the relationship between culpa in contrahendo and liability for breach of contract or tort is the proof (this is true even in papers devoted to the culpa in contrahendo). Moreover, when most scholars discussed the questions mentioned above, they almost unconsciously and universally “return” to the “general question” of the 11

Li Yongjun, Contract Law (2nd ed.), Law Press China, 2005. Wang Liming: Research on Tort Law (Vol. 1), China Renmin University Press, 2004, p. 85ff. 13 Recently, some scholars have stated to pay attention to the boundary between the two fields of contract law and tort law as a whole, see Wang Liming, Boundary Between Tort Law and Contract Law: From the Perspective of the Expansion of Tort Law, China Legal Science, No.3, 2011. 14 Xiong Jinguang, Duty of Care in Tort Law, Law Press China, 2007. 15 Hou Guoyue, Research on Collateral Obligation of Contracts, Law Press China, 2007. 12

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concurrent liability for breach of contract and tort, and it’s hard for them to make reflective observations of the intermediate field beyond the established framework. The questions in this intermediate field differ from those in typical contracts and torts. It is easy to be misunderstood by reducing them to contracts and torts. At the same time, “independence”, such as an independent culpa in contrahendo, tends to obscure its relationship with contract and tort law. At the same time, due to the abstraction of the discussion at a theoretical level, the existing researches have intentionally or unintentionally treated the regulation of contract and tort law as a single logical regulation without paying attention to the relevant questions raised by its internal differences (like the richness of theories and norms mentioned by Hillman). To tackle the problem of legal regulation arising from the intermediate field, we should first clarify how enormous the scope of the intermediate field is and what its characteristics are, which is the question that has not been addressed by existing theories. European scholars, such as Professor Koziol, a well-known Austrian scholar, have begun to pay attention to this aspect when discussing the formulation of European uniform law.16 As for the regulation mode in the intermediate field, scholars’ knowledge in China mainly focuses on the concurrent liability of contract and tort. The current research has sorted out the history, difference, patterns, and theory of the liability concurrence of contractual and tortious liability, making it an apparent question. Scholars have detailed discussions on the differences and concurrent conditions of the two liabilities in the nature of the breach of duties, protected objects, consequences of infringement, rules of imputation, modes of liability, scopes of compensation, the burden of proof and time of prescription. It is generally believed that Article 122 of the Contract Law has established the regulation mode of free concurrence of breach and tort, but some scholars think it has shortcomings and should be appropriately limited.17 Generally speaking, the existing theories on concurrent liability still has the following drawbacks: first, most Chinese scholars have not made a precise definition of the concept discussed. As a result, they regard the liability for breach as the only liability type in contract law and pay little attention to the differences between liability arising from culpa in contrahendo, termination of a contract, and liability for breach of contract, and thus the difference between the liability for breach of contract and tortious liability is intentionally or unintentionally regarded as the difference between liability and tortious liability in contract law so that the argument about concurrence is not comprehensive. Secondly, the research content is repetitive, even the interpretation of Article 122 of the Contract Law has maintained the status of the early 1990s, hardly having new perspectives or more practical and interpretive theories based on predecessors; moreover, the current researches stay at the theoretical level, and even the relevant case analyses regard existing theories as a dogma 16

Helmul Koziol ed., Unification of European Tort Law: Wrongfulness, Zhang Jiayong Trans, Law Press China, 2009. More detailed discussion refers to Helmut Koziol, Basic Questions of Tort Law, p. 103. from a Comparative Perspective, Fiona Salter Townshend & Jan Sramek Vrlag Trans, 2012, pp. 93–107. 17 Wang Liming, The Criteria for Distinguishing Liability for Breach of Contract from Liability in Tort, Law Science, No.5, 2002; Wang Shihu, Research on Concurrence of Contract Liability and Tortious Liability, Modern Law Science, No.4, 2002.

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and lack sufficient concern on the cases from judicial practice, which reflects the fact that there is no thesis on the concurrence from the perspective of case induction in China. In modern times, the rules of contract and tort law are “discrete” (for example, contract law protects expectation interests as well as reliance interests (extant interests) and restitution interests. The tort law also protects interests in contracts or pure economic loss, making both contract and tort law no longer based on a single theoretical premise). Therefore, the discussion on the concurrence of contractual liability and tortious liability cannot be carried out without a specific “scenario”. Only under the “specific scenario” the positive research may have the value of reflecting the existing theories and practice. In addition to the concurrence of contractual liability and tortious liability, Chinese scholars have not severely questioned the dichotomy between contracts and torts in general. Although some scholars have made positive comments (such as Wei Zhenying) on maintaining the system of “civil liability” established by the General Principles of the Civil Law of the People’s Republic of China, which have not attracted enough attention, nor have they been seriously evaluated for the possible effects of this insight. Recently, drawing on relevant theories in Germany, some scholars have proposed reconstructing Chinese civil liability system. The idea of establishing the ternary system of contractual liability, tortious liability, and liability for protection18 has not yet gained support in theory and practice. Some scholars abroad have already noticed the unification of liability arising from the proximity of contract and tort law in liability rules.19 This concern has also been reflected in the legislation of some countries. For instance, the Dutch Civil Code and the Argentine Civil Code have established unified liability for damages rules of contracts and torts, which overcome the problems that may arise from the concurrence rules to a certain extent. However, how such common rules can be set up appropriately needs further in-depth discussion. As aforementioned, scholars in China have pointed out that modern civil legislation has the characteristic of “taking the field of things as the centre” due to the need to balance the dual goals of autonomy and regulation. From the view of tort law, this kind of legislation reduces or dilutes the significance of the distinction between contract and tort. However, what will impact this reduction or dilution on legislation and legal practice centred on the normative nature of contract and tort law? The academic community should pay attention to this question. Legal practice shows that only a few broad intermediate fields between contract law and tort law have produced new types of liability (such as the establishment of culpa in contrahendo). A more significant part has still been incorporated into the traditional regulation mode of contract and tort law in a changed form (such as the establishment of protective duty in contract law and communication security obligation in tort law), which takes the static regulation mode as its fundamental concern and maintains the stability of legal regulation to a certain extent, but also inherits the inherent defects of the traditional regulation mode. There are different 18 19

Qiu Xuemei, The Reconstruction of the Civil Liability System, Law Press China, 2009. See Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review (1999), p. 48.

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solutions to maintaining stability and overcoming defects among countries. For those countries that put forward civil codes late, at least three problems need to be solved: how to evaluate the scope of the intermediate field between contract and tort and the legal problems to be solved; how to evaluate the practical effects of the existing regulation mode; and how to construct the theories and rules of legal regulation in the intermediate field. Although the existing theories have been analyzed “individually” and made a solid foundation for this research, it is necessary to take a nomothetic approach and thoroughly evaluate the significance of these theories.

3 Research Methods This book focuses on two research methods: one is the comparative legal research method, and the other is the empirical case research method. If all countries are likely to face similar problems with similar backgrounds, when facing similar problems, we can observe how those who have preceded us have dealt with such problems. Their measures (whether successful or not) may shed light on how to solve the problems we now face. In the era of globalization, the value of this method has therefore been promoted to a very high level of utilization. In history, European legislation and theory once influenced Anglo-American law. Today, it is not new for the European Union to harmonize its legislation with the US approach. It can be said that no country or region is now able to stay out of this trend in its legislative activities, without considering the legal provisions or practices of other countries or regions. Therefore, the comparative method will play an essential role in this research. There are different understandings in theory as far as positive research is concerned. The positive research method used in this book mainly refers to the positive research in judicial cases, that is, through analyzing and sorting out the judicial cases to grasp the application of law in practice. This method takes three forms: case study, class case study, and statistical case study. A case study clarifies the application of specific rules in a case by discussing the typical case. Among them, the comparison of cases with the same judgment or the same case with different judgments has the significance of highlighting the disputes or critical problems in this case study. A class case study is the study of many similar cases, identifying the differences among the cases to establish the distinction and promote the concretization of abstract rules, such as the primary case type of medical service dispute and the culpa in contrahendo. It can be regarded as an extended form of case study. A case study reflects the problem by the typicality of individual cases, while a class case study typifies the abstract rules by comparing multiple typical cases. The statistical case study analyses the variables of the cases that have reached a specific statistic to explain or illustrate the relevant legal phenomena or problems according to the general characteristics of the sample and identify the application of a specific rule. The focus of case statistics is on the rationality of the sample selection rather than on

4 Basic Structure

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the typicality of individual cases in the sample as in the first two research methods. In specific case studies, these three methods can be applied to the needs of the subjects. Different case research methods may put forward different requirements for the legal precedents in the selection of judgment. In addition to the case typicality aforementioned, the case typicality is not only shown by their specific types of facts and the reasoning of the court’s judgment but also requires certain authority in conducting an individual case study or a multi-case comparative study. That is, a typical judgment is more illustrative not only because it is typical in itself, but also because it is supported by some authority. That is because the understanding of typicality may depend on the emphasis and grasp of the case user on a particular problem. If the case itself lacks authority, this typicality may be significantly reduced. It may be questioned in law or jurisprudence and even be modified or negated by other higherlevel judgments. Between typicality and authority, we first emphasize the former because it, even when challenged by authority, can be strengthened by means of its consistency with existing sources of law or legal principles from the angle of law interpretation. In particular, it can indicate the possible disposition of similar cases to be judged in the future. For the reasons mentioned above, however, when using a case study or comparative case study in this book, the selection of cases will be guided by the criterion that the higher the trial level, the higher the preference for the same or similar cases. On the contrary, in statistical case analysis, we emphasize the temporal and geographical scope of case selection and sample coverage (number of cases). Since the publicity of current judicial cases in China is insufficient, it would be better to reduce the sampling error by making full use of the judicial cases that have already been made public. But based on the overall number of case types and the constraints faced by this research, we will consciously limit the size of this sample to a small number by screening cases from the scope of cases and the level of trial to reduce the pressure on the case number.

4 Basic Structure This research aims to discuss the legal regulation in the intermediate field of contract law and tort law in light of the specific background of Chinese law, examine the positioning of the system of contract and tort law, and evaluate the possibility of unifying civil liability legislation. To this end, this book will first figure out the relationship between contract and tort from the perspective of the general theory of the distinction and then observe and differentiate the disruption of the logic from the perspective of the expansion of contract and tort law to discover the formation and the essential characteristics of the intermediate field (see Chapter 2). Since a valid contract has relatively specific criteria, it would be convenient and feasible to choose three typical forms such as the pre-contractual stage, stage of performance of the contract, and courtesy relations, to discuss the legal regulation in the intermediate field according to the form of interconnection between relevant field and valid contract (see Chapters 3, 4 and 5). This investigation finds that the core problem to be dealt with in the

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intermediate field is the remedy for rights and interests or civil liability. The intermediate field should be confined to the level of contractual liability and tortious liability rather than the general relationship between contract and tort, which provides a more precise indication for the discussion of the regulation mode in the intermediate field. At the same time, the remedy for the rights and interests involved in the intermediate field does not depend on the normative nature of the facts pending but on the structural relationship between the protected rights and interests and the responsible acts. Therefore, the legal regulation in the intermediate field requires breaking the restriction of division logic and unifying the system construction of civil liability, which is the system effect of the legal regulation in the intermediate field (see Chapter 6).

Chapter 2

Formation of the Intermediate Field of Contract Law and Tort Law

The distinction between contract and tort is ambiguous under comparative law for being always relevant to the specific legal tradition and institutional background.1 Therefore, the intermediate field of contract and tort law inevitably depends on a specific structure of empirical method, which also lacks the abstractly determined scope in general. However, examining the manifestations and causes of the unclear boundary between contract law and tort law at the general theoretical level is still helpful in seeking solutions to legal regulation in the intermediate field.

1 Distinction Between Contract and Tort Whether there is a valid contractual relationship is a basic premise of the distinction between contract and tort. Various theoretical summaries of the distinction between liability for breach of contract and tortious liability can be carried out under such a premise. On the contrary, if this premise is eliminated, we will find that the distinction between contract and tort has been somewhat determined by technique and policy in the first place. Regarding certain legal phenomena as the object of regulation of contract law limits the application of relevant rules of tort law and changes the consistency of the logic of contract law. For simplicity, we begin with the typical condition of a valid contractual relationship and then modify this premise to conduct further analysis. If the valid contractual relationship is a premise, the difference in normative function of contract and tort can generally be seen as the difference between the realization

1

Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), Zhang Xinbao Trans, Law Press China, 2001, p. 529.

© Huazhong University of Science and Technology Press 2023 J. Zhang, Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law, https://doi.org/10.1007/978-981-19-9107-3_2

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of the expectation interests and the sharing of the accidental damages. Correspondingly, the nature of legal obligations (contractual obligations or statutory obligations), type of protected rights and interests (whether it is erga omnes right2 ), and the result of damage (expectation interests damage and inherent or Integritätsinteresse damage) can be regarded as the expansion of aforementioned functional distinctions. In other words, the contract corresponds to contractual obligations, relative right, and expectation interests (economic damages), while the tort corresponds to statutory obligations, erga omnes rights, and inherent interests (especially personal injury).3 This general criterion provides a rough, rather precise guide to understanding the distinction between contract and tort.

1.1 Contractual Obligations vs. Statutory Obligations According to legal tradition, obligations are divided into two basic types: self-giving obligations and externally imposed obligations.4 In a broad sense, a contract is a selfgiving obligation, which is different from the statutory obligations of the tortfeasor. Contractual obligations as self-giving satisfy the requirements of the autonomy of private law where two individuals arrange the future through free and voluntary transactions. The consequences of the contract are determined by the primary intent of the contracting parties. On the contrary, the obligation in tort law is the statutory binding relationship between two strangers due to damages. Although there is a matter of intent (or will) in tort, which may be a consideration for determining the tortious liability (the elements of fault), the tortious liability is not determined by such intent, which distinguishes the circumstance where the contracting parties determine the contract. In other words, contractual obligations result from the will of the parties, and tortious liability is derived from the law. (1) Agreement as An Essential Element of A Contract The subject matter or content of a contract is congruent (i.e., agreement) with the majority, which has existed in ancient Germanic law, ancient Roman law, and canon law.5 In Roman Law, “the general term ‘agreement’ refers to all matters agreed upon between the contracting parties for agreement or settlement. Just like ‘convenire’ 2

In German theory, the so-called erga omnes rights and absolute legal interests are distinguished. Erga omnes right is a right represented by real right, while absolute legal interest is a personality interest based on life, health, body and freedom. Others are legal interests and interests. In Chinese mainland legal theory, erga omnes right and absolute legal interest are collectively called erga omnes right, but there is no title of absolute legal interest. 3 See Wang Liming, The Criteria for Distinguishing Liability for Breach of Contract from Liability in Tort, Law Science, No.5, 2002. 4 Atiyah, Introduction to Law of Contract, Zhao Xudong, He Shuailing & Deng Xiaoxia Trans, Law Press, 2002, pp. 1–3. 5 Hans Hattenhauer, Grundbegriffe des Bürgerlichen Rechts: Historisch-dogmatische Einführung, Müchen 1982, S.64.

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means that people from different places gather at the same place. In another sense, ‘convenire’ also means that different intentions turn into the same intentions, that is, an agreement is reached. … All contracts, whether they are verbal or real, must contain an agreement. Otherwise, no contractual relationship or obligation relationship will be established.6 “Simple agreement is enough to create the obligation relationship, even if it is not expressed in words”.7 Although the agreement in law can be the basis of obligation, it is still not a sufficient condition for the obligation. If the requirements of the statutory contract form8 are not satisfied or if the subject matter of the contract has been delivered, the simple agreement doesn’t have a binding effect.9 In addition to the statutory contract form, other contracts concluded by the parties are classified as the “innominate contract”. An innominate contract initially couldn’t be compulsorily performed. However, the later rule was that the party who had already performed could force the opposite party to perform or claim the restitution of the completed performance; if neither party performed, it could not be performed as a “naked pact”,10 which shows that although the Roman lawyers’ recognition of the innominate contract that one party has performed breaks through the restrictions11 of the typed contract system, they still negate the lawsuit based solely on the agreement. This practice was still maintained in the Middle Ages. However, both Common Law and Civil Law gradually recognized that the informal executory contract concluded without a specific procedure and was not performed by either party.12 The validity of a contract or the basis of contractual rights and obligations based solely on the intention of the parties did not materialize until the emergence of the will theory to contract in the nineteenth century. Intention or will was the most satisfying and only concept for the jurists at that time, and thus constructed the will theory to maintain the consistency of the contract.13 In their view, the contract is binding only because it is the parties’ voluntary choice. The parties’ obligations are what they expect,14 which can be seen as the briefest expression of the will theory. 6 Urbian, On Notices (4th ed.), D.2, 14, 1, 3. Sandro Schipani, Corporis Iuris Civilis Fragmenta Selecta IV·1B, Ding Mei Trans, China University of Political Science and Law Press, 1992, p. 9. 7 Modestine, On the Rules (2nd ed.), D.44, 7, 52, 10. Ibid., p. 7. 8 Four kinds of physical contracts (mutuum, commodatum, bailment, and pledge), four kinds of consensual contracts (sale, lease, partnership, and entrustment), oral contracts (the most formal oral contracts and oaths) and written contracts are all the lists of contract types in GAI Institutionum Commentarii IV. Barry Nicholas, An Introduction to Roman Law, Huang Feng Trans, Law Press China, 2000, p. 199. 9 James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, Zhang Jiayong Trans, Law Press China, 2007, p. 478. 10 Ibid. 11 Barry Nicholas, An Introduction to Roman Law, Huang Feng Trans, Law Press China, 2000, p. 201. 12 James Gordley, Contract, Property, and the Will: The Civil Law and Common Law Tradition, in Harry N. Scheiber ed., The State and Freedom of Contract, Stanford University Press, 1998, p. 68. 13 James Gordley, The Philosophical Origins of Modern Contract Doctrine. Zhang Jiayong Trans, Law Press China, 2006, p. 202. 14 Ibid., p. 249.

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The positive law of any era will not carry out the party’s will or promise whatever they are and always impose certain restrictions on this will or promise, even when the will theory was prevalent. Then, the problem arises: why are some promises binding and others not? It is obviously not enough to simply cite the fact that positive law has such provisions, but it needs particular argumentation. Such argumentation is still constantly being presented even to this day,15 and it is hardly possible to make an overview but selectively have a brief description of it in this book. Medieval jurists had different views on why promises are binding. Some argued that it is because the position of the promisee has changed due to the promissory estoppel, thus making the situation worse. Others believed that the promise doesn’t only mean that the promisor is obligatory to the promisee, thereby granting the latter the right to make a request.16 However, trust theory cannot explain why your trust has made my promise valid, and even if your trust could make it, it does not mean that the law needs to protect your interests according to what I promise. All your losses concerning the promise are nothing but a loss of vested interests. This kind of view is precisely the far-reaching view of Fuller and Padu: “from the compensation for changes in a situation to compensation for the loss of expectation, we again quoted Aristotle as saying that our view is through corrective justice to distributive justice. The law no longer only seeks to restore the status quo after being disturbed but also to create new situations. It is no longer a defensive or restorative act, but acts as a more active role”.17 In contrast, the latter view means that the promisee is given a right, the content of which is the interests granted by the promise. That is, once the promise is made, interests contained in the promise are transferred from the promisor to the promisee due to the promisee’s acceptance. Although such interests have not actually been transferred, the agreement has changed the interest attribution. This understanding that the promise in such a contract can produce the same effect as the actual transfer of interests developed to be the later theory of breach of remedy property right. In other words, once the contract enters into force, the obligee’s right based on the contract is a kind of property right, and if the obligor does not perform, he infringes the property right of the obligee.18 However, the promisee has the right to request to perform by the promise, which has the same meaning as the promisor has undertaken the obligation to perform. If the reason was not found for this right, such a conclusion could only be an assumption.19 Later scholars tried to explain this. Although Joseph Raz acknowledged that the promise did not give the promisee the right to request to perform, he still believed that “institutional harm” produced by law to prevent “erosion or derogation from the custom of voluntarily taking on 15

T. M. Scanlon, Promise and Contract, Peter Benson, ed., The Theory of Contract, Yi Jiming Trans, Peking University Press, 2004, p. 98ff. 16 James Gordley, Foundations of Private Law, pp. 482–483. 17 L. L. Fuller & William R. Padu, Reliance Interest in Contract Damages, Han Shiyuan Trans, China Legal Publishing House, 2004, p. 10. 18 Notes, Tortious Interference with Contractual Relations in the Nineteenth Century: Transformation of the Property, Contract, and Tort, 93 Harvard Law Review (1980), p. 1511. 19 Richard Craswell, Against Fuller and Perdue, U. Chicago Law Review 67 (2000), pp. 123–124; Smith, Theory of Contract, p. 126. Quoted from James Godley, Foundations of Private Law, p. 484.

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obligation” requested the promisee to fulfill its promise.20 This is a way of seeking argumentation outside the opposite trading parties, similar to the famous contemporary will theoretician Richard Fried’s view. In Fried’s view, the binding effect of promise is behind every conventional structure—games, institutions, practices, and essential languages.21 Promising is a very general social convention through which we can achieve various specific purposes. To be as free as possible and to allow my will to be consistent with the similar will of others to the greatest extent possible, there is a need for a way in which I can take on obligations on my own. This central consideration of self-giving liability is to achieve goals and acquire reciprocity.22 The legal obligation to keep the promise depends on moral obligation or respecting individual autonomy and ensuring trust. His metaphorical statement is as follows: “there is no doubt that by promising to do something for you in the future for the sake of getting something for myself now, I am betting on my future interests for the sake of my present interests”.23 This practice of linking social customs with the subject’s purpose has been imitated by latecomers. For example, Smith believed that the custom of voluntarily taking on obligations has “intrinsic value” and that if the promise sometimes could be violated, it would not be created.24 However, such an argumentation didn’t include anything new but at most reaffirmed the view that there is value in keeping promises. Immanuel Kant, the philosophical pioneer of the will theory, in his view, the will originates from the rationality of the subject and consists of its power of desire.25 Therefore, this can include both intentional choices and actions of pure desire. The choice determined by pure rationality constitutes the act of free will.26 Another question: “Why should I keep my promise?” is futile because keeping the promise is a “purely rational postulate”.27 Since the acquisition through contract is only the result of the positive will of others, what is obtained is not the promise of others but only the action of will to obtain the object, that is, the promise itself. “By acquiring an active liability, I can exert pressure on another person’s freedom and ability, …This right is nothing but a right in personam, and its effect can only affect the causal relationship of his will, so he must do something for me…”.28 This view—that a promise is an act of free will, bound by acceptance by the opposite party—has two meanings: on the one hand, it provides the basis for the legitimacy of contractual 20 Joseph Raz, Promises in Morality and Law, Harvard Law Review 95 (1982), p. 934. Quoted from James Godley, The Foundations of Private Law, p. 485. 21 See Charles Fried, Contract as a Promise (1981), p. 12. 22 Ibid., p. 13. 23 Ibid., p. 14. 24 Smith, Theory of Contract, pp. 127–128. Quoted from James Godley, Foundations of Private Law, p. 485. 25 Immanuel Kant, The Philosophy of Law: An Exposition of The Fundamental Principles of Jurisprudence as the Science of Right, Shen Shuping Trans, The Commercial Press, 1991, p. 16. 26 Ibid., p. 17. 27 Ibid., p. 90. 28 Ibid. The emphasis is added by the quoters.

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obligations under the classical contract mode: a contract is essentially a self-giving liability.29 At the same time, it manifests itself in the agreement of contract validity: mutual consent makes the contract valid.30 It was a general practice of jurists in the nineteenth century not to ask why they should keep promises but to merely regard them as a “purely rational postulate”. Although they used the concepts of will, contract, and agreement to define contracts like their predecessors, they did not explain why the law enforces contracts or why the meaning expressed by the parties should be respected. Just as the French scholar Valérie Ranouil said that they take it for granted when speaking of the French will theory, there is no need to prove that “the contract is binding only because it is a contract”.31 It is under such a notion of not asking why the promise is binding that the will theoreticians have been able to simplify all the contractual questions into the matter of the will. Even if there is a need to determine the matters that the parties have not agreed to in the contract, they also regard the will of the parties as the only source; some people even vaguely indicated that the will is the root of the obligations of the parties.32 This understanding may be the ideological origin of equating contractual obligations with self-giving obligations. (2) Contractual Obligations—Not Based on the Will A contract is based on the agreement, which means the contractual obligations should be determined by the will of the parties, and such binding will must be accepted as consensus. To be more accurate, contractual obligations are not based on the will of the parties but on the joint will of both parties. In this sense, to distinguish between contract and promise is still necessary. In Civil Law, the action determined by unilateral will is distinguished from the one determined by bilateral intention, while in Anglo-American law, such a distinction is not strictly followed, and a promise can be treated as a contract.33 In a contract, the binding will, whether it is a unilateral will or the joint will of both parties, should be the true will of the parties in accordance with its nature. Therefore, seeking the true will of the parties is a general rule of contract interpretation. However, if the contract, as a social fact, requires a third party to determine it, then it is almost impossible or costly to investigate the true will of the parties. The agreement 29

Catherine Mitchell, Searching for the Principles Behind Privity Reform, in Peter Kincaid ed., Privity: Private Justice or Public Regulation (2001), p. 109. 30 In Kant’s view, a contract is an act of joint will between two people. It contains four legal acts of will: two are preparatory acts, that is, offering and accepting; two are composing acts, namely promise and acceptance. For the latter, although they have empirically sequential in time, as a purely rational-legal relationship, this temporal sequence does not exist. “The beginning of contract” arises from a public will, so it can be expressed by words such as “at the same time” or “together”. (Immanuel Kant, Metaphysical Principles of Law: Science of Rights, pp. 88–89.) 31 See James Gordley, Contract, Property, and the Will: The Civil Law and Common Law Tradition, in Harry N. Scheiber ed., The State and Freedom of Contract, Stanford University Press, 1998, p. 72. 32 See James Gordley, Ibid., p. 73. 33 See H. G. Beale ed., Chitty on Contracts, p. 3.

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17

that forms the contract is never a psychological agreement of the parties but rather an extrinsically objective and understandable will. This is known as the theory of objective contract interpretation. “Agreement is not a state of mind but an act. As an act, it is something derived from the act. The parties are judged not on what they think, but on what they say, what they write, or what they do”.34 Because the contract interpretation confirms its intention from the external expression of the parties’ action and the relevant circumstances of the action, it is possible for this intention to deviate from the true intention of the parties. Since the meaning of the action can be attributable to the actor, the actor must be held liable in accordance with the meaning understood by the opposite party, even if the expression is contrary to the true intention. Although the law may also give particular remedies (such as error revocation), the general effect of the action as the expression has not changed.35 In this sense, the true intention of the parties is not binding so much as the intention of the party confirmed by the extrinsically objective expression is binding. Once the intention of the parties can be determined from the objective expression, it means that pure action can replace the true intention of the parties and become the centre of the intention or contract, through which the factual contract theory is proposed. German scholar Günter Haupt wrote in his famous paper On Factual Contract Relations: In the organization where modern human beings live together, the individual relies strongly on the following ways: he can’t choose that he should be the opposite party to the contract to pay or accept performance, or he can’t negotiate with the opposite party to determine the content of the contract... In the case of this change, the agreement of intention between the parties loses its legal significance, that is, it loses the institutional significance given by our civil legislation. ...To avoid confusion caused by too many artificial concepts, I would like to describe the aforementioned factual composition as ‘factual contract relations’, which clearly shows that this contract relation is not formed through the formation of the contract but through the factual process. It differs from other contracts in Civil Law only in the difference in the formation process, but they all cause the emergence of contract relations.36

To a certain extent, if the factual contract theory has not sounded the death knell for the liberalism contract theory based on voluntarism, it has also caused a substantial impact because it undermined intention in determining the effect of an action. Although the theory has its particular historical background, we at least can still find its impact in some legal systems, such as the concept of de facto partnership and de facto marriage. If the objective interpretation and the factual contract theory only transform the true intention of the parties into confirmed normative intention, they have not entirely deviated from each other. Then, it is more likely to complicate the problem by determining the implication of the parties or even closing the loophole of the matter 34

Cheshire, Fifoot & Furmston’s, Law of Contract (13th ed., 1996), p. 29. cf H. G. Beale ed., Chitty on Contracts, p. 4. 35 Karl Larenz, Allgemeiner Teil des Deutschen Bürgerlichen Rechts, Wang Xiaoye, Shao Jiandong, Cheng Jianying, Xu Guojian & Xie Huaishi Trans, Law Press China, 2003, pp. 455–456. 36 Hans Hattenhauer, Grundbegriffe des Bürgerlichen Rechts: Historisch-dogmatische Einführung, Müchen 1982, S.71.

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that the parties do not make any agreement at all. As for the tacitly declared will, it is a blank declaration without content. Its content must be filled with specific standards to give legal effects to such a declaration. In general, the implication may not grant the actor an adverse effect in light of the autonomy of private law. In this way, the implication is usually granted a negative impact. For example, Article 47, Paragraph 2 of the Contract Law of China stipulates that when the opposite party has urged the legal agent on the contract concluded by a person with a limited civil capacity of conduct, “it should be regarded as a refusal of ratification that the legal agent does not make any expression”. Article 48, Paragraph 2 of the Contract Law of China has a similar provision regarding contracts entered into by an agent without authority: “it shall be regarded as a refusal of ratification that the legal agent does not make any expression”. However, under certain circumstances, the law can endow the actor with the duty to act by actively expressing his intention. If the actor is silent and does not express his intention, the implication will have an unfavourable “consent” effect. The third sentence of Article 66, Paragraph 1 of the General Principles of the Civil Law of the People’s Republic of China stipulates that “if a principal is aware that a civil conduct is being executed in his name but does not repudiate it, his consent shall be deemed to have been given”. This provision is a famous case in this regard. Correspondingly, in terms of closing contract loopholes, there are two standards: one is to supplement the contract in accordance with the supplementary contract interpretation; the other one is to supplement the contract pursuant to any regulations.37 On the surface, the risk of deviation from the will of the parties is greater by supplementing the contract according to any regulations. It is more likely to coincide with the party’s intention for the individuality of the contractual agreement by closing the contract loopholes through supplementary contract interpretation. However, the supplementary contract interpretation is a kind of “fictional intention of the parties” when it infers the unexpressed intention of the parties from existing intention. The relationship between such fictional intention and the true intention of the parties is the same as the relationship between the objective interpretation of the contract and the true intention of the parties. Therefore, the interpretation conclusions determined by the supplementary contract interpretation depend on the specific understanding of the judge. In this sense, its certainty is not as good as the method of supplementing according to any regulations. However, the two supplementary methods are not entirely determined by the actual intention of the parties. Whether it is an objective interpretation or closing of loopholes, the contract is still not subject to the intention of the parties to a certain extent. In other words, although it fails to ensure that the interpretation is consistent with the true intention of the parties, this intention is binding on both the parties themselves and the judge as long as the true intention of the parties can be determined and the intention does not violate the mandatory provisions of the law. This binding force stems from the principle of freedom of contract, a constitutional principle of private law, indicating the autonomy of private law. However, with the development of social-economic and political relations, the position where private law is entirely subject to the self-determination of 37

See Articles 61 and 62 of the Contract Law of the People’s Republic of China.

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the parties has been challenged, thereby causing the so-called decline of the freedom of contract.38 We find that national legislation no longer concealed its power to intervene in contracts by negative restrictions but began to intervene in the determination of contract content. As a result, many statutory obligations started to appear in the contract. Firstly, the parties to the contract are bound by the “implied terms” or fiduciary duties that they otherwise do not agree to. Under the classic principle of freedom of contract, the parties can decide contract content. The content the parties have not agreed on is not considered to constitute the contract according to the opposite explanation of this principle. However, this principle has not been implemented in this form. For example, the court may consider specific contract clauses necessary to the contract, hence constituting an integral part of the contract. Such provisions are included in the contract through the so-called “implied terms” in Anglo-American law, that is, they are considered to be the provisions contained in the contract by default when the contract is concluded. Civil Law holds that such provisions are part of the contract based on the nature of the contract or the principle of good faith.39 However, the significance of the distinction of legal systems has been quite less, and the principle of good faith has gradually become the basis for the contractual obligations recognized by contract law of both legal systems. For instance, Article 203 of Restatement (Second) of Contracts states that “every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement”. This fiduciary duty emphasized that the parties should be bound by the common purpose that has been achieved and be consistent with the legitimate expectations of the opposite parties.40 Article 1.7 of the General Principles of International Commercial Contracts formulated by the International Institute for the Unification of Private Law also stipulates: “Each party shall act according to the principles of good faith and fair trade in international trade transactions”. “The parties may not exclude or limit this obligation”. Under the official commentary of this Article, “good faith and fair trade” is a fundamental principle of this general principles. Its essential feature is that the parties may not limit or exclude them by contract but can only impose the obligation to abide by stricter standards of conduct,41 which shows that the duty of good faith becomes a kind of “minimum contractual obligation”, which can only be strengthened but not diminished. However, although this abstract contractual obligation can be directly determined by law, it usually needs to be further determined by the parties and the judge according to the specific circumstances of the act, rather than being clear and definite from the beginning. 38

P. S. Atiyah, The Rise and Fall of Freedom of Contract, Clarendon Press, Oxford, 1979. For the development of the principle of freedom of contract, please refer to F. H. Buckley ed., The Fall and Rise of Freedom of Contract (Duke University Press, 1999). 39 See H. G. Beale ed., Chitty on Contracts (28th ed., 1999), p. 9. 40 See Restatement of contract (second), §203 comment a. 41 UNIDROIT, General Principles of International Commercial Contracts, Department of Treaty and Law of Ministry of Foreign Trade and Economic Cooperation Trans, Law Press China, 1996, p. 10.

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Secondly, the parties are subject to statutory obligations. In light of the abstraction of determining the obligation by a duty of good faith and even its “minimum” characteristic, such duty does not apply to legal regulations when not agreed upon by all parties. Therefore, the parties’ goal subject to statutory obligations can be well met by determining the parties’ obligations in the contract through direct legal provisions. This obligation mainly exists in the following situations: The first one is the regulation of the format clauses. Although a format clause can significantly reduce costs and facilitate transactions, it can also be helpful for its providers to suppress the opposite parties. Trading in many format clauses is primarily necessary ones recurring in daily life. If the complete freedom of contract is implemented, letting the opposite party “take it or leave it”, such practice is equivalent to the law’s ignoring of abusing freedom. Therefore, for the sake of fairness or contractual justice, the law often states that the party supplying the format clauses shall define the rights and obligations between the parties according to the principle of fairness and shall inform the opposite party to note specific terms where format clauses are adopted in concluding a contract.42 The second one is that some contracts stipulate certain statutory obligations and prohibit the parties’ freedom to exclude them by contract, typically in contracts of purchase and sale, loan contracts, lease contracts, and labor or employment contracts. For example, the Law on Protection of the Rights and Interests of Consumers of the People’s Republic of China states that “Business operators shall guarantee that the commodities and services they supply meet the requirements for personal or property safety. For commodities and services that may endanger personal or property safety, business operators shall provide consumers with true explanations and clear warnings, explaining and indicating the correct methods of using commodities or receiving services and preventing damages”.43 Article 301 of Contract Law stipulates that the carrier shall use its best effort to assist any passenger who is seriously ill, is in labour, or encounters a dangerous situation in the course of carriage. Article 402 stipulates that if the termination of the entrustment contract will harm the principal’s interests due to the death, incapacitation, or bankruptcy of the principal, the agent shall continue to handle the entrusted affair before an heir, legal agent, or liquidation team thereof takes over the entrusted affair. Therefore, the standardization of the statutory obligations is either to ensure the realization of the expected purpose of the contracting parties or to protect the inherent interests of the parties from damage caused by the misfeasance; such standardization can be either a duty to act or a duty of omission. They originate from the contract performance and have something to do with the complete realization of the expected purpose of the contract. (3) A Duty of Care in Tort Law Tort law serves as the law of remedy for damaged rights and interests or the limitation of liability law, the obligations of which are usually referred to as the “duty of

42 43

See Article 39 Paragraph 1 of the Contract Law of the People’s Republic of China. Article 18 Paragraph 1 of Law on the Protection of the Rights and Interests of Consumers.

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care”.44 The so-called duty of care refers to the code of conduct to be followed by an actor, which is only applicable to the field of liability for fault (or strictly speaking negligence) in general torts.45 Although the duty of care plays a different role in different jurisdictions, Chinese tort law theories usually use it as a criterion for determining illegality and fault (mainly the latter).46 According to the commentary on “fault” in the Principles of European Tort Law from the European Group on Tort Law: “‘Fault’… is understood in a purely objective way as deviation from or violation of ‘the required standard of conduct’, whether willfully (intentional violation of such standard) or by omitting to act with the necessary care as it can ‘reasonably’ be expected (negligent violation of the standard)”.47 In this case, the “required standard of conduct” is the standard for determining the duty of care, and there is “fault” for violating this standard. Therefore, the establishment and violation of the duty of care are two stages to determining fault.48 Once the thinking of the former stage is completed, the judgment of the latter is the determination of pure facts. Therefore, particular attention should be paid to juristic theory, that is, what is the source of the duty of care and how to determine it. Since there is usually no contact between the tortfeasor and the aggrieved party before the tortious acts, they didn’t reach a consensus on the standard of conduct in their relationship. Therefore, the standard of conduct relating to the duty of care is usually determined by laws. There are two ways in which the law sets the standard of conduct: the law may set the standard of conduct by mandatory or prohibitive provisions, that is, the actor is required to act or refrain from doing a particular act in specific circumstances. For example, manufacturers shall not produce products that unreasonably endangers personal or property safety. Sellers shall ensure that the commodities they sell meet the requirements for safeguarding personal or property security.49 However, it should be noted that not all mandatory or prohibitive 44

See Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 2), Jiao Meihua Trans, Law Press China, 2005, p. 296ff. Zhang Xinbao, Research on the Elements of Tort Liability, Law Press, 2007, p. 452ff; Liao Huanguo, Duty of Care and the Transmutation of Tort Law in the Civil Law System, Law Science, No.6, 2006. 45 European Group on Tort Law, Principles of European Tort Law: Text and Commentary, Yu Min & Xie Hongfei Trans, Law Press China, 2009, pp. 109–110. 46 Zhang Xinbao, Research on the Elements of Tort Liability, p. 460. 47 European Group on Tort Law, Principles of European Tort Law: Text and Commentary, p. 110. 48 Article 328B of the Restatement (second) of Torts stipulates the function of judges in negligence litigation as follows: “In negligence litigation, the court decides: (1) whether the jury can reasonably find the existence or non-existence of the evidence of the disputed facts; (2) whether these facts can give rise to legal obligations of the defendant; (3) the standards of conduct to be followed by the defendant in accordance with his legal obligations; (4) whether the defendant has complied with the standard of hypocrisy in cases where the jury would not have unreasonably reached a different conclusion; (5) the applicability of legal rules determining whether the defendant’s actions are the legal cause of the plaintiff’s damage; And (6) whether the plaintiff claims to have suffered damages in accordance with the law”. With this rule, we can reasonably separate out two stages of judging negligence. 49 See Article 26 of the Product Quality Law and Article 18 of Law on the Protection of the Rights and Interests of Consumers.

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provisions can have the effect of establishing the duty of care in tort law. Only those (mainly public law provisions) that do have the effect of protecting private rights and interests can have this effect.50 Furthermore, the law cannot enumerate the requirements for conduct in all cases. Leaving the standard of conduct in all cases to the legislator “is tantamount to acknowledging legal loopholes in the form of violating human rights”. Therefore, it is also necessary to establish obligations and norms through tort law to determine the standard of the general duty of care.51 In different countries or regions, there are different expressions of the general duty of care, such as “bonus paterfamilias”, “reasonable person”, or “generally cautious person”. The general duty of care has two problems that need to be clarified: firstly, due to the uncertainty of its connotation, the general duty of care needs to be judged based on the specific circumstances. Therefore, the provisions on the general duty of care in tort law empower the judge to determine the duty of care according to the specific circumstances. Secondly, legislators need to provide helpful instructions for judges. In most cases, legislators only use abstract concepts such as “fault” and “reasonable care” to indicate the existence of the general duty of care, and the law theory and judicial practice are entrusted to make them concrete, which is generally adopted in the traditional civil code and tort law of People’s Republic of China.52 This approach is reasonable because the standard of conduct must be combined with the specific circumstances to be helpful. The uniform provisions are bound to be challenging to adapt to the practice of tort judgment. However, the infeasibility of uniform provisions does not mean that legislators cannot provide judges with more operational instructions even if they adhere to the standard “flexible” value and specify the factors to be taken into account when making decisions, which instructs judges and provides a specific standard for judging the appropriateness of the result. Principles of European Tort Law provides helpful examples in this regard. Article 4:102 of Principles of European Tort Law stipulates: “(1) the required standard of conduct is that of the reasonable person in specific circumstances, and depends, in particular, on the nature and value of the protected interests involved, the dangerousness of the activity, the expertise to be expected of a person carrying it on, the foreseeability of the damage, the relationship of proximity or special fiduciary relationship between those involved, as well as the availability and costs of precautionary or alternative methods. (2) the above standard may be regulated when the actor cannot conform to it due to age, mental or physical disability, or certain factors. (3) rules which prescribe or forbid specific conduct to have to be considered when establishing the required standard of conduct”.53 This provision strikes a good balance between legislative 50

This can be taken as an example of unfair competition infringement. Although there are many types of provisions prohibiting unfair competition in the current Anti-Unfair Competition Law of the People’s Republic of China, however, only those prohibited horizontal competition behaviors that damage the interests of other operators-mainly forbidding counterfeiting, forbidding false propaganda, forbidding infringement of business secrets and forbidding commercial slander can lead to unfair competition tortious liability. 51 Christian Von Bar, Gemeineuropäisches Deliktsrecht (Vol. 2), pp. 296–297. 52 See Article 6 Paragraph 1 of Tortious liability Law. 53 European Group on Tort Law, Principles of European Tort Law: Text and Commentary, p. 117.

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guidance and judicial discretion. Paragraph 3 hereof is roughly equivalent to directly mandatory or prohibitive provisions mentioned above. Therefore, the considerations enumerated in Paragraph 1 hereof, as the general provision of the standard of conduct, are worth noting. Some considerations do not depend on the specific circumstances of the relationship between the parties, such as the attribute of the protected interests, the dangerousness of the activity, and the expertise of actors; although other factors need to focus on the specific circumstances of the relationship between the parties (the relationship of proximity or fiduciary relations and the availability and costs of precautionary or alternative methods), their judgments are still characterized by generalizing such relationship, that is, by adopting the objective judgment.54 Such objective judgment needs to weigh multiple factors and be regulated according to the specific circumstances. In tort law, misfeasance (or interfering acts) is usually divided into act(facere) and omission(non facere). Its significance is reflected in the distinction of the imputation basis, that is, act means the tortfeasor creates the risk of damage to the rights and interests of the aggrieved party, and omission means failing to exclude the risk that could have been excluded. In other words, the former is to create risk and cause harm, and the latter is only not to intervene in the affairs that benefit others.55 The classification of act and omission does not constitute the ultimate basis for imputation, instead, it should depend on the principle-exception relationship in a particular circumstance.56 But it may reflect two different requirements of the law for the act of the parties, thus becoming the commonly adopted classification in the law of various countries. The obligation violated through act is a duty of omission, while the one violated through omission is a duty to act. Through the distinction between the duty to act and the duty of omission, we can see the possible differences in the form of norms between the two types. When the duty of care is expressed as the requirement of the duty of omission, its content is only to require the actor to respect the vested boundary of rights and interests. As long as it does not interfere with the normal realization of the rights and interests of others, its obligation has been fulfilled. In this sense, the duty of omission only requires each actor to respect the distribution structure of interests recognized by the legal order as a whole. This obligation is an indirect effect of such interest attribution, which is precisely the significance of considering the nature of the object protected by tort law when defining the duty of care. For the relationship of private law, the autonomy of private law is arranged under the specific interest structure. Therefore, respect for interests attribution of others is not contrary to the autonomy of private law. On the contrary, when the duty of care is expressed as the duty to act, the law no longer only requires the actor not to interfere with the realization of the interests of others but also requires the actor to perform positive acts to prevent improper damage to the rights and interests. As far as the distinction between the two 54

European Group on Tort Law, Principles of European Tort Law: Text and Commentary, pp. 120– 121. 55 Wang Zejian, Civil Law Researches: Tort, Peking University Press, 2009, p. 90. 56 Ibid., pp. 261–262.

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is concerned, scholars believe that “the law must prohibit infringing on others due to positive acts, but in principle, it cannot force others to help, and make good deeds in distress become legal obligations”.57 In addition to the reasons for the distinction between morality and law, the determination of causation, fairness, and procedural considerations, and the distinction between contractual liability and tortious liability also provide supporting reasons for limiting the duty to act.58 Therefore, the duty to act can only exist as an exception in tort law and cannot have the same status as the duty of omission. Because of this principle-exception relationship, the law may provide for a general duty of omission in the form of norms, but it is usually necessary to enumerate the duty to act. For example, in Anglo-American law, there are only limited requirements of the duty to act due to the non-recognition of the “duty to act for the benefits of others” or the “obligation to prevent damage to the plaintiff by acts of others”, whether in statute or case law.59 Article 37 of the Restatement Third of Torts prescribes that no duty of care shall be owed to any person if the act does not pose a risk of causing damage to others unless the court determines that the duty to act is provided in Articles 39 to 45 is applicable.60 In civil law, despite differences in the specific scope, the omission tort always exists as an exception, which is still the general principle of legislation and jurisprudence.61 In tort law, we know that the duty of care can be prescribed either by law as a general duty of omission or by legislation or jurisprudence as a positive duty to act in specific circumstances. The duty of omission is established according to the legal order of interest attribution rather than the parties’ intention. In light of particular policy considerations, the duty to act can also be determined by law and jurisprudence. In this regard, we need to pay attention to whether the contractual relationship impacts the determination of the duty of care and, if so, in what way. Some scholars hold that the duty of care in tort law can be a contractual obligation.62 However, scholars are often vague about why or how contractual obligations can be established in tort law. Some hold that contracts were the product of a high degree of trust between the parties, and the parties should be allowed to claim tortious liability other than a contractual liability to strengthen such trust and take tortious 57

Wang Zejian, Civil Law Researches: Tort, p. 90. Zhang Min’an, Study on Duty to Act in Tort Law, Law Press China, 2010, p. 14ff. 59 In addition to the duty to act stipulated in the Statute Law based on protecting some specific groups from specific dangerous damage, the duty to act in Case Law is mainly limited to a few cases, such as the existence of particular relationship between the parties, the defendant has started to act or his prior dangerous behavior triggers the duty to act. See Yang Yinhong, The Study on the Duty to Act in Tort Law: The Safety-Guard Duty, Law Press China, 2008, p. 130ff. 60 Quoted from Zhang Min’an, Study on Duty to Act in Tort Law, Law Press China, p. 15. “Restatement” in the provisions of several duty to act are: undertake the duty to act due to the provisions of the Statute Law (Article 39), duty to act on the basis of previous acts (Article 40), duty to act on the basis of special relations (Article 41), duty to act on the basis of special relations with the dangerous maker (Article 42), duty to act voluntarily on the basis of duties (Article 43, 44) and duty to act on the basis of voluntary care of others (Article 45). Ibid., p. 25ff. 61 Zhang Min’an, Study on Duty to Act in Tort Law, p. 28ff. 62 Zhang Xinbao, Research on the Elements of Tort Liability, p. 458; Zhang Min’an, Study on Duty to Act in Tort Law, pp. 32–33. 58

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liability as a guarantee for implementing the duty to act provided in the contract.63 This view does not explain why tortious liability is necessary other than contractual liability. If the duty of omission is the minimum requirement of the law for the relationship between the parties, the law must set up the duty to act to achieve goals when the protection of the parties’ interests needs to be strengthened. However, when there is already a contractual relationship between the parties, adding tortious liability to contractual liability is unnecessary.64 The problem here lies not in strengthening trust but in how contractual relationships affect the duty of care in tort law. That is to say, if the contractual duty to act is the requirement of the law itself, such an agreement of duty to act merely restates obligations required by the law and does not change the legal nature of the duty to act. On the contrary, if the contractual duty to act is not required by the law or the intensity of the obligation is higher than the statutory obligations, it is noteworthy whether such strengthened duty to act can be the criterion of duty of care in the determination of tort. The effect of setting the duty of care in tort law cannot be reached definitely in the contract. Otherwise, the distinction between contract and tort will be completely meaningless. In the case aforementioned, the existence of a contractual relationship is not due to its effect but because of a particular relationship to impact tort obligations. In this regard, a brief mentioning is enough about factors of determination of the standard of conduct required by the general duty of care in tort law: the proximity of its relationship and the particular fiduciary relationship between the parties. As a particular form of a fiduciary relationship, the contract is not because of the content of the contractual relationship but because the contractual relationship causes one party to open its field of rights to the opposite party so that the protection of its interests is more susceptible to the conduct of the opposite party. The closer the relationship is, the stronger the reliance and the greater the effect are. Therefore, when the parties agree on a contract where a duty to act is not required by law, the effect in tort law cannot be the obligation arising from the contract, but such an agreement strengthens the duty of care between the parties. Therefore, according to such a relationship, the duty of care recognized by the law or courts does not appear significantly different from the contractual obligation.65 However, if there is an absence of such reliance-based mechanisms for the occurrence of the duty of care, such as contractual protection of the third party, as long as the third party does not 63

Zhang Min’an, Study on Duty to Act in Tort Law, p. 33. Some scholars also believe that if the duty to act agreed in the contract (whether it is the primary performance obligation or collateral obligation) infringes the inherent interests of the parties to the contract or a specific third party, then the tortious liability should be recognized. Zhou Youjun, Expansion of Obligations in Tort Law of People’s Republic of China, Law Science Vol. 2, 2008, p. 94. This view seems to take the distinction of damage interest form as the benchmark for the distinction between contract and infringement. As we will show in the following analysis, although this benchmark has been recognized by judicial practice, it is not logically correct. 65 For example, although Professor Zhang Xinbao thinks that the duty of care can include “the agreed duty of care”, he mainly thinks that it is difficult to distinguish between the contractual obligations and the statutory obligations or the duty of care of the reasonable person, so it seems that the agreed duty is simply regarded as the duty of care in Tort Law. Zhang Xinbao, Research on the Elements of Tort Liability, p. 458. 64

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open its field of rights to the obligor because of the reliance, he has no right to claim damages based on torts against the parties to the contract who has the protective duty. That is to say, the contractual relationship only provides the basis for strengthening the duty of care in tort law, but it is not the standard for determining the duty of care. (4) Summary Contract and tort are institutional bases related to obligations, so their distinction is also first reflected in the related legal obligations. Because the contract is intended to create interests that did not exist before the act, the self-defining of the obligation is affirmed. On the contrary, tort creates or maintains a risk of damage that should not have occurred, so it is more likely to be consistent with the state of interest before the act. The obligation involved in tort does not need to depend on whether the parties thereto have an agreement when the act is committed, which determines the statutory obligations in tort. However, by comparison, we find that the view from a specific starting point of purely logical derivation is not entirely consistent with the legislation or judicial practice of contract and tort. As for the contract, it may indeed be based on the parties’ agreement, but its content may not always be determined by the true intention of the parties. The effect of a contract should consider the autonomy of private law and other value goals such as contract justice, transaction security, economic efficiency, or benefits. The effect of the contract is inevitably diversified in the trade-off of multi-value conflicts, thus showing the multiplicity of sources of the obligation in determining contractual obligations: contractual obligations may be either agreed upon or determined by the judge based on legal principles or even directly prescribed by the law. The goal of such obligation is also multiple. Some obligations are indeed to protect the realization of “expectation interests”, but some are to prevent the loss of the inherent interests of the parties in the realization of the expectation interests. This distinction between goals does not correspond to whether the obligation is contractual or statutory, making it impossible to associate the type of obligation with the achievement of the intended institutional objective. A similar situation exists in the duty of care in tort law. Due to its attribute, the duty of care in tort law is appropriate to and indeed determined by law or by the courts. However, the determination of such obligation is not related to the parties’ legal contact before the accident, especially the agreement in the contract. Even if the agreement in the contract has no direct influence on identifying tortious liability, it may enter into tort judgment through the duty of care. However, in the discussion of the source of obligation, we have seen that the distinction between contract and tort can also be observed from the object they protected, which is a common practice adopted by some scholars in China.66 Is this criterion of distinction valid?

66

See Wang Liming, The Criteria for Distinguishing Liability for Breach of Contract from Liability in Tort, in Law Science, No.2, 2002; Wang Liming, Boundary Between Tort Law and Contract Law: From the Perspective of the Expansion of Tort Law, China Legal Science, No.3, 2011, p. 112.

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1.2 Erga Omnes Right vs. Relative Right or Right vs. Interest From the perspective of the protected object, some hold that the object protected by contract is the relative right (contractual claim), while the object protected by tort is the erga omnes right outside the claim.67 This is because the contractual claim arises mainly based on an agreement between the parties without publicity, which is difficult for a third party to understand. If the third party is held liable for his acts that cause such interests to be damaged, it will hinder people’s freedom to act. In addition, because contract law has already provided complete protection for the contractual claims, additional protection is unnecessary. Otherwise, it will not be conducive to the maintenance of the civil law system.68 A similar view holds that the object protected by the contractual liability is the “interest”, while the object protected by tort is the “right”.69 In detail, the liability for breach protects the parties’ interests (performance interests) arising out of the contract, and the “interests” enjoyed under the contract are harmed by the breach of contract. On the contrary, the “rights” of anyone recognized by the legal system based on their social relationship are interfered with by the tortious act.70 If the criterion mentioned above based on the scope of protection or protected object can serve as a practical criterion to distinguish contract from tort, the boundary between contract and tort will be clear. From the perspective of comparative law, distinguishing between contract and tort from the protected object is indeed consistent with the practice of specific legal systems in certain periods.71 But it is not sufficient to make a general conclusion. There is also a deviation in understanding the function of contract and tort (although it has rationality). (1) Comparison of the Protected Objects between Contract and Tort The distinction between erga omnes right and relative right is the classification of rights according to the scope of effect of rights. The erga omnes right refers to what can be claimed to all people, and relative right is what can only be claimed to specific people.72 In theory, limiting the protected object in tort to erga omnes right or endowing the object with the character of “exclusivity”73 can be consistent with the state where there was no contractual relationship between the parties before tortious conduct. Some scholars also hold that, in light of protecting the rights and interests and maintaining the value balance of freedom in tort law, the imposition of 67

See Wang Liming, Boundary Between Tort Law and Contract Law: From the Perspective of the Expansion of Tort Law, China Legal Science, No.3, 2011, p. 112. 68 Ibid. 69 Chen Zhongwu, Protected Interests of Contractual and Tortious Liability, in NTU Law Journal, Vol. 36, No.3, 2007, p. 63. 70 Ibid. 71 Christian Von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), p. 20ff. 72 Liang Huixing, General Introduction to Civil Law (4th ed.), Law Press China, 2011, p. 76. 73 Wang Liming, The Criteria for Distinguishing Liability for Breach of Contract from Liability in Tort, Law Science, No.5, 2002. p. 49.

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tortious liability must meet the “expectation possibility” of the tortfeasor, and only rights, especially the erga omnes rights can play this role. Because the erga omnes right is open and publicized, it can establish an obligation not to infringe on the rights of others for all people except the obligee.74 “For the tortfeasor to take civil responsibility for his action, whether tort, contra bonos mores, or be illegal, it must be based on the premise that the action involves some violation of universal norms. Its purpose is to establish the minimum expectation possibility of this system to retain reasonable action space”.75 In terms of “exclusivity”, its effect lies only in the determination of the legal obligations of others except for the obligee. To combine it with a particular type of right can only depend on the particular position chosen by the commentator. This is because, according to the theory of subjective rights, the normative fact that a right belongs to one person rather than to another has a dual significance, meaning that the right “belongs” to a person (the character of the right), who is the holder of the right, and that the right is “his” right (the character of the person). This attribution of rights to subjects should be understood as exclusive and, in this sense, absolute.76 As a result, all the attributable relationships called “rights” are “exclusive”. For contractual claims, the related obligations include the general obligation not to interfere with the rights of others (the general duty of care) and the obligations performed under the contract (performance obligation), which are different types of obligations. Therefore, the erga omnes right—the norm with an effect against any person—is also a part of the claims.77 The so-called relative protection of claim only points out its content characteristics because it neglects its nature as a right with absolute protection and does not reflect the full effect of the claim. The realization of the claim is conditional on the performance of the obligor. Any violation of the claim will inevitably hinder the performance of the obligor. Therefore, in response to third-party’s interference (Störung), legislators not only simply resort to prescribing general protection norms but also replace or concurrently impose liability for non-performance of the obligation on a specific obligor (relative right) to achieve the protection of claim. The conclusion that claims enjoy absolute protection shows that the standard of exclusivity is not enough to exclude the contractual claims from the protected object in torts. From the perspective of value balance, the explanation of the distinction criterion for the protected object is different. This explanation is based on at least two aspects: firstly, rights or erga omnes rights are open or public; secondly, the norms involving rights or erga omnes rights belong to universal norms. Both reasons point equally to the “expectation possibility” of tortious conduct. 74

Cao Xianfeng, Between Rights and Legal Interests: An Analysis on the Object of Torts, in Contemporary Law Review, No.4, 2005, p. 86. 75 Su Yongqin, Private Autonomy in New Century, China University of Political Science and Law Press, 2002, p. 306. 76 Felix Zulliger, Eingriffe Dritter in Forderungsrechte: Zu ein Beitrag zur Lehre von subjektiven Recht (Zurich, 1988), S. 74. 77 Vgl. Dörner, Dynamische Relativität: Der Übergang vertraglicher Rechte und Pflichten (München, 1985), S. 52.

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The concept of “expectation possibility” originates from the German criminal law theory, basically indicating “the possibility that the actor can be expected to do a legal act under the specific circumstance of the act”,78 and there is different positioning of possibilities in function.79 The purpose of introducing this concept into the theory of tort law is to show that “only those who are likely to foresee the result of inflicting harm on a person will be required to prevent it, and those who should have prevented it will be held liable, which can make sense”.80 Therefore, this concept is related to the standard of fault determination in general tort rules and involves the evaluation of norms of tortious conduct. In terms of the composition of tortious liability, the commentator establishes the possibility that the actor can recognize the consequences of his acts and avoid them (will factor) on the basis that the erga omnes right is open or public. If the protected interests are not easy to be recognized, it will lead to the risk of over-imposition of liability and endanger the value balance pursued by tort law. However, linking the erga omnes right to publicity or openness poses the following problems: First of all, the publicity of erga omnes rights means that the existence or content of rights can be recognized by the outside, which are generally manifested through registration, possession, or entity of object of rights, such as the registration of immovable property, possession of the movable property, registration of exclusive rights, utilization of trademark, and entity of tangible personality rights (life, body, health, and freedom of movement). However, owing to the broad scope of erga omnes rights, including “real rights, personality rights, and intellectual property rights”,81 not all of them have the public signs mentioned above. For real rights, some rights do not have the publicity of real rights, but their attributes of erga omnes rights are still not changed, for example, the unregistered immovable property (such as contracted management rights of rural lands in Chinese law initially, the residential land use rights, the easements, and the immovable property which is not acquired by a legal act), and the immovable property which do not take the possession as the way of publicity (such as the mortgage of movables and the ownership acquired by directive delivery or the way of possession modification). As far as intellectual property rights are concerned, copyrights need not be made public.82 The same is true of business secrets; as far as personality rights are concerned, spiritual personality rights (such as the right to reputation, right to privacy, and the dignity of human personality) are not open in the usual sense. Although these exceptions cannot negate the value of the 78

Chen Xingliang, Philosophy of Criminal Law, China University of Political Science and Law Press, 1992, p. 52. 79 In accordance with Professor Zhang Mingkai’s collation and analysis, the concept of expectation possibility in criminal law has multiple meanings, including four different expressions: psychological coercive possibility as the basis of responsibility, expectation possibility as the element of liability, obligation coercive possibility and expectation possibility as the condition for the establishment of negligence crime. See Zhang Mingkai, Combing the Expectation Possibility Theory, in Chinese Journal of Law Vol. 1, 2009, pp. 62–67. 80 Su Yongqin, Autonomy of Private Law in New Century, p. 304. 81 Liang Huixing, General Introduction to Civil Law (4th ed.), p. 76. 82 See Article 2 of Copyright Law of the People’s Republic of China.

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division of the erga omnes right and relative right,83 they are enough to undermine the significance of the publicity of erga omnes rights to the constitution of tort. If we want to emphasize the “expectation possibility” of an act in tort, the focus of the judgment is not on the abstract legal characteristics of the interfered object but on the cognitive possibility of the actor when the act is being done. Even if the injured rights (or interests) are not public when its attribution and content have been or can be identified by the actor, the expectation possibility of the act will not be affected. For instance, although the claim is not open in general, if its existence and content have been known to the actor, it still satisfies the requirements of the expectation possibility. In this way, the objective state of rights and the subjective understanding of the actor can affect the actor’s expectation possibility. Even if the technical distinction between illegality (Rechtswidrigkeit) and fault (or imputation) is kept in the composition of tortious liability, the cognitive possibility of facts of interference with rights and interests also contributes to the effect of illegality, which is why Article 826 of the German Civil Code refers to intentional damage contra bonos mores as an alternative to the illegality of interference with rights in Article 823 Paragraph 1. In this sense, publicity and the cognitive possibility of rights and interests infringement constitute independent reasons for illegality and imputation, and publicity is not the fundamental factor of tort. Similarly, the purpose to link the composition of tortious liability to the so-called universal norms is only to replace publicity with legality, thereby playing a role of imputation elements. The “publicity” of erga omnes rights can satisfy the needs of “expectation possibility” in that the actor can identify it when acting. It is problematic and obviously against the original intention of “expectation possibility” if some erga omnes rights without objectively recognizable characteristics by the outside are also considered to satisfy the requirements of “expectation possibility” just because they have been recognized by law. If all rights, whether it is erga omnes right or not, can satisfy the needs of “expectation possibility”, then why should it be limited to erga omnes right? Therefore, even if the protected object of tort is limited to erga omnes rights and tort norms are constructed with the object, we must limit the scope of erga omnes rights. Otherwise, the limitations mentioned above may deviate from the original intention of norms. The gist of this truth can be seen in Article 823 Paragraph 1 of the German Civil Code. The publicity of this provision is visible with all the protected objects enumerated, except for the “opening” of “other rights”, but it would be absurd to equate these rights with erga omnes rights. On the contrary, because of the “opening” of “other rights”, the protection of the two recognized “other rights” in the general personality rights and sales rights cannot be the same as other types of rights listed in the norms of tort judgment.84 In this regard, Mr. Wang Zejian made it clear that “rights infringement is considered illegal on the premise that the content of rights has 83

See Jin Keke, On erga omnes Right and Privity, Shangdong Social Science, No.11, 2008, p. 138. See Xue Jun, Unveiling General Personality Rights: Discussing System Consciousness in Comparative Law Studies, in Journal of Comparative Law, No.5, 2008, pp. 29–30. 84

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a clear scope, such as life, body, health, freedom, ownership. If the content of rights is too extensive and does not have a clear scope of protection, such as reputation, privacy, credit, and other personal legal interests, which mostly involve freedom of speech, its illegality should be determined according to the interest balance and value judgment”.85 The same problem will arise from taking the distinction between rights and interests as the basis of the distinction between contract and tort. Scholars said that the key to the difference between rights and interests lies in the different specificity of their contents. Although rights are essential “interests”, their subject, content, or scope are confirmed through the existing legal system as an independent type and endowed with a specific name, thus having “social publicity”, which can be easily known and foreseen by the general public; conversely, interests still maintain the status of “simple interests” because of its lack of specificity, which lacks “social publicity” aforementioned.86 However, “social publicity” or obvious distinctiveness is not always a practical criterion for distinguishing between rights and interests. Non-publicity is the typical characteristic of a “claim”, and it still does not affect the name of the obligor’s “rights”. The same goes for “sales rights” or “corporate rights”.87 Although the protection of these rights is in the name of rights in tort composition, it is closer to the protection of interests. As scholars have seen, the “general personality rights” as “framework rights” in German law are only created to protect the goal. It is a “right” concept with the name of right but no power of right, which protects precisely the personality interests of “non-right”. On the one hand, it is regarded as the “other right” to be eligible for protection under Article 823, it has to solve the problem of the distinction of effects on the other. The judge, based on the trade-off of the interests in a specific case, determines the scope and degree of the protection of the legal personality interests in the case, which usually leads to the uncertainty of the constitutive requirements.88 Even if the narrow concept of rights is adopted to avoid the disadvantage arising from framework rights with ambiguous extension,89 the difficulty in concept distinction is still unsolvable. The dilemma faced by German judicial practice in solving “subsequent damages” and “functional damages” based

85

Wang Zejian, Civil Law Researches: Tort, p. 220. See Chen Zhongwu, Protected Interests of Contractual and Tort Liability, Peking University Press, 2013, p. 118. 87 The protection of established and operating business interests in German law is realized in the name of “sales rights”, but from the perspective of genetics, it aims to achieve the purpose of insufficient protection of pure economic interests of enterprises under the existing legal framework. Therefore, it protects pure economic interests instead of rights (See B. S. Markesenis, The Law of Torts: Comparative Introduction, Clarendon Press, Oxford, 1997, pp. 61–62). 88 See Xue Jun, Unveiling General Personality Rights: Discussing System Consciousness in Comparative Law Studies, in Journal of Comparative Law, pp. 29–30. 89 Long Jun, Essentials of Infringement of Rights and Interests, in Chinese Journal of Law, No.4, 2010, p. 38. 86

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on ownership infringement can be considered as an example of comparative law that questioned the understandings mentioned above.90 Although rights, especially erga omnes rights, are suitable as the object of a tort, it is questionable to take the opposite relationship between rights and interests, or between erga omnes rights and relative right, as the basis to determine the opposite relationship between contract and tort in protected object. In addition to the reasons aforementioned, we may also turn to observe the case of the protected object of contract. The contract establishes claims, and the fundamental attribute of claims lies in determining expected credit. In this sense, it is acceptable to regard a contractual claim as an expectation interest. However, we cannot equate the concept of “interest” in the sense of “expectation interests” with the one in the sense of the distinction between “rights and interests”. According to the “interest theory” or “theory of legal power” that defines rights, rights necessarily contain specific interests.91 Then “interests” behind rights are protected by protecting rights, in which “interests” are more narrative. That is to say, “interests” are regarded as facts that are beneficial to the actor, which is the sense of calling “interests” in “expectation interests” (but “expectation” as a restriction on such interests is normative). On the contrary, in the significance of distinguishing between rights and interests, “interests” are normative, which refers to the interests that should be protected by law, that is, legal interests other than those whose protection intensity has been increased to a certain extent and are given by law in the name of rights.92 Therefore, the protective function of expectation interests can cover legal interests such as rights and even erga omnes rights. From the perspective of comparative law, although it is not very common to protect the general personality rights through contract, there are still some cases in point.93 Article 122 of the Contract Law of the People’s Republic of China stipulates that where a breach of contract by one party infringes upon the personal or property interests of the opposite party, the aggrieved party is entitled to claiming for breach of contract in accordance with the law. The “personal and property rights and interests of the opposite party” mentioned herein refer to the inherent interests outside the interests of contract performance, mainly personal or property rights or erga omnes rights. For example, a consumer who has been poisoned by the consumption of substandard food may claim for damages to his or her health under a contract where the protected interest is the right to health. In addition, the aggrieved party may also 90

Fuchs, Deliktsrecht, Qi Xiaokun Trans, Law Press China, 2006, p. 22ff. Liang Huixing, General Introduction to Civil Law (4th ed.), pp. 70–71. 92 In German law theory, there are rights (Recht), legal interests (Rechtgut) and interests (Gut). The concept of “Gut” has purely factual descriptive significance, while legal interests and rights have normative significance as protected interest forms. In our country, there is only a division between rights and interests, among which interests refer to the interests of units protected by law, which are equivalent to the legal interests in German law. 93 Christian von Bar, Ulrich Drobnig, eds., The Interaction of Contract Law and Tort and Property Law in Europe, Wu Yue, Wang Hong, Li Zhaoyu & Shi Pengpeng Trans, Law Press China, 2007, p. 27. 91

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claim for the losses of property caused by the purchase of chickens infected with fowl plague, which infects other chickens on the farm. Such damage is the result of ownership infringement. Therefore, this provision establishes the general position that contract law protects inherent interests or erga omnes rights. In the specific provisions of Contract Law, more provisions specify the protection of such rights. For example, the provision of Article 191, Paragraph 2 of the Contract Law on the compensation liability of the donor, Article 224 Paragraph 1 on the compensation liability of the lessee for the loss of the lease item when subleasing, Article 247 Paragraph 1 on the obligations of the lessee of contracts for financial lease for keeping and using the lease item with due care, Article 265 on the compensation liability of the contractor for improper care, Article 266 on the confidentiality obligation of the contractor, Article 282 on the liability of the contractor for quality assurance, Article 290 on the liability of the carrier for safe transportation, Article 303 on the compensation liability of the carrier for the damage or destruction of the article that the passenger takes with him on board, Article 311 on the liability of carrier of cargoes transportation, Article 352 on the liability for breach of contract of the transferee of technology transfer contract, Article 369, 372 and 374 on the deposit obligation and liability of the depository of storage contracts, Article 394 on the liability for breach of warehousing contracts of the safekeeping party, Article 406 on the compensation liability of the agent under a commission contract and Article 416 on the storage obligation of the commission agent under contracts of commission agency, which are related to the protection of property rights. Amid these provisions, Article 191 Paragraph 2, Article 282, Article 290, and Article 302 are related to the protection of personal rights. In addition to the nominate contracts, the protection of personal and property rights also exists in innominate contracts. For example, in security contracts, medical service contracts, and other service contracts, the protected object of the contract is mainly inherent rights such as personal or property rights of the opposite party. It can be predicted that with the expansion of the collateral obligation of the contract, the protection scope of rights or absolute rights and interests in the contract will keep expanding. In summary, contract law protects both relative right (contractual claims) and erga omnes rights (inherent interests), and tort law protects both rights (including erga omnes rights and relative right) and interests. Therefore, contracts and torts are consistent in the abstract protection scope. (2) Analysis of Normative Function of the Protected Object As far as tort law is concerned, the difference of protected objects has the significance of determining the criterion of illegality in different circumstances under the legislation that recognizes illegality as the element of tortious liability. Even if the element of illegality is not recognized, the protected objects can still distinguish the level of protection; in many legal systems, the protected objects also have the significance of limiting tort liability. On the contrary, the protected objects do not have the function of differential protection in the contract.

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a. Questions on Differential Protection of the Protected Objects and Rights and Interests In legal systems that require illegality as the constitutive requirement of tortious liability, the protected objects may affect the determination of the criterion of illegality. Take German law for example. Article 823, Paragraph 1 of the German Civil Code stipulates that a person who intentionally or negligently injures listed rights is liable for tort; Paragraph 2 stipulates the same duty for negligent violation of the law to protect others; Article 826 stipulates that a person who, in a manner contra bonos mores, intentionally causes damage to another person is liable for the tort. In theory, these three provisions are called three small general provisions of fault, namely, tort type, illegal type, and type of contra bonos mores. The object protected by Article 823, Paragraph 1 is the right (statutory right), while the object protected by Article 823, Paragraph 2 and Article 826 is both rights and interests. In terms of the scope of protection, Article 823, Paragraph 1 is narrower than Article 823, Paragraph 2 and Article 826 but more lenient in terms of constitutive requirements of tortious liability. Article 823, Paragraph 2 adds the element of “a statute that is intended to protect another person”, while Article 826 adds elements of intent and damage contra bonos mores. Therefore, any tortious conduct that satisfies the last two tort types can simultaneously satisfy the first type. It can be concluded that the last two types have the effect of “reinforcing” norms of civil tort.94 In determining illegality, Article 823, Paragraph 1 adopts Erfolgsunrecht theory, while Article 823, Paragraph 2 and Article 826 adopt Handlungsunrecht theory.95 Since the criteria for determining illegality under two paragraphs of Article 823 are very clear, there is no doubt that the significance of the debate on the criterion of illegality (that is, whether to adopt Erfolgsunrecht theory or Handlungsunrecht theory) is primarily limited to the contra bonos mores of Article 826. Concerning the two restrictions added to Article 826, it is appropriate to adopt the Handlungsunrecht theory, which means the damage contra bonos mores is illegal. From the brief observation mentioned above on the protected object of tort in German law, illegality is not only determined by the abstract distinction between rights and interests but also the specific characteristics of the protected rights and interests. In other words, although the distinction between rights and interests may impact the composition of tortious liability, this impact is not different from the influence arising from different rights based on differences in internal characteristics. Therefore, the composition of tortious liability cannot be based on the distinction between rights and interests but should be based on the differences in the characteristics of rights and interests. This is the significance of Article 823, Paragraph 1 of the German Civil Code, which lists “life, body, health, freedom (of movement) and ownership”. However, the “opening” of “other rights” in this Paragraph undermines 94 95

Su Yongqin, Private Autonomy in New Century, p. 311. Wang Zejian, Civil Law Researches: Tort, p. 217.

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the implementation of this objective to a considerable extent, which had already been discussed. In contrast, French law, which takes “damage”, “causation” and “fault” as constitutive requirements of liability, does not distinguish the protected object involved in the damage as rights or interests but implements integrated protection. However, there is still a problem of determining different duties of care (due diligence) in accordance with the characteristics of interests involved in French law. In personal security, for example, the French law based on the “principe de précaution” imposes a very high duty of diligence on the actors. In contrast, the actor is not so strictly required in property security.96 Nevertheless, we still cannot see the impact of the distinction between rights and interests in this respect. Drafters of the Principles of European Tort Law are well aware that interests protected by tort law are diverse, and that neither a closed list of protected rights nor interests can be placed under any absolute hierarchy. The protected rights and interests need to be determined by the judge according to the specific situation based on multiple interconnected elements.97 Judging from Current Chinese law, whether it is the provision of Article 106, Paragraph 2 of General Principles of the Civil Law concerning “property and personal rights” or Article 6, Paragraph 1 of the Tort Law concerning “civil rights and interests”, there are no restrictions or distinctions on the type of injured rights and interests, so the legislation is closer to French law in technique. However, these French-style provisions may lead to a different direction because of the enumeration of civil rights protected in Article 2, Paragraph 2 of Tort Law. Since these listed rights belong to the category of so-called erga omnes rights in nature, the commentator may associate them with the general clause of “rights infringement” under the tradition of German law. Conversely, unlisted rights and interests are dealt with by subdividing them under the “fault” element of Article 6, Paragraph 1, which means to introduce a violation of protective law and tort contra bonos mores.98 As a result, Article 6 Paragraph 96 G. Vaini, Illegality in French Law, in Kautzou, ed., Unification of European Tort Law: Wrongfulness, Zhang Jiayong, Trans, Law Press China, 2009, p. 75. 97 European Group on Tort Law, Principles of European Tort Law: Text and Commentary, p. 61. Principle 2:102 states: “Article 2: 102 Protected Interests (1) The scope of the protected interests depends on the nature of the interest; The higher the value, the more precise and obvious the definition, the more comprehensive protection will be. (2) Life, physical or mental integrity, human dignity and liberty are protected in the fullest possible way. (3) Property rights, including incorporeal property rights, are widely protected. (4) The protection of pure economic interests and contractual relations can be subject to more restrictions. At this time, particular attention should be paid to the closeness between the actor and the person in danger, or the fact that the actor knows that his interests are definitely not as valuable as those of the aggrieved party, and his behavior will cause damage. (5) The scope of protection is also affected by the nature of liability. When intentionally infringing on interests, the degree of protection for interests is higher. (6) In determining the scope of protection, consideration should be given to the interests of the actor, especially his freedom of movement and the exercise of his rights, as well as the public interests”. 98 See Chen Xianjie, Illegal Judgment Elements in General Provisions of Tortious Liability Law, in Journal of Law Application, No.3, 2010.

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1 and Article 2, Paragraph 2 of the Tort Law may lead to a German French-style interpretation. This approach is similar to the Japanese approach that adopted the French approach in legislation and the German approach in interpretation,99 which may be related to the fact that Chinese civil law theory has long been influenced by German law theory. Regardless of the approach taken, we must recognize the specific differences between civil rights and interests protected by tort law. As enumerated in Article 2:102 of the Principles of European Tort Law, it is not only manifested as a difference in social publicity or apparent distinctiveness but also as a difference in value rank, and there is also a difference in intensity or nature in the conflict with other protected interests or public social interests. These differences do not depend entirely on whether they can be classified as “rights” or “interests”. They can be expressed by the concepts of “rights” and “interests” and the differences in normative effects within “rights”, such as the distinction between real rights and claims in universal nature and the distinction between usufruct rights and security interests in the dominance of the property; or it can be shown as differences within “interests”, whether from the perspective of legal practice or the perspective of comparative law in the distinction between material (property or economic) interests and mental interests, personal interests and status interests, it is easy to find that personal interests such as life and health are usually protected to a higher degree than property or economic interests and other personal interests such as reputation and privacy. Property rights such as real rights and intellectual property rights are better protected than claims and pure economic interests, although the opposite situation may occur based on the overall weighing of various factors.100 Equivalent protection of civil rights and interests with significant differences in characteristics will lead to insurmountable problems in legal systems and protective effects. It is neither theoretically supportive nor practically feasible, if the claims are brought into the protection of tort law and given the same protection as real rights and intellectual property rights.101 On the contrary, in terms of contracts, the protection of rights and interests is only an abstract and indirect object of the contractual relationship. The focus of the contract is the setting (occurrence) of contractual obligations, which is not directly related to what kind of rights and interests the parties themselves intend to protect, so there is no need to set different protection standards according to different characteristics of protected rights and interests. In this sense, the analysis of protected objects is of little significance to contracts. For this reason, it has drawbacks to distinguish between contract and tort according to a protected object.

99

For a discussion of the influence of German tort law on the Japanese doctrine of illegality, see Jun Roundtani, The New Japanese Tort Law Formed by Jurisprudence, Law Press, 2008, p. 64ff. 100 H. Kautzou, ed. Unification of Tort Law: Wrongfulness, Zhang Jiayong Trans, Law Press China, 2009, p. 176. 101 See Ge Yunsong, Civil Rights and Interests Protected by Tortious Liability Law, China Legal Science, No.3, 2010.

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b. Limitation Questions of the Protected Objects and Compensable Damages The protected objects can regulate the composition of tortious liability and limit the scope of damages. Generally speaking, the liability for damages only focuses on differences in the abstract category of the injured interests, whether they are property interests or mental interests. The content of this liability is usually limited to property interests, and compensation for mental distress is available only under particular provisions of the law or only in exceptional circumstances. Therefore, there are two questions that need to be discussed: The first is the distinction between indirect economic loss and pure economic loss. The significance of this division of types of property loss lies in imposing technical limitations on the liability for damages. “Indirect economic loss”, also known as “collateral loss” or incidental loss, refers to the economic loss attached to personal and property infringement. In contrast, “pure economic loss” refers to the economic loss that is irrespective of personal and property infringement.102 This distinction in loss types only exists in some jurisdictions such as Germany, Austria, Britain, and the United States, but not recognized in France, Belgium, Italy, and other jurisdictions. However, whether it is a refusal or recognition of the normative significance of such a classification, certain exceptions to general rules exist in different jurisdictions. Scholars believe that the rule of non-compensation for pure economic loss was recognized based on conceptual jurisprudence in the nineteenth century. For example, drafters of the German civil code negated the tort remedy of relative right based on the distinction between erga omnes rights and relative right, thus leading to the negation of the possibility of compensation for pure economic loss, which has become a common practice in German judicial practice after the promulgation of German Civil Code.103 But this explanation is only an extension of the German experience. In the jurisdictions where compensation for pure economic loss has not been covered, there are pronounced differences in methodology. Some adopt the standard of judicial review of “duty of care” to limit compensation for pure economic loss (e.g., England and Scotland). Others rely on causation to exclude “third-party loss” rather than loss suffered by direct parties (e.g., Austria, Sweden, and Finland). Still others adopt the scheme of erga omnes rights to limit the protection of interests, which is mainly used in German law tradition (e.g., Austria, Germany, and Portugal).104 It can be seen that the negation of compensability for pure economic loss can be proved from aspects of causation, the duty of care, and whether the protected object is a right or not. Methodological differences suggest that the problem of pure economic loss cannot be dealt with simply based on a single criterion. Scholars pointed out accordingly that “indirect loss and ‘pure’ economic loss are not different in kind and principle, 102

Mauro Bussani & Vernon Valentine Palmer, Editor-in-Chief: Pure Economic Loss in Europe, Zhong Hongming and Zhang Xiaoyi Trans, Law Press, 2005, p. 5. 103 Ibid., p. 449. 104 Mauro Busani & Vernon Valentine Palmer, Editor-in-Chief: Pure Economic Loss in European Law, p. 396.

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but are distinguished by the circumstances in which they occurred and by technical limitations placed on whether they can be compensated”.105 Even if the methodological problem of multiple possibilities of rules limiting compensation for pure economic loss is set aside and the form of damages is related to the violation of personal or property rights (the traditional German approach), the problem of the relationship between the protected objects and the limited compensate for damages is challenging to be solved. This is because such conceptual thinking arising from whether the loss is caused by rights (erga omnes rights) does not contribute to achieving comprehensive protection of the aggrieved party. If a person’s pursuit of specific interest is legitimate, how can the misfeasance of others that hinder the acquisition of this interest be affected in the name of not being endowed with rights? It has been acknowledged today that “it is impossible to put forward solutions to problems such as limited compensation in tort law only by analyzing concepts such as the definitions of erga omnes rights and relative right without a framework of problems in mind”.106 In order to protect certain types of damages in tort law, courts may engage in “creative judicial activity” to expand the concept of protected rights. For example, German courts adopt the concept of “functional damage” to protect damages under ownership other than subjective ownership damage or objective entity damage107 ; Austrian courts use the concept of “other rights” or “rights” to develop existing legal rules and create the category of “right possession” so that cause of action can be protected by tort law under certain conditions, and recognize “business” or “existing and operating business” as an interest protected by tort law like German judiciary; Italian judiciary creates “the right to safeguard the integrity of personal property”, while Greek courts incorporate the right to use public goods under the protection of general personality rights, and German also includes “freedom of alignment” within the scope of “other rights” and so on.108 What we are seeing here is precisely the dilemma of the concept of “erga omnes rights” and “rights” in limiting compensation, that is, either excessive or inadequate limitations (the consequences of “rights” overflow). In addition to expanding the protection scope of pure economic loss in accordance with tort law by expanding the concept of “rights”, there are two other ways to achieve the goal. One is to expand legislation to protect pure economic loss. Through the promulgation of a large number of special protective legislation, the protection mechanism of rights and interests covered by the general provisions of the civil code or tort norms has been developed considerably. What scholars should worry about is more than the improper expansion of the concept of “rights” that blocks its function of limiting compensation, but the liability risk caused by many protective laws outside the civil code. Many compensation rules have been introduced into specific laws, such as the Unfair Competition Law, Anti-monopoly Law, Law on Protection of the Rights and Interests of Consumers, and Product Liability Law, which constantly 105

Ibid., p. 7. Ibid., p. 37. 107 Fuchs, Deliktsrecht, Qi Xiaokun Trans, Law Press China, 2006, p. 35ff. 108 Christian Von Bar, Gemeineuropäisches Deliktsrecht (Vol. 2), pp. 63–64. 106

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challenge the general stance of the existing tort law restricting compensation for pure economic loss. The other is to solve the problem of insufficient remedy for certain types of damages by means of rules on the collateral obligation of contract. In German law, the recognition of various types of the collateral obligation of contract modifies the restrictive remedy effect of the overly rigid basic provisions of tort law to a considerable extent. The theory of “the contract with additional protection for the third party” includes the particular type of third party in contract protection. In this way, the economic interests expelled by tort law may return through contract law. In any case, both approaches diverge from the solution of the protected object to a large extent. The second is the distinction between property loss and personal injury, which is classified according to the content of damage. Personal injury is damage to the integrity of a person, while property or economic injury is damage to the patrimony enjoyed by the aggrieved party. Under this classification, tort law can refer property damage to contract and insist on leaving personal injury to their own.109 This standard has been adopted by some jurisdictions in judicial practice and theory, as illustrated by the cases of France and Louisiana in the United States. And it is said to be the position held by most modern legal systems.110 Some scholars in China have also approved this standard.111 The fundamental reason is that the consequences of personal casualty resulting from a breach of contract usually cannot be foreseen by the parties in concluding a contract, except in exceptional cases where compensation for personal casualty may be allowed for breach of contract as a result of a concurrence of breach of contract and tort, and integrating such damages into the compensation for breach of contract may impose excessive liability on the parties. Moreover, the protection of personal rights and interests in contract will go beyond the scope of performance interests usually protected by contract law, which is incompatible with the nature of contract liability as a property liability.112 In addition, there may be a reason in the form based on provisions of a particular legal system. For example, provisions on compensation for personal injury in Current Chinese law are usually stipulated in tort. In contrast, norms related to compensation for breach of contract do not include compensation for personal injury. The view of unforeseeable personal injury is merely an application of the rule of foreseeability of damages in breach of contract. Unless the damage is foreseeable when a contract is concluded, it cannot be remedied through the contract. Since compensation for breach of contract may also be available for personal injury in exceptional circumstances, the problem turns out to be when such personal injury could be remedied by contract. The particular circumstances (damages can be foreseen) prove that the scope of remedy for breach of contract is determined by whether the personal injury can be foreseen rather than the attribute of the damage itself. 109

See Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review (1999), p. 47. Ibid. 111 See Wang Liming, The Criteria for Distinguishing Liability for Breach of Contract from Liability in Tort, Law Science, No.5, 2002, pp. 118–119. 112 Ibid. 110

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Consequently, limiting remedies for breach of contract according to the nature of damages can only lead to confusion. The so-called demonstration that contractual protection of personal injury will exceed its protection scope is just the deduction from result to cause. As aforementioned, the protection scope of contracts is extensive. Almost all interests protected by law can be protected through contracts, so how can it be asserted that contract cannot protect personal injury? On the contrary, the argumentation based on legal forms seems more potent because of the positive law. In other words, if the legislator or justices intentionally puts personal injury into the protection scope of tort law, regardless of the logic or the legal rationale behind the practice, it is still “effective” from the empirical perspective. As can be seen, many compensation provisions related to personal injury in Current Chinese law, especially the rules for determining the amount of damages, are all stipulated in tort law. However, we also know from above that the current contract law also has some provisions related to the remedy for personal injury.113 Since contract law also protects personal injury, it is reasonable and feasible to apply the relevant rules of the tort law, even if contract law does not set specific rules for the determination of liability. This is the approach taken in Chinese judicial practice, and there are also examples to follow in comparative law.114 In this way, we cannot conclude that the remedy related to personal injury only has the nature of tort. Otherwise, the argumentation would return to the perspective of legislation rather than legal interpretation. Perhaps, the crux of the problem is not whether personal injury compensation belongs to a contract or tort remedy but what kind of difference in the remedy effect or the effect of freedom restriction may be caused by the remedy. The problem is whether the contract remedy will result in insufficient remedy to the aggrieved party or excessive liability on the injurer. As far as the current discussion is concerned, it is not enough to assert that the nature of damage can affect the choice of claim basis. (3) Summary No matter in legislation, judicial practice, or theory, there are voices that support determining the scope of protection in tort law on the basis of the protected object and attempting to demarcate the boundary between tort and contract according to the scope. Based on rights and interests, especially the distinction between erga omnes rights and relative right—sometimes transformed as absolute obligations and relative obligations—it is the traditional practice of German law, which is manifested in how Article 823, Paragraph 1 of German Civil Code obtain legislative form. It may seem paradoxical that the law, through Article 823, Paragraph 2 and Article 826, has provided a means of protection for interests outside rights (or even relative right). However, it is not as logical as Article 823, Paragraph 1 and was once regarded as an “exception”. In German law, the rule of non-compensation for pure economic 113

For example, in addition to the general provisions of Article 122 of the Contract Law, there are special provisions of the Contract Law, such as Article 191 Paragraph 2, Article 282, Article 290 and Article 302, which are all related to the protection of personal injury. 114 See Article 99, Paragraph 3 of Bürgerliches Gesetzbuch.

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loss is no more than a by-product of the criterion for distinguishing erga omnes rights from relative right, which is, in the words of some commentators, the result of some historical accidents.115 In today’s situation, tort is not generally different from contract in terms of the protected objects but only shows differences in specific cases. Moreover, a legal system that does not necessitate a violation of rights or simply adopts the concept of a violation of rights in a broad sense would not even face the problem at all. Therefore, it is not universal and effective to distinguish contract from tort through the protected objects. Current Chinese Tortious liability Law has no particular restrictions on protected objects, which can be seen from replacing the concept of “civil rights” with the concept of “civil rights and interests”, and it would not be worthwhile to return to where German civil code was initially established. The normative function of the protected objects in tort law, whether it is the function of determining illegality or the function of limiting damages, does not have the basis of positive law in current Chinese law, nor is it appropriate in theory. In the discussion of the normative value of protected objects, we have noted the possible significance of the distinction based on the compensation objective of damages. That is to say, a widely influential view is that contracts protect expectation interests while torts protect inherent interests. Does the distinction based on the type of “interest” help distinguish contract from tort?

1.3 Expectation Interests vs. Inherent Interests Expectation interests are also called performance interests or positive interests. In a negative sense, it refers to interests loss of one party to a contract caused by the opposite party who fails to perform his duty. In a positive sense, it refers to interests that the parties could have obtained if the contract had been performed.116 In contrast, inherent interests are the interests other than performance interests, also known as original interests or integritätsinteresse, which refer to the property and personal interests enjoyed by the parties and free from harm by the obligors or others before the damage.117 Expectation interests do not exist at the formation of a contract, so it is “forward-looking”, while inherent interests exist before torts, hence “backward-looking”. The opposition between expectation interests and inherent interests is usually mentioned in the discussion of injuring performance in Chinese doctrine. From the definition of the concept, if we observe based on the fact that caused damages (breach of contract or tort), whether they are inherent interests or expectation interests, they 115

Mauro Busani & Vernon Valentine Palmer, Editor-in-Chief: Pure Economic Loss in European Law, p. 36. James Godley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, p. 450. 116 See Han Shiyuan, The Law of Contract (3rd ed.), Law Press China, 2011, p. 621. 117 Wang Liming, Theory of Liability for Breach (Revised ed.), China University of Political Science and Law Press, 2003, p. 209.

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must be interests that the parties have already enjoyed and thus are “inherent” interests. If we turn to the contractual relationship, the interests damaged by breach of contract can be distinguished according to whether it is based on the contractual relationship itself. Only in this case can the classification of “expectation” and “inherent” be understood. The difference between these two types of interests can be expressed as follows: The interests that the parties cannot enjoy without a valid contract and which constitute the purpose of contracting parties are expectation interests; on the contrary, even if there is no contract, the interests enjoyed by the parties are inherent interests. For instance, if a defective product results in the loss of personal property or loss of other property,118 the ownership of the defective product or the acquisition of the expected value of this product should be based on a contract. Without a valid contractual relationship, the interest will not be recognized, so it should be an expectation interest, and its protection can only be claimed by the buyer against the seller based on a contract. On the contrary, the aggrieved party’s loss of other property or personal property is not necessarily based on a sales contract, hence the related interests of the party are inherent ones. Since the protection of inherent interests is not necessarily based on a contract, the claim for remedy should be based on tort. The law exceptionally extends the protection of contract to inherent interests in that there is a causal relationship between the damage of inherent interests and the breach of contract. It is unnecessary for the non-breaching party to claim remedy for damages arising from the same event (breach of contract) based on tort and breach of contract respectively. However, if the parties claim compensation for injury of inherent interests based on tort, it is difficult to extend the protection to the expectation interests. We can find that the protection of inherent interests under the breach of contract is based on the essential consideration of non-normative logic (for the convenience of remedy for rights and interests), while the tort does not protect expectation interests based on normative logic. On the surface, the distinction between expectation interests and inherent interests seems to be clear-cut and does not overlap. But the effect is not always apparent. For example, in a safekeeping contract, the depositor’s expectation interests are that the depository ensures the security of the deposit and returns it as agreed.119 In this relationship, the performance of the safekeeping obligation is related to the deposit, so it is through the safekeeping contract that the depositor intends to protect “inherent interests”. In a medical service contract, the medical behavior involves inherent interests such as personal health; while in a tourism contract and wedding service contract, where contract performance is closely related to mental interests, there should be no doubt that mental interests are both inherent and expectation interests. If a third party infringes on a claim, the contractual expectation interests (claims) are directly taken as the protected object of tort, which once again shows that the distinction between expectation interests and inherent interests is based on a specific argument background, and it is not appropriate as a standard for distinguishing contracts from torts. 118 119

See Article 41 of Product Quality Law of The People’s Republic of China. See Article 369 and Article 374 of the Contract Law of the People’s Republic of China.

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(1) Diversity of Interests Protected by Contracts Even Fuller and Perdue, who emphasized the compensation for reliance interests, clearly recognized in their article the difficulty of limiting contractual compensation to a single purpose or interest, that is, “it cannot be considered that when a promise is executed by a court, it only pursues one purpose and only protects one kind of interest, or that the purposes or interests which form the logical basis for the court’s intervention necessarily provides a particular calculation method of compensation to the promisee”.120 The problem is not that a specific form of interest is more conducive to carrying out an abstract and consistent contractual purpose than another but that a specific remedy purpose must be compatible with a particular promise or type of contract. To limit the compensation for breach of contract to expectation interests or vice versa is simply to treat a complicated contract theory and practice. In their influential article Reliance Interests in Contract Damages, Fuller and Perdue enumerated three kinds of interest forms in contract damages, namely, restitution interests, reliance interests, and expectation interests.121 Fuller noted that the reliance interests can be broad enough to cover (and exceed) all of the restitution interests and that juxtaposing restitution interests with reliance interests is more of a shift in perspective.122 In his analysis, “reliance interest” actually contains three different meanings: the first one is pure reliance interest, that is, the interest corresponding to the situation in which no promise is made; the second is reliance interest limited by expectation interest, that is, the interest related to “essential reliance”; the third is the interest associated with spending (that is, “incidental reliance”) in exceptional circumstances. The first one includes the interest relevant to the so-called loss of chance, which is often unprovable, so there is often a lack of compensation under reliance damages. In response, expectation interests become an alternative standard of damages, that is, “to encourage reliance, we must omit the proof of it”.123 If it is merely an interpretative position, the protection of expectation interests based on the protection of reliance is no more convincing than the emphasis on the promise itself in the theory of will.124 After all, as Fuller has noted, there were indeed “situations where we can prove with certainty that reliance is ‘definite and substantial’”.125 At this point, the choice of expectation interests rather than reliance interests requires new reasons, which Fuller tended to deny.126 Of course, reliance interest outside restitution interests is different from expectation interests related to promise fulfilment and shows its independent status, which is an intermediate state between restitution interests and expectation interests. What Fuller did is not base the entire contract on 120

L. L. Fuller & William R. Padu, Reliance Interest in Contract Damages, p. 22. Ibid., p. 5ff. 122 Ibid., pp. 36–37. 123 Ibid., p. 20. 124 Michael Kelly, The Phantom Reliance Interest in Contract Damages, Wisconsin L. Rev. (1992), p. 1762. 125 L. L. Fuller & William R. Padu, Reliance Interest in Contract Damages, p. 24. 126 Ibid., p. 27. 121

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reliance but explicitly affirming a previously underappreciated reliance interest.127 As a result of his effort, Fuller’s findings are explicitly reflected in the Restatement (Second) of Contracts.128 Of course, it is inappropriate to equate Fuller’s contract damages with damages for breach of contract. Contract damages mentioned by Fuller are not limited to damages for breach of contract (if we want to replace it with familiar concept of contract, it is equivalent to damages in contract law, including damages for culpa in contrahendo). However, reliance damages in breach of contract are the subject of its argumentation. To claim damages for breach of contract for reliance interests is quite different from claiming breach of contract, while only reliance interests should be compensated. Economic Analysis shows that it is expectation interests that are more efficient than other interests.129 The practice of restricting damages for breach of contract to reliance interests will form the conclusion of inefficiency because it does not take into account the mutual interests of the parties at the beginning of the formation of a contract and does not concern the parties in critical and general situations—especially when the performance is significant to one of the parties. At the same time, the cost of reliance is not high—they will choose expectation interests rather than reliance interests as the measure of loss.130 From the view of legal comparison, expectation interests of damages for breach of contract are at least a common practice. Therefore, it is more appropriate to consider whether it is feasible to compensate reliance interests rather than expectation interests in the case of breach of contract. In this regard, it might be helpful to take Chinese law for example. Firstly, although the contract is valid in some cases, the law stipulates that the breaching party does not have to compensate for expectation interests, but he can compensate for reliance interests. Article 405 of the Contract Law of the People’s Republic of China stipulates that “when the consultant completes the entrusted affairs, the assigner shall pay remuneration to him. Where the agency appointment contract is terminated or the entrusted affair cannot be completed due to any reason not attributable to the consultant, the assigner shall pay the consultant an appropriate amount of remuneration. However, if the parties agree otherwise in the contract, such provision prevails”. The first and second sentences of this article adhere to the principle of protecting the expectation interests of the contract. However, the provision “agree otherwise” in the third sentence could be interpreted as two different meanings of not paying remuneration or only paying a reasonable fee for the completion of commissioned affairs. The two meanings are not only within the range of the provision but are also consistent with the requirements of the principle of freedom of contract, so they can be adopted. Article 427 herein stipulates that “where the broker fails to facilitate the formation of the proposed contract, it may not require payment 127

See Todd D. Rakoff, Fuller & Perdue’s The Reliance Interest as a Work of Legal Scholarship, Wisconsin Law Review (1991), p. 215. 128 Restatement (second) of contracts (1981) §344. 129 Steven Shavell, Foundations of Economic Analysis of Law, The Belknap Press of Harvard University Press, 2004, pp. 344–345. 130 Ibid., p. 357.

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of remuneration, provided that it may require the client to reimburse the necessary brokerage expenses incurred”. This provision limits the right to request remuneration for an intermediation contract to the result of facilitating the formation of a contract. Otherwise, the broker may only be reimbursed for “the necessary brokerage expenses incurred”. Therefore, the law does not exclude that in the case of a valid contract, the parties agree to replace expectation interests (agreed remuneration) with reliance interests. Although the provisions mentioned above are not directly intended for the breach of contracts, they should undoubtedly apply to the circumstances of the breach of contracts. In addition to the Contract Law, other laws also have similar provisions. For example, Article 29 of the Auction Law stipulates that “before an auction begins, a principal may withdraw his or her auction targets. If a principal withdraws his or her auction targets, he or she shall pay costs as agreed upon to the auctioneer. In the absence of an agreement, he or she shall pay the auctioneer reasonable costs paid for an auction”. According to this provision, the principal may withdraw auction targets before the auction begins based on freedom of ownership, preventing the continuation of an auction. However, unlike the provisions of Article 410 of the Contract Law concerning the “discretionary right of termination” of the assigner, the Auction Law does not give the assigner the right to withdraw from the contract but rather imposes the obligation to “pay the agreed fee” while recognizing the right to withdraw. Even if such an agreed fee cannot be interpreted as a complete expectation interest (that is, the auctioneer’s commission income), it still does not affect its (partial) attribute of expectation interests. If the parties do not agree, “pay reasonable costs for an auction” is the content of the principal’s obligations, which can only be interpreted as reliance interests (loss). Article 56, Paragraph 3 of the Auction Law has the same effect as Article 427 of the Contract Law. Therefore, in the case of breach of contract, the current contract law not only allows the parties to decide the content of the remedy for breach of contract by negotiation (such as agreeing to take damages for reliance interests as the determining standard of damages for breach of contract) but also directly takes reliance interests as the object of damages for breach of contract in the specific type of contracts. Secondly, when expectation interests cannot be calculated precisely, the nonbreaching party can choose to substitute reliance interests with damages for expectation interests, and the court can also judge based on this standard. In Accordance with the essence of contracts, at least it can be assumed that the transaction between the two parties has the attribute of “zero profit”, that is, the contribution of each party is equivalent to the value derived from a contract.131 Thus, the parties may either directly take the expectation value of the contract (if it can be proved) as the standard or indirectly infer the expectation value of the contract from interests paid to achieve the aforementioned expectation purpose (reliance interests that can be proved). Of course, since the foundation established in this way of calculation has the attribute of presumption, it should be subject to the rule that reliance interests should not exceed expectation interests. The breaching party can disprove that its expectation interest 131

See Michael Kelly, The Phantom Reliance Interest in Contract Damages, Wisconsin L. Rev. (1992), pp. 1812–1815.

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is less than its reliance interests, thus demanding fewer damages. However, such a rebuttal would be extremely difficult. So, in principle, the determination of damages for breach of contract based on reliance interests would require the court’s discretion in the light of specific circumstances. Thirdly, the scope of damages for breach of contract may exceed expectation interests if the breaching party causes incidental damage. For example, when the contract causes property injury or personal injury other than performance interests (injuring performance) or when the non-breaching party pays reasonable costs (rule of mitigation of damages) to take precautionary measures for preventing the loss from spreading, or the costs incurred by the buyer for the re-purchase of the subject matter (such as the cost of finding a substitute), or the costs for training personnel for the application of the patented technology to be transferred (incidental damages),132 these costs have little to do with the performance of interests. They can claim damages as “losses suffered” together with performance interests (“lost interests”). Therefore, the content of damages for breach of contract is a mixture of expectation interests, reliance interests, inherent interests, and other interests. Finally, in the case of terminating contracts due to breach of contract, the nonbreaching party may claim damages for reliance interests and expectation interests. Article 97 of the Contract Law stipulates that “after the termination of a contract, performance shall cease if the contract has not been performed; if the contract has been performed, a party may, under the circumstances of performance or the nature of the contract, demand the opposite party to restore such party to its original state or adopt other remedial measures. Such parties shall have the right to demand damages” This provision involves the termination of a contract due to breach of contract and the termination of a contract without breach of contract, so it does not limit the content of compensation for breach of contract. There are different views in theory, since no explicit instructions on the content of “compensate for damage” are available. It is argued that “the effect of terminating a contract is to restore the contract to the state before it has been concluded, and available interests only exist when the contract is fully performed”. Therefore, if the non-breaching party chooses to terminate the contract, it cannot claim interests available after the contract is entirely performed.133 In this sense, the damages arising from the termination of contracts should be reliance interests rather than expectation interests. They are mainly various losses related to the restoration of the original state. Another view is that the termination of contracts does not affect a claim for compensation already obtained by the non-breaching party due to the breach of contract. “On the occasion of termination of the contract, the damages is still damages for breach of contract, which is mainly performance interests (including the interest that can be obtained after the performance of the contract), and can also include the compensation for other damages (reliance interests and inherent interests), provided

132

This cost is a loss related to what Fuller called “collateral reliance”. See Wang Liming, Theory of Liability for Breach (Revised ed.), pp. 727–728. Li Yongjun, Contract Law (2nd ed.), Law Press, 2005, p. 720.

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that repeated closing does not occur”.134 From the perspective of hermeneutics, limiting damages arising from terminating a contract to reliance interests is more concerned about the consistency of various termination reasons in effect, which is consistent with the adoption of uniform provisions in contract law. However, the alignment of damages arising from the termination due to the breach of contract with the damages not arising from the breach of contract will lead to inadequate remedies for the non-breaching party in pursuit of logical consistency. In the case where the contract is not terminated due to breach of contract, if the contract is terminated due to changes of circumstances, the damages can only be limited to damages for reliance, provided that there is damages Otherwise, it will be contrary to the normative purpose of the legal right of termination under such circumstances. However, even in the case of a statutory termination of the contract rather than a breach of contract, such as the termination by exercising the flexible right to rescind (as provided in Article 410 of the Contract Law regarding the flexible right to rescind of termination by the principal), it is not proper to take it for granted that there is the possibility of avoiding the damages for expectation interests (Article 405 of the Contract Law). On the contrary, in the case of termination of contract caused by the breach of contract, if the remedies for breach of contract cannot be claimed because of the termination, it cannot provide sufficient protection for the trading value pursued by the parties through the contract. Therefore, the non-breaching party may still be entitled to claim remedy of expectation interests In this case. As mentioned above, the parties, however, may also choose to claim damages for reliance interests (including compensation for expenses incurred as a result of restitution). Once again, the content of a remedy for breach of contract can be a single or mixed form of interest. Consequently, even under the limited conditions of damages for breach of contract, the form of interests protected by the contract is not a single expectation interest but can be reliance interests, restitution interests or inherent interests, or even their mixed forms. In addition to the interest forms aforementioned, there is even a practice in comparative law, that is, for the sake of the policy of sanction for breach of contract, when one party to a contract gains interests that exceed the damages suffered by the opposite party due to breach of contract, it takes interests obtained by the breaching party as the compensation.135 The “disgorgement interest” which is used to calculate the breaching party’s gain-based damages for the protected interest is different in nature from restitution interests, reliance interests, and expectation interests and is the “fourth” interest protected by contract law.136 It largely reflects the multiple characteristics of the interest standard of the remedy for breach of contract. As a result, to limit damages for breach of contract to a single form of interest is an

134

See Han Shiyuan, The Law of Contract (3rd ed.), pp. 538–539. Ernest J. Weinrib, Punishment and Disgorgement as Contract Remedies, 78 Chicago-Kent Law Review 55 (2003). 136 See Melvin A. Eisenberg, The Disgorgement Interest in Contract Law, 105 Michigan Law Review (2006), p. 559. 135

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improper abandonment of other forms of interests existing in legal provisions and judicial practice.137 (2) Protection of the Parties’ Expectations in Tort Law If the obligor is liable due to the breach of promise in contracts, then the inflictor may be liable for causing the damage to the promise made by mistake in tort. In tort, a contractual relationship between the parties usually is not considered, meaning that the rights created by the contract can only be protected between the parties based on the contract and cannot be remedied through tort, rather than that the contractual relationship as a fact has no effect on the determination of the tort obligation or tortious liability. Scholars have noticed that many tort rules were formed by the expectation of the parties, although this expectation is not explicitly expressed in the contract.138 In the United States, a court in New Jersey holds that if the parties are in a consensual relationship, the court should take into account the “expressed consent and mutual understanding” of the actor in determining the legitimacy of conduct and “general expectation to determine the acceptability of conduct” by people in such relationship.139 There are no apparent differences between the criteria for determining protective duty in a contract and those in tort law when the breach of the protective duty results in damage to the inherent interests of the parties to the contract. Both laws need to consider the standard of conduct that the actor is expected to follow in such a relationship. Protection of the expectation of the parties doesn’t even have to be limited to contractual relationships, which is often found in contractual-like courtesy relations. As aforementioned, the interests protected by tort law are those that the parties have already enjoyed when the tortious conduct occurs. Whether they are called “expectation interests” or “inherent interests” depends mainly on the reference point chosen by the observers. If a specific reference point is cancelled or changed, it will lead to a different understanding. The reference point can be either the time when the tortious conduct occurs or a specific time point in the future after it occurs. Article 19 of the Tortious liability Law stipulates that “where a tort causes any harm to the property of another person, the amount of losses to the property shall be calculated as per the market price at the time of occurrence of the loss or calculated otherwise”, which adopts the standard of reference point when the harm occurs. Provided that the tort law does not compensate such interests, it would be insufficient to remedy the victim’s loss since the interests are not always in a static state, and the tortious conduct may prevent the interests from shifting to the direction in favor of 137

Williston, a famous contract jurist, once had the practice of deliberately abandoning a certain form of interest for analytical purposes. In his works, in fact, he has already noticed that there are cases of compensation for reliance interest in contract compensation, but he excluded them from contract damages on the grounds that these cases are only relics of unclear distinction between tort and contract since the nineteenth century. See Todd D. Rakoff, Fuller and Perdue’s the Reliance Interest as a Work of Legal Scholarship, Wisconsin Law Review (1991), p. 208. 138 Dann B. Dobbs, The Law of Torts, St. Paul, Minn., 2001, p. 6. 139 Ibid.

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the aggrieved party. In determining the damages, it is necessary to “discount” future interests that occur definitely in a certain way. If the tortious conduct results in the death of another person or disability causing the loss of income, the tortfeasor should compensate the aggrieved party for the loss of future income140 in the form of death compensation or disability compensation.141 Similar situations also exist in the case of infringement upon property rights and interests, such as tortious conduct causing damage to available interests of others, loss of business income due to collision of ships or environmental pollution, and loss of vehicle suspension due to compensable traffic accidents.142 In addition, loss of the chance for others due to tortious conduct, such as loss of chance for living due to delay in treatment, and loss of chance for a change of judgment due to lawyer’s negligence for an appeal even if an appeal is filed, should be compensated under certain conditions in favor of the aggrieved party.143 Similar approaches can be found in comparative law. For instance, Article 906 (b) of Restatement (second) of Torts provides that damage to earning capacity is compensable. The so-called damage to earning capacity includes illegal confinement or damage to the body or mind or defamation resulting in loss of beneficial employment opportunities for others.144 It can be seen that in cases where torts do not protect the expectation interests, torts still protect the available interests that the aggrieved party could have obtained.145 Interference with the contractual claims by a third party (or interference with the contract) is the most typical form of protecting expectation interests in tort. Contractual claims are based on the contract, which are expected future interests, but as long as the obligation is fulfilled, the interests can be realized, so they are also inviolable.146 In fact, whether the claims are protected by tort law does not depend on whether the claims are expectation interests or not, but on whether the protection of 140

Yang Lixin, Tort Law, Law Press, 2010, pp. 130, 131. Disagreements on the nature of the death compensation or disability compensation will only affect the subject nature of the interests involved (such as the deceased himself or his close relatives), but will not change the “expectation” attribute of this reason. 142 See the reply of the Supreme People’s Court on whether the operating losses caused by average accidents of domestic ships should be included in the scope of average compensation (issued by Fa (Jiao) Han [1991] No. 104 on September 13, 1991) and the reply on whether the property losses in traffic accidents include the outage losses of damaged vehicles (Fa Shi [1999] No. 5). Articles 9, 13–16 of the Provisions on Several Issues Concerning the Trial of Disputes over Compensation for Oil Pollution Damage from Ships (Fa Shi [2011] No. 14). 143 See Reply Letter of the Supreme People’s Court on the Scope of Compensation for Marine Losses Caused by Operating Losses of Domestic Ships in Marine Losses Accidents [1991] No. 104; Reply on the Issues of Whether Property Damage in Traffic Accidents Includes Losses of Damaged Vehicles Out of Service [1999] No. 5, and Articles 9, 13–16 of Provisions on Several Issues Concerning the Trial of Disputes over Compensation for Oil Pollution Damage to Ships [2011] No. 14. 144 Restatement (second) of Torts § 906 cmt. c. 145 Michael B. Kelly, The Phantom Reliance Interest in Tort Damages, 38 San Diego. L. R. (2001), p. 178. 146 Wang Liming, Theory of Liability for Breach (Revised ed.), p. 747. 141

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claims will excessively restrict the third party’s freedom of movement. In discussing the protection of tort, we have pointed out147 that whether the claims are protected by tort law only involves the differential protection of rights and interests, which are more related to the degree of protection rather than whether or not it should be protected. Since torts also have the effect of protecting the expectation interests of the parties, it may be inappropriate to say that compensation for rights infringement is always “back-looking”. The expectation interest is not only the primary form of remedy for the contract but also for tort.148 (3) Summary The antithesis of expectation interests and inherent interests, as well as the antithesis of expectation interests and reliance interests, initially, is the type of distinction made in response to a specific problem—the distinction between two claims of contract and tort when the breach of contract led to the loss of interests other than performance interests. But it was often unconsciously expanded to serve as a general criterion for distinguishing contract from tort. To this end, expectation interests are related to future interests, while the inherent interests are related to the vested interests of the past, with one “forward-looking” and the other “back-looking”. Using concepts without contexts may lead to misunderstandings due to improper uses of concepts. In fact, the remedy for breach of contract can protect expectation interests arising from the contract and reliance interests or restitution interests, even including the so-called “disgorgement interests”.149 Therefore, the remedy for breach of contract can not only “look forward”, but also “look back”. On the contrary, the interests protected by tort remedy are not static interests at a certain point. Its protection of the future income and other available interests has the effect of “turning expectation interests into the present interests”. The protection of contractual claims is the most typical form of tort protection of the parties’ expectation interests. Therefore, tort remedy also has “forward-looking” and “backward-looking” effects.

1.4 Summary As two different types of norms, contract and tort have their restrictive conditions of norms. The purpose of a contract is to create a legal state that did not exist when the 147

Please refer to art III of this Article. Michael B. Kelly, The Phantom Reliance Interest in Tort Damages, 38 San Diego. L. R. (2001), p. 192. 149 “Disgorgement interest” can be literally translated as “spit out interests”. It refers to the interest obtained by the breaching party due to breach of contract, which is only related to the gain of the breaching party, but has nothing to do with the damage of the non-breaching party. Therefore, it is different from the restitution interest in nature, mainly seen in the intentional breach of contract, and the treatment method is to attribute this interest to the non-breaching party, so it is paraphrased as “deprived interest” here. 148

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contract was concluded, while the purpose of a tort remedy is to maintain the existing legal state by balancing the value conflict between the freedom of movement and the protection of rights and interests. This normative presupposition is based on a typical relationship model in social life, and its abstract degree determines the degree to which the legal rules constructed are consistent with real life. Whether from the type of obligations involved in contract and tort or the form of rights and interests protected by them, we can find that excessive abstraction results in repetition or overlapping of norm objects, which can be reflected in statutory obligations and inherent interests (or reliance interests). Even without considering the problems caused by excessive abstraction or simplification, in terms of the contract, its primary purpose is to realize the interests created by the contract as expected, so the creation and realization conditions of expectation interests constitute the primary content of contract law; conversely, tort law takes the rights and interests intended to be protected as the premise of constructing its own rules in the first place. Remedy occurs when the realization of the rights and interests created by the contract is blocked, and it is at this stage that the contract and tort have a connection. It is the breach of contract not the contract itself that is linked to the tort. Therefore, the distinction between contract and tort is not the same as the distinction between liability for breach of contract and tortious liability and is not the same as the distinction between contract law and tort law, either. However, mistaken identity can be seen from time to time in the discussion of the relationship between contract and tort, which has also caused much theoretical confusion. Therefore, we need to turn to the two different norms, namely, contract law and tort law.

2 Expansion of Contract Law and Tort Law As normative concepts, contracts and torts reflect the understanding of legal theories of a particular thing or phenomenon. In constructing the concept, the richness of the thing itself will be intentionally discarded. Only those elements that are necessary for the normative function of the concept will remain in the conceptual framework. Once a concept has been formed, it has a relatively fixed content, representing a static “description” of the things it regulates. However, for legal regulation, its object is always in the process of gradual formation and change, and any static “section” is not equal to the whole thing. Therefore, unless the relevant legal system can form a “seamless” regulation to the whole development process of things, the need for new legal regulation will be constantly regenerated and put forward. In the course of its development, the entire system of private law did not aim to regulate all the phenomena of private law at all times at the very start. Even with this ambition, it will fail due to insurmountable obstacles. Therefore, the evolution of the private law system requires constant changes with the development of the times, but the existing system will also impact the way or direction of the evolution. In this sense, the expansion of contract law and tort law can only be based on a specific system

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background or theoretical presupposition. It isn’t an abstract topic without restrictions such as space and time.

2.1 Functional Preset and Normative Structure Law, as a purposeful enterprise, “is a human conception designed to achieve certain goals”.150 Contract and tort law have a particular target setting and form a corresponding normative structure. In order to understand the relationship between them, we must know the functional preset and normative structure. In nature, contract law is generally defined as “transaction law”, which deals with the voluntary transfer of resources between parties.151 It can be found that the theoretical discussion on the principle of contract is related to this qualitative aspect. For example, the principle of freedom of contract is related to the premise of the transaction. Without freedom, there is no actual transaction. The principle of contract justice is related to the limitation of transaction content, while the principle of good faith and public order, and good custom is related to the determination and performance of the transaction content; the sanctity of the contract and the strict compliance with the contract are related to the respect for contract effect and so on. As a transaction law, contract law must determine the conditions of the transfer of resources, that is, the conditions for the occurrence of contractual claims and obligations. In addition, contract law must involve the fulfilment and elimination of the obligation after the claims and obligations occur. Only when the obligations created by the contract are fulfilled can the purpose of the contract transaction be genuinely realized. Therefore, to ensure the performance of the contract is to realize the legitimate expectation of the contract. In this sense, the performance of a contract is vital to contract law and the core of the whole contract law institution.152 The provisions on the extinction of contract and liability for breach of contract can also be seen as an extension of the problem of the performance of a contract. In this way, the performance obligation and the attribute of interests (expectation interests) reflected in the system of contractual obligations are the keys to distinguishing contract law from tort law. Although tortious liability is also shown as the assumption of obligations, it is precise that 150 Calabresi, Causes and Tort Act. Quoted from Martin Stone, The Meaning of Infringement and Victimization, in Postma Editor: Philosophy and Tort Law, Chen Min & Yun Jianfang Trans, Peking University Press, 2005, p. 170. 151 In the theory of the “transaction law” attribute of Contract Law, Chinese scholars restrict it to property transactions and regard it as the legal manifestation of the property flow relationship. See Han Shiyuan, The Law of Contract, p. 13. However, the function of contract is obviously not limited to the circulation of property and goods. Since the object of Civil Law is all “living resources” including property and non-property (Zeng Shixiong, Present and Future of General Principles of Civil Law, China University of Political Science and Law Press, 2001, p. 10), it is not only feasible but also necessary to understand contract transactions in a broader sense. 152 See Wang Liming & Cui Jianyuan, New Theory on Contract Law·General Principles, China University of Political Science and Law Press, 1996, p. 318; Han Shiyuan, The Law of Contract, Law Press, 2008, p. 203.

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there is no such obligation in the sense of original performance. It can be seen that the classical concept of obligation adopts technical means to abstract the content of obligation by removing the connection with the purpose of obligation, but it also eliminates the essential differences between different obligations (that is, the original performance obligations and the remedy obligation are regarded as the same). As far as tort law is concerned, “accident law” is typical, that is, its primary function is to distribute the damage caused by an accident. In order to achieve this distribution, the respective ownership of the resources of the parties before the accident is assumed to be justified in the abstract, and any improper damage to the ownership of the resources is determined to be responsible conduct. The problem to be solved is not the realization of such rights and interests (that is the task of other rules such as the Real Right Law, Intellectual Property Law, and Personality Rights Law) but how to provide a remedy when barriers or even infringements occur during the realization of such rights and interests. Therefore, the remedy for the rights and interests is the core of tort law.153 The remedy for rights and interests or the condition of imposing tortious liability is the primary task to be realized by the whole tort law, whose function is similar to the rules of the formation of contract and affect judgment. After the liability is determined, the realization is handed over to the general rule of obligation performance. Since it has the normative logic aforementioned, the critical point of tort law lies not in the realization of liability but in how to determine liability. In this sense, the tort law as a law of liability (Haftungsrecht) rather than just as a cause of obligation has a special significance to be emphasized. We can see the structural differences between contract law and tort law: the core rules of contract law are the creation, performance, and remedy of contractual claims (or obligations),154 while tort law has nothing to do with the creation of rights (or obligations), and the remedy for rights and interests (or the constitution of tortious liability and the determination of liability content) is the entire content of its rules.155 From this point of view, although the remedy for breach of contract and the tort remedy has the common features of legal remedy and now that the liability for breach of contract is centred on the remedy for the contractual claims, such claims require the existence of valid contractual relationships. The valid contract is the premise 153

Wang Liming, Research on Tort Law (Vol. 1), China Renmin University Press, 2010, p. 105. Take the structure of General Principles of International Commercial Contracts as an example. In addition to Chapter I General Provisions and Chapter X Limitation Period, it covers the following: the formation of the contract and the authority of the agent, the validity of the contract, the interpretation of the contract, the contents of the contract, the performance, non-performance, and set-off of the contract, the transfer of rights, the transfer of debts and the transfer of the contract. Among them, “non-performance” is related to remedy for breach of contract, and other chapters can be related to the formation, content determination, realization, and elimination of the contractual claims. Therefore, it can be considered that the whole contract structure is to solve the problem of setting and realizing the contractual claims, reflecting that the core of this system design lies in performance. 155 This is illustrated by taking the structure of the European Principles of Tort Law as an example. In addition to the first part, “Basic Norms”, the following parts are general elements of liability, the basis of liability, defense, multiple tortfeasors, and remedy. Its basic logic is to the composition of tortious liability and liability for the center, liability for the main solution is the content (scope) and form of liability, and remedy for breach of contract has a similar structure. 154

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of the contractual claims in logic. On the contrary, the tort law requires that the protected object should have an “attribution effect” and “exclusive effect”, so the most important object is erga omnes rights.156 In this way, as long as (contractual) claims are excluded from the protection of tort law, the boundary between contractual liability and tortious liability is apparent.157 The difference between the remedy for breach of contract and the tort remedy is firstly shown in the difference between the protected rights and interests in the creation mechanism. The contractual claims are treated as interests that did not exist before the contract was concluded, but the object protected by tort law is restricted to the interest whose attribution has been confirmed by the law in form of rights in advance, which constitutes some implicit theoretical preset.158 This preset may be based on the comparison of a specific type of life relationship. For example, the contract takes the trading relationship as its expected form, while the tort takes the personal and property rights and other infringement as its expected form. In fact, this preset of contractual claims and the protected object of tort law is dubious since contract may protect an inherent right, as exemplified by a safekeeping contract in a nominate contract, while a medical service contract and security contract in an innominate contract. The function of contract and tort is highly abstracted by removing specific characteristics of different contractual relationships, which is inevitably accompanied by the extension of the expected forms, thus resulting in the crossover or even overlapping of the concept types, which are initially clearly distinguished. Accordingly, the contract and tort law can be distinguished clearly only in a limited scope. In other words, contract law recognizes and protects expectation interests created voluntarily by the parties that they did not enjoy at the time of the formation of the contract (the concept of “expectation interest” is used in this sense unless explicitly stated below). Tort law provides the remedy for damages caused by an act or event for which one party is liable on an involuntary basis. Such strict restrictions have always been preset of the distinction between contract and tort in the theory of private law, which can satisfy the purpose of the distinction to the greatest extent. As pointed out in the previous discussion on the distinction between contract and tort, the “expectation interest” actually has a relatively complicated form of expression. It is difficult to distinguish two kinds of legal rules by standards of “expectation interest” or “the protected object”. Based on the special needs of factual relations for legal regulation and the special policy considerations of legislators, the contract and tort as the construction technology of law will deviate from the foregoing preset, and the most typical of which is the expansion of the scope of contract and tort law. 156

Yu Fei, The Method of Distinguishing Rights and Interests in Tort Law, Chinese Journal of Law, No.4, 2011, p. 110. 157 Wang Liming, The Distinction Between Tortious Liability Law and Contract Law, China Legal Science, No.3, 2011, pp. 112–113. 158 It is difficult to explain the theoretical rationale for the antagonism of expectation interests and inherent interests as the criterion for distinguishing contract and tort, and from the definition of this criterion, it is reasonable and feasible to interpret it from what we call the conceptual form here, although no one clearly acknowledges this.

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2.2 Expansion of Contract Law If we define “expectation interest” as an interest that the obligee did not enjoy when the contract was concluded and the primary function of contract law is to stipulate the conditions for the creation, realization, and remedy of this interest, we will find that the modern contract law expands the aforementioned preset scope from many aspects, and the so-called expansion of contract law occurs. (1) Dynamic Development of Contractual Relationship The contractual relationships regulated by contract law do not appear and disappear suddenly at a certain point but go through a dynamic process of gradual change. In this process, the parties exchange interests continuously, and their density and intensity are constantly changing (the trend is from weak to strong), and the corresponding legal regulation demands also change. From the formation and development of the contractual relationship, it is assumed that both parties make contact at stage 0, reach an agreement and establish a valid contract at stage 1, perform at stage 2, and end the contractual relationship at stage 3. The above development process can be illustrated as follows: Performance of Contracts

Contracting contact 0

Formation

1

Performance of Extinction of Contract Contracts 2

According to the aforementioned theoretical preset of the contract, the core of contract law is the interest state of the parties at stage 1. At this point, only after meeting the requirements for the effective establishment of contractual relationships will subsequent stages be included in the normative field of contract law. Otherwise, contract law will at most resolve changes in interests that occur between stages 0 and 1 by restitution in kind.159 Since it is restitution, it needs to satisfy two conditions: one party is injured, and the opposite party gains from it. The mere fact of damage does not necessarily fall within the regulation of contract law. It is one of the reasons for the “legal finding” of “culpa in contrahendo” in German law to provide a remedy for this kind of damage: contract law does not provide a remedy for the damage at this stage initially.160 Before the enactment of the unified contract law of China, the loss at this stage must be based on the premise that the contract is formed but invalid 159

E. Allen Farnsworth, Contracts (3rd ed.), Ge Yunsong and Ding Chunyan Trans., China University of Political Science and Law Press, 2004, p. 100ff. 160 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 1), Peking University Press, 2009, pp. 71–72.

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or cancelled, which also reflects the fact that the law only provides limited remedy at this stage. When the contract is in effec, the interest relationship between the parties is fixed on “expectation interest”. The exchange of interests that occurs before is absorbed by this kind of interests,161 and the subsequent exchange of interests must also aim at this. The parties’ relationship of interests at stage 2 is identical to that at stage 1. If performance obstacles occur in stages 2–3, contract law usually provides two solutions: one is to terminate the contract and return to the state of interests in stage 0; the other is to make the parties in the state of interests equal to stage 1 (or stage 2) through damages of expectation interests. The first approach is more applicable to situations where the purpose of the contract cannot be achieved due to non-attributable causes. Otherwise, the value of a valid contract will be denied. From this point of view, only the second solution is compatible with the purpose of the contract. However, in this process, the realization of expectation interests is still the only concern of the law. Other interactions that may occur during this process of the parties have not received enough attention. For instance, when the party has performed, but the performance does not meet the agreement and results in (personal or property) damage to the inherent interests of the opposite party or other third parties, it would be difficult to protect them through remedy for breach of contract because such damage is not directly related to expectation interests. A similar situation exists in concluding a contract between stage 0 and stage 1 and even for a period after stage 3. It is also questionable whether these forms of interaction unrelated to the realization of expectation interests should be included in the regulation scope of contract law. The answer to this question depends not only on the choice of legislative policy deciding whether to provide a remedy for this kind of damage but also on the whole structure of the existing legal remedy system (for example, whether it can be settled by the current remedy rules when affirming the remedy). Because of the richness or complexity of the content reflected in the dynamic development of the contractual relationship, contract law needs to be regulated besides implementing a theoretical conception of its consistency. In a word, contract law requires expanding its normative scope. (2) Contract Law Expands to the Relationship Between the Parties Before the Formation of Contract When the legal system develops to taking “negligence” as the distribution of damage caused by interfering acts, the damage caused by negligence has the legitimacy to obtain compensation. At the stage of contract negotiation, since the parties do not form a valid contract with congruency, they are certainly unable to claim remedy for the damage occurring at that time; on the contrary, the tort law may not be able to provide appropriate remedies because the injury at this stage is primarily economic loss rather than injury to rights or legal interests. As a result, the economic 161

For example, Restatement (Third) of Restitution regards a valid contract as one of the conditions to exclude unjust enrichment, which expresses this understanding. See Restatement (Third) of Restitution and Unjust Enrichment §1(2).

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loss caused by negligence during the contracting stage may be unable to obtain a remedy according to the positive law, which is the predicament that German law once faced. The German civil code limits tort primarily to limited cases of infringement of absolute rights and interests, so it grants remedies for pure economic loss only in the case of violation of protective regulations and tort contra bonos mores.162 In contrast, the above loss in contract negotiations is mostly loss of negligence, and cannot be remedied. At the same time, special exemption rules163 on employers’ liability in the German civil code also led to the failure of possible tort remedies. The significant “finding” of Rudolph von Jhering, that is, the theory of “culpa in contrahendo” with a far-reaching influence on later generations was based on the general principle that “losses caused by negligence should be compensated” and the dilemma that the rules of positive law could not provide a remedy because of its particular constituents.164 It should be noted that Jhering only discussed culpa in contrahendo when the contract is invalid or incomplete. He limited culpa in contrahendo to a narrow scope, in particular, strictly limiting contractual liability to “negligence” liability, and such conception has not been accepted even in Germany. Consider the damages under Article 122 and Article 179 of the German Civil Code for example. The liability in damages under these two articles is not based on fault as a requirement, but rather a no-fault or strict liability, and incorporating it into the “culpa in contrahendo” will only cause trouble.165 Professor Larenz, a leading German civil law scholar, also believed that “the culpa in contrahendo system combines the principles of liability for negligence and Vertrauenshaftung”.166 Since there are multiple imputations in pre-contractual liability, some scholars in China hold that pre-contractual liability can be divided into two types: culpa in contrahendo and Vertrauenshaftung. In order to avoid the trouble mentioned above, the pre-contractual liability replaces culpa in contrahendo to be the superior concept.167 As the comparative law shows, whether to introduce the remedy of injury caused by culpa in contrahendo into contract law has two different approaches: one is to treat it as the regulation of tort law as the general approach adopted by French law, which is also adopted in the Restatement of Contracts and Torts. According to Restatement (Second) of Contracts, in addition to the particular factor of consideration, fraud, coercion, misrepresentation, violation of public policy, and error are nothing more than causes of an impediment to the performance of a contract (promise). The direct

162

See §823§1, 2 and §826 of the German Civil Code (BGB, Bürgerliches Gesetzbuch). See §831§1 sentence 2 of the German Civil Code (BGB, Bürgerliches Gesetzbuch). 164 See Friedrich Kessler and Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 Harvard Law Review (1964), p. 406. 165 See Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, in Political Science and Law Vol. 6, 2010, p. 106. 166 Karl Larenz, Principles of Imputation for Damages in German Law, Wang Zejian Trans; Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), Peking University Press, 2009, p. 194. 167 Zhu Guangxin, Reliability Research: Taking Contract Conclusion as the Analysis Object, Law Press, 2007, p. 296. 163

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result is restitution rather than damages,168 and the problem of damages is settled in tort law.169 The other is to take it as the regulation object of contract law, just as the approach adopted by German law and the practice of Austrian, Swiss and Italian law influenced by it. The international uniform legislation on contract law also obviously adopts this approach.170 It should be noted that there are few apparent differences in regulation effect between the two approaches, and that the constitutive requirements of liability recognized by different national legislation in solving these problems are the same, especially regarding the requirements of negligence. Even in the German legal system, where “culpa in contrahendo” is mainly to overcome shortcomings of tort law, it is acceptable to protect by modifying relevant rules of tort law. In Europe, the question of incorporating the statute law of culpa in contrahendo into contract law or tort law has been debated among scholars and courts in different countries.171 As a result, whether to adopt “culpa in contrahendo” as the regulation of contract law may depend largely on the legislator’s choice. In addition to how to define the attribute of the norm of injury caused in contracting contacts, what is more important is how the injury at the contracting stage should be identified as a liability. If it is only the attribute of liability and has nothing to do with the determination of liability, the question may only have the significance of theoretical clarification. Let’s return to Rudolph von Jhering’s original “finding”. According to his conception, negligence in satisfying contractual liability begins with the breach of the duty of care by the actor at the commitment stage. Only after this point does the aggrieved party have the right to proceed because the contract exists or appears to exist.172 However, this conception has not been carried out. Judging from the German civil code and judicial practice, it includes four types: the contract is not established or invalid (or failure of contracts), infringement on absolute rights and interests, the conclusion of contracts with unfavorable content, and culpa in contrahendo of the third party.173 Among them, the infringement on absolute rights and interests and the case of the third party’s culpa in contrahendo are especially significant in making up for deficiencies in tort law norms by means of the expansion of contract norms, which has largely gone beyond the original conception of culpa in contrahendo. On the other hand, remedy for damages at the contracting stage does not require a breach of duty of care at the commitment stage as initially envisaged by Rudolf von Jhering. It is obvious that typical harmful behaviors 168

See Restatement of contracts (second), art.376. However, when the court applies the concept of “gain” in non-restitution more flexibly, this pre-contractual liability in the form of restitution liability is close to the liability for damages for culpa in contrahendo. See E. Allan Farnsworth, Pre-Contractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L. Rev. (1987), p. 224. 169 See Restatement of torts (second), art.55–58. 170 See Article 2.1.15, Article 2.1.16, Article 3.2.16 of the General Rules of International Commercial Contracts, and Article 2:301, Article 2:302, Article 4:117 of European Contract Law Principles. 171 See De von Barr, Gemeineuropäisches Deliktsrecht (vol. 1), p. 577. 172 Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, p. 99. 173 Ibid., p. 98.

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such as malicious consultations have dramatically advanced this obligation in time, while the emphasis on no-fault or strict liability in contracting injury has surpassed Rudolf von Jhering’s original idea in the imputation principle. Culpa in contrahendo is based on reliance on damages, which also distinguishes it from the damages for expectation interests in breaching of contracts. It is noteworthy in particular that the pre-contractual obligations on which the contractual liability is based are based on the reliance relationship arising from the contracting contact and are not similar to the general duty of care in tort law, which occurs only among strangers. More importantly, although the opposite party of the pre-contractual obligation has no right to claim performance, it still enjoys attribute to performance of the general obligations (such as protection, care, and explanation). Therefore, in legal construction, this kind of obligation has more similarity with the contractual obligation. In this respect, although it is reasonable to regard the expansion of contract law at the contracting stage as the substitution of contract law for the remedy of tort law, it does not reflect the whole picture. (3) Expansion of Contract Law in Protected Objects As far as the protected objects of contract law are concerned, expectation interests are the objects of its protection, including restitution interests, reliance interests, and even the so-called disgorgement interests. In addition to the interests mentioned above, the “rights” enjoyed by the parties before the formation of the contract should also be protected by contract law. Firstly, in terms of interests, whether the contract fails or is valid, an impediment to performance occurs, and the relevant legal remedy must solve the standard or scope of the remedy. In the case of contract failure, restitution and damages are involved as mentioned above, which are not directly related to the purpose of the contract transaction but occur in the formation of the contract, concerning the maintenance of the existing rights or economic interests. In the event of an impediment to the performance of a contract, damages for expectation interests is not in doubt. However, in practice, there also exist cases which involves compensation for other interests rather than expectation interests. Of course, the most famous discussion on this topic is Fuller and Perdue’s influential article, namely, Reliance Interests in Contract Damages, which reminds us that contract damages include not only expectation interests, it may also cover forms such as reliance interests (including restitution interests).174 However, taking reliance interests as the standard of damages for breach of contract has also been criticized in theory. Scholars believe that to maintain a positive view of the validity of the contract for one thing, and to take reliance expenses or inputs before the breach of contract as damages for another, are problematic in terms of the determination of damages, causation and imputation of liability. Since the injury to be remedied by reliance damages is not caused by the breach of contract but is the expense paid by the parties according to the normal contracting behavior, 174

L. L. Fuller & William R. Padu, Reliance Interests in Contract Damages, Han Shiyuan Trans, China Legal Publishing House, 2004, p. 81ff. See Zhang Jinhai, On Compensation for Unexpected Expenses in Remedy for Breach of Contract: Necessity and Path Choice, Political Science and Law, No.5, 2012, pp. 110–111.

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it does not belong to the “damage” that can be remedied; even if it is regarded as “damage”, since the fact that causes such damage is not an imputable interfering act, and the subsequent imputable breach is not a legal cause of such damage, it is difficult to regard reliance interests as the standard of remedy for breach of contract. From a logical point of view, the foregoing criticism should be supported. Taking damages for reliance interests as the legitimate basis of the contract damages confuses the “reliance” in “reliance protection” as a legal doctrine with the “reliance” in “reliance interests” as a standard of liability. This is because, in the former, “expectation” itself can be based on “reliance” (that is, “reliance” is the basis of the validity of the contract). In the latter, “reliance” and “expectation” are opposed and incommensurable. However, if it is explained based on the “presumption of profitability theory”, that is, if the payment made by one party is equal to that of the opposite party in value, then the performance made by the obligee or the expense incurred for the performance is offset by the performance made by the obligor if no breach of contract occurs. Therefore, in a breach of contract, the non-breaching party may claim compensation from the breaching party for the performance or the expenses paid for the performance. The explanatory dilemma under the so-called theory of reliance no longer exists.175 However, although the “presumption of profitability theory” implements the primary position that damages for breach of contract are based on expectation interests to a certain extent, “expenses incurred in vain” as an alternative form of expectation interests, just as the expectation interest is the substitute form of reliance interest, which still cannot deny the fact that it belongs to two different forms of interests. For example, in the case of a breach of contract, it is possible to rely directly on reliance damages without resorting to such a devious explanation.176 As a result, contract law not only needs to remedy the pre-contractual damage but also remedy the damage caused by an impediment to the performance of the contract. It cannot meet the practical needs of different remedies to limit the damages in contract law to “expectation interests”, so it can only be dealt with by introducing various standards of damages. Secondly, contract law not only protects “interests” but also the “rights” of the parties before the conclusion of contractual relationships. In order to understand the expansion of protection of contract law, we must know the combination form of “rights” as “inherent interests” and contractual relationships. There are two forms: the performance of the contractual obligor may affect the obligee’s existing rights. Although inherent interests are not related to the purpose of the contract, it is still protected by contract law because it is connected with the performance. The “damage” to the body of a customer for cosmetic purposes and the removal of blemishes for repair are typical examples in this regard. In fact, in almost all types of contractual relationships, based on the need to perform the contract, one party will be prompted to open up its inherent interests or field of rights to the opposite party, which is 175

Ibid. See Wang Liming, Theory of Liability for Breach (Revised ed.), China University of Political Science and Law Press, 2003, pp. 727–728; Li Yongjun, Contract Law (2nd ed.), Law Press, 2005, p. 720. 176

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more likely to suffer damage from the opposite party who has no relationship at all. For example, in housekeeping service, the household utensils of the employer are damaged due to the negligence of the housekeeping staff, the employer or his family members are burned by boiling water due to neglect of care, or they suffer personal injury from engaging in potentially dangerous housekeeping service (such as being scratched by the glass while cleaning a window or an accidental fall from the window sill), which are not uncommon. The injury mentioned above may occur not only in the performance of the contract but also in the negative situation of nonperformance. Suppose a doctor fails to treat a patient who is in critical condition and the patient loses the chance to be cured and dies, and the trustee fails to do the necessary disposal (such as entrustment) in an emergency and causes injury to the trustee’s property. These are the cases that the existing rights of the opposite party are damaged by the omission. As to the damage of such inherent interests, it is obvious that the parties cannot be expected to foresee or even deal with it and agree upon it in advance when the contract is concluded. Consequently, the theories of the so-called collateral obligations or protective duties have gradually developed in contract law, which makes the parties to the contract assume the obligations of looking after the opposite party’s personal or property injury in the performance of the contract, and extends this obligation before the formation and after the extinction of the contract, which is the purpose of those theories. Another combination is that the protection of inherent interests is the purpose of contractual performance, not just the form of interests that are indirectly affected in contractual performance. Security contracts, medical service contracts, safekeeping contracts, or deposit contracts are the cases in point. In this kind of combination, the contractual expectation interests are the expectation of security of inherent interests. In this case, expectation interests and inherent interests are indistinguishable and integrated. This phenomenon results from the expansion of the type of contract anticipation, which is the embodiment of the value of contract as a tool. As far as the provisions of Chinese Contract Law are concerned, provisions concerning inherent interests are common. Article 191 Paragraph 2 of the Contract Law stipulates that where the donor intentionally omitted to inform the donee of the defect or warranted the absence of any defect, thereby causing loss to the donee, he should be liable for damages. The so-called “donee’s loss” refers to the loss of the donee’s inherent interests. Article 233 of Contract Law stipulates that where the lease item endangers the safety or health of the lessee, the lessee may terminate the contract at any time even if the lessee knows the lease item does not meet the quality requirements when concluding the contract. If the lessee suffers damage due to such danger, the lessee must choose a contract to obtain a remedy for the personal and property damages suffered by him in accordance with Article 122 of the Contract Law. Article 267 of the Contract Law stipulates that the contractor shall keep the relevant information confidential as required by the ordering party and may not retain any replica or technical material without permission of the ordering party. This prohibition involves the protection of the inherent interests of the ordering party (such as technical secrets). Article 290 of the Contract Law stipulates that the carrier shall safely carry the passengers or cargoes to the agreed destination within the agreed time or within a

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reasonable time. Article 301 of the Contract Law stipulates that in the course of carriage, the carrier shall use its best effort to assist any passenger who is seriously ill, or who is giving birth to a child, or whose life is at risk. Article 303 of the Contract Law stipulates that the passenger takes with him on board is damaged or destroyed during the period of carriage, the carrier shall be liable for the damage if it has committed faults. Where the passenger’s check-in luggage was damaged or lost, the relevant provisions on the carriage of cargoes shall be applied. These three provisions involve the protection of inherent interests of passengers’ personal, cargo, or luggage security in a carriage contract. Article 374 of the Contract Law stipulates that if the deposit is damaged or lost due to improper storage by the depository during the deposit period, the depository shall be liable for damages, provided that the storage is provided for free and the depository proves that it has no gross negligence, it shall be not liable for damages. Article 394 Paragraph 1 of Contract Law stipulates that it shall be liable for damages when the goods were damaged or lost during the warehousing period due to improper safekeeping by the safekeeping party. These two provisions belong to the safekeeping party’s protection of the inherent interests of the opposite party. In the situations mentioned above, the protection of inherent interests has the nature of a protective duty and constitutes the content of the contractual obligor’s performance obligations. There are different views in theory on whether the injury to inherent interests (or rights) under the circumstances mentioned above should be treated as a whole according to the contract or separately pursuant to the tort. It is theoretically possible to treat the remedy for interests in contractual performance separately from the remedy for injury to inherent interests in performance, but it is contrary to common sense and even not consistent with the concept of efficiency. Therefore, it is usually dealt with together in the remedy for breach of contract in practice. The creation of pre-contractual liability, recognition of a protective duty of contract, and establishment of the impediment form of injuring performance reflects the expansion of contract law in protected objects. (4) Expansion of the Contract Law to a Third Party Outside the Contract As a transaction law, the transaction structure envisaged by contract law has the characteristic of “bipolarity” and is confirmed by the principle of privity of contract. That is to say, the contract is valid only for the parties, while a third party who is not a party to the contract cannot be entitled to rights or undertake the obligations under the contract. This principle is first broken in the form of a contract recognizing the interests of the third party, which means the law allows the parties to the contract to agree on the rights or interests of the third party.177 In addition, a contract may create obligations for a third party, provided that the consent of the third party is obtained.178 In both cases, the basis for the third party outside the contract to enjoy 177

Such as Article 328 of German Civil Code, Article 112 of Swiss Bond Code, Article 537 of Japanese Civil Code, Article 1444 of Quebec Civil Code, Article 302 of the Second Restatement of American Contract Law and Article 64 of Contract Law of the People’s Republic of China. 178 For example, Article 311 of the Swiss Bond Code, Article 1443 of Quebec Civil Code, and Article 65 of Contract Law of the People’s Republic of China.

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rights and assume obligations thereunder should still depend on the free will of the parties. In addition to the parties’ intention to create rights or obligations for the third party, the acceptance of the beneficiary or consent of the obligor is also required.179 Therefore, such a design of the system still adheres to the principle of autonomy of private law to a certain extent. We are more concerned about the situation of breaking the principle of privity by being directly prescribed by law.180 It mainly includes the following situations: Firstly, the law stipulates that the third party outside the contract bears liability according to contract law. For example, Article 272 Paragraph 2 of Chinese Contract Law stipulates that the subcontractor and the prime contractor shall be jointly and severally liable to the developer in respect of the work product completed by the subcontractor. Article 309 of Contract Law stipulates that “upon arrival of the cargoes, if the carrier has the knowledge of the consignee, it shall timely notify the consignee and the consignee shall timely take delivery. Where the consignee takes delivery exceeding the time limit, it shall pay such safekeeping fees”. The second sentence of Article 313 of Contract Law stipulates that “where the losses occurred at a particular segment, the carrier contracting with the consignor and the carrier for such segment are jointly and severally liable”. In these three cases, the subcontractor, the consignee, and the section carrier are not the parties to the relevant contract, and they only play a phased role in the performance of the contract. During this period, if its behavior violates obligations in the contract (appropriately performed in accordance with the standard agreed in the contract), it is better to directly stipulate that the actor bears liability pursuant to contract law instead of limiting the claim of the obligee for maintaining the privity. In the case of construction subcontracting and continuous transportation, since the prime contractor and the carrier contracting with the consignor should still be liable under the contract, the subcontractor and the section carrier should be directly liable to the developer or the consignor (or the consignee) not only because they are directly liable for injury, but also to strengthen the protected status of the obligee. With regard to the provisions of the consignee’s obligations, since safekeeping fees are the only obligation arising from delay in 179

Especially in the contract for the benefit of the third party, there are mainly acceptance mode and direct acquisition mode. In the case of acceptance, the right of the third party occurs when the beneficiary accepts it, while in the case of direct acquisition, the right of the third party only has the intention to grant the right to the third party. (See Zhang Jiayong, Institutional Structure of Contracts for the Benefit of Third Parties, Law Press, 2007, p. 236ff.) However, even if the direct acquisition mode is adopted, in order to ensure that the third party is not “forced to accept favors”, the third party’s refusal right should be matched at the same time under the re-mode, that is, the third party can refuse to accept this right so that the other-related effect of the contract will not affect it. Therefore, the acceptance of the third party has the effect of “abandoning the right of refusal”, which is the condition for the right to have an effect on the third party in fact. Ibid., p. 275ff. 180 However, we exclude the situation of breaking through relativity by simply expanding the effectiveness of contractual claims, such as pre-registered claims to obtain ownership, special claims with priority compensation effect (such as salary and tax claims.) and transferred claims, and also exclude the breakthrough in the sense of the interference with claims by the third party. The foundation of this relativity breakthrough is complex, which has nothing to do with the expansion of the scope of regulation of contract law discussed here.

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taking delivery, the interests of the carrier would enjoy sufficient protection through the carrier’s lien,181 and the law stipulates the consignee’s obligation to pay the safekeeping fees in this exception, but it is only for the convenience of the transaction, which can be questioned in jurisprudence. Secondly, the third party outside the contract is protected under the contract, which is a constructional effect known as “the contract with additional protection for the third party”. Just like the culpa in contrahendo, it was also invented by German jurists, whose purpose is to allow the third party outside the contract to claim damages against one party to the contract or exempt the third party from obligations to solve the problem of insufficient remedy to the third party in tort law.182 According to scholars, in order to establish such a structure, three preconditions must be satisfied: firstly, there is an exception to the principle of privity of contract; secondly, the law will at least protect the personal and property rights and interests of the direct parties as one of the purposes of contract law; thirdly, the tort law is considered to be deficient.183 The first two conditions can usually be met as discussed above. The third condition reflects the interaction between contract law and tort law when contract law determines its scope of regulation. That is to say, the expansion of contract law always has a strong or weak connection with the “flaw” or “deficiency” of the remedy of tort law. As far as Chinese laws are concerned, although contract law establishes the principle of privity,184 it allows exceptions such as the recognition of the validity of a contract for the interest of a third party. Meanwhile, contract law indeed regards the protection of the parties’ personal or property rights and interests as one of its goals. Therefore, if the Chinese law recognizes the so-called “contract with additional protection for the third party” like the German law, more attention should be paid to the question whether the tort law has an insufficient remedy for the third party’s personal or property rights and interests when he suffers an improper injury due to the breach of contract by one party. From the provisions of the existing law, the examples that can be discussed here are rare. Here is an example of an injury caused by defective products. Pursuant to the first sentence of Article 35 Paragraph 2 of Law on the Protection of the Rights and Interests of Consumers, “Consumers or other aggrieved parties suffering personal injuries or property damage from defects of commodities may claim compensation from the sellers and manufacturers”. This article can be interpreted in many ways in terms of its normative nature. One is to regard it as a tortious liability, that is, Paragraph 1 of this Article provides for contractual liability (subject to performance interests), while the first sentence of Paragraph 2 is the provision of tortious liability. This interpretation may be consistent with Article 122 of the General Principles of Civil Law. The second is to make the foregoing provisions an exception to the principle

181

See Article 315 of the Contract Law of the People’s Republic of China. Christian Von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), pp. 582–588. 183 Ibid., pp. 583–585. 184 See Zhang Jiayong, Institutional Structure of Contracts for the Benefit of Third Parties, Law Press, 2007, pp. 355–359. 182

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of privity of contract.185 If it is treated as an exception to the principle of privity, it is acceptable to regard the consumer contract as “the contract with additional protection for the third party”. Is this tortuous explanation necessary? If the tortious liability of the seller is treated as fault liability, the strict liability of the seller is stipulated in the first sentence of Article 35 Paragraph 2 of Law on the Protection of the Rights and Interests of Consumers. Therefore, the interpretation of contractual liability is more beneficial to consumers and is consistent with the practice of strict liability as to the general imputation principle for breach of contract. However, even German justice, which makes up for its inadequacy of tort law through “the contract with additional protection for the third party”, has strict limits on the scope of the protected third party.186 However, the Law on the Protection of the Rights and Interests of Consumers only stipulates the “other aggrieved party” in the abstract here, which is not helpful in realizing the goal of restriction. In this sense, it is not appropriate in weighing of interests to interpret this provision as “the contract with additional protection for the third party” in strict accordance with its context, which will also lead to a systematic violation of the seller’s tortious liability as fault imputation. On the contrary, if the seller’s tortious liability is treated according to strict liability (that is, Article 122 of the General Principles of The Civil Law is maintained and Articles 42 and 43 of the Product Quality Law and Articles 42 and 43 of Tort Law are interpreted in the same way), then, it is almost unnecessary that an injured third party should have a claim based on a contract rather than tort. Therefore, as far as current Chinese laws are concerned, if the parties have a clear purpose of protecting the personal or property rights and interests of the third party, then the contract for the interests of the third party can provide sufficient protection to the third party; if the parties have no such intention, it will not have any legal obstacles to solving the third party remedy problem through tort law.187 It is also feasible to treat the disclaimer in favor of the third party in accordance with the contract for the interests of the third party. Generally speaking, the expansion of contract law to the third party outside the contract is subject to the maintenance of autonomy of private law of the third party on the one hand, and the law clearly prescribes it only in limited circumstances on the other hand. No matter how it is expressed, the expansion of the regulated subject changes the basic concept of the contract with the goal of creating and realizing the expectation interests of both parties. (5) Summary It should be noted that the so-called expansion of contract law does not appear to be the same or similar in all jurisdictions. It is more related to the coordination of contract and tort law in the scope of regulation: the expansion of the scope of regulation of contract law is often to make up for the deficiencies of tort law in remedy for rights and interests. This situation is more obvious not only under the legal 185

See Han Shiyuan, The Law of Contract (2nd ed.), p. 536. Dieter Medicus, Schuldrecht I: Allgemeiner Teil, Du Jinglin & Lu Chen Trans, Law Press, 2004, pp. 593–594. 187 See Zhang Jiayong, Institutional Structure of Contracts for the Benefit of Third Parties, p. 349. 186

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system where the regulation scope of tort law is strictly limited (for example, legal constructions such as culpa in contrahendo and the contract with additional protection for the third party are full of German-style), even it is not uncommon for tort law in a broad scope of regulation. For instance, although there is no expansion of the protection of contract law under French law to provide a remedy for damages caused by culpa in contrahendo, the French judiciary has provided contractual protection to the aggrieved party through the chain contract theory to protect non-contractual parties injured by defective products.188 This also shows that the expansion of contract law is the connection between the regulation scope of contract and tort law in the abstract, but may also be related to the actual effect of legal remedy rules in specific situations.

2.3 Expansion of Tort Law Unlike the expansion of contract law, which is more related to the need for legal regulation in the dynamic development of contractual relationships, the expansion of tort law is more related to the situation of breaking through the limitation of the existing rules to enhance the function of remedy for its rights and interests. (1) Traditional Limitations to the Rules of Tort Law The formation of tort law in two legal systems is related to the development of particular tort litigation, not only in civil law system but also in Anglo-American law system. As far as civil law system is concerned, there are two kinds of litigations in Roman law that formed the basis of present tort law.189 One is the Actio legis Aquiliea, which needs two requirements: the first is that the defendant should be at fault for assuming liability, namely intention or negligence. The other is that the damage must be accurate, that is, “it should be made up of objects (corpore), that is, directly caused by the actor; and should be directed at the object (corpori), that is, directly infringe on the subject matter”.190 The second is actio iniuriarum, which is aimed at the action that causes physical or mental damage to people through action or language.191 It can be directly targeted to a specific person or to a person who has a close relationship with that specific person, such as a fiancée, a daughter.192 Although there is no clear need for fault requirements in this kind of litigation, there is no 188

See Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), pp. 590–592. James Godley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, p. 253. 190 Pietro Bonfante, Istituzioni Di Diritto Romano, Huang Feng Trans, China University of Political Science and Law Press, 2005, p. 309. Of course, there are exceptions to this requirement. For example, remedy for damage caused indirectly through extended litigation and damage not directed against objects through factual litigation is allowed. Ibid. 191 Huang Feng, ed., The Lexicon of Roman Law, Law Press, 2002, p. 129, entry of “insult”. 192 Pietro Bonfante, Istituzioni Di Diritto Romano, Huang Feng Trans, China University of Political Science and Law Press, p. 310. 189

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obstacle to determining fault requirements by means of interpretation according to its type. Therefore, the differences between the two kinds of litigations mainly lie in the differences in protected objects, that is, the respective protection of property interests and personal (or mental) interests. In this way, the general tort principles in modern tort law can be proposed only by taking a step forward. Such a principle has already been expressed by Hugo Grotius: “unlawful acts” may be used to refer to all misfeasances, while “damage” means that a person has less than what belongs to him, in addition to things, including life, body, reputation, honor, and so on. If the “unlawful acts” caused “damage”, the actor’s obligation to compensate is formed according to laws of nature.193 This statement influenced the later French Civil Code through French jurist, Pothières. Article 1382 of the French Civil Code stipulates that when any act causes damage to others, the person who causes the act due to his fault should be liable for compensation. Article 1383 of the French Civil Code stipulates that any person is liable for damage caused by his conduct and damage caused by his negligence. Through these two provisions, the French Civil Code brings into account all acts causing damage to others of intention (Article 1382) or negligence (Article 1383) under the regulation of tort law, and it leaves the determination of “damage” to the courts.194 Unlike French law, which differentiates damages rules for tort by intention and negligence, the German civil code subdivides the general rules of tort from the perspective of distinguishing different protected objects through the requirements of wrongfulness. Article 823 Paragraph 1 of the German Civil Code provides that a person who intentionally or negligently unlawfully injures the life, body, health, freedom, property, or another person’s rights is liable for damage caused. This provision excludes the so-called “pure economic loss”, which is why Article 823 Paragraph 2 and Article 826 of the code include it under protection in two normative forms of law protecting others and contra bonos mores respectively. Therefore, as models of the civil code in civil law system, the French Civil Code and German Civil Code developed two forms of litigation in Roman law from two angles: the form of fault and protected object (or “damage”). As far as strict liability in modern tort law is concerned, though its origin can be found in Roman law as well (for example, the provision of quasi-delict in Roman Law), it has not been developed into a general principle by later legislation, but only a few rules retained. Thus, the civil law eventually formed the following structure: “In civil law, the key types are compensation liability for damage caused by a fault (or at least some damages) and a hodgepodge of strict liabilities”.195 In Anglo-American law, two types of litigation or tort need to be emphasized. One is trespass, which is against unlawful acts that infringe on the person or property of others, mainly including three types: trespass to person, trespass to land, and trespass

193

See James Godley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, p. 256. Ibid., p. 257. 194 Ibid., p. 258. 195 Ibid., p. 259.

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to chattels.196 This kind of trespass is based on the direct action of the defendant and the directness of trespass, so it is also called “direct trespass” in theory.197 Without such directness, the aggrieved party can only sue based on “trespass on the case” (often referred to as a case). Although there is a view that direct trespass does not require the infringement intention and is characterized by strict liability, while a case requires negligence, before the nineteenth century, even in a case, there was no perfect concept of negligence, so both forms of litigation show the characteristics of strict liability.198 The distinction between direct trespass and case is constantly faced with difficulties in practice, and the relevant distinction standards are also uncertain. Later, the courts proposed a solution that in the case of direct damage caused intentionally, only direct trespass can be filed; in the case of direct damage caused accidentally by negligence, either a direct trespass or case may be filed. However, it is still unclear which form of litigation should be chosen for intentional indirect damage.199 Gradually, direct trespass provides a remedy for direct damage as unlawful acts only when there is a willful act or negligence. In contrast, the case applies to all kinds of new cases of trespass, which causes negligence to become the dominant principle of liability.200 Another essential type of litigation is negligence, which takes the remedy for the case to the unconscious trespass as the turning point, and develops the unified legal norm of the unintentional trespass, namely negligence. As scholars have said, after the nineteenth century, “negligence” as the law to deal with the increasing number of accidents occupied the centre of tort law and became the most frequently used law by the courts, which can be regarded as the centre of modern tort law, both nominally and practically.201 The most significant difference between this type of tort or litigation and other types of torts is that other torts are based on specific types of infringed interests and torts, while “negligence” is tortious conduct based on the specific nature of the act (namely, negligence), regardless of the type of interest infringed or the form of the tort.202 It is precisely because of the above-mentioned general characteristics of “negligence” that it plays a similar role to the general provisions of tort law in civil law. Therefore, civil law and Anglo-American law have a similar phenomenon in tort law, that is, fault (intentional or negligent) trespass is the most critical field of tort law, and strict liability falls into a few special tort types. In particular, after Blackstone, American and British writers began to transform the tort system in Common Law along the lines of civil law. They either match the form of litigation with 196

See the entry “trespass” in Black Law Dictionary (9th ed.). Mochizuki Rejiro, Anglo-American Law, Guo Jian & Wang Zhongtao Trans, The Commercial Press, 2005, p. 177. 198 Morton J. Horwitz, The Transformation of American Law 1780–1860, Xie Hongfei Trans, China University of Political Science and Law Press, 2004, pp. 135–136. 199 Richard A. Epstein, Tort Law (Photocopy Series of Introduction to Law), CITIC Publishing House, 2003, p. 78. 200 Ibid. 201 Mochizuki Rejiro, Anglo-American Law, p. 138. 202 Ibid. 197

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the different rights or interests that the law seeks to protect or classify them following the basis of imputation (intention, negligence, and strict liability) to further highlight the similarities between the two legal systems.203 Thus, the protected objects and the basis of imputation constitute the two centres of the theory of tort law. (2) Expansion of Protected Objects in Tort Law As one of the central problems of the norms of tort law, the protected object has two primary functions: one is to influence the constitution of tortious liability through requirements of illegality (if so), and the other is to influence the scope of tortious liability through the determination of the content of damage. Therefore, the protected object reflects the differences in the regulation scope of tort law. If the tort law does not limit the protected object, the regulation scope of tort law will cover all the damages caused by fault or legal imputation. Although such an overly broad scope of regulation can meet the needs for flexible remedies, it may create problems of coordination among different areas within the legal system, the most important of which is the coordination with contract law. We might call this normative mode “broad” (as Christian von Bar calls it). On the contrary, the tort law can also impose strict restrictions on the protected object. In principle, the statutory protected object (such as the erga omnes rights enumerated in German law) is the general object protected by tort law, with exceptional inclusion of other protected objects (such as pure economic interests or mental interests). Under this mode, the scope of regulation of tort law is relatively narrow, but it can meet the needs of legal systematization, and the coordination between various legal fields is better. We might call this normative mode “narrow” (as Christian von Bar calls it). Each has its advantages and disadvantages. Under the “broad” mode, the scope of regulation of tort law may be extended to all remedy areas, so it is necessary to make exceptions to other areas of tort law as special norms. In the face of specific remedy needs, the primary problem that the law needs to deal with is the limitation of the application of tort norms and how to limit to satisfy the remedy purpose better. On the contrary, in the “narrow” mode, many kinds of remedy norms can only form an overlapping relation in the protected objects. What the law needs to deal with at that time is not the limitation of tort law (which has already been realized by limiting the protected object), but how to meet the needs of the remedy for rights and interests under the over-limited tort law. Therefore, the expansion of protected objects in tort law is usually only related to the choice of the “narrow” mode. Thus, the subsequent discussion adopts the “narrow” mode of German, Japanese Civil Code, and the Civil Code of Taiwan as examples. As mentioned above, the German Civil Code, in principle, takes “life, body, health, freedom, property and other rights” enumerated in Article 823 Paragraph 1 as a general protected object in tort law. The “interests” outside “rights” referred to above are protected by Article 823 Paragraph 2 on the breach of a statute intended to protect another person and by Article 826 on the contra bonos mores. As far as Article 823 Paragraph 1 is concerned, the listed “rights” is extremely limited. Not only are the 203

See James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, pp. 261–262.

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personal rights, such as the rights to reputation and privacy, with which we are usually familiar, not to be listed, but property rights are also listed only as “ownership”. Such a limited scope of protection is too narrow, and moderate expansion is necessary. There are two ways of expansion: one is to expand the scope of protection of listed rights. In this respect, the most obvious example is the expansion of the protection effect of ownership by means of “subsequent damage” and “functional damage” in German judicial practice.204 The other is to protect rights that should be protected through the interpretation of the “other rights”. From the practice of German law, the scope of “other rights” is extensive. It is generally agreed that these rights incorporated by interpretation should be identical to the enumerated rights, namely, “ownership” and rights such as “life, body, health and freedom” or absolute legal interests, that is, to be entitled to exclusivity (namely erga omnes rights).205 Therefore, the contractual claim does not belong to “other rights”, but can only be protected as “interest” through Article 826 thereof.206 According to such criteria, all rights of control (such as qualified real rights of pledge and servitudes, occupancy rights (Aneignungrechte) of hunting rights or fishing rights, intangible real rights such as patents, trademark rights, copyrights, and real rights expectation) belong to “other rights”.207 In addition, exclusive parental rights also belong to “other rights”.208 However, the two most wellknown types of “other rights” are the so-called “general personality right” and “the right to establish and carry out business (Das Recht am eingerichteten und ausgeübten Gewerbebetrieb)” (sales right for short, Das Recht am Gewerbebetrieb). Both rights are developed by means of judicial adjudication. Through the “general personality right”, portraits, reputations, names, private domain or private life information, and other marks of personality (such as voices) are protected in general personality right, not only the spiritual values included in it can be protected, but also the commercial values of personality image. Through “sales right”, an enterprise may also be protected under Article 823 for its interests (but not including its property and members) in relation to its business activities.209 It is worth noting that “general personality right” and “sales right” are “Rahmenrecht” with no clear connotation. To a certain extent, they are less similar to the enumerated rights, and the “weighing of interests” must be carried out in tort judgment. In terms of the rights enumerated in Article 823 and other similar rights, the determination of illegality of the torts takes the approach of “infringement of 204

See Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), p. 561ff. “Subsequent damage” refers to the loss suffered by the buyer due to the deterioration of quality due to the defects before the delivery of the subject matter in a period after the buyer obtains the subject matter (see Maximilian Fox, Tort Law, Qi Xiaokun Trans, Law Press, 2006, p. 22); “Functional damage” is a situation where the use of things suffers serious damage in the absence of subjective ownership or physical damage of things, such as the disgusting taste of water output from water pipes due to special odor (ibid., p. 35). 205 Palandt, Bürgerliches Gesetzbuch (München 2005), §823, Rn.11. 206 See Maximilian Fox, Tort Law, pp. 166–167. 207 Ibid.. pp. 40–41. 208 Ibid., p. 44. 209 Wang Zejian, Civil Law Researches: Tort, p. 318.

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the right to invoke illegality” (it can also be said to be Erfolgsunrecht or objective wrongdoing). While in determining the illegality of the violation of “Rahmenrecht”, it is necessary to weigh the rights and interests of both parties, then the conclusion on whether the violation is illegal can be drawn in accordance with cases (it can be said to be close to Handlungsunrecht or subjective wrongdoing). According to Article 823 Paragraph 2 and Article 826 of this law, it can be found that in order to achieve the goal of restricting the scope of norms of tort law, the relationship between the imputation elements and the scope of protection forms a reverse movement: the looser the imputation elements, the more restrictive the protected object is; the stricter the imputation elements, the broader the scope of the protected object is. For example, in Article 823 Paragraph 1, negligence satisfies the imputation elements, so the protected object is strictly limited; while Article 823 Paragraph 2 and Article 826 restrict imputation by the law that is intended to protect another person and by contra bonos mores, so there are no particular restrictions on protected objects.210 The civil code of Taiwan adopts the German trisection structure in types of general tort, that is, the rights infringement, contra bonos mores, and the breach of law intended to protect another person. In contrast, Article 184 Paragraph 1 thereof does not enumerate specific types of rights as the German civil code does but leaves them entirely to doctrine and judicial decision (analogous to the Napoleonic Code’s approach to “infringement”). Although the practice of the two jurisdictions is the same in specific types of rights, such as the recognition of “erga omnes rights” of personality rights, identity rights, real rights, and intellectual property rights, which are called “rights” in the type of rights infringement. However, the treatment of German law on the “Rahmenrecht” is different. First of all, the civil code of Taiwan avoids the need to recognize “general personality rights” as German law by establishing general provisions211 to protect personality rights and legalizing important forms of personality rights. For example, in addition to the personality rights of life, body, health, freedom, credit, and name, the civil code of Taiwan adds specific personality rights such as right to reputation, right to chastity, and right to privacy. And the judicial judgment also realizes the protection of personality interests, such as the right of portrait, the personality legal interests of voice and language, and the freedom of will decision.212 Scholars pointed out that general provisions on the protection of personality rights in the civil code of Taiwan are in nature a kind of matriarchy, which can give rise to various concrete personality rights. The infringement of specific personality rights simultaneously constitutes an infringement of general personality rights. Therefore, it cannot be considered that personality rights can be divided into specific personality rights and general

210

It should be noted that the imputation here includes two aspects: illegality and fault. Article 18 of the Civil Code of Taiwan stipulates that when the personality rights is infringed, one may apply to the court for removing. When one’s personality is in danger of being infringed, one may apply for prevention. In the preceding paragraph, an action for damages for emotional distress may be brought only it is otherwise provided by the act. 212 Wang Zejian, Civil Law Researches: Tort, p. 101ff. 211

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personality rights.213 Of course, the difference in the protection of personality rights between the two jurisdictions reflects only two different ways of development of personality rights: German civil law develops from specific personality rights (special norms of civil code) to general personality rights (creating general norms of civil law through the interpretation of basic norms of the Constitution), while in Taiwan, the specific personality rights (special norms of civil code) are derived from the general norm of protecting personality in civil code. The direction is the opposite, but the essence is the same. That is to say, the scope of the protected legal interests (or rights) of personality extends from the tangible personality rights such as life, body, health, and (physical activity) freedom to spiritual rights of personality such as portrait, reputation, and privacy, and the scope of spiritual rights of personality is also expanding (such as the expansion of the right to freedom to the spiritual field). Secondly, the legal practice in Taiwan treats the “sales right” under German law as a type of protection of pure economic loss rather than as a type of “right”, thus avoiding the damage from “Rahmenrecht” to the certainty of constitutive requirements of the infringement of a right. From the German judicial judgment that creates “sales right”, the types of cases concerning the protection of “sales right” mainly focus on warnings of right protection (that is, claiming a trademark or patent right that does not exist and warning others to stop the production of a certain commodity), spreading facts that are harmful to the reputation of an enterprise, resisting and illegal strikes, etc. These types are no longer necessary to exist with the expansion of the application of the unfair competition law, the extension of the protection of personality right to body corporation, and the enhancement of application of the infringement of tort contra bonos mores, thus leading to this right gradually to become “dead”.214 The protection of corporate reputation in the unfair competition law (such as the prohibition of commercial defamation) is more to protect the economic interests of a business in its normal operation. It is not to give such interests the appearance of “rights” due to the infringement of certain “rights”, which is only to satisfy the requirements of positive law on the surface (especially the problem of inadequate remedy caused by an excessive restriction of such elements of contra bonos mores, such as pure economic loss caused by negligence, or damage caused by intent which does not meet the elements of damage contra bonos mores). In addition, the expansion of the legal protection scope of intellectual property rights, such as the expansion of protection of generic trademarks and business names, is the same as the unfair competition law, which has the effect of strengthening the protection of pure economic loss by special economic legislation. In this way, the mode of single protection of private rights and interests in the civil code is changed into the pattern that many laws (civil code as Common Law and special civil law) share the protection task, which can also explain the “sales right”. Of course, as far as the structure of the civil code is concerned, once the protected status of pure economic loss is recognized, restrictions based on conceptual logic may be broken through in many ways. Pure economic loss is no longer concealed under “infringement of right”, but are recognized and 213 214

Ibid., p. 100. Ibid., p. 319.

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protected as an independent form of interest. Such development only changes the specific realization of the protection of rights and interests, which does not explain why the protected rights and interests narrow. On the contrary, they are expanding in different forms under the protection of tort law. The general provision of the Japanese Civil Code on tort is Article 709, which reads: “Whoever intentionally or negligently infringes upon the rights of others shall be liable for the damage caused thereby”. This article explicitly limits the object protected by tort law to “right”. Therefore, it adopts the idea of restricting the protected object. The judicial precedent first applies this provision in the sense of infringement rights. For example, in the case of “Man of the House record”, the court holds that the infringement on “right” is necessary in tort law, and the Rokyoku master does not have the copyright. In this case, he cannot obtain the protection based on tort.215 However, since the judgment was severely criticized by the doctrine, in the “University Bath House case”, the Supreme Court of Judicature of Japan held that the object of a tortious act “shall be a specific right, such as ownership, land rights, claims, incorporeal property rights, the right of reputation, etc., or, to the same extent, an interest that, though not a right in a strict sense, is indeed legally protected. Specifically, an interest that, if infringed, should be remedied based on the law of torts. Concepts such as rights are used broadly or narrowly rather than in a fixed way”216 Such an interpretation adopts a more flexible approach to the concept of “right”. Regarding claims the same as ownership and intangible property rights actually weakens the meaning of limitation of right protection. The affirmation of the “broad or narrow” use of the concept of right can more easily produce the effect of bringing some interests into the protection of “right”, which will lead to the continuous breaking of the limits of infringement on “rights”. In 2005, through the modernization of the Japanese civil law, the original provision of “infringement of the rights of others” was changed to “infringement of the rights of others or legally protected interests”, that is, the protected object (i.e., non-rights interests) expanded by case law and doctrine will be legislatively fixed. However, the expansion of the scope of the object also raises difficult questions about tort judgment, which is reflected in the fact that Japanese civil law scholars have long debated the recognition of the elements of illegality and the determination of illegality.217 From the brief review above, we can see that even if the scope of protection of tort law is clearly limited in legislation, it does not mean that the protected object of tort law is fixed. The legal practice may always claim the interests that were not anticipated in the legislation. As the first to respond to such a claim, the judicial judge may respond under the guidance of the concept of “creative justice”. The judicial “creation” first remains within the limits of legal textual meaning and then constantly fills nor even changes the connotation of legal concepts (e.g., the inclusion of privacy under the norm of “reputation” changes the properties of reputation). As a result, the types of interests protected in the name of “right” may be diametrically 215

Tsuburaya Jun, Japan’s New Tort Law Formed by Precedents, Zhao Li Trans, Law Press, 62. Ibid., pp. 63–63. 217 Ibid., p. 71. 216

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opposed to each other (for example, under German law, both usufruct and pure economic loss protected by business rights are covered under the name of “other right”). Thus, legislation must respond to the “distortion” mentioned above, reflected in the Japanese Civil Code’s inclusion of “legally protected interests” as an object of tort protection. Once again, the expansion of the protected object in tort law shows the expansion of “right” and from “right” to “interest”, and the expansion trend of the scope of “interest”. It should be noted that the foregoing observations merely illustrate the possible forms of linkage between legislation, the judiciary and the needs of society. In addition, the reasons why the law limits the protected object needs to be considered. This is illustrated by the example of pure economic loss. From the comparative law perspective, the rule of excluding pure economic loss, namely, economic loss that does not depend on any infringement of personal or property rights to occur, is only the practice in some jurisdictions, such as Germany, Britain and America. According to scholars, it is only a creation of the 19th and early twentieth centuries, and it survives only because it has been incorporated into the civil code or case law.218 The rule of excluding pure economic loss can be based on many different reasons, for example, “the floodgates principle” (allowing compensation may lead to the flood of litigation or impose an excessive burden on the defendant or lead to the excessive expansion of liability), value order theory (holding that abstract wealth which has not been materialized ranks lower in human value order, and therefore it is not worth protecting) and historical origin theory (that is, the rule of exclusion is regarded as a historical event).219 In practice, these reasons are either unsubstantiated hypotheses (such as “the floodgates principle”), or their deleterious effects are exaggerated (such as the possibility that the protection of an overly abstract wealth may exceed the actual capacity of the law to protect it), or it is completely one-sided (the rule of compensation excluding pure economic loss is the product of a certain stage in the history of human law, and it hasn’t always been the case).220 Even in countries that exclude pure economic loss, pure economic loss resulting from intentional or malicious acts is compensated, which means that pure economic loss is not due to pure economic loss per se; it is the result of many kinds of interacting factors.221 Once such an understanding is established, there are no justifiable reasons to “inevitably” exclude a damaged interest from the protection of the law due to its nature. Of course, the fact that an interest is entitled to be protected in the “abstract” does not mean that it can be protected under any circumstances. In France, for example, the court may reject a claim for compensation for pure economic loss in a case, even though the

218

See James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, pp. 337–338. 219 Mauro Busani Vernon Valentine Palmer, Editor-in-Chief, Pure Economic Loss in European Law, p. 300 and 13. 220 Ibid., p. 15. 221 Ibid., pp. 17–63.

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plaintiff may generally ask for compensation for such loss.222 In this sense, we can also think that the expansion of the protection object of tort law only breaks through the unreasonable limitation that originates from the specific legal concept or logic. The expansion itself does not indicate any specific protection conditions. (3) The Evolution of the Imputation Principle of Tort Law As can be seen, the principles of modern tort law are based on fault liability, and fault is regarded as an indispensable element of the general tort. Although strict liability can be seen in its embryonic stage in Roman law, it has always been a sporadic exception. It has not been able to become a general imputation principle like fault.223 With the development of the social economy in the twentieth century, not only the connotation of fault (especially the form of negligence) but also the imputation system of tort law as a whole began to change. As far as the connotation of negligence itself is concerned, there has been a change from the concept of subjective negligence to the concept of objective negligence. To a certain extent, “negligence imputation” is divorced from the moral and ethical significance of the traditional concept of negligence in tort law, which is called “internal revision” or “socialization of negligence” by scholars. In terms of the imputation system of tort law, the dominant situation of the fault liability has been broken; that is, strict liability (or dangerous liability or nonnegligence liability) no longer exists as the exception of negligence imputation but is established as an independent imputation standard, and demands the reconstruction or regulation of the traditional theory of negligence imputation, therefore, it is called “external concession” of negligence liability.224 a. The Socialization of Negligence In the Early Period of the development of human law, fault can be classified into the category of objective fault liability theory in nature,225 while the subjective fault theory related to the idea of free will in modern philosophy of law is characterized by the censure of individual psychology, and it’s not ancient history. According to the theory of subjective negligence, the basis of holding the actor responsible is not imposed by law but comes from his spontaneity; thus, negligence is “the mental deficiency that the actor should have foreseen and could have foreseen, but not foreseen, the occurrence of specific (or obtainable) damage result”.226 Therefore, the criterion of subjective negligence is whether the actor foresees the occurrence of specific damage and takes measures to avoid it. Because foresight depends on the specific capacity of the actor, only those who have the capacity of subjective knowledge and judgment can be guilty of negligence. This kind of capacity is called 222

SeeJames Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, pp. 337–338. 223 Qiu Zhicong, On the Components of Danger Liability from the Change of Imputation Principle for Tort, China Renmin University Press, 2006, pp. 1–2. 224 Ibid., pp. 30–63. 225 Ibid., page 51. 226 Ibid., page 39.

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the liability capacity in civil law theory; the person without the liability capacity does not bear the legal responsibility even if he causes the damage. Therefore, scholars call it “the will is a precondition for the moral denunciation of fault in tort”.227 The subjective negligence is characterized by the moral reprehensibility of the actor and is conditioned by his ability to recognize and judge. Therefore, when judging the fault, the subjective factors such as the actor’s age, sex, health, ability, etc., as well as the environment, the practice and the type of the behavior may affect the determination of fault, so the judgment of fault “should be based on the individual’s ability to pay attention to recognize the individual fault standards”.228 Although the subjective negligence is judged by the subjective psychology of the actor, its judgment must be determined by the relevant external conditions at the time when the act is done, which is the same as the objective fault as the evaluation of the act rather than the description of the facts, are based on the external activities of the objective determination of the subjective will of people. The key to distinguishing the subjective fault from the objective fault lies in whether to make an individual judgment according to the actor’s personal characteristics and specific behavior. There is no such thing as the unification of subjective and objective knowledge bases.229 The theory of subjective negligence is consistent with the “portrait” preset in ethics; that is, as the subject of autonomy, people should bear the consequences of their free choices (whether beneficial or not) to coordinate their own freedom of behavior with the needs of others’ rights protection. However, the law can never ignore the response to social needs to pursue the purity of a certain theory but must realize the coordination and balance of conflicting interests. Scholars believe that the theory of subjective negligence can only avoid harm if it meets the following three conditions: first, No-negligent harm is still rare, and most of the damage situation can be predicted by the actor’s ability; second, Proof of negligence would not be too difficult. Third, the status of the offender and the victim has the possibility of exchange, the equal communication relationship, the offender and the victim are not fixed in the category, and they can be established as an offender or victim of a similar infringement.230 This situation may be satisfactory in modern society, but it will encounter challenges in contemporary society. With the increase in the frequency and intensity of interpersonal contact, the possibility of mutual damage between subjects also increases. With the development of science, the mechanism of mechanical principles and scientific substances is becoming increasingly complicated and sophisticated; it 227

Zhang Min’an, Research on the Liability System for Fault Tort, China University of Political Science and Law Press, 2002, p. 239. 228 J. Hasse, Die Culpa des r ö mischen Rechts, 2Aufl., 1838, S. 38ff. Quoted from Chiu Congzhi, “On the Composition of Dangerous Liability from the Change of Imputation Standard of Tort”, p. 41. 229 Wang Wei’guo, The Principle of Fault Liability: The Third Boom, China University of Political Science and Law Press, 2000, p. 252. 230 Qiu Zhicong, On the Components of Danger Liability from the Change of Imputation Principle for Tort, p. 41.

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becomes tough to prove negligence on most occasions.231 Therefore, if we stick to the traditional subjective negligence, the victim will not be able to obtain a fair remedy. Consequently, the socialization change of negligence theory is triggered, which is mainly manifested as “objectification of negligence”, “presumption of negligence”, and “violation of the law as negligence”.232 “Objectification of negligence” refers to the change of the judgment standard of negligence, that is, “objective duty of care determined by the concept of ordinary people based on the requirements of social life order and determined by the concept of ordinary people, based on the legal value judgment principle of whether the person who causes the damage should bear the responsibility”,233 it has changed from the traditional “personal psychological negligence” standard to the general social behavior standard represented by “good manager” or “reasonable person”.234 In terms of specific operations, this excessively abstract standard is obviously insufficient. Therefore, it is necessary to concertize it in theory. In Germany, there is the so-called individualized objective negligence theory, which advocates that various specific judgment types should be determined according to the differences of various specific situations and personality factors; it is not only related to the types of activities in the actor’s profession (i.e. buying, selling, transporting, or civil servants, architects, lawyers, doctors, etc.), but also should be “dangerous to the activities, in particular, the upbringing, social status, age, gender, physical health and mental integrity of the actor should be considered, and according to the objective form of specific “relationship type” or “comparison type”, that the actual use of judgment basis”.235 In American Law, negligence judgment follows the so-called reasonable man standard, the behavior standard that a rational person must abide by under similar circumstances.236 This kind of standard is the external objective requirement of society for individuals and does not depend on the individual judgment of specific individuals (whether good or bad).237 This reasonable person is a legal fiction, which is neither equivalent to any real individual nor with a single or all members of the jury. It is a highly flexible standard. On the premise of adhering to a unified judgment standard, it allows the differences between different subjects and all specific situations that have a reasonable impact on relevant behaviors.238 It can be seen from this that no matter what language is used to express the judgment standard of objective negligence, its basic connotation is based on the social behavior requirements for individuals, from emphasizing personal “moral negligence” to paying attention 231 Tayama Nobuaki, Tort Law in Japan, Gu Zhuoxuan & Ding Xiangshun Trans, Peking University Press, 2011, p. 6. 232 Qiu Zhicong, On the Components of Danger Liability from the Change of Imputation Principle for Tort, p. 46. 233 Ibid., page 36. 234 Ibid., page 61. 235 Ibid., page 56. 236 See Restatement of Torts (second) §283. 237 Ibid. at cmt. b. 238 Ibid. at cmt. c.

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to “social negligence”.239 Its extreme form of expression is the thinking mode of economic analysis embodied by the Hande Formula: that is, to judge whether there is a fault or not by comparing the product of accident prevention cost and expected loss caused by the accident and its probability of occurrence. When the accident prevention cost is less than the product (b < PL), it is at fault; otherwise, it is not at fault. The expression of this mathematical formula shows the objectification of negligence, although it does not produce stronger operability. Different from the objectification of negligence by changing the judgment standard of negligence, negligence presumes to strengthen the victim’s protected position by transferring the burden of proof of negligence, that is, as long as the plaintiff proves that the damage is caused by the behavior or cause for which the actor should be responsible, the defendant is presumed to be at fault, and the defendant can only be exempted from liability if he proves that he has no negligence. For example, Article 81 of the Tort Law of our country stipulates that if an animal in a zoo causes damage to others, the zoo shall bear the tortious liability. Still, it shall not be liable if it can prove that it has performed its management duties. It should be noted that the presumption of negligence has nothing to do with the judgment standard of negligence but only to solve the problem that the victim cannot obtain compensation under special circumstances because they cannot prove the negligence of the offender. Therefore, logically, the presumption of negligence still adheres to the principle of liability for negligence. However, by strengthening the duty of care, the application result of negligence presumption may be very close to strict liability, in effect, thus becoming an intermediate form between general negligence and strict liability. For example, Article 75 of the Tort Law of People’s Republic of China stipulates that if the owner and manager of highly dangerous objects cannot prove that they have fulfilled their duty of care to prevent others from illegally possessing the above dangerous substances, they shall bear joint and several liabilities with the illegal possessor. Whether the liability concerning all owners and managers provided in this article should fall within the presumption of negligence or strict liability is still deserving discussing. However, pursuant to provisions on “owners’ negligence” in Article 74 of Contract Law, the presumption of negligence should be appropriate. In this kind of negligence presumption, the “Standard of Care” for judging negligence is raised to “high duty of care”, and everyone’s exemption opportunities will be extremely limited, thus approaching the liability without negligence. Based on the abstract nature of negligence standards, the judgment of negligence sometimes needs to be combined with the provisions of the law. There are two ways to deal with the situation where the injurious act violates the provisions of law: one is an illegal presumption of negligence; the other is a violation of law as negligence. In the case of illegal presumption of negligence, the offender still has the opportunity to prove that they have no negligence and is exempted from liability so that it can be regarded as a special case of presumption of negligence. When violation of law is regarded as negligence, negligence is completely objectified, and the negligence 239

Qiu Zhicong, On the Components of Danger Liability from the Change of Imputation Principle for Tort, p. 62.

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standard is reduced to a single illegal fact. For example, Article 58 of the Tort Law of People’s Republic of China stipulates that in cases of medical damage, if medical institutions violate laws, administrative regulations, rules and other relevant diagnosis and treatment norms, if concealing or refusing to provide medical records related to disputes or forge, tamper with or destroy medical records, they are “presumed” to be at fault. In theory, there are different opinions as to whether such a presumption should be allowed to be refuted with contrary evidence. Still, it should be allowed to be disproved in the legal textual meaning. On the contrary, Article 58 of Contract Law stipulates that if the seller cannot specify the manufacturer of the defective product or the supplier of the defective product, they shall bear the tortious liability. This provision is a typical case of “violation of law as negligence”.240 Omission infringement that violates the duty of safety protection is another case in point. At this time, the fact of violating the duty of safety protection and the fact of violating the duty of care are incorporated into one judgment, though a breach of security duty is not equivalent to a violation of the explicit provisions of the law. b. Principle of Strict Liability or Dangerous Liability Negligence socialization is born to make up for the defects of the traditional subjective negligence theory. Although it is still called “negligence”, there is little similarity in connotation or extension between negligence under socialization and subjective negligence that emphasizes ethics. However, it is not appropriate to equate objective negligence with no negligence. This is because the standard of behavior for judging objective negligence will affect the compliance between objective negligence and subjective negligence. In other words, the closer the behavior standard is to the common behavior standard of ordinary people, the more likely it is to be consistent with the subjective negligence judgment. On the contrary, the more the behavior standard deviates from the common behavior standard of ordinary people (such as high duty of care), the closer it is to too strict liability or no-negligence liability. Therefore, the determination of the standard of conduct is the premise for distinguishing negligence liability from strict liability or non-negligence liability.241 This can be illustrated as follows:

Field of liability for negligence Field of Strict liability

240

See Article 51, Paragraph 1 of Law of the PRC on the Protection of the Rights and Interests of Consumers. This article stipulates: “In case of damage caused by traffic accidents, the transferor and the transferee shall bear joint and several liability for the transfer of assembled or scrapped motor vehicles by means of sale”. The responsibility of the assignor belongs to the situation that illegality is regarded as negligence in nature. 241 See Mark A. Geistfeld, Tort Law, Aspen Publishers, 2008, p. 53.

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As can be seen from the above figure, under the premise that specific damages should be relieved (this is the common background of negligence socialization and strict liability or dangerous liability), by improving the behavior standard for judging negligence, in the judgment of responsibility, a unified negligence imputation can be established. If the standard is lowered, it is necessary to provide a new basis of liability for such remedy, and a dualized liability system is proposed accordingly. Strict liability is a concept widely adopted in Anglo-American Law. And similar concepts in civil law are dangerous liability, regulatory liability, objective liability, etc. In American law, Part III of the Second Restatement of Tort Law uses “strict liability”, but its specific meaning is not clear. It is only stipulated as a form of liability opposite to intentional negligence and is limited to several special types such as animal harm, abnormally dangerous activities harm and product harm. In German law, the form of liability relative to negligence liability is called dangerous liability. “It is the liability of the owner or holder of a particular enterprise. If the occurrence of damage is related to this danger, the owner or holder shall be responsible, regardless of whether they are at fault in the occurrence of the damage”.242 It can be seen that strict liability or abnormally dangerous activity has the following points in common: first, the elements of negligence are excluded as the constituent of tortious liability; Second, Both are limited to specific types or causes of injury, mainly including trains, cars, aviation accident liability, mine liability, liability for electrical and gas supply equipment, nuclear (atomic energy) damage liability, general industrial accident liability, dangerous material holding liability and public nuisance (or environmental pollution liability) and so on.243 Strict liability, dangerous liability, supervision liability, no-fault liability and objective liability have different meanings or normative contents. Strict liability is an imputation standard that does not take fault as its element, and it still has the opportunity of exemption because of the existence of defense, so it is different from absolute no-fault liability or result liability, and its use is limited. Supervision liabillity is developed by French justice through the non-biological management liability in civil code, which is actually close to dangerous liability. Dangerous liability is the liability for damage caused by specific danger. The meaning of “danger” is different from ordinary danger and abnormal danger. If the former is adopted, dangerous liability and objective negligence overlap (broad sense); If the latter is adopted, it is different from objective negligence, because the actor is still not exempt from responsibility after taking reasonable care (narrow sense); Objective liability covers a wide range, including objective negligence, dangerous liability (narrow sense), sacrifice liability, cause liability, equity liability, etc., and is not limited to the imputation of tort liability. Nevertheless, in theory, strict liability, dangerous liability and no-fault liability are usually used interchangeably, and are not strictly distinguished. 242

Karl Larenz, Reposition of Rudolph von Jhering’s Culpa in Contrahendo; Wang Zejian, Civil Law Doctrine and Jurisprudence Studies (Vol. 5), Peking University Press, 2009, p. 187. 243 Qiu Zhicong, On the Components of Danger Liability from the Change of Imputation Principle for Tort, p. 101.

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The principle of strict liability or dangerous liability refers to the problem of compensation for damage caused by dangerous activities, which directly takes danger as the basis of liability and recognizes the criterion of liability to co-exist with that of negligence liability.244 It is manifested in the generalization of strict liability and the generalization of imputation.245 The generalization of strict liability refers to the trend that the types of damages involved are gradually generalized from narrow to wide. In civil law, traffic accidents and factory damage accidents are the starting points of dangerous liability, respectively represented by Germany and French. The dangerous liability in German law extends from railway and traffic accidents to aviation accidents and then extends to other dangerous activities. The French law goes from factory accidents to traffic accidents and other dangerous activities.246 In AngloAmerican law, its traditional types are found in fire damage, animal damage, abnormally dangerous activities and other types, and then expanded to public nuisance and product liability.247 The scope of application of strict liability has been relatively extensive, and it is not a single phenomenon in one country. “Strict liability has become a common feature of tort law in European countries”.248 The generalization of liability for dangerous liability is that risk liability is based on its generalization and becomes the general imputation standard through precedents or legislation. Case law is a characteristic of legal development in Anglo-American law. However, there are still differences between jurisdictions in the specific form of expression. English law is mainly based on the development of precedents, while the recent development of the United States is guided by theoretical theory and supplemented by cases. Although France has a tradition of statutory law, its development of dangerous liability is based on the general norms of non-biological management liability in the civil code, which is not specific to dangerous activities. It has become the general norm or supplementary norm of managing things through the interpretation of precedents and has become the basis of dangerous liability in civil law. Therefore, it also falls into the precedent-dominated type.249 The development of abnormally dangerous activity through legislation is represented by the German Law system, which is specifically divided into the general clause mode of the civil code and the 244

Ibid., page 256. Ibid., page 254. 246 Ibid., page 254. 247 Richard A. Epstein, Tort Law, p. 333 below. 248 Christian Von Bar, The Common European Law of Torts (Band 1), p. 588. 249 Qiu Zhicong, On the Components of Danger Liability From the Change of Imputation Principle for Tort, p. 255. However, in the tort law part of the draft reform of debt law in 2005, an expanded dangerous liability of the custodian of the property is stipulated, that is, the manager of the property bears the legal strict liability, and there is no possibility of exemption from liability by proof of due diligence At the same time, it stipulates dangerous liability for industrial accidents, and clearly stipulates that in the liability for highly dangerous activities, the liability subject is enterprises, that is, enterprises should bear strict liability for various highly dangerous liabilities, and bring road traffic accident liability and product liability into the Civil Code from the special tort law. See Fang Ming, On Dangerous Liability and Its Legislative Model, Journal of Tsinghua University (Philosophy and Social Sciences Edition), No.6, 2010, p. 153. 245

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special law legislation model. Germany, Switzerland, Austria and Japan adopt the special law legislative model and specifically legislate on the types of extraordinary danger and injuries outside the civil code. There is no uniform general provision in the civil code for dangerous liability. The general clause model has been adopted in Poland, Italy, Netherlands, and in the Tort Law of the People’s Republic of China. However, this general clause model is usually limited to the liability for damage caused by dangerous activities or dangerous substances and is not a general specification of strict liability. For example, Article 2050 of the Italian Civil Code provides: “The perpetrator is liable for any damage caused to others in the course of a dangerous activity, in the absence of proof that all appropriate measures have been taken to avoid the damage, depending on the nature of the danger or the characteristics of the means used”. Later, it stipulated the liability forms such as damage caused by deposit (Article 2051), damage caused by animals (Article 2052), damage caused by building collapse (Article 2053) and damage caused by traffic accidents (Article 2054), all of which belong to strict liability in nature. Similar general clauses are also found in Article 191 of the Taiwan Civil Code and Article 69 of the Tort Law of The People’s Republic of China. Therefore, the general norms of such dangerous activity are limited to abnormally activity in a narrow sense. The general specifications of strict liability in certain sense should take Article 7 of Tort Law of the People’s Republic China as an example, which stipulates: “One who shall assume the tortious liability for infringement upon a civil right or interest of another person, whether at fault or not, as provided for by law, shall be subject to such legal provisions”.250 However, this article is not specific constitutive elements of liability. Therefore, it is only a general declaration of strict liability and has no practical normative significance. On the one hand, this situation shows that although the types of strict liability are universal, there are no common positive elements to follow except for the determination of liability without negligence; in addition, there are also differences in specific defense matters. Even in the narrow sense of danger liability, uniformly stipulated, there may be differences due to the specific damage categories. For example, the Tort Law of China sets different defenses for the categories of abnormally dangerous activity, such as nuclear accident damage, civil aviation accident damage, damage caused by highly dangerous objects and damage caused by highly dangerous activities.251 Therefore, strict liability is the principle of liability that combines various types of damage regardless of the negative characteristics of the negligence of the liable person, which is not the same as the abstract nature of liability for negligence in terms of constitutive elements. However, it is not appropriate to regard strict liability as an exception to liability for negligence because it widely exists and has become

250

This article comes from Article 106, paragraph 3, of the General Principles of the Civil Law: “If the United States is at fault, but the law stipulates that it should bear civil liability, it should bear civil liability”. Obviously, the expression of Tort Law more accurately reflects the normative characteristics of strict liability. 251 See Articles 70 and 73 of the Tort law of the People’s Republic of China.

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a parallel with negligence imputation. It is theoretically called the dualization or diversification of the principle of tort liability.252 There is no doubt that compared with negligence liability, strict liability responds to the damage of rights and interests in the modern risk society in a more positive way, and strengthens the rights and interests remedy function by simplifying the elements of responsibility. With the strengthening of this remedy function, the rights and interests remedy covered by contract law in the past has gradually shifted to tort law. Product liability and medical damage liability are all typical forms of this function transfer.

2.4 Summary The expansion of contract law and tort law is a breakthrough in the normative logic, and in essence, it is a response to the demand for rights and interests protection. In other words, once the substantive legal regulation is put forward, it will first seek to be satisfied through the existing legal means. In terms of legal remedy, the contract law includes the relationship between the parties before (after) the establishment of the contract, the inherent rights and interests and the third party outside the contractual relationship into the scope of its regulation. Tort law also expands the scope of protection from rights to interests, and enhances the remedial function of rights and interests through the principle of strict liability. The expansion of tort law and contract law in protecting objects leads to the convergence of the two in protecting objects; the protective effect of contract law on inherent rights and interests and the protection of third parties outside the contract has led to the transfer of some remedy functions of tort law to contract law. However, the socialization of negligence in tort law and the diversification of imputation standards have led to the transfer of some remedy functions of the contract law to tort law, such as medical damage and product defects. The expansion of different legal fields will not only compress the extra-legal space but also trigger the staggered regulative objects between different legal fields. The former only needs to solve the legitimacy of its expansion within the law, while the latter needs to solve the coordination problem between different legal fields.

252

Qiu Congzhi, On the Composition of Dangerous Liability from the Change of Imputation Standard of Tort, p. 256; Wang Liming, Research on the Imputation Principle of Tort Law (Revised 2nd ed.), China University of Political Science and Law Press, 2004, p. 101 below; Epstein, Richard A. Tort Law, p. 333.

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3 Typological Composition of Intermediate Field of Contract Law and Tort Law So far, we have completed an overview of the relationship between contract law and tort law. As two different legal regulative techniques or legal fields, contract law and tort law have their own independent domains, such as claims for performance, which accompany the realization of contractual expectations, and tort compensation related to accidental damage sharing with strangers. The existence of different domains is the factual basis and value of the independent existence of the two legal fields. However, in the process of theoretical abstraction towards rationality, a legal field will expand its scope of application beyond its basic presets. This is not because of the intentional actions of legislators but because of the characteristics of the law as a standard of evaluation. As an object of normative evaluation, facts in our lives will not be as distinct as the separation of tangible objects, but there will be two possible forms: they are either disconnected to each other or interlaced with each other. Accurate splicing can only belong to the ideal concept world, but cannot be realized in the real world. For the two most important legal fields in private law (civil law), the social facts dealt with by contract law and tort law also have the characteristics mentioned above. They are either separated from each other and do not respond adequately to specific social relations or overlap each other and thereby generate conflicts of normative effects, which, in this book are generally referred to as the intermediate field of contract law and tort law. The intermediate field of contract law and tort law not only leads to the reflection on the function setting of contract law and tort law but also affects the effectiveness of the legal regulation. Therefore, it is necessary to clarify its causes and characteristics.

3.1 Reasons for the Formation of Intermediate Field There are usually two purposes of classification: the instrumental purpose, that is, the specific classification as a means to achieve a certain value pursuit; The other is the analytical purpose, that is, the specific classification as a logical realization, a systematic or consistent means.253 These two purposes also correspond to the practical and theoretical purposes of classification, respectively. In law, classification is also a critical method to sort out legal rules and ideas. It can achieve certain policy objectives and help maintain the intellectual boundary of the legal system.254 The distinction between contract and infringement is a typical example of this classification. This classification may systematically apply Aristotle’s classification ideas on voluntary and involuntary transactions. After the introduction of private law by the

253 254

Jay M. Feinman, The Jurisprudence of Classification, 41 Stanford Law Review (1989), p. 677. Ibid.

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ancient Roman jurist Gaius, it became the primary method for later countries to organize private law debt relations; in addition, two rules have been formed to regulate different resource transfer behaviors: the contract law is related to the expectation realization caused by binding promises, and the tort law is related to the damage caused by illegal infringement of the current situation.255 Accordingly, the remedy purpose for the liability for breach of contract is to put the other party in the position where it might have been after the performance of the contract, while the tortious liability is to put the victim in a state before the damage occurs. Looking forward to achieving and maintaining the status quo is not involved and connected with each other, which is the conceptually perfect pairing. However, human experience inevitably deviates from established types through gaps in concepts and resistance to classification results. The principle of fairness requires legal remedies beyond specific types, which expands the scope of application of existing types.256 From the historical development of contract law and tort law, we can see that the two systems of rules mentioned above are too abstract. For example, Should the damage caused in the process of creating and realizing the promise be remedied by law? Is this damage related to the “fulfillment of the promise”? Does it also belong to the damage caused by “illegal infringement”? If this kind of damage is excluded from “damage caused by unlawful infringement”, does it mean that such damage is quite different in terms of protective preconditions and effects? Obviously, the aforementioned abstract expression cannot give a clear answer to these questions. Logically speaking, the classification standard is determined before the classification. However, the development of contract law and tort law as different legal fields is not completed only after the boundary between the two has been clearly determined, and the boundary between them became an issue only after the two have developed into an independent legal field. When laws were not developed, contract law and tort law were just a collection of rules in some typical forms of disputes. It was not until modern times that they were organized according to different legal principles. With the evolvement of legal principles, the initial choice of the legislature, the judiciary or even the legal theory will definitely impact the later development. In this sense, their ideas about the normative facts of contract or tort will affect the form and content of the rules they choose. For example, if the contract is regarded as a product of the notion of consensual intention and the validity of the contract is determined by that intention, then the contract law will not deal with the exchange of interests without consensual intention. On the contrary, if the contract is regarded as “a tool to promote the division of labour, exchange of goods, and optimal allocation of social and economic resources in society”, then the contract law will not only be based on consensual intention but can regulate the conflict of interests according to a specific policy judgment. Thus, the scope of regulation of the contract law has been greatly expanded, and the development of modern contract law also reflects such a

255

Reinhard Zimmermann, The Law of Obligation: Roman Foundations of the Civilian Tradition, Oxford University Press, 1996, p. 11. 256 Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review (1999), p. 4.

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conceptual change.257 As far as tort law is concerned, personal interests and property interests related to tangible property are always the centers of its protection, and then its scope is constantly expanding, so its function as a tool of damage distribution is also expanding. Tort law protects contractual interests,258 and the recognition of strict liability results from this change. The problem faced by contract law and tort law may be the problem of “shortage of norms”, that is, the interests to be relieved cannot be obtained through both laws. Culpa in contrahendo and third-party infringement on contractual claims are two cases in point. At times, contract law and tort law may face the problem of “normative interleaving”, that is, they overlap on the protected object and the principle of constitution. As a common phenomenon of private law in various countries, the concurrent liability is a good case in point. The norm shortage leads to the problem of external effects of insufficient remedy functions, while the norm overlapping causes the problem of coherence within the regulations. Judging from the normative effect, the normative characteristics of contract law and tort law can explain the formation of intermediate field. As far as its abstract function is concerned, contract law has the dual functions of creating rights and protecting rights and interests. On the contrary, tort law only has the protective function.259 A contract may create an interest that the parties have not already enjoyed before the conclusion of the contract, and contract law provides normative conditions for the creation of such an interest, which is not available in tort law. There is no intersection or overlap between contract law and tort law in terms of the factual relationship on which the function creation is based. However, contract law also has the same protective function as tort law, that is, providing protection by providing legal remedies for the damaged interests of the parties. We have already seen that it is the same kind of function that leads to the intersection of contract law and tort law. For example, both contract law and tort law will involve the remedies for the loss or damage of property under the storage contract, which is independent of the creative function of the rights and interests of the storage contract. The creative function of the contract law must have the corresponding protective function, otherwise, the regulation of the contractual relationship is incomplete. As a result, the expectation interests created by the contract need the liability rules for breach of contract as remedy. For the protective function, although the protection obligation may also be created by a contract (this is why strict liability can be applied to omission in contract law. However, we generally do not view the protective effect produced by creating such obligations as an interest (actually it is interest), but rather view it as contractual obligation aimed to protect inherent rights and interests. It is precisely because of this independent protective function of the contract law that the scope of protection of contract law can be greatly expanded so that it can be included in the stage before the effective conclusion of the contract, as long as the social function 257

Thomas Raiser, Grundlagen der Rechtssoziologie (5th ed.), Gao Xujun Trans, Shanghai People’s Publishing Housing, 2011, pp. 22–23. 258 Peter Kane, The Anatomy of Tort Law, Wang Zhigang Trans, Peking University Press, 2010, p. 169. 259 Ibid., pp. 11–12.

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of the contract is emphasized and the declaration of intention is not taken as the sole basis for the binding force of the contract. Once the rights and interests created by the contract are recognized by law, conceptually there is no difference in the ownership of interests from other rights and interests enjoyed by obligees, and they can become the protective object of any legal institution that performs the protective function. Frankly speaking, there is no obstacle in tort law to protect contractual rights and interests. Of course, all laws must weigh between the protected interests and the interests of the person on whom the liability is imposed, hence realizing their protective function. Based on the necessity of this balance, it is only legally possible that different rights and interests will be treated differently under the protected conditions. This kind of different disposal is only based on the characteristics of protected interests and will not affect their status as protected objects in different legal fields. The overlapping in the protective functions of contract and tort law can be used to explain the formation of both the fuzzy field and the overlapping field. In the case of fuzzy field, since there is no valid contractual relationship or the apparent agreement does not have the effect of creating contractual interests (for example, courtesy relations), tort law will first become an alternative tool for the protection of rights and interests in this case. However, this observation from the perspective of the protected object does not consider the impact of effective and positive norms of tort law on the protective function. In reality, tort law that acts as the protective function may not be able to actually perform the protective function for specific reasons. In this case, the contract may become an alternative tool. For example, when the interests involved in the case may not be protected according to tort law, such as pure economic loss caused by negligence or insufficient protection, if the specific tortious liability defense may be improperly exempted due to the existence of specific tortious liability, the consideration of fair remedy will lead to the institutional demand of functional substitution. This is the case for damage and remedy in contracting contacts and protecting interests in partial courtesy relations. Even in the case of a valid contract, if there is inherent interest damage in the performance process, the inherent interests and the expectation interests created by the contract are taken as related but different interests. According to the previous analysis, if the inherent interests are not the purpose of the contract, they can be included in the contract and tort remedies respectively. However, in practice, the parties cannot bring two separate lawsuits for these two kinds of interests because there is only one lawsuit involved. In this case, once again, due to the operation of the system (the institutional provisions of the procedural law on the subject of litigation), the remedy of the rights and interests of the aggrieved party can only be realized by expanding the scope of protection of the contract or tort, which leads to the overlapping of contract law and tort law. It can be seen that the intersection between contract law and tort law has both the factual reasons for the overlapping protective objects and the reasons for the establishment of the intermediate field.

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3.2 Basic Forms of the Intermediate Field The intermediate field of contract law and tort law takes two forms: “the fuzzy field” and “overlapping field” according to the combination of specific social relations and normative needs. “The fuzzy field” refers to a situation in which a particular social relation or fact is not regulated or is only regulated by one law because of the particular structure of positive law, but with the transformation of social economy, a new demand for the protection of interests arises and needs to be regulated by at least one of the two laws or one of the laws cannot provide adequate protection and thereby needs another law to provide protection. “Overlapping field” refers to the situation where two laws regulate the same factual relationship forming the “territorial condominium”. On the surface, “the fuzzy field” is more involved in the separation of objects to be regulated or the definition of normative attributes, while the “overlapping field” is more involved in the application of norms, as the normative attribute has been clear at this point, but the effect of the regulation in different legal fields (the effect of positive law and the effect of related procedural law) are uncertain. As such, it is necessary to realize the actual normative effect of this kind of factual relationship arising from the overlapping field. In fact, the qualitative question raised by “the fuzzy field” is only for the consideration of normative forms, while the confirmation of normative effect is what really important. The goal of defining normative attributes is not only to achieve proper normative effects, but also to coordinate legal systems, and the same is true of “overlapping field”. In this sense, as a legal phenomenon indicating the unclear boundary between contract law and tort law, both “the fuzzy field” and “overlapping field” have more value on classification in legislation and jurisprudence, while in legal practice, these two fields are much less significant as they cannot provide the direct normative guidance. Once a certain social relationship should be regulated by contract law or tort law, normative overlaps arise no matter it is in the fuzzy field or in the overlapping field. The lack of norms needs to be solved through the expansion of the existing legal field, and both contract law and tort law could be an alternative to solve the problem before it is clear which normative form will solve it. As a result, possible normative overlaps occur. When the positive law determines that the two norms can regulate the same social relationship, the possible normative overlaps will develop into the actual overlaps. In the course of the development of law, these two normative overlapping forms can be transformed. For example, for defective product damage and medical damage under the framework of the current Chinese law, the Contract Law and the Tort Law can provide legal remedies for the related damage, which belongs to actual normative overlap. However, in practice, courts tend to treat the related injury disputes as simple tortious disputes. In this way, an actual normative overlap is transformed into a possible one as practical restrictions are placed on some types of norms. On the contrary, damage caused by culpa in contrahendo is originally the regulative object of tort law in current Chinese law. However, the Contract Law of the People’s Republic of China regards it as its own normative content, which leads

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the transfer from possible normative overlap to an actual one. Normative overlap becomes a basic feature of all overlapping fields because of such transfer. Therefore, the theoretical research on the intermediate field between contract law and tort law needs to pay special attention to the normative overlaps. Scholars believe that standard overlaps can be divided into three types according to different objects: factual overlaps, doctrinal overlaps and principled overlaps. Factual overlaps refer to the overlap of facts handled in different legal fields. Doctrinal overlaps mean that the doctrine of one legal field is integrated into another one. Principled overlaps refer that a principle that usually relates to one legal field seems to contain the meaning of principles from another legal field. Since the principled overlaps are only an extension of the doctrinal overlaps,260 the three categories can be simplified as factual overlaps and doctrinal overlaps. Factual overlaps occur when facts traditionally dealt with in one legal field are dealt with or even replaced by the principles of other legal fields.261 An extreme case is that the traditional legal field is completely replaced by another legal field, which is also called the transfer of the regulative object. For example, this is generally the case in product liability and medical damage that the original objects regulated by contract law transform into the ones regulated by tort law; In German law, third party incidental protecting contracts transfers the problems that should otherwise be tackled by tort law to contract law. In less extreme cases, the two fields of law regulate the same fact at the same time without the question of precedence, and this is the case with the concurrent liability we often mentioned. Sometimes, certain factual overlaps may happen, but they may fail in the end. For example, although not protecting pure economic loss in product liabilities is a practice in most jurisdictions, the Supreme Court of New Jersey has still adopted the approach of minority, that extends product liabilities to pure cases of pecuniary damage and asking the producer to take strict liability for the impairment loss caused by the buyer’s product defects.262 However, in the subsequent judgment, the United States Supreme Court took an approach in consistency with the approach of majority, and denied that the buyer could claim negligence or strict tortious liability for pure economic loss, thus, indicating a clear direction on this issue.263 In China, moral damages in remedy for breach of contract, although were recognized in jurisprudence, have been denied again in individual formal legal documents, referring to the same condition above.264 The overlapping facts here include two aspects: the cause fact resulting in liabilities and the fact of damage determining the scope of liability. In terms of importance, the normative significance of the overlapping of cause fact is most noteworthy.

260

Ibid., pp. 668–669. Ibid. 262 See Santor v. A & M Karagheusian, Inc. (44N.J. 52, 207 A.2d 305 (1965).) CF Jay M. Feinman, ibid., p. 666. 263 Ibid., pp. 666–667. 264 See Article 21 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Cases about Tour Disputes. 261

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Doctrinal overlaps mean that the principles of one legal field are totally learned from another legal field. Different from factual overlaps, the facts to be dealt with are still the objects regulated in this legal field; but the legal field expands its scope by adopting the transformed principles. When confirming liability scope by relevant rules of tort law for the personal injury caused by a breach of contract, or judging to apologize for the mental damage caused by a breach of contract, since the relevant rules of tort law are applied only in cases for breach of contract, do not change the normative nature of the fact of damage, such case should belong to factual overlaps. In contrast, taking exemplary damages into the field of contracts (such as the contractual liability for the fraudulent sale of commercial housing) is like introducing the original tort law principle into the contract law, so it is a case of doctrinal overlaps. The doctrinal overlaps are a more direct reflection of the interrelationship between contract law and tort law. On the one hand, it strengthens the convergence of the two laws; on the other hand, it may disturb the coherence of the two laws in terms of the system idea because of the introduction of a certain heterogeneous principle into the two laws. The convergence of the two laws accords with the need for regulation on substantive interests, while the disturbance of consistency weakens the rationality of normative forms, thereby leading to the rise of the integration of norms. In terms of relationship between normative overlapping forms and the classification of the immediate field, when the same social relationship is regulated by two legal fields, a factual overlap is in consistency with the classification of overlapping fields. However, “doctrinal overlaps” can also occur in an “overlapping field”, because the existence of an overlapping field will lead to the fusion of norms, making the legal doctrine that otherwise belongs to one legal field blend into another one. For example, in cases involving damages caused by a breach of protection obligations unrelated to performance, in order to achieve the appropriateness of the regulative result, the norm overlaps will not cause special problems with law application by introducing some factors of constitutive requirements of tortious liability into those of contractual liability, which adopts the same constitutive requirement and form of liability irrespective of whether it should deal with based on contract liability or tortious liability.

3.3 Summary Contract law and tort law establish rules around their core areas in the first place, and they are treated as different rules. With the expansion of remedy in private law, as the two pillars of the remedy system of private law, contract law and tort law are also constantly expanding the scope of their own regulation, applying the existing rules to new fields, or establishing new rules in old fields. The new expanded areas do not embody the characteristics of the core areas of the two laws but show different degrees of deviation or approximation, which determines the appropriateness of the principles or rules of a core area being applied to such new areas. As a result, the new areas either have a high degree of proximity to a core area, allowing for direct

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application of the rules governing that core area or deviate in such a way that new legal doctrines or rules need to be introduced or constructed. On the one hand, this new area of regulation cause changes in the internal structure of the two laws; on the other hand, the changes mentioned above increase the difficulty of classification of the new areas. Therefore, factual overlaps and doctrinal overlaps are accompanied by the problem of classification, becoming an interrelated normative phenomenon between contract law and tort law. It should be noted that the intermediate field between contract law and tort law is not a legal object regulated with definite scope, but a general term of some legal phenomena between core regulative fields of contract law and tort law. Even if an intermediate field has been regulated by contract law or tort law, it is still treated as an intermediate field theoretically. The emergence of the intermediate field provides a new starting point for rethinking the relationship between contract law and tort law.

4 Summary of the Chapter The intermediate field between contract law and tort law is formed because the two laws share the protective function of civil rights and interests, thus causing the overlapping of the regulation scope and legal principles. The study of the intermediate field will first involve the abstract theory of contract and tort, contract law and tort law. The first two sections of this chapter mainly focus on this aspect. However, as scholars have pointed out, “the boundary of tort in any country is determined by its own law”.265 Therefore, all questions concerning the standard of classifying tort and contract and the relationship between contract law and tort law on which they are based are always directly relevant to the legal system of a particular legal field. For example, in France, medical negligence and product liability is a contract issue, while in Britain, it is a typically infringement issue. The remedy for damages related to misrepresentation are solved by tort in Britain and America, while in Germany, they are dealt with within contract law by culpa in contrahendo. Therefore, only by linking the intermediate field with this background of positive law can truly highlight the practical research value of intermediate field. Since the intermediate field between contract law and tort law involves in the legal fields between tort and contract (or breach of contract), it is more convenient to discuss the intermediate field by dividing it into three forms based on the correlation form between the relevant fields and contract: the pre-contractual stage, the contract performance stage and the courtesy relations.266 The protected interests related to 265

Von Barr, Gemeineuropäisches Deliktsrecht (Vol. 1), Zhang Xinbao Trans, Law Press, 2001, p. 529. 266 Whether the intermediate field at the post-contract stage exists or not is controversial, and it can’t be compared with the three forms mentioned here in terms of its importance. Therefore, this paper does not treat it as an independent form, but classifies it into the intermediate field at the contract performance stage. For a brief description of this, please refer to “II. Characteristics of remedies for the rights and interests in Intermediate Areas” in the Sect. 1 of Chapter 6 of this book.

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the pre-contractual stage are not only about person and property but also about pure economic loss. As for the former interest, it is certainly under the protection of tort law, but it’s debatable whether it is regulated by culpa in contrahendo at the same time.267 For the latter, it is concerned with the legal positioning of pure economic loss, especially whether tort law can protect the pure economic loss under such circumstances. Therefore, the intermediate area of this stage concerns the regulation scope of former contractual liability and the regulation of certain types of damages by tort law. The intermediate field of the contract performance stage is first involved in the protection obligations (or collateral obligations) in contracts. The protection obligation is usually considered an incidental part of the contract, which may be the purpose of the contractual relationship itself and constitutes the performance obligation at the same time. Therefore, the protection obligation may be the inherent content of the contract protective function or the result of the expansion of protective function of contract law. The concurrence of liabilities is the typical form of the overlaps of contract law and tort law. It has always been the focus of the discussion on the relationship between the two laws. In contract law, the protection of interests of the third party outside the contractual relationships belongs to f the intermediate field in the performance stage where contract law shares the protective function of tort law by expanding the protective effect of contract, thus forming an intermediate field. A courtesy relationship has all the superficial features of a contractual relationship, but it does not produce the effect (constitutive effect) that a contract usually has in creating a right to performance, but involves a remedy for damage caused in the course of providing a courtesy performance (protective effect). And there has always been a dispute over whether the legal regulation on it should be undertaken by tort law or contract law. Therefore, the problem of courtesy relations also needs to be solved by the intermediate field between the contract law and tort law.

267

For a negative view, see Wang Liming, A Treatise on Liability for Breach of Contract (Revised ed.) China University of Political Science and Law Press, 2003, p. 815; For positive opinions, please refer to Cui Jianyuan, editor-in-chief: “Principles and Cases of New Contract Law” (I), Jilin University Press, 1999, p. 114; For those who do not clearly express their attitude and think that further discussion is needed, see Han Shiyuan, General Contract Law (3rd ed.), Law Press, 2011, p. 144.

Chapter 3

Legal Regulation at Pre-contractual Stage

The pre-contractual stage refers to the stage from the beginning of the contracting contact to the time prior to the conclusion of the contract. At this stage, the parties contact each other to conclude a contract, and each impact the rights and interests of the other parties by their act or omission. If the contract is concluded effectively, the expense made by the parties to conclude the contract can be compensated through the conclusion and performance of the contract. If the contract is not established at all due to the other party’s misconduct, or it is established but ineffective or invalid, or it is effective, but its content is unfavorable to one party, then whether one of the parties can request the other party to compensate or how to compensate (including investments or expenses made to conclude the contract and other trading opportunities abandoned) needs to be clarified in law, which involves pre-contractual liability.1 At this point, although wrongful acts in the contracting process may also cause the invalidity of the contract (such as the cancellation or invalidity of the contract due to fraud, coercion or false statements), the pre-contractual liability does not need to be premised on the existence of validity defects of the contract to be concluded. Since the validity defects are regulated by contract law, and have nothing to do with the intermediate field of contract law and tort law, the discussion about the legal regulation of the pre-contractual stage in this chapter is limited to the pre-contractual liability rather than validity defects of contract. As far as pre-contractual liability is concerned, there are mainly three legal issues that need to be addressed: First, how should we treat the nature of the relationship between the parties in view of contracting contact, especially whether the contracting parties have pre-contractual obligations that are different from the general duty of care in tort law? Second, how should the pre-contractual liability rules be constructed? Specifically, what constitutive requirements are used by the parties 1

Our civil law is generally called culpa in contrahendo in theory, and its scope includes contractual liabilities with fault as the imputation standard and strict contracting liability. Because of the ambiguity in terms of “intentional fault liability in contracting” or “fault-free fault liability in contracting”, this paper calls it “pre-contractual liability” which is usually adopted in comparative law.

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liable for damage caused by their misconduct in contracting, and how should the content and scope of such liability be determined? Third, how should such liability be characterized? Should it be classified as a contractual or tortious liability, or as a third and independent liability different from the former two? Given the above problems, the first section of this chapter starts by investigating the basic characteristics of the pre-contractual relationships and discusses the types and nature of the pre-contractual obligation as its basic content; The second and the third section will discuss the problems of imputation standard and liability bearing respectively combined with the current Chinese law and aimed at the legal structure of the pre-contractual liability; The fourth section discusses the relationships between the pre-contractual liability and other civil liabilities in the current law to determine the basic characteristics of the legal regulation of pre-contractual relationships. Section 5 is the summary of this chapter.

1 Pre-contractual Relationship and Pre-contractual Liability When proving the culpa in contrahendo in contract, the German law master Jhering pointed out: “the person who concludes the contract is shifting from negative duty outside the contractual transaction to the positive duty of the contract, thus, the primary duty he undertakes for this is that he must fulfill necessary duty of care when entering into a contract. What the law protects is not only an existing contractual relationship but also an ongoing contractual relationship. Otherwise, contractual transactions will be exposed and unprotected, and one contracting party will inevitably be harmed by negligence or inattention of the other party!”2 It is easily observed that bringing the ongoing contractual relationship, namely the pre-contractual relationship, into the protection of the law and making the parties bear the necessary duty of care or pre-contractual obligation for the interests of other parties is the premise of establishing the liability for culpa in contrahendo or pre-contractual liability. In this way, the nature and content of the pre-contractual relationship become the primary issue discussed in the pre-contractual liability theory.

1.1 Pre-contractual Relationship Whether the general pre-contractual liability system is recognized in legislation or judicature, there is so far a consensus from different countries that the law should impose legal liability on certain misconduct arising at pre-contractual stage.

2

See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), Peking University Press, 2009, p. 72.

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Therefore, the pre-contractual relationship becomes a legal relationship due to the intervention of law. (1) The principle of freedom and good faith in contracts Freedom of contract is the basic principle of contract law, which includes the parties’ freedom in deciding whether to conclude a contract, choose the opposite party, the content and form of the contract, and change or terminate the concluded contract. According to this principle, even if the contracting parties have started contract negotiation, they don’t have to bear the obligation to conclude the contract and can, instead, withdraw from the negotiation without liability. During the negotiation, the parties can also use their stronger bargaining power and information acquisition ability to conclude a relatively favorable contract. In this case, the contracting parties should negotiate at their own risk. They should know that the negotiation may succeed or fail. Only after a successful contract is concluded can his investment at the negotiation stage gain profits. Otherwise, he will be liable for his own losses. It is contrary to the principle of freedom of contract to impose legal liability on the party just because the party in question starts or interrupts the negotiation or utilizes his inherent negotiation advantages to obtain favorable contractual status.3 Although the principle of contractual freedom provides a legitimate basis for the parties to start or terminate negotiations freely, it doesn’t follow that the actors are not liable for any behaviors in the contracting process. It is believed that the parties must bear the risk of any loss at pre-contractual stage, which in fact treats all reasons that lead to the failure of the negotiation or the contract as “normal commercial or life risks”, including the risks arising from the imputable behaviors of the contracting parties in the contracting process. This is obviously beyond the limit that the principle of freedom of contract allows. Just as the case in the performance of the contract, the behavior of the parties in the contracting process must also be consistent with the legal principle of good faith and fair trading, which defines the necessary boundary for the freedom of the contract. Freedom of contract is not a just reason to refuse to assume liability if one party starts or continues to negotiate with the other party without the intention of contracting at all, or misleads the other party intentionally or negligently to have a wrong understanding of the nature or content of the contract to be concluded, or improperly use or disclose the secret information of the other party obtained in the contracting process.4 Therefore, the principle of good faith has become the normative basis of pre-contractual liability. Taking the principle of good faith as the normative basis of the pre-contractual liability has the following meanings: firstly, since the principle of good faith and the principle of contractual freedom limit each other, and one can’t take precedence over another. Some believe that “when the freedom of contract is in conflict with the 3

Some international uniform contract law documents clearly stipulate the effect of this freedom of contract. For example, Article 2.1. 15, paragraph 1, of the general principles of International Commercial Contracts: “The parties are free to negotiate and are not liable for failure to reach an agreement.” Article 2:301, paragraph 1, of the Principles of European Contract Law: “The parties are free to negotiate and are not liable for failure to reach an agreement.” 4 See PICC (2010) §2.1.16 official comment 2.

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security of transaction, we should abandon the freedom of contract and guarantee the security of transaction”, and thereby establish the priority of the principle of good faith that carries the protection function of the security of transaction over the principle of the freedom of contract. Such viewpoint should not be approved.5 When judging according to this principle, the judge always needs to make a specific balance combined with the actual situation of the case. Secondly, the principle of good faith is not the basic norm of the pre-contractual liability, but acts as a basis of positive law for the recognition of pre-contractual obligation. That is to say, precontractual liability, as the premise of pre-contractual obligation, occurs “for the first time” between the contracting parties based on the regulation of the principle of good faith. This liability has apparent humanity (or relativity) characteristics, distinct from the duty of care in general tort law before the parties contact each other. The pre-contractual relationship should become a legal relationship when take “pre-contractual relationship” into consideration for establishing legal obligations; otherwise, the contractual relationship without liability can only be a pure social relationship without legal significance, which is related to the dispute over whether the culpa in contrahendo constitutes the third type of liability independent of contract and infringement. (2) The pre-contractual relationship and Zielvertrag The particularity of the pre-contractual relationship as different from other legal relationships is that the parties contact each other to conclude the final contract (or the Zielvertrag (Zielvertrag)) and the commonality of this purpose provides the basis of reliance for the parties to carry out contract negotiations. This purposeful feature distinguishes the pre-contractual relationship from pure social contact before the infringement occurs and the contact based on courtesy relations. Although this contracting purpose is only a kind of behavioral factor (intention of purpose) and a natural fact which, different from legal transactions, cannot decide the content or validity of the pre-contractual relationship, it not only highlights the uniqueness of the pre-contractual relationship, making it a special binding relationship based on “rechtsgeschäftlichen Kontakt”, but also has value in determining the appropriateness of the actor’s conduct. One of the regulatory roles in pre-contractual relationships the principle of good faith plays is that it requires the contracting parties have a true intention to make a contract, and commencing or continuing contract negotiations without such an intention will be considered a breach of duty to negotiate in good faith and thus should be held liable. The purposive character of the pre-contractual relationship may be used to testify the pre-contractual liability. In the construction of the system of culpa in contrahendo, Jhering took the parties’ reliance on the other party’s intention to conclude a purposeful contract as the basis for granting them the right to claim liability for contractual negligence, and there is no culpa in contrahendo if the damage occurred

5

Qian Yulin, Applicability of Principle of Good Faith to Responsibilities for Negligence in Contract Execution, in Science of Law Vol. 4, 1999, p. 66.

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before the contract was concluded or if no contract was concluded at all.6 Although Leonard extended the negligence of contracting to the time before the conclusion of the contract, the determination of liability still depends on the contracts concluded in the future.7 This view neither endows contractual relations with independent significance nor explains the impact of the Zielvertrag on the distribution of contractual liabilities. It is not appropriate to exclude the same act that can be attributable to liability from culpa in contrahendo because of the failure to conclude the Zielvertrag, so it is widely criticized, leading German doctrine to treat the contracting relationship as a legal relationship which splits the Zielvertrag. Nevertheless, the closeness of the connection between the contracting process and the Zielvertrag is still used by scholars as the standard to analyze the existence of pre-contractual liabilities. Only when the parties reach an agreement on some terms of the Zielvertrag to be concluded in the future, will they bear the liability of good faith negotiation and the possible liability for reliance damage.8 Although this view only puts forward a standard to determine the liability of good faith or good faith negotiation, it neglects that fact that the determination of the liability of good faith negotiation is only related to the judgement effect of “preliminary agreement”. If we relate it to the content of the Zielvertrag, it is possible that some valuable pre-contractual agreements will be excluded improperly, such as agreements that prohibit the parties from negotiating with multiple parties within a certain period of time. Therefore, although the Zielvertrag to be concluded will affect the pre-contractual obligations and pre-contractual liability somehow, the latter is not the only decisive factor. Another way of using the aforementioned contracting purposes, which is often neglected, is to use the contracting purpose as a means to cover various precontractual acts, making the pre-contractual stage a unified regulative object on the surface. For example, the preliminary agreements signed by the parties at the previous contract stage (such as framework contract, letter of intent, etc.), are treated as unified pre-contractual relationship along with other relationships based on failure to inform or breach of unilateral promises or even restitution based on prior performance. This understanding overextends the scope of application of the factors of contracting purposes and puts the legal issues that need to be dealt with separately based on different liabilities under a single structure for observation, which may lead to a misinterpretation of the nature of the pre-contractual liability. (3) The Pre-contractual Relationship as a Statutory Relationship Since the parties’ intention to conclude a contract does not make the pre-contractual relationship a legal one but merely a trigger leads to a pre-contractual relationship, the content or effect of pre-contractual relationships can only be determined by law. In this sense, a pre-contractual relationship is, by nature, a legal relationship

6

A.o.O., S.43. A.o.O., 43f. 8 Allan Schwartz & Robert E. Scott, Pre-contractual Liability and Preliminary Agreements, 120 Havard Law Review (2007), p. 664. 7

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based on a legal provision rather than a legal transaction.9 According to German doctrine, a pre-contractual relationship is one of “Schuldverhältnis Ohne primäre Leistungspflicht” (statutory obligation relationship without performance obligation). In addition to indicating that a pre-contractual relationship arises by operation of law, it is more important to note that it is a “Sonderverbindung”, as distinguished from the relationship between the parties before the fact of tort. The term “Sonderverbindung” is rather a Germanized expression, even if it is also used in the legal doctrine of other countries. It, in terms of contents, is rarely illustrated clearly in theory, other than various descriptions in its characteristic.10 According to the German scholar Frost, one party, by abandoning his defensive segregation in general social interaction, opens up his own fields of rights to others and thereby increases the risk of impairment of his legal interests. The risk, in the case of the defensive segregation, usually is not considered and requires special protection by law, thus creating a special binding relationship (Sonderverbindung) between the parties.11 For the purpose pursued by the parties in this relationship, the party who opens up his field of rights must abandon the defensive segregation. In this way, the relationship characteristic of the purpose setting (Zielsetzung) becomes the “minimum constitutive element” standard for judging particularly binding relationships.12 A special binding relationship arises whenever a link of purpose compels a party to open up his field of rights and increases the risk of impairment. The spatial proximity of the parties to each other or the duration of their relationship is not sufficient to establish such a relationship, nor is the existence of subjective reliance by the parties in such a relationship necessary. Moreover, since the opening of the field of rights occurs voluntarily, it blocks the unlawfulness of acts that enter the field of the rights of others, which enables the act of causing harm in such a relationship to be not ipso facto unlawful in the sense of tort law.13 While there may also be cases where parties have opened up areas of rights based on consent in tort condition, such openings are

9

It must be noted that, it is said that the pre-contractual relationship is a legal relationship, It does not exclude that the relationship can also be regulated by legal act, that is to say, the parties can allocate the damage occurred in the pre-contractual relationship in advance by agreement. This “express contract of liability”, as a contractual alternative mechanism to the pre-contractual liability, is different from the theory of “implied contract of liability”. 10 Such as “All kinds of social contacts, the coexistence relationship between specific persons, the relationship between persons regulated by legal norms, the more or more trusting relationship between two persons, the binding relationship closer than the social relationship, the life relationship with legal significance and regulated by law, and the relationship with legal effect existing between persons”. Marina Frost „Vorvertragliche“ und „vertragliche“ protective duties, S.50. 11 A.a.O., S.64. 12 A.A.O., S.61.This kind of purpose has two forms: “positive purpose setting” and “negative purpose setting”. The former exists in the relationship between contract and management without cause, which will produce the effect that at least one-party benefits from giving; The latter exists in the real right relationship, which is manifested as the relationship between the owner and the possessor, and involves a balanced relationship of opposing interests. 13 Marina Frost, „Vorvertragliche“ und „vertragliche“ protective duties, S.57.

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not for the common good or for the benefit of others, but merely forbearance, and the parties remain defensively segregated.14 Combining the specific circumstances of pre-contractual relationships, the parties approach each other for the purpose of concluding a contract, whether the contractual contact is initiated on the basis of an unsolicited invitation or an accepted invitation, it is necessary for each party to enable the other party to enter their own field of rights unless they are willing to waive the resulting transaction or property interests. In this way, the increased likelihood of entitlement interventions based on the voluntary opening of the rights field does not occur by chance, but closely connected with their purpose of acts, which is the only decisive factor in determining a special binding relationship.15 However, the purpose of contracting itself is not sufficient to create a binding effect similar to that of a contractual obligation, but only to enable the parties to protect or take account of their obligations. As a result, it could not give the parties the legal standing to prohibit the interruption of contractual negotiations or seek sanctions.16 Although the parties need not be legally bound to start or continue contractual negotiations, this does not exclude the necessity that a pre-contractual relationship is subject to the need for legal protection. The common purpose of contracting forces parties to open up their areas of rights to each other based on trust, increasing the risk of impairment to legal interests, and thus the need to treat a pre-contractual relationship as a special binding relationship, imposes on the parties special obligations required by such a relationship, the scope of which can even spill over the coverage of the content of the originally concluded contract.17 It is precisely because this special duty gives substance to the pre-contractual relationship so that it does not become an empty expression that the question of how to determine the content of such a duty becomes one that theory and practice must address.

1.2 Pre-contractual Obligation The significance of pre-contractual obligations as special obligations lies in not only that they arise out of a pre-contractual relationship but also that they have a separate regulatory function from the contractual obligation and the general duty of care in tort law. Therefore, in determining the pre-contractual obligation, it is necessary to give sufficient attention to their relationship with these two legal obligations. At the same time, the pre-contractual obligations are not created to indicate a particular act pattern for the contracting parties but to negatively evaluate their wrongful acts

14

A.a.O., S.65. A.a.O., S.67. 16 A.a.O., S.68. 17 Takashi Uchida, New Developments and General Provisions of Modern Contract Law, Hu Haibao Trans, Civil And Commercial Law Review Vol. 2, Law Press China, 1994.p. 137. 15

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in contracting.18 Therefore, the exact scope can only be determined by combining the facts of a specific case with the specific types prescribed by law. In terms of manifestation, there are two main types of pre-contractual obligations: good faith and fair dealing in negotiations, specifically including the duty to cooperate and the duty to inform and the duty of confidentiality, etc., and another category is the duty to protect.19 The following is only a general overview of these two types of obligations, which will be developed in the next section in conjunction with a specific analysis with a positive law approach. (1) Duty to cooperate That is, the duty of the parties to use their joint-best efforts to facilitate the effective conclusion of the contract.20 As stated above, the parties are not under an obligation to conclude a contract even if they start contractual negotiations. The establishment of duty to cooperate means that the parties may be legally bound once they enter into negotiations, thus creating a potential conflict between the obligation to agree and the principle of freedom of contract, the legitimacy of which is highly controversial. In general, such a duty may be recognized only at a certain stage of contractual development.21 From the experience of comparative law, the breaches associated with such an obligation are mainly manifested by: a. Commencement or continuation of contract negotiations without intent to conclude a contract The parties prepare or commence negotiations for concluding a contract, and if the party engaging in negotiations doesn’t intend to conclude the contract from the outset, it means the other party’s investment in the negotiation is always a futile expenditure without any return. Thus, “a party who begins or continues negotiations without intent to conclude a contract with the other party” falls into “negotiations

18

See Ewoud H. Hondius, ed., Pre-contractual Liability, Kluwer Law and Taxation Publishers, 1991, p. 183. 19 Ibid., pp. 15–21. 20 Fu Jingkun, The 20th Century Contract Law, Law Press China, 1997, p. 41. 21 For example, the Dutch Supreme Court divided the contracting process into three stages. At the first stage, the parties have absolute freedom to interrupt contract negotiation; At the second stage, although the parties are still free to interrupt the contract negotiation, they must compensate the other party for the loss of trust; At the third stage, the parties can no longer interrupt the contract negotiation, otherwise, they should compensate for the loss of expectation interests equivalent to the validity of the contract. See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, Cambridge University Press, 2008, p. 47. While French justice addresses liability at the pre-contractual stage by implication of tort, such responsibility usually arises only when contract negotiations have developed to an advanced stage. Paula Giliker, Pre-contractual Liability in English and French Law, Kluwer Law International, 2002, p. 168.

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in bad faith”22 and is liable for pre-contractual liability.23 In some legislation, such as Israel, If a party has no intention of executing the contract, or knows that he will breach the contract in the future but still concludes a contract with the other party, he is liable for pre-contractual liability, which is also a case of no real intention of concluding a contract.24 There are similarities between the act of negotiation without real contracting intention and the tortious act of damaging the interests of other parties through negotiation, both of which frustrate the other parties’ contracting purpose. However, there are still subtle differences between the two. An act of negotiation in the guise of a negotiation to the detriment of another party is an intentional act of aggravation in nature, while an act of negotiation without contractual intention may be negligent. In other words, it is “intentional” to enter into negotiations without a contractual intention, but the infringement on the other party’s rights and interests (pure economic loss of the other party) may be negligent (lack of an aggravating purpose) so that the conduct remains negligent in the sense of attribution. In tort law regimes that limit negligence to pure economic loss, such “negligent aggravation” may be excluded from tort law. Consider a classic example of contract negotiation without contracting intention. A induces B to negotiate with himself to avoid B’s property or business being used or acquired by competitor C and then interrupts contract negotiation after C gives up the trading opportunity with B.25 It is not difficult to see that in the case, A has an obvious intention of injuring (depriving B and C of trading opportunities), whose behavior has the typical characteristics of intentional tort, so it is both a violation of good faith and an intentional tort. Contract negotiation is a continuous and gradual process, and the degree of reliance between the parties is also gradually strengthened. Only when the reliance reaches a certain degree can the investment of the parties in the contract be considered to be based on reasonable reliance. Thus, negotiations without a contractual intention cannot be judged by the point at which negotiations start but rather by what occurs afterwards as a whole. For example, A located in C applied to B located in D for a senior position, and B agreed to reimburse A’s travel expenses for the interview. A had no intention of accepting the position but simply wanted to take a free trip to D and stop by to see a friend. Company B paid the fee and only learned the 22

Chinese scholars usually translate this expression as “malicious negotiation” or “malicious consultation”. Although “dolus” has moral negative meaning in daily language and has a similar effect to “bad faith”, as a legal term, it contains more meaning of “intention” or “intentional harm”. Therefore, translating “bad faith” into “malice” is easy to lead to misinterpretation. 23 See GICC (2010), Article 2.1. 15, Paragraph 3, and the European Principles of Contract Law, Article 2:301, Paragraph 3. However, negotiation without intention to conclude a contract is only a form of “negotiations in bad faith”, which also includes deliberately or negligently misleading others about the nature or terms of the contract to be concluded, or failing to disclose relevant facts about the qualifications of the parties or the nature of the contract that should be disclosed. See PICC (2010) §2.1.15 cmt. 2. 24 See Hondius, ed., Pre-contractual Liability, p. 16. 25 See PICC (2010) §2.1.15 illustration 1. Also see John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, “case 1”, p. 21.

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truth afterwards. A was found to have breached the duty to negotiate in good faith.26 In this example, even though A sent out a job application and company B agreed to reimburse him for the cost of attending the interview, the parties had started a contract. But the act that made A responsible was not the act for which he made the application but the fact that he went to D and pretended to negotiate and receive travel expenses. The mere initiation of negotiations is not sufficient to be considered a breach of duty if there are no subsequent acts to reinforce the fiduciary relationship. The following circumstances are usually relevant to the determination of contractual intention. Parallel negotiations, where the parties negotiate with multiple parties at the same time on the same contractual subject matter. In general, parallel negotiations are not considered an act in bad faith.27 This is because if the negotiations themselves are unfettered, parallel negotiations should be allowed as a means for the parties to seek the best opportunity to conclude contracts. Of course, the parties can also waive this freedom and agree to negotiate with only one party alone. However, if there is such a “lock-out agreement” between the parties, the duty to cooperate already has the character of a contractual obligation and shouldn’t be a legal obligation at the pre-contractual stage.28 Improper use of negotiation skills. For example, making unreasonable or even unlawful contractual demands, or refusing reasonable demands offered by the other party, delaying negotiations indefinitely by changing its initial position, constantly increasing the contract price or burdening the other party, or negotiating under false pretenses, etc. can be used as evidence that the perpetrator do not have a reasonable intention to conclude.29 However, unreasonable or even unlawful demands imposed by the parties at the outset of the contract may also be sufficient to prevent the other party from producing reasonable reliance on them. Therefore, this situation is usually normative only if the conduct of one party has led to reasonable reliance by the other party. If so, the conduct mentioned above itself would have been sufficient to find a breach of the duty to negotiate in good faith, and it is unnecessary to delve into the question whether or not there was no intention to enter into a contract at the beginning of the negotiations. At this point, the commencement or continuation of negotiations without an intention to negotiate can hardly be an independent pattern of breach of pre-contractual obligations and that is meaningful for the determination of reliance loss alone. If negotiations are initiated without an intention to negotiate, the breaching party is liable for all reliance loss to the other party; In the case where the contractual intention is to continue negotiations without the intent to contract, the obligated party is liable only for reliance loss that occurrs subsequently when the intent to interrupt should have been expressed, but not for the prior damages.

26

See DCFR §II-3:301 cmt. D, illustration 1. See Hondius, ed., Pre-contractual Liability, p. 17. 28 See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, Cambridge University Press 2008, p. 189. 29 Hondius, ed., Pre-contractual Liability, p. 17. 27

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b. Interruption of negotiations without just cause Since the commencement of contractual negotiations does not create a duty to conclude a contract or a duty to continue negotiations, the interruption of contractual negotiations cannot be regarded as an act in bad faith. The interruption of contractual negotiations needs just cause only if the negotiations have developed to a stage where they are sufficiently mature to give the other party confidence that a contract will be concluded. According to German judicial opinion, an unjustified or improper interruption of contract negotiations is considered a breach of a prior contractual obligation only if one party, by its imputable conduct, causes the other party to reasonably to rely on the fact that the parties will soon be able to conclude a contract and incur expenses as a result. Any rational trade-off can be justified, such as a more favorable offer by the parties or a deterioration in the trading opportunity.30 Generally speaking, there are three main factors to be considered in judging reasonable reliance, namely, the contract negotiation lasts for a long time, or the major points of the contract has been reached a consensus by the parties concerned, or one party makes an indication to the other party that it will make a contract.31 The fact that the negotiations that had lasted for a long time could be interpreted in two different and even opposite ways. On the one hand, the willingness of the parties to negotiate for an extended period demonstrates their willingness to conclude a contract, and the fact that the negotiations continue for an extended period without interruption may strengthen the reliance that a contract will be concluded. On the other hand, the opposite view is equally valid. If the parties have not been able to reach an agreement after prolonged negotiations. The possibility of a breakdown of negotiations should be foreseen so that there is no certainty that the contract will be concluded.32 Since both readings are valid, either party retains the freedom to interrupt the contractual negotiations without fear of being held liable for the unbeneficial costs incurred by the other party in advance for interrupting the contractual negotiations while the parties have not yet formed an agreement on the important point (wesentlichen Punte) to be concluded. Otherwise, the pre-contractual liability to interrupt contractual negotiations will evolve into indirect coercion that raises contracting requirements.33 Therefore, on the ground of freedom of contract, the fact that contract negotiations lasted for a more extended per time was not efficient to establish reasonable reliance, but only as one of the factors. If, as a result of contract negotiations, the parties have agreed on certain terms of the contract but not on others, is it sufficient to have the binding effect of continuing negotiations or even contracting? This needs to be treated differently. If the parties 30 Vgl. Münchener Kommentar zum BGB, 5. Auflage 2007, § 311, Rn.213. See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, pp. 230–232. 31 John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, p. 229. 32 Ibid., pp. 229–230. 33 A.a.O., Rn.216.

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have agreed on important points of the contract to be concluded, and at the same time have not expressly stated that the contract will not be formed without agreement on specific matters, then the contract can usually be presumed to be formed.34 A contract cannot be presumed to be formed if the parties expressly state that they must agree on particular or all matters for the contract to be formed. Notwithstanding the different views,35 in general, if the parties have agreed on significant points of the contract, it is clear that the negotiations have reached a stage of considerable maturity where reasonable reliance should be established. Otherwise, establishing a fiduciary relationship requires caution. For example, a person who is eager to buy a house and sells his existing stock to pay the price of the house in the future without having formed an agreement with the seller on the price of the house cannot claim compensation because the seller refused to contract with it, for the “spread loss” on shares of the stock. Because the price conditions are an important part of the Sales Contract, normally, it does not generate reasonable reliance that a contract will be concluded before the price has been agreed upon.36 However, it may also be too restrictive to interpret “major points” as “sufficient to presume the formation of a contract”. One of the references provided in “the General Principles of International Commercial Contracts” (PICC) is that it is sufficient that the parties agree on a number of issues of the contract to be concluded and the binding effect can be determined accordingly.37 Or, it is sufficient that the parties agree on the type of project to which the contract relates (such as the construction of a sales center or the implementation of a certain financing scheme), the division of responsibilities for the upfront inputs in the previous contract stage and the general sequence of measures they will take.38 This suggests that the significance of the “major points” lies in the establishment of reliance rather than in the presumption of contract formation. c. Breach of Previous Promises Unless the law provides otherwise or the parties have agreed otherwise, the incurrence of debt is necessary by contract, and a unilateral promise is usually not sufficient to create it. If a party makes a promise to the other party in the contract regarding certain matters, that promise still has legal significance in two respects. One, the other party accepts that promise by its conduct or relative promise, thereby creating an agreement between the parties on the relevant matter, and agreement produces effects that bind the parties to future contractual conduct; second, as a formal act of 34

See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, pp. 230–231. 35 John Cartwright & Martijn Hesselink, ed., ibid. 36 Different views hold that only the subject matter clause is the necessary clause in the Sales Contract, and the price clause can be filled by supplementing loopholes. Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of Security Law of the People’s Republic of China, Art. 69. 37 See PICC (2010) §2.1.15 cmt. 3. 38 Allan Schwartz & Robert E. Scott, Pre-contractual Liability and Preliminary Agreements, 120 Havard Law Review (2007), p. 704.

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social interaction, promise has the characteristic of being relied upon, the promising party is estopped from repudiating it in order to protect the other party from undue prejudice for relying on the promise. In the course of contracting, the parties usually enter into a variety of agreements, some of which have the general characteristics of a contract, such as an appointment, and some of which are simply staging agreements between the parties on certain contractual matters, which cannot yet be treated as an independent contract and therefore cannot produce performance effects. However, they can be factors in determining the duty to contract in good faith. For example, according to the Italian Supreme Court, it would be considered a breach of good faith for the parties to dispute a matter on which the parties had agreed.39 However, if the parties have merely expressed their willingness to conclude a contract or have concluded some kind of “agreement to negotiate”. In that case, it can still serve as a basis for establishing mutual reliance. It is usually no more binding than it would have been in the absence of such a promise or agreement if it had not been accompanied by other circumstances.40 However, as long as the other party has acted in reliance on the promise, the distinction between the promising party is bound by the other party’s acceptance of the promise or the promise itself is not that important. The law usually prohibits the promising party from reneging later. For example, A promises B franchise rights if the latter gains relevant experience and invests $300,000. Over the next two years, B made great preparations for the conclusion of the contract and always received assurances from B about the award of the franchise rights. After B has made all the preparations for signing, A informs B that he needs to increase his capital investment by a significantly higher amount, which B cannot meet. A refuses to grant him franchise rights.41 In this example, by A’s guarantee, B has, in fact met all of its contractual requirements and the conclusion of the contract ultimately depends only on whether A consents to the granting of franchise rights or not. In such a case, A’s alteration of a material condition of the contract results in B’s inability to meet that condition and the failure of the contract is attributable to A’s wrongful breach of the contract of its previously promised acts. Sometimes, the law makes certain promises made by the parties in contracting (e.g., an offer) are legally binding and do not allow them to be arbitrarily extinguished or denied effect. A breach of such a promise by a party would be considered a breach of duty. It is also worth noting that a promise may also be the basis of responsibility not because of its content, but because of the creation of reliance on the principal. The German Imperial Court, for example, decided on a case in which the offeror made an offer but the offeree was unable to contact him in time to give notice of the 39

See Hondius, ed., Pre-contractual Liability, p. 201. John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, p. 232. 41 See PICC (2010) § 2.1. 15 Illustration 5. This example is clearly adapted from the decision of the Supreme Court of Wisconsin, USA Hoffman v. Red Owl Stores Case (26 Wis. 2d 683, 133 N.W. 2D 267 (1965). cf E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), p. 236). 40

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undertaking, the offer thereby lapsed, and the offeror was ordered to bear part of the offeree’s reliance loss.42 Here, the offer becomes the basis of liability not by its own content but because it creates a reasonable reliance on the other party. In another case (“the tartaric acid case”), the two merchants sent extremely briefly worded telegrams to each other, containing only the quantity, quality and price of the goods (tartaric acid), due to the words that are so vague that it is impossible to determine who is the buyer and who is the seller, each party thinks itself to be the seller! The plaintiff, who had suffered a loss because the goods were auctioned at a much lower price quoted and claimed damages from the defendant for that loss. The court found that the contract failed to form due to a lack of agreement and that the defendant was liable for contractual negligence. d. Breach of Mandatory Contractual Obligations As a way of limiting freedom of contract, the law sometimes imposes mandatory contractual obligations on certain contract subjects. Once a specific subject puts forward a contracting claim, this kind of legal obligation materializes into the contracting obligation of the subject with mandatory contractual obligations to the person who puts forward the contracting claim. The breach of such a duty can have the effect not only of mandatory contracting by substituting consent with adjudication but also give rise to culpa in contrahendo.43 However, the mandatory contractual obligation itself may have the same forms as the tort law duty of care, making it difficult to distinguish between the two. For example, Article 26 (paragraph 1) of our Electricity Power Law explicitly stipulates that the power-supply enterprise in any electricity service area shall be obligated to supply electricity to the consumers within its service area in accordance with the regulations of the State. It may not, in violation of State regulations, refuse to supply electricity to any institution or individual within their service area that has applied for power supply; article 24 of Practicing Physicians Law also stipulates those doctors have the obligation of emergency treatment for patients in acute danger. The obligations above under the law can be interpreted either as a mandatory obligation to conclude a contract for the supply of power or a contract for medical services or as an obligation of conduct under tort law. Thus, there may be different views on whether the remedy for damage arising from the breach of such an obligation is a tortious liability or culpa in contrahendo.44 e. Avoidance of the Contract Although the parties have concluded a contract, the contract may be invalid because it does not have the elements of validity or effectiveness, in which case the parties contracting purpose of the parties is still defeated. The party causing the invalidity 42 Reichsgericht, 3 January 1920 = RGZ 97, 336, 339. See Markesinis, Lorenz & Dannemann, The Law of Contracts and Restitution: A Comparative Introduction, Oxford, Clarendon Press, 1997, p. 66. 43 See Wang Liming, Theory of Liability for Breach of Contract (Revised Edition), China University of Political Science and Law Press, 2003, p. 803.Yi Jun & Ning Jiangli, Research on the System of Compulsory Contracting, in The Jurists Vol. 3, 2003, p. 80. 44 Cui Jianyuan, The Law of Contract (Vol. 1), China Renming University Press, 2008, p. 138.

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of the contract will be found to have breached its duty to contract in good faith. For example, in the case of avoidance or invalidity of a contract due to fraud, duress, mistake, lack of right to dispose, etc., the fraudulent party, the duress party, and the party lacking the right to dispose of will be liable for contractual negligence.45 In this regard, the following two issues require special attention. First, does the act of contracting without the capacity to contract constitute a breach of duty to cooperate? The provisions of the contract law on the invalidity of contracts concluded by persons of legal incapacity are intended to implement the special protection policy for persons of legal incapacity. The protective effect of imposing liability for contractual negligence on persons of legal incapacity will be diminished if persons of legal incapacity are liable for contractual negligence. Thus, it is theoretically argued that a person of legal incapacity is also not liable for the compensation liability of reliance interest.46 In this view, the duty to cooperate should be negated. However, to exclude the persons of legal incapacity’s obligation to perform the contract through contract invalidation and then further exclude the responsibility for the reliance damage caused by the fault of the persons of legal incapacity, based solely on the reason that the protection of minors is superior to the protection of reliance, seems to be too favorable to the persons of legal incapacity and too harsh to the victim. Moreover, on the one hand, it denies the compensation liability for reliance interest of the persons of legal incapacity (liability for contractual negligence), but on the other hand, it affirms its tortious liability.47 In addition to the normative logic reasons, it is difficult to call it appropriate on the value balance: the compensation liability excluded in the contract law has been affirmed through tortious liability. Therefore, in order to realize the consistency of value balance, it is necessary for culpa in contrahendo and tortious liability to have the same fate. If a minor conceals the fact of his incapacity, and the other party does not know and should not know his incapacity, the persons of legal incapacity should still be liable for compensation due to his fault. In this way, the provisions of contract law concerning the invalidity of contracts concluded by minors are of limited protection for minors: They just can’t create legal obligations for themselves by concluding contracts, but they may still bear legal liabilities because of their acts at fault.48 Second, when the contract is invalid because of the lack of legal formal elements, is the pre-contractual obligation contrary to the purpose of the form provision? It 45

Article 3.2.16 of the General Principles of International Commercial Contracts (2010 Edition) stipulates that, whether the contract is declared invalid or not, in order to place the other party in a position as if it had not entered into a contract, the party who knew or should know the reasons for the invalidity of the contract shall be liable for damages.” 46 Wang Zejian, General Provisions of the Civil Law (Updated Edition), China University of Political Science and Law Press, 2001, p. 137. Wang Zegan, Civil Law Research Series: Principles of Debt Law, p. 193. 47 Ibid. 48 Professors Larenz and Wolff believe that in the case of a person with incapacity concluding a contract, the protection of such subjects by law should take precedence over the protection of the reliance of the other party, so the contract is absolutely invalid. At the same time, if the contracting party is a child without liability capacity under the age of 7, it will not bear the compensation liability in contracting negligence or tort law; If he is a minor who is over 7 years old and has the capacity to

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should be noted that the provisions in the form of legal effect have multiple purposes. They are either to make the parties prudent in order to protect their interests (like the written form of the guarantee contract) or to ensure that the public interest of the state or society is not infringed by procedural controls (like the form of contract approval or registration) to name but a few. If a particular form is intended to induce a contracting party to act prudently and take responsibility for the consequences of not perfecting the particular form and making the contract invalid, it will diminish the protective effect of such a form provision. Therefore, the parties decide that there should be a balance between freedom and reliance protection: only if one party’s assistance is necessary for the perfection of form, can the lack of the form be attributed to this party. This indicates that, in cases where the contract takes effect after approval and registration, cooperation obligation only requires the parties to cooperate in submitting an application for approval or registration, and it won’t be defined as a breach of cooperation obligation for being refused by the approval or registration agency. If the parties have agreed on the content of the contract and only need the parties to perfect the legal form to enter into effect, the refusal of one party to assist in perfecting the form should be considered a violation of the coordination obligation.49 (2) Duty to Disclose The duty to disclose is also referred to as the duty to provide information or intelligence, the duty to explain, the duty of information, etc., which means the duty to disclose the important facts or information relevant to the formation of the contract. As a positive behavioral obligation in the course of contracting, the obligation of conduct can serve not only to protect the parties of particular transaction types but also to set the special standard of conduct and even control the content of the contract.50 Therefore, it is recognized by the national legislation of all countries, whether or not it admits the good faith and fair dealing in negotiations, the difference is only in the conditions under which that obligation is recognized.51 a. Occurrence of Duty to Disclose There are two conditions of disclosure: voluntary disclosure and required disclosure, and the contents of duty to disclose are different from the focuses of the legal control. Voluntary disclosure by the Contracting Party. For the contracting party, in order to arouse the contracting interest of the opposite party or to conclude a favorable identify and liability capacity, he should still bear the compensation liability. Larenz/Wolf, Allgemeiner Teil des Bürgerlichen Rechts, 9 Aufl., Verlag C.H. Beck, 2004, S.449–450. From the foregoing analysis, it can be seen that it takes the position that liability for compensation for culpa in contrahendo and tortious liability are dealt with in an integrated manner. 49 Professor Han Shiyuan believes that this obligation is a pre-contractual obligation that can be judged to continue to be performed. See Han Shiyuan, The Law of Contract (3rd), p. 146. This view is correct from the perspective of legal interpretation. However, from the perspective of legislative theory, it is necessary to further discuss the appropriateness of this practice. 50 Ibid., pp. 387–388. 51 See Hondius ed., Pre-contractual Liability, p. 24.

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contract, they need to make the necessary explanations to the other party with important information related to the transaction, such as the quality, performance and functions of the subject matter to be sold, the configuration and supporting facilities of the house to be rented, the basic technical characteristics and potential value of the technology to be transferred, the previous work experience of the employee and the basic job-related skills, etc. From the view of economic analysis, a rational buyer will assume that the seller has relevant information about the subject matter, which he would disclose if it is in his interest, while if the seller fails to disclose it, that information may be disadvantageous to him. Thus, market forces will promote seller to disclose information he knows.52 Although the validity of this analysis is limited to situations where the seller’s condition is better for disclosing than not, it does indicate why the seller will disclose the relevant information actively, whether such information only affects the decision of other parties to contract, or still affects the content of the future’s contract. In the case that the contracting party discloses information actively, the effect of the duty to disclose does not lie in the control over whether to disclose or not, but the control over the content of the disclosure (which is also suitable for cases of required disclosure), that is to say, the duty requires the announcer to guarantee the truthfulness and accuracy of the information given. However, if the opposite party is not rational enough or the information not disclosed is more advantageous for the contracting party holding this information, it is not sufficient to limit the content of disclosure to the scope of voluntary disclosure. Contracting Party is informed upon request. In some areas, the parties do not have the statutory obligations to inform voluntarily. For example, Article 245 BIS (1)(1) of the Civil Code of Taiwan, China stipulates that the Party shall, upon inquiry by another party, be bound to inform and explain the matters of importance to the contract; Article 551(2) of the Restatement of Torts of the United States also stipulates, a party is liable for failure to disclose only if he or she has an obligation to disclose facts that may reasonably induce others’ act or omission for a commercial transaction.53 On the contrary, a more extensive duty to disclose is affirmed under some other legislations. For example, the duty to disclose (Aufklärungspflicht) in German private law is very extensive and has become the core of the culpa in contrahendo system, especially the duty of information related to consumer protection has been continuously strengthened in jurisprudence.54 However, the actual differences 52

See Alan Schwartz & Richard Crasswell, ed., Essential Contract Law (Photocopy), Law Press, 2005, p. 172. 53 The basic consideration is that according to the traditional transaction ethics, any party should pay attention to collecting important information related to the transaction and make a correct understanding of it, and the opposing interests have no obligation to provide help to them by disclosing the information they find. See Restoration of torts, second, § 551, comment k. Also see G. H. Treitel, The Law of Contract (9th ed.), London Sweet & Maxwell, 1995, p. 361; H.G. Beale, ed., Chitty on Contracts (28th ed.), London, Sweet & Maxwell, 1999, p. 343, para. 6-013. Wang Zejian put forward three reasons: first, there is a cost in obtaining information; Second, it is helpful for both parties to obtain necessary information to improve the efficiency of contracting; Third, reservations should be allowed to gain negotiation advantages. See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), Peking University Press, 2009, p. 190. 54 Vgl. Münchener Kommentar zum BGB, § 311, Rn.98.

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among legal systems may not be as large as they appear. Because, even in legislation affirming the general duty to disclose, this duty cannot be unlimited. After all, to promote the discovery of valuable information is affirmed in any society, and to achieve this goal more effectively, those who discover valuable information through their investments and efforts should not be allowed to share that information with others or even their counter-parties without any benefit. Systems like trade secrets and patents raise the status of information holders to the protection of rights, which shows that the duty of information disclosure should be restrained while contracting. At the same time, it should be noted that, even in legal systems denying the general duty to disclose, certain exceptions are recognized, which tend to approach the treatments of specific events in legislation that abstemiously recognizes the general duty to disclose not exactly the same, though.55 So the real question remains how to determine the conditions under which the duty to disclose arises. From the perspective of Comparative Law, it can be found that the duty to disclose can be generated in three ways: first, it can be interpreted by case law according to the contract rules of consent, such as the rules of mistake or fraud; Second, it can be deduced from the case law according to the general norms (such as the principle of good faith); and third, it can be directly stipulated by the statute law (domestic or international).56 Since the duty to disclose, like other pre-contractual obligations, needs to be determined in light of specific conditions of cases, the first type can be combined into one form, which is a duty to disclose confirmed by judgement In addition, the duty to disclose arising from the inquiry of the opposite party may be regarded as the third form of occurrence. Whether it is the duty to disclose specified by the legislation or arising from the inquiry, the parties can avoid responsibilities by performing the obligation; on the contrary, the main function of the duty to disclose confirmed by judgement is to determine responsibilities, it usually has no performance problem, so it has the typical characteristic of pre-contractual obligation. The duty to disclose confirmed by judgement must solve the standard problem of judgement. In this regard, some scholars analyze from the point of economics that, where a party already suspects that the other party has certain information but does not know its specific content (i.e., (shallow secrets)), no duty to disclose occurs without inquiry. In the case of information (i.e., (deep secrets)) that the parties would not even think of as having existed, this information should be disclosed without inquiry.57 The shortcoming of this view is that the standard for distinguishing “shallow secrets” from “deep secrets” is not easy to control. For example, “deep secrets” is information that parties would not think of as having existed, but whether “would not think at all” depends on a particular understanding of the concept of “information”, whether there is specific adverse information (e.g., whether the house has termites) or whether there 55

See Ruth Sefton-Green, ed., Mistake, Fraud and Duties to Inform in European Contract Law, Cambridge University Press, 2005, p. 370. 56 Ibid., p. 387. 57 See Alan Schwartz & Richard Crasswell, ed., Fundamentals of Contract Law (Photocopy), pp. 165–166.

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may be abstract adverse information (e.g., whether the house has any defects). It can be said that the more specific the meaning of “information” is, the smaller the scope of “shallow secrets” is; Conversely, the scope will be larger. Furthermore, even if “deep secrets” is identified, such information cannot be obtained for free by the other parties if it would cost so much for the party holding the information. Similar problems exist with other distinctions, such as between distributive and productive information, between information with social utility and information with private value only. Therefore, none of them can be the only valid determinant.58 In addition, it should also be noted that, in some cases, disclosure may not be beneficial to either party. For example, A wants to buy B’s land under which A suspects there may be mineral deposits, but B does not know about it. If A is required to disclose this information, then he would not be interested in obtaining it, so the land transaction would not take place and neither A nor B would receive the proceeds of the transaction. If A is not under the duty to disclose this information, then A will gain a significant trading benefit, and B can also enjoy some of it.59 This is very common in transactions of antiques or cultural relics. If the antique dealer is required to disclose the true condition of the subject matter, his interest in acquiring the knowledge of antique identification will be significantly diminished, and the potential transaction will not take place, or trading opportunities will be greatly reduced, which could be a net loss for any party or the whole society. In fact, easy-to-use operational criteria may not exist (at least not yet discovered), and judges can only weigh according to specific cases. The following factors should be given special attention: type of contract to be concluded, the nature of the relationship between parties (as with a fiduciary relationship or not), the previous conduct of the information holder (whether it will lead to misunderstanding due to incomplete or inaccurate information or conduct previously given), trading habits, whether it will cost much to obtain the information (like professional knowledge), the nature of benefits influenced by the information (only involved in economic interests or security interests), the parties’ ability to obtain information (the stronger the ability is, the less necessary to disclose), the status of the information possessed (no need to disclose the possessed information), etc. Determined by legislation, the duty to disclose has specific and clear characteristics and is easy to operate in applying the law. Such legislation is universe in various legal documents, especially in legislation related to consumer protection and insurance contracts. For example, the Consumer Contract Law of Japan not only stipulates the general duty to disclose of the enterpriser (producer and seller), that is, when inducing the consumer to conclude a contract, the necessary information must be provided about rights and obligations of the consumer and other elements of the consumer contract; at the same time, specific forms of breach of the duty to disclose was stipulated, including the disclosure of important matters not in conformity with facts, or only informing the facts favorable to the consumer, but intentionally not telling the facts unfavorable to the consumer in the important matters, leading the 58 59

Ibid., p. 171. Ibid., p. 170.

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consumer to mistakenly believing that the adverse matter does not exist. In addition to domestic laws, some regional or international legal instruments also have such provisions. For example, the EU directive on consumer protection contains a considerable number of provisions in this regard; article 4, Paragraph 1, of Directive 97 / 7 on remote contracts sets out nine pieces of information that should be informed to consumers in advance,60 at the same time, the commercial purposes of such information must be clear and easily understood, and particular attention must be paid to the integrity of transactions and the care for minors; Directive 2000 / 31 on electronic commerce stipulates the general obligation of information disclosure for service providers, and at the same time, it also stipulates different information disclosure obligations distinguishing commercial communications and contracting by electronic means.61 The Draft Common Frame Of Reference brings together various disclosure obligations covered by European countries and EU directives and stipulates in detail the disclosure obligation as one of the pre-contractual obligations in a whole section of nine articles,62 showing an important role of the duty to disclose in the pre-contractual obligation. For those matters that didn’t stipulate specifically in legislation, the duty to disclose can also arise if the contracting party inquiries. Generally speaking, there are two restrictions on duty to disclose upon inquiry: one is that the matter to inquire must be “an important matter related to contracting”. If the matter inquired by the contracting party is not of this type, it shall not be a breach of the duty to disclose even if the opposite party does not inform. For example, when an employer A is going to hire a woman B, A asks B if she is in a relationship, has premarital sex, has had an abortion, etc. When the woman is interviewed, she does not need to inform because it is a matter of privacy and has nothing to do with the conclusion of the contract. The second is that the matter to inquire should be specific. Otherwise, there won’t be a duty to disclose. For example, a party might ask the other party: “Do you have important information to share” or “have you shared all of it?” If such a broad inquiry could also create a duty to disclose, the duty to disclose arising from the inquiry will be boundless. The obligor will never be able to perform it. This shows that the restriction of the duty to disclose in the legislation, which only generates 60

It includes: (1) the identity of the supplier, in case of advance payment, especially the address of the supplier; (2) the main characteristics of the goods or services; (3) the price or tax of goods or services; (4) Including the cost of delivery when necessary; (5) Details of payment and delivery; (6) The existence of the right of cancellation; (7) The cost of using telecommunication technology, except that the cost has been calculated into the commodity price; (8) The effective period of the offer or price; (9) If the contract includes long-term or recurring performance, it shall include the minimum duration of the contract for the provision of goods or services. See Complete Works of EU Debt Law Regulations and Directives, Li Zhaoyu & Li Lihong Trans, Wuyue, Law Press, 2004, p. 13. 61 Ibid., pp. 38–40. 62 Articles 2–3: 101-2-3: 104 of the Model Rules of the European Civil Code. European Group on Civil Law & Europe Union Group on Current Private Law eds., Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference, Gao Shengping Trans, China Renming University Press, 2012.

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this obligation through inquiry, can be flexibly regulated by the judicial control of contents of the inquiry. b. Content of the Duty to Disclose The duty to disclose covers all important matters related to the conclusion of the contract, ranging from matters related to the content of the contract to matters related to the performance of the contract and even procedural rights (such as the right to revoke or the right of cancellation). As a general rule, both contracting parties should be aware of the provisions of the law related to the validity of the contract. Therefore, failing to inform the other party of any doubts as to the validity of the contract does not constitute a breach of the duty to disclose. However, in the case of contracts between enterprises and consumers or between legal persons of public law and private persons, as the general public is not aware of the special provisions of public law concerning the form of contracts or consent, the enterprise or legal person of public law engaged in such transactions is under the duty to disclose.63 For example, a residential developer or insurance broker should advise the inexperienced party of the law that a residential sales contract or an insurance contract must have a written form, or the agent should advise the party of the conditions under which the contract is subject to the approval or consent of specific procedures. In accordance with German law, the party in possession of information is under the duty to disclose for exceptional conditions that may prevent the other party from achieving its objective of contracting or performing the future contract. For example, a shareholder who knows that the company will suffer significant losses because of a production accident that has not been made public is obliged to disclose that information to the assignee to whom the shares are to be transferred.64 In the US, however, it is not considered a breach of the obligation for a company’s director to hold the inside information that could increase the value of the company’s shares to buy some shares from one of the company’s shareholders.65 This indicates that the determination of the duty to disclose is related to the determination of the content of it, and the content must be determined when the existence of this obligation is confirmed. c. Performance of the Duty to Disclose The performance of the duty to disclose means that the information to be disclosed should be truthfully and accurately disclosed in an appropriate way. Since the basic purpose of the duty to disclose is to determine liability, it is the key to identifying the breach of this obligation. Misrepresentation. A misrepresentation occurs if the information given by the contracting party is inaccurate or incomplete. For example, giving fault information about the characteristics of the subject matter or service, or only providing the 63

Vgl. Münchener Kommentar zum BGB, § 311, Rn.107. A.a.O., Rn.112. 65 Percival v.Wright [190] 2 Ch. 421; cf H.G. Beale, ed., Chitty on Contracts, p. 343, para. 6-013. 64

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advantageous information to the party but not disadvantageous information, belongs to non-disclosure. If the party explicitly requests to be informed, but the information is not mandatory, the interrogated person can only either tell the truth or refuse to answer. There is no intermediate state (tertium non-datur).66 If the information is misleading for it is inaccurate, or incomplete, the disclosing party should still bear the liability for misrepresentation. Moreover, although the information previously informed was accurate, the conditions subsequently changed, making the information misleading, so the obligor should inform the changed conditions; otherwise, it still constitutes a breach of duty to disclose.67 Non-disclosure. The failure of a party to inform information that should be disclosed has the same effect as misrepresentation. The differences between nondisclosure and misrepresentation lie more in the scope of relevant information. Misrepresentation involves not only the information of voluntary disclosure but also the information that the party is not obliged to inform but voluntarily shares. In contrast, while the information that is not informed is limited to the information that should be informed. The distinction between misrepresentation and non-disclosure may be relative in some cases. For example, where the prior conduct of the parties has a representational significance but may cause false impression, the party is under the duty to disclose the truth. In one case, Justice Blackburn held that “the defendant sold the cow on the open market… thus constituting a statement… as he known, the cow was not infected with any infectious disease… the situation might have been different had the sale been carried out privately.”68 That is to say; as a result of the failure to correct the misleading appearance of previous positive acts or words, non-disclosure actually has the same legal significance as disclosure. Exceptionally, restraint should be exercised if the performance of the duty to disclose may have adverse consequences for the informed person. Because the information duty may intend to protect the incompetent party, that purpose may not be achieved if the informed contracting party does not understand the information or this party has decided to conclude the contract. In the case of the medical institution’s duty to inform the diagnosis and treatment of a patient, if informing the patient is not conducive to his treatment, it is only necessary to inform his kin. The information shall be disclosed in a clear and understandable manner and the manner required by law or is easy to search and collect; otherwise, that will constitute non-performance or improper performance of the duty to disclose.69 (3) Duty of Confidentiality That is, not to make improper use of or disclose the secrets of the other party obtained during the negotiation. Unlike the duty to cooperate and the duty to disclose, although duty of confidentiality is related to the contracting activity, it has nothing to do with 66

Vgl. Münchener Kommentar zum BGB, § 311, Rn.105. See H.G. Beale, ed., Chitty on Contracts, p. 345, para.6-016. 68 See G.H. Treitel, The Law of Contract, p. 361. 69 See Article 2–3: 106 of Model Rules of the European Civil Code. 67

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the conclusion of the contracting purpose, but more involves the protection of the secret information itself (inherent interests). The object of the duty of confidentiality is the confidential information of the other party obtained by the contracting party in the process of contracting. The so-called “secret information” is defined in the General Principles of International Commercial Contracts as information provided by one party to the other party and disclosed or used only to provide the information70 ; the Model Rules of the European Civil Code defines it as “according to the nature of the information or the specific circumstances in which information is obtained, the party receiving the information knows or should know that the information is confidential to the other party”.71 If the contracting parties expressly declare that such information is confidential, it will be used as evidence for determining the secret information. The silence of the party receiving the information is regarded as an implied acceptance of the statement; therefore, an implied confidentiality agreement can be established between the parties.72 In this way, the duty of confidentiality determined according to the confidentiality statement is the duty determined by the confidentiality agreement (although such agreement structure is not necessary for the determination of the duty of confidentiality); precontractual obligations actually have the nature of contractual obligations. If the parties have not made such a declaration, the duty of confidentiality can also be determined according to the special character of the information or the professional status of the parties.73 In fact, if the information is not intentionally provided by the parties, the person who obtains the information shall should bear the duty of confidentiality as long as the identification standard of the confidential information is met.74 Article 43 of the Contract Law of China limits the object of duty of confidentiality to “commercial secrets”. According to Article 10 of the “Anti-Unfair Competition Law”, “commercial secrets” is a kind of right, “referring to technical and commercial information unknown to the public and is of commercial value for which the right holder has taken corresponding confidentiality measures” In this way, the identification of secret information is determined in accordance with objective standards, and the confidentiality statement cannot play a role in identifying secret information, which makes it harder to identify secret information. Information other than “commercial secrets” should not be protected under this article unless it is of economic interest (such as personal privacy information), or it should be kept confidential in accordance with the confidentiality statement or confidentiality agreement. However, this type of information is clearly valuable and necessary to protect, and its protection 70

See PICC (2010) §2.1.16, official comment 2. Articles 2–3: 302-2: the Model Rules of the European Civil Code. 72 See PICC (2010) § 2.1. 16, official comment 3. Article 245-1, paragraph 1, item 2 of the Civil Code in Taiwan of China limits secret information to “secret” which “should be kept confidential by other parties”, and regards confidentiality statement as a necessary condition for identifying secret information, which is more stringent. 73 See DCFR §II-3:302, cmt. B. 74 Wang Zejian, Civil Law Researches Series: Principles of Debt Law, p. 191. 71

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can only be achieved through the general norms of pre-contractual obligation (such as Article 42 Item 3 of the Contract Law). If the specific information has been confirmed as “secret information” that should be kept confidential, the contracting party shall not disclose it or use the information for his or her own purposes. For example, A shall negotiate the joint venture agreement with B and C and receive the new product design scheme provided by B during the negotiation with B. Whether B expressly requires confidentiality, A should not use the design scheme in the negotiation with C or in its own production procedures; otherwise, it should bear the pre-contractual liability.75 (4) Protection Obligation? That is, the duty to protect the safety of the absolute rights and interests of the other party under its own influence. This kind of duty, like the duty of confidentiality, aims at the protection of inherent interests and has nothing to do with the realization of the contracting purpose. The Justice Minister of Germany confirms the famous case of such pre-contractual obligation as the “shopping mall case”: The customer was injured when the goods fell on the ground due to the negligence of the store employee while inspecting the goods (“linoleum carpet case”), or the daughter accompanying her mother into the shopping mall slipped and was injured (“vegetable leaf case”), shopping malls were deemed to be responsible for culpa in contrahendo. This obligation is also extended to the “test drive case”, that is, the car buyer was injured due to the negligence of the seller’s employees during the test drive.76 This type of pre-contractual obligation has been controversial in Germany, it is believed that only to overcome the disadvantages of the German Civil Code’s special employer exemption rules (BGB§831) that are disadvantageous to the victims. Therefore, it should be corrected by amendments to the tort law. It should not be taken as a natural pre-contractual obligation.77 In some cases in France and the United States, similar damages may be realized by expanding the contract protection scope to the pre-contractual stage. That is to say, it is considered that the display of goods has constituted an offer. Therefore, when a customer suffers a personal injury due to the explosion of the goods after putting the goods into the shopping basket, the customer can be protected according to the contract.78 Here, we find that as long as the provisions of positive law are not sufficient to allow those who “should” be protected to obtain the necessary remedy, such a shift in the protection basis will inevitably occur. From the perspective of legal doctrines, if the obligation in tort law is a general obligation against the world, then whether it is based on the “exclusiveness” of the object of tort or the act that is “contrary to the public policy”, it may not be able to 75

See PICC(2010) §2.1.16, illustration 2, 3. Vgl. Münchener Kommentar zum BGB, § 311, Rn.95. 77 On the contrary, since the aforementioned provisions of German tort law have not been modified, on the one hand, and since the revision of German debt law has legalized the obligation of protection or consideration in contracting, the understanding that this type of obligation is only to make up for the shortcomings of tort law is outdated. A.o.O., Rn.60. 78 Basil S. Markesinis, Hannes Unberath & Angus Johnston, The German Law of Contract: A Comparative Treatise, Oxford and Portland, Oregon, 2006, p. 65. 76

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explain the” strengthened duty of care “that can be established based on the close relationship of a specific subject. Unless the connotation of the duty of care in tort law is changed, this will be a problem that leads to differences. It is difficult to understand why the General Principles of International Commercial Contracts and the Principles of European Contract Law, which can define the duty of confidentiality as the type of pre-contractual obligation, exclude protective duty. It can be seen that whether to regard protective duty as the type of pre-contractual obligation is a question that cannot be answered abstractly and can only be determined by combining the specific positive law background or specific theoretical presupposition.

1.3 Pre-contractual Liability Breach of pre-contractual obligation leads to pre-contractual liability. Under the legal system that does not recognize the pre-contractual liability as an independent liability type, such as in France, Belgium, Britain, the United States and other countries, precontractual liability is actually a general term for various types of liability involving breach of obligations at pre-contractual stage, including contractual liability, tortious liability and return liability.79 In this case, the concept of pre-contractual liability is mostly used for legal comparative analysis and has only theoretical description significance but no independent normative significance. On the contrary, under the legal system that recognizes the pre-contractual liability (or culpa in contrahendo) as an independent type of liability, such as in Germany, Austria, Greece, Italy, Portugal, etc., pre-contractual liability has its own independent constitutive elements and application scope, and constitutes a civil liability system together with contractual liability, tortious liability and restitution liability, and can also form a competing liability relationship with tortious liability and restitution liability to form a relationship of concurrent liability. However, for these legal systems that recognize the independent status of culpa in contrahendo, their scope of application is still different. In Germany, the scope of culpa in contrahendo has long been beyond the scope determined by Jhering when he originally conceived the system and is no longer limited to the situation where the contract is not established or invalid, but also includes types such as the conclusion of unfavorable contracts (or the contracts are valid), infringement of absolute rights and interests, and the contractual negligence of third parties. The occurrence of liability is not necessarily expressed as necessary for the occurrence of liability and has been advanced to the time of preparing the contract negotiation. In contrast, under the legal systems of Italy, Portugal and the Netherlands, the types of culpa in contrahendo that infringe on the absolute rights and interests of persons and property are excluded; the General Principles of International Commercial Contracts and the Principles of European Contract Law restrict them to breaches of the duty to negotiate in good faith and confidentiality, invalidity of the contract, etc., and do 79 See E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), pp. 229f.

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not stipulate the typical German types of contractual negligence, such as adverse contracts, infringement of absolute rights and interests, and contractual negligence of third parties..80 The issue of whether the statutory law provision for culpa in contrahendo is whether it is a contractual liability or tortious liability is said to be one of the theoretical problems that this special responsibility has always faced, although the discussion shows that the construction of the question itself may be controversial.81 However, if the law only stipulates that the breach of obligations at pre-contractual stage should bear responsibility, but does not clearly stipulate the composition of liability, especially the imputation standards, and the contractual liability and tortious liability are different in this respect, as a result, the determination of the nature of the pre-contractual liability obviously has undeniable practical significance. It should be noted that this kind of liability cannot be treated as a contractual liability or quasi-contractual liability because it was stipulated in the contract law. For example, Articles 1337 and 1338 of the Italian Civil Code were stipulated in the “agreement between the parties” of the general principles of contract law. Still, the Italian Supreme Court clearly pointed out that violations of the provisions mentioned above shall be held liable by Article 2043 on tortious liability.82 Therefore, the nature of liability does not depend on the position of the relevant provisions in the statute law. For those legislations (such as Scandinavian countries) where contractual liability and tortious liability apply uniform liability provisions, the nature of culpa in contrahendo will hardly arouse the interest of the judiciary.83 The legal thought reflected by the pre-contractual liability has also aroused the interest of theoretical inquiry. It easily observed that the broader the scope of application of the pre-contractual liability, the more difficult it is to unify the legal ideas it reflects. For example, under German law, various types of culpa in contrahendo actually reflect very different legal ideas: the type of culpa in contrahendo that infringes on absolute rights and interests aims to protect the safety of communication in the process of contracting; the liability related to the expression may be based on the idea of reliance protection (most of the culpa in contrahendo for contract failure or invalidity), and the idea of strengthening professional responsibility (such as culpa in contrahendo of the relevant banks, intermediaries, etc.); The culpa in contrahendo

80

Because the pre-contractual liability for breach of duty of confidentiality is not affected by whether the contract is established or not, it can also be applied to the valid situation of the contract (but different from the unfavorable contract type), and even can be regarded as the form of precontractual liability for infringement of absolute rights and interests. However, it is insufficient to infer from this that the “General Provisions” or Principles recognize the type of pre-contractual liability against absolute rights and interests, after all, they do not generally stipulate “the obligation to protect or take care of”. 81 [German] Christian von Bar, The Common European Law of Trots (Vol. 1), Zhang Baoxin Trans, Law Press China, 2001, p. 577. 82 Ibid., p. 579. 83 Ibid., p. 578.

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related to the duty to disclose may be based on the idea of protecting the economically weak (such as consumers and securities investors).84 Given this, some scholars have said that all kinds of compensation liabilities gathered under the name of the contracting fault are actually “seemingly disparate” and are a mixture without a unified principle of imputation and a single element of liability”!

1.4 Summary The parties have conflicts of interest due to the contact at pre-contractual stage, so they need legal intervention to create a special relationship for the parties to act in good faith to protect or care about each other’s rights and interests, to achieve a moderate balance between the freedom of contract and the protection of rights and interests. Thus, the pre-contractual obligation and the pre-contractual liability are created. The achievement of a balanced relationship doesn’t depend on the independence of precontractual liability. Contractual liability, tortious liability and restitution liability can all serve the purpose of achieving the above balance; therefore, they are all “pre-contractual” liabilities in a sense. In this sense, the problems facing the precontractual stage are not whether to provide a unique set of legal norms for it but how to properly achieve the purpose. Therefore, although different legal systems have different solutions to the liability caused by the breach of obligations in the pre-contractual stage, the objective existence of the balance mentioned above is one with the consensus that must be solved. From the perspective of comparative law, there are mainly two regulation problems of pre-contractual liability: The first is whether to recognize the general obligation of good faith contracting; the second is whether to recognize independent pre-contractual liability (or liability for culpa in contrahendo). The first problem can be simplified to the choice between two positions: general affirmation and exception negation, and general negation and exception affirmation, because all legislation will treat certain improper behaviors or wrongs at the pre-contractual stage as the object of responsibility. The method of selection does not automatically lead to different results. The second problem involves the construction of the civil liability system. Generally speaking, only when the current law cannot meet the purpose of legal regulation will the new system be produced. Therefore, the independence of pre-contractual liability or culpa in contrahendo depends on the existing legal background of a specific jurisdiction. The answer to independence only depends on the specific context and cannot be a general answer out of context. The opposite orientation of German Law and French Law, which we are familiar with, has provided the best explanation. In the general principles of civil law, China has established the system of precontractual liability by setting provisions for the invalidation of civil acts (Article 61 of the General Principles of the Civil Law). By drawing lessons from the General 84

Vgl. Münchener Kommentar zum BGB, § 311, Rn.60–62.

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Principles of International Commercial Contracts, the Contract Law further extends the scope of pre-contractual liability in Chinese law to the contract conclusion stage (Article 42), incorporates contractual negligence where the contract is not formed, and adds the type of pre-contractual liability for breach of duty of confidentiality (Article 43). The appropriateness of this learning has been questioned.85 However, this kind of question comes mostly from the reflection on the experience of German law in establishing the system of culpa in contrahendo, focusing on the perspective of making up for the defects of tortious liability in contracting, and combining with Chinese broad general norms of tort law, which denies the necessity of independence of culpa in contrahendo in China. Scholars pointed out that even if China does not have to build an independent liability system for culpa in contrahendo, it does not mean that China should not follow the system, “The succession of the fault system in contracting is not a mere transplant of systems or rules. It is related to more legal and policy considerations, such as the balance of the internal civil liability system, the degree of legal development, etc.”86 When the positive law has already defined the system of culpa in contrahendo, what we need to do is no longer discuss the question whether we should have it or not (although the legislative discussion still has its significance) but focus on its actual operation effect.

2 Imputation Standards for Pre-contractual Liabilities When Rudolph von Jhering (a German legal scholar) founded the principle of culpa in contrahendo, he brought the contractual relationship in formation into the protection of the fault rule.87 Therefore, it is generally acknowledged that the culpa in contrahendo takes “culpa” as imputation standard, therefore scholars regard contracting parties’ fault as the most important characteristic of liability for culpa in contrahendo.88 In Chinese Contract Law, Paragraphs 1and 2 in Articles 42 and the second sentence in Article 58 all proclaimed in writing that fault is the imputation standard, which can also be inferred that fault is the general element of imputation for liability for culpa in contrahendo in Chinese positive law.89 On the contrary, judging from the stipulation of “malice” and “intention” in Paragraphs 1 and 2, Article 42 and “knowingly” in Article 43, Chinese contract law has selectively succeeded in “intentional liability in contracting”, which makes “intention” the general imputation standard for contractual liability of a contract, and no-fault reliance liability or

85 See Li Zhongyuan, Questioning on Independence of Contracting Fault Liability, in Law Science Vol. 7, 2008. 86 Zhu Guangxin, General Principles of Contract Law, pp. 112–113. 87 See Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, in Political Science and Law Vol. 6, 2010, p. 99. 88 See Wang Liming, Breach of Contract (Revised Edition), p. 778. 89 See Cui Jianyuan, General Theory of Contract Law (supra), p. 365.

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culpa in contrahendo can be established only with other legal stipulations.90 Such different opinions should be taken into consideration seriously because it is related to the understanding and application of current law.

2.1 General Intentional Liability? (1) What kind of intention?—interpretation of Paragraphs 1 and 2, Article 42 of the Contract Law In the Contract Law, Paragraph 1 of Article 48 regulates “malicious” negotiation behaviors, and Paragraph 2 of Article 48 regulates “intentional” fraudulent conduct (or intentional breach of duty to disclose). The “Draft of Contract Law” (drafted in August 1998) once explicitly regulated that “malicious consultations” should “be aimed at harming the interests of the other party”, while the ultimately adopted legal text-Paragraph 1 of Article 42 of the current Contract Law does not cover such a requirement. Based on this, is it possible that “be aimed at harming the interests of the other party” is not a constituent element of “malicious consultation” and that the so-called “malice” is the intention of “failure to reach a contract with the other party”?91 Or did the legislator believe that the term “malice” already contains this element and delete it to avoid redundancy? In legal theory, the concept of “mala fides” is actually used in two different ways. The first usage is the concept of “mala fides”, which is opposite to “bona fides”, and it refers to “the psychology of a person in dishonesty, that is, knowing that he has no right to do so or lack certainty in the legality of the action.”92 For example, the act of disposing or acting with the knowledge that he has no right to dispose or act, or transact with the other party knowing that he has no right to dispose or act, or the act of exceptio doli, etc., they all belong to “mala fides” in this sense. The main effect of “mala fides” in this sense is the main effect of “bad faith” in this sense is the exclusion of preferential treatment of liability or the effect of acquisition of 90

See Zhu Guangxin, General Theory of Contract Law (2rd), pp. 168–171. Ibid. See Wu Qingbao, eds. Authoritative Comments on the Guiding Cases of the Supreme Court Contract Law, China Legal Publishing House (2010), p. 19. For the same view, see Han Shiyuan, General Theory of Contract Law (3rd), p. 125. In the case of “Li Wenhao v. CIIC Fuhui Investment Guarantee Company Patent Right Assignment Contract Dispute” (Beijing First Intermediate Court (2010) No.17315), the plaintiff Li Wenhao negotiated with the defendant CIIC Fuhui for the assignment of patent right, and the defendant actively requested to be assigned the plaintiff’s patent. Afterwards, both parties signed a memorandum, the plaintiff completed all preparations as required, and submitted all the patent materials involved in the case, but the defendant still refused to sign the contract. The court held that the additional request made by the defendant was not reflected in the memorandum signed by the two parties and had nothing to do with the transfer of the patent in question. Therefore, the court determined that the defendant’s conduct constituted the act of “negotiating in bad faith under the pretext of entering into a contract”. 92 David M. Walker: Oxford Law Dictionary, Li Shuangyuan, etc. Trans, Law Press (2003), p. 726, “mala fides (malice)”. 91

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rights. For example, an unauthorized occupant with “mala fides” shall be liable for the damage to the property and shall not require the restitution of necessary expenses (Article 242,243 of the Property Law), and the “mala fides” assignee cannot obtain the right of real property or movable property that others do not have the right to dispose of by delivery or registration (Article 106 of the Property Law). Sometimes “mala fides” in this sense may include “negligent ignorance” (that is, bona fides with negligence).93 The second usage of the concept of “malice” refers to the “Intentional or deliberate commission of wrongful acts”.94 In civil law, “malicious collusion” and “malicious litigation” all use the concept of “malice” in this sense. The “malice” is closer to “intention” in the sense of imputation standard, in which both are related to an illegal act. However, “malice” emphasizes the recognition of impropriety of the act, which will lead to the absolute invalidity of the contract or voidable contract and the burden of legal liability. On the contrary, as the imputation standard, “intention” emphasizes noninterference or pursuit of the result of infringement or damage,95 the effect of which is legal liability is assumed or increased. It can be seen that the second concept of “malice” is related to legal liability and is not equal to “intention” in the sense of imputation standard because it does not involve the noninterference or pursuit of results. Therefore, just as stipulated in Paragraph1, Article 42 of the 93

See Wang Ze, Good Faith and Bad Faith in Civil Law and Their Applications, Hebei Law Science, No. 1, 1996, p. 8; Dong Xueli, On Good Faith and Bad Faith in the Change of Property Rights, Chian Legal Science, No. 2, 2004, p. 65. 94 David M. Walker, Oxford Law Dictionary, Li Shuangyuan, etc. Trans, Law Press, p. 726, “mala fides (malice)”. 95 There is no definition of intention in civil law, and its meaning is usually determined according to academic principles, and it is more common in tort law theory. According to the general theory of civil law in Taiwan, the intention in the civil law is the same as the criminal law, which refers to the fact that the perpetrator constitutes a tort, “knowingly and intentionally causing it to happen (direct intentionally); or anticipating its occurrence and its occurrence. Does not violate its original intention (indirect intention or not necessarily intentional).” See Wang Zejian, Civil Law Research Series: Torts, Peking University Press, 2009, pp. 239–240. The so-called “fact that constitutes tort” refers to the fact that satisfies the “factual composition” of the three-level structure of tort, that is, the fact that the rights and interests of others are infringed or damaged due to the behavior of the actor. Mainland scholars Professor Yang Lixin and Professor Wang Liming believe that intention is the subjective mental attitude of the actor who foresees the result of his behavior and still wishes it to happen or allows it to happen. (See Wang Liming, Research on Tort Law (Vol. 1), Renmin University of China Press, 2010, p. 335; Yang Lixin, Tort Law, Law Press, 2010, p. 86.) With the help of the experience of comparative law and the legislative provisions of our country, Distinguish intention into “malice” and “general intention”, “General intention” only needs to “pursue (expect) the occurrence of damage and let the damage occur knowingly”, Malice is a more serious intention, which should not only meet the general elements of intention, but also meet the special elements, that is, direct intention, blatant disregard for prohibited laws and regulations or other people’s protected rights and interests, or acts that obviously aim or have the main goal of pursuing other people’s damage. See Zhang Xinbao, Study on the Elements of Tort Liability, China University of Political Science and Law Press, 2007, pp. 443, 446. The so-called damage, in a broad sense, includes all the unprofitable states caused by the injuring act, including the adverse consequences on property or non-property; In a narrow sense, damage only refers to property damage or loss. (See Wang Liming, Research on Tort Law (Vol. 1), pp. 302–303; Zhang Xinbao, Study on the Elements of Tortious Liability, p. 120.)

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Contract Law, the “mala fides” need not “for the purpose of harming the interests of the other party”. It can reach the same conclusion by comparing Article 42 of the Contract Law with Article 2.1.15 of “UNIDROIT Principles” and Article 2: 301 of Interpretation of Basic Principles of Civil Law. The following meanings are exactly the same: “engaging in malicious negotiation in name of making a contract” in Article 42, Paragraph1 of the Contract Law, and “It is bad faith, in particular, for a party to enter into or continue negotiations when intending not to reach an agreement with the other party” in Article 2.1.15, paragraph 3 of “UNIDROIT Principles”, or “a party to negotiate or continue negotiations contrary to the good faith of entering into a contract with another party” in Article 2: 301, paragraph 3 of Interpretation of Basic Principles of Civil Law. Also, the following words are consistent in normative functions: “malicious intention” in Article 42, Paragraph1 of the Contract Law, and “bad faith” in Article 2.1.15, paragraph 3 of “UNIDROIT Principles”, or “contrary to good faith” in Article 2: 301, paragraph 3 of Interpretation of Basic Principles of Civil Law. Since the term “bad faith” is usually translated as “恶意 (e yi)”96 in Chinese, it can be inferred that “malicious intention” in Article 42, Paragraph1 of the Contract Law equals “bad faith” in “UNIDROIT Principles” or “contrary to good faith” in Interpretation of Basic Principles of Civil Law. In “UNIDROIT Principles”, “bad faith” is opposite to “good faith” which both are general requirements for the behavior of the parties. And the “malicious behavior” of “abuse of rights” is typical behavior of “bad faith”, which has a broader scope than malicious behavior, including misconduct without justification and behavior conducted under negligence, even in cases of negligence.97 Therefore, the term “bad faith” in “UNIDROIT Principles” is clearly different from “恶意 (e yi)” in Chinese legal literature. However, neither “malicious behavior” nor behavior “contrary to good faith” is directly related to the pursuit of noninterference of the damage. In this sense, “malicious intention” in Article 42, Paragraph1 of the Contract Law only refers to “negotiating a contract with the other party without the intention of concluding it” and does not require that the perpetrator has an intentional intent to cause harm. From the stipulation of Article 42, Paragraph 2 of the Contract Law, “intention” means “intentionally concealing important information” or “intentionally providing false information”, which only requires the actor to have a clear understanding of the obligation to provide information or the falsity of the information provided. It is generally assumed that providing intentionally false information is to cause false reliance in others with an obvious impropriety in a positive way. However, the impropriety of concealing important information cannot be determined by the importance of information, but by combining the intentional concealment and disclosure 96

UNIDROIT, General Principles of International Commercial Contracts, Department of Treaty and Law of Ministry of Foreign Trade and Economic Cooperation Trans, Law Press China, 1996, p. 38. In Yuan Zhao Dictionary of Anglo-American Law, “bad faith” is also translated as “malice”. See Xu Guodong, Interpretation of Basic Principles of Civil Law: Focusing on the Legal Analysis of the Principle of Good Faith (addition and deletion), China University of Political Science and Law Press, 2004, p. 64. 97 See PICC (2010) §1.7, official comment 2, illustrations 1–6.

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obligation.98 In this sense, in the case of deliberate concealment, it can satisfy the constitutive elements of liability only by using the elements contrary to the principle of good faith contained in Article 42, Paragraph 3. Therefore, in Article 42 of the Contract Law, the imputation requirement is met as long as the party is aware of the act’s impropriety without considering whether it is “malice” or “intention”. Also, whether the act is related to the pursuit of noninterference of the damage will not be taken into account, which is different from “intention” in the sense of imputation standard. (2) Liability with Intentional Fault?—interpretation of Article 43 of the Contract Law According to the scholars, although Article 43 of the Contract Law does not explicitly provide “intention”, it uses the word “learn”, so it can be concluded that the liability under this article is also based on intention99 According to the meaning of Article 43, the effect of “learn” is to determine the “duty of confidentiality”, which does not involve the issue of imputation or even the awareness of the impropriety of the act. Therefore, there is no issue of “malicious” or “intention” as prescribed in Paragraph1and 2, Article 42 of the Contract Law. The attribution act involved in this article is “disclose or inappropriately utilize business secrets”, and there is no subjective requirement. Therefore, Article 43 of the Contract Law should belong to an incomplete code because it neither requires the awareness of the impropriety of the act nor stipulates the imputation elements of “intentional or negligent”, and the imputation standard for related acts must be determined by means of statutory construction. Since Article 43 of the Contract Law draws on “UNIDROIT Principles” and Interpretation of Basic Principles of Civil Law, it can be explained with reference to them. Article 2.16 of “UNIDROIT Principles” (1994) and Article 2: 302 of Interpretation of Basic Principles of Civil Law both provide for the duty of confidentiality; that is, neither party may disclose or inappropriately exploit business secrets obtained in the making of a contract no matter the contract is executed or not. Whether or not it is “secret information” does not require an express statement of confidentiality by the right holder, although such a statement is usually of great significance in determining the duty of confidentiality. In the absence of a declaration of secrecy or agreement, the information should be identified based on its characteristics.100 It shows that the party should still bear responsibility as long as his behavior violates the requirements of the principle of good faith and principle of fair dealing, even if he does not know that it is confidential information when obtaining the information.101 In Article 43 of the Contract Law, except that the scope of confidentiality is limited to “business secret”, the way of breach of obligations is the same as the provisions of “UNIDROIT Principles” and Interpretation of Basic Principles of Civil Law, that 98

See Han Shiyuan, The Law of Contract (3rd), p. 132. See Zhu Guangxin: General Theory of Contract Law, p. 115. 100 See PICC (1994) §2.16 illustration 3; See PECL §2:302 comment B. 101 See PICC (1994) §2.16 comment 2. 99

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is, the “disclose or inappropriately exploit” violates the principle of good faith and principle of fair dealing. In addition, “learn” is necessary for the duty of confidentiality, the secret information is a protected object whether it is provided by the other party actively or unintentionally obtained during negotiations. It is unclear whether “learn” requires the obligor to be aware of the relevant information as a “business secret”. Since the duty of confidentiality is not based on the declaration of secrecy or the confidentiality agreement of the obligee, in this case, it is uncertain whether the known information to the contractor is a “business secret”. If the contracting party disclose or inappropriately exploit the information because he mistakenly believes it is not confidential, his act can be regarded as contrary to good faith as long as he should have recognized that the disclosure or exploit of the information will adversely affect the other party, in which the information does not need to be convinced as a “business secret”. In this sense, “business secret” is a restriction on liability from the perspective of the protected object and should have no effect on the imputability of the actor. This understanding is consistent with the provisions of tort law and judicial practice on “business secret” in current law. Article 10, paragraph 1, item 3 of the Anti-Unfair Competition Law stipulates: “to violate the contract or the requirement to publish, use or permit others to use the business secrets, which were maintained as secrets by the legal owner of the business secrecy” It is closest to the violation of the duty of confidentiality in Article 43 of the Contract Law, and there is no intentional requirement; Paragraph 2 further stipulates: “The third party who knows or should know the illegal activities as first mentioned, and who gains, uses or publishes the business secrecy shall be looked as activities of infringing upon the others’ business secrecy.” The term “should have known” indicates that the fault of infringement upon business secrets for a third party is sufficient. In contracting, a contracting party that directly obtains secret information should have a stronger duty of confidentiality (at least the same) than a third party who does not have such a relationship because of the existence of a special relationship, and there is no reason to believe that it is weaker. It can be inferred that if the actor disclosed or inappropriately exploited business secrets when he did not know but should have known relevant information belongs to business secrets, he still violated the duty of confidentiality.102 In addition, contractual liability itself has the function of making up for inadequate tort law remedies. If the constitutive element of tortious liability is negligence while the constitutive element of contractual liability is intention, which not only fails to reflect such a functional setting of contractual liability of a contract but also is no help for guaranteeing the freedom of contract. This is because, even if culpa in contrahendo is denied in this case, the victim can turn to tort liability for remedy. In this way, the liability excluded to protect the freedom of contract is recognized again through tortious liability, as a result, the significance to exclude the culpa in contrahendo is lost. It can be seen that the recognition of contractual liability only restricts the freedom to contract unless contractual liability 102

Cui Jianyuan, Explanation and Application of Several Institutions and Rules of New Contract Law, in Law Science Vol. 3, 2001. See Wang Liming, On Liability for Breach of Contract (Revised Edition), p. 798.

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is satisfied instead of tort liability! Therefore, the contractual liability and tortious liability are isomorphic in the protection of business secrets. As far as the imputation standard is concerned, the act that meets the constitutive element of tortious liability must meet the constitutive element of contractual liability of a contract! It is in this sense that Chinese scholars believe that the compensation liability under the second sentence of Article 43 of the Contract Law is not contractual negligence liability, but tort liability.103 From the perspective of judicial practice, cases directly applying to protect business secrets in Article 43 of the Contract Law are extremely rare. However, in few cases involving the contractual liability of a contract for infringement of business secrets, the courts maintain a high degree of consistency in the attribution of liability for conclusion contractual liability of tortious liability. For example, in Linyi Yiming Decoration Co., Ltd. v Linyi jinshimaduo Trading Co., Ltd. (appeal of a dispute over the copyright infringement),104 the defendant invited tenders for the decoration project of the leased commercial buildings along the street, and the plaintiff designed 12 engineering renderings and other relevant documents for bidding. During the bidding process, the defendant carried out investment promotion activities and hung or placed the decorative renderings of the plaintiff and other bidders in his office for investment promotion and bidding. The court held that “the defendant took advantage of the special status of the bidder and obtained business interests by using the plaintiff’s intellectual achievement for investment promotion, resulting in the decorative renderings and bidding schemes created by the plaintiff was not formally bid for the public and lost their due competitiveness. Since the plaintiff’s decorative renderings were designed based on the specific environment of the bidding project and its purpose was unique, the commercial value of the work was damaged for the defendant’s behavior, and the plaintiff’s property rights and interests as a copyright owner based on copyright have suffered irreparable damage. The defendant’s behavior leads to the competing responsibilities of culpa in contrahendo, commercial secret infringement liability and copyright infringement liability, and according to the provisions of Article 122 of the Contract Law of the People’s Republic of China, the plaintiff has the right to pursue the defendant’s infringement liability. In this case, the defendant’s responsibility lied in an improper use of the engineering renderings designed by the plaintiff, and whether he had the intentional harm will not be discussed here. Therefore, the liability for breach of confidence under Article 43 of the Contract Law did not regard intention as an imputation standard. (3) General specifications?—Interpretation of Article 42, Paragraph 3 of the Contract Law It is generally considered that Paragraph 3, Article 42 of the Contract Law is a miscellaneous supplementary provision, which only applying to cases of contractual 103

See Kong Xiangjun: A Course in Contract Law, Chinese People’s Public Security University Press, 1999, p. 155. Zhang Hong, Study on the Legal Application of Duty of Confidentiality in Contract Negotiation: Focusing on Article 43 of the “Contract Law of the People’s Republic of China”, in Studies in Law and Business Vol. 2, 2011, p. 144. 104 Shandong Province Linyi Intermediate People’s Court (2006) Lin Min San Chu Zi No.16.

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Table 1 Comparison based on “Interpretative Version 1”

The duty to negotiate in bad faith

Liability for breach of duty of confidentiality

General rules of international commercial contracts106

CONTRACT LAW OF THE PEOPLE’S REPUBLIC OF CHINA

§ 2.15

To start or continue negotiations in bad faith

§ 42 (1)

Willful breach of the disclosure obligation

§ 42 (2)

Breaking-off negotiation in bad faith

§ 42 (3)

§ 2.12

§ 43

Liability for the existence of § 3.18 invalid causes

§ 58

liability without specific stipulation in law. However, there are two interpretations of the “supplementary” scope. The first interpretation is that Article 42 only applies to the contractual liability for which the contract has not been entered into, and the “supplementary” scope of Paragraph 3 is also limited to the cases of contractual liability for breach of the duty to negotiate in good faith except for items listed in Paragraph 1 and 2 (Hereinafter referred to as “interpretative version 1”). The first interpretation has two constructive features: the first is to limit Paragraph 2, Article 42 of the Contract Law to the cases of “intentional breach of the duty to disclose”, which leads to the failure conclusion of the contract. Otherwise, it shall be handled according to Article 58 of the Contract Law. The second is based on the principle of legal interpretation that general stipulation should be consistent with the listed provisions. It can be inferred from the “intentional liability” in Paragraphs 1 and 2, Article 42 that the following Paragraph 3 also belongs to “intentional liability”. At the same time, this kind of interpretation has also made the provisions of the Contract Law on culpa in contrahendo in general consistent with the provisions of the “UNIDROIT Principles”, that is, Article 42 and 43, and the second sentence of Article 58 of the Contract Law corresponds to Article 2.1.15 (“Liability for negotiations in bad faith”), Article 2.1.16 (“Liability for breach of duty of confidentiality”) and Article 3.18 (“Liability for knows or ought to know la cause de la nullity of the contract”) of the “UNIDROIT Principles”.105 There is a clear distinction between the regulation object or scope of the stipulation, and the provisions are clear and smooth (see Table 1). Those who hold the opposite view think that Paragraph 3, Article 42 of the Contract Law has the status of a general clause on culpa in contrahendo, which applies not only to the contractual liability in the cases of non-establishment and the validity of contract but also to the case of invalid or rescinded contract (Hereinafter referred to as 105

They correspond to Articles 2.1. 15, 2.1. 16 and 3.2. 16 of the general rules (2010), respectively. UNIDROIT, Principles of International Commercial Contracts, pp. 38, 40, 71. The quotation of this paper has been adjusted according to the original English text.

106

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Table 2 Comparison based on “Interpretative Version 2” General rules of international commercial contracts The duty to negotiate in § 2.15 bad faith

Liability for breach of duty of confidentiality

§ 2.12

Liability for the existence of invalid causes

§ 3.18

CONTRACT LAW OF THE PEOPLE’S REPUBLIC OF CHINA To start or continue negotiations in bad faith

§ 42 (1)

Breaking-off negotiation in bad faith

§ 42 (3)

§43, §42(3) 5. Invalid contract

§58, §42(2)

5. Valid contract

§42(2), (3)

“interpretative version 2”).107 Since the general theory of China takes the principle of good faith as the theoretical basis of culpa in contrahendo, this interpretative version is consistent with the general theory. When discussing the specific application of the provisions of Paragraph 3, Article 42, some scholars basically follow this line of thought.108 At the same time, this interpretation can be consistent with the legal textual meaning without making any restrictions on the scope of application of Paragraph 2, Article 42. After all, the intentional breach of the duty to inform involved in this provision can occur either in the case of contract failure or in the case of contract invalidity, and there is no good reason to limit it to the case of contract failure. However, compared with “interpretative version 1”, this interpretive scheme loses the clarity of the normative structure (see Table 2).109

107 See Ye Mingyi, Civil Regulation of Fraud Concerning Contract, In China Legal Science Vol. 1, 2012, p. 140. 108 See Ye Mingyi, Civil Regulations Involving Contract Fraud, Chinese Law (2012), No.1, p. 140. For example, Professor Wang Liming divided the culpa in contrahendo into four types: malicious negotiation (Article 42, paragraph 1 of the Contract Law), intentional fraud (Article 42, paragraph 2), breach of duty of confidentiality (Article 43) and Other types of violations of the principle of good faith (including violations of preliminary agreements or promises, violations of invitations to invite offers, violations of valid offers, invalid or cancelled contracts, violation of gun contractual obligations and no right to act, etc.) See Wang Liming, Breach of Contract (Revised Edition), at the bottom of p. 791. 109 This is manifested in: if Article 42(3) of the Contract Law is regarded as the general clause on contractual liability, then it should be stipulated as a separate article or paragraph, so why should it become a substitute norm instead? If we want to make up for the deficiencies of various specific provisions, why are the situations stipulated side by side limited to breach of reliance to open or continue negotiations and intentional fraud, but not other situations? Frankly speaking, why not stipulate Article 43 and Article 58, the second sentence, side by side with the aforementioned provisions, and take Article 42, Item 3, of the current Contract Law as their basic provisions? Why is there a separate enumeration of “intentional fraud” in Article 42, Paragraph 2, rather than a direct provision for “breach of the duty to disclose” (the latter being broader than the former), or other acts of breach of reliance (e.g. coercion, misleading representations, etc.)?

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There is an obvious difference in effect between the two interpretative versions without considering the clarity of the normative logic: according to “Interpretative Version 1”, current Contract Law cannot be applied to lots of cases, such as unintentional breach of duty to disclose (or negligent misrepresentations), disclose or inappropriately exploit non-business secrets requested by the other party, and contractual liability when there is a rescinded cause but the contract has not been rescinded. On the contrary, if the “Interpretative Version 2” is adopted, the problems mentioned above will be solved easily, and they can all be regulated by referring to Paragraph 3, Article 42 of the Contract Law. Even if it is considered that the disclosure or inappropriately exploiting of non-business secrets requested by the other party can be handled in accordance with the liability for breach of contract, there is no sufficient reason for not remedying the intentional breach of duty to disclose when the contract is valid, which will constitute a value conflict with the provision “person who is contrary to good faith intentionally should bear the compensation liability” of Paragraph1 and 2, Article 42 in Contract Law. While the affirmation of liability in cases of negligent misrepresentation depends on the policy, it is undeniable that disclaiming liability indeed goes against the principle of good faith. From this point, the “Interpretative Version 2” is more consistent in the value of legal protection and worthy of approval by giving more right of discretion to the judges. Judging from the drafting or formulation process of Article 42 of the Contract Law, its third provision was designed as a general clause of contractual liability in the beginning. Article 29 of The Contract Law Draft (January 1995), drafted by Professor Liang Huixing, stipulates that: “In the process of comprehensive consultations for the conclusion of the contract, the parties have mutual obligations of cooperation, protection, notification and other obligations required by the principles of good faith and trading practices.” “The party shall bear the compensation liability if he violates the obligations of the preceding paragraph and causes damages to the other party.” This provision does not link the contractual liability with the formation of the contract, which clearly shows the nature of the general terms of contractual liability. In Paragraph 1 of Article 24 of The Contract Law (Draft for Public Comments) (May 1997), although it deletes the provisions on the pre-contractual obligation in The Contract Law Draft and directly stipulates the compensation liability for acts contrary to good faith, it still remains the normative design idea of the general norms. In the discussion of legislation, some people believed that in view of the uncertainty of the connotation of the principle of good faith, the abuse of culpa in contrahendo should be avoided in practice. For this reason, there is a provision added to Article 40 of The Contract Law Draft (August 1998), that is, “(1) engaging in negotiation with malicious intention in the name of making a contract for the purpose of damaging the interests of the other party”.110 The addition of “malicious consultation” has not changed the general rule of “one should bear the liability for damage caused by the breach of good faith”, which merely puts the provision of “any other act contrary to the principle of good 110

See the Civil Law Office of the Legal Work Committee of the Standing Committee of the National People’s Congress, Introduction to the Draft Contract Law of the People’s Republic of China and its Summary, Law Press, 2000, p. 164.

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faith” in a complementary position. The final legal text, namely Article 42 of the current Contract Law, has added a provision to the arrange of the normative structure than Article 40 of The Contract Law Draft, but it still maintains a legislative model combining specific enumeration with general norms. It can be seen that the provision “any other act contrary to the principle of good faith” of Paragraph 3, Article 42 of the Contract Law contains the entire content of the general norms of contractual liability, that is, “one should bear the liability for damage caused by the breach of good faith”, in which the complementary nature does not conflict with its nature of general norms. From the perspective of judicial practice, the nature of general norms of Paragraph 3, Article 42 of the Contract Law has also been recognized. It not only includes the acts contrary to the good faith of the contracting party before the conclusion of the contract, such as the reliance loss of the other party caused by the party’s breach of previous promise and refusal to enter into a contract111 or termination of negotiations, or losses caused by a breach of the agreements of intent to prevent the other party from disposing of property,112 or the compensation liability when the contract is not concluded for lacking the necessary matters,113 or loss of reliance of the other party caused by the party’s contrary to the principle of good faith and failure to notify the other party in time114 ; but also includes the acts that the contract has been concluded, but the party refuses to assist in the approval or registration procedures to make the contract effective,115 or even in the case of a valid contract, the party shall bear the corresponding legal liability for breach of the duty to disclose. It should be particularly noted that Article 42 and Article 58 of the Contract Laware not exclusive in their legal application, but may be applied simultaneously,116 or when 111

For example, the Shijiazhuang Intermediate People’s Court of Hebei Province “Beijing XX Software Technology Co., Ltd. v. Hebei XX Accounting Software Technology Development Co., Ltd. (Appeal from a dispute over authorized service contract)” (No.00065, (2010), Final, Civil Division IV, Shi Jiazhuang). 112 For example, the Shanxi Provincial Higher People’s Court “Shanxi BMW Materials and Energy Company v. Hohhot Petrochemical Company of China Petroleum and Natural Gas Co., Ltd. (Appeal from a dispute over Contracts for Settlement of Payments)” (No.19, (2001), Final, Civil Division II, Shandong). 113 For example, the Guangzhou Intermediate People’s Court, Guangdong Province, “Agricultural Bank of China Guangzhou Taojin Sub-branch v. Guangdong Branch of the People’s Insurance Company of China (appeal from a dispute over insurance)” ((2006) No.1481, Civil Division II). 114 For example, the Chongqing Higher People’s Court “Lantian Township Farms, Chengkou County, Chongqing v. Agricultural Bank of China Chengkou County Sub-branch (appeal from a dispute over compensation of culpa in contrahendo)” ((2004), No.57, Final, Chongqing). 115 Such as Jiangsu Province High People’s Court “Shanghai Wenxi Industry Co., Ltd. v. Japan Jiantian Paper Industry Co., Ltd. (appeal from a dispute over equity transfer contracts)” ((2006) No.0108, Final, Civil Division III, Suzhou). Xinjiang Uygur Autonomous Region Urumqi Intermediate People’s Court “Urumqi Yakeya Fumin Horticulture Co., Ltd. v. Hami Jinxiang Mining Co., Ltd. (appeal from a dispute over mining right)” ((2009) No.908, Final, Civil Division IV). Zhejiang Provincial High People’s Court “He Zheng v. Chen Jinyao, etc. (case of dispute over equity transfer)” ((2009) No.2, First, Hangzhou), etc. 116 For example: Jiangxi Higher People’s Court “Appeal Case of Joint Contract Dispute between Jiangxi Pengze County Transportation Bureau and Pengze County Material Ping’an Automobile

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the contract is invalid, liability may be determined on the basis of Article 42 instead of Article 58.117 It can be seen that the basic norms of contractual liability determined in Paragraph 3, Article 42 have already played the normative functions of general clause in practice. If the view above is valid, then the contractual liability under Paragraph 3, Article 42 of the Contract Law should adopt a unified imputation standard with the second sentence of Article 58 of the Contract Law. Neither the “contrary to the principle of good faith” stipulated in Paragraph 3, Article 42 of the Contract Law, nor the “fault” stipulated in the second sentence of Article 58 of the Contract Law cannot be restricted to “intention” based solely on reasons of maintaining freedom of contract. (4) How to impute liability?—Discrimination of the Relationship between “Fault” and “Bad Faith” If Paragraph 3, Article 42 of the Contract Law has the status of general clauses of contractual liability, then the element of imputation set by it, that is, “bad faith” or “contrary to good faith”, shall apply to all forms of contractual liability. Given that the second sentence of Article 58 clearly states that the imputation standard is “fault” rather than “bad faith”, it’s necessary to prove that the act of “fault” is itself an act of “bad faith” in order to establish the unity of the two standards of imputation. Good faith is divided into subjective integrity and objective integrity. The subjective integrity manifests itself as the cognition of the factual state, that is, the state of being sure that they have not infringed on the rights of others, while objective integrity manifests itself as the requirement of proper conduct.118 In terms of the opposite side of subjective integrity, bad faith means that the actor has realized his behavior infringes or may infringe on others’ rights, which is knowingly malice. The expression “any other act contrary to the principle of good faith” in Paragraph 3, Article 42 of the Contract Law indicates that the “malicious consultation” and “intentional fraud” stipulated in Paragraphs 1 and 2, Article 42 certainly belong to acts of “bad faith”. If the actor is unaware of the harmful nature of his actions, there is no subjective breach of good faith in his action. In other words, the state of culpa Transportation Co., Ltd.[(2003) Gan Min Yi Zhong Zi No.72), Hangzhou Intermediate People’s Court, Zhejiang Province]Deng Suqin v. Ren Hui’s Dispute over Sales Contract[((2009) Zhe Hang Zhi Chu Zi No.370), Anhui Higher People’s Court]Xu Yuancai and Ma Lin applied for a retrial of the dispute over the housing sales contract[((2009) Wan Min Ti Zi No.0057), Zhumadian Intermediate People’s Court, Henan Province]Appeal Case of Dispute between Zhumadian Shenzhou Yafei Automobile Chain Store Co., Ltd. and Shi Huihua’s Installment Vehicle Sales Contract[(2010) Zhu Min San Zhong Zi No.166), Xinyang Intermediate People’s Court of Henan Province]Pan Baoyou and Yang Shiwan’s Reciprocal Dispute Appeal Case[(2010) Xin Zhong Fa Min Zhong Zi No.130] and Kunming Intermediate People’s Court]Zhao Songtao and Xiao Wenbin and Other Appeal Cases of Housing Sales Contract Disputes” ((2008) Kun Min Yi Zhong Zi No.542). 117 For example, the Shanxi Provincial Higher People’s Court “Taiyuan City Commercial Bank Xinghua Sub-branch v. Shanxi Xinhuayin Technology Development Co., Ltd. etc. (appeal from a dispute over loan guarantee contract)” ((2000) No.104, Final). 118 See Xu Guodong, Interpretation of Basic Principles of Civil Law: Focusing on the Legal Analysis of the Principle of Good Faith (addition and deletion), China University of Political Science and Law Press, 2004, pp. 68, 66.

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does not constitute the opposite side of subjective integrity. As for the opposite side of objective integrity, bad faith manifests itself in a state where the relevant behavior is contrary to the requirements of proper conduct, regardless of whether the actor is aware of such a deviation. Just as scholars have said, as a behavioral model, objective integrity must be the result of a certain mental state so that it is associated with the duty of care or culpa.119 Whether there is culpa needs to be judged according to certain behavior standard (whether it is a standard of a specific actor or the so-called prudent administrator or a rational person), this standard is often referred to as “necessary duty of care”, and culpa is a violation of this duty of care. Since the content of care is to avoid infringement or damage to the rights and interests of others, this behavior standard must be consistent with the requirements of objective integrity. In other words, “culpa is a violation of care, that is negligence, thereby violating the obligation of good faith of others. In this sense, culpa can be viewed as an antonym of good faith.”120 It should be noted that since the basic function of subjective integrity is the granting of rights or preferential treatment of liability, therefore the opposite effect of bad faith is unavailable to obtain rights or preferential treatment of liability. From this perspective, there is no relationship between subjective integrity and issues of imputability. On the contrary, objective integrity as the requirement of proper conduct, the opposite bad faith has the function of confirming the impropriety and thus produces the liability. In this sense, the act of violating objective integrity has the normative function of replacing unlawfulness or even fault and can become the basis of imputability. It can be seen that only objective integrity is intertwined with fault, and “bad faith” itself includes a state of “intention” or “culpa”.121 For example, if the actor unintentionally leads the other party to fall at fault, whether he should bear the liability for failure to disclose the fault to the other party if he knew that the other party had contracted due to the fault? In Common Law, if a party’s prior act, or informed incomplete information, or changes after the event has the possibility of misunderstanding, then the party’s undisclosed behavior still constitutes a “misrepresentation”, which produces the right to rescind the contract and claim for indemnity of the other party.122 The case is handled similarly in Germany. When a contracting party does not inform the other party of the facts that may cause a fault, it will not only produce the right to revoke of the other party, but also not limited by the one-year prescription term but applies to the general limitation term of three years; in addition, the party shall also be liable for compensation liability to the other party.123 According to the stipulation of the General Principles of International Commercial Contracts and The Principles of European Contract Law, regardless of whether the contract is declared invalid, the party who knew or ought to know shall

119

Ibid., p. 67. Ibid., p. 68. 121 Ibid., p. 64. 122 See G.H. Treitel, The Law of Contract, pp. 363f. 123 Vgl. Münchener Kommentar zum BGB, § 311, Rn.117. 120

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compensate the other party for total loss whether it was caused by him.124 Under the circumstances mentioned above, the duty to disclose arises only when the actor causes the other party to fall at fault, and the actor knows the fault, the former fact cannot be the reason for imputation; only combining with the latter fact can produce the duty to disclose to the actor. However, knowing the existence of the fault is merely the reason for the determination of the duty to disclose, which does not constitute the basis for imputation. As the constitutive elements, wrongful acts (the breach of the duty to disclose) occur after the fact has been known. Knowing the fact cannot be the prerequisite for the duty to disclose as well as the reason for breach of obligation at the same time. Here, we will find the dual function of the principle of good faith: it is both the standard for determining the pre-contractual obligation and the imputation standard for breach of the pre-contractual obligation! Since the pre-contractual obligation is recognized for the purpose of imputation rather than performance, the dual function of the principle of good faith actually manifests itself in a single way. Once determining the pre-contractual obligation by the principle of good faith, the details of the duty of care are also determined, and violation of these obligations would have the effect of the presumption of fault. In this way, the fault is manifested not only as a breach of pre-contractual obligation but also as a breach of the principle of good faith.125 This suggests that after confirming that the breach of obligation is contrary to good faith, the elements of fault are unnecessary; on the contrary, after confirming the elements of fault, it is unnecessary to reaffirm the nature of the treachery of the behavior.126 (5) Intermediate Conclusions The system of culpa in contrahendo in Chinese Contract Law is mainly composed of three basic provisions: Article 42, Article 43, and the second sentence of Article 58. In the provisions mentioned above, Paragraph 1 and 2, Article 42 of the Contract 124

See PICC (1994) § 3.18 Illustration; PECL § 4: 117 Illustration 1 and 2. According to Chinese Contract Law, the same conclusion should be drawn, that is, the party who unintentionally causes mistakes has the obligation to inform, and if the breach of this obligation causes losses to the other party, if the contract has been established, the other party’s right of cancellation (the provisions of Article 54, paragraph 1, item 1 on major misunderstanding shall apply) and the right to claim compensation for damages due to contracting negligence (the second sentence of Article 58 of the Contract Law shall apply); If the contract is not established, the other party’s claim for compensation for contracting negligence will arise according to Article 42, paragraph 3. Otherwise, there will be undue consequences that the party causing the mistake can take advantage of its mistake to obtain protection. 125 See Zhu Guangxin, Reliability Research: Taking Contract Conclusion as the Analysis Object, Law Press, 2007, p. 284. 126 In practice, it is also common to identify fault according to behavior treachery. Although treachery and fault coexist, they are actually a unity relationship, so we can’t think that there are differences in identification standards between them. See “China National Science and Technology Materials Import and Export Corporation v. Kmart Far East Co., Ltd. [(Shanghai No.2 Intermediate People’s Court (2000) Hu No.2 Zhong Jing Zhong Zi No.1115) and] Henan Yonghe Real Estate Co., Ltd. v. Henan Cable TV Network Group Co., Ltd.” (Zhengzhou Intermediate People’s Court of Henan Province (2011) Zheng Min Si Chu Zi No.62), etc.

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Law explicitly regulate that the imputation standard is “malice” or “intention”, while Article 43 does not have a clear stipulation about the imputation standard, and the second sentence of Article 58 explicitly regulates that the fault is imputation standard. Therefore, it is impossible to conclude that the contractual liability under the contract law of the people’s republic of China is based on intention as the general imputation standard. In addition, the “malice” or “intention” in Paragraphs 1 and 2, Article 42 of the Contract Law is only the restriction of the manner of conduct for breach of pre-contractual obligation, which is not equivalent to “bad faith” itself but the basic behavior type of bad faith. Therefore, only the provision of Paragraph 3, Article 42 on “contrary to good faith” is the general imputation standard for contractual liability, which makes up the incomplete imputation standard of Article 43. With regard to the relationship between “bad faith” and “fault”, they are consistent in the imputation standard, in which both are manifested as violations of the requirements of legitimate behavior without harm to others. The fault itself belongs to “bad faith”. In addition, since the pre-contractual obligation determined in accordance with the principle of good faith has the effect of marking the details of the duty of care, breach of the pre-contractual obligation usually indicates the impropriety and imputability of the act. Therefore, “bad faith” has the role of replacing illegality and fault as the imputation standard.

2.2 Contractual Liability Without Culpa? Judging from the provisions of Current Chinese law, contrary to good faith is necessary for the contractual liability in the imputation standard, and the standard of proper conduct required by the principle of good faith is consistent with the standard of “necessary duty of care” in the judgment of culpa. Therefore, the proposition mentioned above can be translated into that the fault is necessary for the contractual liability in Chinese law. However, the practice of using the principle of good faith or culpa in contrahendo as a unified imputation standard has been criticized by scholars for ignoring the principle of reliance protection in its legislative thoughts, so, it is necessary to establish a binary pre-contractual liability system based on liability for negligence and the principle of reliance protection.127 This view is mainly based on the experience of the tradition of German law in which the compensation liability stipulated in Article 122 of the German Civil Code (involving cases of the per jocum scherzerk laerung (behavior of tease), misstatement and misrepresentation) and the compensation liability of unauthorized agents in Article 179 is generally considered to be typical Vertrauenshaftung without inquiring the existence of negligence.128 In

127

Id. at 290 and below.Similar views see Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, p. 106. 128 Larenz, Principles of Imputation for Damage in German Law, published in Wang Zejian, Civil Law Doctrine and Case Studies (Vol. 5), pp. 193–194.

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addition, there are also theoretical opinions that the liability for interruption of negotiations is also Vertrauenshaftung without negligence.129 Since the questions above are mainly based on the perspective of legislative doctrine, the following discussion in this article will focus on this perspective. (1) Reliance Principle and Vertrauenshaftung The Reliance principle or principle of reliance protection is the legal doctrine that protects reasonable or justifiable reliance. Reliance is the general basis of human interaction, and interpersonal communication cannot occur or be conducted normally without necessary reliance, “all-around and absolute distrust leads either to overall isolation or power of might. In other words, nonreliance leads to situations contrary to the ‘state of law’. Therefore, promoting reliance and protecting justifiable reliance is one of the most fundamental requirements that the legal order must meet.”130 In this sense, the principle of reliance protection should be a fundamental principle or basic idea that runs through the entire legal system.131 However, as a special legal principle in private law, the reliance principle only applies to the transaction domain in which “reliance” plays a fundamental role in determining the legal implications.132 From the perspective of a protected relying party, the application of the reliance principle enables him to obtain legal rights or legal remedies; from the perspective of the opposite of the right mentioned above and remedy effect, the application of the reliance principle makes him bear the consequences of forfeiture or liabilities, that is, Vertrauenshaftung. The reliance principle in private law should be understood in comparison with the principle of private law autonomy. In the transaction domain, the autonomy of private law is manifested as the parties’ self-determination and self-responsibility, and the justifiability of behavioral effect is based on the free intention of the actor. This idea of constructing legal liability takes the subjective will of the liable person as the basis of determining the legal effect, and the protection of the other party is the effect of this will rather than its cause. In traditional private law theory, the theory of contract will is the manifestation of this construction mode. Since reliance is a basic element of human interaction, the acts in private law, as long as involve a person other than the actor, cannot be determined without regard to the protection of the interests of those affected by the act, which is also in line with the concept of self-responsible of private law. The concept requires that when determining the effect of a specific activity, it should not only consider the will of the actor himself, but also pay attention to the understanding of the social significance of the behavior by the other party. 129

Vgl. Münchener Kommentar zum BGB, § 311, Rn.223. De Karl Larenz: Methodology of Law, Chen Aie, Trans, Commercial Press, 2003, p. 351. 131 Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, Müchen, 1971, S.3. 132 Therefore, when determining the scope of Vertrauenshaftung, Kanaris explicitly excluded three situations: one is the idea of absolute transaction protection, in this case, whether or not reliance is irrelevant; second, although it is related to trust, it belongs to the cases of normative content of other legal systems, such as family agency rights; Third, the case where reliance protection only plays a supplementary function, such as the case of infringement due to the reliance of wrongful act. Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S.1. 130

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When talking about the function of expression of intention, Professor Larenz pointed out that expression of intention is not only a decisive behavior of producing effect for the representor but also a social-communicative behavior, “as such a behavior, the declaration of will also has some connection with the content it involves…… He can usually rely on what he understands. Therefore, the connotation of the declaration of will has gained independent meaning…… If the ideographer’s expression is wrong so that the other party understands the meaning differently than the ideographer intended, the ideographer must admit that the meaning actually understood by the counterpart is effective.”133 In other words, in determining the consequences of behavior, the law cannot consider the intention of the ideographer but determine the effect of meaning expression according to the expression connotation that the other party reasonably understands (or reliance). In this way, the determination of the legal effect has shifted from the subjective will of the representor to the meaning of the representation that the other party reasonably understands and trusts. The same applies to other legal transactions, showing the general way in which, the reliance principle works: replacing “self-determination” with “reliance” has become a fundamental factor in determining the behavioral effects. However, there is no reason to regard the reliance principle as a legal principle that completely deviates from the autonomy of private law. Since the determination of the Vertrauenshaftung must take into account the imputability of the responsible individual, “Liability based on the constitutive fact of reliance can be justified only if the constitutive fact of reliance falls within the responsibility of the obligor”134 In view of this, the Vertrauenshaftung cannot be explained only from the perspective of the relying party, but must, as in the case of liabilities arising from legal acts, take into account the factors of the responsible individual (or the actor). Moreover, the Vertrauenshaftung should lead to an association between the reliance principle and the autonomy of private law: the actor must be responsible for the reliance on facts created by his actions based on free will. In this way, the reliance principle and autonomy of private law are unified on the concept of “self-responsibility” in private law. However, when determining the Vertrauenshaftung, the consideration of the actor factors is more concerned about the negative effect of the actor’s will. When determining liability according to legal acts, the positive effect of the actors will be concerned. Theoretically, for the purpose of distinction, the negative effect of the will is called “liability”, while the positive effect is called “obligation”. There is no theoretical disagreement that the Vertrauenshaftung is based on the reliance principle. However, there are different views on the specific area of the Vertrauenshaftung. According to Canaris, in the field where “reliance” plays a fundamental role, the duty all can be called Vertrauenshaftung. The responsibility of apparent declaration of will featuring positive reliance protection (such as apparent authority), and the liabilities from “necessity based on ethics of law” featuring negative reliance protection (such as the contractual liability due to malicious negotiation 133

Karl Larenz, Allgemeiner Teil des Deutschen Bürgerlichen Rechts, Wang Xiaoye, Shao Jiandong, Cheng Jianying, Xu Guojian $ Xie Huaishi Trans, Law Press China, 2003, pp. 455–456. 134 Karl Larenz, Methodology of Law, Chen Aie, Trans, Commercial Press, p. 350.

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or fraud), all belong to the “Vertrauenshaftung”. On the contrary, Professor Larenz believes that although the culpa in contrahendo is based on reliance, “this indemnification obligation is directly based on an intentional or negligent breach of duty instead of producing or giving reliance”, so the culpa in contrahendo is different from Vertrauenshaftung that is not based on intention or culpa but based on a statutory duty of guarantee.135 In other words, not all liabilities based on the reliance principle are “Vertrauenshaftung”, but those forms of liability that absolutely protect justifiable reliance are “Vertrauenshaftung”. Therefore, the “Vertrauenshaftung” called by Canaris is a broad Vertrauenshaftung, while the “Vertrauenshaftung” called by Larenz is a narrow Vertrauenshaftung. In this way, the purpose of so-called opposing relationship between the Vertrauenshaftung and the culpa in contrahendo in the theory of Chinese civil law does not lie in denying that the culpa in contrahendo is a specific form of application of the reliance principle, but lies in showing the difference in the imputation standard between the narrow Vertrauenshaftung and the culpa in contrahendo. Except for special instructions, the following discussion will focus on the narrow Vertrauenshaftung. (2) Legitimate Basis for Vertrauenshaftung To establish a direct connection between reliance and liability, the legitimate basis for liability must be established beyond the facts of reliance. For the Vertrauenshaftung, it is generally believed that this basis includes the requirement of the rationality of faith of the relying party and the requirement of the imputability of the liable party.136 The rationality of faith requires the good faith and bona fides of the relying party, which requires the relying party not to know the facts or rights.137 The party cannot gain protection from the legal system if he knows the ostensible fact is incorrect. Also, under the circumstances that the relying party does not know the ostensible fact is incorrect, he should have realized such incorrect fact (such as reliance due to misbelieve or credulity) according to the specific circumstances of the behavior, the party still could not obtain the reliance protection.138 Therefore, this state of bad faith is homogeneous to the occurrence and culpa of reliance for the relying party. All can be judged according to the standard of a rational person.139 The requirement of imputability provides the legitimate basis for Vertrauenshaftung from the perspective of the liable person. According to Canaris, the possible imputation principles for the

135

Larenz, The Principle of Attribution of Damages in German Law, in Wang Zegan, Studies in Civil Law Doctrine and Jurisprudence (Book V), Peking University Press, 2009, pp. 193–194. 136 Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S. 503f. See also Ye Jinqiang, Private Law Structure of reliancePrinciple, Yuanzhao Publishing House, 2006, p. 137 below; Zhu Guangxin, A Study of reliance Responsibility: Taking the Conclusion of Contract as the Analysis Object, p. 181 below. 137 Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S.504. 138 According to Article 122, paragraph 2, of the German Civil Code, if the victim knows or should have known the cause of invalidity or revocability, no liability will occur; a similar provision is made in the first sentence of Article 179, paragraph 3. 139 See Ye Jinqiang, The Structure of the Reliance Principle in Private Law, p. 140.

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Vertrauenshaftung include the incentive principle (Veranlassungsprinzip), fault principle (Verschuldensprinzip) and risk principle (Risikoprinzip), etc.140 According to the incentive principle, the party should bear the liability once he causes the ostensible facts. According to the general theory of Germany, the incentive principle applies to the liability for representation of rights and the liability of wrongful rescission under Section 122 of the German Civil Code (BGB), etc.141 If the party which induces the reliance of the other party shall bear the liability, then determining liability on the basis of incentive principle is equivalent to consequential imputation, which in effect waives the requirement of imputability,142 in that case, the legitimacy of the Vertrauenshaftung depends entirely on the trade-off of the rationality of faith. Based on fault, it is beyond doubt that the fault principle is the imputation standard, but the question is whether its connection with the idea of reliance is appropriate. According to Canaris, there is no unified answer, but it should be judged based on the composition of facts of specific liabilities. For example, the Vertrauenshaftung, based on the necessity of ethics of law, should regard fault as the imputation standard, as considerations of ethics of law are particularly consistent with the highly specialized characteristics of this type of liability; In the case of apparent liability for rights, the primary purpose of the apparent liability for rights is to protect the security of the transaction, the requirement of a fault will cause apparent uncertainty, so it is contrary to the purpose of the system mentioned above.143 The risk principle is based on the cause of the risk of damage and a stronger risk control mechanism. “Only when the constitutive fact of reliance belongs to the area of the obligor’s responsibility can the liability arising from the constitution of facts of reliance be justified.”144 It does not take the cause of risk as a single consideration for determining liability. Still, it makes the imputation based on a synthetic trade-off of the specific types of risk and the various specific factors that influence the risk allocation. For example, the risk principle has the same effect as the fault principle when a party intentionally creates a fake proper appearance or makes an unreal expression of intention, that is, the risk of misleading (Irreführungsrisiko) or risk of abusing (Mißbrauchsrisiko).145 However, the risk principle is stricter than the fault principle because the risk principle “does not conceive an ‘average level’ of behavioral requirements, but conceives the behavioral requirements of ‘ideal’ participants of the corresponding transaction.”146 Therefore, as long as the risk of causing damage is under the control of a party, the party must bear the liability arising therefrom without considering whether the risk is caused intentionally. In this way, the risk principle can be regarded as the imputation principle, which combines the fault and incentive principles.

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Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S.473. A.a.O., S.325ff. 142 A.a.O., S.474. 143 A.o.O., S.476–477. 144 Karl Larenz, Methodology of Law, Chen Aie, Trans, Commercial Press, p. 350. 145 Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S.482–483. 146 C.W. Canaris, Handelsrecht, Yang Ji Trans, Law Press China, 2006.p. 147. 141

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It should be noted that even the narrow Vertrauenshaftung cannot exempt the requirement of imputability but just exempts the subjective state of the liable person from the imputation factors.147 In this sense, the Vertrauenshaftung should be seen as a consequence liability or risk liability based on avoidability. This liability emphasizes that the behavioral outcome should be under the control of the actor, especially since “the actor can foresee the behavioral outcome and take measures to avoid the happen of behavioral outcome”.148 This method of responsibility judgment is actually similar to the method of responsibility judgment based on objective negligence. Since the culpa imputation of the Vertrauenshaftung refers to the reasonable foreseeability and avoidability of the occurrence of reliance. “If the actor can foresee the occurrence of the act and should have avoided the occurrence of reliance, the actor is in culpa.”149 This shows that even in the narrow Vertrauenshaftung, the judgment of liability is different from no-fault liability, which determines liability solely based on the causation between the damages and the harmful acts or facts without considering the foreseeability and avoidability of the outcome. As for the Vertrauenshaftung caused by error which is limited to the occasion where the other party does not cause it, the representor himself is the best controller of the error risk (the error is caused by reason of the representor himself), or the representor has better control opportunities or capabilities than the other party (the reason of the third party causes the error). Therefore, when the other party is in good faith, the representor shall compensate for the loss caused to the other party due to misstatement. If the error is caused by the other party (in the case of providing the wrong information intentionally or unintentionally), the representor can not only withdraw his declaration of will but also can require the other party to bear the compensation liability. At this time, the best controller of the error should be the information provider instead of the party who makes misstatements. In the case of misinformation, the proper basis for the representor should be obtained from the behavior of the transmitter. The transmitter’s error is the same as the representor’s, and the former is an extension of the latter, so their basis of imputation is also the same; even when the transmitter makes misinformation intentionally, the representor should bear the risk of intentional misinformation because it is easier for the representor to control the risks than the other party.150 In the case of an unauthorized agency, it is easier for the unauthorized agent to prevent the situation of no power of attorney than the other party. And the situation often occurs when the actor knows or should have known the fact of no authority of the agent, so his liability is based on the fault principle. In the case of breaking-off negotiation without cause or reason, although there is a theoretical point of view that fault is unnecessary in establishing liability, the actor causes the other party to reasonable reliance through his own behaviors. 147

See Zhu Guangxin, Reliability Research: Taking Contract Conclusion as the Analysis Object, pp. 185–186. 148 Stephen R. Perry, Consequence Liability, Risk and Tort Law, in Gerard J. Postma ed., Philosophy and Tort Law, Chen Min & Yun Jianfang Trans, Peking University Press, 2005,p. 90. 149 See Ye Jinqiang, The Structure of the Reliance Principle in Private Law, p. 186. 150 See Liang Huixing, General Introduction to Civil Law (4th ed.), Law Press China, 2011, p. 179.

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He breaks off the negotiations without cause or reason, and the liability can still be determined according to the fault principle.151 It is not difficult to find that the degree of reliance protection will be significantly reduced when the culpa is understood to be a mental state (i.e. subjective negligence) that should be blamed on the morality of the liable person; at this time, then, in order to increase the degree of reliance protection, an exceptional recognition of risk liability (usually called no-fault liability) is required. On the contrary, when the culpa is understood to be that the liable person does not take necessary care to avoid damages (i.e. objective negligence), the degree of reliance protection will be significantly increased, which means it is unnecessary to recognize the exception to risk liability. It is misleading to make culpa compared to no culpa when there is no specific indication of culpa in theory. The definition of culpa not only influences the application, but also effect of the standard of culpa and affects the choice of liability for negligence and liability without negligence.152 (3) Consistency of Vertrauenshaftung and Culpa in contrahendo “Vertrauenshaftung” and “culpa in contrahendo” both are realization forms of the reliance principle. It is believed that although both of them take the detrimental reliance as the logical starting point in legal thinking, however, in the system of Vertrauenshaftung, reliance is the core concept of constitutive requirements, and elements of liability will be satisfied as long as the representor’s expression leads to reasonable reliance and reliance impair for the other party. On the contrary, as culpa in contrahendo focuses on culpa, the pre-contractual obligation has become the core concept of constitutive requirements due to adopting the objective negligence standard. As long as the pre-contractual obligation and the fact of violation are determined, the liability elements will be satisfied\. In this way, the two liabilities are manifested in the difference between the perspective of reliance of the injured person and the perspective of the culpa of the injurer.153 However, the emphasis on the perspective of determination of liabilities does not reflect the real condition of the two constitutive requirements. In the above discussion, the Vertrauenshaftung is concerned with the reliance protection of the relying party and the imputability of the liable person, and the unipolar perspective actually removes the imputation elements, which is difficult to be recognized in dogmatics of modern law.154 As for the culpa in contrahendo, it is necessary to pay attention to both the injured person and the injured when determining the pre-contractual obligation and its breach. Only in this way can the endowment of liability be considered justified. 151

Vgl. Münchener Kommentar zum BGB, § 311, Rn.224. See Mark A. Geistfeld, Tort Law, Aspen Publishers, 2008, p. 52. 153 Zhu Guangxin, Rescission of Wrong Expression of Intention and Protection of Reliance of Relatives, in Science of Law Vol. 4, 2006, p. 118. 154 When talking about the inducement principle, Professor Canaris thinks that it is residue of pure causation liability (Kausalhaftung), which cannot provide a reasonable explanation for the imputation problem and should be abandoned in doctrinal terms. Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S.476. 152

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From the perspective of judicial practice, concerning the freedom of contract, the judge will emphasize the rationality of faith of the injured person and the impropriety of the injurer’s behavior when determining the contractual liability in cases where a contract has not been formed. For example, in Chongqing Chengkou Lantian Farm v Chengkou Branch of Agricultural Bank of China (appeal from a dispute over damages for culpa in contrahendo),155 the plaintiff’s planting and the breeding project was listed as a poverty-relief program by the Government Poverty Alleviation Management Agency. It was arranged a preferential loans program of 300,000 yuan. After receiving the documentary information from the government and the plaintiff’s loan application, the defendant does not consider the urgency of the plaintiff’s demand for the fund and responds as soon as possible to the approval of the loan for the plaintiff. As a result, the plaintiff failed to raise enough funds in time to build a greenhouse, which caused the Pennisetum since Roxb to freeze to death and suffer major economic loss. The court of first instance held that the defendant enjoyed the autonomy of loan origination, which neither had the mandatory contractual obligations nor had the subjective intention of malicious negotiation; the plaintiff has sought help from the defendant to solve the loan in person or ask for others, which indicates that the plaintiff has never been convinced that the loan can be successfully obtained from the defendant. Therefore, the loss suffered by the plaintiff was the commercial risk of its investment and was not causation by the defendant’s refusal to loan, so the plaintiff’s claim for compensation was rejected. The court of the second instance held that although the defendant enjoyed the autonomy to grant loans, the plaintiff’s loan application was based on the document of loan for poverty alleviation, and he had obtained the loan for poverty alleviation in 1999 with his own forest mortgage, so it is reasonable for the plaintiff to have greater expectations for a loan commitment. When the defendant received the plaintiff’s loan application, he knew the special character and usage of the loan for poverty alleviation, in the knowledge of the loan use of time is very urgent, in the loan project has a preliminary conclusion of the investigation did not respond in a timely manner. Therefore, the defendant was at fault for the loss suffered by the plaintiff, the judgment of the first instance was revoked, and the defendant was sentenced to bear 40% of the compensation liability. It can be seen that the two main points in the court’s decision: the first is whether the plaintiff can reasonably rely on that he can obtain a loan from the defendant; the second is whether the defendant has fulfilled his obligation to respond promptly. In terms of the first point, the court of the first instance emphasized that the plaintiff already knew the situation in which the loan could not be successfully obtained, so there was no reasonable reliance on the success of the loan; the court of the second instance emphasized that the special character of the loan and the plaintiff’s successful experience in obtaining the loan all generated higher reliance for the plaintiff. In terms of the second point, the court of the first instance held that there was no issue of delay in replying because the defendant complied with the maximum response time of the General rule of the loan; the court of the second instance held that it was still a breach of the obligation of good faith because the defendant knew 155

Chongqing High People’s Court (2004) Yugao Fa Minzhong Zi No.57.

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the actual condition of the plaintiff’s urgent need of funds and failed to give a timely response. Although the appropriateness of the case’s conclusions still needs to be considered, this weighing of thought should be encouraged.156 However, when a cause de la nullity exists in the contract, the characteristics of the bipolar trade-off for determining the contractual liability are ignored. The court emphasizes more the faults of the parties on la cause de la nullity of the contract, and whether the aggrieved party had reasonable reliance is beyond the discussion.157 This difference is easy to be explained in theory. When the contract is not concluded, the contracting parties enjoy more freedom of contract, and the requirement of the reasonableness of the reliance input must be stricter; the existence of reasonable reliance is easy to triggers controversy, so it needs to be discussed on the grounds of decision; on the contrary, when the contract has been concluded, the rationality of faith of the parties is strengthened by the fact of conclusion of the contract, so there is no need for special discussion. This difference is also clearly reflected in “the General Principles of International Commercial Contracts” and The Principles of European Contract Law. For the compensation liability during the negotiation stage of the contract, “UNIDROIT Principles” and The Principles of European Contract Law require that the imputation condition is “bad faith” or “contrary to good faith”, and the responsible person is required to “knew or ought to have known” la cause de la nullity when it exists in the contract.158 Since good faith is not only “a standard of honesty, loyalty, and thoughtful behavior—which gives due attention to the interests and rights of the other party, it also implies and includes protection of reasonable reliance”,159 The judgment of imputation based on good 156

For similar cases, please refer to “Appeal Case of Leasing Contract Dispute between Guangzhou Tianhe Retired Cadre Rest House of PLA Air Force and Guangzhou Hanlong Advertising Planning and Design Co., Ltd.” (Guangzhou Intermediate People’s Court of Guangdong Province (2008) Sui Zhong Fa Min Wu Zhong Zi No.4319), “China National Science and Technology Materials Import and Export Corporation v. Kmart Far East Co., Ltd.” (Shanghai No.2 Intermediate People’s Court (2000) Hu No.2 Zhong Jing Zhong Zi No.1115), “Appeal Case of Adjacent Right Dispute between Guizhou Abrasive Factory and Guizhou Airport Group Co., Ltd.” (Supreme People’s Court (2004) Min Yi Zhong Zi No.87), “Chongqing Liqiao Real Estate Development Co., Ltd. v. Linshui Hengsheng Engineering Construction Co., Ltd. Construction Contract Case” (Chongqing No.1 Intermediate People’s Court (2007) Yu Yi Zhong Fa Min Zhong Zi No.1252), etc. 157 See “Dispute Case of Entrusted Financial Management Contract between Gansu Science and Technology Venture Capital Co., Ltd. and Shanghai Fangda Investment Co., Ltd.” (Civil Judgment of the Supreme People’s Court [2009] Min Er Zhong Zi No.83), “Dispute over Entrusted Financial Management Contract between Asia Securities Co., Ltd., Hunan Youth Development Foundation and Changsha Tongzhou Asset Management Co., Ltd. [(Civil Judgment of the Supreme People’s Court (2009) Min Er Zhong Zi No.1) and]Shanghai Minsheng Investment Co., Ltd. and Jilin Dongli Comprehensive Investment (Group) Co., Ltd. Entrusted Financial Management Dispute Case” (Civil Judgment of the Supreme People’s Court [2006] Min Er Zhong Zi No.145) (For the above cases, please refer to the Second Division of Civil Trial of the Supreme People’s Court: Guiding Cases of Commercial Trial of the Supreme People’s Court: Contract Volume, China Legal Publishing House, 2011, pp. 11–18, 19–30 and 58–64). 158 See PICC (2010) § 2.1. 15/3.2. 16, PECL § 2: 301/4: 117. 159 Reinhard Zimmermann & [British] Simon Whitaker eds., Good Faith in European Contract Law, Ding Guangyu, Yang Ciaran & Ye Guifeng Trans, Law Press China, 2005, p. 23.

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faith clearly reflects the characteristics of the bipolar trade-off, which is different from the judgment of imputation that based on fault and emphasized on the liable person. It is because the different factual relationships that are the basis for imputation that different normative features are reflected in the standard of imputation. It shows that when determining the compensation liability according to the reliance principle, there needs to be a bias in the bipolar trade-off according to the specific circumstances of the pending fact and should not deny the necessity of this balance. In this sense, the Vertrauenshaftung in a contract and the culpa in contrahendo have the same formation of law essentially.

2.3 Summary The legal structure of the pre-contractual liability is the same as that of other civil liabilities, which must emphasize the balance between the interests of the aggrieved party and the injurer (or liable person). The balance is embodied in the mutual cooperation of the rationality of faith and the element of imputability: the higher the degree of the rationality of faith, the lower the degree of imputability; the lower the degree of the rationality of reliance, the higher the degree of imputability.160 The trade-off process needs to be biased according to the specific situation, which should 160

See Ye Jinqiang, Reliance Principle in Private Law, pp. 181–182. According to this deduction, if the victim has intention or malice, he should deny the compensation liability. This article takes the behavior of “knowingly buying a counterfeit” as an example to illustrate. When the buyer buys a commodity, if he knows that the purchased commodity is a counterfeit, it belongs to “knowingly buying a counterfeit”. Those who support “knowingly buying a counterfeit” think that in order to regulate the market behavior of operators more effectively, the law should get exemplary damages as long as there is the fact of “selling counterfeit”, regardless of whether the subjective state of “knowingly buying a counterfeit” is unintentional or intentional. (Shen Youlun & Huang Weifeng, The “Wang Hai Phenomenon” of Knowing and Buying Fake Claims, in Law Science Vol. 8, 2002, 32.) In other words, “repaying complaints with grievances to promote honest behavior of operators is necessary at present. Ying Feihu, Considerations on the Application of Punitive Compensation for the Act of Knowing and Buying Fake, in China Legal Science Vol. 6, 2004, p. 120. However, analysis that only emphasizes the legitimacy of purpose is suspicious. Because the cost of improper means is inestimable, if the cost of improper means can not be fully taken into account, the conclusion drawn by the so-called empirical analysis method is not convincing. As the basic principle of civil law, the principle of good faith not only requires the actor to engage in civil activities with legitimate purpose but also requires the actor to achieve the purpose with the same legitimate means. Only in this way can we expect to establish an orderly society. 4In view of this, the following view is more pertinent: to deal with the problem of “knowingly buying a counterfeit”, we should still follow the principle of good faith. When there is a fact of fraudulent sales, unless the seller can prove that consumers are “knowingly buying a counterfeit”, exemplary damages should be applied. Ma Qiang, Discussion on Fraud in Trial Practice, in Journal of Law Vol. 2, 2003, p. 49. Under this legal framework, because some behaviors of “knowingly buying a counterfeit” cannot be proved based on proof, some people who know and buy fakes will inevitably get protection in fact. However, there is no contradiction with the normative requirement that “those who knowingly buy a counterfeit are not protected”, but only shows that the facts deviate from the norms. Furthermore, because the losses suffered by those who “knowingly buy a counterfeit” are voluntarily suffered, their subjective intention leads to the cutting off of the causal relationship between fraudulent sales and damages, so malicious buyers

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not be regarded as a waiver of the elements of reliance or imputability, and should not be understood that there are substantive differences in the imputation standard within the pre-contractual liability. The theories in China are more based on the tradition of German civil law theory, focusing on the pre-contractual liability as the characteristics of “culpa in contrahendo” and on the choice of intention, negligence and non- negligence in terms of the imputation standard. However, there are few theories discussing the relationships among the contrary to good faith, intention and negligence, which is not only narrow in the perspective of comparative law but also deviates from the meaning of the legal texts in terms of the interpretation of Chinese positive law. In the traditional civil law theory, the intention and negligence in the sense of imputation refer to the subjective culpability of the liable person, and all point to the specific damages.161 Unless the actor knows or should have known the specific damages, there is no intention or negligence. The imputation method related to the damages is suitable for dealing with tortious acts that infringe on absolute rights and manifests in positive acts but is not suitable for cases involving pure economic loss or omission. The reason is that in cases involving pure economic loss or omission, it is the impropriety of the act that leads to the impropriety of the damage and not the way around. Therefore, for the pre-contractual liability that mainly involves pure economic loss, the method of imputation related to this act can better meet the requirements of imputation. Judging from the provisions of Article 42 and the second sentence of Article 58 of the Contract Law, the requirements of imputation all refer to the parties’ wrongful acts during the contracting process, like the malicious consultation, intentional fraud, and faults on the invalidity of the contract, etc., without involving the results of the damage. With regard to the choice between intention and negligence, Paragraph1 and 2, Article 42 of the Contract Law clearly stipulate that “malice” or “intention” is a constitutive requirement, while Paragraph 3 only stipulates that the act contrary to good faith without the explicit requirements for intention or negligence. From the perspective of systematic explanation, historical explanation, and maximization of normative functions, it is not appropriate to interpret Paragraph 3 as an intentional liability. It should be taken as a general provision for the pre-contractual liability and regard the requirement of “contrary to good faith” as the general imputation standard for the pre-contractual liability. Since the principle of good faith contains a conduct standard, it can include imputation requirements based on subjective faults. Therefore, the aforementioned interpretation can also achieve the consistency of the value of the three provisions of the article in the standard of imputation. However, it is more suitable for the pre-contractual liability to adopt the objective negligence standard. When the actor fails to perform the duty of care and causes the loss of reliance of the can’t even get reliance damages. Of course, the price paid can still be returned after the contract is revoked, but the basis of return lies not in reliance or fault, but the proper basis for the transfer of the price is extinguished from the beginning. 161 Qiu Zhicong, On the Components of Danger Liability from the Change of Imputation Principle for Tort, China Renming University Press, 2006, p. 39.

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other party, he should be liable for damages. The standard on duty of care is determined either by the average level of care of the participants in the relevant transactions or by the standard of “ideal act participants”. As such, theoretically, the imputation of the narrow Vertrauenshaftung can also be included in the objective negligence standard. There won’t be a situation in which the non-negligence Vertrauenshaftung is recognized on the one hand and the concurrence of culpa in contrahendo is recognized because of the existence of subjective negligence on the other. In other words, under the concept of objective negligence, the theoretical “culpa in contrahendo” can be linked with the standard of “bad faith” stipulated by the legislation.

3 Assumption of Pre-contractual Liability 3.1 Liability Forms It is undoubtedly that the compensation liability is the basic form of the precontractual liability, which has been stipulated in Articles 42 and 43, and the second sentence of Article 58 of the Contract Law. There are different theoretical opinions as to whether the liability for restitution of property stipulated in the first sentence of Article 58 and the liability for recovery stipulated in Article 59 of the Contract Law belong to the pre-contractual liability.162 From the perspective of constitutive requirements of liability, the restitution of performance obtained from an invalid contract (which can also be extended to the upfront performance when the contract is not concluded) is only based on the loss of performance purpose without considering the negligence of the obligor. As a result, the restitution should be based on unjust enrichment instead of culpa in contrahendo. If the invalidity of the contract is caused by the negligence of the obligor or the unveiling of la cause de la nullity, as the consequence of the invalidity of the contract, it is natural to regard the restitution obligation as the pre-contractual liability. In particular, when the obligee has not suffered actual damages, the restitution of profits can even be regarded as damages that are based on enrichment, and unnecessary to be based on unjust enrichment.163 In addition, in accordance with the stipulation of Article 8, No. 5 of Judicial Interpretation in 2009, the elements for validity such as ratification and registration can be completed unilaterally, and such compulsory contracting validity can also be understood as a special form of contractual liabilities. However, although the “liability for recovery” stipulated in Article 59 of the Contract Law is based on enrichment rather than damages, it cannot be considered as culpa in contrahendo but a special

162

Ye Jianfeng, Studies on the System of Culpa in Contrahendo, in Liang Huixing, eds., Civil and Commercial Law Review Vol. 19, Jinqiao Culture Publication (Hong Kong), 2001, pp. 551–553. 163 There are different views on whether the liability basis of enrichment deprivation is compensation for damages or unjust enrichment in theory. See the relevant discussion in the third part of this section for details.

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statutory liability or tortious liability because the subject is the obligee instead of the contracting party. In addition to the provisions of the contract law, there are also provisions on the pre-contractual liability in other laws and documents of judicial interpretation. For example, in the Article 16 of the Insurance Law stipulates that if the policyholder fails to perform the duty to disclose, the insurer may terminate the insurance contract and will even not refund the insurance premium if the insurant intentionally didn’t perform the duty to disclose; in the Article 9 of “Judicial Interpretation of Commodity House Purchase and Sales Contract” of the Supreme People’s Court (No. 7 of the Judicial Interpretation in 2003), it stipulates that if the seller intentionally conceals the relevant facts, the buyer can request the seller to rescind the contract, or declare the contract avoided or to terminate the contract, as well as request the restitution of price, interest and damages; in the Article 8 of “Judicial Interpretation of the Contract Law II” (No. 5 of the Judicial Interpretation in 2009), it stipulates that for a contract that takes effect after ratification or registration, if a party that bears the obligation of ratification or registration actually does not perform the obligation, the people’s court can judge the other party to go through the relevant procedures on its own according to the specific circumstances of the case and the demand of the other party. Whether it is the rescission of the contract or the party perfects contractual terms and conditions in accordance with the court judgement, this type of remedy is related to the breach of pre-contractual obligation, which should be regarded as the pre-contractual liability (or legal remedy for breach of pre-contractual obligation). In this sense, in the case of breach of duty of confidentiality, the judgment of “cessation of infringement” for the obligor can also be considered as a means to bear pre-contractual liability.164 It showcases that all legal implications related to the breach of pre-contractual obligation belong to the pre-contractual liability whether the contract is concluded or not. In this way, there are a variety of liability forms among the pre-contractual liability, tortious liability and the liability for the restitution of unjust enrichment, which are connected with each other in legal effects and trigger the issues of harmonization of the different legal systems. In view of the central position of damages in tort law, this section mainly discusses its specific application in pre-contractual liability. And next section will discuss the harmonization of the legal system, while other issues will be explained in chapter six.

164

In addition, scholars believe that the right to reduce prices can still be recognized when the contract is valid. See Han Shiyuan, The Law of Contract (3rd), p. 148. In fact, the right to price reduction can be regarded as the compensation liability, that is, the obligor is required to compensate the difference between the actual contract and the valid contract that may be established. See Dieter Schwab (Germany), Introduction to Civil Law,Zheng Chong Trans, Law Press, 2006, pp. 703–704.

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3.2 General Damages At the pre-contractual stage, if a contracting party suffers compensable damage due to the breach of pre-contractual obligation by the other party, liability for damages arises, which is general damages. (1) Scope of damages Although the liability for damages has been stipulated in Articles 42, 43, and the second sentence of Article 58 of the Contract Law, there is no further definition of the scope of damages. There are different theoretical opinions on the scope of damages. Some people hold that the scope of compensation is limited to the reliance interest, that is, the interests lost by relying on the formation or validity of the contract. Among these opinions, the minority view is that only the expenses (or direct damages) caused by relying on the formation or validity of the contract can be compensated, while the loss of chance (or indirect damages) caused by the failure of formation of the contract doesn’t belong to the compensable loss of reliance.165 The majority view holds that both losses mentioned above can be compensated.166 Others contend that the scope of compensation for culpa in contrahendo includes the reliance interests (direct and indirect damages) and the maintenance interests (orintegritätsinteresse).167 In addition, most scholars believe that, in principle, the compensation for reliance interests cannot exceed the performance interests (or expectation interests) that the contracting party can obtain when the contract is valid.168 From the perspective of comparative law, in terms of the pre-contractual liability, the performance interests can also be compensated,169 which is rarely discussed by Chinese scholars.170 However, this view is affirmed through judicial practices. a. Reliance Interest Reliance loss includes actual damage (i.e., direct damage) and loss of interests (i.e., indirect damage). The actual damage refer to the loss caused by the reduction of 165

See Wang Liming, Breach of Contract (Revised Edition), p. 814. See Wu Qingbao, eds. Authoritative Comments on the Guiding Cases of the Supreme Court Contract Law, p. 30. Ye Jianfeng, Research on the Contracting Negligence System, pp. 554–555. 167 See Cui Jianyuan, General Theory of Contract Law (supra), p. 369; Han Shiyuan, General Theory of Contract Law (3rd ed.), pp. 144–145. 168 See Zhang Guangxing, General Theory of Debt Law, Law Press, 1997, p. 56; Li Yongjun, Contract Law (2nd ed.), Law Press, 2005, p. 178. 169 See Dieter Schwab, Introduction to Civil Law, p. 703; John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, p. 278. 170 Professor Qiu Congzhi, a famous scholar from Taiwan, believes that, the conclusion of a legal act is a process of dynamic development and gradual maturity aiming at its entry into force. Therefore, in the case of invalid or non-established legal act when the conclusion act has matured, we should ease the position of exclusive respect for the reliance interest compensation, and admit that the performance interest or even compulsory performance of the contract can be applied. Qiu Zhicong, Returning to Article 113 of Civil Law: Producing Responsibility for the Negligence of Conclusion of Legal Acts, in Journal of Legal Science Vol. 3, p. 68, 70. This is the only one of the few that I have seen. 166

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the existing property, including the costs for concluding the contract (such as travel expenses, costs for sample production and attorney fees, etc.), expenses incurred in preparation for performance or performance (such as appraisal fees, transport charge, etc.), costs for receiving something (such as training fees) and loss of interest on the payment; The loss of interest is the interest that the property of the relying party should have increased but not increased due to the occurrence of the cause of damage, which mainly refers to the loss of opportunity to enter into another contract.171 There is a consensus on compensation for direct loss in theory and practice. Undoubtedly, the loss of a chance for contracting in itself constitutes damage. The theoretical rejection of the compensability of contracting opportunity loss is mainly based on the view that the benefits created by the opportunity to conclude contracts are difficult to determine and that allowing compensation for loss of chance may create the excessive scope of compensation.172 This opinion is reasonable. Whether the loss of chance can be compensated involves the determination of causation in the scope of liability and many complex issues in procedural law, and different legal systems may hold different positions.173 However, it should be noted that if the opportunity for concluding another contract really exists and the loss of that opportunity is due to reliance, then the absence of compensation for the loss of chance will not lead to “the condition the contracting party is in as if there were no reliance”. Based on this consideration, some judgments in Chinese judicial practice have affirmed the compensation for contracting opportunity when the contract is invalid. It takes two forms as follows: First, the expectation interest that one contracting party could have obtained when the contract is valid is recognized as a loss of chance. Take “Xu Yuancai v Ma Lin”174 for example. In the case, the defendant Xu Yuancai sold the company-owned house shared by the spose to the plaintiff Zhou Jijuan and Ma Lin for 135,000 yuan in 2000. The plaintiff paid 100,000 yuan for the house. After that, the defendant transfered the house to the plaintiff, and the plaintiff rented it out. However, the plaintiff and the defendant were employees of the same company, who prepared to allocate a new house to the employees, but the employees needed to return the original house to the company. Considering that the self-owned house had been renovated, the plaintiff returned the house purchased from the defendant to the company after consulting with the defendant, finally obtaining a new house in the defendant’s name. On March 20, 2002, the plaintiff and the defendant signed an assignment agreement for a new house, stipulating that the plaintiff purchased the house at the price of 161,800 yuan. The plaintiff had paid 150,000 yuan, and the balance will be settled after the transfer of the house. The defendant forged his wife’s signature, and the contract was confirmed to be invalid by the judgment of the court. The court held that the plaintiff and defendant 171

See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), pp. 161–163. See Wang Liming, Breach of Contract (Revised Edition), p. 815. 173 Christian von Bar, Ulrich Drobnig, eds., The Interaction of Contract Law and Tort and Property Law in Europe, Wu Yue, Wang Hong, Li Zhaoyu & Shi Pengpeng Trans, Law Press China, 2007, p. 73. 174 Anhui Provincial High People’s Court (2009) Wan Min Tizi No.0057. 172

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signed a sales contract for a new house at an agreed price which is lower than the market price. However the new contract and the agreement on the price were based on the conclusion of the original house sales contract which had been performed two years earlier, and the agreement between the two parties on the price of the new house was comparable to the market price at that time, so the agreement on the price was reasonable and fair. Therefore, the plaintiff’s loss of the reliance interest due to the invalid house sales contract can be determined by using the reasonable market price of 465,400 yuan for the new house when a dispute occurs between the two parties to deduct the price margin of 303,600 yuan (465,400 yuan-161,800yuan) agreed in the contract. Since the defendant sold the house in question by signing the name of his wife Cheng Jianfang on his own behalf, he was liable for the main fault for the invalidity of the contract. Therefore, the defendant was ordered to compensate the plaintiff for 70% of the lost profits of house appreciation according to 70% of the fault liability for the nullified contract.175 The second is to identify the price difference formed by alternative transactions as a loss of chance. Consider, “Jining Gongteng Real Estate Development Co., Ltd. v Jiaxiang County People’s Court”.176 On April 28, 2006, Jiaxiang County People’s Court and Jining Gongteng Real Estate Development Co., Ltd. signed the Letter of Intent for Group Purchase of Commercial house, which agreed that Jiaxiang County Court would purchase buildings 8, 9 and 10 of Garden Community developed by Gongteng Company for court’s police officers, totaling 21,023 square meters, with a price of 1,258 yuan per square meter. After signing the contract, the Gongteng company did not develop the districts for some reason and transferred the right to the use of land to others. Later, Jiaxiang People’s Court signed a house purchase contract with other development companies and purchased a house at the same location at 1,498 yuan per square meter. Then Jiaxiang People’s Court sued Gongteng company. The court hearing the case held that the house purchase contract between the parties should be invalid because Gongteng company doesn’t have the license to presale commercial houses. The amount of the losses should be determined as the price margin between the original and present house purchase contracts 5,045,520 yuan ((1,498– 1,258) yuan / square meter × 21,023 square meters), and the parties should take their respective liabilities accordingly. Considering the higher prices of building materials, higher standards for building quality, and the losses of storage rooms and other facilities are not included in the aforementioned losses, Gongteng company should bear 70% of the losses, and Jiaxiang People’s Court 30%.177 175

For similar cases, please refer to “Wang Chuanlan and Shenyang Future Real Estate Development Co., Ltd. Appeal Case of Commercial Housing Purchase and Sale Appointment Contract Dispute” (Shenyang Intermediate People’s Court of Liaoning Province (2005) Shen Min (2) Fang Zhong Zi No.474). 176 See Wu Qingbao, eds., Contract Law Published by the Supreme People’s Court, China Legal Publishing House (after p. 24). 177 For a similar case, please refer to “Appeal of Sales Contract Dispute between Baowei Storage (Shanghai) Co., Ltd. and Shanghai Huay Iron & Steel Group Co., LTD.” (Shanghai High People’s Court (2004) Hu Gaomin er (Shang) Zhong Zi No.146).

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It is generally believed that the losses suffered for being deprived of the opportunity to conclude contracts refer to the contracting opportunity given up by the contracting parties of the contract, that is, the opportunity of entering into another contract with a potential “third party”. Since the potential contract is not actually concluded, some from a theoretical perspective regarding the contract actually concluded between the “third party” and the “fourth party” as the standard for determining the losses suffered for being deprived of the opportunity to conclude contracts, which means regarding the net profits gained by the “fourth party” due to its contract with the third party as the loss of chance suffered by the party of the same legal position involved.178 Although this method sounds reasonable, it is not feasible in practice because it is difficult to prove that the “fourth party” “substitutes” the party of the contract to conclude a contract with the “third party”, and it is more difficult to prove the net profits. In contrast, the method adopted in current judicial practice is more appropriate. Since the contract is invalid or the potential contract is not established, regarding the profits that the parties could have gained when the contract is valid or the margin between the contract and substituting transaction as reliance loss, the invalid contract will be validated (the performance obligation is converted into the indemnification obligation), which conflicts with the fact that the contract is invalid or the potential contract is not established. How to interpret this issue in theory? First, we should have a clear understanding of the attribution of opportunity interests. As the contracting opportunity to enter into the contract means an abandoned opportunity to conclude other contracts with the same subject matter, the contracting opportunity constitutes the opportunity cost in economics. Since all transactions inevitably involve opportunity cost, the abandoned trading opportunity can also be regarded as the “cost” paid by the transaction parties to enter into the contract. If the transaction fails, protecting the Vertrauensinteresse (reliance interests) is to compensate for the “cost” and the abandoned trading opportunity constitutes a “reliance loss”. We should be aware of that the abandoned trading opportunity may be a better opportunity, which means that the choice made by the party of the contract may be a failure. If the “loss of chance” is to be compensated, the other party may be improperly liable for the consequences of the party’s failure in making the choice. Therefore, it is necessary to determine the expectation interests as the maximum amount of compensation for reliance loss. Second, we should also clarify the relation between opportunity interests and costs for concluding the contract (direct losses). As mentioned above, the contracting opportunity to enter into the contract refers to an abandoned opportunity to conclude other contracts, so the costs for entering into the contract can also be regarded as the costs for the abandoned transaction if it is performed. Therefore, when calculating the compensation for the losses suffered for being deprived of the opportunity to conclude contracts, the costs for concluding the contract and performance or preparation of performance such as the interest of the paid amounts (the costs related to “essential 178

Wen Jingfang, On Identification and Liability of Culpa in Contrahendo, in Hebei Law Science Vol. 3, 1999, p. 8.

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reliance”) should be exempted. However, the costs incurred from the liquidation of the invalid contract, such as costs for restitution of performance, should be included within the compensation scope. Therefore, after recognizing the losses suffered for being deprived of the opportunity to conclude contracts, “overlapping compensation” for direct losses and losses suffered for being deprived of the opportunity to conclude contracts should be avoided.179 Finally, not all losses suffered from being deprived of the opportunity to conclude contracts l can be compensated. They can only be compensated if the abandoned transaction has the same subject matter as this contract and is valid. There is no opportunity benefit if the contract is invalid due to the illegality of the subject matter, the lack of contractual capacity of the parties or malicious collusion between the parties. It is more complicated when the contract is invalid due to the parties’ lack of trading qualifications. In dealing with the disputes over the housing sales contracts between urban and rural residents that are frequent in recent years, there have been great differences in the approaches adapted by different local courts. When the contract is determined to be invalid, there are three approaches to dealing with the housing premium: the first is not to acknowledge the loss caused by the housing premium, which means that the benefit of the housing premium belongs to the seller; the second is to acknowledge the loss of the housing premium, and the seller should bear compensation liability; the third is to acknowledge the loss of housing premium, and the parties share the responsibilities for damages according to their respective faults. The third approach is more common in practice.180 However, since such housing sales contracts are deemed invalid because the right to use rural land as a residential lot is prohibited from being transferred to urban residents, then allowing the compensation for opportunity benefit actually acknowledges the legitimacy of such transactions, which leads to the failure or partial failure of aforementioned legislative purpose. Although the validity of such transactions remains controversial, if taking a tortuous way to recognize the performance interests after invalid determination, the inherent contradiction should be paid great attention to. Therefore, the problem caused by the recognition of the compensation of the losses suffered for being deprived of the opportunity to conclude contracts does not lie in the uncertainty of it but lies in its close relationship with the expectation interests when the contract is valid: the negated expectation interests because of the invalidity of the contract may be affirmed again through the compensation for the 179

L.L. Fuller & William R. Padu, Vertrauensinteresse Reliance Interests in Contract Damages, Han Shiyuan Trans, China Legal Publishing House, 2004. 180 Usually, the third approach is adopted. For details, please refer to the Minutes of the Seminar on the Effect Determination and Handling Principles of Rural Private Housing Sales Contracts with Disputes by Beijing Higher People’s Court (Jing Gao Fa Fa [2004] No.391) and the Opinions of Shanghai Higher People’s Court on Principles of Trial of Rural Homestead Housing Sales Contracts with Disputes (Hu Gao Fa Min Yi [2004] No.4). For relevant judicial cases, please refer to “Yun Guangzhi et al. and Li Haiquan et al. Appeal Case of Housing Sales Contract Dispute” (Chongqing No.3 Intermediate People’s Court (2011) No.578 of Fa Min Zhong Zi), “Xiao et al. and Mu et al. Appeal Case of Housing Sales Contract Dispute” (Shanghai No.2 Intermediate People’s Court (2010) Shanghai No.2 Middle School Min Er (Min) Zhong Zi No.1365), etc.

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opportunity to conclude contracts! Although the emphasis on culpa in contrahendo makes it different from the strict liability for damages caused by the breach of the contract, or due to the rule of Mitverschulden, the relying party often cannot obtain the full performance interests when the contract is valid, recognizing compensation for the losses suffered for being deprived of the opportunity to conclude contracts does lead to another important issue, that is, is it possible to directly recognize the compensation of expectation interests when the contract is not established or invalid? b. Expectation Interests From the perspective of comparative law, there are precedents that the contracting parties can obtain the compensation for expectation interests if the contract is not concluded or rescinded. For example, in German law, when the party who does not violate the obligation could have effectively concluded the contract, and the claim for performance interests can be permitted,181 which is also adopted in Austria, Greece, and the Netherlands.182 Under some circumstances, for example, if the bid inviter refuses to conclude a contract with the qualified bidder according to the bidding documents, the bidder is permitted by British and Scottish courts to claim compensation for expectation interests according to the breach of contract or promise of the bid inviter.183 In the United States, if the parties have reached a consensus on all key terms, and there is evidence that the parties do not intend to regard the form of the contract as indispensable, even if a party refuses to fulfill these forms, the court will consider such contract a fully binding contract and protects the expectation interests of the other party.184 Although in Germany, Austria and other countries, expectation interests are protected in accordance with culpa in contrahendo, in the United Kingdom and Scotland, expectation interests are protected in accordance with breach of contract. Since the same or similar events are involved, the consistency of results is more worthy of attention from the perspective of functional comparison. Actually, in the case of recognizing the losses suffered for being deprived of the opportunity to conclude contracts, the interests that the parties can obtain through another contract that could have been concluded are also “expectation interests” based on another contract. In general, when the compensation for opportunity interests is limited to no more than performance interests, the reimbursable losses suffered for being deprived of the opportunity to conclude contracts should be less than or equal to the performance interests of the contract. When the contract is invalid, replacing the compensation for the opportunity interests of contracting with performance interests in the case of a valid contract aims to facilitate the transactions by replacing the “expectation interests” that may be obtained from other abandoned contracts with 181

See Dieter Schwab, Introduction to Civil Law, Zheng Chong Trans, Law Press, 2006, p. 703. See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, p. 309. 183 Ibid. p. 278. 184 See, e.g., Adjustrite Sys., Inc. v. GAB Bus. Servs., Inc., 145 F.3d 543, 547–48 (2d Cir. 1998); Gorodensky v. Mitsubishi Pulp Sales (MC) Inc., 92 F. Supp. 2d 249, 254–55 (S.D.N.Y. 2000). cf Allan Schwartz & Robert E. Scott, Pre-contractual Liability and Preliminary Agreements, p. 664, fn.5. 182

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the “expectation interests” of this contract. For example, when the insurance contract is invalid and if the insurance accident has occurred and the invalidation of the contract is caused by the insurer unilaterally, in some judicial decisions, the agreed payment of premium should be compensated to the insurant as a “reliance loss”.185 In this case, the effect of the invalid insurance contract is totally the same as the effect when it is valid. Whether the compensation is “Vertrauensinteresse (reliance interests)” or “expectation interests” depends only on the perspective of judgment. It is also the same as the effect when sharing compensation of losses suffered for being deprived of the opportunity to conclude contracts according to the respective fault of the parties. Since it is difficult to distinguish the compensation of chance for contracting and expectation interests, why don’t we directly recognize the compensation for expectation interests of the contract? Generally speaking, the compensation for expectation interests in the culpa in contrahendo mostly occurs when the conclusion of the contract is almost mature. In other words, the parties have reached a consensus on the entire content or at least the necessary terms of the contract, and the contract cannot be successfully concluded or come into effect because a party maliciously prevents the agreed or statutory conditions from being reached. Here are some examples of the provisions of the current law in China: (a) The Offeror breaches a valid offer. The offeror may revoke the offer, except that the offer is irrevocable as required by law. The current contract law only stipulates the circumstances in which an offer cannot be revoked but does not specify the consequences when the offeror’s revocation of the offer is against the stipulations. There are two possible legal interpretations: firstly, the revocation is invalid, so the offer is still valid. Then the offeree can continue to make commitments and conclude the contract. Secondly, the offeree accepts the revocation and requires the offeror to bear the liability for damages for culpa in contrahendo.186 There is no doubt that compensation for expectation interests should not be admitted when adopting the second interpretation. When adopting the first interpretation, the offeror’s violating valid offer is converted into a breach of contract after the offeree’s acceptance. Should the offeree’s acceptance have an obvious impact on the scope of compensation if the offeree has acted out of trust, especially when the offeror has clearly expressed not to fulfill the contract? The same problem also occurs when the notification of the revocation of acceptance by the offeree is late. This problem may be related

185

See “Qu Baohua et al. v. Taikang Life Insurance Co., Ltd. Yichang Central Branch Life Insurance Contract Case” (Yichang Intermediate People’s Court of Hubei Province (2004) Yimin Zhongzi No.859). 186 Professor Cui Jianyuan also put forward a similar interpretation, but the second interpretation is an analogy of the latter part of Article 58 of the Contract Law (actually the second sentence), in which the offeror shall bear the compensation liability. See Han Shiyuan, General Theory of Contract Law (3rd ed.), p. 366. Since Article 58 of the Contract Law takes the invalidity of the contract as the premise, and the contract is nullified contract when the revocation is allowed, it is appropriate to apply or analogize the provisions of Article 42, Item 3 of the Contract Law.

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to justifying the standard of reliance interest and expectations interests for contract damages put forward by Fuller, which will not be discussed here due to the subject.187 (b) Responsibilities of an agent without authority. It is generally assumed in theory domestically that the responsibility assumed by an agent without authority is the culpa in contrahendo, which involves the issue of culpa in contrahendo of the third party. Not being the contracting party, an agent without authority is liable for his own misfeasance, which should not be considered as culpa in contrahendo. Regardless of the attribution of the liability, there is no definite provision about the content of the liability in the second sentence of Article 66 of the General Principles of the Civil Law nor in paragraph 1 of Article 48 of the Contract Law. Scholars believe that the agent without authority should assume the liabilities of performance or liability for damages for substitute performance for the counterparty in bona fides,188 or the counterparty in good faith should be allowed to choose the compensation for performance interests or vertrauensinteresse.189 This view is applicable according to legal textual meaning and comparative law. In the second paragraph of 2.2.6 of Principles of International Commercial Contracts, the liability undertaken by the agent without authority for the counterparty in bona fides and no-culpa should lead “the position of the agent without authority to be equivalent to the position of the agent with authority or the agent was within its authority”. That is, it is not limited to reliance or Vertrauensinteresse (negative interest) but extends to expectation or Erfüllungsinteresse (positive interests), which includes the interests that could have been obtained after the performance of the contract.190 This measure is basically adopted in Chinese judicial practice.191 In conclusion, although the contract concluded by an agent without authority is invalid, his liability is still equivalent to what he should bear when the contract is valid.

187

Fuller holds that the imputation of damages calculated according to expectation interest may be regarded as the prevention of injurious trust, and provides a more manual method than the interests of New Ali, and the court will prefer to advocate compensation rules that is easier to operate. L.L. Fuller & William R. Padu, Reliance Interest in Contract Damages, Han Shiyuan Trans, China Legal Publishing House, p. 18. 188 See Liang Huixing, General Introduction to Civil Law (4th ed.), Law Press, 2011, p. 238. 189 See Han Shiyuan, The Law of Contract (3rd), p. 217. 190 See PICC(2010) §2.1.16 official comment 1. 191 See “Case on Appeal of Sales Contract Dispute between China Railway 15th Bureau Group Co., Ltd. and Lu et al.” (Shaoxing Intermediate People’s Court of Zhejiang Province (2011) Zhe Shao Shang Zhong Zi No.280) (judged that the agent without authority bears the “liability for breach of contract”), “Case on Appeal of Dispute between Zhang Keming and Luo Yaoxian over Sales Contract” ((2011) Nan Min Yi Zhong Zi No.897, the application of the rule of Mitverschulden for liquidated damages in this case should be further discussed), “Case on Appeal of construction contract dispute between a company in China and a company in Xiangtan City” (Xiangtan Intermediate People’s Court of Hunan Province (2011) Tan Zhong Min Yi Zhong Zi No.78) (an agent without authority was judged perform payment obligations), “Wu Qihua et al. and Gao Tixiong et al. Appeal Case of Ship Sales Contract Dispute” (Fujian Higher People’s Court [2011] Minmin Zhongzi No.168) ( the plaintiff request for compensation for the loss of reliance interest).

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A contract under which one person has no right of disposition but disposes of the property of others should be deemed invalid if the true obligee does not ratify subsequently and the person doing such disposition does not afterwards obtain the right of disposition. The theoretical discussion of this stipulation in China is more related to whether it’s appropriate to adopt the undetermined effect instead of a valid legislative choice in terms of legal policy. Discussion concerning the specific liability that the disposed person should be liable for the counterparty when the contract is invalid remains rare. Although the unauthorized disposition and unauthorized agency constitute objects regulated by different legal rules due to different names of the actor when implementing the act, they are similar in the equilibrium relationship of the interests of the three parties that are affected by the act——the agent without authority or unauthorized disposing person, and the other party and true obligee or the principal.192 Since the other party in good faith without the authority of disposition can be protected on the basis of bona fide acquisition, he should also be entitled to equivalent protection when he cannot be protected by bona fide acquisition, which is equivalent to damagess for substitute performance instead of damages for reliance interests or vertrauensinteresse (negative interests). Otherwise, it will constitute conflict evaluation. In fact, the effect of an invalid unauthorized disposition is the same as the effect of a valid one. Even according to the stipulation of Article 51 of the Contract Law, the other party in good faith will not suffer the opposite impact.193 (c) Contractual liabilities of maliciously preventing the establishment or validation of the contract. When the parties have reached a consensus on the terms of the contract and the content of it does not violate the prohibitive provisions of laws or administrative regulations, and if the contract can be concluded or effective as long as a certain form essential is completed but a party refuses to assist in completing such an essential, the party with the obligation to provide assistance (Mitwirkungspflichten) should bear the damages that is equivalent to the expectation interests. For example, it is stipulated in forepart of Article 7 of Interpretation of the Supreme People’s Court on Security Law (No. 44 of Judicial Interpretation in 2000) that “The security provider and the debtor shall assume joint and several liabilities for compensation for the economic loss suffered by the creditor of the principal contract when the principal contract is valid while the security contract is invalid and the creditor is not in fault.” According to this provision, when the principal contract is valid while the security contract is invalid, the liability assumed by the security provider 192

For example, when the other party is in bona fide and the party is imputable to the right appearance, the party should directly bear the direct effect of disposition or agency act when fulfilling the constitutive requirements of obtain in good faith or apparent authority; If the unauthorized disposition person or the agent without authority knows that he has no disposition right or agency right, the malice is constituted, and he will not directly bear legal responsibility to the the other party only if he meets the essentials of obtain in good faith or apparent authority. 193 From “Xu Yuancai and Ma Lin applied for a retrial of the dispute over the housing sales contract[(Anhui Higher People’s Court [2009] Wan Min Ti Zi No.0057] and Wang Chuanlan and Shenyang Future Real Estate Development Co., Ltd. Appeal Case of Preliminary Commercial Housing Sales Contract Dispute” (Shenyang Intermediate People’s Court of Liaoning Province (2005) Shen Min (2) Fang Zhong Zi No.474), if we don’t consider the negligence of other party, it will lead to such results.

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is actually equivalent to the liability for damages for substitute performance, that is, the expectation interests. According to Article 8 of the “Judicial Interpretation of Contract Law (II)” (No. 5 of Judicial Interpretation in 2009), if the party with the obligation of application for approval or registration fails to proceed with such obligation, the court should make the judgment that the other party may proceed with the relevant formalities. In this circumstance, the method of dealing with such cases is to some extent similar to the provisions of Article 45, Paragraph 2 of the Contract Law, that is, replacing the performance of the obligation to provide assistance by the judgment of court, which, in effect, fulfill the conditions through legal fiction. It can be inferred that in order to avoid conflict evaluations, the court should make the judgment that the party with the obligation of application for approval or registration should bear the duty to compensate expectation interests or performance interests as the contract is valid. As stipulated in Paragraph 2 of Article 6 of Provisions of the Supreme People’s Court On Several Issues Concerning the Trial of Disputes Relating to Foreign-invested Enterprises (No. 9 of Judicial Interpretation in 2010), if the party fails to fulfill the obligation of obtaining the approval in accordance with effective judgment of the court and the obligee does not submit the application for approval on its own, the transferee of foreign-invested enterprise equity transfer contract can claim for the termination of the contract and compensation for “the loss incurred due to difference in equity price, loss in return on equity, and other reasonable losses”.194 (d) Liability to pay according to the agreement when the construction contract is invalid. In accordance with the stipulation of Article 2 of Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law for the Trial of Cases of Dispute over Construction Project Contract (No. 14 of Judicial Interpretation in 2004), “If a construction project contract is invalid, yet the construction passes completion inspection, the claim of the contractor for payment of the construction price as agreed in the contract shall be granted”. Such process of “validation of invalid contract” reflects the consideration for special legal policy. After all, the provisions of the Construction Law on the qualifications of construction enterprises (Article 13 of the Construction Law) and the provisions that procedures of public bidding of construction projects shall be in accordance with law (Article 19 of the Construction Law) are intended to guarantee the quality of construction projects. These provisions are administrative provisions in terms of attribution, which should not have affected the validity of the contract. Moreover, the quality of the construction has been recognized after passing completion inspection, so it is inappropriate to deny the claim of construction enterprises for the construction price as agreed in the contract due to the violation of aforementioned provisions.195 194

It is worth pointing that since approval is the effective condition of the equity transfer contract (Article 1 of the Regulations), the contract should not take effect when it is not submitted for approval or being approved, and there is no “rescission” of the ineffective contract. Therefore, “rescission” here should refer to “repeal” of the contract, which is different from rescission based on breach of contract. Therefore, the relevant compensation liability remains the pre-contractual liability. 195 Judging from the provisions of existing law, there is no definite legal basis for the invalidity of the construction contract concluded without construction qualification or bidding. The Supreme People’s Court determined the contract as invalid in Legal Interpretation [2004] No.14, which is

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In conclusion, provided that the parties have almost completed all negotiations on the contract, they should obtain whole interests under a valid contract unless the contract is invalid because of the misfeasance of the other party. In this way, there is no reason to deny the compensation for these interests simply because the legal conclusion or effective condition has not been fully met. Of course, when calculating damages based on expectation interests, direct losses will not be compensated in principle (especially losses such as the fees for concluding the contract and fees for preparation for performance). c. Integritätsinteresse (Integrated Interest) In China, most scholars do not agree to protect the erga omnes right such as personal rights and property rights pursuant to the culpa in contrahendo. While a few scholars believe that during the process of the conclusion of the contract, the contracting party should assume the culpa in contrahendo when the party fails to fulfill the protective duty due to negligence and infringes the personal right and real rights of the other party.196 Considering that negligence is a prerequisite for culpa in contrahendo, although the reliance during the conclusion of contract may affect the determination of negligence, it is not proven that there is substantial difference between the negligence in culpa in contrahendo and tort liability. In addition, in Chinese Tort Law, the determination of employer’s liability depends on liability without negligence, and the scope of compensation for culpa in contrahendo isn’t broader than that of tort liability.197 There is of no significance in theory that culpa in contrahendo has the function of protecting erga omnes right and should be concurrent with tort liability, which is merely the result of a derivation based on normative logic and the succession of theory in German law. Searching related judicial cases in China, there are few cases of culpa in contrahendo that involve the infringement of the erga omnes right such as personal rights and property rights,198 which also indicates that there is no institutional need for culpa in contrahendo in this regard. inconsistent with the spirit implemented in Article 9, paragraph 1, of the Interpretation of Contract Law (I) (Legal Interpretation [1999] No.19). 196 See Cui Jianyuan, General Theory of Contract Law (Vol. 1), p. 366; Li Yongjun, Contract Law (2nd ed.), p. 179. 197 It is rarely discussed in theory whether compensation for negligence in contracting includes compensation for the infliction of mental distress. Even if such compensation is recognized, its scope is no more than that of compensation for disturbance. 198 According to the author’s search in the “Chinese Court Judgment Document Library” on PKULAW.com (version 4.0), there is a total of 3 cases in which the court mentioned the contractual negligence in the grounds of judgment involving personal injury disputes. Among these cases, in the Appeal Case for Li Chunying and Wang Zhimin and other Employees’ Compensation for Victimization (Hanzhong Intermediate People’s Court (2010) Hanzhong Minzhongzi No.486)) and the Appeal Case for Nie Baoan et al. and Nie Yizheng and others of dispute over right of health ((2010) In Hanzhong Minzhongzi No.417), the defendant gave the construction project contract to individuals without qualifications for construction, and personal injury occurred during the construction process. The court concluded that the defendant was liable for contracting because it contracted the project to unqualified individuals, so it should be liable for compensation. However, the ground of the judgment remains taking relevant infringement norms as examples, so the court determined tort negligence under the name of contracting negligence. In “Zhu Chengjun v. Nanchang Railway

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(2) Contributory Negligence of the Aggrieved Party Reasonable reliance is a prerequisite for culpa in contrahendo. If the aggrieved party should know the misfeasance that led to reliance, that is, the aggrieved party has negligence. Should it still be protected? According to Article 122, paragraph 2, of the German Civil Code, when the banter expression is invalid, or the declaration of will is rescinded due to error or misinformation, if the aggrieved party knows or should have known the reasons for invalidity or rescission, there is no obligation to compensate for damages; Article 179, paragraph 3, also stipulates that when the agency is of no right of agency, if the other party knows or should have known the lack of the right of agency, the agent should not be liable. In accordance with Article 91 of the Taiwan Civil Code, when the declaration of will is rescinded because of error or misinformation, the other party should not claim compensation if it knew or might know the reason for the rescission. Article 247 stipulates that when a contract is invalid on account of the impossibility of performance, the other party who knew the impossibility should not claim compensation. Paragraph 2, Article 2.2.6 of Principles of International Commercial Contracts and Paragraph 2, Article 3:204 of The Principles of European Contract Law both stipulate that the agent is not liable if the third party knew or should have known that the agent had no authority or was exceeding its authority. We should recognize that according to the preceding cited legislation, the compensation liability assumed by the liable person is a nofault liability or strict liability, which belongs to the independent basis of liability and is different from typical culpa in contrahendo. In the cases of typical culpa in contrahendo, the Mitverschulden remains applicable.199

Bureau Shahe Street North Station Personal Injury Compensation Case” (Nanchang Railway Transport Intermediate Court (1999) South Railway Zhongjing Zhongzi No.15), the victim was hit and killed by other locomotives while preparing to ride at the defendant’s station. The court held that the contract was not established because the victim didn’t buy the ticket and that the defendant was liable for culpa in contrahendo due to its lack of performance of protective duty (schutzpflicht). However, there remains the following questions need to be further discussed in the court’s judgment: First, the case was in 1998 when the Contract Law has not yet been formulated. According to the law at that time, the culpa in contrahendo is limited to be applicable when the contract is rescinded after it is invalid. Whether it is appropriate to handle this case according to the culpa in contrahendo? Second, since the court held that the two parties did not establish a contractual relation and could not apply the culpa in contrahendo, why did the court determine the liability according to the principle of good faith in Article 4 of the General Principles of Civil Law, which is not the basic norm of the right to claim, instead of the infringement rule in Article 106, paragraph 2 of the General Principles of Civil Law? Its decision that the culpa in contrahendol should be smaller than the liability for breach of contract is fundamentally contrary to the general theory that the Integritätsinteresse (integrative interest) is not limited by the performance interests. Therefore, the purpose of applying the culpa in contrahendo by the court is only to apply the limited compensation provisions of the Provisions on Compensation for Damages in Railway Passenger Transport, so as to reduce the liability of the defendant. In conclusion, the argumentation of the judgment in this case is not reasonable. 199 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 146.

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The aforementioned rule of “all-or-nothing” is accused of stiffness and lack of flexibility in theory. For example, if the other party is negligent, but the actor is intentional, it is obviously indulgent to the actor if the other party bears all the damages.200 There is no similar rule of exclusion of responsibility in current Chinese law. The second sentence of Article 61, Paragraph 1 of the General Principles of the Civil Law and the second sentence of Article 58 of the Contract Law both explicitly stipulate that if both parties have faults, they should bear their respective responsibilities after the contract is invalid or rescinded, which clearly affirms Mitverschulden (the rule of contributory negligence). However, it is inappropriate to exempt the right of claim for compensation of the aggrieved party due to its negligence, should his claim for compensation be not exempted when the aggrieved party is intentional? In this regard, it’s appropriate to deny the right of claim for compensation of the aggrieved party when it is intentional. When the aggrieved party is intentional, that is, when he knows that the other party is not with good faith in entering into the contract or that there are grounds for voidness or rescission, but he still concludes the contract, then there is no reasonable reliance. The causation between damages and the other party’s fault should be denied. However, only if the intention of the aggrieved party becomes a sufficient cause of the damages, will the causation be denied. If the aggrieved party knows the grounds for voidness of the contract but is unable to reasonably avoid the damages, then the liability of the other party cannot be exempted or even be reduced according to the law. For example, an expression of intent under coercion belongs to the aforementioned circumstance. Although the actor knows that the coercion constitutes the cause of invalidity, his freedom of will is affected by coercion. It is not appropriate that his expression of intent due to coercion constitutes an intention of exemption of the other party’s liability. Therefore, the exemption of the compensation for culpa in contrahendo due to the intention of the aggrieved party is mainly limited to the expression of collusion or declaration of will due to knowing fraud of the other party.201 Under such circumstances, the parties should bear their respective losses because they do not have the right to claim damages between each other in the conclusion of the contract.

3.3 Gain-Based Damages With the principle of restoration to original condition, that is, no damage, no compensation, the liability for damages of culpa in contrahendo aims at making the aggrieved party in a state of pre-conclusion of the contract. However, in some circumstances, regardless of the actual damages suffered by the aggrieved party, the aggrieved party is allowed by law to claim relief by requesting the opposing party to restitute the 200

Ibid. See Han Shiyuan, The Law of Contract (3rd), p. 145. In addition, when it involves reservation of intention, playful expression or even wrong expression, if the other party knows the aforementioned defects, the liability for damages should also be excluded.

201

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gains as long as the opposing party gains from unlawful acts. Since the content of such a right of claim is monetary performance and is based on gains, it is theoretically referred to as gain-based damages. According to the second sentence of Article 2.1.16 of Principles of International Commercial Contracts (2010) and the second sentence of Article 2: 302 of The Principles of European Contract Law, if a party has gains from breach of duty of confidentiality, the other party has the right to claim restitution of such gains. This stipulation is consistent with judicial practices in some European countries. For example, under the laws of Italy, Portugal, Slovakia, the United Kingdom and Scotland, where one party has gains by using confidential information improperly, the aggrieved party has the right to claim restitution of the gains received by the other party even if he does not suffer losses.202 The method of gain-based damages is also clearly stipulated in Chinese relevant regulations about tort.203 However it is necessary to discuss whether it can be applied to culpa in contrahendo. (1) Justifiability of Claim Based on Gain-based Damages Being related to corrective justice, the justifiability for liability for damages can be determined only by considering the relationship between the aggrieved party and the injurer. In fact, there is no necessary correspondence between the losses suffered by the aggrieved party and the gains received by the injurer. In other words, it is possible that the aggrieved party has suffered losses while the injurer has no gains, or that the losses and the gains are not equal in quantity. The reasons are as follows. On the one hand, the aggrieved party may have suffered net loss during the process of damage, such as property damage; on the other hand, although the gains of the injurer originated from the rights of the other party, the obligee has not suffered substantial or material damage, such as gains by using confidential information improperly without causing actual losses to others. Normatively, the losses suffered by the aggrieved party should be related to the gains of the injurer, that is, the injurer unjustly leads to losses of the aggrieved party, or the injurer received the gains unjustly from losses of the aggrieved party.204 The liability rules related to damage can only be constructed from a normative perspective rather than an objective perspective. In other words, the normative gains of the liable person should be attributed to normative losses of the aggrieved party. A feasible way to determine normative gains and losses is to attribute the gains of the liable person to the infringement of rights and interests suffered by the aggrieved party, which leads to the justifiability of gain-based damages through the allocation of rights and interests. In theory, such connection may be replaced by the quantity 202

DCFR § II-3: 302, notes 9–12. See the middle paragraph of Article 20 of Tort Law; The first compensation standard of Article 56, paragraph 1, of the Trademark Law; The latter paragraph of the first sentence of Article 65, paragraph 1, of the Patent Law; The first paragraph of paragraph 1 of the Anti-Unfair Competition Law; Article 17, paragraph 1, Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Laws in the Trial of Civil Cases of Unfair Competition. 204 See Ernest J. Wenlib, The Concept of Private Law, Xu Aiguo Trans, Peking University Press, 2007, p. 126. 203

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correspondence between the losses and the gains. In other words, the deprivation of gains can satisfy corrective justice only when the gains are equal to the quantity of losses of the aggrieved party. For example, from the perspective of the party that receives gains, there is no substantial difference except positive gains and negative gains between saving expenses by using other people’s things (such as lease fees) and gaining the price by selling other’s objects. However, in theory, there are different methods to deal with such issues. In saving expenses by using other people’s things, the determination of gains and damages is usually based on the market price (if the market price exists) of the subject matter. The correspondence between gains and damages will not lead to a contradiction in consequence of the restitution of gains and damages, which will not lead to severe problems.205 However, in gaining the price by selling other people’s objects, if the transaction price is not equivalent to the market price of the subject matter, especially when the transaction price is higher than the market price, can the obligee claim compensation at the higher transaction price? In theory, there are different views on this issue. Some hold that the scope of restitution claimed by the obligee can only be determined as the objective market price of the subject matter rather than the actual subjective transaction price. In this way, the obligee cannot claim compensation beyond the market price, while others argue that the price, whether obtained in transaction or non-transaction, should be restituted based on the actual gains.206 Although the differences in opinions often times arise based on the unjust enrichment law, they are also applicable when damages are caused by unlawful acts.207 The view that damages can only be compensatory often leads to the correspondence between losses and gains.208 If the gain is linked to the infringement of protected rights and interests rather than link the damage to the gains in quantity, the aforementioned differences will not exist, that is, the gains should belong to the infringed obligee. However, the argument for exempting the restitution of excess value reflects the complexity of the determination of the attribution of the gain. Some scholars believe that “the attribution of gain that exceeds the objective price involves many factors, such as the principle of justice, the method and difficulties of calculation of gain, 205

However, if judging from subjective perspective, there will also be differences between gain and damage. For example, when the aggrieved party has no need or plan to use the subject matter, there will be no damage to subjective value, while the illegal user has gain. In Chinese existing law, according to Article 19 of Tort Law, damages are determined according to market prices, so objective rather than subjective methods are adopted. 206 See Wang Zejian, Civil Law Research Series: Unjust Enrichment, Peking University Press, 2009, pp. 171–173; Dieter Medecus, On German Debt Law, Law Press, 2007, translated by Du Jinglin, Lu Chen, pp. 551–552, 573–574; Peter bocks: Unjust Enrichment, translated by Liu Qiao, Tsinghua University Press, 2012, p. 88 below. 207 See James Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property, Oxford and Portland, Oregon 2002, pp. 5–7. 208 See James Edelman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property, Oxford and Portland, Oregon, 2002, pp. 5–7. Please also refer to Zhu Yan: “The Basis of Claim for “Profit Deprivation”: A Concurrent Comment on Article 20 of the “Tort Law of the People’s Republic of China”, “Legal and Commercial Research” 2011, Issue 3, p. 138.

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the subjective essentials of the imputation of the tortfeasor, the type of infringed rights, etc.” Therefore, special legal regulations are needed.209 Some even hold that neither the tort law nor the unjust enrichment law can successfully deal with the “deprivation of benefit”. Relevant legal provisions are actually a mixed form of damages for infringement and unjust enrichment. Deprivation of benefit should be given independent right to claim.210 Although these arguments are reasonable to some extent, replacing the discussion of justifiability with special legal provisions just leaves the unsolved problem to the legislator. The view of linking the restitution of gain to the amount of damages also recognizes that the gain exceeding actual losses, if retained by the injurer, is in contrary to justice. The gain should be attributed to the obligee to reduce the economic incentives for illegal management (that is, deterring unlawful acts).211 If the gain should be attributed to the obligee, then it is no more than a legal technique to achieve the purpose no matter it is through the restitution of gains or other ways, such as the creation of “inapplicable negotiorum gestio”. Dealing with the “enrichment deprivation” by “inapplicable negotiorum gestio” is characteristic of legal fiction. In effect, the direct deprivation of gains based on the unjustifiability of gains can better highlight the normative purpose. Since unjust enrichment based on injury and gain-based damages satisfy the requirements of restitution with the impropriety (or wrongfulness) of the tortious action, they can achieve the deterring target of the deprivation of gain. We can find that there may be different presetting functions within the institution of gain-based damages. The direct correspondence between the injured rights and interests and the gain of the liable person reflects the functional requirement of the gain-based damages: the stronger the correspondence is, the restitution of gain is closer to compensation, and the justifiability of liability depends more on the justifiability of rights allocation; the weaker the correspondence is, the restitution of gain is closer to penalty, and the justifiability of liability depends more on other just reason beyond the rights allocation, such as deterring unlawful acts. Without direct economic interests, the personality right does not have the function of determining the attribution of gain. Therefore, gain-based damages can only regard deterring unlawful infringement as its due basis. Exceptionally, with special economic values, the commercialized personality right, such as the portrait right has the function of determining the attribution of gain. It is based on such inherent functional differences that scholars divide gain-based damages into “restitutionary damages” and “disgorgement damages”: restitutionary damages is a remedy of restituting the values obtained by unjust ways on the basis of the rights of the aggrieved party; disgorgement damages is a remedy of depriving of profit made by misfeasance regardless of the relevancy between the value and the

209

See Wang Zejian, Civil Law Researches: Unjust Enrichment. p. 173. See Zhu Yan, The Basis of the Claim of “Deprivation of Profit”: A Review of Article 20 of the Law of the People’s Republic of China on Tort Liability, p. 141. 211 See Wang Zejian, Civil Law Researches: Unjust Enrichment, p. 173. 210

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rights of the aggrieved party.212 The restitutionary damages and the restitution of unjust enrichment are intertwined with each other because both of them take gains as an essential requirement and restitution as liability form. The differences between them are as follows. The restitutionary damages is based on the wrongfulness or fault. In contrast, the restitution based on unjust enrichment does not need illegality or fault as requirement. In the case of restitutionary damages, the scope of restitution may be narrower due to the contributory negligence of the aggrieved party, while restitution of unjust enrichment does not involve the application of contributory negligence. The liability for restitution may be reduced due to good faith, and it may be exempted due to the loss of gain.213 In the case of restitutionary damages, the defense of loss of gain is not applicable. In addition, they are also different in jurisdiction, that is, the jurisdiction of restitutionary damages is determined based on the Anspruchsgrundlage, such as locus delicti or the place of performance of the contract, while the jurisdiction of restitution of unjust enrichment is in the place where the defendant’s domicile is. In conclusion, we can regard the restitutionary gains as remedy for damages in which the value of the infringed right is replaced by the gains, which does not fundamentally change the compensability of damages. In contrast, the purpose of disgorgement damages is to make up for the deterrent function of compensatory damages, and its function is similar to exemplary damages.214 Such compensation should be limited because its basic purpose is deterrence rather than compensation. It is usually applied to intentional infringement or breach of fiduciary relationship215 and should be based on special legal provisions.216 (2) Application of Gain-based Damages in Pre-contractual Liability Although Article 43 of Chinese Contract Law stipulates the liability for breach of duty of confidentiality as Principles of International Commercial Contracts and The Principles of European Contract Law, it does not stipulate gain-based damages. If Article 43 of the Contract Law is regarded as a pre-contractual liability, is it appropriate to adopt similar compensation methods? From the basis of the duty of confidentiality in the contract, it derives from the legitimate interests217 of the obligee of the confidential information without taking 212

James Edelman, Gain-Based Damages: James Edelman, Gain Contract, Tort, Equity and Intellectual Property, Oxford and Portland, Oregon, 2002, p. 1. 213 For a discussion of this, see James Godley, The Foundations of Private Law: Property, Tort, Contract and Unjust Enrichment, Zhang Jiayong, Law Press, 2007, pp. 708ff. 214 James Edelman, Gain-Based Damages: James Edelman, Gain Contract, Tort, Equity and Intellectual Property, Oxford and Portland, pp. 83–86. 215 Ibid., pp. 85–86. 216 On the contrary, the gain-based damage may have both compensation function and deterrent function. Both of them take gain as basis in compensation, and have consistency in the determination of causation in the scope of liability, so they need not be treated as two different institutional forms. See Duncan Sheehan, Subtractive and Wrongful Enrichment: Identifying Gain in the Law of Restitution, in Charles E.F. Richett ed., Justifying Peivate Law Remedies, Oxford and Portland, Oregon, 2008, pp. 361–362. 217 See PICC(2010) §2.1.16 official comment 2.

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reliance as a decisive factor. Therefore, the aggrieved party can either claim for compensation based on the actual damages, or require the obligor to restitute the gain from inappropriate disclosure or exploitation of the business secrets under the circumstance of no actual losses, or even require the obligor to cease the infringement.218 According to Article 10 and forepart of Paragraph 1, Article 20 of the Anti-Unfair Competition Law of the People’s Republic of China, if the loss of the infringed party is difficult to calculate, the amount of damages for the infringement of unfair competition on business secrets can be determined according to “the gains obtained by the tortfeasor during the infringement”. Since Article 43 of the Contract Law and the aforementioned stipulation of the Anti-Unfair Competition Law both regard “business secrets” as a common object of protection, the stipulation of the forepart of Paragraph 1, Article 20 of Anti-Unfair Competition Law should be applicable when determining liability for damages in accordance with Article 43 of the Contract Law. For example, if the loss of the infringed party is difficult to calculate, the number of damages may be determined on the basis of the benefit obtained by the obligor for breach of duty of confidentiality. As mentioned above, except for business secrets, other information that should be kept confidential in the contract can be protected in accordance with Subparagraph 3, Article 42 of the Contract Law.219 Such information includes both economic and non-economic information (such as individual privacy) between which only financial information is similar to business secrets, so the stipulation of the forepart of Paragraph 1, Article 20 of Anti-Unfair Competition Law should be applicable for interpretation, and the amount of damages may be determined on the basis of the benefit obtained by the obligor for breach of duty of confidentiality. For non-economic information, especially the information related to personality interest, the stipulation of the forepart of Article 20 of the Tortious liability Law shall be adopted. When the loss of the aggrieved party is difficult to determine, the amount of damages may be determined on the basis of the gains obtained by the obligor for breach of duty of confidentiality. Besides the confidentiality duty, there is no specific legal regulation about whether the claim for gain-based damages is applicable in other circumstances, which is worthy of further discussion. In view of the fact that the protective function of contractual liabilities to personal rights and interests is not recognized in the judicial practice in China, it is of little significance to determine the liability for damages by referring to the forepart of Article 20 of the Tort Law. Since the restitution of unjust enrichment is compensatory and does not take clear legal regulation as necessary, when dealing with other property rights and interests besides confidential information and intellectual property, gain-based damages remain applicable for interpretation. For example, if the buyer who acquires the property from an invalid sales contract resells the property to a third party, and the buyer cannot restitute the property because of the obtainment in good faith of the third party, the seller can either claim for compensation at the market price or at the actual benefit gained by the buyer. Although the

218 219

See PICC(2010) §2.1.16 official comment 3. See the correlation analysis in Sects. 1 and 3 of this chapter.

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latter part of the first sentence, Article 58 of the Contract Law stipulates that “compensation should be made at an estimated price”, it does not specify the standard of the estimated price. Therefore, the amount of damages may be determined by taking the actual benefit obtained by the obligor as the estimated price. The second sentence of Article 58 of the Contract Law does not provide for the method of determination of damages, which is generally stipulated according to the rules of tortious liability of compensation. While Article 19 of the Tort Law recognizes that damages can be “calculated by other methods” besides the market prices, which should include the determination of losses based on the actual benefit of the obligor.

3.4 Summary As a legal remedy for breach of the pre-contractual duty, the specific form of the pre-contractual liability depends on the way of breach of obligation and the type of protected rights and interests. Since the basic types of rights and interests protected by pre-contractual liability—especially property interests—are intertwined with the liability for breach of contract, the tortious liabilityand the liability to return unjust enrichment, they also share multiple liability forms. The liability for damage is the most important liability form, and its specific application in the pre-contractual liability should be discussed. It is generally assumed in theory that the pre-contractual liability or the culpa in contrahendo makes the aggrieved party in a state as before the conclusion of the contract. However, since the contract has been concluded, the so-called recovery to the state before the conclusion of the contract may not accurately reflect the goal of relief of the pre-contractual liability. For example, on the one hand, it is generally assumed in theory that the culpa in contrahendo is limited to compensation for vertrauensinteresse (reliance interests); on the other hand, the loss of the opportunity to conclude contracts is recognized as constituting reliance loss, which ignores the feature that the loss of chance is closer to the expectation interests than general reliance interests. As a result, in order to meet the complete concept logic, negating the necessity that the expectation interests need to be protected by the pre-contractual liability, which is inconsistent with the experience of comparative law and the inherent legal practice in China. Although issues involved in the precontractual stage are mainly the sharing of damages before the contract is concluded and when it is invalid, it is not necessarily related to the conclusion and validity of the contract, but to the fact of breach of pre-contractual obligations. On the one hand, even if the contract has been effectively concluded, as long as there is the fact of damages caused by the attributable breach of the pre-contractual obligations, the pre-contractual liability can still be established; On the other hand, if the Gültigkeitserfordernis of the contract can not be met due to a breach of the pre-contractual obligations, according to the specific circumstances, the contract may be valid by drafting the Gültigkeitserfordernis or by other alternative forms, or by providing remedies to the aggrieved party through compensating for expectation interest. Therefore, to be

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more accurate, the objective of the pre-contractual liability is to make the aggrieved party in a state of non-breach of the pre-contractual obligations. Besides compensation for the expectation interests of the pre-contractual liability, the gain-based damages are also ignored in theory. In Current Chinese law, the link between damages and gains is only stipulated in the liability to return unjust enrichment and tortious liabilityregulations. In fact, whether damages are linked with gains in the law of damagess is only related to the understanding of the justifiability of the link. According to traditional theories, the purpose of the liability for damages is compensation, so the liability for damages is only related to the actual damage suffered by the aggrieved party, not the gain of the injurer. If there is no damage, no compensation will occur even if there is gain. Such understanding can only be reasonable when equating damage with gain in quantity if the infringement of rights and interests is associated with gain in the norms, which means that the gain is derived from the infringed rights and interests. Then the gain of the responsible party is correspondent to the value of the infringed rights and interests, as well as to the normative damages of the aggrieved party, which can meet the compensatory requirements for damages. This shows that the legitimacy of gain-based damages is based on the legitimacy of rights allocation. It can be inferred that although there is no explicit stipulation that the amount of damages can be determined by the gain derived from the breach of the pre-contractual obligations of the obligor in Chinese Contract Law, the restitutionary damages should be applicable as long as the gain is proven to be originated from infringed rights and interests. Under this circumstance, the scope of liability for damages does not depend on the basis of its right of claim, but on the protected rights and interests.

4 Pre-contractual Liabilities and Civil Liability System Misconduct in the pre-contractual stage can lead to legal liability, which does not imply the unique pre-contractual liability should be established. The experience of comparative law has shown that the unique pre-contractual liability is not a general rule but related to the conceptualization and systems of specific positive law. Conversely, even if the independent pre-contractual liability has been determined in the law, it still needs to deal with the coordination problem with other liabilities (such as contractual liability, tortious liability and liability for restitution). In view of this, we will focus on the need of legal remedies existing in the pre-contractual stage, and explore the cooperation relationship in the application of various legal liability systems without considering the need of an independent contracting liability system.

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4.1 Pre-contractual Liabilities and Liabilities for Breach of Contract At the pre-contractual stage, the parties may have formed a special agreement or made a legally binding promise on certain matters in the contract. The agreement or promise is a necessary prerequisite for contract regulation in the pre-contractual stage. (1) Pre-contractual Agreement and Liability for Breach of Contract At the pre-contractual stage, in order to prevent or disperse the damages during the contract negotiation stage, the parties may reach some agreements that are not directly related to the ultimate contract, such as confidentiality agreements, agreements prohibiting parallel negotiations, and burden-sharing agreements for negotiation failures (independent agreements), etc. In order to avoid uncertainty in contract negotiations, they may also reach various preliminary agreements before the formation of the ultimate contract, such as a letter of intent, letter of commitment, agreement in principle and memorandum of understanding, etc. In addition, the parties may have reached a consensus on the necessary terms or substance of the contract, but the contract has not come into effect (also called non-operative agreement) because it does not meet other conditions precedent stipulated by the law or agreed by the parties. The three situations will be discussed separately as follows. a. Independent Agreement Although in the “pre-contractual stage” of the ultimate contract, the independent agreement is independent from the ultimate contract proposed by the parties in its content, and is not directly related to the conclusion or execution of the ultimate contract in its effect. Also, due to the attribution of the “pre-contractual agreement”, the independent agreement has no effect on the legal regulation. For example, the confidentiality agreement aims at establishing a confidentiality obligation in the contracting process, and its effect is independent of the proposed ultimate contract by the parties. Even though the law stipulates that confidentiality agreements in the contracting process are not necessary for confidentiality obligation, it has the effect of converting the statutory confidentiality obligation into a contractual obligation, or strengthening the constitutional obligation, even replacing the statutory liability with contractual liability. The confidentiality obligation is usually a gratuitous agreement which generally occurs in business transactions. The party who undertakes the confidentiality obligation can obtain economic benefits by concluding the ultimate contract. Therefore, the stipulations that give special favors of liability to some gratuitous contract should not be applied in this case. Similarly, the agreement (Haftungsvertrag) that the parties have agreed in advance on the damages of the failed negotiation also has the effect of replacing statutory liability with contractual liability, such as the borrower or stock issuer agrees to bear the expenses of the lender or stock underwriter if the transaction doesn’t be concluded. The burden-sharing agreement requires that the parties have a clear intention to share liabilities, which is different from the “implied Haftungsvertrag” based

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on legal drafting.220 Moreover, in terms of burden-sharing, such agreement should follow the principles of fairness and integrity, and cannot exclude or limit its legal obligations under the aforementioned principles.221 Although the burden-sharing agreement helps to increase the predictability of the consequences of contracting and enhance the effect of remedies, it is uncommon in reality because the parties usually do not consider the issue of damage redress after the failure of the contract. Moreover, the more complex the transaction, the more difficult it is to make such an agreement, and the narrower the range of problems it can solve. In contrast, the agreement prohibiting parallel negotiation (or lock-out agreements) is independent. Since parallel negotiation per se belongs to the freedom of contract, then the agreement prohibiting parallel negotiation has the effect of restricting the freedom of contract. It should have a time limitation to avoid excessive restrictions on the freedom of contract. Violating the agreement of parallel negotiation will constitute a breach of contract, and the party should compensate the other party for the loss of contractual expenses incurred by the trust.222 It can be seen that, in terms of substantive content, the independent agreement is intended to solve the problem of rights protection or damage sharing in the conclusion of the contract; in terms of procedural content, it is intended to solve the problem of procedural constraints in contract, such as exclusive negotiation or way of information disclosure, etc. Since these agreements are not related to the content of the ultimate contract, they can only generate damages for the loss of inherent rights and interests, but not generate damages that based on the loss of expectation interests of the ultimate contract. In addition, the content of rights and interests protected through such agreements also manifests as a trusting interest in the conclusion of the ultimate contract. In addition, the content of the rights and interests protected through such agreements also manifests as reliance interests in the formation of the ultimate contract. Under the legislation that recognizes the independent liability for the conclusion of a contract, such agreements are often regarded as the basis for pre-contractual obligations and lead to the consistency of the results that are settled through the breach of contract (violating the independent agreement) and liability 220

In Germany, the court often, intentionally or unintentionally, rely on so-called implied or proposed contracts to determine the relevant pre-contractual obligations. For example, in the case of obligee’s damage due to false notarial certificate, the court determined that the notary should be liable according to the “implied contract” between the plaintiff and notary. And in many other cases, “Liability arises on the basis of the proposed agreement accompanying the main contract, “on the basis of the proposed agreement before the main contract; Moreover, before the contract is concluded and after the contract is realized, the contractual obligation still exists.” Reinhard Zimmermann, Roman Law, Contemporary Law, European Law: The Civilian Tradition Today, Chang Peng’ao Trans, Peking University Press, 2009. 221 See PICC(2010) §1.7(2). 222 From the perspective of comparative law, there are great differences in the relief effect of breach of lock-in agreement. In most jurisdictions, relief for reliance expenses is provided, while in a few jurisdictions, relief for loss of chance may also be allowed. However, in German law, due to the principle of strict causation, in some circumstances, a breach of contract is admitted, but the causation between damage and breach of contract is denied, and thus relief is denied. See John Cartwright & Martijn Hesselink ed., Pre-contractual Liability in European Private Law, p. 309.

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for the conclusion of a contract (violating the pre-contractual obligations in the conclusion of the ultimate contract); in terms of substantive content, the independent agreement is intended to deal with the protection of rights or interests or damage sharing during the contracting; in terms of procedural content, it is intended to solve the issue of procedural constraints in the process of contracting, such as exclusive negotiation or way of information disclosure, etc. Since these agreements are not related to the content of the ultimate contract, they can only generate damages for the loss of inherent rights and interests, but not damages based on the loss of expectation interests of the ultimate contract. In addition, the content of the rights and interests protected through such agreements is also manifested as vertrauensinteresse (reliance interests) in the ultimate contract. Under the legislation that recognizes the independent liability for the conclusion of a contract, such agreements are often regarded as the basis for pre-contractual obligations and lead to the consistency of the results of the breach of contract (violating the independent agreement) and liability for the conclusion of a contract (violating the pre-contractual obligations in the ultimate contract). b. Preliminary Agreement The preliminary agreement is in the intermediate stage between negotiation and the conclusion of the ultimate agreement with multiple forms or different names, such as a letter of intent, letter of commitment, agreement in principle or initial agreement, memorandum of understanding, subscription letter, etc. These agreements may simply indicate that the parties have a true and real intention to negotiate (agreement to negotiate), or that the parties have reached a consensus on contractual matters and expressed their intention to further negotiation based on it (agreement with open terms). In addition, the parties may also reach a stop-gap agreement before the conclusion of the ultimate contract, which requires the party to perform the preparation or performance of the obligations contained in the ultimate contract in accordance with the requirement or instruction of the other party.223 For example, when the parties have not reached a consensus on the main terms of the construction contract, the main contractor starts the construction work according to the requirement or agreement of the subcontractor; or before the sign of the share purchase agreement, the parties agree the target company operate in a certain way and spare no effort to ensure the value of the company, or the acquiring firm invests part of the working capital. If the parties fail to enter into an ultimate contract, the relationship between them can be determined based on the specific circumstances of these agreements. For preliminary agreement, the main issues are the intention to be legally bound and the judgment of content certainty. If the parties clearly state that they are not bound by the agreement, their contractual validity should be excluded. However, excluding the validity of the preliminary agreement does not imply that it does not have any legal meaning, and it may still be a consideration in determining the 223

See E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), p. 252. Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), pp. 250–252.

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contracting obligation in good faith. If the parties do not clearly express their intention of being bound by the law in the agreement, the referee should make a judgment according to the specific degree of the agreement and the specific process of the negotiation. Therefore, the intention to be legally bound is related to the interpretation of the agreement by the court, which even embodies certain legal policies.224 In making such judgments, the certainty of agreement content and its proximity to the ultimate contract are of great significance. If the preliminary agreement already has the necessary terms of the contract, even if the remaining terms require further consultation, the contract should be presumed to be established without the contrary agreement. If the parties are unable to reach a consensus on the remaining contents, which should be determined in accordance with the related clauses of the contract or with trade practices. (Article 61 of the Contract Law). In this case, the effect of the preliminary agreement is similar to the ultimate contract. However, the difference is that the parties have a common understanding of entering into a formal contract when entering into a preliminary agreement. If the party has expressed that “This letter of intent has the same legal effect as a formal contract”, and the agreement already has the necessary terms of the ultimate contract, it should be treated as a formal contract rather than a preliminary agreement in principle.225 If the parties have a common understanding or willingness to conclude an ultimate contract, however, the parties have not actually entered into such an agreement in which a party has already performed the major obligations of the proposed contract, and the other party has accepted the performance, such agreement should be considered as formal contract (Article 37 of the Contract Law).226 In other cases, if the parties enter into an agreement in the form of a “letter of intent”, “subscription letter” and “memorandum of understanding”, etc., it is generally considered that the parties have the willingness to conclude a formal contract, and the agreement is Vorvertrag rather than Hauptvertrag. Vorvertrag is an agreement for the conclusion of a contract in the future. There is no theoretical consensus on its specific scope. It is generally considered that the Vorvertrag is a contract independent of the Hauptvertrag, and whose direct purpose is to fix trading opportunities. Therefore, the most important characteristic of Vorvertrag is contracting-oriented.227 As far as its effectiveness is concerned, there are four theories such as “negotiation-centered theory”, “mandatory-Vorvertrag theory”, “content

224

See Xie Hongfei, Intention to Create Legal Relations: Limits of Interference of Law into Social Life, in Global Law Review Vol. 3. 225 See “Nantong Haoyin Real Estate Development Company v. Ge Liang’s Case of Dispute over Housing Sales Contract” (Jiangsu Higher People’s Court (2002) Su Min Zhong Zi No.71). 226 See “Hong Kong Weida Technology Co., Ltd. v. Qingdao Qianwan Group Co., Ltd. Case of Dispute over Property Return under Sino-foreign Joint Venture Contract” (Qingdao Intermediate People’s Court of Shandong Province (2003) Qing Min Si Chu Zi No.117). 227 See Han Qiang, On the Effectiveness and Form of Appointment, in ECUPL Journal Vol. 1, 2003, pp. 46–47.

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determination theory” and “equal-to-Hauptvertrag theory”.228 The dispute of effectiveness is more related to the definition of Vorvertrag by different theories: If the Vorvertrag already has the main terms of the contract to be concluded in the future, and the parties have the willingness to be bound, then the conclusion of the formal contract is just to meet the requirements of form or procedure (such as completing internal approval process or a more formal written contract), in which case the agreement made by the parties is Vorvertrag in name and Hauptvertrag in fact. Therefore “equal-to-Hauptvertrag theory” or “mandatory-Vorvertrag theory” is only adapted to this situation.229 If the appointment only specifies the specific issues or preliminary trading conditions for future contracting and does not have the main terms of the future contract, it can only lead to the effect of mandatory negotiation instead of being regarded as the establishment of Hauptvertrag. If the parties only indicate their willingness to make a deal while do not contain the basic content or main terms of the proposed contract, such as “I am intending to make a deal if the price and quality are reasonable”. This expression of will is not enough to produce independent legal binding force, but mostly be regarded as a consideration for determining the parties’ duty to negotiate in good faith. Since the existing law already has the general provisions of the parties’ contractual obligations in good faith, the significance of such an agreement would be extremely limited. From this point of view, in reality, Vorvertrag with real discussion value mainly refers to situations where the parties have reached an agreement on the types and basic obligations of the parties to be concluded in the future, but the agreement does not have the necessary provisions of the ultimate contract, which is a form of agreement that beyond simply expressing the willingness to contract.230 Here is an example to explain the preliminary agreement of the transaction of commercial housing. The preliminary agreement of transaction of commercial housing often appears in the form of a subscription letter and letter of intent, etc. In accordance with Article 5 of the Supreme People’s Court on Interpretation of Issues Concerning the Application of Law in the Trial of Disputes over the Sale Contracts of Commercial Houses (No. 7 of Judicial Interpretation in 2003): “The agreements for the subscription and reservation of commercial housing should have the main contents of the commercial 228

See Xi Xiaoming, Understanding and Application of the Judicial Interpretation of the Supreme People’s Court on Sales Contract, People’s Court Press, 2012, pp. 54–55. 229 See Liu Junchen, A Probe into Some Legal Issues of Contract Appointment, in Journal of Law Application Vol. 4, 2002, p. 33. Scholars believe that such agreement should be regarded as an “initialed agreement”, also known as a memorandum, which is “an agreement signed by the parties for further negotiation or confirmation by relevant authorities after reaching an agreement on some or all clauses of the contract after negotiation”, which is different from an appointment. Han Qiang, On the Effectiveness and Form of Appointment, in ECUPL Journal Vol. 1, 2003, pp. 50–51. 230 Scholars believe that in order to generate the obligation of good faith negotiation in the preliminary agreement, the parties must reach an agreement on the type of project, such as a sales center or a financing plan; Reach an inaccurate but feasible agreement on the division of authority of investment behavior; And reach an agreement on the general order of the measures they will take. Each of these three conditions is necessary, and the combination of the three conditions is sufficient. See E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), pp. 704–252.

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housing sales contract stipulated in Article 16 of “Measures for Regulating the Sales of Commercial Houses”, and the agreement shall be deemed as the commercial house sales contract if the seller has accepted the purchase price in accordance with the agreement.” From this point of view, the judicial interpretation adopted the “equal-to-Hauptvertrag theory” for such an appointment. It can be inferred that if the agreements such as subscription, reservation, etc., do not have the main content of the sales contract, the commercial housing sales contract cannot be deemed as concluded (objection explanation). Some people believe that the establishment of a commercial housing purchase reservation should have at least two clear contents, that is, the basic conditions of the subject housing (including the location, floor, approximate area, etc.) and the expression of intention to sign this Hauptvertrag according to the Vorvertrag.231 If this kind of appointment was adopted as “mandatory-Vorvertrag theory”, the court must supplement the main terms of the contract (such as price), which not only has greater uncertainty in the supplementary standard, but also may excessively restrict the parties’ freedom of contract and cause the effect of forced contracting (actual performance of the appointment). In accordance with the amended “agreement-centered theory”, it is considered that the Vorvertrag can produce the effect of contracting the Hauptvertrag, but “it does not mean that each Vorvertrag is ensured to promote the establishment of Hauptvertrag”, the primary purpose of which is only to “promoting negotiations in good faith232 and balancing the interests of the parties”.

231

See Xi Xiaoming, Understanding and Application of the Judicial Interpretation of the Supreme People’s Court on Sales Contract, People’s Court Press, p. 52. It is worth pointing out that the basic situation of the subject matter house does not refer to the exact subject matter house pointed to by the ultimate contract, but can only describe some characteristics of the subject matter house in the future contract (such as residence or shop, price range or price determination standard, etc.). For example, in a case, the plaintiff and the defendant agreed that the plaintiff would pay the defendant 2,000 yuan as intention money, and the defendant would give priority to notifying the plaintiff to subscribe for the residential shops with an area of 150 square meters and at price of 7,000 yuan/square meter (with a price fluctuation of 1,500 yuan). If the plaintiff fails to subscribe within the time limit, the intention money will be refunded without interest; If the plaintiff subscribed, it will be converted into subscription money. Both parties have not agreed on the room type and building number. Later, the defendant did not notify the plaintiff to subscribe after the formal sale, the plaintiff failed to sign the contract filed a lawsuit. The court held that, the letter of intent between the parties has the attribute of reservation. Before signing the letter of intent, the defendant has gone through the formalities of establishing and planning relevant projects, there is a realistic basis for the performance of the sales of the store pointed out by the parties in the letter of intent, and the letter of intent specifies the basic situation of the parties, the area of the store to be purchased, the calculation of the price, the subscription time, etc., indicating that the parties have reached an agreement on the main contents of the store sales when the conditions are fulfilled through negotiation. Therefore, the letter of intent shall be regarded as legally binding, and it is an independent and valid contract, and its validity should be recognized. The defendant’s failing to fulfill the notification obligation according to the contract is obviously a breach of contract and the defendant should bear the corresponding liability for breach of contract. Shen Zhixian & Han Feng, Civil Liability of Real Estate Agents for Violating Pre-contracts, in The People’s Judicature Vol. 6, 2008. 232 See Xi Xiaoming, Understanding and Application of the Judicial Interpretation of the Supreme People’s Court on Sales Contract, p. 57.

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In terms of the attribution of damages for violation of the Vorvertrag, it is considered liquidated damages. The purpose of the Vorvertrag is to conclude the Hauptvertrag, since the Hauptvertrag has not been concluded, the expectation interests or acquirable interests may not be used as a compensation standard for breach of the Vorvertrag. In theory, “the loss of breach of the Vorvertrag should be equivalent to the scope of culpa in contrahendo of the Hauptvertrag.233 In a word, the loss of breach of the Vorvertrag is equivalent to the loss of reliance interests of the Hauptvertrag.” Since the liquidated damages of the Vorvertrag are similar to contracting liability of the Hauptvertrag, it is just of theoretical meaning to distinguish them. It cannot cut off the relationship between the Vorvertrag and Hauptvertrag. c. Ineffective Contract The ineffective contract refers to a contract that already has general requirements but does not have special requirements (such as approval and registration procedures).234 For such contracts, although the parties have reached a consensus on their substance, it cannot take into effect due to lacking special entry requirement of law, so neither party may request the other party to fulfill the obligations arising from the contract. The ineffective contract, as an intermediate state between the signing and entering into effect of the contract, may be effective by meeting the special elements for effectiveness or exist severability by the failure of special elements for effectiveness. The contract can be legally effective if the defect reasons can be eliminated in a specific way, such as substituting the other party’s consent so that the party can complete the application approval or registration process separately (“Judicial interpretation of the Contract Law (II)” (forepart of Article 8, No.5 of Judicial Interpretation in 2009)), or preparing meta-criteria achievement in accordance with legal provisions (Paragraph 2, Article 45 of the Contract Law), etc. However, liability for pre-contractual damages may still occur at this time (latter part of Article 8 of “Judicial Interpretation of the Contract Law (II)”). If the act is contrary to good faith have been done intentionally, the party shall compensate the opposing party for the loss of expectation interest (“Interpretation of the Guarantee Law” (forepart of Article 7, No. 44 of Judicial Interpretation in 2000); if not intentionally, the party shall compensate the opposing party for the loss of reliance interests.235 It is worth noting that the liability here for compensation is expectation interests. Because the party breaches the cooperative obligation at the pre-contractual stage, it is a pre-contractual liability in nature instead of a liability for breach of contract. (2) Pre-contractual Liability and Liability for Breach of Contract 233

Ibid., p. 61. Zhang Jiayong, A Criticism on Ineffective Contracts: Based on Article 9 of the Interpretation of Contract Law, in Liang Huixing, ed., Civil and Commercial Law Review Vol. 20, Jinqiao Culture Publication (Hong Kong), 2001. 235 For damages, please refer to the relevant explanation in Sect. 2 bis of this chapter. 234

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In theory, the pre-contractual liability (or contracting liability) is different from the liability for breach of contract in terms of the nature of the breach of liability, imputation criteria, subject, method, scope and nature of liability.236 However, these differences are not convincing because they do not express the premise of the comparison. For example, in theory, pre-contractual liability is premised on breach of precontractual obligations, while liability for breach of contract is premised on breach of contract obligations. Therefore, the liability premise of them is different. However, the “pre-contractual” obligations must be based on the ultimate contract. Before the ultimate contract is concluded, the parties can reach the pre-contractual agreement which can provide the basic foundation for cooperation, confidentiality and even the protection obligation. At this time, the “pre-contractual (ultimate contract) obligation” belongs to the “contractual (pre-contractual agreement) obligation”. For another example, in Chinese Contract Law, although the criteria of liability for breach of contract is based on the principle of strict liability, some are still based on fault; similarly, although the pre-contractual liability regards fault as general imputation criteria, however, due to the objectification of faults, especially the combination of obligation violations and accountability judgments, has made liability for the conclusion of a contract close to strict liability in some circumstances. In terms of the form and scope of liability, the pre-contractual liability may lead to actual performance (such as the judgment that substitutes the consent), and the concept that contractual liability can only be used for the compensation for reliance interests which lacks the basis of empirical law and experience support of comparative law. On the contrary, the liability for breach of contract can be regarded as the compensation for the expectation benefit as well as for the reliance interests, which has been well known for Fuller’s discussion about the compensation for the reliance interests in the contract. Moreover, when the parties convert the statutory liability into contractual liability through the Haftungsvertrag in the pre-contractual stage, the theoretical distinction between the liability for breach of contract and the pre-contractual liability completely loses its practical significance. However, it does not mean that the distinction between the pre-contractual liability and the liability for breach of contract is meaningless, but merely emphasizes the premise of the distinction when establishing the distinction between them, that is, the pre-contractual liability is aimed at getting the legal remedies when the ultimate contract is not effectively concluded. Under this circumstance, the “reliance” and “expectation” could get a clear explanation. That is to say, “reliance” is relative to expenses, the abandonment of other trading opportunities, and even the opening of the rights field. And “expectation” is relative to the purpose of contracting. Therefore, they should not be regarded as opposite relations. The distinction based on the concept will lead to misunderstanding due to a different understanding of the concept.

236

See Wang Liming, On Liability for Breach of Contract (Revised Edition), pp. 808–808; Han Shiyuan, The Law of Contract (3rd ed.), p. 133; Ye Jianfeng, Studies on the System of Culpa in Contrahendo, pp. 530–532.

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According to this, when we talk about the distinction between the pre-contractual liability and the liability for breach of contract, it is actually the distinction between the pre-contractual liability and the liability for breach of contract in the ultimate contract to be concluded. Since the relief goal between pre-contractual liability and liability for breach of ultimate contract is different, in other words, the breach of obligations between the pre-contractual stage and ultimate contract may be different in terms of types of obligations and consequences of damage, which can only be determined “individually” rather than “abstractly.” When the obligations of the precontractual stage cannot be based on the agreement (or promise) of the parties, the pre-contractual obligations will play a role as a statutory obligations rather than contractual obligations. When the pre-contractual liability cannot be based on the pre-contractual agreement (or promise), the pre-contractual liability will play a role as a statutory liability rather than a contractual liability. When the pre-contractual agreement (or promise) cannot set the expectation benefits for the parties, the precontractual liability will reflect as compensation for the reliance interests rather than for the expectation interests. If we remove these premises, the meaningful distinctions will not occur. When a meaningful distinction is established, the attribution of precontractual liability outside the contract can be established. All of these can be found in the liability reasons stipulated in Article 42, 58 of Chinese Contract Law. In addition, in the pre-contractual stage, if a party violates the pre-contractual obligations but the contract is still valid, it is worthwhile to discuss whether the relief of breach of contract should exclude the pre-contractual liability. If the consequences of breach of the contractual obligations can be resolved by means of liability for breach of contract, the contracting ability will convert to a breach of contract liability and be absorbed by the latter. For example, if the quality or characteristics of the subject matter is made an incorrect statement, the parties regard the condition of the subject matter as true as the standard of contract obligation performance can eliminate the adverse effects of misstatement.237 However, if the consequences of the breach of the pre-contractual obligations cannot be resolved by transforming them into contractual obligations, the pre-contractual liability should be permitted to be recognized out of the liability for breach of contract. For example, Article 8 of “Judicial Interpretation II of Contract Law” stipulates that if a party who is obliged to apply for approval or applies for registration actually does not apply for approval or registration in accordance with the law or the contract, when the court judges the counterparty to handle relevant procedures on its own according to the 237

For example, Article 3 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Laws in the Trial of Disputes over Commercial Housing Sales Contracts (Fa Shi [2003] No.7) stipulates: “Advertisements and publicity materials for the sale of commercial housing are invitations to offer, but if the seller’s explanations and promises on the houses and related facilities within the scope of the commercial housing development plan are specifically determined and have a significant impact on the conclusion of the commercial housing sales contract and the determination of the house price, it shall be regarded as an offer. Even if such explanation and promise are not included in the commercial housing sales contract, they should also be regarded as the contents of the contract. If the parties violate it, they violating party shall bear the liability for breach of contract.”

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circumstances, the actual costs and losses of the counterparty should also be ordered to be compensated, which is a typical provision of affirmation of the pre-contractual liability in the contract. From the perspective of comparative law, Article 3.2.16 of the General Principles of International Commercial Contracts (2010 Edition) also stipulates that whether or not the contract is declared invalid, in order to place the other party in a position as if it had not entered into a contract, the party who knows or should know the reasons for the invalidity of the contract should be liable for damages. Therefore, the liability for breach of contract and the pre-contractual responsibility can co-exist instead of in an exclusive relationship.

4.2 Pre-contractual Liabilities and Tortious Liabilities In the pre-contractual stage, if one party infringes on another party’s legal rights due to misconduct such as malicious negotiation, fraud, coercion, or breach of confidentiality obligations, the tortious liability can provide relief to another party. (1) Misconduct and Tortious Liability at the Pre-contractual Stage According to Article 2 of Chinese Tort Law, the scope protected by Tort Law includes not only erga omnes rights such as personality rights and property rights, but also legitimate interests that have not yet been entitled. In this way, as far as the protected interests are concerned, when pre-contractual liability is not based on agreement, its remedy object itself can be covered by tort liability. Based on the containing relation to the protected object, the solution mode of tort law for the pre-contractual liability has not only been put forward in theory,238 but has also been affirmed in the comparative law.239 In view of the fact that the German model of protecting the absolute rights of personality rights and property rights through the culpa in contrahendo is usually denied,240 and this type of contracting liability is not recognized in our judicial practice, therefore we only discuss the economic loss that occurs during the contracting process, which does not involve the issue of remedies of absolute rights. It is generally believed that the reason for German law adopting the unique culpa in contrahendo model is to overcome its own insufficiency of tort law: the lack of tort law remedies for pure economic loss caused by negligence, and insufficient protection to the injured party caused by the unique employer exemption rules.241 If there is no barrier to remedies in tort law, the independent contracting responsibility is unnecessary. Current Chinese law does not limit the special rules for obtaining relief from pure economic loss. In legal literary meaning, pure economic loss even 238

Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, in Political Science and Law Vol. 6, 2010. Li Zhongyuan, Questioning on Independence of Contracting Fault Liability, Law Science, 2008, No.7. 239 See De von Barr, Gemeineuropäisches Deliktsrecht (Vol. 1), p. 575. 240 See ibid., pp. 581–582. 241 See Friedrich Kessler & Edith Fine, Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study, 77 Harvard Law Review (1964), p. 406.

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apply the same legal rules to absolute rights such as personal and property rights, and the rules of liability of user are the same in contract and tort law, which is applicable to employers who are responsible for the acts of the user. Therefore, there is no such German-style barrier to redress of tort law in our current law, and there is no need to elaborate. Nevertheless, in Current Chinese law, tortious liability and contracting liability are still considered to have different liability mechanisms: the injured party is responsible for economic loss based on its own behavior, and the infringement directly causes the infringement of rights and interests which triggering off losses.242 This view actually points out another legal (or theoretical) obstacle that remedied for contractual damages through infringement, that is, the imputable contracting act does not have the wrongfulness required by tortious liability. In fact, in the legal system that regards wrongfulness as a constitutive element of independent tortious liability, the problem of wrongfulness is one of the main obstacles to the infringement relief of contracting damages. For example, in the German tort law, the wrongfulness is manifested in three forms of infringement of erga omnes right (or absolute legal interests), violation of protective laws and violations of good morals. However, in the case of contractual damage, these three forms of wrongfulness are not necessarily available. For example, a pure economic loss to the other party by the misrepresentation does not have the aforementioned wrongfulness. There is also a similar situation in the case of another breach of the fiduciary duty (such as the interruption of contract negotiation without justification). Therefore, in order to incorporate the situation dealt with by the contracting fault into the regulation of the tort law, it is necessary to change the meaning of the wrongfulness so that it can include the act contrary to the principle of good faith. It indicates that if the limited elements of wrongfulness are adhered to, some liabilities for the conclusion of a contract cannot be accepted by the remedy of tort law. Judging from the provisions of Chinese Tortious Liability Law, the general constitutive elements of tortious liability include infringement of rights and interests, causation and faults without elements of wrongfulness. However, the legal interpretation is not necessarily limited by the legal literary meaning, which could not deny the independence of elements of wrongfulness by reason of no explicit stipulation in the law. In fact, quite a few scholars advocate the introduction of this element in legal interpretation.243 However, the explanation of wrongfulness is not sufficient by only advocating the independence of elements of wrongfulness without having a certain understanding of the connotation and judgment criteria of the wrongfulness. For example, scholars believe that the wrongfulness judgment of the injurer’s behavior in the contract is different due to the non-formation or invalidity of the contract: in the case of the interruption of the contract negotiation, the following actions belong to wrongfulness such as interrupting the negotiation without justification after the other party’s reasonable trust, or negotiating without the willingness to enter into a 242

See Zhu Guangxin, General Principles of Contract Law, p. 114. For a literature review on this, please refer to Zhang Jinhai: Research on the Illegality of Tort, Law Press, 2012, pp. 273–275.

243

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contract. If the contract is not established by disagreement, the action of the party who is responsible for the disagreement is wrongfulness. When the contract is invalid, the behavior of the party who is responsible for the barrier of effectiveness is wrongfulness. Also, if the info-advantage who has the duty of disclosure but actually does not carry it out, his action also belongs to the requirements of wrongfulness.244 Although this view has the rationality of categorizing the judgment of illegality, it is not evidential because the standard of illegality judgment is not clear. If there is no reasonable cause to interrupt the contract negotiation, the party, who is liable for not reaching a consensus or for bringing the contract into effect, has done something that violates the duty of disclosure but not violate the protective regulations or good morals (such as failure to perform the duty of disclosure due to negligence), the criterion for judging the wrongfulness can only be the violation of the principle of good faith (untrustworthiness). If one party insists on including the wrongfulness elements in the tortious liability while the other believes that the contract damages can be solved by the tort law, then we must have a broader concept of wrongfulness: it not only refers to infringement of absolute rights and violations of protective regulations, but also includes all obligation violation (including obligations determined by the principle of good faith)245 In the infringement field of violating the security obligation of communication, the judgment of wrongfulness must be established by means of non-statutory behavioral obligations because of not satisfying with the three typical standards of wrongfulness judgment.246 In view of the fact that Chinese Contract Law has clearly stipulated the contracting obligation in good faith of the contracting parties, even if the wrongfulness is recognized as the constitutive requirement of the tortious liability, it is still not enough to constitute an obstacle to the redress for infringement of rights. Of course, there will be fewer obstacles to the tort law relief of contract damages if the wrongfulness elements are negated in the interpretation. (2) Pre-contractual Liability and Tort Liability In order to establish the independence of the pre-contractual liability (or contracting liability) relative to the tortious liability, the difference between them must be established. It is generally believed that the differences between them lie in the basis of liability, the attribution of the obligation, the imputation criteria, the scope of compensation, and the way in which damage occurs.247 It is worth noting that most of the aforementioned differences have no normative meaning because of the conceptualization. For example, pre-contractual liability is based on the principle of fault, while tortious liability is based on the principle of multiple liabilities, which is of little help 244

Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, in Political Science and Law Vol. 6, p. 105. 245 Zhu Yan, Tort Law Vol. 1, Law Press China, 2011, p. 272. However, whether the overly broad definition of wrongfulness will weaken the effect of limiting thefreedom of behavior, or even over-expand the scope of tort law remains further consideration. 246 Zhou Youjun, Study on the Theory About Verkehrspflichten, China Renmin University Press, 2008, p. 148. 247 See Wang Liming, On Liability for Breach of Contract (Revised Edition), pp. 811–808; Han Shiyuan, General Theory of Contract Law (3rd ed.), pp. 532–533.

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to the distinction of liability types. The pre-contractual liability may be a kind of tort liability. The difference in the principle of imputation may be the one between the part and the whole, instead of the two independent rules. For another example, it is ambiguous to claim that the compensation of pre-contractual liability is based on the loss of reliance interest, and tortious liability is based on the loss of inherent interest or Integritätsinteresse. The “reliance interest” and “inherent interest” will not constitute an opposite relationship unless “reliance interest” is equated with “pure economic interest”, and “inherent interest” is equivalent to the interest related to erga omnes right. Regrettably, the definition of the concept is doubtful, and the reliance interest per se is also an inherent interest. In other words, since the tortious liability also includes relief from pure economic loss, the difference cannot be considered as the one between two independent rules. In addition, the way in which damage occurs is never a reason in determining the type of liability. Also, tortious liability includes both the direct damage caused by the injurious act (such as tortious liability causing damage to the property of others), as well as cases where damage is caused by the acts of others or even the injured party per se (such as the tortious liability for breach of the security obligation of the communication), so listing the differences of them is also meaningless. As for the differences in the attribution of obligations, it should be paid attention that they have normative significance only in relation to the basis of responsibility. It is generally acknowledged that there is a special constraint of “design for purpose” between the contracting parties. They negotiate and trust each other for concluding a contract, which is decisive for the determination of the pre-contractual obligations and contract liabilities. On the one hand, only when the contracting parties have reasonable trust due to contracting negotiation, the pre-contractual obligations will occur first, and no trust means no compensation. For example, when the contract becomes invalid due to malicious collusion, since the parties have no real intention to conclude the contract, so there is no problem of reliance compensation. On the other hand, reliance also has the effect of strengthening the general duty of care. For example, if the information does not belong to a trade secret but is requested to be kept confidential by the other party, the contracting party should still be subject to confidentiality obligations. When the party knows or should be known that there is an error in the important facts related to the contract for the contracting party, even if the error is not caused by himself or herself, the contracting party still be obligated to inform the other party. Since the pre-contractual obligations are based on the basis of trust, it is a relative legal obligation with the attribution of “debt”, which is different from the general duty of care of the tort law for the exclusive right. The scholar also believed that when the damage caused by the party has even reached the imputation criteria, the party should be liable for the compensation of the damage. So tortious liability cannot be defined as the liability arising from the violation of the obligations against all people. Otherwise, the tortious liability existing between specific subjects such as product liability and medical liability should also be exempted from the tort

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law.248 This theory is reasonable for the tort law is a function of the compensation law. However, the compensation law does not regard the infringement act or infringement fact as the only cause. Contract and other debts (such as voluntary service or other statutory debts) are the compensation law’s normative objects. If a party insists on compensation for infringement of rights, liquidated damages and damages for non-performance of other debts, while the other party regards meeting the factors of liability as judgment standard of liability, it is difficult to be consistent in the logic. If we insist on distinguishing different basis of claims based on the cause of damages, the attribution of the breach of the obligation should be distinguished; if we want to distinguish the attribution of relevant obligations, the characteristics of the relationship between the parties before the occurrence of obligation should be considered. The question does not lie in whether the liability occurs in specific subjects (this is a common feature of all liabilities), but in whether the obligation as a basis for liability is limited to specific subjects. The contract purpose and the foundation of trust limit the pre-contractual obligations to specific entities. It is necessary for those who bear the contract liabilities to have the qualifications of the contracting parties, which does not include the contracting subsidiary.249 Of course, whether the purpose of contracting and the basis of trust are sufficient to distinguish the standard partly depends on the party’s functional presupposition and theoretical conception for the contract and infringements, etc. The fact that different jurisdictions adopt different remedies for damages in contracting confirms this truth. In addition, as a special constraint for concluding an ultimate contract, the pre-contractual relationship is totally different from the general compensation for infringement of rights in terms of calculation of damages, form and scope of liability. As far as damages at the pre-contractual stage are concerned, there are cases where the damage is directly caused by the misconduct, as well as the caused before the misconduct. The former is the same as the mechanism of damage caused by general tort, while the latter is obviously different. Taking interruption of negotiations without cause or reason as an example, the trust expenditure is reasonable and likely to be compensated only when the relationship between the parties reaches a certain degree. It should be noted that the basis of imputation is not responsible for the expenditure of the other party because of reasonable trust (consultations that give rise to trust are legitimate per se), but for the act of interruption of negotiations without cause (misconduct) that turning the other party’s prior expenditure to ineffectual “pointless expenditures” and legally regarded as “damages”. The causation of the precontractual liability—“reverse attribution” clearly reflects the unique significance of the purpose of the contract in determining the pre-contractual liability, which makes 248

Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, in Political Science and Law Vol. 6, p. 105. 249 Different from the over-broad subject of contractual liability in German law, the professional liability of contracting assistants (such as accountants, appraisers, banks, company directors, etc.) in Chinese lex lata is regarded as expert liability that is tortious liabilityor special legal liability but not contracting liability in theory and practice. See Yang Lixin, editor-in-chief, Study on Type Tort Law, People’s Court Press, 2006 edition, p. 621 and following; Tian Shaohua & Yang Qing, Expert Civil Liability System Research, China Procuratorate Press, 2005 edition, p. 451.

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it a linking factor to protect the legitimate expectations of the contract. Furthermore, the liability for improper damage can be justified by attributing to a protected trust relationship, which does not exist for general tortious liability. As far as the form of compensation is concerned, the liability for the conclusion of a contract may be expressed as damages for the expectation interests (or be equivalent to the compensation for the loss of chance of expectation interests) considering its relation with the ultimate contract. Although damages for infringement include loss of chance, such compensable opportunity depends on inherent interests, especially the right of infringement per se (such as chances of survival), and has nothing to do with the subjective intention of the parties, so it is different from the loss of chance in liability for the conclusion of a contract. Notably, several situations involved in liability for the conclusion of a contract, such as fraud, coercion, malicious consultation, breach of confidentiality obligation, etc., can establish tortious liability by satisfying constitutive elements of it. However, in reality, it is rare that the contractual damage is resolved through infringement, and related disputes are usually handled as contract disputes, which is not difficult to explain. Since liability for the conclusion of a contract must be based on the contractual relationship, the conclusion or validity of the contract usually excludes it, so relevant cases are usually based on contract disputes.250 Since personal injury that may cause compensation for mental damage is not considered to be a liability for the conclusion of a contract in Chinese judicial practice, the liability for the conclusion of a contract that aims at compensating for pure economic loss is consistent with tortious liability in the scope of compensation, and may even be more beneficial to the injured party (such as recognizing the recoverability of the expectation interests). Therefore, it is natural to choose liability for the conclusion of a contract even when it is overlapped with tortious liability. The view that liability for the conclusion of a contract is a supplementary civil liability which can only be adopted when tortious liability and liability for breach of contract cannot be applied, which has no legal or practical basis and should not be agreed with.251

4.3 Pre-contractual Liabilities and Liabilities for Restitution of Unjust Enrichment At the pre-contractual stage, if a party benefits from a breach of pre-contractual obligations, the Unjust Enrichment Law may serve as the legal basis for pre-contractual liability. In a legal system that does not recognize good faith and fair dealing in

250

Through the preliminary search of “Chinese Court Judgment Document Library” attached to “Peking University Law Version 4.0”, the author has not found any cases of dealing with contracting damage according to infringement. 251 See Wang Liming, Breach of Contract (Revised Edition), p. 813.

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negotiations, restitution of unjust enrichment in contract negotiations is even considered to be the basis of the right to claim for pre-contractual liabilities.252 The first sentence of Article 58 of Chinese Contract Law also stipulates the liability for restitution of the party after a contract becomes invalid or is rescinded, which means that the relationship between the liability for restitution and the pre-contractual liability is extremely important. (1) Enrichment and the Liabilities for Restitution of Unjust Enrichment at the Precontractual Stage In the process of contract negotiation, a party may obtain information on transaction value, property or services provided by the other party, which aims at guaranteeing the conclusion of the ultimate contract (such as disclosure of certain technical details to the other party for the transfer of patented technology), or preparing for the performance of the ultimate contract (such as construction before the conclusion of the construction contract). If the acquiring party departs from such purpose and uses the information or property obtained improperly, or the purpose of performance cannot be achieved because the contract is not established or invalid, the obtained information, property or service belongs to the enrichment without legal basis and should be returned to the other party. It is generally assumed that the party is free to use the information obtained during the consultation process without liability.253 However, if the information belongs to business secrets or other confidential information, the benefits obtained by a party’s exploitation of such information belong to unjust enrichment for reasons of infringing property rights or breaching the reliance relationship, which should be returned to the other party. In the application of the law, it is basically consistent with gain-based damages, but it does not regard negligence as necessary.254 For the property paid for the performance or security of the contract, when the contract is not established or invalid, the property and its fruits should be returned to the other party. When returning, a common and important problem is the return of the value in use of the subject matter and the interest of funds. For example, in the case that the house lease or sales contract is invalid, if the house has been delivered for use or has been partly or fully paid, the house’s reasonable running costs and interest on the occupied funds should also be paid when the house or payment is returned.255 However, there are different approaches to this issue in Chinese judicial practice. Some judgments do not support the claim for restitution of occupancy expenses of the house or interests on funds or treat the subject matter’s reasonable running costs or interests on funds as losses and allocate them based on the attribution of liability 252

E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), pp. 250–252. Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), p. 229. 253 See PICC(2010) §2.1.16 official comment 1. 254 See Sect. 3.3(2) of this chapter. 255 Such as “Naval Air Hainan Office v. Shenzhen Sanjiu Tourism Hotel Co., Ltd. and other housing lease contract disputes appeal case” (Supreme People’s Court (2003) Min Yi Zhong Zi No.35).

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and the parties’ respective fault.256 A reasonable explanation for these judgments is that the running costs of the subject matter and interests on the occupied funds are considered to be roughly equivalent, so they should not be refundable to each other. At the same time, under the circumstance that the party who obtained the subject matter or funds did not actually have profit from his possession (such as the unused subject matter or funds), or the party who paid for the subject matter or funds did not suffer actual losses (such as without rental plan of the subject matter or actual payment of interests on funds), the act of solving the use of the subject matter and the occupation of funds through the damagess rather than unjust enrichment which has the effect of reducing the liability for restitution of the payer and has its rationality when a fault exists in the payer. Other judgments settled the restitution of interests on funds in accordance with the Unjust Enrichment Law. In addition, some judgments clearly state that the relationship between interests and the restitution payment constitutes the relationship between the original thing and the fruits. Therefore, in the absence of a special agreement by the parties, the same legal rules should apply to interest and principal, that is, the vesting of interest depends on the principal.257 From the perspective of the normativity of civil liability, both losses and profits should be judged from normativity rather than a factual perspective. The fact of the occupation of subject matter or fund will constitute the loss of the payer and the acceptance of the payee in normativity, which needs to be returned in accordance with the requirements of corrective justice and does not differ by fault. For example, according to the stipulation of Article 46 of “Answers to Several Questions on the Trial of Real Estate Development and Management Cases Before the Implementation of the Real Estate Management Law” ( No. 2 of the court regulation in 1996) by the Supreme People’s Court, “After the contract for cooperative construction is confirmed to be invalid, the ownership of the buildings under construction or completed can be confirmed to be owned by the party who regards land-use right as an investment, while the investment of the other party can be handled separately according to the transformation of funds: (1) If the funds have not been invested into the actual construction, the party who 256

Such as “Dispute Case of Entrusted Financial Management Contract between Gansu Science and Technology Venture Capital Co., Ltd. and Shanghai Fangda Investment Management Co., Ltd.” (edited by the Second Court of Civil Trial of the Supreme People’s Court: Guiding Cases of Commercial Trial of the Supreme People’s Court (Contract Volume [Part 1]), China Legal Publishing House, 2011, p. 10 below), “Appeal Case of Chen Junpeng and Zheng Ying’s Sales Contract Dispute” (Shenzhen Intermediate People’s Court of Guangdong Province (2011) Shen Zhong Fa Min Yi Zhong Zi No.1319), etc. 257 See Civil Division I of Beijing Higher People’s Court edited, Analysis of Difficult Cases and Problems in Civil Trials in Beijing (Volume I), Law Press, 2007, p. 47. See also for similar treatment. “Asia Securities Co., Ltd., Hunan Youth Development Foundation and Changsha Tongzhou Asset Management Co., Ltd. entrusted financial management dispute case” (The Second Court of Civil Trial of the Supreme People’s Court: Guiding Cases of Commercial Trial of the Supreme People’s Court (Contract Volume [I]), p. 19 below), “Shanghai Minsheng Investment Co., Ltd. and Jilin Dongli Comprehensive Investment (Group) Co., Ltd. Entrusted Financial Management Dispute Case” (ibid., p. 58 below), “Yu Caixin, Fujian Huachen Real Estate Co., Ltd. and Wei Chuanrui’s Commercial Housing Sales (Appointment) Contract Dispute Case” (Supreme People’s Court [2010] Min Yi Zhong Zi No.13).

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regards land-use right as an investment should return the funds invested by the other party and pay the interest on similar bank loans over the same period; (2) If the funds have been converted into building under construction with added value, the party who regards land-use right as an investment should return the investment as well as a corresponding proportion of economic compensation according to the profits of the local real estate industry. (3) If the construction has been completed, the party which regards land-use right as an investment should compensate for economic loss to the other party based on agreed shares of the real estate according to the current market price or his proportion of actual investment. In the cost of construction.” Item (1) of the Regulation clearly follows the Unjust Enrichment Law. Although the invested funds have not been constructed, the party receiving the funds should still pay interest on similar bank loans (normative enrichment) over the same period. While items (2) and (3) stipulate that the enrichments are converted into losses and dealt with through damagess, it has the same effect as the restitution of unjust enrichment since the fault is not necessary for compensation of such losses. Of course, when dealing with restitution of enrichment in accordance with Unjust Enrichment Law, the return obligation should be excluded if it belongs to “enforced enrichment”, which aims at avoiding the unfairness that may be caused by the enrichment determined by normative profit.258 The unjust enrichment also applies in the case of accepting service or labor. For example, in the case involving the building construction contract, when the parties enter into negotiations before the conclusion of the contract, if the contractor performs construction in advance at the request of the other party or with its consent, the restitution of unjust enrichment still needs to be concerned if the parties fail to conclude a valid contract. If the construction was performed with the permission of the party that gives out the contract and the parties recognized that the contract was reimbursable, the contractor could not be denied to receive remuneration for his construction if the ultimate contract failed to be concluded. There are two common ways to deal with this problem. One is to recognize that the parties have reached a “partial agreement”259 or a “contract implied-in-fact”260 on the construction of the building, and the contract price is determined by actual conditions or market prices. This settlement will produce the effect of replacing the ultimate contract with the actual construction and does not take into account the commercial risks that the contractor should bear by attributing the risk of failing to conclude the ultimate contract to the subcontractor, which requires further discussion. Another approach is to regard the position of the constructor as the payer of an invalid real estate contract aforementioned (cited item (2)). Under this circumstance, the subcontractor should also pay the constructor with reference to market standards, and the payment 258

Wang Zejian, Civil Law Researches: Unjust Enrichment pp. 174–175. See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, p. 309. 260 E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, 87 Columbia Law Review (1987), pp. 250–252. Failed Dealing and Failed Negotiations, Columbia Law Review 87 (1987), p. 232. 259

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should be equal to the profit of the subcontractor from the construction work. If there is a preliminary agreement to determine the contract price lower than the market price between the parties, such agreement should be considered when determining the remuneration. In comparison, the consequences of pre-performance before the conclusion of the ultimate contract are resolved in accordance with unjust enrichment, which directly indicates that the purpose of relief is to rectify the improperness (or without justified basis) of the benefit, and avoid the potential factors of the legal fiction of “implied contract theory”, so it is more common in comparative law.261 However, from the experience of comparative law, in order to avoid improper involvement in contractual relations, even in the United Kingdom where Restitution Law is valued or emphasized, the claim for restitution requires the expectation of the conclusion of the contract of the parties as well as a common understanding of performance between the parties, the act to perform that is beyond the norm, and the act that is on request or at least keeping silence intentionally at the act of the other party, or fault and other factors.262 (2) Pre-contractual Liability and the Liabilities for Restitution of Unjust Enrichment As two different bases of liability, there are also obvious differences between precontractual liability that regards damages as its basic liability form and liability to return unjust enrichment: firstly, the premises of the pre-contractual liability are the contractual relationship between the parties and a party breaching the pre-contractual liability, which reflects a variety of protection ideas (such as protecting the security of communication during the contracting process, the required and conferred trust, the economically-weak person or strengthening professional responsibilities). Therefore, it is necessary to examine the types of protected rights and interests or special relationships between the parties when determining liability. However, the liability to return unjust enrichment neither regards a specific type of rights and interests as necessary nor needs a special relationship between the parties (such as a fiduciary relationship), nor does it take Pflichtverletzung (breach of obligation) as the premise. Secondly, the pre-contractual liability aims at compensating the losses suffered by the contracting parties in the contracting process, and no loss means no compensation, while the liability to return unjust enrichment aims at rectifying the enrichment gained without a legitimate basis and no enrichment means no restitution of unjust enrichment. Of course, since the basis (damages or enrichment) for determining the content of the liability is different, the pre-contractual liability and the liability to return unjust enrichment will be overlapping in the range of regulation (this phenomenon is reflected as concurrence of liability in the application of the law). When damages are equal to enrichment, these two types of liabilities may have the same legal effect (when liability does not apply to the Mitverschulden, damages for 261

See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, pp. 309. See John Cartwright & Martijn Hesselink, ed., Some holds that the restitution may be regarded as contract implied by fact, so there is no difference in the effect of these two methods. See Paula Giliker, Precontractual Liability in English and French Law, Kluwer Law International, 2002, p. 166. 262 See Paula Giliker, ibid., p. 167.

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enrichment have the same effect as restitution of unjust enrichment). The difference between these two types of liabilities becomes apparent only when the enrichment is not equal to the amount of damages, especially if there are damages without enrichment and vice versa. In addition, although the claimant should bear the burden of proof on essentials of damages and essentials, in general, the proof of damages is easier than the proof of enrichment to be found. Thirdly, in principle, the constitution of the pre-contractual liability should be based on the fault of the responsible party, while the fault is not necessary for the liability to return unjust enrichment. Finally, the liability for damages of pre-contract applies to the rules of Mitverschulden, the contributory negligence of the aggrieved party reduces the compensation liability of the responsible party and even has the effect of exemption when the aggrieved party is intentional. In contrast, contributory negligence does not apply to the restitution of unjust enrichment. However, if the risk of payment is obvious, when the payer pays purely in pursuit of his own interests, the right of claim for restitution of unjust enrichment may also be exempted according to the ideas of risk sharing.263 This circumstance is common in the case of pre-performance or preparation for performance during the contract negotiation process, and its effect is similar to the doctrine of contributory negligence of damages. In general, whether the conflict of interests involved in the contract is corrected from the perspective of the damages or the benefits (such as interest on funds) will have significantly different effects. As these two types of liabilities are overlapped rather than superimposed on the object of regulation, Article 58 of Chinese Contract Law stipulates both the liability to return unjust enrichment and the liability for damages considering the consequences of the invalidity of the contract, which reflects the cooperative relationship between the two types of liabilities in terms of systematic function. In fact, this relationship exists not only when the contract is invalid but also when the contract is not concluded.

4.4 Summary For the conflict of interests in the pre-contractual stage, the liability for breach of contract, the tort liability, and the liability to return unjust enrichment, etc., can play their respective regulation function when they meet their constituent elements. However, they cannot exclusively complete the legal regulation in the pre-contractual stage, which has been proven by the differences through the comparison between the pre-contractual liability and other types of liability. Moreover, the consequences regulated by different types of liability also differ. Here is an example: It is assumed that the parties started negotiation on the first day, and each party showed real intentions to contract. On the 20th day, although the parties agreed on the basic terms of the contract, party A lost interest in the transaction, but he did not

263

Ibid., pp. 100–101.

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express it and continued negotiation. The negotiation was interrupted on the 30th day. Party B suffered some losses.264 Since party A made a specific promise on the 10th day and later violated the promise due to the interruption of the negotiation, regardless of the binding force of the promise made by a party, the judge can determine his liability for breach of contract by confirming the “contract” between the parties (preliminary agreement). Party A should compensate party B for the reliance loss suffered from the 10th to the 30th day or the loss of expectation interests based on the promise. For example, if party A requires party B to start preparations for contract performance in advance and promises to pay the corresponding remuneration according to the actual situation regardless of whether the ultimate contract is concluded. When Party B acts upon request, Party A should pay the corresponding remuneration according to the promise. In addition, since party A has no intention to conclude a contract on the 20th day, he should inform party B of his intention. The act of continuing negotiation without the intention of contracting constitutes negligence in the Tort Law. Therefore, party A should bear the compensation liability of party B’s subsequent losses due to expenses (equivalent to the contract costs incurred from the 20th to the 30th day). Furthermore, since the parties have formed a fiduciary relationship due to contracting contact, if Party A interrupts the contract negotiation without cause and leads to losses to Party B, it should also be responsible for the negligence in contracting and should be liable for compensation for the contracting expenses incurred by Party B from the first day to the 30th day.265 In addition to the reliance loss, from the perspective of comparative law, if the parties have formed an agreed content that contains the basic clauses of the ultimate contract, Party A’s act of interrupting the contract negotiation without cause may even produce the compensation liability for loss of chance that is equivalent to the executory interests under the ultimate contract.266 From the above example, promises, continuing negotiations contrary to good faith, and breaking off the contract negotiations without cause are the factual basis for determining relevant responsibilities. Expenditure on contracting costs, waiver of other trading opportunities or frustration of reliance, etc., are the damages that need relief. If a contracting party guilty of misfeasance has gained improper interest, the deprivation of improper interest is also a legal issue that needs to be resolved. Different types of liability are premised on different normative facts, and the damage they can relieve may also differ. Therefore, the legal regulation in the pre-contractual stage can only be completed with different types of liability. It is not only to form 264

E. Allan Farnsworth, Pre-contractual Liability and Preliminary Agreements: Failed Dealing and Failed Negotiations, pp. 224–225. 265 Since it is not enough to form a fiduciary relationship by contracting contact or starting contract negotiation, precisely speaking, Party A’s reliance damages liability should start from the time when both parties have formed a fully protected fiduciary relationship, that is, at a certain point later than the first day. However, such a precise distinction is not always possible because of the difficulties of proof, and in practice the formation of reliance and the loss of unjustified interruption are usually extended to the whole negotiation stage, unless the responsible party can prove that an expenditure of the claimant is obviously not an expenditure incurred on the basis of reasonable reliance. 266 See Sect. 3 of this chapter, “3.2 (1) b, Expectation Interests”.

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concurrence relationships of multiple types of liability, but also to form aggregation relationships, or both of them in the application of the law. Due to the possibility of aggregation of liability, the shortcomings faced by the single regulation model can be solved in two different ways: one is to expand the existing types of liabilities to cover the issues that they did notregulate initially, or to supplement regulations with other types of liability with extending the principle of contracted liability to pre-contractual liability, or to extend the identification criteria of unlawfulness for tort liability, which is solved in this way. The second is to replace the regulation of the existing type of liability with a new one. For example, in addition to contracted liability and tort liability, establishing a “third” type of liability (whether it is called culpa in contrahendo or Vertrauenshaftung or responsibilities for protection) reflects this solution. From the experience of comparative law, even if the legislation of general pre-contractual liability is established, it does not mean that the exclusive regulation of the pre-contractual stage must be achieved with a single type of liability. From the perspective of the civil liability system, there is no way to determine the pros and cons between the regulations of the three liability types (liability for breach of contract, tortious liabilityand liability to return unjust enrichment) compared to the regulations of the four liability types (liability for breach of contract, tort liability, liability to return unjust enrichment and contractual liabilities or Vertrauenshaftung). The composition of the civil liability system depends not only on the specific structure of the specific legal system for each type of liability, but also on the policy orientations of jus singulare behind different legal configurations. Although the differences in the specific constituent elements and relief effects of the pre-contractual liability in different legal systems may be smaller than expected, it is premature to assume that they have the same effect essentially.267

5 Summary of the Chapter The pre-contractual liability is that the contracting parties should bear for damages caused by the breach of obligations during contract negotiation or preparation for negotiation. The introduction of the pre-contractual liability divides the relationship between a potential person in charge and the aggrieved party into at least three types: the first type is a “negative legal relationship” that occurs purely based on rights allocation. The parties both bear a general duty of care to respect other people’s rights and interests without infringement, and damage caused by the breach of these obligations falls into the ex officio regulation area of tort law; the second type is a special relationship that occurs for the conclusion of an ultimate contract. If a party bears the expenditure of the contract in vain or the loss of giving up other contracting opportunities because of the failure of concluding the ultimate contract or suffers other economic loss due to the conclusion of a contract with unfavorable 267

See John Cartwright & Martijn Hesselink, ed., Pre-contractual Liability in European Private Law, pp. 309.

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content. At this time, whether another party has an obligation to avoid such damage and the act of breaching such obligation will affect the distribution of the aforementioned damages; the third type is the contractual relationship formed based on the effective conclusion of the ultimate contract. The obligor should bear the obligation to pay to promote the realization of expectation interests of the other party, or the protective duty268 to protect the security of inherent rights and interests of the other party in accordance with the purpose of the contract. The damage caused by the breach of these obligations belongs to the ex officio regulation area of contract law. It is easy to find that the attribution of liabilities arising from the first and third types of relationships is clear, while due to the composition of the existing liability system of empirical law, the liability arising from the second relationship may be vaguely normative. For example, in order to lease business occupancy, company A negotiates with company B about the lease contract, and company B changes the building structure for company A on request. However, the lease contract doesn’t be concluded, and company A rents another business occupancy.269 Although company B changes the house at the request of company A, it can only show that it is rational for company B to trust the conclusion of the contract. However, the trust does not mean that company A must fulfill its contractual obligations. It is not impossible or not difficult to determine that there is a temporary contract between the parties only based on an agreement (an agreement that is independent of the lease contract) about the reconstruction of the building. After all, this kind of structure should serve as compensation for the costs of rebuilding and restoration, and completion of the contents will add obvious legal fiction to the contract. The answers to some questions are even more difficult to predict, such as whether the reimbursement obligation will differ because of the conclusion of the ultimate lease contract, whether the reconstruction will produce the necessary profits for company A, etc. If company B also seeks damages other than reconstruction, such as giving up the opportunity to enter into other lease contracts, the contract structure will be insufficient. In addition, since the act of inducing reliance has been permitted by law, it cannot be deemed as illegal that necessary reconstruction requested by party A unless existing evidence shows that company A has intentional or negligent harm. In this way, the reliance loss caused by company A’s interruption of negotiation could not be relieved in accordance with tort law. Based on such a dilemma, it is questionable that the liabilities arising from the pre-contractual stage should be exclusively classified as contract or type of infringement. The institutional configuration of pre-contractual liability always faces two problems: the determination of pre-contractual obligations and the determination of content of legal relieves. As for the determination of pre-contractual obligations, although most legal systems specially emphasize the special relationship between the parties, there are 268

Further detailed discussion of this issue please refer to Chapter IV “Protective duty in the Stage of Performance of Contract”. 269 Reinhard Zimmermann & Simon Whitaker, eds., Good Faith in European Contract Law, Ding Guangyu, Yang Cairan & Ye Guifeng Trans, Law Press China, 2005, p. 164.

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different ways to apply this relationship. On the one hand, this relationship may be regarded as a protected object, that is, as long as the parties have reasonable reliance due to contact, the relationship will become a protected relationship, and the parties’ reliance on input or the expectation of concluding an ultimate contract will evolve into protected interests. The party must compensate for this loss of interest if his subsequent misfeasance frustrates the reliance or expectation. The “protected special relationship” is bound by the contracting parties before the ultimate contract is concluded, which clearly conflicts with the principle of freedom of contract that plays a normative role at this stage.270 According to the principle of freedom of contract, the parties should have negotiated at their own risk (or loss) during the contracting stage. Due to such conflicts, different legal systems are divided on whether to recognize good faith and fair dealing in negotiations. On the other hand, special relationships during the contracting stage may be taken into consideration in determining or strengthening the obligations of the contracting party. If we only focus on the basis of reliance of the pre-contractual obligations, it is difficult to form an effective distinction between the pre-contractual obligations and the general duty of care of tort law, whether in terms of the risk of damages or the strengthening of the duty of care. If the pre-contractual obligations are pushed back to the stage of forming the “protected special relationship,” the pre-contractual obligations will have some family resemblance to the obligation of performance of contract, which creates a protected benefit for the counterparty that he does not enjoy before! This is the case for certain pre-contractual liabilities, such as interruption of negotiations without cause or reason, or refusing to assist in the establishment of contract or formalities (such as entering into a written contract or applying for approval or registration) without cause or reason: if the pre-contracting act is not recognized as having the function of creating a protected interest, the subsequent interruption of negotiations or refusal to assist cannot constitute the basis of liability (or fault). It will inevitably fall into the paradox of “reverse attribution” if we acknowledge the establishment of the pre-contractual liability at this stage but deny that the “special relationship” has the effect of creating protected interests: the responsible damage is not caused by the attributable act, but caused by the legal act of exercising the freedom of contract! Unless denying pre-contractual liability can occur in the above circumstances (there are different approaches to judging whether the interruption of negotiations without cause or reason leads to liability), the only way to resolve the paradox is to recognize that the “special relationship” formed during the contracting stage has the effect of

270

Scholars have pointed out that the meaning of “special relationship” is not only to describe the special obligation relationship between specific subjects, but also to mean that it can create this special obligation, and in the latter sense, a relationship can really be regarded as a “special relationship”. This relationship should have some valuable element, which cannot be reduced to the special responsibilities it already contains. See Dori Kimel, From Promise to Contract: Towards a Libeal Theory of Contract, Oxford and Portland, Oregon, 2003, pp. 66–68. This shows that the creation of a special relationship means that the parties enter into a protected state from an unprotected state through the creation of pre-contractual obligations. It is in this sense that we give them the effect of creating protected interests.

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creating protected interests. Therefore, pre-contractual liability is undoubtedly closer to the contract in terms of system structure! However, it is improper to exaggerate the aforementioned approximation indefinitely. Because at the pre-contractual stage, there may be circumstances in which “protected special relationships” may not be required to create the interests which the pre-contractual liability regime is intended to relieve. In the cases of malicious negotiations or continuing negotiations contrary to good faith, fraud, coercion or misrepresentation, fault, etc., the losses suffered by the contracting party are equal to the rights and interests attributed to the aggrieved party according to legal order. The peculiarity of the pre-contractual liability lies only in that the misfeasance of one contracting party induces or directly causes damages to the aforementioned rights and interests. For the pre-contractual liability produced under these circumstances, not recognizing that the “special relationship” at the contracting stage has the effect of creating protected interests will not raise the issue of “reverse attribution” in the constitutive requirements. In this sense, the pre-contractual liability is undoubtedly closer to the infringement in terms of institutional structure! Therefore, pre-contractual liability is undoubtedly closer to tort law in terms of system structure! As far as the content of legal relief of pre-contractual liability is concerned, even if only as far as l compensation liability is concerned, we can find that the commonly used concept of “trust interest” and “expected interest” is opposite, which is of no sense to the analysis. In addition to the aforementioned “special relationship” between contracting parties having the effect of creating protected interests, the recognition of “loss of chance” also greatly blurs the boundaries of the aforementioned conceptual distinction. In some legal systems, it is explicitly recognized that the breach of pre-contractual obligations will also lead to damages of “expectation interests”, which makes the assertion that the pre-contractual liability was limited to compensation of “reliance interest” completely invalid! When the content of compensation is limited to the loss of inherent benefit (whether it is a pure economic loss or a loss of Integritätsinteresse), the pre-contractual liability is closer to the tort liability; the precontractual liability is closer to liquidated damages when it regards “loss of chance” or even “expectation interests” as its compensation content. If the liability form of the pre-contractual liability is liberalized to include dealing with the parties’ breach of pre-contractual obligations (such as refusal to cooperate to complete the formal requirements of the establishment or effectiveness of the contract) by preparing effective elements for the contract, the contract can even be considered as relieves for breach of pre-contractual obligations! It is difficult to make a reasonable and comprehensive explanation of the different types of pre-contractual liability, whether the pre-contractual liability is classified as contractual liability or tort liability, or even other liability. From this point of view, although classifying the “pre-contractual stage” as an regulation stage that needs special treatment in law can meet the requirements for clarity of normative objective, the pre-contractual liability may be closer to the imputation of contract or imputation of infringement according to its different types of imputation, which does not belong to a single liability. As a complex hybrid, it is difficult to find other common grounds for various types of pre-contract liability, except all of them occur

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in the pre-contractual stage. Put forward by professor Canaris and based on reliance, the “third road” cannot be an effective or even the only effective way to resolve pre-contractual liability. In fact, when the legal system has established a substantive solution, the significance of how to theorize (including categorizing) it has been greatly weakened. For the pre-contractual liability, it is important to avoid the danger of over-regulation that runs counter to the business community’s expectations when balancing basic legal values, such as contract freedom, risk distribution, fairness and justice, etc.271

271

See Paula Giliker, Precontractual Liability in English and French Law, Kluwer Law International, 2002, p. 181.

Chapter 4

Legal Regulation in the Overlapping Field at the Stage of Performance of Contract

The contract performance stage refers to the stage from the effective establishment of the contract to the extermination of the contract in the dynamic contractual relationship. Compared with the intermediate domain of the pre-contractual stage, the intermediate domain of the contract performance stage has more important significance for the discussion of the whole topic of the legal regulations in the intermediate domain of contract law and tort law. The contract has not yet been concluded in the pre-contractual stage in which the damages have no direct relationship with the original purpose of the contract law. Such social relationship regulated by the contract law has shown obvious characteristics of the expansion of contract law. On the contrary, the intermediate domain in the contract performance stage may not only arise from the expansion of the contract’s protective efficacy, such as recognizing the expansion to a third party of Protective duty or validity of the contract that is not related to the performance but also arises from the functional overlapping of protecting the inherent interests of contract and tort law. Therefore, mere normative characterization is not sufficient to solve such problems. The function of the protective duty of the contract in positive law is mainly to expand the scope of protection to inherent interests of contract law, which usually but not necessarily leads to concurrence between contractual liability and tort liability. From the perspective of comparative law, in all European countries, when a party’s acts harm the inherent rights or interests of the other party, it will lead to exclusive contractual liability in most cases, because “When entering into a contract, the parties have generally considered the liabilities they have to bear in the contract, not only the duty of care, but also a strict warranty obligation of results, and they are liable for any damage caused to the other party’s vested interests.”1 It shows that the relationship between the parties to the contract imposes a strengthened duty of care on the other party in protecting the inherent interests of a party. Therefore, the first topic of the intermediate domain in the contract performance stage that needs to be discussed should be the contractual obligations to protect; Next, as the most central issue between contract and tort law, 1

See De von Barr, Gemeineuropäisches Deliktsrecht (Vol. I), p. 545.

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the concurrence between the liability for breach of contract and tortious liability will be discussed in detail. It is not only because of the fact that the concurrence is usually at the center of the topic in the relationship between contract law and tort law, but also because the concurrence of liability provides a basis for reflection on the expansion of contract law and tort law (especially the contract law), and provides an opportunity to rethink the legal sense of contract and tort law as opposing standard bodies. Section 3 will specifically explore the issue of the third party in the performance of the contract. At first, we will discuss the protection of the third party’s interests outside the contract by the contract law whose basic feature is the breakthrough in the relative effectiveness of the contract. Then we will discuss the infringement of the contractual obligee’s right by the third party whose basic feature is the strengthening of the protection of the contractual obligee’s right by tort law. If the protective duty in the contract reflects that the protected object of tort law “is included in” the contract law, the issues discussed in the latter two sections reflect the complementary relationship between the two standards.

1 The Protective Duties at the Stage of Performance of Contract The basic function of the protective duty of the contract is to ensure the inherent interests or original interests of the parties to the contract, which naturally has the feature of the intermediate domain. Although protective duty of the contract is a concept in the contract theory of civil law, the legal issues reflected by it also exist in the common law. When dealing with such obligation in Chinese legal theory and practice, it is more based on the approach of civil law, especially German law, therefore, the discussion will mainly refer to the contract theory of civil law, and the theory of contract law in the common law will be involved when discussing the general limits of related issues.

1.1 Connotation and Types of Protective Duty in Contract The protective duty of the contract refers to the obligation that a party should be liable for taking care of or protecting the right to life, body, health and freedom, ownership or other inherent rights and interests of the other party.2 There is basically no dispute about its definition in theory. However, there are doubts about the relationship between the protective duty and the Neben(leistung)pflicht, and the determination of the attribution, type or scope of the protective duty.

2

Vgl. Jacob Joussen, Schuldrecht I: Allgemeiner Teil, W. Kohlhammer GmbH Stuggart, 2008, S. 245; Jörn Eckert, Schuldrecht: Aiigemieiner Teil (4 Aufl.), Baden-Baden, 2005, S. 177.

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(1) Connotation of Protective Duty of the Contract The definition of Protective duty depends on the determination of the opposing types of obligation. According to the current theory in China, there are two opposing obligations in the contractual relation, that is, the Leistungpflicht and the Neben(leistung)pflicht. The Leistungpflicht refers to the obligation for a specific Leistungsverhalten or the realization of a specific Leistungserfolge according to the contract, which can be divided into Hauptleistungspflicht and Nebenleistungspflicht.3 Hauptleistungspflicht refers to “the basic obligation (element of Schuldverhaltnis) that is inherent, necessary and used to determine the type of Schuldverhaltnis (especially the agreement).” In contrast, Nebenleistungspflicht is the obligation that supplements Hauptleistungspflicht and ensures the maximization of the interests of the obligee.4 On the contrary, Neben(leistung)pflicht refers to the obligation that guarantees the greatest satisfaction of the obligee’s performance interests or protects the personal rights and property interests of the parties.5 It is easy to find that under this classification structure, there is an opposite relationship between the Hauptleistungspflicht and the Nebenleistungspflicht or the Neben(leistung)pflicht. As the latter two obligations can exist in any type of Schuldverhaltnis which cannot be determined by them; The Leistungpflicht is opposite to the Neben(leistung)pflicht in terms of whether the right to defense and the impossibility of performance can be formed at the same time. Since the Neben(leistung)pflicht usually cannot be performed compulsory (which is controversial), and there is neither issue of performance of the right to defense nor the issue of impossibility of performance. However, since the Neben(leistung)pflicht shares the protective function to the parties’ inherent interests with the Hauptleistungspflicht and the function of assisting the realization of the performance purpose with the Nebenleistungspflicht, they will be overlapped under specific circumstances. Another standard is put forward in order to solve the issues arising from such overlapping: in terms of protection of the inherent interests, the Hauptleistungspflicht is determined at the beginning, while the Neben(leistung)pflicht is randomly generated along with the Schuldverhaltnis; in terms of assisting the realization of the purpose of the Schuldverhaltnis, the Nebenleistungspflicht can make a claim for performance, but the Neben(leistung)pflicht cannot be claimed.6 We will find that the further standards still cannot make a clear definition. In fact, there are always discussions about the classification of the obligation of Schuldverhaltnis (or contract), and no consensus can be reached in Germany and Japan as well as in China.7 3 See Wang Zejian, Civil Law Researches: Principles of Obligation Law, Peking University Press, 2009, pp. 28–29, Cui Jianyuan, General Theory of Contract Law, p. 198. 4 See Wang Zejian, Civil Law Researches: Principles of Obligation Law, pp. 28–29. 5 Ibid., p. 32. 6 See ibid., pp. 31–32. 7 For a detailed introduction of various viewpoints on the definition of collateral obligation, please refer to Hou Guoyue, Research on Collateral Obligation of Contract, Law Press, 2007, p. 32 below; Li Hao, The Construction of Collateral Obligations in the New German Debt Law, Global

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The purpose of classification determines the standards of classification, and the standards vary with different purposes. For contractual obligations, if the standard is the relationship between relevant obligations and types of contracts, it can be classified as the Leistungpflicht and the Leistungpflicht because only the Hauptleistungspflicht (factor of debt) can determine the types of contract. If the standard is the basic purpose and function of relevant obligations, it can be classified as the Leistungpflicht and the protective duty, that is, the function of Leistungpflicht is to realize the expectation interests created by the contract, and the purpose of Protective duty is to maintain inherent interests. The first classification is of significance in the classification regulation of the Schuldverhaltnis (such as the set of rules for nominating contracts in the special provision of contract law). The second classification is of significance in the uniform regulation of legal relieves of the Schuldverhaltnis. As far as the relationship between contract law and tort law is concerned, since various types of contractual relations are treated as a whole, and the intermediate domain is formed in the domain of legal relieves (the two laws share the protective function), so the classification of the Leistungpflicht and the protective duty is more in line with the purpose of our research. Based on this, the protective duty and narrow Neben(leistung)pflicht (excluding maximized Neben(leistung)pflicht that realized from the assistance of the performance interest, i.e., Nebenpflicht) mentioned in this book are synonymous, which both refer to the obligation that occurs along with obligation relationship, to protect the inherent interests, such as personal right or property right of the other party. a. Protective duty of the contract aims at protecting the Integritätsinteresse. The purpose of the protective duty is to protect the inherent interests or Integritätsinteresse of the parties to the contract. In the development of the contractual relationship, the parties contact each other and form a Sonderverbingdung. A party will open its own field of rights to the other party so that its inherent rights and interests are at risk of being damaged by the other party’s acts. Therefore, the other party should be liable for protecting the inherent rights and interests of the opposing party from damage. As aforementioned, the primary function of contract law is to create rights and interests, and the protection of rights and interests is a secondary function, while the only target of tort law is the protection of rights and interests. Under this functional distinction, the protection of inherent interests first belongs to the task of tort law. However, since the tort law does not consider the relationship between the parties before the occurrence of damages or regards the stranger relationship by accidental contact as a relational model of the general duty of care of the tort law, which is different from the contractual relationship that based on the Sonderverbingdung. Among strangers, in addition to the institutional protection provided by law, rational parties will take the necessary self-protection measures. The most direct way is to refuse to open its own field of rights and make it difficult for others who are not allowed to enter the field to cause damage. On the contrary, among the parties Law Review, No.5, 2009, p. 114; Ye Yuping, Research on Schutzpflicht in Contract, Law Press, 2010, pp. 10–14.

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that have formed Sonderverbingdung, whether it is a voluntary opening based on reliance, or the necessary (or obligatory) opening for mutual cooperation to achieve the purpose of performance, the parties will not or cannot refuse the opposing party to enter its own field of rights like strangers. Due to the opening of the field of rights, a party is more vulnerable to damage by the other party. In this way, the normative balance structure constructed by the tort law based on the relational model between strangers is broken. In order to regain the balance, it is necessary to strengthen the protected status of the party in opening the field of rights. Such reinforcement can be accomplished either in tort law or in the general law of debt obligations (or contract law). Under the inherent normative structure of tort law, using the debt obligation through the common law, especially the protective function of contracts, can successfully protect the interests of the parties through the application of law rather than the amendment of the law. Judging from the history of the judicial theory of Protective duty in various countries, the role played by common law is extremely obvious.8 The inherent interests protected by the protective duty are not only limited to rights such as the right to life, body, health and ownership, etc. but also include purely economic interests or even mental interests that do not depend on any rights, which have been clearly stipulated in the German Civil Code. Article 241, Paragraph 2, of the German Civil Code stipulates: “The debt relationship can make either party have an obligation to take into account the rights, legal interests and interests of the other party according to its content.” Taking “interests” as the object of consideration shows that the object of the protective duty includes all interests protected by law. According to the provisions of Article 60, Paragraph 2, of Chinese Contract Law, it only lists the forms of obligations such as “notification, assistance and confidentiality”, but does not stipulate the objects protected by these obligations. In interpretation, it should refer to all interests protected by law. In fact, it is also handled in this way in Chinese judicial practice. In Yang Yanhui v. China Southern Airlines, Shanghai Minhui Aviation Service Co., Ltd. (Case of a dispute over a contract for passenger carriage),9 the defendant, China Southern Airlines, did not clearly indicate the airport name in common used Chinese on its sold tickets, which caused the plaintiff Yang Yanhui to fail to take the agreed plane at the appointed time because of the misunderstanding of the special code. The court held that it was the carrier’s collateral obligation to clearly inform passengers of transportation matters in the passenger carriage contract. The defendant failed to make an explanation that was sufficient for the passengers to understand, which belongs to improper performance of duty, so the defendant was judged to bear the increased expenditure of the plaintiff. Obviously, the increased expenditure is not dependent on any infringement of rights, so it is purely economic loss. The defendant should be liable for damages for failing to properly perform the obligation of informing or explaining.

8 9

See Ye Yingping, Study on the Obligation to Protect in Contracts, p. 20. Gazette of the Supreme People’s Court, No.5, 2003.

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b. Protective duty depends on the legal obligation (or contract), while it is not based on the performance obligation. Although the protective duty aims to protect the Integritätsinteresse, not all inherent interests are naturally the protected objects of the protective duty. Only when one party must protect the other party according to the specific circumstances of the legal obligation, arises the protective duty. Moreover, “the scope and strength of protective duty vary with the degree of influence on the legal obligation over time and the degree of necessity of the cooperation for the parties to the legal obligation. The stronger the reliance elements of special combined relationship in law, the more likely the protective duty will exist”.10 In this circumstance, the damages caused by the breach of obligation are manifested as a typical consequence of the inherent risk of damage in the contractual relation.11 If the involved interests and rights of a party are not related to the legal obligation (contract), they are not within the scope of protection. Not emphasizing the correlation between the damages and the legal obligation may improperly expand the scope of protection of the contract, which imposes excessive liability on the parties to the contract. The protective duty depends on the legal obligation (or contract), while it is not based on performance obligation which depends on contractual relation. The protective duty may exist independently of the obligation to perform or it may exist with the obligation to perform.12 This can be explained from two aspects. Firstly, if the purpose of the contract is not to protect Integritätsinteresse of the parties, the distinction between expectation interests and Integritätsinteresse is clear, and the occurrence and existence of protective duty are not related to the performance obligation. In this sense, the protective duty belongs to “an obligation not related to performance” or “a collateral obligation far away from the performance.”13 Secondly, if the purpose per the contract is to maintain the Integritätsinteresse, or the breach of the performance obligation will inevitably lead to damage of the defect (such as a medical service contract), performance obligation, and protective duty have the same object. In this case, it is difficult to clearly distinguish the contract protective duty and the performance obligation. Even in this case, protective duty and performance obligation can co-exist accidentally, and the former cannot be considered dependent on the latter. Identifying that the protective duty is independent of the performance obligation is beneficial to clarifying different legal effects that arise from different protection objects of the protective duty and the performance obligation (that is, the 10

Chen Ziqiang, Lectures on Civil Law II: Contents and Extinction of Contracts, Law Press China, 2004. 11 Vgl. Niklaus Lüchinger, Schadenersatz im Vertragsrecht, Universitätsverlag Freiburg Schweiz, 1999, S. 151. 12 Chi Ying, Original Source of Obligations in Contract Law: Taking Schutzpflichts in German Law as Reference, in Politics and Law Vol. 7, 2011, p. 131. 13 Li Hao, An Analysis of Subordinated Duty in the New Law of Obligations in Germany, in Global Law Review Vol. 5, p 114.

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obligee claims damages for Integritätsinteresse in accordance with the protective duty, which does not hinder it from simultaneously exercising the claim for performance or substituting the claim right for damages of performance in accordance with the performance obligation). Before the effective conclusion of a contract or in the contact relation on other similar transactions (“legal obligation of performance obligations without cause”), due to the lack of performance obligation, emphasizing the independent significance of protective duties is particularly important for the determination of protective duty.14 c. Protective duty is based on the principle of good faith and does not differ whether there are legal provisions or agreements. In theory, it is generally believed that the protective duty is based on the principle of good faith.15 On the one hand, the protective duty is formed and developed through judicial precedents based on the principle of good faith. Therefore, the principle of good faith is the basis for the establishment of protective duty in judicial precedents when it is not clearly recognized by law. On the other hand, as a fiduciary relationship, the legal obligation (contract) per se requires the parties to cooperate with each other and mutully take care of their interests. Even if the protective duty is legalized or becomes the content of the contract through agreement, it cannot affect the position of the principle of good faith as a due basis for such obligations.16 In this circumstance, as the guidance prescribed by law or the code of conduct agreed by the parties, the principle of good faith provides a basis for the protective duty. We should notice that people have formed a stable understanding of the relevant theories of protective duty, and it is common to incorporate them into the law to be legalized. The examples of legalization of protective duty can be seen in Article 241, Paragraph 2 of the German Civil Code, Article 1135 of the French Civil Code, Article 227 of the Civil Code of Taiwan and Article 60, Paragraph 2 of Chinese Contract Law. However, these general legal provisions on the protective duty have only guiding characteristics and cannot be used as a basis for determining specific protective duty. Because the protective duty in the contract usually accompanies the development of contractual relations, it requires the parties to act or omit17 according to specific circumstances. The existence and strength of the protective duty may be different in different contractual relations and at different stages of the development of contractual relations. Therefore, the proper opinion is that the basis of the protective duty is not the general legal provisions but the relevant debt obligation per se.18 The difference is that the law often sets clear provisions of protection for specific 14

Chen Ziqiang, Lectures on Civil Law II: Contents and Extinction of Contracts, Law Press China, pp. 80–81. 15 See Hou Guoyue, A Study of the Obligations Attached to Contracts, pp. 168 ff. See Ye Yingping, Study on the Obligation to Protect in Contracts, pp. 14–15. 16 Ibid., p. 171. 17 Karl Larenz, Lehrbuch des Schuldrechts (Bd. 1, 13 Aufl.), München, 1982, S. 11. 18 Stephan Lorenz & Thomas Riehm, Lehrbuch zum neuen Schuldrecht, Verlag C.H. Beck, München, 2002, S. 177; Harm Peter Westermann, Peter Bydlinski, & Ralph Weber, BGBSchuldrecht: Allgemeiner Teil, C.F. Müller Verlag, Heidelberg, 2007, S. 36.

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types of contracts, which can be seen in the specific debt relationship, especially the provisions on typical contracts, such as lease, transportation, and custody contracts.19 Different from the general provisions, this specific provision is definite because it is set for specific contract types. It can not only provide judgment instructions but also provide guidance for the specific acts of the parties to the contractual relationship, so it should be regarded as the basis for the occurrence of the protective duty. In addition, in the debt relationship, the parties can also set mutual protective duties by agreement in advance. For example, during the contracting process, the parties may clarify the duty of confidentiality by agreement. In this case, the basis of the protective duty is no longer a legal provision but an agreement between the parties. This shows that the protective duty can be derived from both specific provisions of the law and the agreement of the parties (protection is also the subject matter20 of performance in this case), and they can exist in both contractual relations or other debt relationships. Whether it is a contractual relation or a statutory debt relationship, the debt relationship has no effect on the occurrence basis of the protective duty.21 At the same time, with specific legal provisions and agreements between the parties, the protective duty has been combined with specific legal obligation and thus is determined. Since such determination does not change the effect of such an obligation 19

For example, Article 179 of the Contract Law, “The Power Supplier’s Obligation to Supply Power Safely”, Article 180 “Notice obligation of power supplier to interrupt power supply”, Article 183 “Obligation of Electricity Users to Use Electricity Safely”, Article 191, Paragraph 2, “Donor’s obligation to guarantee defects”, Article 219 “The lessee’s obligation to properly use the leased property”, Article 222 “The lessee’s obligation to keep the leased property”, Article 233 [Lessor’s obligation to guarantee defects in leased property], Article 247 “The lessee of a financial lease contract shall properly keep the leased property, Use and maintenance obligations”, Article 266 “Obligation of confidentiality of the hirer”, Article 282 “Contractor’s Quality Assurance Responsibility”, Article 290 “Carrier’s obligation to transport safely”, Article 298 “Carrier’s obligation to inform important matters”, Article 301 “Carrier’s obligation to rescue passengers”, Article 302 “Carrier’s obligation to protect passengers from personal injury or death during transportation”, Article 307 “Shipper’s obligation to package and mark dangerous goods”, Article 350 “Confidentiality obligation of transferee of technology transfer contract”, Article 370 “Depositor’s obligation to inform”, Article 374 “Custodian’s liability for damage or loss of custody” and Article 389 “Custodian’s obligation to notify”, etc. 20 Peter Schlechtriem & Martin Schmidt-Kessel, Schuldrecht allgemeiner Teil (Sechste, neubearbeitete Aufl.), 2005, Mohr Siebeck, S. 91. 21 Although the difference between the Schutzpflicht (protective duty) in the contracting stage and that in the contract has been noticed in German theory, it is still considered that they are consistent in essence. Some scholars have summarized this consistency as following: First, these two kinds of Schutzpflichts have the same purpose, that is, to protect the relevant rights, legal interests and interests of the parties to the contract or contracting parties; Second, the generation of the Schutzpflicht is based on a specific contract or agreement related to the contract; Third, these two kinds of obligations arise at different times (one before and one after conclusion), but they are consistent in content; Fourth, in the legal consequences of damage to the obligation, the compensation for performance interests is usually not involved, and the core is the compensation for damage to Vertrauensinteresse (negative interests). Frost, „Vorvertragliche” und „vertragliche” Schutzpflichten, Duncker & Humblot 1981, SS. 204 ff. Quoted from Xu Defeng, Contracts and Trust Responsibilities with Protective Effect on the Parties, in Yi Jiming’s Editor-in-Chief, Private Law (Vols. 2 and 4), Peking University Press, 2004, p. 281.

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that protects the Integritätsinteresse of the parties, it still belongs to the protective duty. The view22 that uncertainty is an inherent attribute of protective duty and all determined contractual obligations are not protective duties are not appropriate. In the case of Gazette of the Supreme People’s Court, Wang Liyi, Zhang Lixia v Shanghai Galaxy Hotel (case of dispute over the compensation23 ), the victims were killed by the criminals while staying in the defendant Shanghai Galaxy Hotel. With reference to Article 60, Paragraph 2 of the Contract Law, the court held that the parties shall observe the collateral obligation of the contract which avoids infringement on the personal and property rights of the guests in accordance with the attribution and aims of the contract and trade practices. Once the accommodation contract is concluded, no matter whether the hotel issues verbal or written safety guarantees or promises to the guests, the collateral obligation of the contract will be established and exist objectively. In this case, the defendant Shanghai Galaxy Hotel promised a “24-hour security patrol to ensure your personal safety” to the guests, which means it voluntarily transformed the collateral obligation into the primary obligation of the contract. And the defendant shall perform his obligation with due diligence. The court first carried out specific operations in accordance with relevant provisions of the contract law, confirming that the defendant Shanghai Galaxy Hotel shall bear the collateral obligation (protective duty) and protect the safety of guests, which can be recognized. However, the court regards the security commitment of the defendant as a change in the attribute of the obligation, that is, transforming the collateral obligation into the so-called “primary obligation”, which is inappropriate. In theory, “primary obligation” is the brief expression for “primary performance obligation”. The primary performance obligation has the effect of determining the type of contract, while the duty of safety protection in the accommodation contract has no such effect. Therefore, it is inappropriate to interpret it as the main obligation of the contract. Importantly, the duty of safety protection involves the Integritätsinteresse (personal safety) of the parties, the commitment will not affect its status of protective duty. In this case, the grounds of decision regard the basis of the obligation (legal or agreed) as an element to determine the protective duty, and ignore the normative purpose of such obligation, which is inappropriate. d. Protective duty can be either obligation de üoyen or obligation de résultat. Some view that in order to achieve a balance between the obligor’s ability to protect others and self-responsibility, the protective duty has the attribution of obligation de üoyen should be emphasized.24 In other words, the law can only require the parties to bear the damage caused by the danger that is within control.25 Since the determination of the attribution of obligation involves the judgment standard of the determination of breach of the duty, which is of practical significance and worth special attention. 22

See He Lixin Ning Xinfa, On the Improper Expansion of Collateral Obligations of Contracts, Journal of Xinjiang University (Philosophy, Humanities and Social Sciences Edition), No.1, 2006, p. 47. 23 See Gazette of the Supreme People’s Court, No.2, 2001. 24 See Ye Yingping, Study on the Obligation to Protect in Contracts, p. 18. 25 Ibid.

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In French legal theory, contractual debt can be classified as the debt of method (obligation de üoyen) and debt of result (obligation de résultat). “Debt of result” means a debt that guarantees a certain result, and the party is presumed to be at fault and should assume the liability if such result has not been reached; “obligation de üoyen” refers to a debt that does not need to achieve a certain result, but needs to be performed with all necessary methods, means and skills.26 The similar classification can also be found in Article 5.1.4 of the “Principles of International Commercial Contracts” (PICC) (2010). The contractual obligations are classified as “duty to achieve a specific result” and “duty of best efforts”. The latter refers to “the party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances”.27 It can be seen that the duty of best efforts has the same meaning as the obligation de üoyen. When determining the type of obligation, the considerations cited by PICC include the way in which the obligation is expressed in the contract, the contract price and other terms of the contract, the degree of risk normally involved in achieving the expected result and the ability of the other party to influence the performance of the obligation.28 From the above factors, it can be seen that the explicit agreement in the contract should be considered at first when determining the attribution of obligation. Other factors will be taken into consideration only when the agreement is not explicit. For example, the higher the contract price, the stronger the obligation should be, and the greater the possibility of concluding the obligation de résultat; and it is the same as the effect of the amount of liquidated damages agreed upon for a specific obligation.29 Therefore, the determination of obligations is first of all a problem of interpretation, then a problem of balance of interests. When judging the balance of interests, not only the necessity of protection for the obligee (the degree of importance of the protected interests), and the matching relationship between the benefits and risks of the obligor (such as the contract price and the risk normally involved in achieving the expected result), but also the ability of the obligee to influence the performance of the obligation of the obligor should be considered. The greater the influence, the lower the obligor’s control over the result, and the easier the obligation is to be recognized as the duty of best efforts. Therefore, the attribution of obligation cannot be determined solely from the perspective of the obligor’s ability to bear. In fact, judging from the specific situation of judicial practice in French, the duty of safety protection is manifested as obligation de résultat in some cases. For example, in the contract for carriage of passengers, the carrier bears the obligation de résultat30 of “protecting passengers from harm during the carriage”. While such an obligation exists only in the process of performing the contract of carriage. In other words, it 26 See Yin Tian, French Modern Contract Law, Law Press, 1995, p. 304; French Civil Code, Law Press, 2005, p. 844. 27 See PICC (2010) Article 5.1. 4 (2). 28 See PICC (2010) Article 5.1. 4 (5). 29 See PICC (2010) Article 5.1.5 cmt.3. 30 See Yin Tian, Modern French Contract Law, p. 308.

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“only exists during the period since the passenger boards the vehicle until he gets off the vehicle”, and it is limited to the obligation of passengers who have entered into contracts.31 In addition, in games, sports, or speed skating, the operator is also liable for obligation de résultat32 for the damage that occurs during the process of “sports”; In the “dining contract”, the restaurant should also be liable for obligation de résultat of food safety to customers.33 For the organizers and operators of related sporting events and the operators of places that provide accommodation and reception (such as the operators of restaurants and tourist attractions, and the persons or institutions responsible for receiving and caring for children), they have only the obligation de üoyen of security.34 It shows that whether the duty of safety protection is an obligation de üoyen or an obligation de résultat should be determined in accordance with the relevant legal provisions and the specific types and contents of the parties’ contractual relations. The same conclusion can be seen in the provisions of current law and judicial practice in China. Article 301 of Contract Law stipulates that the carrier should spare no efforts to assist any passenger who has a medical emergency, is in labor or encounters dangers in the course of carriage. Paragraph 1, Article 302 stipulates that the carrier should be liable for damages in case of injury or death of the passenger in the course of carriage, except where such injury or death was attributable to the passenger’s own health or the carrier has proved that such injury or death was caused by the passenger’s intentional misconduct or gross negligence. The aforementioned provisions all involve the protection of passengers’ personal safety interests, so they should be regarded as statutory protective duty. Under the circumstances stipulated in Article 301, the “acute diseases, in labor or danger” of passengers are not caused by the carrier’s transportation (or are the matter beyond its control), so the carrier is only responsible for obligation de üoyen of “spare no efforts to rescue and help”. On the contrary, the injury or death of a passenger occurring in the course of carriage is directly related to the carrier’s transportation. Therefore, the carrier is responsible for obligation de résultat except for the statutory exemption grounds. In this regard, there are judicial cases. In the Appeal Case of Highway Passenger Transport Contract Dispute between Miduri Nakamura and Mass Transit (Group) Co., Ltd.,35 the plaintiff Nakamura Miduri took the taxi of the defendant Volkswagen Company, which encountered a traffic accident with the heavy dump truck driven by an outsider, and the plaintiff was injured in this accident. According to the Traffic Patrol Detachment of Changning Branch of Shanghai Public Security Bureau, neither the plaintiff nor the defendant committed misfeasance, and the outsider should bear full responsibility for the accident. The court held that the plaintiff took the defendant’s taxi and formed a relationship of passenger carriage contract. The plaintiff suffered the personal injury before 31

See French Civil Code (Part Two), Luo Jiezhen, pp. 854–855. See French Civil Code (Part Two), Luo Jiezhen, p. 855. 33 See Yin Tian, Modern French Contract Law, p. 308. 34 Ibid., p. 857. 35 Shanghai No.1 Intermediate People’s Court (2008) Hu Yi Zhong Min Yi (Min) Zhong Zi No.1828. 32

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he arrived at the destination, and the plaintiff has the right to require the defendant to be liable for breach of contract because of the defendant’s failure to perform the contractual obligations. In this case, the defendant was not negligent of the accident, so his responsibility to the plaintiff as a passenger can only arise from protective duty. Because such damage occurred in the transportation and was directly related to the transportation, the obligation of safe transportation should be obligation de résultat according to Article 302 of the Contract Law and the judgment of this case is in consistent with the legal provisions. Unlike the aforementioned case, in Li Lelin v Zhang Tingting (appeal of a dispute over the contract for highway passenger transport),36 the plaintiff Zhang Tingting took a public bus owned by the defendant Li Lelin. The driver of the bus parked at the intersection in violation of the regulations, and demanded some passengers, including the plaintiff to get off. As soon as the plaintiff got off the bus, a fuelpowered vehicle driven on the right side of the bus collided with the plaintiff and caused his injury. As determined by the Traffic Police Brigade of the Public Security Bureau, the defendant’s driver stopped at an intersection other than the bus stop and demanded the passengers to get off, which was one of the reasons for the accident. The driver of the bus and the fuel-powered vehicle should bear responsibility equally for the accident, and the plaintiff was not liable for the accident. The court held that there was transport contract between the parties, and the defendant should safely deliver the plaintiff to the destination according to the agreement. Although the accident occurred after the plaintiff got off the bus, it was one of the carrier’s contractual obligations to transport the passenger to the designated safe station. “However, the defendant parked at the intersection in violation of the regulations and demanded the passengers to get off, and failed to fully perform his obligations in accordance with the attribution and purpose of the passenger transport contract concluded with the appellee, which constituted a breach of contract. As a carrier professional in passenger transportation services, the defendant should carefully protect the passengers’ life and property safety, and choose appropriate locations and times to open and close doors. The defendant should also fully examine the unsafe factors in the surroundings, and remind passengers to pay attention to safety when getting on and off the bus to avoid accidents. While the appellant failed to perform the duty of care and opened the door of the bus at the dangerous intersection to let the appellee get off, he was at fault for the appellee’s injury and also violated the duty of safety protection of passengers”. In this case, the injury accident occurred after the plaintiff got off the vehicle, and the cause of injury was that the defendant stopped at the intersection in violation of the regulations and demanded the passengers to get off, thereby putting the plaintiff at a risky position rather than the transportation act per se. Therefore, the plaintiff violated the duty of care and should bear the obligation de üoyen in nature. Since Article 302 of the Contract Law stipulates injury or death of a passenger occurring “in the course of transportation,” which is not applicable to this case. The direct legal provisions adopted by this case should be Article 290 of the Contract Law which reads: The carrier shall safely carry the passenger or cargo to the 36

Qingdao Intermediate People’s Court (2010) Qing Min Zhong No.603.

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prescribed destination within the prescribed time a reasonable time. This article has the attribute of general specifications, and can be used as a guiding norm on safety obligation in transport contracts so that judges can determine the content and intensity of safety protective duty according to the specific contractual relationship. Therefore, it includes but goes beyond the normative scope of Article 302, and its effect extends to the whole process of transport contract but is not limited to it. The court of the first instance regarded Article 302 as the basis for determining the liabilities of the defendant and failed to notice the difference in the normative meaning between Article 302 and Article 290. Although the court of the second instance clearly held the argumentative idea of obligation de üoyen, it failed to identify the attribution of the obligation de résultat in Article 302, and it believes that the judgment of the first instance “correctly applying the law”. Now we find that the protective duty that protects the Integritätsinteresse may be either an obligation de résultat or an obligation de üoyen. The specific judgment should depend on legal provisions and the type and content of the contract. Moreover, the party to a contract may bear multiple protective duties, among which some are obligations de résultat and others are obligations de üoyen. e. There is no substantial difference between protective duty and performance obligation in terms of claiming performance through litigation. According to the theory, protective duty does not have the nature of claiming performance through litigation37 It is generally assumed that the protective duty with no attribution of claiming performance because it occurs randomly along with contractual relationship and cannot be determined in advance.38 If an obligation has not been determined, the dispute over it will arise only after it is violated and such violation causes detriment. Even if the obligation is determined afterwards, claiming performance through litigation for such obligation does not make sense to the injured party since the detriment has already occurred. So such obligation should not be considered as having the attribution of claiming performance through litigation Moreover, the scope of protective duty will not be broad to allow the protected party to force the obligor into a state of providing protection in all details.39 In addition, with the aim of protecting Integritätsinteresse from damage, protective duty has no specific content or method in act, so the content of litigation cannot be determined.40 Although these views make some sense, they are not correct to some extent. First of all, uncertainty is not an inherent attribution of the protective duty, because it may be determined by law or agreement of the parties. Even if the relevant protective duty is not determined in advance in a specific contractual relationship, it does not mean that it can only be determined after the damage occurs. Uncertainty only makes sense when considering a specific time. The protective duty is not determined when 37

See Ye Yingping, Study on the Contractual Protective Duty, p. 29 below. Jacob Joussen, Schuldrecht I: Allgemeiner Teil, Rn. 1205. Allgemeiner Teil, Stuttgart (2008), S. 15. 39 Peter Schlechtriem & Martin Schmidt-Kessel, Schuldrecht Allgemeiner Teil, S. 90. 40 Ibid., p. 30. 38

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the contractual relationship is established, which does not mean that it cannot be determined with the development of the relationship. “If the parties are required to bear corresponding collateral obligation according to the specific circumstances and the principle of good faith, the collateral obligation is determined accordingly and has legally binding force”.41 The time of determining the protective duty is not the same as the time when it is violated. At least the former should occur earlier than the latter both in theory and logic. Moreover, no matter it is an obligation de üoyen or an obligation de résultat, the protective duty can be fulfilled by the obligor, and the obligation that cannot be performed is not characteristic of an obligation. Since all the obligations can be performed, it is definitely appropriate for the obligee to claim performance of the obligations when disputes arise. In this sense, the German scholar Medicus believes that all obligations can be claimed for performance in principle.42 For certain protective duties, especially when the protective duty and the performance obligation point to the same object, the feature of claiming performance of the protective duty is particularly obvious. For example, the labor law stipulates that the employer should provide labor protection supplies and facilities to the employee, which is an obligation that can be enforced to perform.43 In some contracts, such as security or bodyguard contract with protective duty as the main obligation, it is obviously insufficient to simply grant the claim right for damages.44 In addition, when facing the actual risk of damage, the protected party can also claim to act or omission such as “cessation of infringements”, “removal of obstacles”, “elimination of dangers”, etc. as stipulated in Article 134 of the General Principles of the Civil Law. Secondly, it is illogical to conclude that all protective duties cannot be claimed for performance just because certain of them cannot. This is the same as non-pecuniary obligations. For example, although it is possible that some non-pecuniary obligations cannot be appealed for enforced performance (such as proviso of Article 110 of the Contract Law), it cannot be considered that all non-pecuniary obligations cannot be claimed for enforcement. Since some protective duties can be claimed for performance, it is contradictory to hold that the protective duties cannot be claimed for performance in nature. However, it is not contradictory to believe that the protective duties can be claimed for performance but certain protective duties may not in practice. Because the latter viewpoint just reflects the obstacle of claiming performance of obligations from possibility to reality. For example, once some obligations are violated, it is of no value for creditors to perform them afterwards. As such, it is not because the obligation cannot be claimed but because the performance is meaningless. The duty to act cannot be claimed for performance because it involves freedom and dignity of human. There are also specific legal values which limits or excludes the effect of claiming performance. Furthermore, since the protective duty involves the protection of Integritätsinteresse, when no damage actually occurs, the 41

Hou Guoyue, Study on the Contractual Collateral Obligation, p. 54. Medicus, Schuldrecht Allgemeiner Teil (13 Aufl.), 2002, Rz. 424. 43 Peter Schlechtriem & Martin Schmidt-Kessel, Schuldrecht Allgemeiner Teil, S. 90. 44 A.a.O. 42

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claiming performance of the protective duty only makes sense in preventing the risk of damage. If the protected party can avoid danger through other means, it is unnecessary to request the obligor to perform the protective duty. If the time interval between when the injured party knows the danger and when the injury occurs is too short, it is also not feasible to claim performance. However, it only reflects that some protective duties that could have been claimed may not be fulfilled because such claim is meaningless or impossible in practice. The view that protective duty cannot be claimed for performance is actually incorrect. It should also be noted that the protective duty is purpose-oriented and does not involve specific act requirements, but the content of the act can be determined by combining the needs and costs of protection through judicial judgment, so it is enforceable. Besides, the specific way of protection is not the premise of determining the existence of protective duty. Whether the protective duty can be claimed for performance depends on the specific situation. For example, according to some scholars, it is meaningless to discuss whether the duty to inform can be claimed for performance or not. In their opinion, a person who doesn’t know what needs to be informed won’t ask for disclosure, and if the person knows what needs to be informed, it is unnecessary to require disclosure, so it is usually of no practical significance whether the duty of disclosure and explanation can be claimed for performance.45 However, in the case where the product instruction has the function of protecting the safety, claiming performance shouldn’t be denied. Just as in the case of obligation of the product package, it is feasible to claim performance of proper packaging.46 This once again showcases that whether the obligation can actually be claimed for performance is related to the purpose, possibility and costs of the performance, as well as the judgment based on the specific legal policy. There is no solid foundation to determine protective duty as obligation that cannot be claimed for enforcement. Even in most cases, breach of protective duty only leads to damages and it is necessary to claim performance only when the requirements of the right of claim for preservation (removal of interference or prevention against interference) are met, which does not mean that protective duty and performance obligation differ substantially. The right of claim for preservation related to Integritätsinteresse is similar in function to the right of claim for performance related to the expectation interest, both of which are to prevent the damage through the enforced performance of obligations. The difference between the protective duty in the legal obligation and the duty of care in tort law is that the former may be related to the performance obligation, that is, the non-performance of the protective duty may also affect the entire legal obligation. For instance, in this case the requirement for the right of defense in contract or the rescission of the contract may be satisfied. In summary, the criterion for distinguishing the protective duty and performance obligation only lies in the difference of attribution of the protected interests. In other words, the performance obligation determines the type of legal relationship 45

Müller, Schutzpflicht im Bürgerlichen Recht, Tübingen (see Ye Yuping, Study on the Contractual Protective Duty, p. 29). 46 Chen Ziqiang, Lectures on Civil Law II: Contents and Extinction of Contracts, p. 77.

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of obligation and ensures the realization of expectation interest that is not obtained by the creditor when the legal obligation is established. Although the presence of protective duty is based on relationship of obligation, the purpose of protective duty is to protect the Integritätsinteresse of the parties from damage due to the opening of the necessary field of right in the legal obligation. Except for the difference in protection objects (the same target of the protective duty and the performance obligation reflects the concurrence between the two obligations), there is no difference in the claim for performance of them. (2) Basic Types of Contractual Protective Duties There are many discussions on types of collateral obligation in China, but the discussion on the types of protective duty (narrowly defined collateral obligation) is less common.47 Some scholars divide protective duty into the Schutzpflicht and the obligation of explanation. The former is not closely related to the purpose of the contract, that is, the realization of the performance interest, and the latter can assist the realization of performance interest and prevent risks.48 Such classification is not reasonable to a certain extent (especially the classification of the obligation of explanation), because it will actually confuse the definition of protective duty (narrowly defined collateral obligation) with the broader one. As far as I am concerned, the obligation of explanation that assists the realization of performance interest can be defined as a supplementary performance obligation. And only the obligation of explanation that prevents the inherent interest or the Integritätsinteresse from damage (i.e., the protective obligation of explanation) have the attribution of protective duty. If the protective duty is classified based on its content or function, there is no obvious difference in protective duty and (broad) collateral obligation, that is, both of them have specific forms of notification, and explanation, care, cooperation and confidentiality etc.49 It should be noted that since the protective duty is result-oriented (aims at protecting inherent interest or Integritätsinteresse), so the significance of further classification of it based on its content is extremely limited. Once the party is confirmed to bear a certain obligation (regardless of its content or form) in the contractual relationship, whether it is defined as a protective duty or a performance obligation can only be 47

According to the list collected by scholars, the manifestations of collateral obligations in fact include notification (or information), care, protection, confidentiality, cooperation, loyalty and other obligations. Different theories may have different explanations with combinations of these forms, such as dividing them into Schutzpflichts and other (from broad sense) collateral obligations or into collateral obligations such as protection, notification, confidentiality and non-competition. See Hou Guoyue, Study on the Contractual Collateral Obligation, p. 235. 48 The primary purpose of Schutzpflicht is to protect the inherent interests of the parties of the contract. In principle, it is not closely related to the realization and guarantee of performance interests. The obligation of interpretation refers to the obligation of the party of a contract to provide information which is not requested by the other party but has decisive significance for risk prevention. See Ye Yingping, Study on the Contractual Protective Duty, p. 23. 49 In theory, in Chinese Contract Law, the Schutzpflicht is often juxtaposed with these (broad sense) collateral obligations, which leads to the classification standard changing from content to function of the obligation and it is inappropriate. See Hou Guoyue, Study on the Contractual Collateral Obligation, p. 236. See Han Shiyuan, General Theory of the Contract Law (3rd ed.), p. 248.

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concluded by considering the purpose of the contract and relevancy between relevant contractual obligations and Integritätsinteresse. Generally speaking, if the breach of a contractual obligation leads to damage to Integritätsinteresse, such obligation should belong to protective duty (it can also be a performance obligation); otherwise, it is a performance obligation. Based on the relationship between protective duty and the purpose of the contract, contractual protective duty can be divided into the protective duty that is consistent with the purpose of the contract and that which is not related to the purpose of the contract. The former exists in the contract whose purpose is to protect the Integritätsinteresse or inherent interest of the parties, such as custody, security, medical care, cosmetic medicine and confidentiality agreements, etc. For such agreements, protection per se is the subject matter50 of performance obligation, and violation of protective duty will also lead to the failure of performance of the contract. However, the latter can exist in any contractual relationship or legal relationship of obligation, and the violation of such protective duty does not necessarily lead to the break of the performance of the contract. Such classification is limited because the breach of certain protective duty that is not directly related to the purpose of the contract may also lead to frustration of the performance of the contract, such as the damage to the leased object by the lessee. In this case, there is no difference in legal effect between the two types of protective duties. If we focus on the legal effect, we can classify the protective duty into two types: the protective duty that is not related to the performance of the contract and the protective duty that is related to the performance of the contract according to the relevancy between protective duty and performance of the contract. The protective duty that is not related to the performance of the contract refers to the breach of which only causes damage to the creditor’s inherent interest but does not affect the performance interest or the purpose of performance. While the protective duty that is related to the performance of the contract refers to the breach of which causes damage to the creditor’s inherent interest as well as the performance interest or the purpose of the performance. The meaning of such classification is to stress the combination between protective duty and the effect of breach of the contract. The former only causes damage for inherent interest, while the latter may also lead to the termination of the contract.

1.2 The Positioning of Protective Duty in Contract Although there are many examples in legislation that regulate the protective duty as a contractual obligation in the positive law, the positioning of the protective duty in the private law system has been put forward for many times. This issue has not only

50

Peter Schlechtriem & Martin Schmidt-Kessel, Schuldrecht allgemeiner Teil (Sechste, neubearbeitete Aufl.), 2005, Mohr Siebeck, S. 91.

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the theoretical significance of implementing the legal system, but also the practical effect of legal regulation. (1) The Dispute over the Legal Nature of Protective Duty The positioning of protective duty is related to the different understanding of its legal nature, relevant disputes are about whether it is a contractual obligation or tort liability. The former holds that the protective duty is a type of contractual obligation and should be regulated according to the principles of contract law. While the latter regards the protective duty as the manifestation of the duty of care in tort law, which should be regulated by tort law.51 The two viewpoints are summarized as follows52 : Scholars holding that the protective duty is a contractual obligation believe that: (1) The contract law per se has the function of protecting inherent interests; (2) The protective duty is premised on the contractual relationship and the special fiduciary relationship between the parties. If it is separated from the contract, the unity of the contractual relationship will be divided, that is, “the party who causes damage to the performance interest shall assume the liability according to the contract law, while the infringement on an inherent interest shall assume the tortious liability”; (3) The protective duty is developed in order to supplement the damage relief of the inherent interest that the tortious liability cannot satisfy in judicial precedents, and the attribution of its contractual obligations is historically formed; (4) The nature of its contractual obligation has been recognized in legislation. Scholars who support the theory that its nature is a tortious liability believe that: (1) Since the protective duty may lead to excessive development of contractual obligations and become a factor of legal uncertainty, taking the protective duty as an obligation in tort law, which means the protection of inherent interest is completely regulated by tort law, is meaningful to clearly differentiate contractual obligations from obligations in tort law, so as to stabilize the law; (2) The protective duty exists before the conclusion of the contract, and transforming it from an obligation in tort law into contractual obligations due to the conclusion of the contract is not reasonable in theory; (3) The damage of inherent interest that needs to be remedied is unforeseeable when the parties conclude the contract. Remedying this unpredictable damage through the contract will seriously hinder the normal progress of the transaction. Actually, the purpose of the dispute over the nature of protective duty in theory is not to explain legal reality. Therefore, both the reasons from the perspective of historical development and positive law deviate from the original intention of the argument. From this point of view, the reason (3) and (4) held by the scholars who believe that protective duty is a contractual obligation cannot effectively support their ideas. Since the nature of the protective duty is not based on the existing provisions of the positive law, it should be attributed to the argumentation under the legislative theory. 51 52

See Ye Yingping, Study on the Obligation to Protect in Contracts, p. 114. Ibid., pp. 115–118.

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In summary, the aforementioned disputation can be considered as two questions: function positioning and harmonization of the legal system of contract law and tort law. The function positioning of contract law and tort law has been explained earlier.53 We have noticed that restricting contract law to the creation and protection of expectation interests and limiting tort law to the protection of inherent interests are just some theoretical ideas without examination in legal practice. It is premised on the oversimplified functional division and cannot meet the flexible needs of legal practice. There are two reasons: First, the contract can have the function of protecting inherent interests because of its instrumental values. Under such circumstance, protection becomes the object of performance of the contract. If the protection of inherent interests is allocated to tort law, the legitimacy of the contract’s purpose will be denied and hinder the autonomy of private law, or the protective effect of the contract will be transformed into tort law, thereby denying the strengthening effect of the contract on the protection of the inherent interests of the parties. Consequently, both of the two results are obviously difficult to be justified. Second, the functional presupposition of the protection object orientation is not consistent with the structural logic of contract law. If the damage to inherent interests is regulated by tort law, the causality between the breach of contractual obligations and certain consequences of damage will be decomposed, and a legal phenomenon will be divided into the normative objects of two legal fields. Since the distinction between inherent interests and expectation interests have time relativity (that is, the distinction between them can only be determined concerning a specific time), in order to implement the logical consistency of the distinction of interests, either denying the protection on contractual creditor’s right of tort law, or recognizing it as an exception. The logical consistency is at the expense of breaking the practical value of the system, and the recognition of exceptions destroys the clear distinction. This shows that as long as the protection per se is recognized as the purpose of the contract, the protection of inherent interests cannot be exclusively regulated by tort law. Even if the purpose of the contract is not to protect the inherent interests, regarding the protective duty as an obligation of tort law does avoid the question concerning the foreseeability of the damage to the inherent interests of the contract to a certain extent. It does not mean, however, to approve the proposition that “damage to inherent interests is unforeseeable”. Judging from the application of the principle of foreseeability, as long as the consequences of damage for breach of a certain contractual obligation can be foreseen under the same circumstances by a normal and rational person, such damage should be regarded as compensable contractual damage no matter it is related to the performance interest or the inherent interest. For example, the operator knows or should know the food contains additives that endanger human health and sells it, or the doctor performs the operation without qualification, or the vehicle lessor knows or should know that the brake of the vehicle is defective and does not inform the lessee. It is obviously incorrect to claim that damage to inherent interests such as personal or property interests are unforeseeable. If not all damage to inherent interests is unforeseeable, it is not reasonable to hold that all damage 53

See Sect. 2.1 in Chapter 2.

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to inherent interests is unforeseeable. Worrying that the excessive development of contract protective duty leads to the excessive burden of contract law or the excessive shrinkage or blurring of tort law cannot deny the normative function of contract law on protective duty. After all, such problems can be solved by properly determining the protective duty of the contract.54 The view that the protective duty exists before the conclusion of the contract, and it should not be transformed into a contractual obligation due to the conclusion of the contract (reason (2) of the view that the nature of protective duty is an obligation of tort law), actually implies the conclusion in the premise: the protective duty is an obligation of tort law and cannot be transformed into a contractual obligation because of the conclusion of the contract. This assumption equates the protective duty with the duty of care in tort law ignoring the difference between the protective duty of the contract and the obligation in tort law, or the difference in the background of the protective duty of the contract and the general duty of care in tort law. In this regard, the emphasis of the special fiduciary relationship between the obligor and the protected obligee by scholars who believe that the protective duty is a contractual obligation should be given special significance. Frankly speaking, the general duty of care in tort law arises from the balance between protected interests and freedom of conduct, which regards the legal attribution of interests as the main standard for determining the degree of protection which does not depend on the specific relationship between the tortfeasor and the infringed party, so it is an abstract and general standard. As some Chinese scholars say, the obligation in tort law is the minimum standard of conduct and it is the basic act requirements55 of the law. On the contrary, scholars who believe that the protective duty is a contractual obligation emphasize the strengthening or triggering effect of the contract (or fiduciary relationship) between the parties on such standard of act. That is to say, such consequences of damage will not exist between specific parties if there is no such specific contract or fiduciary relationship. In contrast, scholars who support that protective duty is an obligation in tort law negate the specific relationship for determining protective duty. In conclusion, the distinction between the protective duty and the duty of care in tort law is obvious. However, the existence of the Verkehrspflichten in tort law also needs to consider the specific relationship between the parties, which is more similar to the protective duty. Therefore, to define the attribution of the protective duty, special attention must be paid to its relationship with the Verkehrspflichten in tort law, and the significance of the special relationship between the parties for determining it. (2) Relationship between Protective Duty and Verkehrspflicht in Tort Law a. Verkehrspflicht in Tort Law.

54

See Ye Yingping, Study on the Obligation to Protect in Contracts, p. 119. Zhang Xinbao & Tang Qinglin, Operator’s Obligation to Safeguard Service Places, in Chinese Journal of Law Vol. 3, 2003.

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The Verkehrspflicht56 originated from the judicial practice of Germany, which refers to the obligation that a party who starts or continues particular risks should take necessary security measures according to the specific circumstances to protect others from damage.57 Originated from the obligation of traffic safety (Verkehrssicherungspflicht), the Verkehrspflicht was mainly applied to deal with the liability related to traffic accidents on public roads (see the case of dead tree58 ), and was developed into a general Verkehrspflicht (see the representative case of the veterinarian59 ). The Verkehrspflicht breaks the limitation of the three main reasons for the establishment of the duty to act (legal provisions, contractual agreements and prior acts), so that the duty to act can also occur due to the increase in the social contacts. It has established the following ideas in the Tortious liability Act: “Every act of participating in social activities means the start of a certain danger that should be exempted or controlled, so the obligation to avoid the danger that may cause damage is defined as a civil liability of omission.”60 The Verkehrspflicht cannot be determined in general but needs to be defined according to the specific circumstances, including the factors such as the risk of the act, the possibility of reducing the risk of the potential perpetrator (including the cost), the protection needed by the potential victim, the possibility of the self-protection of the victim, the self-protection cost, 56

Chinese theories have transaction security obligations (Lin Meihui, Li Hao), social security obligations (Wang Zejian) and communication security obligations (Zhou Youjun). Although Verkehrspflicht and Verkehrssicherungspflicht are mixed in German literature, since the former derives from the latter, and the latter mainly refers to the obligation related to public transportation safety, while the former refers to the general duty of safety care in society, this paper agrees to translate the latter into traffic safety obligation, and the former into communication safety obligation or social safety obligation. The word transaction is mostly related to legal acts in Chinese, such as legal transactions or contract transactions, so it is not used. 57 Christian v. Bar, Verkehrspflichten: richterliche Gefahrsteuerungsgebote im deutschen Deliktsrecht, Köln, Berlin, Bonn, Münchn; Vgl. Christian v. Bar, Verkehrspflichten: richterliche Gefahrsteuerungsgebote im deutschen Deliktsrecht, Köln, Berlin, Bonn, Münchn: Heymann, 1980, S. 1. In Chinese related works, most scholars are influenced by the definition of transaction security obligation in Dr. Lin Meihui’s thesis, and they all say that this obligation is to protect the “third party” from damage or danger (see Lin Meihui, Research on Transaction Security Obligation in Tort Law, Ph.D. Thesis, Institute of Law, Taiwan University, 1999, p. 37; Li Hao, On Transaction Security Obligation, p. 2; Zhou Youjun, Research on the Theory of Communication Security Obligation, p. 3). If the relationship between the two parties cannot be determined, it is puzzling to discuss the “third person”. Dr. Zhou Youjun quoted the original judgment of the German Federal Supreme Court, which is “zum Schutz anderer Personen”, literally translated as “to protect others”, that is, to protect others (or specific subjects) other than the actor, to explain the obligation in the relationship between the two parties, and does not mean to involve “a third person”. Professor von Barr also adopted the same expression in his monograph on the obligation of communication security. To avoid misunderstanding, pretend this explanation. 58 The basic facts of it is that the dead trees standing on the public road owned by the defendant fell down, causing damage to the plaintiff’s building. 59 The basic facts of the case are as follows: the defendant, a veterinarian, was called for diagnosis by the owner of the sick cattle suffering from anthrax. Because of his negligence, he failed to inform the butcher (plaintiff) who was entrusted to slaughter the sick cattle that anthrax was dangerous to be infected, and failed to deal with it properly, resulting in the butcher being infected. 60 Christian v. Bar, Verkehrspflichten, SS. 18–19.

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social value and insurance of the act that may cause damage, etc.61 We can also find that the protection object of the Verkehrspflicht is the non-specific social public. In this sense, it is similar to the duty of care of the tort law but different from the protective duty of the contract. As the Verkehrspflicht is applicable to broader fields, the functional positioning of it has also caused a lot of controversies.62 Most scholars hold that the Verkehrspflicht is only the legal definition of negligence in the Civil Code, that is, “failure in reasonable care” (Article 276, Paragraph 2 of the German Civil Code), which is a specific form determined by judicial practice.63 However, equating the Verkehrspflicht with the duty of care that determines the negligence is not only a non-historical attitude to German practice but also completely negates the special importance64 of this obligation for omission tort65 and indirect tort. Also, the Verkehrspflicht is only applicable to limited circumstances in German law, so the aforementioned viewpoint should not be agreed. Obviously, focusing on the dimension of act in tort, the Verkehrspflicht changes the theoretical structure of tort law (Article 823, Paragraph 1 of the German Civil Code) which focuses on the object of tort (protected rights and interests). It not only legitimates the standard of illegal act (Handlungsunrecht) against the standard of illegal result (Erfolgsunrecht) in the judgment of the wrongfulness but also links66 liability for negligence and liability for non-negligence in the judgment of fault. The tendency of its functional expansion indeed triggered the coordination with the existing theoretical structure, especially the relationship with the standard of duty of care for negligence. It is precisely because the issues dealt with by the Verkehrspflich are related to negligent tort that there is no theory about the Verkehrspflich in Anglo-American law, but there are similar circumstances in the duty of care related to the standard of negligence. According to the general theory of Anglo-American tort law, there is no duty of care between strangers, which means that no one has the duty to prevent damage to those who have nothing to do with him in principle (duty to rescue), and which is also confirmed by Anglo-American jurisprudence.67 However, in the famous “slip” case (slip-and-fall case), obligation similar to Verkehrssicherungspflicht of German law are also recognized. In the Hopping v. College Block Partners Case,68 the snow and ice on the defendant’s buildings melted and dripped on the public sidewalk, 61

Hans-Joachim Mertens, Verkehrspflicht und DeliktsrechtVersrR, 1980, S. 402. Quoted from Zhou Youjun, Research on the Theory of Communication Security Obligation, Renmin University of China Press, 2008, p. 79. 62 In German theory, there are three different views: “nonfeasance tort and indirect tort”, “cognizance scope of illegality” and “concretization of duty of care”. See Zhou Youjun, Theoretical Research on Communication Security Obligation, p. 24. 63 Ibid., p. 26. Liao Huanguo, On the General Duty of Care in German Law: Investigation Based on Judicial Precedents, in Wuhan University Journal (Philosophy and Social Sciences) Vol. 3, 2006. 64 Zhou Youjun, ibid., p. 29. 65 Vgl. v. Bar, Verkehrspflichten, §3 I. 66 See Lin Meihuei, A Study of the Duty to Secure Transactions in Tort Law, pp. 224 ff. 67 Chen Congfu, Imputing Principle for Tort and Damages, Peking University Press, 2005. 68 599 N.W. 2d 703 (Iowa 1999). Quoted from Chen Congfu, op. cit. pp. 25–26.

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causing the plaintiff to slip and get injured. The Supreme Court of Iowa ruled that the defendant was obliged and able to take reasonable measures to avoid the plaintiff’s damage caused by the incident, so he shall be liable for compensation. In the case of Tarasoff v. Regents of the University of California,69 during the treatment of mental illness, the psychotherapist of the defendant’s hospital was informed by the patient that he wanted to kill his girlfriend, and the psychotherapist report to the police according to law. However, no abnormalities were found after the interrogation, and the psychotherapist followed the instructions of the attending physician and did not take further measures. About two months later, the patient shot and killed his girlfriend at her residence. The victim’s parents claimed that the defendant’s psychotherapist had not warned their daughter of the potential danger, so the defendant should be liable for compensation. The majority opinion of the California Supreme Court held that the defendant is liable. The court held that although the general principle of the common law is that a person is neither obliged to control the acts that may harm others nor obliged to warn those who may be harmed by the acts, there is an exception to this principle, that is, when there is a special relationship between the defendant and someone whose behaviors should be controlled, or a victim whose harm can be foreseen, the aforementioned obligations still arise (see Articles 315–320 of the Restatement (Second) of Tort Law). In this case, the relationship between the defendant’s psychotherapist and the perpetrator (patient) or the victim (patient’s girlfriend) is sufficient to support the duty of care (see Article 31570 of the Restatement (Second) of Tort Law). In other words, the relationship between the psychotherapist and the patient can support that the psychotherapist should bear the affirmative duty to the victim (third beneficiary party). This occupational duty of care confirmed in this case is also similar to the Verkehrspflicht arising from professional activities in German law. This showcases that when dealing with similar issues, even if the legal concepts used by different legal systems are not similar on the surface, the similarity of issues may still lead to similar results.71 The function of “duty of safety protection” in Chinese tort law is roughly equivalent to the Verkehrspflicht in German law, but the scope of application of the former is significantly narrower. In China, the duty of safety protection first appeared in Article 6 of the “Interpretation of the Supreme People’s Court on Certain Issues Concerning the Application of Law in Trying Cases Involving Compensation for Personal Damage” in 2003, which stipulates that “In the event that a natural person, legal person, or any other organization that engages in the business activities such as accommodation, catering and entertainment or other social activities” should assume the duty of safety protection that protects another person from personal damage. 69

551 P. 2d 334 (Cal. 1976). Quote d from Chen Congfu, op. cit. p. 30. The merits have been adjusted accordingly according to the contents of the judgment contained in http://biotech.law.lsu. edu/cases/privacy/tarasoff.htm. 70 United States tort law restates Section 315 for the second time: “(a) there is a special relationship… between the actor and a third person whose conduct he is obliged to control; Or (b) there is a special relationship… between the actor and other persons who enjoy protected rights according to law”. 71 See James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, pp. 1–2.

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According to the explanation of the judge who drafted the interpretation, the duty of safety protection is based on duty of care, which “is a comprehensive concept close to the duty of care … The duty of safety protection is a superordinate concept. It can objectively support the right of claim for the parties when there are no legal provisions or agreements, and it can provide another choice of the right of claim for the parties when there are legal provisions or agreements”.72 This statement contains the following meanings: First, the duty of safety protection is only the manifestation of the general duty of care, and it is close to but not equal to the general duty of care. It is limited to the operator or organizer who is responsible for the place opened to the unspecified public because of his business activities, which is close to the “liability of the owner of the place”73 in nature. Compared with the Verkehrspflicht in German law, its scope is much narrower. In fact, in Article 7 of the aforementioned Interpretation, “a school, kindergarten or any other educational institution that is obliged to protect a minor” shall fulfill the protective duty, which also has the attribution of Verkehrspflicht. However, both of the aforementioned Interpretation and the later Tortious liability Law distinguish the aforementioned the duty of safety protection from the protective duty for minors, which further illustrates the limited applicability of the duty of safety protection in Chinese law. Second, the duty of safety protection belongs to the tort law. Since this obligation can still provide protection when there are legal provisions or contractual agreements, it means that there may be “an obligation with two attributions” between the duty of safety protection and the protective duty in the contract. In a word, it is an “duty of safety protection” in tort law and “protective duty” in contract law. In other words, although this judicial interpretation regards the liability for breach of the duty of safety protection as tortious liability, it does not deny that the attribution of the duty of safety protection is between contractual liability and tortious liability, or it does not exclude the possibility that the problems involved can be resolved through contractual liability when there is contractual relationship.74 Third, the main purpose of these obligations is to protect personal rights and interests. Third, the main purpose of the duty of safety protection is to protect personal rights and interests. This restriction on the object of protection is related to the issue of personal damages dealt with by the judicial interpretation, and it cannot be inferred that the duty of safety protection is only limited to personal damage. That’s why the object of protection is extended to “damage” (both personal and property) suffered by others later in Tortious liability Law. It should be noted that although the Tortious liability Law expands the subject of protective duty to “managers of public places, including, inter alia, hotels, shopping malls, banks, railway stations and places of entertainment, and organizers of mass activities”, there is no substantial changes in the basic content and legislative techniques, that is to say, the 72

See Huang Songyou, Understanding and Application of Judicial Interpretation of Personal Injury Compensation in the Supreme People’s Court, People’s Court Publishing House, 2003, p. 101. 73 However, even compared with “the responsibility of the owner of the place”, because the judicial interpretation is limited to the owner (operator) of public places, excluding private places but allowing others to enter, the scope of application of the two responsibilities is different. 74 Ibid., p. 103.

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applicability of the duty of safety protection is still limited. The normative meaning of this subject or behavior (or activity) characteristic has yet to be discussed. After all, “etc.”, “public places”, and “mass activities” are all highly open concepts, which possibly expands the scope of application of the Interpretation in the specific application of the law.75 However, such enumeration of elements may, to a considerable extent, hinder the expansion of the duty of safety protection under Chinese law as German judicial practice does. For example, the cases of “managers of non-public places” like the “case of veterinarian” in German law and the “slip-and-fall case” in German law can only be regulated by the duty of care under the current Chinese law structure (negligence tort). b. Relationship between Protective Duty of the Contract and Verkehrspflicht in Tort Law. (a) Theoretical Perspectives in Germany. Since protective duty of the contract and Verkehrspflicht in tort law (or duty of safety protection) are both aimed at protecting the Integritätsinteresse, the relationship between them has always been disputed.76 Some scholars believe that protective duty of the contractual relationship of obligation is different from the general duty of care of tort law or the Verkehrspflicht, and the system and status of them should be differentiated. For example, according to Professor Krebs, although the protective duty is in the intermediate field of contract and tort law and it involves statutory obligation, it is based on the special binding relationship (Sonderverbingdung) in the sense of the contractual relationship of obligation, and should be regulated by the contract law. It is different from the obligations in tort law. Professor Larenz has a similar view to Professor Krebs.77 Professor Looschelders believes that in terms of protective scope and effect, the protective duty in contract law fundamentally exceeds the affirmative duty of tort law. The protective duty can not only protect general property, but also provide the obligee with stronger protection than tort law through the rule that the obligor is liable for the act of its performance assistants.78 However, other scholars insist that the two kinds of obligations should be unified, meaning that the protective duty of the contract and Verkehrspflicht in tort law should be included in obligations in tort law. For example, according to Professor Kramer, the protective duty that aims at protecting the Integritätsinteresse is consistent with the duty of safety protection in function. In addition, it does not depend on the Sonderverbingdung but binds everyone with the same effect. Also, it involves tort 75 See Tortious Liability Law of the People’s Republic of China: Explanation of Provisions, Legislative Reasons and Relevant Provisions, edited by the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, Peking University Press, 2010, pp. 159–160. 76 For the situation in Germany, please refer to Li Hao’s Theory of Transaction Security Obligation: An Interpretation of the Structural Changes of German Tort Law, p. 167 below. 77 See Li Hao, On Transaction Security Obligation: An Interpretation of the Structural Change of German Tort Law, p. 167. 78 Dirk Looschelders, Schuldrecht: Allgemeiner Teil, Carl Heymanns Verlag, 2008, S. 7.

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law in legal structure.79 Professor Stoll believes that the protective duty arising from social interaction is purely a tort obligation. In order to avoid the weakness of tort law, regarding the protective duty as a contractual obligation and forming a “fake and quasi-contractual protective duty” is the shame of German civil law.80 Professor Brüggemeier believes that the Verkehrspflicht “is not limited to tort law, but widely extends to contract law and quasi-contract law. For example, the “Verkehrspflicht of the contract81 ” which aims at maintaining the interests of the parties protected by the contract (through active infringement of claim), the third party related to the parties of the contract (the contract which can also protect the third party) and the negotiating parties (culpa in contrahendo) and is differentiated according to the purpose of the transaction. He advocates that the protective duty in the contract and quasi-contract laws should be included in the tort law.82 Regarding the protective duty in the relationship of obligation as an obligation of tort law supports the exclusive protection of the Integritätsinteresse through tort law. It is unreasonable to completely ignore the protective effect of the contract and other relationship of obligation on the Integritätsinteresse. Although some scholars regard the reliance as the basis83 of the Verkehrspflicht in tort law, the reliance related to the Verkehrspflicht “refers to the capabilities of realizing and preventing the general danger of the potential victims, which should be the basis for determining the level of care of potential perpetrators.”84 Such reliance is based on the general reliance stipulated by the legal system, while the reliance in the relationship of obligation depends on the specific relationship and it is a specific reliance. Therefore, it is inappropriate to equate the reliance in the Verkehrspflicht with the reliance in the relationship of obligation and deny the role of such special reliance in the relationship of obligation in determining the protective duty. In German legislation and judicial practice, there is no unified pattern of violations of various protective duties, which also supports the aforementioned view. In addition, from the perspective of comparative law, French law includes the protective duty in the contract, which is also an example of negating the protective duty as a pure obligation of tort law. Just as the French scholar Sozte said: “Since the contract puts one party in the fiduciary relationship with the other party, the liability between the two parties who are combined through a contract should not be treated as the liability between two parties without contractual relationship. When the damage occurs during the performance of the contract, it should be handled as contractual liability.”85 This statement also shows that the contractual

79

Ibid., p. 169. Ibid., pp. 169–170. 81 Brüggmeier, Deliktsrecht, S. 91. Quoted from Li Hao, On Transaction Security Obligation: An Interpretation of the Structural Changes of German Tort Law, p. 85. 82 Ibid., p. 170. 83 Vgl. v. Bar, Verkehrspflichen, §5 II.2. Zhou Youjun, Research on the Theory of Communication Security Obligation, pp. 81–82. 84 See Zhou Youjun, Theoretical Research on Communication Security Obligation, p. 81. 85 See Ye Yuping, Research on the Protective Duty in Contracts, p. 115. 80

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relationship between the parties has a substantial normative significance for the imputation of damage, and the breach of the duty (Pflichtverletzung), as a prerequisite for imputation, is different from that when the parties have no contractual relationship. The core of the issue points to the normative significance of the Sonderverbingdung to the determination of obligations. (b) Theoretical Perspectives in China. In the civil law of China, the relationship between the protective duty of the contract and the Verkehrspflicht in tort law is first centered around the nature of the “the duty of safety protection”. Some scholars believe that the duty of safety protection originates from both legal provision and contractual agreement, and violation of it may lead to the concurrence of contractual liability and tortious liability.86 This view is only applicable when there is a contractual relationship between the parties. It is inappropriate to associate the protective duty with the concurrence of liability directly. Other scholars believe that the nature of the duty of safety protection should be determined according to the degree of combination between protective duty and different contractual relationships. For example, the duty of safety protection in the transport contract is a contractual obligation, and the breach of it will lead to contractual liability; although the duty of safety protection of the service contract has the nature of contract and tort, the breach of it will only lead to tortious liability. The protective duties of hospitals, schools (including kindergarten) and country may be obligations in both contract law and tort law, but the breach of them is regulated by tort law instead of contract law.87 The irrationality of this view is that the attribution of the protective duty differs according to the type of contract. In particular, it is inappropriate to hold that the breach of protective duty that is determined to be a certain contractual obligation, or with both the attribution of contractual obligations and obligation in tort law can only lead to tortious liability. The aforementioned views may be summarized as follows: The protective duty stipulated in the contract law (rather than in the contract) may only have the attribution of obligation in tort law, and the liability for breach of such obligation should be determined in accordance with the tort law. Similar provisions in the comparative law refer to provisions of liability for breach of protective duty in the employment contract in Article 618, Paragraph 3 of the German Civil Code: “If the party entitled to services fails to fulfill the duties it has with regard to the life and the health of the party obliged, then the provisions of Articles 842 to 846 related to tort behaviour will be applied to determine the obligation for damages of the party entitled to services.” It should be pointed out that the provisions of Articles 842 to 846 mentioned here are the provisions stipulating the content of liability and the subject of the claim, so it cannot be considered that the nature of liability arising from the violation of the aforementioned obligations is tort liability.88 It is strange to say that a certain obligation is a contractual obligation but the breach of such obligation cannot lead to contractual liability. 86

Yang Lixin, Typological Tort Law, People’s Court Press, 2006, p. 655. Liu Shiguo, The Obligation of Security Care, in Chinese Journal of Law Vol. 5, 1999. 88 Hou Guoyue, A Study of Contractual Ancillary Obligations, p. 211 below. 87

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Professor Wang Zejian holds that the nature of protective duty in the contract is equivalent to the Verkehrspflicht in tort law, and it is different from the performance obligation. However, as a special relationship, the relationship of obligation requires the party to protect the rights and interests of another party from infringement according to the principle of good faith.89 Professor Han Shiyuan holds a similar view that “there is no difference in nature” between the protective duty in contract and the duty of safety protection in tort law.90 These two obligations are considered to be of the same nature only when both the protective duty of the contract and the Verkehrspflicht in tort law have the “protective function of rights and interests”. If we emphasize the special value91 of Verkehrspflicht on omission and indirect infringement, the scope of it will be narrower than both the general duty of care in tort law and protective duty of contract. In this regard, the emphasis on the similarity between protective duty of contract and Verkehrspflicht makes no sense in explaining the attribution of protective duty. Moreover, emphasizing that the protective duty and the obligation in tort law are of the same nature on the one hand, and stating that as a special relationship, the relationship of obligation is of special significance to the determination of the protective duty on the other hand will inevitably be accused of “ambiguous and contradictory opinions”.92 In the view of Professor Zhang Xinbao, the attribution of the Verkehrspflicht (or the duty of safety protection) is the basic legal behavioral requirement on the subject of duty. As a statutory obligation, the Verkehrspflicht is the minimum requirement for operators. The parties may also impose stricter requirements on the operator through a contractual agreement.93 Violation of the duty of safety protection mainly leads to tort liability, but it can also lead to liability for culpa in contrahendo or liability for breach of contract.94 This view still insists that the protective duty of the contract and the duty of safety protection or duty of care in tort law are essentially obligations of the same attribution. However, the duty of safety protection (or Verkehrspflicht) does not preset the constitutive elements of breach of the obligation. The regulations must be incorporated into the contract law or tort law in accordance with the existing legal provisions. The question is: If contract law and tort law have different regulative norms for protective duty (it is actually an unveiled assumption in the dispute over attribution of protective duty), under what circumstances can the protective duty be included in the contract and be regulated uniformly with other contractual obligations (performance obligations)? This also leads to the normative significance of contractual relationships for determining protective duty of the contract. (2) Protective Duty and the Sonderverbingdung between the Parties 89

See Wang Zejian, Civil Law Researches: Principles of Obligation Law, p. 32. See Han Shiyuan, The Law of Contract (3rd ed.), pp. 251–252. 91 See Zhou Youjun, Theoretical Research on verkehrspflicht, p. 29. 92 See Ye Yingping, Study on the Obligation to Protect in Contracts, p. 120. 93 Zhang Xinbao & Tang Qinglin, Operator’s Obligation to Safeguard Service Places, in Chinese Journal of Law Vol. 3, 2003. 94 Ibid., pp. 86–87. 90

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If the judgment of the constitution of tortious liability always depends on the specific behavior, the judgment of duty of care of tort law or duty of safety protection also needs to consider the specific relationship95 between the parties, then the difference between the effect of such specific relationship and that of the contractual relationship on the judgment of the protective duty of the contract deserves special discussion. There is a consensus that the protective duty of the contract is not premised on the performance obligation, which can be inferred that the establishment and continuance of the performance obligation do not determine the establishment and continuance of the protective duty. Each contract refers to an expression of intention, the basic purpose of it is to determine the performance obligation. In this sense, only when protection becomes the object of performance, the legal effect of contract is related to the protective duty. In other cases, the establishment and continuance of the contractual relationship will not affect the protective duty. Therefore, even when the contract is not established or invalid, the protective duty can still be established. It shows that a contract that has normative significance for determining the protective duty is established96 not because of its content but because of the de facto contact relationship between the parties. Therefore, the relationship of protection has no attribution to the juridical act but is statutory. Since the attachment relationship of the protective duty on the legal effect and content of the contract is cut off, at all development stages of the contractual relationship—from contacting to the conclusion of the contract, and performance of contract, even after the termination of contract—there is no difference in the content and structure of the protective duty, so it can be unified. Then the “theory of unified protective duty” can be established: All protective duties could find their basis in a unified protection relationship. This protection relationship is formed during the contact of the transaction, which is strengthened by closer relationship between the parties. It does not depend on the will of the parties but is “statutory” in attribution. The legal consequences are based on the reliance and the provisions related to the principle of good faith (such as Section 242 of the German Civil Code) in positive law. All violations of protective duty before, during and after the conclusion of the contract are included in the unified constitutive elements and legal consequences. It is no need to distinct the culpa in contrahendo, the contract of positive infringement, and the contract which can protect the third party.97 It should be noted that the “theory of unified protective duty” intends to integrate the protective duty at different stages in various relationships of obligation, especially the contractual relationship. It does not refer to the unification of protective duty and the Verkehrspflicht of tort law.98 Therefore, it still maintains the distinction between the protective duty in relationships of obligation especially the contractual relationship and the Verkehrspflicht of tort law or the duty of care. It is different from 95

See Article 4:102 of Principles of European Tort Law 4. Vgl. Claus-Wilhelm Canaris, Anspruche wegen „positive Vertragsverletzung” „Schutzwirkung für Dritte” bei nichtigen Verträgen, JZ, 1965, S. 476. 97 A.a.O., S. 479. 98 Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S. 2. 96

und

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previous “theory of unified protective duty” proposed by a few scholars in China which integrates the protective duty in the relationship of obligation with the duty of safety protection (or Verkehrfspflicht) of tort law.99 Since the basis of the duty of safety protection is not the special combination relationship between the parties, it is inappropriate to unify the protective duty and Verkehrfspflicht. The following discussion regarding this issue is still based on the “theory of unified protective duty” of Canaris. We can conclude that there are two premises of the “theory of unified protective duty”: first, the protective duty can be combined with the performance obligation or not, which means that both of them can exist without each other.100 It is because the protective duty is independent of the performance obligation that the independence of the protective duty is established. The protective duty is not subject to the rules that regulate the performance obligation, so it is different from the liability for breach of contract. Second, the protective duty is based on the reliance and the principle of good faith, so it must be premised on the fiduciary relationship between the parties. It is the attribution of the relationship between the parties rather than the nature of the protected party’s rights and interests determines the protective duty, which makes the protective duty distinguished from the duty of care in tort law, and allows it not to be regulated by the principle of tort law. Canaris also believes that the situation where reliance is the basis of liability should not be equated101 with the situation where liability is related to reliance. Only when reliance determines the liability and, is not just a relevant factor can Vertrauenshaftung be established. In this sense, the liability arising from the unified protection relationship and the Vertrauenshaftung based on the reliance should be differentiated. However, Canaris is opposed to regard the “Banana Peel Case” as the culpa in contrahendo, because he thinks that there is no “external element” of the identifiable Vertrauenshaftung in such case, that is, the relying party has taken or has not taken a certain “act” because of the reliance, and the consideration of its “bona fides” is of little significance.102 Canaris hold that such case should be included in Anvertrauenshaftung and should be viewed as a kind of Vertrauenshaftung, because “In the framework of legal transaction, the victim makes his own legal benefit under the possibility of intervention by the other party, and in this sense ‘entrusts’ himself to the other party”. As a result, the reliance thus plays a decisive role in distinguishing this kind of liability from the more strict tort liability. Published in 1991, the “Final Report of German Law of obligations Amendment” pointed out that the “protective duty (Schutzpflichten)” in culpa in contrahendo borne by the parties is not the same as the “die allgemeine Vekehrs (sicherungs) pflichten” in tort law, that is, “among the parties with special 99

Qiu Xuemei, The Reconstruction of the Civil Liability System, Law Press China, 2009, pp. 213 ff. Vgl. Claus-Wilhelm Canaris, Anspruche wegen „positive Vertragsverletzung” und „Schutzwirkung für Dritte” bei nichtigen Verträgen, JZ 1965, S. 480. 101 For example, the legal obligations such as the verkehrspflicht and the obligation of acting due to prior action belong to the latter case. Vgl. Canaris, Die Vertrauenshaftung im deutschen Privatrecht, SS. 2 f. 102 Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S. 540. 100

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relationship, the protective duty of a party is not equivalent to the protective duty borne by him according to tort law. If one of the parties does not belong to the assistant of obligation performance, there is no special relationship between the parties and can only lead to Verkehrspflicht in tort law to the other party.” Therefore, between the protective duty of culpa in contrahendo and obligation of transaction security, “the biggest difference is the special relationship between the parties based on a contractual relationship or personal relationship”. If there is no such special relationship, the party can only seek relief in the tort law in accordance with the obligation of transaction security. Otherwise, besides pursuing relief in accordance with the provisions of contract law or the culpa in contrahendo, the protective duty can also provide relief according to tort law under the circumstance of meeting the constitutive element of tort.103 According to the “theory of unified protective duty”, this view can also be extended to the difference between all protective duties and Verkehrspflicht. For the determination of protective duty of the contract, the contractual relationship is meaningful not because of its content but because it serves as a Sonderverbingdung. If there is no contractual relationship between the parties, there is no field of rights exposed to the other party by the protected party because of special binding relationships, so there is no duty of care or protective duty shall be bore by any party. In this sense, the background in which the protective duty was established is highly specialized, and its content and strength are both subject to the nature and closeness of such special relationship. And the “relationship” distinguishes the protective duty from the duty of care of tort law and makes it more relevant to the relationship of obligation or contracts. In addition, as opposer of the “theory of unified protective duty” (such as Medicus) have pointed out, since certain performance obligation is also protective duty, it is impossible to distinguish them completely; The limits of liability agreed in the contract should also be applied to performance obligation and protective duty, and the protective duty can affect the relationship of obligation. For example, violation of the protective duty may also lead to the termination of the contract. Therefore, it is inappropriate to separate the relationship between the protective duty and the performance obligation.104 Moreover, although defining the protection relationship as a statutory relationship is consistent with the fact that the protective duty does not depend on the wills of the parties in most cases, there is no sufficient reason to distinguish it from the protective duty that is based on the agreement.105 Therefore, it is difficult to define a single attribution of the protective duty. Due to the integrity between the protective duty and the relationship of obligation (or contractual relationship) which is the foundation of protective duty, once the distinction between the 103

Lin Meihui, Research on Obligations of Safety-Transaction in Tort Law [D], pp. 307–308. See Qiu Xuemei, The Reconstruction of the Civil Liability System, p. 210. 105 Starting from the premise that the obligation of protection can occur based on the agreement of the parties, it is not difficult to deduce the conclusion that the obligation of protection in contract must be determined by contract interpretation or loophole supplement. Vgl. Niklaus Lüchinger, Schadenersatz im Vertragsrecht, SS. 144 f. 104

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imputation of relationship of obligation (including imputation in contractual relationship) and the imputation of tort law is established in positive law, it is more reasonable to incorporate the liability for breach of protective duty into the general liability for the non-performance of obligation. Instead of distinguishing contractual liability and tortious liability, the German Law of Obligations unifies liability for non-performance of obligation and tortious liability. Although the new German Law of Obligations adopts the structure of unified protective duty in Article 241, Paragraph 2, and further clarifies the protective duty in contractual relationship and other similar relationships in transactions in Article 311, Paragraphs 2 and 3, in terms of normative effect, the legislator still subdivides it such as applying unified provisions to non-performance of the liability for damages (i.e., Article 280, Paragraph 1 and Article 282), and affirming the violation of the protective duty can result in the rescission right of contract (Article 324).106 In conclusion, on the one hand, it has affirmed the unified constitutive elements of breach of the protective duty in terms of damages; on the other hand, it has also taken into account the impact of the protective duty of the contract on the purpose of contract, and has re-integrated the protective duty into the overall structure of the contractual relationship by affirming the rescission right. (4) Judicial practice in which the protective duty of the contract and the duty of safety protection are distinguished The distinction between protective duty of the contract and the duty of safety protection is mainly in the breach of the affirmative duty, especially when the damage is directly caused by the third party and the parties to the contract just failed to take measures to avoid the damage. In this case, whether the nature of the dispute is a breach of contract or an infringement is related to the identification of relevant obligations and the definition of their nature. Here, we take the relevant cases in Supreme Court Gazette for example to investigate the judicial practice concerning this issue. a. Affirming both Contractual Obligations and Obligations of Tort Law. In Fuye Company of Dongshan Town, Jiangning County v Highway Department of Nanjing Airport, Jiangsu Province (appeal from a dispute over damages),107 when the driver of the plaintiff was driving on the highway of Nanjing airport managed by the defendant, he didn’t timely avoid a raincoat falling by a third party and caused a traffic accident, resulting in vehicle damage and personal casualties. The traffic police department determined that the driver had no illegal behavior, and it was an accident. Through mediation, the plaintiff, as the owner of the car made certain compensation to the relevant victims. Then the plaintiff claimed compensation for the related losses he suffered on the grounds that the defendant failed to fulfill its obligation to ensure safe and smooth roads.

106

For example, Article 324 of the German Civil Code provides: “in the case of a bilateral contract, if the debtor violates the obligations specified in Article 241.2, and the creditor can no longer be reasonably expected to maintain the contract, the creditor may dissolve the contract.” 107 Gazette of the Supreme People’s Court, No.1, 2000.

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The court held that the defendant and the plaintiff has formed a contractual relationship for the paid use of the highway because the performance between the defendant and the plaintiff. The defendant is obliged to perform his duties and obligations to ensure that highways are in perfect condition, safe and unimpeded in traffic in accordance with the provisions of Article 43 of the Highway Law. “It is the duty and obligation of the Appellant Highway Department of Nanjing Airport to maintain and inspect the highway and remove obstacles on the road. The technologies of Highway Department of Nanjing Airport enable it to recognize and solve abnormal road conditions in time. Nanjing Airport Expressway has a large traffic flow and the cars run at high speed, under such circumstance, only by diligently and carefully inspecting the road can it ensure the safe passage of the cars running on the highway. Although the Highway Department of Nanjing Airport proved that it has fulfilled its inspection obligation according to the road administration provisions, it failed to prove that it has ensured the safe conditions for cars passing on highways. This accident proved that the appellant has negligence regarding the inspection.” “The Highway Department could not remove the obstacles on the road in time after charging, which caused the accident of the plaintiff in the course of transport. It not only needs to bear the liability for omission, but also the liability for the breach of contract because it did not fulfill the obligation of ensuring that highways are safe and unimpeded in traffic……so the appellant should bear civil liability for its breach of contract.” The defendant’s obligation to ensure that highways are safe and unimpeded in traffic is because the paid use of the highway has the attribution of contract. Obstacles on the highway may lead to traffic accident and cause damage, which is a typical consequence of breaching the obligation of ensuring that highways are safe and unimpeded in traffic. This consequence is foreseeable when the parties enter into such a contract, and in this sense, the attribution of contractual obligation is established. Even not considering the contractual relationship between the parties, since the highway is a place open to the unspecified public, its operators should also be obliged to ensure that highways are safe and unimpeded in traffic. This kind of obligation has the attribution of security obligation in tort law. Although this case was handled as a contract dispute,108 the court interpreted the provisions of Article 43 of the Highway Law on the obligation of the highway administration to ensure that highways are in perfect condition, safe and unimpeded in traffic as a protective legal norm, and deduced the highway department that exercising administrative right should assume the security obligation in private law. The court clearly affirmed that the breach of such obligation constitutes an omission in tort, which has obviously innovative significance. However, the apparent attribution of contract disputes has 108

The court clearly stated: “Under the condition that the third person has not been traced out, the sideline company sued the expressway management office according to the principle of contract relativity, arguing that it is legal for the expressway management office that failed to fulfill its obligation to ensure the integrity, safety and smoothness of the highway to compensate in advance. After making compensation in advance, the expressway management office has the right to claim compensation from the third party.”

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covered the innovative significance of the case in tort law, and it is a pity that it doesn’t attract enough attention in later relevant judgments.109 b. Affirming contractual obligations, excluding obligations of tort law. In Wang Liyi and Zhang Lixia v Shanghai Yinhe Hotel (Case of the dispute over the compensation110 ), the plaintiff’s daughter Wang Han was killed by a criminal in the Yinhe Hotel. The court held that the defendant, Yinhe Hotel failed to fulfill the collateral obligation (protective duty) in the accommodation contract and should bear the liability for breach of contract. However, the courts of both instances negated the plaintiff’s claims based on tort liability.111 When denying tortious liability, the courts of the first and second instances focused on causation and joint infringement. Even if the joint infringement cannot be constituted, the defendant’s tortious liability can still be established to meet the constitutive requirements of separate infringement. While denying the causation can simultaneously negate the possibility of separate infringement and joint infringement, which is more fundamental. From the principle of construction of tortious liability, it is necessary to discuss the issue of causation in the constitution of tortious liability (which is also the content of the “composition of facts” of tortious liability) only after affirming the existence of the tortious act (that is, there is an act that violates the obligation of tort law). In this case, the basis of the plaintiff’s claim is that the defendant fails to fulfill the protective duty that prevents the tortious act of the third party, which belongs to the issue of omission in tort. Therefore, the first issue that needs to be solved in the plaintiff’s claim for infringement is whether the defendant has the “affirmative duty” in tort law to prevent the tortious act of the third party? The judgment, in this case, did not give a clear answer to this issue, while the judge from the court of the second instance subsequently “supplements” the answer, that is, when a breach of contractual obligations leads to damage of inherent interests, it is an infringement if the violation per se is manifested as an act: “The hotel’s failure to fulfill its protective duty is a breach of contractual obligations, rather than a breach of a general obligation that protecting personal and property 109

Interestingly, in the Complete Collection of Cases in the Gazette of the Supreme People’s Court edited by the head of the Supreme Court (edited by Shen Deyong, People’s Court Press, 2009 edition), this case should be classified as an infringement case, which may be regarded as a “reappearance discovery” of this case. 110 Gazette of the Supreme People’s Court, No.2, 2001. 111 However, the reasons held by the two courts of trial are slightly different. The court of first instance held that the defendant was not a joint injurer, and there was no legal causal relationship between his management negligence and the victim’s murder, so he did not bear tort liability; The court of second instance held that the defendant’s behavior and the criminal behavior of the third party “have neither subjective joint intention nor objective behavior involvement”, and their improper behavior will not “inevitably lead to” the death of the victim, so it does not constitute joint infringement and does not bear tort liability. It can be seen that the court of first instance denies the defendant’s tortious liability from the perspectives of joint tort and causality in tort law, while the court of second instance only denies the defendant’s tortious liability from the perspective of joint tort. Obviously, denying the joint infringement between the defendant and the third party cannot rule out the possibility that the defendant bears tortious liability alone, and the reasoning of the court of second instance on this issue is obviously insufficient.

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rights of the statutory hotel guest. Therefore, the hotel has not violated its legal obligations, and its behavior is not illegal and does not constitute an infringement. Unlike the debtor’s injurious performance, when he violates the agreement, he also injures the legal personal rights and property rights of creditors in the way of act. Therefore, it constitutes the concurrence of infringement and breach of contract. The failure of Shanghai Yinhe Hotel to prevent the occurrence of damage consequences does not mean that it directly caused the occurrence of damage consequences.”112 If recognizing the security obligation (or Verkehrspflicht) characterized by omission in tort, and judging the wrongfulness according to the theory of act wrongfulness113 (Handlungsunrecht), then, combining the aforementioned view—an act that violates the contract and constitutes infringement is only limited to the tortious act in form of an act—with the issue of causation. The logical conclusion of denying the tortious liability in the judgment of this case is that there is no causation between omission to prevent others from injury and the consequences of damage. However, this conclusion is suspicious. The court’s opinion for liability for breach of contract is as follows: “......In order to ensure the personal and property safety of the hotel guest, the hotel must and is also qualified to pay full attention to all strangers who enter the hotel. The hotel should understand the movements of such persons during the reception and inquiries, identify and stop the men’s rea in time to protect the safety of the hotel guest. Facts have proved that Galaxy Hotel wass not equipped with special personnel to take charge of this work. When the criminal Tong Ruibao entered and exited the accommodation area where William Wang was located, he never met the hotel staff, let alone receive attention and inquiry, so he could smoothly enter the guest room to commit crimes and escape calmly afterwards. William Wang’s body was found the next day. Galaxy Hotel was not equipped with reception staff in the passenger accommodation area, which is a big mistake in work. This mistake has put passengers in an extremely unsafe situation, which was also the fundamental reason why Tong Ruibao chose Galaxy Hotel as the crime place. Although Yinhe Hotel had installed TV monitoring equipment at the elevator entrance of each floor of the accommodation area, when the monitoring equipment showed that Tong Ruibao went up and down the hotel elevator 7 times in less than two hours to wait for chance to commit crime, the hotel staff did not pay close attention to this unusual behavior. The fact has proved that due to the large passenger flow in and out of the elevator, this measure is ineffective for the timely protection of personal and property safety of hotel guests......” “The duty of performance of the appellant Yinhe Hotel did not comply with the provisions of the contract and even put Wang Han in a dangerous situation, so the hotel should bear liability for breach of contract.”

From the above analysis, there is nothing special about the establishment of protective duty and the identification of breach of the obligation in terms of breach of contract, which proves that the constitution of tortious liability isn’t problematic. Since the court determined that the defendant should bear the liability for breach of contract for breach of security obligation, it must have confirmed that there was causation between the defendant’s breach of security obligation and the consequence of the 112

Liu Yanhao, Hotels’ Obligation to Protect Guests: An Analysis of the Case of Wang Liyi and Zhang Lixia v. Shanghai Yinhe Hotel (Appeal from a Dispute Over Compensation for Damages), in Chinese Journal of Law Vol. 3, 2001. 113 See Li Hao, On verkehrspflicht: An Interpretation of the Structural Changes of German Tort Law, pp. 289–290.

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victim’s death. Why is there, for the same obligation, causal relationship between contract and the consequences of damage, but no causation in tort? A reasonable explanation is that liability for breach of contract and tortious liability adopt different standards in judging the causation, that is, the tortious liability adopts a stricter “necessary causal connection theory”. As such, the requirements that lead to the breach of contractual liability cannot satisfy the requirements of causation in tortious liability. It is scarce to adopt “necessary causal connection theory” in the constitution of tortious liability, and the “proper causation” or “regulation-purposed theory” is usually adopted in theory.114 However, the criterion of “necessary causal connection theory” is also different from that of the cases of the Gazette of the Supreme People’s Court. For example, in the aforementioned case of “highway of Nanjing airport”,115 the act of the third party also caused damage to the parties to the contract, but the court did not deny the causation of establishing tortious liability. In fact, in cases where damage is caused by a third party, it is often difficult to determine the tortious liability of the defendant if the “necessary causal connection theory” is adopted, which is exactly opposite to the approach of security obligation in tort law. For Verkehrspflicht or security obligation, it has threefold presumption features of “negligence per se”, “presumption of causation” and “presumption of illegality”, and the effect116 of converting general negligence liability into the liability of negligence per se. Therefore, once the fact that the perpetrator violates the security obligation is determined, the judgment process of the defendant’s liability is greatly “shortened”. Therefore, the court in this case “successfully” avoided the difficult problem of characterizing the obligations violated by the defendant by improving the judgment standard of causation in tortious liability. That is to say, even if we take a step back and admit that the defendant can constitute omission in tort because there is no causal relationship between his omission and damage consequences, he should not bear tort liability. In this way, omission is replaced by causation, which is the possible reason why the court of the second instance takes causality as the reason to deny the defendant’s tortious liability. In this case, the court’s transformation of the definition of the nature of the duty to protect into the issue of causation is only a “technical” avoidance of the real substance. Once the issue of grounds for omission in tort is legally resolved (the security obligation plays such a role), the judgment’s reason for denying tortious liability of the defendant will be unconvincing.117 The judgment of security obligation should always be considered under specific action 114

See Wang Liming, Research on Tortious Liability Law (Vol. 1), Renmin University of China Press (2010), pp. 405–406; Zhang Xinbao, Research on the Elements of Tort Liability, Law Press, 2007, pp. 409–410. 115 Gazette of the Supreme People’s Court, No.1, 2000. 116 Lin Meihui, Research on Obligations of Safety-Transaction in Tort Law [D], p. 299. 117 A very interesting phenomenon is that in the Complete Collection of Gazette Cases edited by the Supreme Court, the case is arranged in the part of “civil tort” cases, which is intriguing. Perhaps it can be regarded as some reflective treatment of the issues involved in the case by the judicial practice department. See Shen Deyong, The General Office of the Supreme People’s Court: Complete Collection of Cases in the Gazette of the Supreme People’s Court (Vol. I), People’s Court Press, 2009.

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scenarios. As the factual background of the damage, the obligation relationship (or contract) between the parties will also affect the result of judgment. In this sense, the same approach will be adopted for the judgment of the security obligation and the protective duty of the contract. c. Affirming the tort law obligation, not clearly stating contractual obligations. In Wu Chengli, etc. v China Construction Bank (Guandu branch) and Wuhua Security Company (Case of a dispute over the compensation for personal damage),118 the victim was robbed and killed by the criminal when she went through deposit and remittance procedures in the defendant China Construction Bank (Guandu branch). The victim’s close relatives (plaintiffs) demanded that the defendant, China Construction Bank (Guandu branch) and Wuhua Security Company who provides security services to the bank, shall bear joint compensation liability. According to the court, China Construction Bank (Guandu branch) shall bear compensation liability for breaching the security obligation to the client, but the claims of the plaintiffs that Wuhua Security Company which provides security services shall assume the liability was denied. The decision of the Appellate Court of Final Appeal is as follows: The appellant Guandu Construction Bank is a financial enterprise legal person whose primary business contents are RMB access and settlement. The particularity of its business contents determines that it is objectively vulnerable to illegal acts. As a highly open business place, the business hall of Guandu Construction Bank increases the possibility of danger. As a financial enterprise, a legal person, Guandu Construction Bank has an obligation to prevent and stop dangers and ensure the safety of the personal and property rights of the bank itself and customers entering the bank’s business premises. This obligation is not only the requirement of the law for the financial enterprise as a legal person to maintain the normal social order, but also the hope of the customers who are in long-term cooperation with the bank. In this case, although China Construction Bank (Guandu branch) had set up corresponding safety precautions in accordance with the “Safety Protection Regulations”, it could not prove that the bank had arranged special personnel to guard these safety precautions in accordance with the requirements of Article 62 of the regulations, so that these facilities cannot play the role of anticipating, preventing or reducing damage. The particularity of security personnel’s profession determines that they have a high duty of care for matters related to public safety, which is not the general concern of others for such matters. Although Guandu Construction Bank arranged a security guard on duty and drew a “one-meter line” in the business hall, when several people entered the “one-meter line”, the security guard did not interfere, thus losing the possibility of discovering and stopping illegal infringement in time. The perpetrator entered the business hall, and spied on Wu Yanhong in the process of filling out the documents and robbed her, during which time the on-duty security personnel answered the client’s questions about the banking business but failed to perform their duties of maintaining the safety of the business hall and preventing the dangerous events. When the perpetrator escaped from the scene of the crime, the on-duty security personnel did not show any indication to stop the criminal act. Therefore, the China Construction Bank (Guandu branch) which has an obligation to control dangers and guarantee the safety of clients, has a specific fault for the death of Wu Yanhong and should bear civil liability appropriate to his fault.

In this case, the court determined the security obligation purely from business attribution or characteristics of the defendant China Construction Bank (Guandu 118

Gazette of the Supreme People’s Court, No.12, 2004. For details of the case, see Sect. 1, 1 (1) 2 of this chapter.

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branch). Although the term “client”, which implies the color of the contractual relationship, is also used in the analysis, there is no internal relationship between such obligation and the content of the contractual relationship. According to the court’s reasoning, the bank’s security obligation is not directed to any “client” who has an actual contractual relationship with it, but those “potential clients” with any possibility. In this sense, this kind of obligation has the attribution of targeting unspecific people and does not depend on the relationship between the bank and the client. However, like the “Yinhe Hotel Case”, this case involves the fact that the crime committed by the third person caused the death of the victim. The basis of the defendant’s liability lies in its failure to fulfill security obligation, but the determination of the defendant’s tortious liability in the two cases is totally different, which is intriguing. The reason for this difference in tort law obligations is that in the “Yinhe Hotel Case”, there is no direct legal basis for the defendant’s tortious liability. In the trial of this case, the Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of Laws in the Trial of Personal Injury Compensation Cases (Fa Shi [2003] No.20) has been issued. Article 6, Paragraph 2 of the Interpretation clearly stipulates that the damage caused by the entity engaged in business activities to the third party should amount to the extent that it can prevent or stop the damage, and it shall bear the corresponding supplementary liability for damages”. Although this “Interpretation” is not yet applicable to this case, it will obviously affect the court’s trial and encourage it “step forward” in the direction of “creative justice”. In other words, if the safety promises made by the defendant and the content of the specific contractual relationship (service standards corresponding to the higher service prices of four-star hotels) are not considered in the “Yinhe Hotel Case”, then it is somewhat inconvincing to determine the protective duty as contractual obligations simply “according to the nature, purpose and industry habits of the lodging contract”. After all, the security obligation in this case is more related to the characteristics that the defendant is open the business to the public rather than related to the specific contractual relationship. The security obligation cannot be established without such characteristics of business activities. That is why the court in this case denied the claim of plaintiff that Wuhua Security Company which provides security services for bank shall bear tortious liability. Since Wuhua Security Company only provides security services to China Construction Bank (Guandu branch) based on the contract, rather than to the general public, the clients of the bank are only indirect beneficiaries of the contract between the bank and the security company, and cannot obtain independent right of claim based on such contracts. d. Affirming the contractual obligations without clearly stating the tortious obligation. In Wang Yongsheng v Bank of China (Nanjing Hexi Branch) (Case of the dispute over the deposit contract),119 when plaintiff Wang Yongsheng withdrew money at the defendant’s self-service banking outlet, the criminal installed a card reader at the ATM of the banking outlet and a camera at the top of the ATM, and stole the 119

Gazette of the Supreme People’s Court, No.2, 2009.

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card number, information and password of the debit card and copied the fake debit card, so that the money in the card was withdrawn and consumed. The court held that, according to the attribution of the deposit contract between the plaintiff and the defendant, the defendant has the statutory duty of safety protection of the deposit in the plaintiff’s debit card in accordance with the provisions of the Commercial Bank Law, and pays the deposit to the plaintiff or his agent in accordance with the plaintiff’s instructions. It is also an important part of the bank’s security and confidentiality obligations to make daily maintenance and management of self-service bank teller machines, and provide a necessary safe and confidential environment for depositors who handle transactions at self-service bank teller machines. This obligation should be borne by the bank that sets up the self-service bank teller machine in that the bank staff with professional knowledge neglect to manage and maintain the teller machine, fail to check and clean up the machine in time, and fail to timely find and dismantle card readers and camera devices installed by criminals. As a result, the self-service bank teller machines become places where criminal tools are hidden, thereby causing potential safety hazards to depositors and leaving opportunities for crimes. To sum up, the plaintiff’s debit card password was stolen by criminals, which was caused by the bank’s failure to fulfill its obligation to provide depositors with the necessary safe and confidential environment. “Therefore, the defendant’s improper payment of funds to criminals has no effect on the plaintiff. he should still pay the corresponding principal and interest of deposits to the plaintiff in accordance with the deposit contract.120 In this case, the reason why the defendant bears the responsibility is that the password of the plaintiff’s debit card was stolen, and the funds in the card were stolen by a third party. Whether the defendant’s obligation to prevent potential safety hazards of depositors’ funds should be recognized as contractual protective duty depends on the nature of the interests protected by the obligation. When a third person uses a false debit card to withdraw funds from the defendant, the victim may be either the defendant or the plaintiff (the real cardholder). If it is determined that the defendant’s act of withdrawing funds from the third party is valid, the plaintiff is the subject directly injured by the criminal act of the third party. At this point, the defendant’s failure to fulfill the obligation of safety and confidentiality caused the plaintiff’s economic loss, which was the loss of inherent interests, and the defendant’s obligation belonged to the contractual protective duty. If it is determined that the defendant’s withdrawal from the third party is invalid for the plaintiff, the subject directly injured by the third party’s criminal act is the defendant. In this case, the plaintiff does not suffer any material damage. However, before the criminal act of the third person is verified, the defendant’s act is presumed to be effective so that the plaintiff may still suffer economic loss. Regardless of whether the act that a third party withdrew money from the defendant is determined to be effective or ineffective, the plaintiff has always suffered damage (actual economic loss or possible risk of loss), from which the existence of protective duty of the contract can be determined. However, if 120

See also similar cases. “Gu Jun v. Shanghai Bank of Communications over Savings Contract Dispute” (Gazette of the Supreme People’s Court, No.4, 2005).

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the first method is adopted, whether the defendant should assume omission liability due to its failure to fulfill security and confidentiality obligations may be questioned (such as the defendant’s defense121 that it is not liable for the damage caused by the criminal act of the third party). While the second method does not involve this issue because the burden of argument of the court is lighter, and the interpretation of the conclusion is more certain. Perhaps based on the consideration of the burden of argument, the court chose the second way to determine the defendant’s liability. In this case, the interest maintained by the protective duty is the same as the content of the primary performance obligation of the contract, that is, the principal and interest of the funds in the debit card. Therefore, the determination of the attribution of relevant obligation has no impact on the ultimate result. Judging from the facts of this case, the basis of the defendant’s liability is his failure to fulfill obligations of maintenance and management, which makes the criminal steal the card number, information and password of the plaintiff’s debit card by installing a card reader and a camera. Since the defendant did not directly disclose relevant information to the criminal, only the omission can be considered to be established. In this case, the plaintiff explicitly made a request based on the contract and did not claim tort liability, so the court did not explain whether the defendant constituted infringement. However, the defendant put forward the claim that he was not responsible for the consequences of the criminal acts of the third party. If holding the same ground of decision as the “Yinhe Hotel Case”, the aforementioned defense will deny the tortious liability, but it will have no effect on the liability for breach of contract. The consequences of breaching the security obligation should be divided into two cases according to the attribution of the damaged rights and interests and the status of the obligation in the contract: “First, if the operator’s breach of the security obligation leads to the victim’s pure property damage, and the security obligation is the primary performance obligation of the contract, then the victim can only file a lawsuit for breach of contracts such as the dispute over storage contract or security contract. Such as custody contract disputes or security contract disputes. Second, if the operator’s breach of the security obligation leads to the victim’s personal injury or property damage, but the security obligation is not a performance obligation agreed by the contract, it will constitute the concurrence between tort and breach of contract. The victim can file a lawsuit.”122 According to this standard, this case should meet the conditions of concurrence of breach of contract and infringement. Because, in this case, the plaintiff’s damage is property damage, and the obligation of safety and confidentiality is not the primary performance obligation of the deposit contract. However, the aforementioned security and confidentiality obligations of the defendant can only be established according to the deposit contract between 121

In fact, this kind of defense is more applicable to tort liability, but less applicable to contractual liability, because the contractual relationship itself can be used as the basis for determining as an obligation, while it is difficult and controversial to determine as an obligation due to the limitation of legal provisions in tort law. 122 Wu Hong & Ding Guang, Obligation to Guarantee the Security of Financial Institutions from the Perspective of Contract Law, in People’s Justice Vol. 12, 2009.

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the original defendant and the defendant. Without the deposit contract, there are no security and confidentiality obligations. Therefore, it is advisable to deny the security guarantee obligations in tort law. It can be found from the above cases that the current judicial practice in China is obviously characteristics of legislative guidance in determining the protective duty of the contract and security obligation of tort law, that is, establishing the protective duty of the contract and security obligation of tort law by interpreting the protective regulation of relevant laws. The clearer the indicative characteristics of these norms, the more specific the judge’s decision will be.123 Since the protective duty of the contract is first recognized by the law through the contract law, before the security obligation of tort law is recognized by judicial interpretation and legislation, the courts tend to remedy the parties’ inherent interests through the protective duty of contract. Generally speaking, there is no clear and affirmative standard in Chinese judicial practice in determining protective duty of contract and the security obligation of tort law, so the relationship between them is still obscure. (c) Summary Judging from the structure of Chinese private law system, the protective duty is included in contract and tort law. Under such a structure, it is inappropriate to adhere to the traditional theoretical model and regard the protection of inherent interests as an exclusive field of tort law. In view of the dual attribution of contractual obligations and tort law obligations in the current law of China, the determination of attribution of protective duty can only depend on the specific circumstances of the case. It is worth noting that although Chinese civil legislation is rooted in the civil law tradition, it has its own special characteristics. In order to achieve a substantially proper result, the problem faced by judicial practice is not to make up for the lack of relief to the parties in the legal field where the regulation range is too narrow by transforming protective duty from one legal field to another, but to interpret the effects of private law applying protective norms, and classify the corresponding protective duty into contract law or tort law. Due to the difference in liability constitution and liability commitment for breach of contract and tortious liability in Chinese law, different classifications of protective duties may lead to different legal implications. Therefore, it is necessary to coordinate the processing rules of the contract and tort law so as to avoid different processing results due to classification and undermine the balance structure constructed by tort law and contract law. The systematic positioning of protective duty is premised on the opposing structure of contract law and tort law. The task that Chinese legislation and theory face in the future is not to include protective duty under a unified institutional construction but rather make the legal effect regulated by contract law consistent with that regulated by tort law to a large extent. 123

“Galaxy Hotel Case” The innovation of nonfeasance in Nanjing Airport Expressway Case could have been brought into play, but the result turned to the development of contractual Schutzpflicht. (Fortunately, contractual Schutzpflicht.) Finally in “Wu Chengli case” The creation was re-continued.

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1.3 Protective Duty in Contract (1) Theoretical Boundary of Contractual Protective Duties Protective duties are premised on a special constraint relationship between the parties. To determine it as an obligation in contract law, it is also necessary to clarify the specific connection between this relationship and protective duties. Some scholars believed that “for protective duties, the contract law is applicable only when both inherent interests and protective benefits are involved at the same time. That is to say, protective duties can be included in contract law and become contractual obligations only in the field where inherent interests and performance interests intersect.”124 Considering the relationship between contractual obligations and the protection purpose of obligations or the consequences of breaching the obligations, if the overlapping field of inherent interests and performance interests are regarded as the conditions for the determination of the contractual protective duties, it will give rise to the following problems. From the pre-view observation, if contractual protective duties are limited in the overlapping field of inherent interests and performance interests, it is contrary to the premise that the protective duty only protects inherent interests. We cannot tell why a cleaner who breaks a window when cleaning it is qualitatively different from a cleaner who breaks an expensive vase when cleaning it.125 It is difficult to draw the conclusion just because it is impossible to achieve the contract purpose (the purpose of cleaning windows) in the former case, while in the latter case, the contract purpose can also be achieved. Imagine that if the cleaner is cleaning all the windows of a building, but a piece of glass is accidentally broken when the work is about to be completed. In this case, can it be considered that the contract purpose will not be achieved? If such a situation is excluded from contractual protective duties, then the premise of judgment could be modified as “contractual obligations can be established only when the protective duties are violated and the contractual purpose cannot be achieved”. However, this method that the same obligation can be determined based on the degree of damage is not only unreasonable but also difficult to operate in practice. The rear-view observation emphasizes that the establishment of protective duties must be based on the damage to both of inherent interests and performance interests. Although there is no problem in operation, according to the different damage that happen by accident, the application of different laws to the same act is inconsistent with logical reasons and legal principles. For example, when the inherent interests of the parties to the contract, such as personal interests and property interests, are damaged due to improper use of the product, it is hard to explain why contract law should be applied when performance interests are damaged at the same time, while tort law can only be applied when performance interests are not injured at the same time. Since protective duties and performance obligations are independent of each other, the act that violates protective duties will not violate the performance obligation, 124 125

See Ye Yingping, Study on the Obligation to Protect in Contracts, p. 126. Ibid., p. 125.

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nor will it certainly damage both inherent interests and performance interests, and vice versa. Therefore, the view that “only the protective duties in the overlapping field of inherent interests and performance interests” can be regarded as contractual obligations excessively limits the scope and function of contractual protective duties, which is not appropriate logically and practically. Article 60, Paragraph 2 of Contract Law stipulates that the parties shall abide by the principle of good faith and perform obligations such as notification, assistance, confidentiality, etc. in light of the nature and purpose of the contract and in accordance with the relevant usage. According to general theories and judicial practices, this provision is a general provision of collateral obligation of contracts, so protective duties as a type of collateral obligation can also be judged according to this provision. Since this provision has apparent similarities with the provisions of implied obligations of contracts in Article 5.2126 of UNIDROIT Principles (1994 edition), the “general provisions” can be referred to when interpreting the introduction of the contract law. “The nature and purpose of contracts127 ” are more commonly used general concepts in the “General Principles.” Although the specific meaning is not clearly defined in relevant stipulations and commentary, according to the use of the concept in commentary, we can still find that “the nature and purpose of contract” can only be determined by the specific content of contracts. It can refer to either the general purpose (the nature and purpose of the contract) that the parties want to achieve through the contract, the nature of the specific contractual obligations, or the purpose to be realized (the nature and purpose of contractual obligations). In this sense, “the nature and purpose of contract” as the standard for judging the contractual protective duties has the same functional and operational significance as the standard stipulated in Article 241, Paragraph 2, “Content of Obligation Relations” of the German Civil Code. Therefore, the determination of protective duty should not be considered simply from damage. Still, more attention should be paid to the form and degree of association between relevant protective duties and contractual relationships.128 On the one hand, contractual protective duties can be determined only when the damage to inherent interests is intrinsically related to the contract’s content, that is, the damage is an inherent risk of damage to the contractual relationship. In the case of the aforementioned examples of a cleaner’s breaking windows when cleaning, whether or not the contract purpose can be achieved is related to the inherent risk of damage to the obligation of cleaning windows. Therefore, the owner must claim for damages in accordance with contract law. Conversely, if the two parties have a spat due to unsatisfactory cleaning work and the owner or the cleaner batteries the other party, such damage can only be 126

Namely, UNIDROIT Principles, 2010, Article 5.1.2. See UNIDROIT Principles, 2010, Articles 3.2.7, 4.3, 4.8 and 5.2. 128 Although contractual relationship generated by Schutzpflicht is also considered as a kind of trust relationship, the Schutzpflicht is not necessary for the injured party to have positive trust in the injuring party. In this special relationship, trust is only one of the reasons for one party to open the field of rights to the other party, rather than the basis for damages and corresponding liabilities. Therefore, the existence of trust between the parties is not a necessary condition for determining the contractual Schutzpflichts. 127

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resolved in accordance with tort law because it is not an inherent risk of cleaning work (contracting obligations). On the other hand, the existing contractual relationship has defined the scope of the subjects who claim rights due to breach of protective duties. In other words, only the parties to the contract can claim liability for breach of protective duties based on the contract.129 In the previous example, if the cleaner who caused the damage is not a party to the contract, although the cleaner is the direct actor and there is a de facto contract between the owner and the cleaner, the cleaner is also not liable to the owner for any damage to the window. (3) Determination of Contractual Protective duties Since the contractual protective duty is related to the contract and needs to be determined based on the content of the contractual relationship, the way of determining the contractual content will also have an impact on the determination of protective duty. In this regard, we will discuss from the aspects of protective laws and interpretation or supplement of contract. a. Protective Legal Provisions The contractual obligations confirmed by modern contract law can be divided into two types: contractual obligation and statutory obligation. The former is determined by the parties’ intents, while the latter is either directly stipulated by law or supplemented by the judge based on the principle of good faith.130 The same is true of the type of contractual obligation from which the protective duty arises. If the parties are aware of the protection needs in contract and make an explicit agreement on protective duty in the contract, then the protective duty is contractual. That is to say, obligations are based on the parties’ consensus. Conversely, legislators can also directly stipulate protective duty in specific types of contracts based on special policy considerations. According to their nature, such legal provisions should be mandatory due to their protection of inherent interests (or integritätsinteresse). Of course, they should be regarded as an integral part of the contract. As such, the protective duty is of a statutory nature. There are many forms of protective legal provisions, some of which are directed to specific types of contractual relationships (many of such provisions exist in the Specific Provisions of Contract Law), some of which are not designed for typical contractual relationships, such as the stipulations of Law of on Protection of the Rights and Interests of Consumers (hereinafter referred to as the “Consumer Protection Law”) concerning the rights of consumers or the obligations of business operators. If the protective legal provisions are directly for the specific types of the contractual relationship, it is undoubtedly that it can directly determine the protective duty of the contract. If protective duty is not targeted for specific types of the contractual relationship, or its connection to contractual relationships is not clear, it 129

Vgl. Niklaus Lüchinger, Schadenersatz im Vertragsrecht, SS. 150 f. For the issue of schutzpflicht to the third party, please refer to the relevant discussion in Sect. 3 of this chapter. “Protective Effect of the Contract on the Third Party.” 130 See Article 1135 of French Civil Code. Han Shiyuan, The Law of Contract (3rd ed.), pp. 242–243.

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often raises the question of whether it can only be used as a basis for determining the obligation in tort law or it can also be used as a basis for determining protective duty of contract. In judicial practice, many courts take such protection provisions in jus singulare as the basis for determining obligations in tort law rather than contractual obligations, which deserves special attention. Consider, Article 7 of the Consumer Protection Law and the case of Supreme Court Gazette for example. In Xie Fuxing and Lai Meilan v. Sun City Swimming Pool Co., Ltd. (dispute over service contract),131 the plaintiff’s son Xie Zhuochao (underage) drowned while swimming in the swimming pool operated by the defendant Sun City. The swimming environment provided by the defendant did not meet the safety standards, and the lifeguard didn’t notice the aggrieved party was drowning at the time of the accident because he was not on the high platform observing the swimming pool, which lead to the loss of the victim’s chance to be rescued. The court held that the deceased Xie Zhuochao and the defendant had formed a relationship between consumption and service, which was regulated by the Law on Protection of the Rights and Interests of Consumers (hereinafter referred to as the “Consumer Protection Law”) and the aggrieved party has the right to require the defendant to bear tortious liability in accordance with the provisions of Articles 7 and 11. As to whether the defendant should bear the liability for breach of contract, the court made the following arguments: …Although there is no written agreement or oral agreement on the content of the service contract, such as service quality and rights and obligations of both parties, according to the purpose of the contract, industry requirements, and trading practices, it can be presumed that Sun City Co. should undertake a contractual collateral obligation of providing a safe swimming environment and protecting the personal safety of swimmers. To perform this collateral obligation, Sun City Co. should install and use lighting equipment as required, be equipped with full-time and competent lifeguards and medical personnel, and establish a safety management system to provide swimmers with a safe swimming environment. …Since the swimming environment provided by Sun City Co. did not meet the safety standards, and the lifeguards did not notice Xie’s drowning because he was not on the high platform observing the swimming pool, Xie Zhuochao lost the opportunity to obtain timely assistance. Although the lifeguard called for help and followed the doctor’s instructions for rescue after Xie Zhuochao was dragged ashore, it is too late. … Since Sun City Co. has not performed its collateral obligation of a contract to ensure the personal safety of swimmers, it shall be liable for breach of contract for compensation for losses.

As for the damage in this case, since the drowning of Xie Zhuochao, the son of the plaintiff, was not caused by the defendant’s positive interfering acts, the key to judging whether the defendant bears liability lies in whether he has the protective duty of a contract of taking relevant measures to avoid the personal injury to the other party of the contract. Since the parties did not stipulate the content of protection in the contract, the protective duty can only be determined in accordance with the direct provisions of the law or with Article 60, Paragraph 2 of the Contract Law. It is worth noting that the court held in the decree that the aggrieved party has the right to demand the defendant bearing tortious liability in accordance with the provisions 131

The Supreme People’s Court Bulletin, No.6, 2003.

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of Articles 7 and 11 of Consumer Protection Law, which demonstrates that from the foregoing provisions, it can be determined that the defendant has a form of security protective duty to the deceased Xie Zhuochao. However, it is evident that the court treated the security protective duty determined in this way as obligation in the Tort Law. It is because the court did not consider the aforementioned provisions of “Consumer Protection Law” when determining the protective duty of contract but determined that the defendant had the collateral obligation (protective duty) to provide a safe swimming environment and protect swimmers’ personal safety based on the purpose for entering into the contract, industry requirements and transaction practice in accordance with the Article 60, Paragraph 2 of the Contract Law. The question is, does the security protective duty in Tort Law identified in accordance with Article 7 of the Consumer Protection Law also constitute the protective duty of contract? In other words, does Article 7 of Consumer Protection Law and Article 60, Paragraph 2 of the Contract Law have the same guiding role in determining the protective duty of contract? There is a view that the provisions of the Consumer Protection Law can only be applied if the business operator’s goods or services “directly” cause damage to consumers.132 This view should not be approved because the “Consumer Protection Law” has clear provisions regarding business operators’ duty to act, such as requiring the business operator to warn, instruct or take other necessary measures to prevent damage,133 and consumers have the right to require the business operator to provide goods and services that meet the requirements for safeguarding the safety of person and property.134 According to the provisions of Article 35, Paragraph 3 of the Consumer Protection Law, if consumers’ legitimate rights and interests are damaged when receiving services, they may demand compensation from the service provider. This article does not take the “direct” damage of service as an imputation element. Therefore, when the business operator fails to fulfill the aforementioned obligations and omits to act, he shall bear the compensation liability in accordance with these provisions.135 In the “Li Bin v. Lu Xianqin, Lu Xuanfeng, Zhu Haiquan 132

See Wang Liyi, Zhang Lixia v. Shanghai Yinhe Hotel Compensation Dispute (The Supreme People’s Court Bulletin, No.2, 2001); “Li Bin v. Lu Xianqin, Lu Xuanfeng, Zhu Haiquan personal injury damages dispute case” (The Supreme People’s Court Bulletin No.4, 2002). 133 See Article 18 of Law of the PRC on the Protection of the Rights and Interests of Consumers. 134 See Article 7, Paragraph 2 of Law of the PRC on the Protection of the Rights and Interests of Consumers. Since the obligation to ensure the safety can be either an obligation of non-infringement or an obligation to take measures to avoid damage, this article should, in its meaning, include the content of omission. 135 What needs to be explained is that although the “Consumer Protection Law” has stipulated that business operators have the general protective duty the personal and property safety of consumers (manifested as the consumer’s safety right to be no harmed), it is only indicative because of its generality, and needs to be concretized by the judges in combination with the specific consumption relationship. As for the specific forms in which consumers “directly” suffer from the business operators’ goods or services, the “Consumer Protection Law” has many detailed provisions, such as the first and second paragraphs of Article 35, Article 41 and Article 42. On the contrary, for the business operators who did not perform security protective duty so that caused damage of the consumers, this law did not make further detailed provisions. It may be under the consideration

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personal injury damages dispute case”,136 the court, on the grounds of “directness of damage”, believed that the business operator was not liable for the infringement of consumers by the third part in the process of consumption. However, it was also believed that the business operator was not free of any obligations: “According to the principle of good faith and current legal theories, the business operator has the duty of careful attention and care for the personal safety of the consumers who are receiving services. Within the scope of control, the business operator should take reasonable measures within its ability to prevent the personal safety of consumers from being infringed by the third parties.” Since this conclusion was originally within the range of the literal meaning of Article 7 and Article 35, Paragraph 3, such a tortuous interpretation is actually unnecessary. Moreover, even if the foregoing interpretation had been limited, it is only to exclude certain damages suffered by consumers from the scope of regulation of the law. For other damages that should be regulated by the law, the relationship between provisions of Article 7 of the “Consumer Protection Law” and the provisions of Article 60, Paragraph 2, of the Contract Law still needs to be resolved. From the provisions of Articles 11 and 35–49 of the “Consumer Protection Law”, since they only involve the liability cause and the content of liability in the legislation but do not involve the nature of liability, there are different interpretations of whether the business operator can only bear tortious liability in accordance with the Tort Law or also bear the liability for breach of contract in accordance with the Contract Law in case of personal injury and property damage caused by the business operator’s breach of security protective duty, especially in the case of personal injury. In view of the fact that the provisions of Articles 41–43 of the Consumer Protection Law on personal injury are closer to the relevant provisions of tortious liability, they are often regarded as provisions on tortious liability in practice. However, since Articles 11 and 35 of the Consumer Protection Law do not provide separate compensation liability by distinguishing between the nature of property or person damage, from the perspective of systematical interpretation, it is difficult to conclude that personal injury in the consumption relationship can only be handled based on the tortious liability. If this point of view is correct, then the provisions of the law on liability for personal and property damage are a kind of provisions on the confusion of debt, which can be used as tortious liability alone or the unified contractual liability with another consumer contractual liability (such as Articles 44–49 of the Act). As a result, the provisions of the Consumer Protection Law on security protective duty can also serve as the legal basis for determining protective duty in consumer contracts and thus have the same normative function as Article 60, Paragraph 2 of the Contract Law. It should be noted that even if Article 7 of Consumer Protection Law is used as the basis for determining the protective duty in a consumer contract, the judges must still determine the existence of the protective duty in conjunction with the specific of such detailed provisions that some of the judgments have made the above hardly appropriate restrictions on the application of “Consumer Protection Law”. 136 The Supreme People’s Court Bulletin, No.4, 2002.

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consumption relationship, and thus there is no difference in operation that determines protective duty with Article 60, Paragraph 2 of the Contract Law. The former is only a special provision of the latter. If the protective duty is determined by the former, the same conclusion should be reached according to the latter, and vice versa. In this case and other cases,137 in determining protective duty, the court puts the protective duty in Article 7 of the Consumer Protection Law against the protective duty in Article 60, Paragraph 2 of the Contract Law, which is inappropriate. Once it is determined that a consumer contract relationship has been established between the parties, even if it is believed that Consumer Protection Law only regulates the “direct” damage caused by the goods or services, the protective duty in Article 7 of the Consumer Protection Law and Article 60, Article 2 of the Contract Law should be determined in the same way, and the same conclusion should be reached. As a result, it can be concluded that the protective duty determined in accordance with the relevant protective provisions of the jus singulare is not determined by the legal provisions on which it is based but by whether it is a contractual obligation or not according to the way and degree of its relationship with the contract. b. Interpretation and Supplement of Contracts If the parties do not clearly stipulate the protective duty and the law does not have relevant direct provisions, the protective duty should be determined as a whole from the contractual relationship between the parties or the relationship similar to the contract through the interpretation of the contract or the loophole supplement of the contract.138 Whether it is Article 241, Paragraph 2 of the German Civil Code, or Article 60, Paragraph 2 of Chinese Contract Law, it cannot directly determine the protective duty. Still, it can only provide normative guidance for the determination of the protective duty or provide a legal basis. Protective duty of contract ultimately needs to be determined by the judge based on the nature, purpose, or content of obligation. The judge’s trade-off is a process of contract interpretation and loophole supplement. There are usually two standards for supplementing contract loopholes: one is the default rule, and the other is supplementary contract interpretation. As aforementioned, the protective provisions in the contract should be mandatory norms so the contractual protective duty does not exist the problems of being determined by default rule but can only be supplemented by supplementary contract interpretation. Supplementary contract interpretation refers to the overall interpretation of the contract norms created by the parties to fill in the lack of individual content of the contract.139 Unlike explanatory contractual interpretation, what it focuses on is not the parties’ true meaning but the “hypothetical meaning of the parties”, which is “the meaning that both parties reasonably desire or accept in a normal transaction.” Since its purpose is to supplement the contract instead of creating a contract for the parties, 137

See “Wang Liyi, Zhang Lixia v. Shanghai Galaxy Hotel Compensation Dispute Case” (The Supreme People’s Court Bulletin No.2, 2001). 138 Vgl. Niklaus Lüchinger, Schadenersatz im Vertragsrecht, S. 149. 139 See Wang Zejian, Civil Law Researches: Principles of Obligation Law, pp. 171–172.

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“the principle of least intervention should be adopted, and the content of the contract cannot be changed that infringes on the parties’ private autonomy.”140 That is to say, the content of supplementary contract should be bound by the nature and purpose of the contract reflected in the parties’ agreement, which cannot exceed this restriction. In this sense, although the determination of protective duty does not depend on the will of the parties, the parties’ intent still sets the boundary for the protective duty of contract. According to the relevant commentary of Article 241, Paragraph 2 of the German Civil Code, the “content” of obligation refers to all important content of the specific regulation of the contract, which is not limited to the implied content related to the purpose of obligation.141 This emphasis on “content” rather than purely on the “nature or purpose” actually contains the necessary attention to private autonomy. When supplementing the protective duty, should it be emphasized that the protective duty is included in the overall judgment of the exchanging relationship of contract? That is to say, if the protective duty comes from the increased risk of damage to the integral interest in the contract or contractual relationship, then such integral interests should be included in the exchanging relationship of the contract. Otherwise, it arises from the fiduciary relationship, and it only needs to focus on the performance of the contract or the specific conduct in the conclusion of the contract rather than the protection of integral interests.142 In theory, “the risks and burdens in the contract can be borne by either party, as long as the price can fairly compensate the risks and burdens he bearing.”143 Therefore, for a contractual relationship based on exchange, it should be emphasized that the party to the contractor that undertakes the protective duty should receive sufficient compensation for the obligation. There are two cases concerning the connection and strength between contractual relationships and protective duty: one case is that the risk of damage to the integral interests does not originate from the performance of the contract. Still, due to contractual relationships, one party is responsible for taking care of and protecting the other. For example, Article 301 of the Contract Law is an example of such a case, which stipulates that the carrier shall give its best efforts to rescue the passenger who is seriously ill, who is giving birth to a child, or whose life is at risk. This type of obligation is not limited to the statutory protective duty, which may also occur when there is no agreement. For example, employers have a similar duty to rescue sick and distressed babysitters, and the hirer has the same obligations for the hiree at risk. This form of protective duty stems from the special trust in the contractual relationship. As far as this kind of obligation is concerned, it is usually a protective duty de üoyen. The obligor only needs to pay a small price to avoid a considerable loss for the other party. Therefore, it is unnecessary to consider whether the obligor has received performance interests when determining the obligation. The protective duty, in this case, has similar meanings as the obligations arising from the 140

Ibid., p. 172. See Zhu Yan ed., Provisions and Official Interpretation of New German Law of Obligations, Law Press China, 2003, pp. 84–85. 142 Vgl. Niklaus Lüchinger, Schadenersatz im Vertragsrecht, SS. 148 f. 143 James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, p. 609. 141

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legal provisions in Tort Law. The contractual relationship is nothing more than a tool to link the protective duty with specific parties to the contract for the purpose of relief to the aggrieved party. Here, the contractual nature of protective duty is not evident. Another situation is that the protection of integral interests itself is the purpose of the contract (such as security guard services contract, medical contract, safekeeping contracts), or damage to integral interests may usually occur in the performance of the contract (such as after the buyer’s health is impaired after consuming unqualified food, or the lessee suffers from an injury due to an unsafe house). In this case, the cause of damage may come from the other party’s performance of the contract or natural causes, or the behavior of a third party. When the risk of damage comes from the performance of the contract, the risk of damage of the parties to the contract is enhanced by the performance; when the risk of damage comes from natural reasons or the third party, the risk of damage itself is not increased, but the obligor’s liability for preventing damage is increased (from nothing to something or from minor too much). From this point, it is one-sided to attribute the obligation of contract protection to the increased risk of damage to the integral interests of the contract or to the performance itself. In fact, contractual protective duty may increase the risk of damage due to the contract or contracting behavior or because the contract imposes liability on the other party for preventing the risk of damage to integral interests of one party. In the first case, protective duty is more imposed on the party to the contract for social policy reasons, so its effect has the same normative significance as omission tort in Tort Law, which does not depend on the exchanging relationship established by the contract. In the second case, since the purpose of the contract is to protect integral interests (or inherent interests), or the damage to integral interests is the risk of damage usually accompanied in the performance of a contract, the protective duty should be fulfilled in the exchanging relationship established by the contract. In this sense, the judge should consider the impact of the consideration when determining protective duty. However, since the protection of integral interests is the purpose of the contract, or the damage to integral interests is the typical risk that is usually accompanied by the performance of a contract, it can be believed that the parties should consider the risk of damage when entering into the contract, and the accompanying risk of damage to integral interests is presumed to be borne by the performing party (usually the obligor), and it can be consistent with the requirements of the rule of foreseeability determined by Contract Law. Although the purpose of the contract and the typicality of damage can indeed establish a connection to the exchanging relationship, they are not completely equivalent. In a gratuitous contract, the obligor may also cause damage to the inherent interests of the other party due to a breach of contractual obligations. For example, if the donor intentionally concealed the defect of the subject matter or guarantees that the subject matter is flawless, which resulted in the loss of the donee, it shall be liable for damages according to the Contract Law.144 Under the foregoing circumstances, the obligor cannot claim a defense of not being liable because of the lack of consideration. It is because the flaw in its performance has induced the risk of damage to 144

See Articles 191, Paragraph 2 of the Contract Law of the People’s Republic of China.

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the donee, and the donee has suffered contractual liability reliance loss. Therefore, the donor should bear for his fault (here refers to intent). Therefore, when determining the contractual protective duty, the exchanging relationship is only one of the considerations in the judgment, the content and purpose (or nature) of the contract, and the closeness (typicality) of damage and performance are still the most critical discretionary basis.

1.4 Legal Consequences of Breach of Protective Duty in Contract Contractual liability and tortious liability differ in terms of their constituent elements. Violation of protective duty does not necessarily satisfy the constituent elements of tortious liability and vice versa. Breach of protective duty does not necessarily result in concurrence of liability.145 Logically speaking, the contractual protective duty is a contractual obligation, and of course, its violation should be determined in accordance with the norms of Contract Law. However, the traditional theory of contract law usually limits the damages for breach of contract to the case of breach of the performance obligation, and the compensation liability for damages to integral interests caused by the violation of protective duty is incorporated into tort law. In the norm system constructed under the guidance of this theory, if the norm of liability for violating protective duty of the contract is considered only from the point of the provisions of the Contract Law or the law of non-performance of obligations, it is usually incomplete or even defective. In this case, only starting from the overall structure of norms of liabilities and combining the norms of Contract Law and the Tort Law can we truly understand the legal effects of breach of contractual protective duty.146 The consequences of violating protective duty of contract involve two

145

On the contrary, in the case of injuring performance, the concurrence of liability for breach of contract and tortious liability is established. In so doing, the breach of protective duty should be the same. See Wang Liming, Theory of Liability for Breach (Revised ed.), China University of Political Science and Law Press, 2003, p. 228. 146 From the provisions of the Swiss Civil Code, the provisions on the liability for damages are found in Tort Law, which applies to breaches of contract in accordance with the provisions of Article 99, Paragraph 3. From Chinese lex lata, the rules of damages of integral interests in basic law are only applicable to the norms of Tort Law. Due to the lack of similar applicable provisions, it is not clear whether the aforementioned tort provisions can be applied to the breach of contract at the same time. From the perspective of German law, before the revision of New German Law of Obligations, since the original provisions of Article 253 of the Civil Code stipulates that the non-property damages are limited to the situations prescribed by law, it is actually limited to the illegal violation of the body, health, liberty of others or the provisions of the original Article 847 (now repealed). For the infringements such as special violations on women, if the breach of contract has the same damage consequences, non-property damage (mental distress) shall not be claimed. It just shows that the arrangement of normative structure will affect the determination of the extent of damages.

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aspects: liability constitution and assumption of liability: in terms of liability constitution, the focus is imputation standard147 ; while in terms of assumption of liability, the focus is its forms and scope. (1) Determination of Imputation Standard The determination of imputation standard for violations of protective duty is related to not only the coordination of the internal system of contract law but also the cohesion between contract law and tort law, which deserves special attention. a. Theory Overview From the perspective of German theory, Professor Schlechtrim believes that the obligor who actively infringes on a claim must be liable for intent and negligence. When the interests of the obligee’s body, life, health, ownership, etc., are damaged, the provisions of liability mitigation in the specific provisions of the contract cannot be applied, and the obligor should be responsible for the negligence.148 Canaris, who advocates a theory of unified protective duty, believes that the two imputation standards for violations of protective duty, namely the fault principle (Verschuldensprinzip) and the principle of danger (Risikoprinzip), should be dealt with separately.149 Since the New German Law of Obligations incorporates protective duty under the unified concept of “breach of duty (Pflichtverletzung)” and applies a unified imputation element, the imputation issue of protective duty should also be dealt with under the unified structure of leistungstrungsrecht. In addition to Article 311 a concerning the initial impossibility of performance, Paragraph 1, Article 280, of the German Civil Code is a general provision for liability for damages arising from all

147

In the theory of Civil Law in China, the corresponding “imputation principle” is generally discussed when it comes to the liability constitution. Some scholars believed that “principle” only refers to “the first principle” and “the primary principle”, and it is the imputation principle that should be applied by default when there is any doubt about the imputation principle. See Han Shiyuan, The Law of Contract (3rd ed.), p. 590. It is reasonable to regard the imputation principle as the default principle, which is more out of the need to implement legal logic. As will be discussed in the following part of this book, the imputation principle of protective duty of contract cannot be determined by simple logical deduction, and the default imputation principle is not applicable. In this regard, considering the imputation standards in specific situations involved in the theories or principles, the more neutral concept of imputation standards” used to replace the aforementioned concepts has the same basic meaning. 148 Peter Schlechtrim, Schuldrecht Allgemeiner Teil (4. Aufl.), 2000, S. 191. Cited from Qi Xiaokun, A Comparative Study of New and Old Laws of Obligations in Germany: Change of Concept and Improvement of Legislative Technology, Law Press China, 2006, p. 71. 149 Vgl. Canaris, Die Vertrauenshaftung im deutschen Privatrecht, SS. 540 f. Regarding the connotation of dangerous liability, the author cannot find it in the Canaris’ statements. According to Professor Larenz’s statement on dangerous liability, even the occurrence (or limitation or liability exemption) of liability for damages is based on a specific danger (Risiko), including (1) Dangerous liability (Gefährdungshaftung); (2) The liability arising from the conduct of false performance or saving form damage; (3) The liability of engaging others in dangerous work for one’s own benefit. See Larenz, Principles of Imputation for Damages in German Law, published in Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), 2009, p. 190.

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obstacles to performance. Whether it is a unilateral or bilateral obligation, contractual or statutory obligations, are all applicable.150 Although this provision does not stipulate the imputation standard as to the interpretation, it should still combine with the provisions of Article 276 of the Civil Code, necessitating imputation causes. The first sentence of Article 276, Paragraph 1 stipulates that: “The obligor is liable for intent and negligence if a higher or lower degree of liability is neither laid down nor to be inferred from the other subject matter of the obligation, including but not limited to the giving of a guarantee or the assumption of a procurement risk.” It shows that the fault principle is not the only imputation standard, and beyond that, it’s just a supplementary one.151 That is to say, the fault principle is subject to two restrictions: firstly, the law has wider or stricter provisions, such as the parties should also be liable even without fault, or if they are only liable for certain forms of fault (such as intent or grave negligence), these provisions should be applied first; secondly, the parties have a wider or stricter agreement. In terms of this provision, a clear agreement is not necessary for such an agreement and can be inferred from the overall content of the debt relationship, so the role of contract interpretation should be particularly emphasized.152 The liability determined in this way may be stricter (the assumption of a security or purchase risk), and it may also be more lenient (such as not being liable for negligence). Moreover, in accordance with the provisions of Article 280, Paragraph 1, the second sentence of the law, “This does not apply if the obligor is not responsible for the breach of duty.” Therefore, the imputability for breach of contractual obligations is presumed, and the obligor should be liable for proof of non-imputation.153 However, in exceptional circumstances, such presumption can be excluded.154 Chinese scholars have also discussed the issue of imputation for breach of protective duty. Scholars in Taiwan believe that the general imputation principle for liability for non-performance of the obligation should also be applied in the case of incomplete performance (or injuring performance). If the parties have an agreement, except for the liability for intent or gross negligence, which cannot be exempted in advance, the parties should be imputed in accordance with the agreement. If there is no agreement but the law, they should be in accordance with the provisions of the law; If there is no such provision in law, the obligor should be liable for intent and negligence. Moreover, the burden of proof for the cause of imputation should be reversed, and

150

Qi Xiaokun, A Comparative Study of New and Old Laws of Obligations in Germany: Change of Concept and Improvement of Legislative Technology, p. 89. 151 Vgl. Münchener Kommentar zum BGB (5. Aufl.), 2007, §280, Rn. 24. 152 A.a.O. 153 Vgl. Palandt, Bürgerliches Gesetzbuch, Verlag C.H.Beck Müchen, 2005, §280, Rn. 40. There is an exception to the reverse onus on the ground of cause of imputation, as provided for in Article 619a, when the employee is liable, the employer should bear the burden of proof on the ground of cause of imputation. 154 “Unlike Article 280, Paragraph 1, in respect of damages arising from breach of duties on the basis of an employment relationship, the employee shall only be liable to the employer for the breach.”

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the obligor should bear the burden of proof for the absence of imputation causes.155 However, Mr. Zheng Yubo believes that in order to protect consumers’ interests, the conversion method of liability without negligence or burden of proof should be adopted regarding injuring performance.156 Professor Wang Zejian disagrees with liability without negligence but believes that the burden of proof can be converted to be consistent with the general imputation standard for non-performance of debt.157 Although Mr. Sun Senyan also favors the presumption of the negligence of incomplete performance (or injuring performance), he still insists that the liability for injuring performance is nothing but the conversion of tortious liability into a liability for non-performance of the obligation.158 Professor Ma Weilin believes that the burden of proof should be borne by the obligee in principle, and the exceptions (such as major breaches of professional obligations, product liability and public nuisance.) should be borne by the obligor.159 Mr. Yao Zhiming believes that the situation of incomplete performances, especially injuring performance, is similar to that of a tort, except for whether there is a special obligation relationship. Since the aggrieved party should provide proof for the general causes of tortious liability, similar treatment should be made for incomplete performances. Only in the case of breaches of professional obligations or product liability and pollution liability with an unequal relationship between the obligor and the obligee, the obligor is the best controller of the risk, and the obligor is necessary to change the burden of proof for fairness because it is the best controller of danger.160 Contrary to the foregoing views, Mr. Qian Guocheng believes that for damages beyond the scope of primary obligations, the obligee can only claim damages in the event of the obligor’s fault according to the provisions of the tort.161 This view completely disregards the contractual nature of protective duty, and has deviated from the institutional purpose of establishing the contractual protective duty, or simply expelled the contractual obligation from the field of contract law, which goes to an extreme. Most scholars in the Chinese mainland also believe that the protective duty is a contractual obligation, the imputation principle for breach of contract should be 155 See Wang Zejian, Basic Theories of Incomplete Performance, In Research on Civil Law Theories and Cases (3rd ed.), Peking University Press, 2009, pp. 61–62. 156 Ibid., p. 63. 157 Ibid. 158 See Sun Senyan, General Review of Obligations on Civil Law (Vol. 2), Law Press China, 2006, p. 480. Its detailed statement is that, “as for the incomplete performance of damages, the tortious liability of the inflictor is converted to liability for non-performance of the obligation. So that when demanding of the duty of care for inflictor, it should perform the duty of care in transactions in order to avoid damages on the obligee’. If the performance is incomplete, it violates this obligation and should be held liable for compensation for negligence in performance.” 159 Ma Weilin, Judicial Interpretation of Obligations on Civil Law (Vol. 2), Article 227, p. 122. Cited from Yao Zhiming, Non-performance of Debt: Study on Incomplete Performances, China University of Political Science and Law Press, 2003, p. 124. 160 Ibid. pp. 125–126. 161 See Wang Zejian, Basic Theories of Incomplete Performance, in Research on Civil Law Theories and Cases (3rd ed.), p. 64.

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applied to the violation of it, and reversed burden of proof.162 A few scholars believe that in the case of injuring performance, it is necessary to take the aggrieved party’s fault as an element and adopt the form of presumption of fault.163 However, scholars who hold this view also believe that the fault principle in the liability for breach of contract is different from a tort in content and scope of application. The fault in the liability for breach of contract can only be defended as force majeure.164 If the defense of fault has this limit, such fault liability is in fact no different from the strict liability advocated by the general theory. However, some scholars questioned the single imputation standard, arguing that it is difficult to meet the needs of legal practice whether by adopting a single imputation standard of fault or strict imputation for collateral obligations (including protective duty). The appropriate practice should determine the imputation standard according to different situations: (1) The statutory collateral obligation is a presumption of fault, such as notification obligation and protective duty of the doctor in doctor-patient contracts, and the notification obligation of business operators in consumer contracts; (2) collateral obligations should be determined in accordance with the principle of good faith according to the specific circumstances, and in principle, general fault imputation should be adopted; (3) the person who has no negligence, but should be held liable based on the concept of equity should adopt no-fault liability.165 Although this practice of differentiated treatment adapts to the characteristics of the diversity of the collateral obligations (or protective duty), the reason for making the distinction is not clear. In particular, the claim of liability without negligence based on the concept of equity needs further consideration due to the lack of legal and theoretical basis. Some scholars also advocate that the imputation for breach of protective duty of contract should be examined according to the parties’ agreement, legal provisions, and the order of fault imputation, and the degree of fault should be determined according to the degree of trust between the parties in a specific contractual relationship.166 As can be seen from above, on the issue of imputation standard for violation of protective duty, there remains discussion whether we should follow the logic to use the protective duty as a contractual obligation and determine the liability according to the imputation standard for breach of contract or we should still consider the particularity of the protective duty and the link between the breach of contractual liability 162

These scholars generally do not specifically mention the imputation principle for breach of protective duty, but when discussing collateral obligation or the concurrence of contractual liability and tortious liability, they hold that the imputation principle for breach of contract should be applied to injuring performance for breach of contract, thus deducing that protective duty should be applied to the imputation principle for breach of contract. See Han Shiyuan, The Law of Contract (Vol. 3), p. 430; Li Yongjun, Contract Law (2nd ed.), Law Press, 2005, p. 689. 163 See Wang Liming, Breach of Contract (Revised ed.), p. 216; Fang Longhua & Wu Genfa, On Confidentiality Collateral Obligation of Contracts, in Journal of Law Application Vol. 10, 2001, p. 32. 164 See Wang Liming, Theory of Liability for Breach (Revised ed.), p. 216. 165 Liu Li, Three Questions of Collateral Obligations: Focus on Trial Practice and Review of the Theory, in Law Science No.11, 2005, p. 72. 166 See Ye Yingping, Study on the Protective Duty in Contracts, p. 134.

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and tortious liability. If such a situation is based on the imputation standard of tort liability, the obligor is responsible for the burden of proof for the no-imputation cause. In addition to the aforementioned logical considerations, when adopting the view of single fault or strict liability for imputation, we also need to take into consideration the selection of imputation principle for breach of contract. If you believe that the imputation principle for breach of contract is based on the fault principle, the liability for breach of protective duty will be fault imputation; if you believe that the imputation principle for breach of contract is based on strict liability, the liability for breach of protection is strict liability. Therefore, although logically, the practical significance of the dispute over the imputation standard for protective duty still depends on the consistency of the relevant conclusions and the specific provisions of positive law and the appropriateness of social consequences. As far as the provisions of Chinese Contract Law are concerned, although fault liability and strict liability are recognized and believed that each has its applicable objects and scope, it is beyond doubt that strict liability is a general imputation principle for breach of contract.167 It can be said that in the absence of any contrary provisions, strict liability should be regarded as the imputation standard for breach of protective duty if the institutional logic is followed. Is this the case with judicial practice? b. Study from Judicial Cases Since the contractual protective duty can be combined with any type of contract, it is difficult to summarize the judicial cases concerning the protective duty in all types of contracts. Here, from the aspects of the cases from the Supreme People’s Court Gazette and ordinary judicial cases, the imputation of breach of contractual protective duty is studied using the method of case analysis. The distinction between the two aspects mainly lies in the difference in the study scope. Although the cases from the Gazette are authoritative, the types of contracts involved are limited after all. The combination of the two aspects can make the case analysis more convincing in typicality. (a) Study based on cases from the Supreme Court Gazette The types of contracts involving contractual collateral obligations (or protective duty) in the cases from the Supreme Court Gazette include both nominate contracts and innominate contracts. In the carriage contract, the carrier may bear either strict liability or fault liability for transportation safety. In the case of dispute over compensation for personal injury and fatality in railway passenger transportation between Liu Youxiang and Luoyang Train Section of Luoyang Railway Branch and Chenzhou Train Section of Changsha Railway Corporation,168 the plaintiff died as he crashed from No. 522 train, and the cause of death cannot be ascertained. The evidence from the railway side that the aggrieved party “died from his jumping out of the train” was denied by the court, and the court judged the defendant to bear the compensation 167

For detailed introduction to imputation principle in Chinese Contact Law, please see Han Shiyuan, The Law of Contract (3rd ed.), pp. 589 ff. 168 The Supreme People’s Court Bulletin, No.3, 1999.

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liability for the consequences of the aggrieved party’s death. Since Article 58 of the Railway Law clearly specifies that a railway transportation enterprise shall bear the compensation liability for the consequences of personal injury and death other than force majeure or due to the own fault of the aggrieved person, the liability of railway transportation enterprises shall be strict liability, and the handling of this case is consistent with the strict liability. It is worth noting that, in this case, the plaintiff only proved that the aggrieved party died on the section of the road under the charge of the defendant while taking the train, but did not prove the cause of death. The court actually adopted the method of presuming the reason from the result when determining the cause of the injury, converted the proof of the reason into the proof of the cause of imputation, and the reversion of burden of proof to be borne by the defendant. Therefore, the obligations borne by the defendant in this case have the nature of strict liability. In the case of dispute over the contract of carriage between Xinda Business Department for Freight and Stowage and Southwest Branch of China Farm Equipment Limited, the plaintiff and the third party outside this action concluded a contract of carriage of goods, during which the goods were damaged due to a traffic accident. The court judged that the third party should bear the compensation liability.169 The carrier should bear strict liability no matter in accordance with the provisions of Article 36, Paragraph 1, Item 3, of the Economic Contract Law at the time when the case happened or Article 311 of the current Contract Law. Therefore, the court did not examine whether the third party had a fault in the traffic accident that caused the damage to the goods. While it is not so in the case of dispute over compensation between Zhu Hang and Changkuo Taxi Company and Fu Jianqi that the plaintiff Zhu Hang took the taxi of the defendant Changkuo Taxi Company and suffered from epilepsy suddenly, and taxi driver Fu Jianqi abandoned the plaintiff on the roadside halfway. The court held that “when Fu Jianqi was performing his duty for transportation, he failed to fulfill his statutory obligation to rescue Zhu Hang, who suffered from epilepsy suddenly. Instead, he stopped halfway and abandoned insensible Zhu Hang on the roadside, leaving Zhu Hang in a dangerous state. Although Fu Jianqi’s behavior did not endanger Zhu Hang’s life and health, it caused some stimulation to Zhu Hang’s spirit and violated Zhu Hang’s legal rights as a passenger”. It can be seen that the defendant’s imputation only lies in his failure to fulfill the necessary duty to rescue, and his omission has constituted a breach of the contractual protective duty, and thus he should be responsible. In a deposit contract, if criminals take advantage of the omission of commercial banks in managing their ATMs, steal depositors’ bank card information and passwords by installing a card reader at the entrance of a self-service bank outlet or by installing a camera on the top of the ATM, and copy fake bank cards to withdraw and consume funds from depositors’ bank accounts, the commercial banks constitute a breach of contract for failing to provide depositors with a safe and confidential environment in accordance with the provisions of Article 6 of the Commercial Bank 169

Although the third party is judged to be responsible in the case according to Article 36, Paragraph 1, Item 3, of the now invalid Economic Contract Law, the judgment conclusion of the case should be the same according to Article 311 of the current Contract Law.

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Law, and shall still assume performance to customers in accordance with the deposit contract.170 In such cases, the defendant commercial bank bears a very high degree of protective duty and only can be exempted if it was the aggrieved party’s fault. Therefore, the liability of commercial banks can be considered as a special presumption of fault or strict liability. Although the employment contract is the innominate contract, the employers’ protective duty to the employees in the employment contract is still affirmed by the Reply of the Supreme People’s Court on strictly implementing labor protection laws and regulations in employment contracts. In the case of an employment contract dispute between Chen Weili and Lai Guofa,171 the plaintiff was injured in the course of engaging in employment activities. The court held that an employment contract was concluded between the plaintiff and the defendant, and the employer should bear the responsibility for the injury suffered by the employee in his activities for the benefit of the employer during the employment period. Therefore, the employers’ responsibility for protecting the employees also belongs to no-fault liability or strict liability. In the medical service contract, the focuses for the court are also the contractual stipulations and the fact that the medical institution breaches the obligations. If the court finds that the obligation is breached, the liability will also be determined. Otherwise, the liability will not be determined. In the case of dispute over the medical service contract between Zheng Xuefeng and Chen Guoqing and Jiangsu Province Hospital,172 the defendant changed the medical plan agreed with the plaintiff without any unusual condition such as the need for emergency rescue, such action was considered to be a non-conforming performance prescribed in Article 107 of the Contract Law, and the court judged the defendant to compensate the plaintiff for the loss of medical fees incurred in the performance of the medical service contract. In this case, the defendant’s breach of the agreement was imputed, and the imputation standard was not specifically discussed. It can only be inferred from the law application that the strict liability was borne by the defendant. In the case of dispute over medical 170

See the case of dispute over saving contract between Gu Jun and Shanghai Bank of Communications (The Supreme People’s Court Bulletin No.4, 2005) and the case of dispute over saving contract between Wang Yongsheng and Bank of China Nanjing Hexi Sub-branch (The Supreme People’s Court Bulletin, No.2, 2009). It should be noted that although the facts involved in the two cases are basically the same and the conclusions are basically the same, there are still differences in the composition of the grounds of the judgment. In the case of the Shanghai Branch of Bank of Communications, although the court determined that the defendant bank breached the contract, it judged that the defendant should bear the compensation liability on the grounds that it failed to fulfill its obligation to ensure the safety of the transaction place and prevent the occurrence of crimes and caused the loss of funds in the plaintiff’s bank card. However, in the case of Wang Yongsheng, the court took the plaintiff’s application as a issue of requiring the defendant to perform the contract rather than compensating for the losses on the grounds that the defendant’s payment to the third party did not have the effect of payment to the plaintiff. Obviously, the judgment of the case of Wang Yongsheng is clearer and more reasonable, which may be the reason why similar cases are published in two bulletins. 171 The Supreme People’s Court Bulletin, No.1, 2001. 172 The Supreme People’s Court Bulletin, No.8, 2004.

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injury compensation between Fang Jinkai and Tong’an Hospital,173 the court held that although there was causation between the plaintiff’s injury and the defendant’s medical treatment, the defendant should not bear the responsibility for medical risks because the medical treatment taken by the defendant was implemented with the consent of the plaintiff and his relatives, and the treatment measures, principles, and methods conform to the medical standards, and there is no fault. Judging from the judgment of the aforementioned cases, it is tough to distinguish whether the imputation standard is strict liability or (presumed) fault liability as the process of liability determination has been simplified due to the court’s combination of determination of breach of duty and imputation. A similar case exists in other innominate contracts, especially in the case of injury accidents involving the defendant’s omission.174 (b) Study Based on the Ordinary Judicial Cases In the sales contract, the personal injury or property damage caused by product defects is basically solved in practice through product liability, a form of tortious liability. It is relatively rare to deal with such cases according to the liability for breach of contract, and it is even rarer to deal with cases of personal injury caused by product defects according to the contract.175 In a few cases involving property damage handled according to the liability of breach of contract, the court focuses on whether the product itself has defects or flaws in the determination of liability. Generally, as long as the fact that the product itself has defects or flaws is determined, the seller’s liability for breach of contract is established. For example, in the case of an appeal from a dispute over a sales contract between Yancheng Jeddah Water Supply Equipment Co., Ltd. and Zhejiang Taishun Construction Co., Ltd.,176 the plaintiff purchased a water tank from the defendant, and the defendant delivered the water tank to the plaintiff after installation. During the use of the water tank, it cracked at the welding point and was deformed, its inlet pipe was broken, and its pump room was seriously waterlogged, which caused the water supply, fire fighting, and supporting electrical power equipment to be immersed in water, and the plaintiff to be suffered from tens of thousands of yuan of property losses. The court held that the defendant should bear the burden of proof for no defect of the product, and the defendant should be liable for damages if he cannot prove that. In this case, the court did not address the protective duty and the imputation thereof, but generally took the damage of inherent interests (or integral interest) as the direct 173

The Supreme People’s Court Bulletin, No.2, 2004. For example, the case of dispute over service contract between Xie Fuxing and Lai Meilan and Sun city swimming pool Co., Ltd. (The Supreme People’s Court Bulletin, No.6, 2003), and the case of dispute over compensation between Wang Liyi and Zhang Lixia and Shanghai Galaxy Hotel (The Supreme People’s Court Bulletin, No.2, 2001). 175 From PKULAW Version 4.0 “Chinese Court Judgment Document Library”, the author failed to find the case that the buyer’s personal injury caused by product defects was solved according to the contract action. However, it cannot be considered that the contract action cannot solve such disputes. 176 Civil Judgment No.665 (2011), Final, Commercial and Civil Division, Henan, of the Intermediate People’s Court of Shangqiu City, Henan Province. 174

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result of the breach of contract and included it into the scope of damages. Since the defendant’s liability does not depend on the types of damage the plaintiff has suffered but depends on the imputability of the defendant’s improper performance (i.e., the delivery of defective products), the liability will be included in the liability for breach of contract according to the unified imputation principle (strict liability in this case) as long as there is causation between the damage and the breach of contract no matter whether the damage is to performance interest or inherent interest. In this case, the act of interfering with the performance interest and the act of interfering with the inherent interest have a unified manifestation. It is difficult and unnecessary to distinguish between protective duty and performance obligations. Therefore, there is no justifiable reason to implement a special imputation standard different from the imputation standard of the violation of the protective duty in this case. In the leasing contract, contract of hired work, and safe-keeping or warehousing contract, in accordance with the provisions of Articles 222, 265, 374, and 394 of the Contract Law, the lessee, the hiree, or the depositary shall be liable for damages in case of any damage or loss caused by the lessee to the lease item, by the hiree to the materials supplied by the ordering party and to the completed work results, and by the depositary to the deposit due to improper care, otherwise, it shall not be liable for damages by a gratuitous depositary who is proved to have no gross negligence. There are different understandings in theory as to whether “improper care” belongs to “fault” or “no-fault”. According to the general theory, the safekeeper of paid storage contract should bear the “duty of care of a good manager” and be responsible for abstract negligence.177 From the perspective of judicial practice, courts’ practices are also inconsistent with each other.178 In the case of an appeal of a dispute over the leasing contract between Shaanxi Diyuan Infrastructure Co., Ltd. and Li Liqiang et al., the defendant rented the plaintiff’s construction materials and they agreed that the maintenance costs for the damaged lease item shall be borne by the defendant (the lease). The plaintiff claimed for compensation after the actual damage to the materials occurred. The courts of the first and second instance supported the plaintiff’s claim for compensation because the compensation for the maintenance cost for the damaged lease item was agreed in the contract between the two parties, and scrutinized whether there were unexamined problems such as “improper care”. Therefore, the liability of the depositary belongs to strict liability or no-fault liability. In the case of an appeal of a dispute over the contract of hired work between Jiangshan Yangming

177

The dominant theory in academia believes that it belongs to the fault liability; for details, see Zheng Yunyun, Contract Law, Peking University Press, 2007, p. 362; Cui Jianyuan, Contract Law (5th ed.), Law Press, 2010, p. 499; Han Shiyuan, The Law of Contract (3rd ed.), p. 589; Ma Junju & Yu Yanman, Original Theory of Civil Law (4th ed.), Law Press, 2010, p. 715; Wang Liming, Yang Lixin, Wang Yi, & Chen Xiao, Civil Law (3rd ed.), Law Press, 2011, p. 668. 178 For example, in the case of an appeal dispute over vehicle storage contract between Guangzhou Zhengjian Property Management Development Co., Ltd. and Wu Xiongwen (Guangzhou Intermediate People’s Court (2006) Sui Zhong Fa Min Er Zhong Zi No.2293), the court of first instance held that the paid depositary should bear no-fault liability, but the court of second instance denied this opinion and clearly pointed out that the depositary was only responsible for fault.

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Technology Co., Ltd. and Hong Kong Kunte International Trade Co., Ltd.,179 the plaintiff delivered the timber to the defendant according to the contract of hired work was damaged by a snowstorm. The court held that the defendant is liable for the loss and whether there was a problem of “improper care” was also not examined. In the case of an appeal of a dispute over the safekeeping contract between ZOJE Sewing Machine Co., Ltd. and Ningbo Economic and Technological Development Zone Yuanya Warehouse Co.,180 Ltd., the plaintiff stored the goods in the defendant’s warehouse. The typhoon caused a regional flood and waterlogging, which caused water to flow into the warehouse and wet part of the goods. The court held that: the defendant is not responsible for the damage caused by the typhoon. However, “the plaintiff and the defendant neither jointly determined the degree of the damages at that time nor took any mitigation measure to the damaged goods after the typhoon hit, but allowed the goods to continue to be stored in Yuanya Company’s warehouse, causing the increasing of corrosion of the damaged goods and the expansion of the losses”. Therefore, the plaintiff and the defendant should bear the liability according to their fault, respectively. However, it should be noted that in this case, the defendant was not responsible for “improper care”, but for failing to fulfill his obligation to prevent the damage from expansion. In the case of an appeal of a dispute over the warehousing and storage contract between Zhejiang Silk Import and Export Corporation et al. and Ningbo Jingang Co., Ltd. et al.,181 the court held that the defendant should be responsible for the loss of the goods because the defendant breached the agreement and handed over the goods delivered by the plaintiff for storage to others. In the above cases, it is difficult to see the court’s understanding of imputation from the judgment reasoning because the court either did not specifically discuss the imputability of the defendant, or denied the existence of “improper care” on the grounds of force majeure. However, since the court usually determines liabilities from the result of damage, this determination of liability is more similar to strict liability. Even though the “improper care” is judged from the general theory of “duty of care of a good manager”, the imputation degree of improper care is relatively strict, and it is almost the same as a strict liability if the defenses are further restricted.182 In the property management contract, in case the property owner suffers damage due to the failure of the property management company to fulfill its management duties or suffers personal injury or property loss due to the illegal or criminal acts of a third party, it is common for the aggrieved party to ask the property management company for assuming the compensation liability. In the case of an appeal of a dispute over a property service contract Shanghai Lujiazui Property Management Co., Ltd.

179

Zhejiang Higher People’s Court (2009) Zheshang Wai Zhong Zi No.61. Zhejiang Higher People’s Court (2006) Zhe Min San Zhong Zi No.142. 181 Zhejiang Higher People’s Court (2000) Zhe Jing Zhong Zi No.500. 182 For example, Article 394, Paragraph 2, of the Contract Law stipulates the liability exemption grounds of the custodian of the warehousing contract. Theoretically, and there is a view that the custodian of a warehousing contract bears strict liability. Chen Xiaojun, ed., Contract Law, China Legal Publishing House, 2007, p. 365; Cui Jianyuan, Contract Law (5th ed.), p. 505. 180

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v Yang Faliang et al.,183 the plaintiff asked the property management company to bear the compensation liability for the loss of the house soaked in sewage due to the blocked sewage pipe. The court held that: the property management company has an obligation to maintain the relevant public facilities in the apartment complex, and the defendant should be liable for compensation because the damage suffered by the plaintiff was caused by the defendant’s failure to dredge the public pipelines in time so that the defendant had fault.184 In the case of an appeal of a dispute over a property service contract between Yan ** and Changsha * Company,185 since the property in the plaintiff’s office was stolen by a third party, the plaintiff asked the property management company to bear the compensation liability on the grounds that it failed to fulfill the safety protective duty stipulated in the property service contract. The court held that, there was no obvious breach of the property service contract because the defendant had provided 24-hour security services, appropriate video surveillance and other security equipment according to the contract, and its security personnel had maintained vigilance and reasonable care during working hours and assisted the public security organs in protecting the scene and conducting investigations after the case happened, and thus it is believed that the defendant fulfilled its safety management obligations in the necessary, reasonable and appropriate manner and should not be responsible for the acts of the third party.186 It can be seen that in the property management service contract, the property management company is only responsible for its fault no matter whether the damage is caused by the management act of the property management company or the third party.187 In recent years, cases of vehicle loss or damage after consumers parking at places designated by operators are common. In the case of dispute over the catering service

183

Shanghai No.1 Intermediate People’s Court (2009) Hu Yi Zhong Min Er (Min) Zhong Zi No.3889. 184 For similar cases, see the case of an appeal of dispute over safekeeping contract between Kunming Rongjian Property Management Co., Ltd. and Kunming Nuoding Trading Co., Ltd. (Kunming Intermediate People’s Court of Yunnan Province (2009) Kun Min Si Zhong Zi No.282). 185 Changsha Intermediate People’s Court of Hunan Province (2011) Chang Zhong Min San Zhong Zi No.2836. 186 For similar cases, see the case of an appeal of dispute over property service contract between Sun * and Shanghai Yihai Property Management Co., Ltd. (Shanghai No.2 Intermediate People’s Court (2010) Hu Er Zhong Min Er (Min) Zhong Zi No.1847). 187 Article 33 of the Opinions of Beijing Higher People’s Court on Property Management Disputes (Trial) stipulates: “property management companies have parking spaces in their property management areas and charge parking maintenance fees for parked vehicles. In case of vehicle loss or damage, the compensation liability shall be determined in accordance with the parking management service agreement signed by both parties. In the case that no parking management service agreement has been signed and the property management company is at fault, the compensation liability that the property management company shall bear can be reasonably determined according to the degree of fault, charging standard and other factors.” (See Analysis of Difficult Cases and Problems in Beijing Civil Trials, edited by the Civil Division I of Beijing Higher People’s Court, Law Press, 2007, p. 538.)

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contract between Lu Mingzhong and Chengdu Huobazi Hotpot Restaurant,188 the plaintiff Lu Mingzhong parked his own car on the bicycle lane outside the restaurant under the command of the employee of the defendant when he went to the restaurant for dinner. The plaintiff found that his car had been stolen when he finished dinner, and he reported to the police immediately, but the case was not solved. Therefore, the plaintiff claimed compensation from the defendant. The court held that although the defendant arranged security guards to watch over the vehicle, it was still stolen, so there was a defect in the performance of a collateral obligation, and the defendant should bear the corresponding compensation liability. In this case, the court did not specify what the defect of the defendant’s performance was, but explained that the performance was improper according to the result. If so, the imputation of the defendant’s act is presumed, which is in fact close to strict imputation.189 This kind of responsibility is more consistent with the responsibility of the depositary in cases such as paid safekeeping contracts, which is related to the practice that the court usually defines the parking contract as the safekeeping contract.190 (c) Summary It can be seen from the above case that in Chinese judicial practice, there is no single imputation standard of breach of the protective duty. Instead, different imputation standards are adopted according to specific circumstances. No matter whether the contract is nominate or innominate, there are two imputation standards: strict imputation and fault imputation. In determining the contractual liability of the defendant for breach of the protective duty, the judge usually focuses on whether there is a fact that the defendant has breached the protective duty. In most cases, the determination of breach of duty and the judgment of imputation are combined, or the existence of fault is directly determined by the fact of breach of duty, thus resulting in the strictness of imputation, which is not the same as fault imputation, but is more consistent with fault presumption or strict liability. In determining imputation, the 188

Chengdu Intermediate People’s Court of Sichuan Province (2007) Cheng Min Zhong Zi No.1389. For this case, see Liu Yushun’s Editor-in-Chief, Case Guidance of Sichuan High People’s Court (Series III), People’s Court Press, 2009, pp. 119 seq. 189 For similar cases, see the case of an appeal of dispute over compensation for property damages between He Dayong and Cen Qingsong (Chongqing No.5 Intermediate People’s Court (2010) Yu No.5 Zhong Fa Min Zhong Zi No.1564); the case of an appeal case of dispute over service contract between Mingji Muzuyuan in Huadu District of Guangzhou City and Zhu Peiyong (Guangzhou Intermediate People’s Court (2009) Sui Zhong Fa Min Er Zhong Zi No.249); the case of dispute over vehicle storage in consumer service contract between Xu Yeming and Shenzhen Wal-Mart Shenzhen Guotou Department Store Co., Ltd. and Shenzhen Shan Mu Member Store et al. (Shenzhen Intermediate People’s Court (2005) Shen Zhong Fa Min Yi Zhong Zi No.932). For opposite judgment, see the case of an appeal of dispute over catering service contract between Zheng Kunfeng et al. and Ziwei Liufu Roast Goose Restaurant in Wenfeng District of Anyang City (Anyang Intermediate People’s Court of Henan Province (2011) An Min Yi Zhong Zi No.394). 190 For example, the case of an appeal of dispute over safekeeping contract between Chengdu Fengnian Property Management Co., Ltd. and Yan Xiaoming et al. (Chengdu Intermediate People’s Court (2008) Cheng Min Zhong Zi No.1861); the case of an appeal of dispute over vehicle storage contract between Guangzhou Zhengjian Property Management Development Co., Ltd. and Wu Xiongwen (Guangzhou Intermediate People’s Court (2006) Sui Zhong Fa Min Er Zhong Zi No.2293).

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responsibility agreed by the parties in the contract should be respected. The statutory imputation standard will be applied only when there is no such agreement. If the law does not clearly prescribe fault imputation, or its provisions only involve acts of breach of duty, it is more prominent that the court combines breach of duty with the judgment of imputation when determining responsibility. In this case, it is difficult to distinguish whether the judge adopts strict imputation or fault imputation. In the case that the protective duty is omission, the determination of responsibility shows consistency with the obligation to ensure the duty of safety protection in Tort Law to a certain extent.191 In cases involving atypical trading relationships, if vehicles were lost or damaged when consumers or property owners had parked their vehicles in places designated by restaurant or entertainment operators, parking lot operators, or property management companies, courts often “classify” such cases into the norms of ““nominate contracts” and apply relevant imputation standards. For example, in the above case, most courts determine the operator’s safekeeping obligation according to the Safekeeping Contracts. In fact, the key to such cases lies in determining whether the operator has an obligation to keep or protect the property such as vehicles, and does not lie in the nature of the contractual relationship between the parties.192 If the existence of the safekeeping obligation is confirmed, the provisions of the Contract Law on the obligation of safekeeping can be applied mutatis mutandis or analogically.193 It is worth noting that in the case that the “improper care” is deemed as fault liability and the damage is caused by a third party, the denial of “improper care” of operators may lead to doubts about the fair share of risk. That is, if it is considered that the operator does not have “improper care” in this case, the contractual liability (actually including tortious liability) will be denied accordingly. At this point, the aggrieved party may need to take the consequence of damage independently. Perhaps in order to satisfy a sense of fairness, some courts deny the liability for breach of contract on the basis that the operator has no fault on the one hand, while allowing the operator to “share the losses” according to the so-called “principle of fairness” on the other 191

For example, in the case of an appeal of dispute over entertainment service contract between Wei Linlin and Feng Chengbao (Zhumadian Intermediate People’s Court of Henan Province (2009) Zhu Min Er Zhong Zi No.33), the plaintiff was beaten and injured by four unidentified people while singing in the private room of the club run by the defendant. The court found that the defendant did not install closed-circuit television monitoring equipment at the entrances and exits of its business premises and the main passages in accordance with the Regulations of the State Council on the Administration of Entertainment Places, and did not provide evidence to prove that the place was equipped with professional security personnel, so the defendant should bear 30% complementary liability for the injuries suffered by the plaintiff. 192 For example, the case of dispute over security service contract between Liang Xinian and Zhongshan Security Service Corporation Shiqi Branch et al. (Zhongshan Intermediate People’s Court of Guangdong Province (2008) Zhong Zhong Fa Shen Jian Min Zai Zi No.8). 193 In terms of legal application technique, the imputation standard of this obligation should be determined by analogy as a whole. Specifically, since Articles 222, 265, 374 and 394 of the Contract Law all involve the “storage obligation” (or safekeeping obligation) of the parties to the relevant contract, the imputation of the parking lot contract in determining the operator’s liability should still be determined according to “improper care”.

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hand.194 Since Article 132 of the General Principles of the Civil Law belongs to the norm of Tort Law195 and does not apply to contractual liability, it is questionable whether introducing tort law into the contract law is appropriate or not. c. The Author’s View Due to the diversity of the contractual protective duty, it is not feasible to adopt a single imputation standard either from the perspective of foreign laws or Chinese laws and judicial practices. Instead, it is appropriate to adopt different imputation standards in different circumstances. In practice, the parties’ agreement should be taken into consideration in the first place when the imputation of breach of protective duty is determined because “the liability of breach of contract is transformed from contractual obligations, which essentially arises from the agreement of both parties rather than be imposed by law. The law recognizes that a contract is legally binding. The liability of breach of contract is pursued only when one party fails to perform his obligation, which is only the implementation of the will and agreement of the parties.”196 If the liability of breach of contract can be determined based on the parties’ agreement, such agreement should be permitted and given precedence over the statutory imputation standard in accordance with the principle of freedom of contract. In terms of the content agreed by the parties, it may be manifested as the diminished liability, that is, the parties agree to transform the strict statutory liability into fault liability or even to exempt the liability of general negligence or minor negligence. It can also be the aggravation of liability, that is, the parties agree to transform the statutory negligence liability into strict liability. In fact, the agreement of liability mitigation has the nature of liability exemption. There is no general prohibition for diminished responsibility except the void liability exemption clause in Article 53 of the current Contract Law. According to Article 53, exemption clauses involving personal injury and property losses caused by intent or gross negligence are void. It can be inferred from this provision that if the parties agree to mitigate 194

For example, in the case of an appeal dispute over vehicle storage contract between Guangzhou Zhengjian Property Management Development Co., Ltd. and Wu Xiongwen (Guangzhou Intermediate People’s Court (2006) Sui Zhong Fa Min Er Zhong Zi No.2293), the plaintiff’s vehicle parked at the defendant’s place was damaged by others throwing objects at high altitude. The court of first instance held that the depositary’s responsibility in the paid safekeeping contract was no-fault liability, and the damage to the plaintiff’s vehicle at the defendant’s place constituted the defendant’s “improper care”, so the defendant should be liable for compensation for the losses suffered by the plaintiff. The court of second instance held that the premise for the depositary of the paid safekeeping contract to bear the compensation liability is “improper care”, so the compensation liability should be fault liability rather than no-fault liability. The damage caused by the behavior of the third party does not constitute the defendant’s improper care, so it is incorrect for the firstinstance judgment to determine the defendant to bear the responsibility on the grounds of “improper care”. However, the court of second instance judged that the plaintiff and the defendant should each bear 50% of the repair cost according to Article 132 of the General Principles of the Civil Law on the grounds that the loss occurred in the pay parking area and the vehicle had been handed over to the plaintiff for actual control. 195 This is not only the general theory, but also consistent with the system of the provision. 196 Liang Huixing, From Fault Liability to Strict Liability, published on Liang Huixing, ed, Civil and Commercial Law Review (Vol. 8), Law Press, 1997, p. 7.

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the liability of breach of contract, the effect of such mitigation should be limited to the responsibility for property damage caused by general negligence or minor negligence, and the liability exemption of liability without negligence should, of course, be permitted.197 Therefore, such agreement should be allowed if the parties agree not to be liable for the property losses caused by general negligence (including minor negligence and no negligence in interpretation). Similarly, there is no general prohibition for the agreement on liability aggravation, except for Article 40 of the Contract Law, which prohibits the provider of standard clauses from aggravating the responsibility of the other party according to the format terms. From the perspective of the meaning of this provision, any format term that aggravates the responsibility of the other party through standard clauses is void. However, this understanding cannot be approved either in terms of freedom of contract or practice. According to the principle of freedom of contract, the parties have the freedom to determine the content of the contract. Since the content of the contract is not fixed, abstract “aggravation” does not exist. Scholars may hold that “the so-called aggravation of the other party’s liability means that the liability of the clause provider is unfairly and unreasonably limited and exempted in the standard liability exemption clause, while at the same time liabilities other than those provided by law are imposed on the other party.”198 This understanding regards the agreement of aggravating liability as a special form of liability exemption agreement, and takes the aggravation of statutory obligations as the judgment standard of liability aggravation, which unduly limits the meaning of this provision and needs further consideration. However, both liability exemption agreements and liability aggravation agreements have the function of allocating contract risks. The liability aggravation may either transfer the risk that should be borne by the provider of standard clauses to the other party (only such aggravation clause can be regarded as the special form of liability exemption clause) or unreasonably impose the other contractual risk of damage that is irrelevant to the provider of standard clauses on the other party. However, no matter which forms the liability aggravation clause is, the principles of fairness and good faith which aim at balancing interests, are violated. Therefore, the liability aggravation clause should be subject to legal review as liability exemption clause, and those standard clauses that aggravate the responsibility of the other party “unreasonably” should be invalidated.199 The judgment should be based on the nature and purpose of the contract, not just on the form. The foregoing conclusion can also apply to the negotiation clause. If the parties have no specific agreement on the consequences of the violation of the obligation, the liability for the breach of the protective duty should be determined according to the standards prescribed by law. The case where the law has clear provisions is often found in provisions on fault liability related to the protective duty in nominate contract, for example, the provision of Article 191 (2) of the Contract Law 197

See Cui Jianyuan, Liability Exemption Clauses, China Legal Science, No.6, 1991, p. 82. Wang Liming, Breach of Contract, China University of Political Science and Law Press, 2003, p. 396. 199 Ibid., p. 395. 198

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on the compensation liability of the donor for his intent, the provision of Article 303 on the compensation liability of the carrier for the damage or loss of passengers’ luggage caused by the carrier’s fault, the provision of Article 320 on the compensation liability of depositary of the gratuitous contract of the mandate for the loss of principal caused by the agent’s intent or gross negligence, the provision of Article 374 on the compensation liability of depositary of unpaid safekeeping contract for his gross negligence, and the provision of Article 425 (2) on the compensation liability of the broker for his intent. In addition to the case where the imputation standard is clearly specified in law, there is also a case where the imputation standard is not specified but the act or consequence of the violation of a specific obligation is clearly specified in the law. For example, the provision of Article 179 of the Contract Law on the obligation of a safe supply of power of the power supplier, the provision of Article 183 on the obligation of safe use of the power of the customer, the provision of Article 219 on the liability of the lessee for inappropriate use of the lease item, the provisions of Article 222, 265, 374 and 394 on the responsibility of the lessee, the hiree and the depositary for “improper care”, the provisions of Article 301 and 302 on the responsibility of carrier of passenger transport contract, the provision of Article 311 on the responsibility of and the provision of Article 371 on the responsibility of the depositary. In these provisions, either the actor’s act is inconsistent with the national regulation or the agreement of the parties, or belongs to improper use, improper care or failure to do everything impossible to rescue, or results in passenger casualties or goods damage during transportation and so on. When the consequence of damage is regarded as an imputation element in law, such as Article 302 concerning the liability of the carrier under the passenger transport contract and Article 371 concerning the liability of the depository when the depository transfers the stored article to a third party in violation of the provisions. It isn’t problematic to determine such liability as strict liability. In this case, since the consequence has been allocated to the obligors as a contractual risk in accordance with the law, in the case that strict liability is the general imputation principle, this kind of liability naturally has the attribute of strict liability. whether it is a strict liability or fault liability remains doubted when the specific pattern of the act is taken as the element to determine imputation. First, the determination of the connotation of fault (subjective or objective) will affect the conclusion. Since such provisions are abstract and irrespective of the parties’ subjective understanding, the liability involved in the above provisions aren’t fault liability if the subjective fault is adopted. If the objective fault is adopted, the above provisions can be included in the fault. However, from the perspective of the specific application of these provisions in judicial practice, the process of liability determination has been simplified because the court combines the determination of breach of duty with the judgment of imputation. In this sense, it is almost of no practical significance to identify the imputation as fault liability or strict liability. Second, the determination of the degree of care also affects the conclusion. The higher the degree of care is, the stricter the liability will be. In this respect, the most typical examples are the provisions of Articles 222, 265, 374 and 394 of the Contract Law on the responsibility of lessees, hirees, and depositary for “improper care”. Although the

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violation of the obligations in the four cases is manifested as “improper care”, Paragraph 2 of Article 394 further specifies the exemption grounds of the depositary in warehousing contracts. Therefore, scholars interpret the first three liabilities as fault liability and the fourth one as strict liability.200 Since the violation of the obligations in the four cases is manifested as “improper care”, why do the imputation standards of the four liabilities differ? There is room to discuss whether the liability exemption clause in Article 394 (2) has limited the scope of the liability exemption.201 For the obligation of means, the standard of act constitutes both the content of the obligation and the criterion for determining the breach of the obligation. The core of imputation for contractual liability lies in the determination of the content and violation of obligation. Imputability is usually included in the determination of the breach of duty. It is a direct reflection of this logic that the determination of obligation violation and the judgment of imputation are combined in judicial practice. In this sense, it is also not of much practical significance to endow the judgment result with fault liability or strict liability. In the case that there is no specific provision in the law on the act, consequence and imputation standard for the violation of an obligation, whether the conclusion that all violations of obligation are strict liability (or no-fault liability) without contrary provision or agreement can be deduced logically from taking the strict liability as the general imputation standard is the most controversial issue on the imputation standard for violation of protective duty in theory. In this regard, firstly, it should be clarified that the logical deduction is not worthy of affirmation because the essence of imputation lies in the fair sharing of liability, not in the implementation of a certain logic. In terms of nominating a contract or a typical contract, the logical deduction may make sense because the judgment of fair sharing of responsibility should consider not only the agreement of the parties but the provisions made by the legislators (this is a choice of legislative policy). In the absence of clear provisions of the law on the imputation standard of nominate contract, the general imputation standard should be considered certainly, especially for the imputation of violation of basic obligations and other statutory obligations of the nominate contract, otherwise the general imputation standard will lose its prescriptive significance. For the violation of obligations of the innominate contract, the reason why the general imputation standard cannot be applied naturally can be found in Article 124 of the Contract Law, that is, innominate contracts “should be governed by the provisions of the general provisions of this law, 200

See Cui Jianyuan, Contract Law (5th ed.), Law Press, 2010, p. 505; Wang Liming et al., Contract Law (3rd ed.), China Renmin University Press, 2009, p. 422; Han Song et al., Law of Contract, Wuhan University Press, 2009, p. 370; Chen Xiaojun, Editor-in-Chief, Law of Contract, China Legal Publishing House, 2007, p. 365. 201 Those who hold the view that this provision has the effect of limiting the scope of liability exemption may think that this provision may be useless without this interpretation. This is a reason worthy of attention. However, the complexity of warehousing contracts is obviously far better than the storage obligations in lease, contract and storage contracts. It is possible for the law to make special exemplary provisions on the liability exemption of such contracts (whose commercial contract attribute is stronger). The significance of making exemplary provisions according to the difference in importance and typicality cannot be denied. In this sense, the interpretation of the exemplary function without limiting the scope of exemption is feasible.

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and may refer to the specific provisions of this law or the most similar provisions of other laws”. If the imputation of the innominate contract is subject to “the provisions of the general provisions of this law”, the relevant contractual liability should be a strict liability. If it is possible to “refer to the most similar provisions of the specific provisions of this law or other laws”, since there are special provisions on fault liability in specific provisions of the contract law and other laws, as long as the obligations and violations thereof in the innominate contract are “most similar” to the obligations and violations thereof involved in these provisions, this reference should take precedence over the general provisions of the Contract Law, that is, it can be fault liability. For example, the aforementioned imputation of the operator’s obligation of safekeeping in the parking lot contract can obtain the same result without viewing it as the safekeeping contract. As for the medical service contract, scholars advocate applying the provisions of the contract of mandate or contract of hired work for the same reason.202 In fact, the division between nominate contract and the innominate contract does not provide much help in determining the responsibility for violation of the protective duty. When it comes to the innominate contract and the contractual protective duty determined by supplementary contractual interpretation, if the parties’ agreement on imputation standard cannot be determined through contractual interpretation, the nature, purpose and content of the contract should be considered first to determine whether the relevant contractual protective duty is similar to the contractual protective duty prescribed in the specific provisions of the Contract Law or other laws. If such similarity can be established, the imputation should be carried out in accordance with the imputation standard of the most similar provision. If such similarity cannot be established, an imputation standard in line with the Tort Law should be considered. Namely, the imputation standard is fault liability in principle and reverses the burden of proof in the case of liability for negligence, that is, the obligor proves that he has no negligence. Since the parties can determine the imputation standard of the protective duty through the contractual interpretation and apply it prior to the statutory standard, the maximum consistency of the essence of the contract (the principle of freedom of contract) can be kept in determining the imputation of the protective duty. Most of the responsibilities for violation of the protective duty specified in the Contract Law belong to fault liability. The imputability of contractual liability is presumed to be a general principle when there is no contrary provision or agreement. In judicial practice, the determination of the violation of protective duty and the judgment of imputation are combined, which is prone to fault presumption. When there is no agreement and analogy cannot be applied, an imputation standard in line with the Tort Law should be considered so as to avoid value conflict based on the choice of claim basis.203 202

See Han Shiyuan, Positive Breach of Medical Service Contracts and Its Remedies, Chinese Journal of Law, No.6, 2005, pp. 91–92. 203 Japanese scholar Shinomiya Kazuo believes that the inherent security obligations in the Contract Law should be distinguished from other security obligations arising from the inclusion of the general obligations of Tort Law into the Contract Law (or the case that has the effect of breach of contract and the case that the obligees’ protection interests are interfered with without the breach of contract

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Two points on the imputation of breach of contractual protective duty need to be emphasized. First, liability for intentional injury cannot be presumed. No matter how the liability is determined, as long as the relevant liability is a liability for intentional injury, the reversion of the burden of proof should be excluded. If the burden of proof for liability for intentional injury is reversed, it will completely negate the mitigation of liability for intentional injury on the composition of liability (such as the donor’s liability for damage caused by the defect) or the restriction on aggravation on the assumption of liability (such as the restriction on the application of exemplary damages). Second, the application of equitable liability is excluded. In judicial practice, the provision of equitable liability is the basis for damage sharing when both contractual liability and tortious liability cannot be established. It neither requires that the damage should be caused by the actor nor require that the aggrieved party shouldn’t have fault for the occurrence of the damage (the negligence of the aggrieved party is taken as a factor for determining the damage sharing), thus evolving the equitable liability into “liability without negligence” without liability exemption grounds.204 In this way, the fair sharing of damage may become the unconditional transfer of losses, which will lead to the excessive expansion of the social function of the Tort Law of the People’s Republic of China and the fundamental loss of its value. Given that the equitable liability intensifies the negative effect of the contractual protective duty, it should not be recognized in any case. (2) Determination of the extent of the compensation According to the provision of Article 113 of Chinese Contract Law, where a party fails to perform its obligations under the contract, or its performance fails to conform to the agreement and causes losses to the other party, the amount of compensation for losses should be equal to the losses caused by the breach of contract, provided not exceeding the probable losses caused by the breach of contract which has been foreseen or ought to be foreseen when the party in breach concludes the contract. Judging from the meaning of this provision, improper performance is “performance that fails to conform to the agreement”, and compensation for breach of contract seems to be limited to the scope of breach of contractual obligations. However, such obligations). In case of violating the inherent security obligation of Contract Law, it should be handled according to the general principle of non-performance of obligations; on the contrary, in case of violating the duty of care, it should be determined according to the principle of Tort Law in principle. (Lin Yingzhi, The Theory of Concurrence of Claims: Focusing on Japanese Law, Master’s Thesis, Institute of Law, Chung Cheng University, Taiwan, 2002, pp. 84–85.) It can be inferred that similar treatment should be made according to different situations in the proof of negligence. However, the situation of infringing the obligee’s interest in the integrity without violating the contractual obligation mostly belongs to the type of obligor’s forbearance. Even from the principle of security protective duty in the Tort Law, the violation of this kind of protective duty also has the effect of presumption of fault. Therefore, the distinction has no practical significance in fact. 204 See the case of compensation for personal injury between Zhou Kaifeng et al. and Yichang County Construction Bureau, The Supreme People’s Court Bulletin, No.4, 2001; the case of dispute over compensation for personal injury between Ping Li and Gong Nian and Mayflower Company, The Supreme People’s Court Bulletin, No.2, 2002.

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interpretation of improper performance will lead to obvious problems because there are a lot of statutory obligations in the Contract Law. Moreover, according to the Paragraph 2 of Article 60 of the Contract Law, contractual collateral obligations or protective duty based on the principle of good faith can also occur. These obligations are not “contractual obligations”. If the improper performance in Article 113 is limited to the breach of contractual obligations, these statutory obligations and contractual obligations defined by the principle of good faith will lose their prescriptive basis. Therefore, the breach of contract in the aforesaid provisions of the Contract Law should refer to any non-performance that does not conform to the contractual obligations to be performed.205 Accordingly, whether it is a breach of contractual obligations, statutory obligations or other obligations, the relevant compensation liability should be determined in accordance with this provision. However, when the liability for damages for Integritätsinteresse occurs, how to determine the losses that are equal to the losses caused by the breach of contract needs more explicit guidance. However, there is no relevant contractual responsibility in the Contract Law and the General Principles of the Civil Law, and provisions on the liability for damages for Integritätsinteresse can only be found in the norms of the tort law. The question thus raised is whether these provisions in tort law can be applied or applied mutatis mutandis at the same time in case of breach of the contractual protective duty. If so, is it applied fully (or mutatis mutandis) or applied selectively (or mutatis mutandis)? The problem of the application of law can be converted into the problem of the substantive law as follows: Is there any difference in the scope between the liability for damages for breach of contract arising from breach of contractual protective duty and the tortious liability when the same rights and interests is injured? When the breach of contractual protective duty causes property damage to a party, the scope of contractual damages is generally more comprehensive than tortious damages.206 Therefore, it is no problem that the provisions on liability for property 205

Professor Wang Liming believes that “breach of contract refers to the breach of contractual obligations by the parties to a contract without good reasons”. (See Wang Liming, Breach of Contract [Revised ed.], p. 98.) Taking “without good reasons” as the defining element of breach of contract will cause the determination of breach of contract and the imputation of liability for breach of contract to be confused, but taking “breach of contract obligations” rather than breach of agreement as the defining element has the significance of interpretation exceeding the literal meaning of law. According to the provisions of the General Principles of International Commercial Contracts, non-performance includes non-performance that should bear responsibility and non-performance that does not bear responsibility (see the official commentary to Article 7.1.1 of Principles of International Commercial Contracts (2010)), which is a factual judgment and has nothing to do with imputation. The provisions of Principles of International Commercial Contracts are more operational and logical and deserve approval. 206 Theoretically speaking, since contract damages are restricted by the rule of foreseeability, while tort damages have no such restriction, the impression that the scope of tort damages is larger than that of contract breaching damages may be caused. Such impression is false because the rule of foreseeability in the contract is a very flexible rule, and its purpose is to limit the extremely broad extent of compensation. The rule of liability limitation in tortious liability is the causality theory of liability scope, which can play the similar function of the rule of foreseeability through the limitation of causality.

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damage in Tort Law are applied mutatis mutandis when there is no provision in Contract Law. As long as the causation between the property damage and the breach of protective duty is determined, there is no difference between the compensation for breach of contract and the compensation for tort, so this issue will not be discussed further. On the contrary, in theory, there are many differences in the compensation liability for personal injury caused by a breach of contractual protective duty, especially for mental distress in the breach of contract. Therefore, the compensation for personal injury, especially the mental distress in the breach of contract, will be paid more attention. In addition, the scope of protective duty assumed by the parties to the contract in the case of a third party’s interference is also a controversial issue, which also needs special attention. a. Compensation for Personal Injury Article 122 of Chinese Contract Law provides that if the personal rights and interests of a party to the contract are damaged due to breach of contract, the breaching party may bear the liability for breach of contract in accordance with the law. In the Specific Provisions of the Contract Law (such as Paragraph 2 of Article 191, Article 301, Article 302), there are also specific provisions on contractual obligations to protect involving personal rights and interests.207 Therefore, personal rights and interests necessarily belong to the protected object of the contract law. If a party to a contract breaches the contractual obligations to protect and causes damage to the personal rights and interests of the other party, the breaching party should bear the compensation liability for breach of contract. (a) Overview of judicial cases Judging from the case in the Supreme People’s Court Bulletin (2010), there are four cases in which the breach of contractual protective duty involves personal injury and is settled in accordance with the action based on contract. The case of dispute over compensation for a personal casualty in railway passenger transportation between Liu Youxiang and Luoyang Train Section of Luoyang Railway Branch and Chenzhou Train Section of Changsha Railway Corporation, the case of dispute over compensation between Wang Liyi and Zhang Lixia and Shanghai Galaxy Hotel, the case of dispute over service contract between Xie Fuxing and Lai Meilan and Sun city swimming pool Co., Ltd., and the case of dispute over compensation between Zhu Hang and Changkuo Taxi Company and Fu Jianqi.208 Judging from the four cases, in the case of Liu Youxiang, the compensation amount is generally determined according to the limited compensation, and there is no way to find out the specific amount of the 207

On the basis of systematical interpretation, some scholars believe that the contractor’s compensation liability based on the construction quality assurance liability in Article 282 of the Contract Law is also a contractual liability. (Lu Qing, Research on Compensation for Emotion Distress in Breach of Contract, Tsinghua Law Review, No.5, 2011, p. 152.) However, the objects protected by the liability are mainly building users, and there is usually no contractual relationship between the users and building contractors. Therefore, the nature of the liability should be tortious liability. 208 Published in the Supreme People’s Court Bulletin, No.3, 1999, No.2, 2001, No.6, 2003, and No.3, 2002.

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compensation items. In the case of Galaxy Hotel, the compensation amount is generally determined by discretionary compensation, and there is also no way to find out the specific amount of the compensation items. In the case of Xie Fuxing, the liability is determined by the Measures for Handling Road Traffic Accidents which has the normative nature of a tort, and the compensation items include repayment of death indemnity, funeral expenses, and other related expenses. In the case of Zhu Hang, the civil liabilities of making an apology and mental solatium are applied. Accordingly, we can draw two conclusions: First, it is a common practice to directly apply or apply mutatis mutandis (refer to) relevant tort law provisions in cases involving personal injury in compensation for breach of contract. Second, although compensation for mental distress has been affirmed in some cases (in the case of Zhu Hang), it is difficult to determine the clear judicial attitude of the Supreme People’s Court on this issue because more cases in the Gazette explicitly deny the compensability of mental distress in breach of contract.209 It is worth noting that in the case of Zhu Hang, the plaintiff Zhu Hang did not suffer any actual damage other than mental distress. If the mental distress is not compensated, the defendant’s breach of contract (leaving the passenger who is suffering from a disease attack on the roadside at night to put the passenger in a dangerous state) will not receive any sanctions. From this point of view, the judicial practice that affirms the mental distress has a special background, and it is doubtful whether the practice can be generalized. On the contrary, there is no similar situation in those cases that deny mental distress in breach of contract. The court concludes judgment of individual cases based on the general negative doctrine, which can better reflect the court’s tendency on this issue. From the perspective of common judicial cases, in contract litigation involving personal injury, it is also a common practice to apply or apply mutatis mutandis relevant tort law provisions to compensate for personal injury,210 but there are different practices on whether the aggrieved party can claim mental distress according to the contract. Some of the judgments hold that there is no legal basis for claiming mental distress in contract litigation or directly denying the plaintiff’s relevant claims

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For example: the case of dispute over insurance contract between Wang Lianshun and Yongshun County Branch of China Life Insurance Company (The Supreme People’s Court Bulletin, No.4, 2001), the case of dispute over tourism contract between Wang Linxiang, Chen Weidong and Xiongdu Travel Agency (The Supreme People’s Court Bulletin, No.3, 2002), the case of dispute over compensation for passenger transportation damage between Lu Hong and United Airlines International Air (The Supreme People’s Court Bulletin, No.5, 2002), the case of dispute over medical service contract between Zheng Xuefeng, Chen Guoqing and Jiangsu Province Hospital (The Supreme People’s Court Bulletin, No.8, 2004) and the case of dispute over savings contract between Zhou Peidong and Jiangdong Agricultural Bank (The Supreme People’s Court Bulletin, No.2, 2006). 210 If judicial interpretation documents such as Interpretation on Problems regarding the Ascertainment of Liability for Damages for mental distress in Civil Torts and Interpretation of Some Issues concerning the Application of Law for the Trial of Cases on Compensation for Personal Injury are treated as Tort Law norms, the result is like this.

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according to the doctrine of non-mental distress in breach of contract, which is consistent with the cases in the Supreme People’s Court Bulletin211 ; in contrast, there are also quite a lot of judgments supporting the plaintiff’s claim for mental distress in contract litigation involving personal injury and death. The types of contracts involved are mainly medical service contracts, passenger transport contracts, and employment (or labor) contracts, which involves serious personal injury in general.212 In these cases, the court did not take an abstract position on whether the mental distress can be compensated in cases of serious personal injury caused by a breach of contract, but directly determined the compensation liability based on the fact of personal injury. Except for the relevant provisions of the Contract Law, the judicial interpretations of mental distress or compensation for personal injury are usually 211

For example: the case of an appeal of dispute over medical service contract between He ** and ** Hospital (Changsha Intermediate People’s Court of Hunan Province (2011) Chang Zhong Min Yi Zhong Zi No.0505); the case of an appeal of dispute over service contract between Liu ** and * Company in Shanghai (Shanghai No.1 Intermediate People’s Court (2010) Shanghai No.1 Middle School Min Yi (Min) Zhong Zi No.2638); the case of an appeal of dispute over service contract between Chen Jianxia and China United Network Communications Co., Ltd. Guangzhou Huadu Division Company et al. (Guangzhou Intermediate People’s Court (2010) Sui Zhong Fa Min Er Zhong Zi No.874); the case of an appeal of dispute over compensation for breach of passenger transport contract between Li Weimin and Luo Junming et al. (Guilin Intermediate People’s Court of Guangxi Zhuang Autonomous Region (2010) Gui Min Zhong Zi No.831); the case of an appeal of dispute over service contract between Jing’an Jiangning Good Housekeeping Service Agency and Xu Jia et al. (Shanghai No.2 Intermediate People’s Court (2010) Hu Er Zhong Min Yi (Min) Zhong Zi No.1538); the case of an appeal of dispute over house demolition contract between Xiong Yi et al. and Chongqing Xinxin Real Estate Development Co., Ltd. (Chongqing No.2 Intermediate People’s Court (2010) Yu No.2 Zhong Fa Min Zhong Zi No.87). 212 For example: the case of an appeal of dispute over the contract of hired work between Li Bibo and Beijing Jindu Yimeng Entertainment Co., Ltd. (Beijing No.2 Intermediate People’s Court (2011) No.2 Zhong Min Zhong Zi No.17001); the case of an appeal of dispute over medical service contract between Tianjin Hospital and Yu Xiaohan (Tianjin No.2 Intermediate People’s Court (2011) No.2 Zhong Min Si Zhong Zi No.561); the case of an appeal of dispute over passenger transport contract between Hunan Chenzhou Motor Transport Group Co., Ltd. and Hu Liucai Highway (Hunan Chenzhou Intermediate People’s Court (2011) Chen Min Yi Zhong Zi No.139); the case of an appeal of dispute over medical service contract between Wang Zhengshan and Liuan People’s Hospital ((2011) Wan Min Yi Zhong Zi No.00003); the case of an appeal of dispute over public transport contract between Qingdao Public Transport Group Bus Co., Ltd. and Shen Moumou City ((2011) Qing Min Wu Zhong Zi No.480); the case of an appeal of dispute over medical service contract between ** People’s Hospital in Bao’an District of Shenzhen City and Zhao ** (Shenzhen Intermediate People’s Court of Guangdong Province (2011) Shen Zhong Fa Min Yi Zhong Zi No.490); the case of an appeal of dispute over employment contract between Hao Zhihu and Xu Wufa (Sanmenxia Intermediate People’s Court of Henan Province (2010) Sanmin Sanzhong Zi No.228); the case of an appeal of dispute over employment contract between Ding Chunlin and Hui Xin (Nanyang Intermediate People’s Court of Henan Province (2010) Nan Min Er Zhong Zi No.845); the case of an appeal of dispute over labor (employment) contract between Yu Junming and Yu Heping (Changzhou Intermediate People’s Court of Jiangsu Province (2010) Chang Min Zhong Zi No.1199); the case of an appeal of dispute over labor employment contract between Li Xianzhou and Suo Jicheng (Anyang Intermediate People’s Court of Henan Province (2010) An Min Er Zhong Zi No.265); the case of an appeal of dispute over medical service contract between Zhengzhou Orthopedic Hospital and Feng Jingxian (Zhengzhou Intermediate People’s Court of Henan Province (2010) Min Zheng Er Zhong Zi No.632).

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cited at the same time. In a few cases, it seems that the court intends to weaken the distinction between contract and tort and analyze liability directly from damages. For example, in the case of an appeal of a dispute over an urban public transport contract between Qingdao Public Transport Group Bus Co., Ltd., and Shen **,213 the court held that “the plaintiff, as the passenger on the bus owned by the defendant, has concluded a passenger transport contract with the defendant, and the defendant should fully perform its contractual obligations to ensure the safety of the plaintiff. The plaintiff was injured due to the defendant’s tortious conduct. It is in accordance with the law that the plaintiff requires the defendant to compensate for the loss.” Although the cause of action, in this case, shows that it is a dispute over a transport contract, the court determined the defendant’s compensation liability based on contract and tort rather than the concurrence of liability. This kind of fuzzy distinction between contract and tort generally reflects the general characteristics of the judicial judgment214 affirming mental distress in breach of contract, that is, the court usually determines damages directly from the consequences of detriment, which is contrary to the judicial judgment that denies the mental distress in breach of contract. (b) Theoretical examination In view of the fact that the basic reason for denying compensation for mental distress in breach of contract is that there is no legal basis. There is no doubt that the current laws in China do not have clear provisions on mental distress in breach of contract. On the contrary, the existing provisions on mental distress, such as Article 120 of the General Principles of Civil Law, Article 22 of the Tort Law, and the Interpretation of the Supreme People’s Court on Problems regarding the Ascertainment of Liability for Damages for mental distress in Civil Torts (Judicial Interpretation [2001] No.7, hereinafter referred to as “judicial interpretation of mental distress”), are obviously the provisions of tortious liability. However, it is necessary to establish at least one premise to deny the mental distress in breach of contract on the grounds of lacking clear legal provisions, that is, the compensation for mental distress can be made only when the law has clear provisions.215 Such a premise is exactly lacking clear legal 213

Qingdao Intermediate People’s Court of Shandong Province (2011) Qing Min Wu Zhong Zi No.480. For similar cases, see the case of an appeal of dispute over damages between Shao Jian and Huamei Medical Plastic and Cosmetic Clinic (Guangzhou Intermediate People’s Court of Guangdong Province (2004) Sui Zhong Fa Min Yi Zhong Zi No.1743). The case involves a dispute over beauty damages. The court of second instance judged the defendant to compensate the plaintiff for mental distress of 3,000 yuan for failing to fulfill his obligation to inform the ingredients. Although the court of first instance clearly analyzed it from the perspective of medical service contract, the court of second instance only focused on the performance of the duty to disclose and did not specify the nature of the dispute. The difference in the results of handling such cases according to contract or infringement cannot be identified. 214 Interestingly, the situation in the United States is similar. Although the general opinion is that mental distress belong to tort compensation, most states do not require the parties to clarify the nature of their litigation, nor do they classify the nature of their litigation when granting compensation. See Restat. 2d of Contracts §353, cmt.a. 215 See Civil Division I of Beijing Higher People’s Court edited, Analysis of Difficult Cases and Problems in Civil Trials in Beijing (Vol. I), Law Press, 2007, p. 466.

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provisions! Since the law does not provide that only when the law has clear provisions can compensation be made for mental distress or non-economic damage, the possibility of mental distress in breach of contract cannot be denied on the grounds that the law does not have affirmative provisions.216 Although the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Cases about Tour Disputes (Judicial Interpretation [2010] No.13) denies the mental distress in tourism contracts,217 there is no reason to expand it to the general practice of denying the mental distress in breach of contract. According to the provision of Article 1 of the Interpretation of the Supreme People’s Court of Some Issues concerning the Application of Law for the Trial of Cases on Compensation for Personal Injury (Judicial Interpretation [2002] No.20, hereinafter referred to as “judicial interpretation of personal injury”), this interpretation is applicable to the case of personal injury caused by “tort or other causes”. Scholars believe that the interpretation of “other causes” should include a breach of contract. This understanding is consistent with the idea of “judicial interpretation of personal injury” that carries out legal regulation from the perspective of injured rights and interests rather than the causes of injury, which should be approved.218 From the perspective of the provisions of Articles 10, 11, and 14 of the Interpretation, the breach of the contractual protective duty can also be included. Thus, in the case of personal injury caused by a breach of contractual protective duty, according to Article 18 of this interpretation, there is no problem with applying the “judicial interpretation of mental distress damages”. At the same time, there is no limitation in Articles 112 and 113 of the Contract Law for the type of “loss”, and losses caused by a breach of contract can be compensated except for unforeseeable damage according to Article 113. As long as mental distress is caused by a breach of contract and is not unforeseeable, there is no reason to exclude it from compensation.219 Therefore, except for the tourism 216

Some people think that Article 113 of the Contract Law does not clearly specifies mental distress in breach of contract, and that Article 122 specifies that the breach of contract does not include mental distress from the perspective of concurrence. (See Liu Jiachen, Understanding and Application of the New System of Contract Law, People’s Court Press, 1999, p. 208.) The underlying reasoning is that since concurrence is allowed, the existence of differences should be the premise, unless the differences are explicitly excluded by the law. Regardless of the fact that the concurrence is not the determinant for the mental distress in breach of contract, even though there is no difference in compensation for the infliction of mental distress between breach of contract and tort under the concurrence of liabilities, there are still other differences between the two. Therefore, the theory just implies the conclusion in the inference process in advance. 217 See Article 21 of the Provisions: “where a tourist files a lawsuit for breach of contract but claims compensation for the infliction of mental distress, the people’s court shall inform him to change the lawsuit into a tort action; and if the tourist insists on filing a lawsuit for breach of contract, the people’s court shall not support his claim for compensation for the infliction of mental distress.” 218 See Han Shiyuan, The Law of Contract (3rd ed.), p. 621. For the opposite opinion, see Chen Xianjie, Analysis of Some Theoretical and Practical Problems on Interpretation of the Supreme People’s Court of Some Issues concerning the Application of Law for the Trial of Cases on Compensation for Personal Injury, Law Application, No.2, 2004, p. 4. 219 See Ye Jinqiang, On the Non-pecuniary Damages: The Establishment of an Interpretative Theory Framework of Mental Distress, Jurist, No.5, 2011, p. 90. Some people may think that Articles 112 and 113 of the Contract Law use the concept of “loss” rather than “damage”. The former only refers

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contract, the mental distress in breach of contract should be compensated as long as the provisions of the Contract Law on the liability for breach of contract are met. In this way, there is not only a legal basis for applying or applying mutatis mutandis the relevant Tort Law provisions to the determination of liability for damages for mental distress in breach of contract, but also a legal basis for judicial cases affirming the mental distress in breach of contract when personal injury is involved. Although there is no obstacle to the mental damage in breach of contract from the meaning and logic of the current laws of China, other reasons for denying the emotional damages in breach of contract should be responded to justify the mental damages in breach of contract from the perspective of substance. In China, most of the scholars who deny mental distress in breach of contract have not stated their reasons, and the relevant reasons are only found in the monographs of a few scholars. For example, Professor Wang Liming, as a representative scholar who denies mental distress in breach of contract, puts forward the following reasons220 : (1) It is one of the differences between the breach of contract and tort to provide relief for mental distress; (2) The huge amount of mental distress is inconsistent with the essence of equivalent exchange of contract; (3) The mental distress caused by a breach of contract is unforeseeable at the time of entering into a contract, so it violates the rule of foreseeability established by the Contract Law to compensate the mental distress; (4) The mental distress caused by a breach of contract can be remedied through tort; (5) It is difficult to calculate and accurately determine mental distress with money. Establishing the mental distress in breach of contract will allow the judge too much discretion. From the perspective of foreign theories, the reasons for denying the mental distress in breach of contract are as follows: The excessive “commercialization” of non-economic legal interests will lead to the danger that the non-economic legal interests will not be controlled by the provisions.221 Since mental distress is intangible, subjective, and lacks objective basis, a large number of minor or even false mental distress cases will be brought if it is allowed, and it is to “property loss”, especially the consequences of damage that can be measured in money, while the latter includes both property loss and mental distress. If so, Article 113 explicitly excludes the emotional distress caused by breach of contract. Through a full-text search of the Contract Law, we found that there are 70 provisions using the concept of “loss”, all of which summarize the damage results of relevant situations, such as “compensation for losses” (18) or “causing losses” (10), “causing … losses” (12), etc.; only Item 2 of Article 53 explicitly refers to “property losses” to be symmetrical with “personal injury”; there are 50 provisions using the concept of “damage”, of which 30 are “liability for damages”, 7 refer to damage results, 3 are “the aggrieved party”, 10 are used as verbs (such as “damage to national interests”), and 2 are “property damage”. From the above statistical results, it is difficult to see that legislators have a clear awareness of the aforementioned distinction in the use of the concepts of “loss” or “damage”. The concepts “property loss” and “property damage” are used at the same time, especially in Article 246, where “property loss” and “personal injury” are not symmetrical as in Item 2 of Article 53, but “personal injury or property damage” are used together, which further highlights legislators’ lack of clear awareness of expressing normative positions through conceptual distinction. 220 Wang Liming, Research on Contract Law (Vol. II), China Renmin University Press, 2003, pp. 670 seq. 221 Ma Weilin, Principles of Law of Damages, Law Series, No.161 (1996). Quoted in Han Shiyuan, The Law of Contract (3rd ed.), p. 617.

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not different from punitive compensation.222 The above reasons have been strongly refuted.223 In short, first, taking mental distress as one of the criteria for distinguishing between the breach of contract and tort is just to express the conclusion in another way. Second, on the one hand, the reason that the huge amount of mental distress is contrary to the essence of equivalent exchange of contract is not in line with the practice of mental distress in China. Even in tort, there is no “one million yuan of mental distress damages” in China. On the other hand, if the consequence of mental distress in breach of contract can be foreseen at the time of breach of contract, reasonable parties will demand redress for the possible compensation liability in consideration, and the contract transaction theory is completely compatible with the mental distress in breach of contract. Third, although the rule of foreseeability can exclude unforeseen emotional distress in breach of contract, it cannot exclude the emotional distress in breach of contract that has been or should have been foreseen. The negativists hold that the emotional damages in breach of contract can be allowed under exceptional circumstances. Fourth, if the mental distress caused by a breach of contract can be solved through compensation in tort, there is no need to resort to relief for breach of contract. Some scholars advocate to deny the mental distress in breach of contract in principle based on such consideration.224 However, when the breach of contract causes damage to both the performance interests and the integrated interest and causes mental distress, it is questionable whether the current law allows the parties to file a contract action and a tort action separately on the same damage,225 and the fact that satisfies the liability for breach of contract does not necessarily satisfy the constitutive elements of tortious liability, so the relief for the aggrieved party is possibly insufficient if personal injury or mental distress is completely settled by tort law. Fifth, mental distress is subjective and hard to determine. Allowing the mental distress may bring some minor or even false mental distress cases to courts and may also lead to excessive “commercialization” of noneconomic legal interests. However, these problems also exist in tort relief, which cannot be the grounds for denying mental distress in breach of contract. In addition, there is no evidence proving that there is a serious proliferation of lawsuits under the legislation that recognizes mental distress in breach of contract. Sixth, as long as it is recognized that breach of contract may cause serious mental distress in some cases

222

Nelson Enonchong, Breach of Contract and Damages for Mental Distress, Xiao Houguo Trans, published on Liang Huixing, Editor-in-Chief, Civil and Commercial Law Review (Vol. 16), Jinqiao Culture Publishing (Hong Kong) Co., Ltd., 2000, pp. 499 seq. 223 Ibid. In addition, see Huang Jinqiao, Theory Barriers and Its Surmounting Measures on Mental Distress Damages in Breach of Contract, Northern Legal Science, No.3, 2007, pp. 63–65; Cui Jianyuan, Compensation for the Infliction of Mental Distress in Breach of Contract, Journal of Henan Administrative Institute of Politics and Law, No.1, 2008, pp. 48 seq. 224 See Li Yongjun, The Contractual Relief of Mental Injury and Its Justification, Journal of Comparative Law, No.6, 2003, p. 61. 225 See Sect. 2 of this chapter for this analysis.

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and the mental distress should be based on the consequences of such damage.226 It cannot be denied that the mental distress is compensatory.227 In some cases, mental distress is punitive (such as the punishment for breach of contract mala fides), which does not mean that punitiveness exists in any case. Therefore, it is reasonable but not accurate to equate mental distress with punitive compensation. In conclusion, noncompensation for mental distress in breach of contract is not a rule that can be fully proved in theory. From the perspective of comparative law, it is rare to exclude mental distress in compensation for breach of contract.228 Even the scholars who deny the mental distress in breach of contract also admit some exceptions,229 which shows the necessity and legitimacy of admitting the mental distress in breach of contract. It is of little significance whether mental distress in breach of contract should be recognized as a general rule or only as an exception.230 What really matters is under what conditions should mental distress in breach of contract be allowed. From the perspective of comparative law, it is rare for legislation to allow damages for mental distress in breach of contract without limitation, instead, emotional damages in breach of contract are generally subject to some limitations. These limitations may be broader, for example, mental distress should only be subject to general principles of compensation for breach of contract, which is adopted by the Principles of International Commercial Contracts, the Principles of European Contract Law, the European Contract Code, and the European Draft Common Frame of Reference.231 Special limitations can be further specified in addition to the above limitations. First, 226

For example, Swiss legal practice requires the mental discomfort (die seeliche Unbill) for compensation for the infliction of mental distress. Jürg Koller, Genugtuung aus Vertragsverletzung, Zürich 2003, S. 24. 227 Scholars divide the function of mental distress (solatium) into three types: first, compensation function; second, consolation function; and third, symbolic redemption function. Only the second and third functions do not take the compensation for the pain suffered by the aggrieved party as the compensation standard. See Dieter Schwab, Einführung in das Zivilrecht, Zheng Chong Trans, Law Press, 2006, pp. 259–260. 228 Christian Von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), p. 556. The author thinks that Germany still pertains to one of a few exceptions, but Germany has also changed after the modernization of law of obligations. See German Civil Code (BGB, Bürgerliches Gesetzbuch), Article 253, para. 2, Article 618, para. 3. For a comparative law study on mental distress in breach of contract, see Han Shiyuan, The Law of Contract (3rd ed.), pp. 617 seq; Long Zhuhua, Mental Distress in Liability for Breach of Contract, Political Science and Law, No.1, 2006, pp. 79 seq; Lu Qing, Research on Compensation for Mental Distress in Breach of Contract, Tsinghua Law Review, No.5, 2011, pp. 147 seq. 229 See Wang Liming, Research on Contract Law (Vol. II), p. 670; Li Yongjun, The Contractual Relief of Mental Injury and its Justification, p. 61. 230 The practice of the Restatement (Second) of Contracts of the United States may be a good example. Article 353 of the Restatement (second) of Contracts prescribes that “Recovery for mental distress will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious mental distress was a particularly likely result.” Although it adopts the position of not compensating for the emotional disturbance in the breach of contract in principle, it will not produce any difference in effect if it is interpreted as the requirement of compensation for the mental distress in the breach of contract. 231 See Lu Qing, Research on Compensation for Mental Distress in Breach of Contract, p. 151. These legislative examples only stipulate that damages for breach of contract include mental distress,

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compensation for mental distress is required to be limited by the explicit provisions of the law and the specific types of injured rights and interests. For example, Article 253 of the German Civil Code requires that the compensation for non-material damage should be limited to the case that is clearly provided by the law or the case that need to be compensated due to interference with body, health, freedom or sexual autonomy. Articles 47 and 49 of the Swiss Code of Obligations (which can be applied mutatis mutandis to breach of contract in accordance with Article 99, Paragraph 3) limit the compensation for mental distress to death or interference with body or personality232 ; Article 353 of American Restatement (Second) of Contracts also clearly lists the compensation for mental distress in case of personal injury. Second, the right of organizations to claim damages for mental distress is excluded. For example, the Swiss Code of Obligations naturally excludes organizations by limiting compensation for mental distress to death or interference with body or personality. Third, compensation for mental distress is limited by the purpose of the contract or the nature of the breach of contract. For example, Paragraph 4 of Article 8:402 of Principi Acquis requires that the protection and satisfaction of non-economic interests in obligation assumption rather than direct interference with personality rights and interests are necessary for compensation for mental distress.233 Fourth, compensation for mental distress is limited by the seriousness of the interference. For example, in interfering personality, the Swiss Obligation Code provides that solatium can only be claimed when serious interference occurs.234 From the perspective of Chinese judicial practice, the extent of compensation for mental distress in breach of contract is limited by the Supreme People’s Court’s “judicial interpretation of compensation for mental distress”. The most common cases are death caused by tort or the right to physical health damaged by tort, while cases involving the right to identity and spiritual personality rights are rare.235 In addition, when the non-economic damage caused by the special nature of the contract or breach of contract is serious according to the general social concept, courts often grant the claim for mental distress in breach of contract. For example, in the contract for the storage of a cinerary casket, compensation for mental distress is claimed and at the same time, believe that they should be limited by the general rules for damages for breach of contract (such as Article 7.4.2 Official Commentary 5 of the General Principles of International Commercial Contracts), and there are no other restrictions. 232 Article 47 of the Swiss Code of Obligations stipulates: “If death is caused or bodily harm is caused, the judge may consider special circumstances and award appropriate money to the aggrieved party or the relatives of the decedent as Genugtuung.” Article 49 stipulates: “A person whose personality has been unlawful attack has the right to demand money as comfort, as long as the infringement is serious and no other relief has been obtained.” “The judge may also grant other forms of comfort to replace the performance or use it at the same time as the performance.” 233 Lu Qing, Research on Compensation for Mental Distress in Breach of Contract, Tsinghua Law Review, No.5, 2011, p. 151. 234 The severity of the infringement should be comprehensively judged in combination with the purpose of the contract, the fiduciary relationship and the tort behavior. Jürg Koller, Genugtuung aus Vertragsverletzung, SS. 111 f. 235 This may be more because the right to identity or spiritual personality (such as the right of reputation and portrait right) is less involved in breach of contract.

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because the bone ashes are taken away by others.236 In the service contract for the wedding banquet, compensation for mental distress is claimed due to improper service.237 In the service contract for wedding photography, compensation for mental distress is claimed due to loss of photography materials or serious defects in service quality.238 These contracts involve the purpose of safeguarding spiritual interests, and relevant breach of contract usually causes serious mental distress. Therefore, although the personal injury is not involved, the court still supports the plaintiff’s claim for mental distress in breach of contract. Accordingly, as far as the compensation for mental distress in breach of contract in Chinese law is concerned, the successful experience of comparative law and the exploratory approach of Chinese judicial practice can provide helpful enlightenment. Solutions to this issue can be put forward combined with the relevant provisions of the law in force. (c) Construction of Solutions in Chinese Law In terms of judicial practice in China, the compensation for mental distress in breach of contract involves two different types of cases, namely, mental distress accompanied by personal injury and pure mental distress without personal injury.239 The obstacles to remedy faced by the two kinds of mental distress in the law in force are different. As for the mental distress accompanied by personal injury, if the breach 236

For example, “Zhang Hailan, Wei Chao and a County Funeral Management Custody Contract Dispute Case” (Baoding Intermediate People’s Court of Hebei Province (2010) Baomin Sizhong Zi No.00299) (see http://yaolawyer.findlaw.cn.lawyer/jdal/d7892_p5.html; Visit time: March 14, 2012); “Zhou Moumou et al. v. Huaihua Funeral Administration Office over Dispute over Custody Contract” (Hecheng District People’s Court of Huaihua City, Hunan Province (2011) Huai He Min Er Chu Zi No.6). 237 See Cao Zuohe of Gao Jin, “Compensation for the Infliction of Mental Distress Should Be Caused by Defects in Wedding Banquet Service”, see http://oldfyb.chinacourt.org/public/detail. php?id=94780; Visit time: March 14, 2012. 238 For example: “Appeal Case of Dispute over Delicate Wedding Photography Service Contract between Zhang Dingwei et al. and Mrs. Jin” (Nanyang Intermediate People’s Court of Henan Province (2010) Nan Min Er Zhong Zi No.662), “Appeal Case of Dispute over Photography Service Contract between Zhou Mingjia and Ma Li et al.” (Quzhou Intermediate People’s Court of Zhejiang Province (2008) Qu Zhong Min Yi Zhong Zi No.14). On the contrary, for the judgment, see “Appeal Case of Dispute over Wedding Photography Service Contract between Song Huicong and Shenyang Bazhili Wedding Dress Co., Ltd.” (Shenyang Intermediate People’s Court of Liaoning Province (2005) Shen Zhongmin (3) He Zhong Zi No.139). 239 Some scholars in our country put forward the concept of “pure mental distress”, believing that this kind of damage “refers to the damage to the mental interests of natural persons as civil subjects without infringement of their civil rights”. (See Lu xiaoming, On Pure Psychiatric Damage, Jurist, No.1, 2010, p. 122.) This definition is obviously influenced by the concept of “pure economic loss” in tort law. It fails to understand that the essence of the problem involved in this concept lies not in the infringement of rights, but in the relationship with personal infringement, that is, “mental damage not caused by physical damage”. (See Zhou Qiong, On Pure Mental Damage Caused by Negligence: An Investigation Centered on American Law, Global Law Review, No.5, 2010, p. 69.) Considering the problem-oriented characteristics of the use of this concept, the pure mental damage mentioned in this paper refers to the mental damage without personal injury.

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causes mental distress with a personal injury, the aggrieved party should be compensated in accordance with the Tort Law instead of being withheld just because such damage occurs in the contract according to the aforementioned reasons.240 However, in case that the breach of contract only causes pure mental distress, as Chinese Tort Law limits compensation for mental distress to “serious mental distress caused by interfering with personal rights and interests”, whether mental distress can obtain compensation will arouse more doubts. Judging from the provisions of the “judicial interpretation of compensation for mental distress”, in addition to the interference with personality rights (Article 1), compensation for mental distress can be generated if the identity relationship is damaged or specific commemorative items with the symbolic significance of personality are damaged or lost (Articles 2–4).241 Therefore, the extent of compensation for mental distress is broader than the provisions of the Tort Law. If the court can “make useful explorations on this exceptional case”242 in addition to the provisions of the Tort Law, compensation for mental distress should also be granted in the storage contract involving specific commemorative items with the symbolism of personality which are damaged or lost due to improper care. On the contrary, in contracts such as tourism contracts or wedding services contracts, pure mental distress does not involve the case of the above provisions.243 If the consistency with the Tort Law is taken into consideration, mental distress caused by improper performance of these contracts may be denied. Basically, the consideration for linking mental distress with interference with personal rights and interests, especially personal injury, is to limit the extent of compensation for mental distress. However, the recognition of personality property and body property in modern law and the affirmation of commercialization of personality rights244 reflect the overlapping of spiritual interest and material interest. Although the German law limits compensation for mental distress to interfere with the body, health, freedom, or sexual autonomy, the non-economic damage is commercialized on a specific occasion, which means interests that can be purchased with money (such as enjoying pleasure, comfort, and convenience) are allowed for compensation by regarding these interests as properties, which subtly recognizes interests that belong to mental distress by means of conceptual logic.245 In fact, as long 240

Some scholars think that compensation for the infliction of mental distress in breach of contract should be allowed for the convenience of litigation. See Xie Hongfei, Three Keywords of Damages for Mental Distress, Studies in Law and Business, 2010, p. 13. 241 See Chen Xianjie, The Essence of Articles and Case Analysis of Tort Law of the People’s Republic of China, China Legal Publishing House, 2010, pp. 72–73. 242 Ibid., p. 73. 243 The Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Laws in the Trial of Tourism Dispute Cases (Fashi [2010] No.13) does not distinguish between mental distress accompanied by personal injury and pure mental distress. According to the reasons stated in this article, it is inappropriate to exclude mental distress accompanied by personal injury from compensable damage even from the provisions of the current law. 244 See Xu Guodong, General Theory of Civil Law, Higher Education Press, 2007, pp. 186 seq. 245 See Xie Hongfei, Three Keywords of Damages for Mental Distress, Studies in Law and Business, p. 13.

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as it is admitted that a certain “emotional value” is worth compensating,246 it is not important whether the compensation is granted in the name of mental distress, and it is even more difficult to establish the distinction between “emotional” and “spiritual”, although it is meaningful to link mental distress with interference with personal rights and interests and it can be consistent with the same restriction target of tort law. However, if it is really necessary to break through the restrictions of the General Principles of the Civil Law and the Tort Law like the judicial interpretation of compensation for mental distress, and this breakthrough has indeed “achieved positive results in fully protecting the legitimate rights and interests of the people, thoroughly resolving disputes and realizing the settlement of cases”,247 it is not convincing to limit mental distress to the interference with personal rights and interests. Even under the framework of the Tort Law, due to the broad scope of personal rights and interests, the limiting function of linking mental distress with interference with personal rights and interests is largely reflected by the restriction of the right subject, that is, the organization is excluded from the right subject, and the limiting effect per se is actually weak. The more fundamental restriction is the normative requirement of “serious (mental distress)”, which excludes those with minor mental distress from compensable damage. “Serious” is a highly flexible legal concept that authorizes judges to determine according to specific circumstances.248 As long as it is emphasized that compensation for mental distress must be “serious (mental distress)”, in most cases, both the purpose of protecting rights and interests and the purpose of limiting liability can be taken into account. For the compensation for mental distress in breach of contract, the foreseeability rules, the rule of mitigation of damages, Mitverschulden, and even the purpose of contract also play the role of limiting liability, which can limit the extent of compensation.249 In this regard, it is unnecessary to restrict the types of injury of personal rights and interests.250 From the perspective of contractual protective duty, since the content and purpose (or nature) of the contract are always the key to judging the protective duty, if the breach of contractual protective duty leads to mental distress, the interference with personal rights and interests is only an accidental intervention in the relationship structure between obligation violation and mental distress. Different from tort 246

Ibid., p. 14. See Chen Xianjie, The Essence of Articles and Case Analysis of Tort Law of the People’s Republic of China, p. 73. 248 According to the current judicial practice, compensation for the infliction of mental distress is allowed if death or disability level is caused in the case of infringement of material personality rights such as body and health; Otherwise, we should consider other related influences to comprehensively judge whether to grant compensation for the infliction of mental distress. When it comes to the infringement of spiritual personality right, we should comprehensively consider the subjective state of the infringer, the means of tort, the occasion, the behavior mode and the mental state of the infringed person. see ibid. 249 See Lu Qing, Research on Compensation for Mental Distress in Breach of Contract, p. 153. 250 Some tort law scholars also believe that it is still necessary to expand the relief extent of compensation for the infliction of mental distress through liability for breach of contract when a simple breach of contract causes serious mental distress to the observant party. See Zhang Xinbao, Editor-in-Chief, Research on Compensation System for Mental Distress, Law Press, 2012, p. 95. 247

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compensation, mental distress in breach of contract can be more related to party autonomy, that is, on the one hand, it allows a third party to pursue certain spiritual interests (such as comfort, pleasure, convenience) through the contract, and on the other hand, it allows the parties to agree in advance compensation for mental distress caused by violating specific obligations.251 The instrumental nature of the contract determines that the contract can become not only a relief tool for mental distress but also a generator of spiritual interests. Therefore, the extent of compensation for mental distress in breach of contract is broader than that in tort. Paragraph 4 of Article 402 of Section 8 of the Principles of EU Law (Principi Acquis) limits compensation for mental distress in breach of contract to “the satisfaction and protection of nonproperty interest included in the purpose of obligation assumption”. Article 353 of the Restatement of the U.S. Contract Law (Second) limits mental distress in breach of contract to the situation in which “the breach of contract causes physical injury at the same time, or the type of contract or breach of the contract makes serious mental distress a potential result”. In fact, these provisions demonstrate the recognition of the particularity of compensation for mental distress in breach of the contract compared with compensation for mental distress in tort. Accordingly, under the framework of Chinese law, if a party to a contract suffers serious mental distress due to the other party’s breach of the contractual protective duty, the party in question has the right to claim damages according to Article 113 of the Contract Law, and the court may also apply the relevant provisions of the Tort Law to determine the compensation liability.252 If there is no relevant provision in the Tort Law, the aggrieved party can only claim damages if the breach of contract usually causes serious mental distress according to the purpose (or nature) of the contract. No matter what the case is, the compensation for mental distress in breach of contract should be limited by the general rules of damages in the Contract Law.253 b. The contractual liability in the case of injury caused by a third party 251

See ibid., pp. 153–154. Article 227-1 of the Civil Code of Taiwan stipulates: “If the obligor fails to perform his debts and the obligee’s personality right is infringed, the provisions of Articles 192 to 195 and 197 shall apply mutatis mutandis, and he shall be liable for damages.” In other words, the aggrieved party has to request to pay solatium according to the non-performance of debts and the infringement of personality rights. Mr. Wang Zejian commented: “This is helpful to readjust the relationship between contractual liability and tortious liability, especially to strengthen the normative function of incomplete performance system, which is of great and far-reaching significance to the development of civil liability.” (Wang Zejian, Legal Thinking and Examples of Civil Law: Basic Theoretical System of Claim Right, China University of Political Science and Law Press, 2001, p. 285.) Similar practices can also be found in Article 99, Paragraph 3, of the Swiss Code of Obligations. 253 Some scholars believe that compensation for the infliction of mental distress in breach of contract should not be limited by the rule of predictability, so as to avoid the unreasonable phenomenon that the same act has different effects in the field of contract and tort. (See Ye Yuping, Research on the Duty to Protect in Contracts, p. 140.) This view has its rationality, but if we do not recognize the application of the limitation of liability rules in contract law, it may destroy the consistency of the intrinsic value system of contract law, which is really inappropriate! As for the consistency of tortious liability and contractual liability in compensation effect, this paper will analyze it in detail later. 252

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In the case where the breach of the contractual protective duty causes damage to the integrated interest of the other party, if the damage is within the framework of the contract or is only related to the parties to the contract, there is usually no problem in dealing with the liability according to the general rules of damages for breach of contract (including the foreseeability rule, the rule of mitigation of damages, and the Mitverschulden, etc.).254 When the cause of damage is beyond the framework of the contract, especially when it involves injury caused by a third party, there are different understandings in theory on how to solve the liability sharing between the parties to the contract who undertake the protective duty and the third party. The main issue is whether the obligor bears direct liability or complementary liability and how to determine the scope of his liability. This problem is raised based on comparing the general effect of breach of contract with the provisions in Tort Law for violating the safety-guard obligation. In other words, if one party to the contract has the duty to protect the other party from the injury caused by a third party according to the contract, and the other party suffers the injury by a third party due to his violation of the obligation, the party in question should independently bear the compensation liability according to the contract, and this liability is not affected by whether the third party bears the tortious liability On the contrary, according to the provisions of Paragraph 2, Article 37, and Article 40 of the Tort Law, if the manager of a public place or the organizer of social activities fails to fulfill the safety-guard obligation, and if kindergartens, schools or other educational institutions fails to fulfill its management duties, causing the aggrieved party to suffer the injury caused by a third party, the third party (direct tortfeasor) should first bear the tortious liability; only when the third party cannot be found or the third party is unable to bear the compensation liability, will the security obligor or the relevant agencies responsible for management (hereinafter collectively referred to as the “security obligor”) bear the supplementary compensation liability within the scope of failing to fulfill the safety-guard obligation.255 In this way, although it also involves the violation of the actor’s obligation to avoid the injury caused by a 254

In the “Appeal Case of Dispute over the Contract of Hired Work between Li Bibo and Beijing Jindu Yimeng Entertainment Co., Ltd.” (Beijing No.2 Intermediate People’s Court (2011) No.2 Zhong Min Zhong Zi No.17001), the plaintiff fell and was injured while laying roof waterproofing for the defendant. The court held that when the two sides established the contract, because the defendant “did not carefully examine whether Li Bibo had safety protection equipment, and did not provide effective safety protection equipment for him, and did not give clear instructions on safety protection to Li Bibo” when selecting the plaintiff to undertake the business for him, he should bear 30% of the compensation liability according to his fault degree. For similar cases, please refer to the Appeal Case of Dispute over the Contract of Hired Work between Chen Yuequn and Xu Changyu (Foshan Intermediate People’s Court of Guangdong Province (2005) Fo Fa Min Yi Zhong Zi No.775) and the Appeal Case of Dispute over the Contract of Hired Work between Zhuzhou Time Refrigeration and HVAC Engineering Co., Ltd. and Wu 1 (Zhuzhou Intermediate People’s Court of Hunan Province (2011) Zhu Fa Min Yi Zhong Zi No.28). 255 See Tortious Liability Law of the People’s Republic of China: Explanation of Provisions, Legislative Reasons and Relevant Provisions, edited by the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, Peking University Press, 2010, pp. 160–161.

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third party, there will be obvious differences between the results of the treatment according to contract and tort. Can these differences be justified? (a) Direct Liability vs. Complementary Liability256 As far as the provisions of Chinese Tort Law on the safety-guard obligation are concerned, the aim of the provisions of Chinese Tort Law is to expand the scope of abstention from acting of tort so that the aggrieved party can obtain more thorough protection. When it comes to the injury caused by a third party, the law needs to seek a moderate balance between the aggrieved party and multiple liable parties. From the perspective of aggrieved party protection, the security obligor and the third party who directly inflicts the injury are held liable. However, from the perspective of the cause of damage, the omission of the security obligor is not the positive cause of damage but the negative cause of damage in the sense of failing to prevent damage. Therefore, legislators intend to give different evaluations on the damage to others caused by the actor’s own act and that caused by a third party due to the security obligor’s omission, that is, the former is the direct liability, while the latter is the complementary liability.257 If it is to avoid the heavy burden of liability on the security obligor, complementary liability can indeed play a role. However, this kind of institutional arrangement may weaken the positive effect of the institution of the safety-guard obligation in relieving aggrieved parties. If the aggrieved party claims that the security obligor should bear the tortious liability, in addition to the burden of proof on the fact that the constitutive elements of the tortious liability are met, the aggrieved party also needs to prove the fact that the third party cannot be found or the third party cannot fully bear the compensation liability when the security obligor claims the “sequential defense”. Moreover, the leniency and severity of the latter burden of proof will affect the realization of the design goal of the institution of complementary liability and the relief effect on the aggrieved parties. If strict standards which require the third party who is unable to be found must be determined by specific procedures (suppose the public security proves that the third party cannot be found) or the third party’s inability must be determined by the court’s enforcement, are adopted, the aggrieved party will face great obstacles to relief. If a less strict standard is adopted, that means the security obligor can avoid assuming the liability in advance by proving that the aggrieved party can claim damages from the third party. Although the remedy effect can be improved, the original intent of the institution of complementary liability has deviated. As a result, due to the design of the institution of complementary liability, the safety-guard 256

These two concepts are distinguished according to the standard of whether there is order when multiple liable parties bear responsibility for uniform damage. “Direct liability” is also called “primary liability” or “first priority liability”, which refers to the responsibility that should be borne to the compensation obligee in the first priority; complementary liability is the responsibility in the second order. See Wang Zhu, Theory of Tortious Liability Sharing, General Theory of Tortious Liability for Damages Shared by Several Persons, China Renmin University Press, 2009, p. 184. 257 See Tort Law of the People’s Republic of China: Explanation of Provisions, Legislative Reasons and Relevant Provisions, edited by the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, p. 160.

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obligation is in a dilemma on the issue of relief of the aggrieved party and the liability mitigation of the security obligor. Perhaps because complementary liability has the effect of weakening the remedy effect and the difficulty of operation, although the Judicial interpretation of compensation for personal injury has adopted the design of the institution of complementary liability, “many judges understand it as a joint liability in judicial practice.”258 According to the principle of the constitution of tortious liability, if the acts of multiple liable parties meet the requirements of liability constitution at the same time, then when the damage corresponding to their individual acts can be distinguished, the multiple liable parties should bear the proportionate liability. If the damage cannot be distinguished, they should be jointly liable within the same limit of damage. This conclusion can be easily inferred from the provisions of Articles 11 and 12 of Chinese Tortious Liability Law. With respect to the assumption of tortious liability to the aggrieved party, several liable parties, as independent liability subjects, have only two forms of liability: proportionate liability and joint liability. It is indeed an “innovation” to introduce complementary liability similar to the general guarantor into the tort law as a form of liability for violating the safety-guard obligation. If the focus is on the liability mitigation of the security obligor, the feasible approach is to allow the security obligor who has assumed tortious liability to have right of recourse from the third party who directly inflicts the injury.259 This right is clearly specified in the Judicial interpretation of compensation for personal injury, but it is not specified in the Tort Law, which results in different views in theory. Those who deny the right of recourse hold that if the security obligor is allowed to seek recourse from the third party for his assumed liability, the purpose of establishing the safety-guard obligation by law cannot be realized at all (the theory of violation of the system purpose)260 ; the security obligor is not liable for the acts of others, but for his own acts, allowing recourse is inconsistent with the nature of this kind of liability (self-liability theory); the provisions on the corresponding liabilities have already limited the liabilities of the security obligor. In other words, if “the corresponding proportion is low and the scope of liabilities is small, there is no need of recourse” (theory of non-necessity).261 However, these reasons are not convincing. Firstly, the primary purpose of establishing the safety-guard obligation by law is to relieve the aggrieved parties (expansion of omission in tort). It is only a subsidiary purpose (or only one of the multiple purposes of the institution) of establishing the safetyguard obligation by law to urge the security obligor to avoid possible risk of damage in the future through tortious liability. Even if the security obligor has the right of recourse, it does not mean that he can always seek recourse successfully. Therefore, 258

Yang Lixin, Tort Law, Law Press, 2010, p. 284. See Zhang Xinbao, Complementary Liability in Chinese Tort Law, Law Science Magazine, No.6, 2010, p. 3. However, this article explains the liability mitigation from the perspective of the right of recourse, but does not state the significance of complementary liability per se. If the recourse is only concerned, the system design of unreal joint liability is sufficient. 260 See Zhou Youjun, Theoretical Research on Communication Security Obligation, p. 224. 261 Wang Liming, Research on Tort Law (Vol. II), China Renmin University Press, 2011, p. 194. 259

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the prevention or sanction function of the institution can still be realized. It is difficult to think that the recognition of the recourse will fundamentally hinder the realization of the purpose of the institution. Secondly, even if it is believed that the security obligor is to be liable for his own acts, the damage suffered by the aggrieved party is caused by the third party, and the direct injury is caused by the third party, so it is still advisable to allocate all the liabilities to the direct tortfeasor in the distribution of the final liabilities.262 The right of recourse focuses on the final liability in the sharing of liabilities, which does not conflict with the liability of the security obligor to the aggrieved party due to his own acts. Moreover, if the argument is based on factual relationships, there is no need to say that the law should not prohibit the security obligor from claiming rights on “minor” interests because whether the recourse belongs to the scope of the security obligor’s right to dispose; if the argument is based on economic efficiency, it is also not advisable: if the liability borne by the security obligor is too “minor” to be worth recovering from the third party through legal procedures, there is no reason to believe that the aggrieved party is worth claiming from the security obligor through legal procedures. In view of the fact that the reason for negation is not perfect, the negators set some exceptions: In the case where the third party intentionally or maliciously interferes with rights or in the case where the security obligor discovers that the third party has property after he has assumed the liability, the security obligor should be allowed to seek recourse from the third party exceptionally.263 The second exception confuses de jure and de facto recourse. Since the judgment of “the third party who cannot be determined or has no capability” is temporary relative to the specific time when the aggrieved party claims relief, it is common that the third party is determined later or has liquidity. At this time, it is too generous for the person directly responsible for denying the recourse from the security obligor. Accordingly, it is appropriate to affirm that the security obligor has the right of recourse from the third party who directly inflicts the injury. If so, it is inappropriate to reduce the liability burden of the security obligor by complementing the liability while sacrificing the certainty of the remedy effect of the aggrieved party!264 Of course, the practical effect of this provision in the Tort Law needs further observation. The problem is even more complicated if the above considerations are applied to situations where the contractual protective duty is breached. If the similarity of the factual relationships involved is considered only, and if the consistency of legislators’ value choice is to be maintained, it seems that similar practices can be adhered to in the assumption of liability for breach of contract, that is, the construction of the institution of complementary liability can also be adopted.265 However, treating the contractual liability for breach of the protective duty as complementary liability 262

See Wang Zhu, Theory of Sharing Tortious Liability: General Theory of Sharing Tortious Liability for Damages by Several Persons, p. 185. 263 See Wang Liming, Research on Tort Law (Vol. II), pp. 194–195. 264 For similar views, see Hong Wei, Yu Yongfan, & Hu Zhefeng, Obligations of Safety Assurance, Guangming Daily Publishing House, 2010, pp. 58 seq. 265 In judicial practice, there are indeed judgments that the complementary liability is borne for third party’s interference due to breach of the contractual protective duties. For example, in the case of

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would be contrary to the contractual purpose for which the obligation was established. For the parties to the contract, the existence of the contractual relationship strengthens the effect of mutual care or protection on the legal interests of the other party, and giving different effects due to different sources of damage exceeds the singleness of this protection purpose. When protection itself is the purpose of the contract, the independence of contractual liability is the most obvious and worthy of affirmation. However, in the case of the protective duty unrelated to performance, the boundary between contractual obligations to protect and the safety-guard obligation in tort law is relatively vague. If direct liability is adopted in the case of contractual liability and complementary liability is adopted in the case of tortious liability, the value deviation caused by nature determination will easily lead to disputes. Once again, tort law adopts the constitution of complementary liability in the effect of the violation of the safety-guard obligation, which results in the contractual obligations to protect and the safety-guard obligation in tort law facing difficulty in coordination in the effect of violation. It can be expected that there are two possibilities for the institution’s development in the future. One is to unify the protective duty involving the interference caused by a third party under the regulation of the safety-guard obligation in the Tort Law so that the aforementioned difficulty in coordination will be partially eliminated, and legislators also seem to prefer this treatment.266 However, this kind of treatment still cannot completely turn the contractual liability with the purpose or content of protection into a tortious liability. For example, in the security or bodyguard contract or safekeeping contract, even if the damage is caused by a third party’s interference, the possibility that the parties should bear the liability for breach of contract according to the contract cannot be excluded under the structure of Contract Law in force. Therefore, such treatment is incomplete and has not fundamentally solved the coordination problem. Another possibility is that in the case where the contractual obligations to protect are satisfied, the provisions of the Contract Law should be applied first, and the security obligor should bear direct liability according to the contract; otherwise, tortious liability should be applied. Although this kind of treatment limits the scope of application of Article 37, Paragraph 2 of the Tort Law excludes the application of tort norms when establishing contractual liability by way of concurrence of laws, it violates the general mode of concurrence of claims established in Article 122 of the Contract Law on the one hand, and it also fails to fundamentally solve the coordination problem on the other hand. Therefore, the more likely direction is to completely follow the arrangement of legal form, adopting direct liability in the case of contractual liability and complementary liability in the Yao Yangyi et al. V. Shaowu Municipal Hospital Medical Service Contract (Nanping Intermediate People’s Court of Fujian Province (2004) Nanmin Zhongzi No.576), the plaintiff was robbed of a mobile phone by a third person during hospitalization. The court held that the hospital had failed to fulfill its obligation of safety and security and should bear 50% of the supplementary compensation liability. 266 See the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, Tort Law of the People’s Republic of China: Description of Provisions, Legislative Reasons and Relevant Provisions, pp. 161–162.

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case of tortious liability, and leaving the legal coordination problem to legislators to solve. In this case, as the Tort Law increases the relief obstacles of the aggrieved parties in the design of the complementary liability standard for the safety-guard obligation, contractual protective duty has obvious advantages in the case of damage caused by a third party’s interference. If the legal uncertainty of compensation for mental distress in breach of contract is not considered, both the claimant and the court will be more inclined to choose the approach of Contract Law. If the approach of contractual protection is chosen, the obligor should bear direct liability to the other party for the damages caused by a third party according to the contract and should seek recourse from the third party who directly causes the damage.267 (b) Full Liability vs. Partial Liability As far as the liability for breach of contractual obligation to protect is concerned, the law has no other restrictions except the general restrictions on compensation for breach of contract. For safety-guard obligation in the Tort Law, the security obligor only bears “corresponding complementary liability” when the third party commit a tort, that is, “the share of tortious liability that the security obligor should be borne is determined according to the degree to which the security obligor fails to fulfill the security obligation”.268 Can it be inferred from this that the scope of liability according to the contract will be different from the scope of liability according to tort in the case of the injury inflicted by a third party? The specific meaning of “corresponding complementary liability” in the Tort Law can be determined by referring to the provisions of the Judicial interpretation of compensation for personal injury, i.e., the liability “within the scope that can prevent or stop damage”. Specifically, the factors that can be considered in the judgment include: Whether the relevant social activities are commercial or non-commercial; how much the security obligor profit from the relevant commercial activities; whether the security obligor has professional knowledge; the degree of openness of relevant social activities; the actual economic capability of the security obligor, etc.269 In terms of specific application, since “corresponding” is a restriction on “complementary liability”, if the directly liable person can bear all the compensation liability, the security obligor will not bear any liability; if the directly liable person cannot bear all the liabilities, the security obligor will only bear the complementary liability “within 267

See Wang Lihong, Discrimination of the Nature of Security Obligation: From the Perspective of complementary liability of Security Obligor for Third Party Infringement, Law Science Magazine, No.10, 2009, p. 119. For judicial cases, please refer to the Appeal Case of Damage Compensation Dispute between Dongshan Town Sideline Company of Jiangning County and Nanjing Airport Expressway Management Office of Jiangsu Province (The Supreme People’s Court Bulletin, No.1, 2000). 268 See Tort Law of the People’s Republic of China: Explanation of Provisions, Legislative Reasons and Relevant Provisions, edited by the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, p. 162. 269 See Huang Songyou, Editor-in-Chief, Understanding and Application of Judicial Interpretation of Personal Injury Compensation in the Supreme People’s Court, People’s Court Publishing House, 2004, p. 116.

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certain scope”. For example, if the damage caused by a third party is 200,000 yuan, the court determines that the security obligor should bear 20% or 40,000 yuan of liability. If the directly liable person has already borne 180,000 yuan of liability, the security obligor only needs to bear 20,000 yuan of complementary liability; if the directly liable person has only borne 100,000 yuan of liability, the security obligor will still bear the complementary liability up to 40,000 yuan. That is to say, “if the scope of supplement exceeds the corresponding share, the corresponding share should prevail; if the scope of supplement is less than the corresponding share, the actual share to be supplemented should prevail.”270 The question is, is it possible that the “corresponding liability” assumed by the security obligor is “full liability”? Some scholars hold a negative attitude.271 In this regard, we can get some clues from the judicial cases. In Wu Chengli et al. v. Guandu Construction Bank and Wuhua Security Company (dispute over compensation for personal injury),272 although the court affirmed that the defendant Guandu Construction Bank had violated its safety-guard obligation, it is believed that Guandu Construction Bank had fulfilled certain safety-guard obligation, which was different from completely failing to perform its obligation; therefore, Guandu Construction Bank should only bear the compensation liability within a reasonable scope, and thus the court denied the plaintiff’s claim for full compensation. In Jiang Daogang v. Jimo City Highway Administration Bureau of Shandong Province (appeal case of disputes over the right to life, health, and body),273 the plaintiff suffered damage due to a collision with stones placed on the road by a third party during driving. The court held that the defendant, as the transportation department in charge, failed to inspect and remove the stones on the road timely and should bear 20% of the supplementary compensation liability for the damage in the case where the person who placed the stone was not determined. In Xie Peiling v. Kunming Carrefour Supermarket Co., Ltd. (appeal case of dispute over the right to life, health and body), the plaintiff was hacked and maimed by a third party without any reason while shopping at the defendant’s place. The court determined that the defendant violated the safety-guard obligation and should bear 30% of the liability for economic compensation and pay 5,000 yuan in compensation for mental distress.274 In He Shubi v. Chengdu Zhaojue Temple (appeal case of dispute over compensation 270

See Wang Liming, Research on Tort Law (Vol. II), pp. 193–194. Ibid., p. 164. 272 The Supreme People’s Court Bulletin, No.12, 2004. For details of the case, see Sect. 1, 1 (1) 2 of this chapter. 273 Qingdao Intermediate People’s Court of Shandong Province (2010) Qing Min Wu Zhong Zi No.192. 274 Kunming Intermediate People’s Court of Yunnan Province (2009) Kun Min San Zhong Zi No.1130. It is worth noting that the defendant’s actual share of responsibility in this case is higher than 30%, because he has already paid tens of thousands of yuan in advance for medical expenses, which have not entered the trial and the defendant has given up claim indemnities. Similar cases such as “Appeal Case of Dispute over Entertainment Service Contract between Wei Linlin and Feng Chengbao” (Zhumadian Intermediate People’s Court of Henan Province (2009) Zhu Min Er Zhong Zi No.33) (the plaintiff was beaten and injured by an unidentified person while singing in the private room of the defendant’s club, and the court found that the defendant violated the security 271

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for personal injury),275 the plaintiff was beaten and injured in the defendant’s place due to a dispute with monks in the temple. The court held that the defendant violated the safety-guard obligation and should bear 50% of the complementary liability. In Feng Jiqing v. Yin Huanhua (case on appeal of a dispute over compensation for personal injury),276 the plaintiff suffered damage due to the fire accident caused by a third party, and the court held that the defendant violated the safety-guard obligation and should bear 60% of the complementary compensation liability. From the judicial case database of PKULAW, we have not found any cases in which the security obligor who bears complementary liability bears full responsibility for the damage due to the infringement by a third party. Most of the security obligors bear responsibility below 50%, with 20% or 30% being the most common. Accordingly, it can be considered that when the damage is caused by a third party’s infringement, the corresponding liability is borne by the security obligor according to the Tort Law is a partial liability rather than a full liability. In contrast, the liability of the parties to the contract for breaching the protective duty when a third party commits torts and causes damage will be explored. In Wang Liyi and Zhang Lixia v. Shanghai Galaxy Hotel (dispute over compensation),277 the court held that the consequences of the damage should be mainly borne by the criminals, and the aggrieved parties were also at fault in preventing the damage, so the plaintiff’s claims were not fully supported so that only 80,000 yuan was awarded. In Wang Yongsheng v. Nanjing Hexi Sub-branch of Bank of China (dispute over deposit contract),278 the court held that the defendant breached the contractual protective duty, and its payment to a third party did not have the effect of paying off the plaintiff. It should still bear the obligation to pay the plaintiff according to the deposit contract, which actually made the defendant bear all the consequences of the third party’s action.279 In Dongshan Town Sideline Company of Jiangning obligation and assumed 30% of the responsibility); “Feng Nianchi and Li Lin General Personal Injury Compensation Dispute Appeal Case” (Foshan Intermediate People’s Court of Guangdong Province (2006) Fo Zhong Fa Min Yi Zhong Zi No.113) (the plaintiff was hacked by unidentified gangsters in the defendant’s factory, and the court held that the defendant failed to fulfill his security obligations and should bear 30% of the complementary liability). 275 Chengdu Intermediate People’s Court of Sichuan Province (2008) Cheng Min Zhong Zi No.893. 276 Guangzhou Intermediate People’s Court of Guangdong Province (2010) Sui Zhong Fa Min Yi Zhong Zi No.2228. 277 See The Supreme People’s Court Bulletin, No.2, 2001. 278 The Supreme People’s Court Bulletin, No.2, 2009. 279 For similar cases, see the case of dispute over savings deposit contract of Guangzhou Fangcaoyuan Sub-branch of Bank of China Limited (Guangzhou Intermediate People’s Court of Guangdong Province (2011) Sui Zhong Fa Min Si Zhong Zi No.32); the case on appeal of a dispute over savings deposit contract between * Bank and Xu * (Hanjiang City Intermediate People’s Court of Hubei Province (2011) Han Min Er Zhong Zi No.56); the case on appeal of a dispute over savings deposit contract between Changde Branch of China Construction Bank Corporation and Lin Youqing” (Changde Intermediate People’s Court of Hunan Province (2011) Chang Min San Zhong Zi No.11); the case on appeal of a dispute over savings deposit contract between Tianjin Hongqi Road Sub-branch of Industrial and Commercial Bank of China Limited and Zhang Yuchun (Tianjin No.2 Intermediate People’s Court [2011] No.2 Zhongmin No.2 Zhongzi No.139), etc. There are also some

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County v. Expressway Management Office of Nanjing Airport of Jiangsu Province (appeal case of dispute over damages),280 the court also held the defendant to bear all direct losses of the plaintiff caused by a third party. In the case of Zhuhai Mileage International Travel Service Co., Ltd. And Liu Juan (appeal case of dispute over tourism contract),281 the plaintiff was injured when the bus of the defendant travel company collided with a third party’s vehicle, and the defendant was mainly liable for the accident. The court held that the defendant’s breach of contract was established, and the defendant should bear the full liability for personal injury. At the same time, the court held that the defendant could seek recourse from other tortfeasors. Accordingly, it can be found that when the damage is caused by a third party, the obligor for contractual protective duty may only bear partial liability or bear full liability. Except for the aggrieved party’s own fault for the occurrence of the injury, it is more common for the breaching party to bear full liability. This shows that in the case of damage caused by a third party, the protection of the contractual protection liability for the aggrieved party is significantly higher than that based on the Tort Law for violating the obligation of safety and security, which challenges the theory of unified protective duty to a certain extent, indicating an obvious difference in protection effects between contractual protective duty and the obligation of communication safety in the Tort Law. We believe that this difference may be related to the improvement of the intensity of contractual protection, especially to the nature of the protective duty. As the security obligation in Tort law is considered the minimum legal obligation, its protective effect is weak, and the causation between the violation of this obligation and the damage to the aggrieved party is also weak. On the contrary, the contractual protective duty lies in a Sonderverbingdung (special binding relationship) between the parties, and the strengthening of the relationship between the parties strengthens the protection of the counterpart. Among the obligations to protect, the strongest one is the obligation of result. The obligations to protect in contracts for the purpose of performance (such as bodyguards, storage, passenger transportation.) usually have the nature of obligation of result. The violation of this kind of contract is usually considered to bear all the consequences of damage, regardless of whether the damage is caused by a third party. On the contrary, if the parties only undertake the obligation of means, their control over a third party’s infringement is weak, and the similarity between the contractual protective duty and judgments that the original defendant should each bear 50% of the responsibility on the grounds that the plaintiff was at fault for the password disclosure. For example, “Appeal Case of Disputes over Savings Contracts between Yichuan Agricultural Bank and Zhang Moumou” (Luoyang Intermediate People’s Court, Henan Province (2011) Luo Min Zhong Zi No.1249), “Yongzhou Post Office and Liao Ruoshui Contract Dispute Appeal Case” (Yongzhou Intermediate People’s Court of Hunan Province (2011) Yong Zhong Fa Min San Zhong Zi No.208), “Chen Moumou’s Dispute over Property Damage Compensation with Shanghai Jing’an Sub-branch of Agricultural Bank of China Limited” (Shanghai No.2 Intermediate People’s Court (2010) Hu Er Zhong Min Liu (Shang) Zhong Zi No.301), etc. 280 The Supreme People’s Court Bulletin, No.1, 2000. 281 Zhuhai Intermediate People’s Court, Guangdong Province (2007) Zhu Zhong Fa Min Yi Zhong Zi No.160.

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the obligation of communication safety in Tort Law is more prominent. In this case, the consequences of breach of the contractual protective duty should be limited. In other words, the closer the protective duty to the purpose of the performance is, the stricter the consequences of its violation will be, and the further the protective duty is from the purpose of performance, the closer its violation consequences are to tortious liability. (3) Termination of a contract Since the protective duty does not take performance obligations as the premise, as a debt unrelated to performance, there are different understandings in theory as to whether its violation can lead to the termination of a contract. Some scholars believe that the rescission of the contract should be premised on the breach of the primary performance obligation (or essential factor obligation), and the breach of the subordinate obligation or collateral obligation can usually be relieved through damages, and the contract cannot be terminated. While some other scholars believe that if the breach of collateral obligations leads to the failure to realize the purpose of the contract, the termination of the contract should still be allowed.282 In addition, some scholars hold the so-called compromise theory or relative negation theory, that is, breach of collateral obligations cannot produce the right to terminate the contract in principle, but if the breach is sufficient to affect the achievement of the purpose of the contract, the right to terminate the contract can be established.283 Generally speaking, since the protective duty has nothing to do with the performance, breach of the protective duty will not affect the realization of the performance of the contract, so the termination of the contract should not be allowed. However, the termination of the contract is not allowed under such circumstances, not because of the nature of the protective duty itself, but because the conditions for termination of the contract are not met, which is the same reason as the breach of the principal contractual obligation does not naturally produce the right to terminate the contract. Breach of the protective duty usually does not create the right to terminate the contract, which is based on facts and has no normative significance. After all, even from the perspective of comparative law, there are rare legislative cases that regard the type of contractual obligation as the normative standard for the right to terminate. If the breach of the protective duty is so serious that the other party cannot be expected to continue the contractual relationship, there is no justifiable reason to deny the termination of the contract. For example, the employed nanny, providing services in accordance with the contract, damages the employer’s household items due to repeated negligence or injures the person who needs care by treating him in an inappropriate way so that she is no longer believed to make change in behavior during the future contractual period. Then, it is obviously inappropriate not to allow the employer to terminate the contract on this occasion. In addition, it should be noted that protective performance may also be the subject of performance obligation 282

For the theoretical debate between Germany and Japan, please refer to Hou Guoyue, A Study of Contractual Collateral Obligations, pp. 321 ff. 283 Ibid., p. 325.

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at the same time. Even if it is believed that only breach of performance obligation is allowed to terminate the contract, there is no reason to deny that it is necessary to allow the termination of the contract in this case.284 In terms of the legal provisions on the right to terminate the contract, although the existence of the right to terminate the contract is related to the type of obligation, the basis of right to terminate is still the consequences caused by the breach of duty. For example, Article 324 of the German Civil Code provides: “in the case of a bilateral contract, if the obligor violates the obligations specified in Article 241.2, and the obligee can no longer be reasonably expected to maintain the contract, the obligee may terminate the contract.” Combined with the provisions on the right to terminate in breach of duties related to performance in Article 323 of the Code, it can be clearly found that the design idea of the German law of impossibility of performance “is not based on facts, but on the legal consequences of performance obstacle”.285 According to the provisions of Article 94 of the Contract Law of China on the legal right to terminate, there are five circumstances: (1) it is rendered impossible to achieve the purpose of the contract due to an event of force majeure; (2) prior to the expiration of the period of performance, the other party expressly states, or indicates through its conduct, that it will not perform its main obligation; (3) the other party delayed performance of its main obligation after such performance has been demanded, and fails to perform within a reasonable period; (4) the other party delays performance of its obligations, or breaches the contract in some other manner, rendering it impossible to achieve the purpose of the contract; (5) other circumstances provided by law. Among them, although the first case is not bound to breach of contract, it still lies in the seriousness of the impact of obstacles on the performance of the contract. In the fourth case, the termination condition is that the breach of the contract renders impossible to realize the purpose of the contract, which is essentially similar to the first case. The termination condition in the second and third cases is that obligees cannot be reasonably expected to maintain the contract. The fifth situation does not provide specific elements. Although the termination condition lies in the legal provisions, it is still appropriate to refer to the above four situations in interpretation. Accordingly, we can see that Chinese Contract Law does not base the right to terminate the contract on the relevant types of contractual obligations but on the legal consequences of relevant obstacles to performance as the starting point. Accordingly, if the parties to the contract breach the protective duty and the purpose of the contract cannot be realized, or the other party cannot be reasonably expected to maintain the contract, the contract should be allowed to be terminated. Scholars also believe that if the breach of the protective duty results in the damage of fiduciary relationship between the parties, and it is indeed inappropriate to force obligees to

284

Vgl. Peter Schlechtriem & Martin Schmidt-Kessel, Schuldrecht allgemeiner Teil (Sechste, neubearbeitete Aufl.) 2005, Mohr Siebeck, S. 91. 285 Qi Xiaokun, A Comparative Study of New and Old Laws of Obligations in Germany: Change of Concept and Improvement of Legislative Technology, p. 168.

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maintain the contract according to the principle of good faith, the contract should be allowed to be terminated.286 As far as Chinese judicial practice is concerned, there are also cases where the contract is allowed to be terminated due to a breach of the protective duty. In Shanghai Zhongqi Automobile Trading Co., Ltd. And Shen Xujun (appeal case of dispute over sales contract),287 the plaintiff bought a car from the defendant. The plaintiff paid the purchase price, purchase tax, license fee, insurance fee, and other related expenses, and the defendant provided the service of registration for a license in different places. A traffic accident occurred while the defendant’s staff was driving the plaintiff to register their license, causing personal injury to the plaintiff. After being identified as unsuitable for driving for a long period of time, the plaintiff demanded to terminate the car purchase contract. The court held that the traffic accident caused by the defendant led to the plaintiff ‘s injury that made him disabled, which had affected his safe driving of the disputed vehicle, and the appellant had no evidence to prove that the plaintiff purchased the vehicle for the use of others, so it could be determined that the plaintiff’s disability hindered the realization of his purpose to use the vehicle. Therefore, the plaintiff should be allowed to terminate the contract.288 In addition to the legal circumstances of termination specified by law, if the parties have an agreement on the conditions for termination of the contract, as long as the agreed conditions are met, the parties should be allowed to terminate the contract when breaching the protective duty.289

1.5 Summary The protective duty enables contract law to share the protective function of tort law in the inherent interests (or integral interests) of the parties, such as personal and property interests, which embodies the balanced symbiotic relationship between the two laws.290 Through the previous discussion, we found that the contractual protective duty and the security obligation (or obligation of communication safety) in tort law have the same protection purpose and identity in content. The different basis of the two obligations is the key to distinguishing them. The contractual protective duty 286

See Han Shiyuan, The Law of Contract (3rd ed.), p. 430. Shanghai No.2 Intermediate People’s Court (2009) Hu Er Zhong Min Yi (Min) Zhong Zi No.1550. 288 Theoretically, the case can also be discussed from the perspective of “change of circumstances”, that is, the maintenance of the contract effect caused by the defendant’s breach of contract is unfair to the plaintiff or cannot realize the purpose of the contract, and the plaintiff should be allowed to terminate the contract. However, since the lex lata of our country limits “change of circumstances” to before the contract is performed (see Article 26 of the Supreme People’s Court’s Interpretation on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China (II) (Legal Interpretation [2009] No.5)), it is difficult to apply this provision in this case. 289 See Ye Yuping, Research on the Duty to Protect in Contracts, p. 149. 290 Christian Von Bar, The Common European Law of Torts (Vol. 1), p. 561. 287

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must be inherently related to the relationship with the contract or other debts, that is, the protective duty is related to the typical risks involved in the contract or the performance of the contract. Without this Sonderverbingdung as the background, the corresponding contractual protective duty cannot be established. The existence of this Sonderverbingdung can not only provide the basis for strengthening the protective duty but also the basis for mitigating the obligation. As far as the latter is concerned, the liability exemption clause concluded by the parties before the damage occurs has special meaning. On the contrary, the obligation to ensure safety in tort law is the obligation of the obligor to the unspecified subject under specific circumstances, which is the most basic legal obligation undertaken by the operator and the minimum requirement for the operator.291 When there is no contractual relationship, the obligation to ensure safety can be established, and when there is a contractual relationship, the obligation to ensure safety is still not excluded. However, because the subject of the obligation to ensure safety is limited, the establishment of the contractual protective duty does not mean that the duty of safety protection in tort law can certainly be established. Breach of the contractual protective duty constitutes the so-called incomplete performance of obligations or injuring performance, which requires special treatment in law because the protection of integrated interest is involved. In theory, it is generally believed that injuring performance constitutes the concurrence of contractual liability and tortious liability. Accordingly, it is even inferred back that the injuring performance will produce concurrence of liabilities, and both the liability for breach of contract and the tortious liability is based on fault, so the constitution of the injuring performance should have the elements of fault.292 This kind of logical thinking completely fails to consider the special significance of the protective duty in the contract law and does not give in-depth thinking to the special constitutive elements of liability for breaching the protective duty. As the contractual protective duty is brought into the contract law system, it does not have to be directly related to tort law. The duty of reasonable care required by tort law may be completely different from that by contract.293 The establishment of contractual protective duty does not naturally mean the establishment of the obligation in the Tort Law. Further, the standard of liability for breach of contractual obligations is not necessarily the same as that of tort law. This difference in imputation standard has long been confirmed by Chinese Contract Law. It is different from Germany, Japan and Taiwan’s legislation that adopt a unified fault imputation standard of contractual liability and tortious liability. It is regrettable that critics do not delve into this and directly argue from the perspective of comparative law. If we look at the relationship between contract law and tort law based on the background of positive law, it can be seen that Chinese laws reflect obvious Chinese (mainland) characteristics in terms of contractual protective duty. 291

See Li Changqi & Xu Mingyue, Consumer Protection Law, Law Press, 1997, p. 100. See Wang Liming, Breach of Contract (Revised ed.), p. 216. 293 See Atiyah, Introduction to Law of Contract, Zhao Xudong, He Shuai Ling, Deng Xiaoxia Trans, Law Press, 2002, p. 397. 292

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In terms of the constitution of Chinese law, it has become the fact that the protective duty has been incorporated into the Contract Law and Tort Law, respectively. In particular, the function of the contract to protect the integrated interest of the parties, such as personal and property, has been explicitly recognized by the Contract Law. Under such a structure, if the traditional theoretical model is still adhered to, with the intent of taking the protection of integrated interest as an inherent field of tort law, it is bound to face difficulties in practice. In terms of the imputation standard of breach of contractual protective duty, it involves multiple imputation standards under different circumstances. To discuss the general imputation principle abstractly without the contractual relationship to which the contractual protective duty belongs is to oversimplify an originally complicated problem. From the legal effect of violation of the obligation to protect, although the contract law and tort law are relatively consistent in the law application in terms of the compensation for property damage (including material damage compensation in the case of personal injury), there is great uncertainty in the law application in terms of whether to recognize compensation for mental distress. However, this kind of uncertainty stems more from the adherence to the traditional doctrine and has no solid theory or positive contract law basis. Once the mental distress in breach of contract is admitted, the contractual liability and tortious liability will tend to be consistent in terms of the items of compensation for liability and liability determination, and the difference in compensation effect between contractual liability and tortious liability will be eliminated to a large extent. However, because the Tort Law adopts a two-part structure in the liability provisions for violating the obligation to ensure safety, namely, when a third party’s tort is involved, the security obligor only bears the corresponding complementary liability, while in other cases, the security obligor bears the direct liability, which leads to obvious differences in the mode and even scope of liability between the contractual liability and the tortious liability when a third party’s tort is involved and intensifies the potential value conflicts that may be caused by the expansion of the contractual protective duty. No matter what regulations will be made to Chinese future laws on the obligation to protect, it is certain that the contractual protective function cannot be denied. The fundamental role of contracts in implementing private autonomy and realizing the interests of the parties will not change obviously due to the special institutional arrangement of the Tort Law. It is in this sense that we will discuss the contractual protective duty before the concurrence of contractual liability and tortious liability. Once the structure of contractual protective duty is determined, other relationships between contract law and tort law (such as concurrence of liabilities) will be more easily clarified. The tasks that Chinese legislation and theory will face in the future may not lie in whether protective duty should be incorporated into a unified institutional structure but in that the effect of treatment according to contract law can be coordinated with the effect of treatment according to tort law to the greatest extent within limits allowed by legal value.

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2 Concurrence of the Liability for Breach of Contract and Tortious Liability If the contractual protective duty is still to relieve the integral interest within the framework of contract law, and the systematic coordination is still hidden behind the relevant solutions, the systematic coordination becomes a problem that needs a positive response when there is concurrence between the contractual liability and the tortious liability. In terms of the provisions of Chinese Contract Law and Tort Law, the forms of contractual liability and tortious liability are extremely extensive, showcasing the overlapping relationship between Contract Law and Tort Law in the forms of liability, involving coordination issues in different scope of the law. Scholars pointed out that the concurrence of liability discussed in theory usually refers to the concurrence of liability for damages in form rather than the concurrence of various forms of liability for breach of contract and tort.294 This kind of view is not clearly stated in the general theory and is worthy of affirmation. Therefore, this section is mainly limited to discussing the concurrence of liability for damages for breach of contract and liability for damages in the case of torts rather than the concurrence of other liabilities.

2.1 Normative Significance of Concurrent Liability for Breach of Contract and Tortious Liability Concurrence of liability involves the case that a fact meets several norms of liabilities at the same time, which is the most typical manifestation of the overlapping phenomenon between contract law and tort law. The question is whether the aggrieved party can make separate claims for relief based on the same damage but on different bases of liability. In this regard, the legal practice and theories of various countries have formed the main theories or doctrines, such as the theory of concurrence of laws, the theory of concurrence of claims, the theory of normative concurrence of claims, and the theory of integration of full norms. The theory of concurrence of laws holds that tort norms and contract norms fall within the relationship between general law and jus singulare. According to the principle that jus singulare takes precedence over general law, contract norms exclude the application of tort norms. The theory of concurrence of claims holds that the two norms are different from each other in the composition of responsibilities and legal effects, exist independently (the theory of free concurrence of claims), and affect each other only in specific circumstances (the 294

See Zhang Junyan, Research on Concurrence of Liability for Breach of Contract and Tortious Liability, Doctoral Dissertation of Renmin University of China, 2004, p. 32; Zhang Min & Cui Jianyuan, Acceptance and Release of Concurrence of Liabilities: Understanding and Application of Article 122 in China, Journal of the State Prosecutor’s College, No.5, 2011, p. 148.

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theory of the mutual influence of claims). The theory of concurrence of claim norms advocates the integration of the two norms of liabilities to determine the content of the claim. In addition to the opposite interpretation according to the normative purpose, the position of the obligee can only be strengthened but not weakened.295 The theory of integration of full norms hopes to unify the constitutive elements and legal effects of relevant norms according to individual benchmarks, thus surpassing the concurrence of laws characterized by norm exclusion or supplement.296 In order to integrate concurrent legal norms, the factual relationship of specific claims should not only conform to the constitutive elements of the two possible claims but also conform to the constitutive elements of the single claim formed after the normative integration.297 Therefore, the theory of integration of full norms further promotes the content of the theory of concurrence of claims norms from the normative effect to the normative elements, realizing the real integration of the two norms of liabilities of contract and tort. As legal application theories, various concurrence theories are different in whether legal relief corresponds to different claim bases or legal institutions to implement the system value of contract law and tort law as independent and opposite institutions. From this perspective, although the theory of concurrence of laws and the theory of concurrence of claims are diametrically opposed in the attitude that whether the concurrence should be allowed, they are consistent in regarding Contract Law and Tort Law as independent and opposite institutions. In other words, relevant damages are either classified into contract law or tort law. The difference is that the theory of concurrence of laws has a single and definite normative direction, i.e., the contractual norm of liability is the only applicable norm. The theory of concurrence of claims depends on the choice of the parties: If the action of contract is chosen, the application of tort law will be excluded; if the tortious action is chosen, the application of contract law will be excluded. It can be seen that the same damage may have completely different remedy effects due to different types of action, and the specific remedy effect depends on the overall remedy effect of different institutions. For example, under the system where compensation for mental distress can only be resolved through tortious action, mental distress caused by personal injury cannot be compensated in the action of contract. Similarly, in the case of damage caused by product flaws, the damage of the product itself can only be solved through the action of a contract. Although the damage of the product can also be regarded as economic loss, it cannot be compensated in the tort action of product liability provided by many legal systems. This shows that the damage is separated from legal relief. Even if the constitutive elements of liability are met, damage cannot determine the scope and intensity of legal relief, which is not related to the position of a general policy to limit damages 295

Wang Zejian, Concurrence of Liability for Breach of Contract and Liability for Tort, in the book Research on Civil Law Theory and Case Law (Vol. 1), Peking University Press, 2009, pp. 210–213. 296 See Zhang Junyan, Research on Concurrence of Liability for Breach of Contract and Tortious Liability, pp. 51–52. 297 See Lin Yingzhi, The Theory of Concurrence of Claims: Focusing on Japanese Law, Master Thesis, Institute of Law, Chiang Kai-shek University, Taiwan, 2002, p. 68.

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but to the position of adhering to legal formalism. It is because the same damage is treated differently in different institutions under the same legal system. On the contrary, the theory of normative concurrence of claims and the theory of integration of full norms break away from the commandment that contract law and tort law are independent and opposite institutions, making them restrict and complement each other, and reconstructing the remedy effect that has not been clearly affirmed in legislation through judicial adjudication. For example, if the position of the obligee can only be strengthened but not weakened due to the concurrence of liabilities, then under the condition of satisfying the concurrence of liability for breach of contract and tortious liability, the legal relief obtained by the obligee should be the maximum relief effect that the two norms of liabilities can provide. In the aforementioned case of compensation for mental distress, although relief cannot be obtained according to contractual liability, it can be obtained according to tortious liability. Therefore, due to the concurrence of liabilities, the normative effect of noncompensation for mental distress in breach of contract has been avoided. The same is true of occasions where damages caused by defective products. In this sense, the theory of normative concurrence of claims provides the most sufficient relief to the obligee. However, the theory still emphasizes revising the aforementioned effects based on the normative purpose. For example, it is believed that the liability mitigation for breach of contract should still be applied in priority when it is concurring with the short-term prescription rule,298 which makes its normative effects similar to the theory of Gesetzeskonkurrenz (concurrence of laws) and the theory of the mutual influence of the right to claim. In this way, the theory of normative concurrence of claims has shifted from valuing the adequacy of legal relief to the priority of legislative purposes. As far as the theory of integration of full norms is concerned, it also abandons the independent and opposing position of contractual liability and tortious liabilities in determining legal relief, breaks away their independence in constitutive elements and legal effects, and reconstructs unified constitutive elements and legal effects of liability through judicial adjudication according to the overall evaluation on the legal system. In this regard, as a revised theory of normative concurrence of claims, the theory of integration of full norms is more based on norms than relief to solve the problem of concurrence of liabilities. However, it is more worth noting that the effect of claims is relatively certain for the theory of concurrence of laws and the theory of concurrence of claims (especially the theory of free concurrence of claims). Although the possibility of foresight of the liable person is weakened under the theory of concurrence of claims, the expectation of legal stability is not affected fundamentally. On the contrary, under the theory of normative concurrence of claims (and the theory of the mutual influence of claims), the legal composition and legal effect all depend on the judge’s re-integration of the overall effect of norms, thus their anticipation is weakened. Under the theory of integration of full norms, this influence will reach its peak. As a result, when there is a concurrence of liabilities, 298

Dieter Medikus, Basis of Claim, Chen Weizuo, Tian Shiyong, Wang Hongliang, Zhang Shuanggen Trans, Law Press, 2012, p. 166.

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the legislator’s existing decision may give way to the judicial decision to a certain extent, and the value of legal formal rationality will be undermined. If the central issue of the aggrieved party’s relief is the only concern, the choice of application of law may only be a superficial phenomenon. As long as the damage to the aggrieved party should be relieved according to effective legal norms, the only problem that needs to be considered in law is that the aggrieved party cannot obtain repeated compensation for the same damage, and its opposite effect is not to allow the injurer to receive a double adverse evaluation, which limits the effect of the concurrence of liabilities. Two possible solutions are as follows: One is to expand the remedy effect of each legal form so that it can include all the detriments caused by the causes of damages it regulates. If there is no obvious difference in the substantive results of treatment according to different claim bases, the influence of legal forms on legal relief will be greatly eliminated. The other is to allow the aggrieved party to bring separate actions for different damages, as long as the total amount of compensation obtained from multiple actions does not exceed all the detriments to the aggrieved party due to illegal acts or facts.299 As far as the second solution is concerned, the problem in the concurrence of claims is actually replaced by the aggregation of claims. The only difference is that the aggrieved party cannot obtain repeated compensation when it is aggregated. In this way, however, the same damage will be tried in different actions. If the trial courts are different, or different actions are tried by different judges, regardless of the waste of litigation resources, what is more important is how to avoid the inconsistency in the legal evaluation and repeated compensation of the same factual relationship, which may encounter insurmountable obstacles in practice. The general method in judicial practice is that the application of concurrence can only be once for the same legal fact, and it is not allowed to supplement the application of another kind of liability when the application of one kind of liability fails or is insufficient.300 It is in this sense that the problem of relief of the aggrieved party’s right cannot be considered only at the level of substantive law and needs to be solved in combination with procedural law at the same time. The crux of the problem is the relationship between the subject matter of action and the concurrence of liabilities.301 Different theories of the subject matter of action will have different effects on the treatment of concurrence of liabilities. For example, if the personal or property damage of the buyer was caused by the defect of the subject matter delivered by the seller, according to reasons of legal form, the parties may be considered to have two claims, namely, the right to claim for compensation for breach of contract and the right to claim for compensation for tort. If claims of substantive law established by the constitutive elements provided by different legal forms are taken as subject matters 299

See Ye Lin, Liability for Breach of Contract and Its Comparative Study, Renmin University of China Press, 1997, p. 92. 300 Wu Qingbao, On the Limitation of Concurrence of Tortious Liability and Breach Liability, Application of Laws, No.8, 2002, p. 36. 301 For relevant discussions on this issue, please refer to Zhang Junyan, Research on Concurrence of Liability for Breach of Contract and Tortious Liability, pp. 84 seq.

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of action (the old theory of subject matter of action), there are two different subject matters of action in the aforementioned dispute relationship, and the aggrieved party can file two actions respectively. Under this theory of subject matter of action, the relief that the plaintiff can obtain is limited to the scope recognized by the two normative facts of breach of contract or tort respectively, and the effect of substantive law is consistent with the concurrent mode of claims. If multiple subjects matter of action (the “two-branch theory” of the “new theory of subject matter of action”) exist only when the fact and statement of action are multiple, in the aforementioned dispute relationship with only one subject matter of action, the aggrieved party can only file one action. This theory of subject matter of action only changes the procedural effect of substantive law, denies the possibility of repeated actions on the same fact of life based on multiple claims, and does not provide any instructions on the substantive effect of concurrence of liabilities. If the statement of action or the claim is treated as the standard (the “one-branch theory” of the “new theory of subject matter of action”), the subject matter of the action is the fact corresponding to the statement of action or the claim. The basis of multiple claims enters legal proceedings as a legal viewpoint, which does not determine the effect of substantive law. This theory of the subject matter of action focuses on the statement of action or the claim alone, so that the parties can claim all the effects of various claim norms, and thus being compatible with the substantive law effects claimed by the theory of normative concurrence of claims or the theory of integration of full norms to the greatest extent.302 According to subparagraph 3 of Article 108 of Chinese Civil Procedural Law, an action to be instituted must “have specific claims, facts and reasons”. Scholars believe that the “claims” mentioned here refer to specific legal effects or specific relief methods that the parties want to achieve; “facts” refer to the disputed and legally evaluated facts or facts in substantive law; “reasons” refer to the legislative authority, especially in substantive law.303 However, since “reasons” are understood as “legal bases”, namely, the basic norms of claim in substantive law, and there may be differences in the fact of liability composition involved in different basic norms of claim, if “facts” are understood as the facts evaluated by norms, it may lead to repeated actions under the “old theory of subject matter of action” and the “one-branch theory”. As such, the determination element of the subject matter of the action is not the fact evaluated by norms, but the “natural fact” that causes disputes.304 This understanding is at least consistent with the procedural practice in China. Chinese courts usually do not allow two actions based on the same fact. After the court makes a judgment on the dispute involved in a certain fact, if the parties have no new facts and reasons, and

302

In terms of the possibility, the aggrieved party can also claim the complete claim for multiple lawsuits, that is, the partial claim problem. Whether this effect should be recognized or not is controversial in theory. Hiroshi Takahashi, Civil Procedure Law, Lin Jianfeng Trans, Law Press China, 2003. 303 See Jiang Wei & Duan Housheng, Restatement of the Relationship Between the Concurrence of Claims and the Theory of Object of Litigation, Jurist, No.4, 2003, p. 79. 304 Ibid., p. 82.

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bring an action again on the same fact, the court will refuse to accept.305 Due to such a practice, when there is a concurrence of claims, the parties’ attempt to solve the problem by bringing different damaged items into different actions will not succeed because of the restriction of res judicata (“non bis in idem”). Therefore, considering the influence of the legal proceedings on legal remedies to which the parties may resort, the perspective must return to substantive law. If there is little difference in constitutive elements and legal effects between the different norms of liabilities, no matter what kind of concurrence theory is adopted, the actual effect will not deviate too much from the expectations of legislators.306 Therefore, from the perspective of substantive law, the significance of concurrence of liabilities is how to treat the remedy effects and possible differences in different areas of liability. This section will have an overview of the difference in the effect of the two kinds of the norms of liabilities in the context of Chinese legal system.

2.2 Distinction Between Liability for Breach of Contract and Tortious Liability in the Context of Chinese Law From the perspective of Chinese law, contractual liabilities takes three basic forms307 : liability for culpa in contrahendo, liability for breach of contract, and liability for post-contract. Theoretically, discussions about the concurrence of liabilities mostly focus on the concurrence of liability for breach of contract and tortious liability. The value and significance of concurrence of liabilities lie in the difference in legal effects between the two kinds of liabilities. Therefore, before discussing the treatment of 305

That is, the Supreme People’s Court’s “Minutes of the Symposium on Economic Trials Involving Foreign Affairs and Hong Kong, Macao and Taiwan in the National Coastal Areas” (Law (Jing) Fa [1989] No.12). A legal fact or legal act can sometimes produce two legal relationships at the same time, the most common is the coexistence of the obligee’s rights and real rights, or the defendant’s behavior constitutes both breach of contract and civil infringement. Plaintiffs can choose one of the two causes of action in their favor to bring a lawsuit, and the court with jurisdiction should not refuse to accept it because of the existence of other causes of action. However, the parties shall not bring two lawsuits for the same legal fact or legal act with different causes of action. This provision actually reflects the general position of the Supreme People’s Court in denying separate prosecution of the same case facts on the issue of concurrence of causes of action. 306 In French judicial practice, courts are very cautious in expressing the correct basis of responsibility for awarding compensation. If the circumstances of the case show that there is no difference in practical effect between different bases of responsibility, the French Supreme Court usually allows summer courts not to give clear explanations on the basis of responsibility for granting compensation. (See Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review, 1999, pp. 65–66.) Similar situations exist in Chinese judicial practice, where compensation is awarded without indicating the basis of liability, but using the neutral expression “civil liability”. See “Zhu Hang v. Changkuo Taxi Company and Fu Jianqi Compensation Dispute” (The Supreme People’s Court Bulletin, No.3, 2002). 307 In addition, scholars believe that the liability arising from the change or termination of the contract, guarantee liability and even the duty to mitigation can be regarded as contractual liability. See Wang Liming, On Liability for Breach of Contract (Revised ed.), pp. 29–30.

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concurrence of liabilities, the difference between the two kinds of liabilities should be explored in combination with the provisions of Chinese law. (1) Constitution of liability In terms of liability constitution, the liability for breach of contract and the tortious liability mainly showcase differences in two aspects: One is the nature of the violated obligation, and the other is the imputation principle. Although some hold that there is a difference between the liability for breach of contract and the tortious liability in the protected object, as can be seen from the above, this difference does not exist either in theory or in Chinese legal provisions,308 so no further discussion will be presented. a. Nature of the violated obligation The difference in this respect is often expressed as follows: the liability for breach of contract is premised on the validity of the contract, which involves the violation of contractual obligations and specific Verkehrspflicht (social security obligations); while the tortious liability regulates the general Verkehrspflicht that no one is allowed to harm others.309 In other words, even if it is aimed at the same protected rights and interests, the protective duty under the contract is considered different from the protective duty under tort law. As for the contractual protective duty, due to the existence of contractual relationships, the opening of the necessary areas of rights for the performance of the contract and the need for care and protection are stronger than those of the parties without such a relationship. logically, we can conclude that the contractual relationship between the parties cannot be considered when determining tortious liability. As Canaris, an advocate of “the theory of unified protective duty”, said, the contractual protective duty occurs because of the actual contact relationship between the parties instead of the specific content of the contract, and the contractual relationship only provides a specific circumstance for the occurrence of this duty.310 If the specific circumstances in which the duty occurs only be emphasized, it should not be considered that the contractual protective duty is different from the general security obligation of communication in tort law. However, for tort judgment, the determination of obligations always needs to combine with specific circumstances related to the occurrence of tort. as it never occurs abstractly, but under specific circumstances. Therefore, the legal judgment related to tortious liability is always specific rather than abstract. In this regard, it may be based on some incorrect understanding to oppose the abstraction of tortious obligation and the concreteness of contractual obligation. However, we can still find that in some cases, if the protective duty determined by the valid contract is not considered, it is difficult to establish the security obligation of communication in tort law based solely on the factual 308

See Sects. 1 and 3 (1) in Chapter 2 of this book. See Wang Shihu, Research on Concurrence of Contract Liability and Tortious Liability, Modern Law, No.4, 2002, p. 110. 310 Vgl. Claus-Wilhelm Canaris, Anspruche wegen „positive Vertragsverletzung” und „Schutzwirkung für Dritte” bei nichtigen Verträgen, JZ 1965, S. 476. 309

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circumstances. The most typical case is a contract for the purpose of protection, such as a bodyguard contract, supervision contract, or medical service contract. The contract becomes the only basis for establishing the protective duty. If there is no valid contract, there will be no protective duty between the parties, and no obligations in tort law. In this way, a contract is a tool to create the protective duty or to enhance the general duty of care in tort law. Violation of the contractual obligation does not surely violate the obligation in tort law. It is based on this understanding that we have repeatedly stated that the violation of the contractual protective duty does not surely lead to the concurrence of liabilities. b. Imputation principle Whether it is a liability for breach of contract or tortious liability, the imputation principle, which plays a pivotal role in determining the constitution of liability, the reasons for defense, and even the scope of liability, has always been the central theoretical and practical concern in China. The liability for breach of contract in Chinese Contract Law takes strict liability as the principle and views the imputation of fault liability as an exception, while the Tort Law is based on the fault principle imputation, supplemented by strict liability (no-fault liability or risk liability) and equitable liability. As such, in the case of a concurrence of liabilities, there are possibly different combinations of liability for breach of contract and tortious liability in the imputation principle311 : Tortious liability Strict liability Liability for breach of contract

Fault liability

Equitable liability

Strict liability

1

2

–

Fault liability

3

4

–

Combination 1: the liability for breach of contract and tortious liability are both strictly imputed, such as the producer’s liability in the case of directly selling products. Combination 2: the liability for breach of contract is strict liability, while the tortious liability is fault liability, such as the liability of the keeper when the stored thing deteriorates or is destroyed due to improper care. Combination 3: the liability for breach of contract is fault liability, while the tortious liability is strict liability, such as the liability of medical institutions (controversial) where their patients are injured due to unqualified medical products; Combination 4: liability for breach of contract and tortious liability are both fault liabilities, such as the liability of the donor when the donee’s personal and property are damaged because the donor intentionally fails to inform that the subject matter is defective or fails to guarantee that the subject matter is flawless. 311

As a correction of fault liability in infringement, the principle of fairness cannot cooperate with strict liability and can be considered inapplicable to contractual liability. Some people think that equitable liability can also be applied to contractual liability in the case of positive breach of contract (Vgl. Peter Gauch, Die Vereinheitlichung der Delikts-und Vertragshaftung, 116 Zeitschrift f ü r schweizerisches Recht [1997], SS. 330–331), but this conclusion is more premised on contractual liability as fault imputation and should not be approved in the context of Chinese law.

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It can be seen that different types of liability can have different imputation principles or the same imputation principles. Even under the same imputation principle, we should also pay attention to the differences in relevant effects. For example, the fault in the case of breach of contract is often presumed, and the obligee does not need to bear the burden of proof for the fault, but the fault in the case of tort should be proved by the obligee. Definitely, if liability for intentional injury is involved (e.g. Article 191.2 and second sentence of Article 406.1 of the Contract Law), whether in accordance with the circumstances of contract or tort, it is the obligee’s burden to prove the existence of intent. The distinction between different types of liability in terms of imputation principles must be clearly provided by law. If the law does not provide or the provisions are not clear, the distinction based on types of liability may not help. Consider, the medical dispute for example. A medical service contract belongs to innominate contract, and thus whether its imputation principle should be strict liability or fault liability has neither clear provisions in law nor consensus in theory. If the provisions of the General Provisions of the Contract Law are applied, it is strict liability; if the “most similar provisions” are referred to, such as the entrustment contract, it is the fault liability.312 Whether it is the most similar depends on the judgment of the commentators. With the emergence of “mixed contracts”,313 it is bound to determine the imputation principle according to the types of violated obligations, and thus it may occur that different imputation principles need to be applied due to different contractual obligations involved in the action of the contract. (2) Different Subjects of Rights Due to the limitation of the principle of privity of contract, in principle, only the parties to the contract can claim their rights according to the contract, and only the parties to the contract should bear the contractual liabilities according to the contract. Only in exceptional circumstances, such as contracts for the benefit of a third party or contracts for the burden of a third party, can the third party exceptionally enjoy rights under the contract or assume contractual obligations with the consent of the third party in question. The theory of “contract with the function of protecting a third party” in German law has not been recognized by Chinese legal provisions and judicial practice. In tort law, not only the actor may bear the liability for his own illegal acts but also for the acts or damages of others for which he is responsible (such as the employer’s vicarious liability, the guardian’s responsibility, the tortious liability of the security obligor for a tort caused by a third party, the tortious liability for environmental pollution caused by a third party); In addition to the aggrieved 312

Among them, there are two different views: general fault and presumption of fault. For the viewpoint of advocating the principle of general fault, see Ding Chunyan, Research on the Liability for Damages in “Wrong Birth Cases”, Chinese and Foreign Law, No.6, 2007, p. 685 (advocating the implementation of a unified imputation principle for medical service contracts and medical infringement); For the viewpoint of presumption of fault, see Han Shiyuan, Incomplete Performance of Medical Service Contract and Its Relief , Law Research, No.6, 2005, p. 102. 313 That is, the accompanying situation of entrusted performance and contracted performance. Han Shiyuan, ibid., p. 92.

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party himself, the aggrieved party’s close relatives and rights successors may also request the tortfeasor to bear the tortious liability. In a word, the scope of the subject of the right of tortious liability is wider than that of breach of contract. (3) Forms of Liability According to the provisions of Article 15 of the Tort Law, tortious liabilities include cessation of infringement, removal of obstruction, elimination of danger, return of the property, restoration to the original condition, compensation for losses, apology, elimination of the influence and restoration of reputation. In addition to remedial measures (such as repair, rework, replacement, return of goods, reduction of price or remuneration), liability for breach of contract also includes damages, payment of indemnity, payment of earnest money, and enforcement of specific performance. It can be seen from this that the liability for damages is applicable to both types of liability while taking remedial measures, paying indemnity, bearing earnest money sanctions, and enforcing specific performance can only be applied to the liability for breach of contract but not to the tortious liability. On the contrary, there is no clear legal provision as to whether forms of tortious liability such as cessation of infringement and removal of obstruction can also be applied to liability for breach of contract. As far as the restitution of property and restoration to its original condition is concerned, there is no doubt that they are applicable to contractual liability in general theory. Restitution of property in leasing contracts, contracts of storage, and other contracts are a standard form of contractual liability. In terms of Chinese judicial practice, an apology is also used in contractual liability, while eliminating the influence and restoring reputation are relatively rare in liability for breach of contract. However, since the personality rights and interests themselves can also be the protected object of the contract, the aforementioned interpretation of the personality rights relief law can be applicable when the breach of contract leads to the interference with the personality rights and interests of the counterpart. From the perspective of comparative law, the forms of liability such as cessation of infringement, removal of obstruction, and elimination of danger can also be applied to the situation of breach of contractual protective duty.314 As the Article 134 of the General Principles of the Civil Law of China does not restrict their applicable types, it should be considered that they can also be applied to the liability for breach of contract in interpretation. Accordingly, the forms of liability for breach of contract should be wider than that of tortious liability, and the forms of liability that can be applied to tortious liability can also be applied to liability for breach of contract in general, especially in the case of liability for breach of contractual protective duty. On the contrary, the forms of liability applicable to contractual liability may not be applicable to tortious liability. (4) Extent of compensation

314

Peter Schlechtriem & Martin Schmidt-Kessel, Schuldrecht Allgemeiner Teil, S. 90.

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Theoretically, regardless of the source of the violated obligation in the damage event, the view that the basic principle of damages is to restore the aggrieved party to its position before the damage event is obviously justifiable.315 In other words, whether based on contract or tort, the parties should be compensated for all the damages suffered by others for their wrongful acts. However, in terms of legislation and judicial practice, differences in the extent of compensation due to different violated obligations may still exist. Specifically, the extent of compensation related to the concurrence of liabilities mainly involves three aspects: first, the general rules of compensation limitation, such as foreseeability rules; second, the issue of compensation for mental distress; and third, the issue of exemplary damages.316 a. Foreseeability Rule As far as the general rules of compensation limitation are concerned, contract law clearly provides the foreseeability rule that the breaching party is only liable for the potential losses caused by the breach of contract, which has been foreseen or ought to be foreseen when the party in breach concludes the contract.317 Tort Law does not limit the scope of liability. Judicial practice generally holds the so-called “inevitable causation”, “direct causation” and “proximate causation”318 in the determination of causation. The basic function of these expressions is to deny or affirm the establishment of liability, and only a few have the significance of limiting the scope of liability.319 In theory, there is a view that “in fault imputation, if the scope of liability 315

Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review (1999), p. 14. See Thomas Galligan Jr., Contortions Along the Boundary of Contracts and Torts, 69 Tulane Law Review (1994), p. 465. 317 Article 113, Para 1 of Contract Law of the People’s Republic of China. 318 PKULAW Version 4.0 Supreme People’s Court Bulletin Case Database (which includes cases reflected in bulletin “cases” and “Selected Judicial Documents”) is searched. The infringement cases using “inevitable causality” include, among others, “Li Jianqing, Song Baoning v. Qinghai Huangchuan Middle School”, a dispute over compensation for personal injury; “Ping Li, Gong Nian v. Mayflower Company”, a dispute over personal injury compensation (Court of Second Instance); “Chen Meijin, Lin Dexin v. Japan’s Mitsubishi Automotive Industry Co., Ltd.” a dispute over damages; “Wang Liefeng v. Qianyang County Highway Management Section”, a dispute over personal injury compensation, and “Wu Wenjing, Zhang Kaiyi, Wu Caijuan v. Xiamen Kangjian Travel Service Co., Ltd., Fujian Yongchun Niumlin Tourism Development Service Co., Ltd.”, a dispute over personal injury compensation. The infringement cases using “direct causality” include “China Life Insurance Company Chengdu Branch v. Hualong Company and Other Securities”; “China Everbright Bank v. Inner Mongolia Baotou Huada Joint Venture Bedding Decoration Factory, Baotou Qingshan District Sub-branch of Agricultural Bank of China, Baotou Qingshan District People’s Government Free Road Office”; “Lu Hong v. United Airlines International Air Passenger Transport”; “Ping Li, Gong Nian v. Mayflower Company”, a personal injury compensation dispute (Court of First Instance), and “Xu Liang v. Shanghai Culture and Art Newspaper, Zhao Weichang”. The infringement cases using “inevitable and direct causality” include “Xing Liqiang v. Shanghai Stock Exchange”. The cases using “proximate cause” include “China Life Insurance Company Chengdu Branch v. Hualong Company and other Securities”. 319 See “Wang Linxiang, Chen Weidong v. Xiongdu Travel Agency Tourism Contract Dispute” (The Supreme People’s Court Bulletin, No.3, 2002). However, the case did not explain the criteria for determining causality, but simply believed that there was no causality between noncompliance and the death. 316

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cannot be determined according to the degree of fault, or if it is unfair to determine the scope of liability according to the degree of fault, the scope of liability should be determined according to the degree of causation. In particular, in no-fault liability and equitable liability, causation is considered as the direct basis for determining the scope of liability”.320 Even though it is admitted that fault and causation have the function of limiting the scope of liability, scholars still believe that due to the difference in the applicable time between the foreseeability rule and the causation rule, that is, the foreseeability rule depends on the time of contracting, while the causation rule depends on the time of the act that produces liability or the occurrence of a breach of contract, the latter seems to be more beneficial to the plaintiff.321 In addition, the rule of foreseeability still includes subjective factors such as fault in its application, while the causation rule focuses on the objective possibility between the damage and the consequences of damage, so the latter may allow a broader extent of compensation.322 It should be noted, however, whether the limitation of liability is through fault, causation, or foreseeability rule, it is to authorize the judge to decide the extent of compensation for breach of contract. The purpose is to protect the defendant’s freedom to act from “unlimited” liabilities. The difference in the actual effect of different limitation standards may not be as obvious as it seems. b. Compensation for mental distress In light of compensation for mental distress, it is generally believed in practice that mental distress isn’t included in compensation for breach of contract. There is no general provision in Chinese law that denies compensation for mental distress in breach of contract, only the judicial interpretation of the Supreme People’s Court on tour disputes has clear negative provisions,323 and the provisions that affirm it are all found in tort norms. This may be the most powerful positive law basis for the conclusion. Although there are cases of affirming compensation for mental distress

320

Yao Hui, The Crisis of Tort Law: Old Issues Bringing into the New Era, in People’s Congress Law Review Vol. 2, 2000. 321 See Cui Jianyuan, Editor-in-Chief, Principles and Cases of New Contract Law (Part I), Jilin University Press, 1999, p. 685. 322 See Wu Xingzhen, On Compensation for Available Interests in Contract Law, Law Press, 2011, pp. 125–126. 323 Article 21 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Laws in Hearing Tourism Dispute Cases (Fashi [2010] No.13): “If a tourist files a lawsuit for breach of contract and claims compensation for the infliction of mental distress, the people’s court shall inform him to change it to a tort action. If a tourist insists on filing a lawsuit for breach of contract, the people’s court will not support his claim for compensation for the infliction of mental distress.”

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in breach of contract in practice,324 most cases still hold a negative attitude.325 Therefore, non-compensation for mental distress in breach of contract is a general practice recognized by our judicial practice. However, as mentioned before, there is no solid legislative or theoretical basis for this practice.326 c. Exemplary Damages As far as exemplary damages are concerned, Paragraph 2, Article 113 of the Contract Law provides that the operator should bear the compensation liability according to the Law on Protection of Consumer Rights and Interests. Article 8, 9 and Paragraph 2 of Article 14 of the Interpretation of the Supreme People’s Court on the Relevant Issues concerning the Application of Law for Trying Cases on Dispute over Sales Contract of Commodity Houses (Judicial Interpretation [2003] No.7) even clearly apply the exemplary damages provided in Article 49 of the Law on Protection of Consumer Rights and Interests to fraudulent commercial housing sales contracts. The provisions on exemplary damages in Paragraph 2, Article 96 of the Food Safety Law can also be regarded as a special norm for the protection of consumers’ rights and interests and is also applicable to contractual liability in interpretation. Moreover, in judicial practice, it is not rare for judicial cases to admit exemplary damages in contract disputes.327 It can be seen that tortious liabilities are not necessary in exemplary damages in Chinese law. However, on some occasions, there are differences in the application of exemplary damages in the liability for breach of contract and tortious liability. The purpose of applying exemplary damages to the liability for breach of contract is to regulate fraud in the transaction and to avoid the loss of the expected interests of the other party, while the provisions of the Tort Law on exemplary damages for product liability focus on preventing defective products from causing damage to the personal rights and interests of the general public.328 Therefore, the exemplary damages for product liability provided in Article 47 of the Tort Law are based on the premise of “causing 324

See “Zhu Hang v. Changkuo Taxi Company and Fu Jianqi Compensation Dispute” (The Supreme People’s Court Bulletin, No.3, 2002). 325 See “Wang Lianshun v. China Life Insurance Company Yongshun County Branch Company Insurance Contract Dispute” (The Supreme People’s Court Bulletin), “Wang Linxiang, Chen Weidong v. Xiongdu Travel Agency Tourism Contract Dispute” (Supreme People’s Court Bulletin, No.3, 2002), “Zheng Xuefeng, Chen Guoqing v. Jiangsu Province Hospital Medical Service Contract Dispute” (Supreme People’s Court Bulletin, No.8, 2004) and “Zhou Peidong v. Jiangdong Agricultural Bank Savings Contract Dispute” (Supreme People’s Court Bulletin, No.2, 2006). 326 See sect. 1.4 of this chapter. 327 For example, “Shanghai Feihong Wood Products Co., Ltd. V. Qian Yulin’s Business Dispute” (Shanghai No.1 Intermediate People’s Court (1999) Hu Yi Zhong Min Zhong Zi No.2968), “Appeal Case of Dispute over Sales Contract between Li Baogang and Li Wenju” (Dongying Intermediate People’s Court of Shandong Province (2002) Dong Zhong Jing Zhong Zi No.23) and “Appeal Case of Dispute over Sales Contract between Liu Jiwei and Ganzhou Zhanggong District Zhengbing Electric Vehicle Firm” (Ganzhou Intermediate People’s Court of Jiangxi Province (2008) Gan Zhong Min Er Zhong Zi No.78), etc. 328 199 See Zhou Jianghong, Concurrence and Application of exemplary damages Liability: The Application Relationship between Article 47 and Article 96, Paragraph 2, Law, No.4, 2010, p. 109.

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a death or any serious damage to the health of another person”, while there is no such restriction on occasions where the liability for breach of contract is assumed in accordance with the Law on Protection of Consumer Rights and Interests. At the same time, when assuming punitive damages in accordance with the Law on Protection of Consumer Rights and Interests, the penalty amount is “twice the price of goods purchased or the cost of services received by consumers” and “ten times the price of food” when food safety is involved. On the contrary, the penalty amount in the case of product liability is stated as “corresponding punitive damages”, and thus the specific amount is determined by the court according to the specific circumstances of the case. In addition, the performance interests of the contract must be based on a valid contract. Therefore, the performance interests cannot be compensated in the tort action. This distinction is of great significance in product liability as the product liability borne by the producer does not include the damage caused by the product itself.329 If economic loss is only caused due to product defects, and there are no personal or other property losses other than defective products, the aggrieved party can only obtain relief through liability for breach of contract rather than a tortious liability. At present, there is no unified understanding as to whether this situation will change due to the provisions of Article 41 of the Tort Law.330 According to the view of the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, it is believed that the property damage in this article (i.e., Article 41 of the Tort Law-quotation) includes not only other property damage other than defective products, but also damage to defective products themselves, which is conducive to timely and convenient protection of the interests of users and consumers.331 This view isn’t wrong when the owner of the product is also the contract holder, but it may interfere with the risk allocation based on the contract between the producer and the seller when the two characters are different people, and its appropriateness is questionable. How to resolve the conflict between product quality law and tortious liability law in legal sense still needs further discussion. (5) Defences Generally speaking, the only exemption grounds of liability for breach of contract under the strict liability are force majeure and exemption clauses, while the liability exemption scope of liability for breach of contract under fault liability is relatively broader. Any fact that can prove that the breaching party is not at fault can, usually in legal effect, hinder the constitution of breach of contract and thereby lead to liability exemption. However, if the breach of contract is caused by a third party at fault, even if the relevant contractual liability belongs to fault liability, the obligor shall still bear the liability to the obligee (Article 121 of the Contract Law). Tortious liability 329

See Article 41 of the Product Quality Law. See Wang Liming, On the Concept of Damage in Product Liability, Law, No.2, 2011. 331 See the Civil Law Office of the Legal Affairs Committee of the Standing Committee of the National People’s Congress, Tort Law of the People’s Republic of China: Description of Provisions, Legislative Reasons and Relevant Provisions, p. 174. 330

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with no-fault liability can usually be exempted from liability under legal exemption grounds. As a result, force majeure is not a defense against tortious liability as it is in the case of liability for breach of contract (such as highly dangerous liability stipulated in Articles 71, 73, and 74 of the Tort Law). In theory, it is generally believed that exemption clauses concluded between the parties, as long as it does not violate the prohibition provisions of the law (such as Article 53 of the Contract Law), can be claimed as a defense even when the party in question assumes liability according to the tort law. In the case of fault liability, all facts that can prove that the actor has no fault, such as the occurrence of damage caused by the fault of the third party, can exempt the actor from liability. Although contributory negligence (or negligence) is the standard mitigating cause in tortious liability, it is doubtful whether it can have the same effect in contractual liability. There are negative views in comparative law,332 but in China, the answer is positive in theory, and this conclusion can also be deduced according to the provisions of Article 120 of the Contract Law on breach of contract by both parties.333 (6) Limitation of Actions According to the provisions of the General Principles of the Civil Law, the limitation of actions for compensation for infringement is generally two years, but limitation of actions for compensation for personal injury is one year.334 However, according to the provisions of the first paragraph of Article 45 of the Product Quality Law, the limitation of actions for claiming for damages caused by product defects is two years, so it can be considered that the limitation of actions for claiming damages for personal injury caused by product defects is still two years.335 The limitation of actions for 332

See Thomas Galligan Jr., Contortions Along the Boundary of Contracts and Torts, 69 Tulane Law Review (1994), p. 472. 333 See Wang Liming, Breach of Contract (Revised ed.), p. 402. 334 In judicial practice, some courts have adopted a restrictive interpretation of this provision that excludes cases of death caused by physical injury. For example, in the “Appeal Case of Personal Injury Compensation Dispute between Gan Mou et al. and Xi’an Central Primary School in Gaoming District” (Foshan Intermediate People’s Court of Guangdong Province (2004) Fo Zhong Fa Min Yi Zhong Zi No.600), the court of second instance held that “according to the provisions of Item (1) of Article 136 of the General Principles of the Civil Law of the People’s Republic of China, if compensation for physical injury is claimed, the limitation of actions is one year. The “body injury” mentioned in this article only refers to the infringement of one’s right to health and should not include the infringement of one’s right to life. Therefore, the statute of limitations for the two appellants to claim damages for the death of their daughter Gan Yanbing does not apply to the above provisions, but shall apply to the general statute of limitation of actions, that is, 2 years.” 335 As for the conflict between the General Principles of the Civil Law and the Product Quality Law on limitation of actions, some courts have clearly affirmed that the 2-year limitation of actions of the Product Quality Law should be applied first. For example, in the “Dispute over the Sales Contract between Wang Changsong and Guo Yongquan” (Jiaozuo Intermediate People’s Court [2006] Jiao Min Zhong Zi No.106), The court clearly pointed out: “Although the General Principles of the Civil Law of the People’s Republic of China stipulate that there is a one-year limitation of actions applicable to ‘undeclared sale of substandard goods’, the meaning of this provision is unclear and conflicts with the provisions of the Contract Law of the People’s Republic of China, the Product Quality Law of the People’s Republic of China and other relevant laws. According to the principle

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contractual liability is usually two years, but if the sale of substandard products is not declared, the rent is delayed or refused, and the deposited property is lost or damaged, the limitation of actions is one year. According to the provisions of the second sentence of Paragraph 1 of Article 61 of the Auction Law, if the auction target is not declared due to defects, the limitation of actions for claiming compensation is one year. According to Article 129 of the Contract Law, the time limit for filing a lawsuit or applying for arbitration for disputes over international sales contracts and contracts for the import and export of technologies is four years. In general, there is no difference between the general limitation of tortious liability and contractual liability, since they both start when they know or should know that their rights have been violated. That the injurer can’t be sure will affect the commencement of the limitation of actions in the case of tortious liability, but it is rare when the concurrence of liabilities is established, so the difference between the two types of liability in the commencement of the limitation of actions is no greater than the difference in various specific situations within them. Article 136 of the General Principles of the Civil Law stipulates the special statutes of limitation of personal injury and losses of deposited property based on the type of damage or the nature of the obligation violated. The answer is negative to the question whether a contractual liability should be different in regulative method from tortious liability. (7) Litigation Jurisdiction According to the Civil Procedural Law, a lawsuit brought on a contract dispute shall be under the jurisdiction of the people’s court at the place where the defendant has his domicile or where the contract is performed. The parties to a contract may agree to choose in their written contract the court at the place where the defendant is domiciled, where the contract is performed, where the contract is signed, where the plaintiff has his domicile, or where the subject matter is located to exercise jurisdiction over the case, provided that the provisions of this Law regarding hierarchical jurisdiction and exclusive jurisdiction are not violated.336 While a lawsuit brought on a tort shall be under the jurisdiction of the people’s court at the place where the infringement is committed or where the defendant has his domicile.337 In terms of current Chinese legal provisions and judicial practice, there are still some differences between contractual liability and tortious liability in the seven aspects mentioned above. Especially in terms of the composition of liability, the extent of compensation, and the defenses of the actual effect of the relationship, the provisions of the current law, and the general practices of judicial practice all cause obvious differences between the two types of liability under special circumstances. This difference in substantive effects will cause the same case facts to produce different remedy effects under different types of liabilities. Therefore, the choice of concurrence of liabilities will have a more obvious impact on the interests of the that the new law is superior to the old law and the jus singulare is superior to the common law, the two-year limitation of actions should be applied in this case.” 336 See Articles 24 and 25 of the Civil Procedural Law. 337 See Article 29 of the Civil Procedural Law.

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parties. For example, in the case of personal injury caused by product defects, if the product has high value and causes serious mental distress, under the legislative mode of concurrence of claims, the parties will be forced to give up one of the benefits due to the choice of litigation types, and the legal remedy effect will be insufficient. If the concurrence mode of claim right is implemented, insufficient relief can be eliminated to a certain extent, even if the doctrine that contract compensation does not include mental distress is adhered to. Therefore, we will further examine the concrete operation and effect of concurrence of liability for breach of contract and tort in combination with Chinese legal practice.

2.3 Development of Concurrence of Liabilities in Chinese Legal Practice (1) Legislative choice Although there have been relevant judicial interpretations on the concurrence of causes of action in the 1980s,338 the legislation that clearly stipulates the concurrence of liabilities is first found in Article 122 of the Contract Law, which stipulates that if one party’s breach of contract infringes upon the personal and property rights and interests of the other party, the aggrieved party “has the right to choose” to request relief according to the liability for breach of contract or tort. The Supreme People’s Court’s Interpretation on Several Issues Concerning Application (I) (Fashi [1999] No.19) understands it as “a concurrence of claims” and holds the same view in theory. Therefore, it should be considered that Chinese Contract Law has adopted the mode of “a concurrence of claims”.339 However, there are different views on the specific content of the mode of “concurrence of claims” in theory. Since Article 122 of the Contract Law involves the scope of protection of liability for breach of contract and tort, namely “the personal and property rights and interests of the other party”, the relationship between the two in the scope of protected rights and interests is shown as follows:

338

That is, the Supreme People’s Court’s “Minutes of the Symposium on Economic Trials Involving Foreign Affairs and Hong Kong, Macao and Taiwan in the National Coastal Areas” (Law (Jing) Fa [1989] No.12). 339 See Han Shiyuan, The Law of Contract, p. 644 below. Wang Shihu, Study of the Coincidence of Contractual and Tortious Liabilities, p. 115.

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Note340 When there is a contractual relationship, the inherent interests protected by the contract (Area 2) are the common protection scope of the contract and infringement. The performance interests (Area 1) and other inherent interests other than the inherent interests protected by the contract (Area 3) can be roughly regarded as the respective exclusive protection scope of the contract and infringement. It is generally believed that as long as an illegal act meets the constitutive elements of both the liabilities for breach of contract and tort, the concurrence of liabilities will be established, not only when the illegal act causes damage to both performance interests and inherent interests (injured rights = region 1 + region 2), but also when it simply causes damage to inherent interests (injured rights = region 2). In this regard, some scholars believe that there is no concurrence between tortious liabilities and liabilities for breach of contract when the obligor’s performance is defective and damages the obligee’s inherent interests (injured rights = area 1 + area 2). In this case, if concurrence of liabilities is admitted, no matter what form the liability is, individual relief will not be sufficient to make up for the losses the oblige suffers.341 Only when the performance of the debt only damages the inherent interests of the obligee (injured rights = region 2) will tortious liability and liabilities for breach of contract be concurrent.342 It is not difficult to see that this view actually deduces the conclusion of limiting concurrence of liabilities from the negative side of acknowledging the negative consequences of concurrence of liabilities, which may be doubtful logically. However, it raises a question that is usually ignored in theory: Should concurrence of liabilities be observed from the perspective of harmful acts or protected rights and interests? If we look at the tortious act from the perspective, no matter the act causes the inherent interest damage alone or causes the performance interest and the inherent interest damage at the same time, we should treat them as the same, thereby denying the above-mentioned theory of concurrence of liabilities. On the contrary, if we look at the protected rights and interests from the perspective, only when the protected rights and interests are the protected objects of both the liability for breach of contract and tortious liability can a concurrence of liabilities arise. Legal interpretation should start from the legal textual meaning and take it as the boundary.343 As far as the “personal and property rights and interests of the other party” mentioned in Article 122 of the Contract Law is concerned, it is right that “personal rights and interests” are inherent interests (or integral interests), and whether “property rights and interests” should be interpreted in the same way or not is doubtful. According to the provisions of Article 91 of the draft version of the Contract Law in 1997, where a party’s breach harmed the personal or property interests of the other party, the aggrieved party is entitled to elect to hold the party 340

The schema of the relationship between the contract and the interests protected by tort shown in this figure is only valid under the specific contractual relationship. From an abstract point of view, there is basically no difference between the contract and tort in protecting interests. 341 Li Yongjun, Contract Law (2nd ed.), Law Press, 2005, p. 685. 342 Ibid., p. 689. 343 Karl Larenz, Allgemeiner Teil des Deutschen Bürgerlichen Rechts, Commercial Press, 2003, p. 219.

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liable for breach of contract in accordance herewith or hold the party liable for tort in accordance with any other relevant law. This kind of expression is obviously similar to the expression of Article 41 of the Product Quality Law on the tortious liability of producers’ products and has a clear meaning of referring to the damage of inherent interests. In the August 1998 draft, the above statement changed. Article 126 of the draft stipulates: “If one party’s breach of contract infringes upon the personal and property rights and interests of the other party, the aggrieved party has the right to claim damages.” In fact, this article only has the effect of declaring that compensation for breach of contract includes damage to personal and property rights and interests, and loses the significance of standardizing concurrence of liabilities. It can be seen that the provisions of Article 122 of the current Contract Law are actually some forms of a merger of the two drafts, that is, the prerequisite of concurrence of liabilities is extracted from the August 1998 draft, while the 1997 “Draft for Comments” is taken for the expression of effects. Professor Wang Liming believes that the “property rights and interests” mentioned in Article 122 of the Contract Law refer to other property interests other than performance interests.344 Legally speaking, if there is no inherent interest damage involved, under the condition that there is a contractual relationship between the parties, the damage of simply performing interests should not constitute tortious liability, otherwise, all breaches of contract are tort, which is obviously inappropriate. Thus, the concurrence of liability for breach of contract and tortious liability can only be established when the breach of contract causes damage to inherent interests, which should be confirmed as the normative content of Article 122 of the Contract Law. However, from the premise that the concurrence of liabilities must be based on the damage of inherent interests, it is necessary to be cautious about deducing the conclusion that the concurrence of liabilities is established only when the simple inherent interests are damaged. The view that concurrence of liabilities is limited to situations where inherent interests are damaged faces two problems: First, it is still doubtful whether legislators intend to treat different damages caused by the same breach of contract differently. Article 122 of the Contract Law not only has the function of standardizing the concurrence of liabilities but also has the function of explicitly recognizing the liability for breach of contract and protecting personal rights and other property rights other than the performance of interests, which is exactly the inevitable effect of Article 60, Paragraph 2, of the Contract Law that recognizes the protective duty. The inherent interests involved in the contractual protective duty are also the protection objects of tortious liability at the same time. The overlapping scope of protection leads to the fact that the breach of contract can also meet the constitutive requirements of tortious liability at the same time, resulting in concurrence of responsibilities. If it is believed that the concurrence of liabilities is only established when the inherent interests are damaged, it is inevitable to split the unified remedy effect of the breach of contract into two components, namely, the remedy for damage to the performance 344

Wang Liming, Re-discussion on the Concurrence of Liability for Breach of Contract and Tortious Liability: Also Comments on Article 122 of Contract Law, Chinese Foreign Trade, No.2, 2001, p. 29.

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interests and the remedy for damage of the inherent interests. If inherent interests of contract protection and performance interests are integrated into the relief of liability for breach of contract, compared with separating the inherent interests and including them separately into the liability for breach of contract or tort, the latter only increases the chance to protect the performance interests at most, and cannot solve the problem of insufficient relief of contractual liability in the case of personal damage (for example, according to some theoretical viewpoints or the common practice of judicial practice, breach of contract does not protect mental distress). Therefore, the view of limiting concurrence of liabilities is not complete in realizing full relief for aggrieved parties. The second is that the norm of liability usually treats act or event of damage rather than the type of damage as the normative basis, no matter it is the liability for breach of contract or tortious liability. Therefore, there is no reason why acts that both breach contractual obligations should be treated differently because of the different consequences of accidental damage. The general theory that the concurrence of liabilities is judged by the same act satisfying more than two kinds of constitutive elements of liabilities,345 rather than by different types of damages, illustrates this truth. Although the provisions of Article 122 of the Contract Law focus on the overlap between the liability for breach of contract and tortious liability in the object of protection, it still takes “the breach of contract by one of the parties” as the cause of damage, so it is far-fetched to assert that the composition of concurrence of liability depends on the type of damage. If so, it needs to find another solution to pursue the goal of adequate relief for the aggrieved parties. According to the legal textual meaning, the stipulation of the Contract Law that “one chooses to require the other party to bear the liability for breach of contract in accordance with this law or tortious liability in accordance with other laws” obviously intends to implement the position that the Contract Law and Tort Law are independent and opposing, and there is no room to integrate the legal effects of the two kinds of liabilities. In this sense, even the “theory of mutual influence of claims” is not possible.346 However, because the provision of Article 122 of the Contract Law is extremely rough and only confirms the concurrence of claims, it does not give any more instructions on its specific effect. Even if the “theory of mutual influence of claims” is not adopted, it does not mean that the “theory of free concurrence of claims” should be adopted. From the perspective of balancing the interests of the parties, it is necessary to make appropriate restrictions on the implementation of the “theory of free concurrence of claims” based purely on logical inference.347 In addition, some scholars believe that when the law directly excludes concurrence of liabilities, such provisions of the law should be observed. Even in terms of no direct provision of the law, the concurrence of liabilities should 345

See Wang Liming, Theory of Liability for Breach (Revised ed.), p. 329; Han Shiyuan, The Law of Contract (3rd ed.), p. 715. 346 See Han Shiyuan, op. cit., pp. 721–722. 347 See Fu Dingsheng, Study on Concurrence of Liabilities, Political Science and Law, No.11, 2008, pp. 73 seq.

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sometimes be limited in accordance with the purpose of legal norms.348 However, since there is no clear regulation to exclude concurrence of liabilities in the current law of China, how to identify the special value of “the law directly stipulates to exclude concurrence of liabilities” is worth discussing. From the example cited by the commentator, the liability for damage to the defect of the donation (Paragraph 2, Article 191 of the Contract Law) is no different from the liability for damage to the deposit caused by improper care of the depositary by gratuitous title (Article 374 of the Contract Law). It is recognized that it has no legal basis of its effect of excluding the establishment of tortious liability.349 Therefore, the following explanatory conclusions can be drawn from the “concurrence of claims” mode stipulated in Article 122 of the Contract Law: First, the concurrence of liability for breach of contract and tortious liability can only occur when the breach of contract causes damage to the other party’s personal or other property rights and interests other than the performance of interests. Second, when there is a concurrence of liabilities, the claim for compensation for breach of contract and the claim for compensation for tort are respectively established according to the different basis of liabilities. Multiple claims cannot be delt with separately due to the same protection purpose, and the other claim will be eliminated due to the realization of one claim. Third, the claim right of concurrence should be subject to the overall restriction of its subordinate norm of liabilities, but not to another norm of liabilities. Fourth, the court and the parties should be bound by the choice made by the claimant on the norm of liability. The claimant has the right to change his choice, but he should put it forward before the end of the trial of the first instance. Since the parties have the right to choose when the liabilities are concurring, if the parties (intentionally or unintentionally) do not make a choice, what should we do? In practice, when no choice is made or the choice is unclear, the court will choose on behalf of the aggrieved party from the perspective of protecting the interests of the aggrieved party to the greatest extent.350 This kind of treatment not only violates the neutrality of the court, but also prevents the other party from debating the chosen liability forms, and also violates the principle of litigation debate (Article 12 of the Civil Procedure Law). Perhaps the most reasonable defence to this is that the lex lata has confirmed the normative purpose of providing the best protection to the aggrieved party through the recognition of concurrence of responsibilities. The court’s choice is consistent with this normative purpose when the parties have not made a choice, or the choice is unknown.

348

Zhang Min and Cui Jianyuan, Acceptance and Release of Concurrence of Liabilities: Understanding and Application of Article 122 in China, Journal of the State Prosecutor’s College, No.5, 2011, p. 149. 349 See Han Shiyuan, The Law of Contract (3rd ed.), p. 721. 350 See Wang Liyi, Zhang Lixia v. Shanghai Yinhe Hotel Compensation Dispute (The Supreme People’s Court Bulletin, No.2, 2001), Ping Li and Gong Nian v. Mayflower Company Personal Injury Compensation Dispute (The Supreme People’s Court Bulletin, No.2, 2002) and Lu Hong v. United Airlines International Air Passenger Transport Damage Compensation Dispute (The Supreme People’s Court Bulletin, No.5, 2002).

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(2) Study from Judicial Cases The crux of concurrence of claims is to provide aggrieved parties with a variety of relief means and to obtain the best relief within the scope permitted by law by granting them the right of choice. This choice is often made before the claimant (plaintiff) initiates the action. The claim and its legal basis (cause of action) put forward by the claimant in the lawsuit are only reflections of the selection result. Unless the other party raises an objection to the choice of the cause of action or the court thinks it is necessary to clearly point out the concurrence of claims, the existence of concurrence of liabilities and the process of selection of claims will not be reflected in the judicial judgment documents. Therefore, there are definitely far more judicial cases that actually constitute concurrence of liabilities than those that are explicitly put forward concurrence of liabilities in the decree. However, for case analysis, these judicial decisions that clearly reflect the concurrence of liabilities should be given greater research value, since they can better reflect the significance of concurrence of liabilities (whether it constitutes concurrence and how to realize rights under concurrence are realistic reflections of the value of the concurrence system, whether positive or negative). In order to investigate the judicial practice under the mode of a concurrence of claims, In PKULAW Version 4.0 “China Court Judgment Documents Library”, with the three keywords of “concurrence”, “breach of contract” and “tort”, under the category of “civil and commercial economy” cases, a total of more than 200 judicial decisions in the past ten years have been retrieved. Apart from many similar cases of the same defendant tried by the same court and cases of concurrence of broad liabilities involving multiple liable parties who are liable for the same damage consequences for different reasons, 68 cases involving concurrence (narrow sense) of liability for breach of contract and tort were screened out one by one. By analyzing these cases, what we can find is as follows: In terms of the aforementioned case samples, the vast majority of courts deal with the concurrence of liabilities according to the mode of the merger of claims, that is, the claimant (plaintiff) has the right to choose his claim, and the court hear the case according to the claim chosen by him, but the court does not allow the parties to claim rights based on different claims on the same fact.351 In addition, we have not found that in the cases that constitute concurrence of liabilities, there is what scholars call “in a large number of concurrence of liabilities cases (such as medical malpractice, traffic accidents, product liability), judges have become accustomed to handling cases according to the Tort Law, and basically do not consider the application of contractual liability”.352 In the above three types of cases, if the (narrow sense) concurrence of liabilities is constituted, the cases settled according 351

For example, in the “Appeal Case of Patent Infringement Dispute between Wang Zhongan and Weihai Jiacheng Industry and Trade Co., Ltd.” (Shandong Higher People’s Court (2006) Lu Min San Zhong Zi No.81). 352 Wang Liming, The Distinction Between Tort Law and Contract Law, Chinese Law, No.3, 2011, p. 108.

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to the action of contract in passenger transport contracts are more common, while in the cases involving medical damage and product liability damage involving personal injury, the cases settled according to the action of contract are relatively rare. In the case of traffic accident damage in passenger transport contracts or tourism contracts, the parties often choose to claim their rights in accordance with Article 302 of the Contract Law.353 Under the circumstance of not allowing compensation for mental distress in breach of contract, the reason why the parties chose the contract instead of tort may be based on the following two perspectives: First, the liability stipulated in Article 302 of the Contract Law is strict liability, while the liability for injuries to passengers on board caused by traffic accidents is fault liability.354 Therefore, the action of the contract is more beneficial to the obligee in terms of constitution of liability. Second, in traffic accidents involving tort by a third party and where the carrier does not bear all the liabilities of the accident, if a tort action is filed, the carrier and the third party do not constitute joint tort and only bear the share of liability corresponding to their liabilities of the accident. On the contrary, the court usually holds that the division of liabilities of traffic accidents does not affect the carrier’s liability for breach of contract to passengers according to the passenger transport contract, and the part is borne by the carrier that exceeds its share of accident liability can be recovered from other liable

353

For example, “Appeal Case of Tourism Contract Dispute between Zhuhai Mileage International Travel Service Co., Ltd. and Liu Juan” (Zhuhai Intermediate People’s Court of Guangdong Province (2007) Zhu Zhong Fa Min Yi Zhong Zi No.160), “Appeal Case of Dispute over Passenger Transport Contract between Xuchang Express Bus Travel Co., Ltd. and Li Weixiao” (Henan Xuchang Intermediate People’s Court (2010) Xu Min Yi Zhong Zi No.119), “Nanyang Wanyun Group Co., Ltd. Passenger Transport Tanghe Branch and Pei Jintao’s Right to Health Dispute Appeal Case” (Nanyang Intermediate People’s Court of Henan Province (2011) Nan Min Er Zhong Zi No.444), “Wu Wenxian et al. v. Zhou Weiming Passenger Transport Contract Case” (Jinhua Intermediate People’s Court of Zhejiang Province (2002) Jin Zhong Yi Zhong Zi No.599), “Appeal Case of Dispute over Passenger Transport Contract between Liu Ganyou and Liu Yizhi” (Jiangxi Ganzhou Intermediate People’s Court (2006) Gan Zhong Min Yi Zhong Zi No.154) and “Appeal Case of Dispute over Damage Compensation for Passenger Transport Contract between Fenghua Xikou Highway Transportation Co., Ltd. and Kang Ming Yi” (Zhejiang Ningbo Intermediate People’s Court (2007) Yong Min Yi Zhong Zi No.894), etc. 354 According to the provisions of Article 76, Paragraph 1, of the Road Traffic Safety Law, the imputation standards are also different for different objects involved in accidents: if a traffic accident occurs between motor vehicles, it is a general fault liability; If a traffic accident occurs between a motor vehicle and a non-motor vehicle driver or pedestrian, it is a limited no-fault liability (i.e. if a non-motor vehicle driver or pedestrian has no fault, it is a no-fault liability; If a non-motor vehicle driver or pedestrian is at fault, the liability of the motor vehicle party shall be reduced; If one party of the motor vehicle is not at fault, it shall bear no more than 10% of the liability). This provision, including the provisions of the tortious liability Law “Motor Vehicle Traffic Accident Liability”, does not involve the liability for passenger injury caused by traffic accidents. Therefore, the general tortious liability provisions (Article 106, Paragraph 2, of the General Principles of the Civil Law or Article 6, Paragraph 1, of the tortious liability Law) should be applied in interpretation, and the imputation standard is fault liability.

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parties.355 In other words, once the carrier bears the liability for breach of contract according to the contract, the extent of compensation will be full damage suffered by the passengers. Therefore, the aggrieved party’s chance of obtaining damages from the carrier due to tort is less than the damages he can obtain according to the contract. In this way, under the condition that the carrier has sufficient liquidity, even if compensation for mental distress for breach of contract is not allowed, it is still more advantageous for the aggrieved party to claim damages according to the contract.356 In medical disputes involving personal injury, although the number of cases handled according to tort is obviously more than that handled according to contract, there are still many cases handled according to contract. Since the defendant has to bear the burden of proof for the performance of the obligation in the contract action, the allocation of this burden of proof is obviously beneficial to obligees even under the condition of fault imputation. This is because the court usually combines the judgment of a breach of contract with fault of the hospital, that is, there is no breach of contract or fault if the hospital’s medical measures are appropriate, and there is both nonperformance and fault if the hospital’s medical measures are inappropriate.357 On the contrary, if there is no advantage that this kind of liability constitutes due to the specific distribution rules of the burden of proof, when personal injury compensation is involved, a wider extent of compensation for tortious liability will be beneficial to the claimant.358 Before the implementation of the Tort Law, the advantages of contract litigation in terms of liability 355

For example, “Appeal Case of Dispute over Damage Compensation for Passenger Transport Contract between Fenghua Xikou Highway Transportation Co., Ltd. and Kang Ming Yi” (Ningbo Intermediate People’s Court of Zhejiang Province (2007) Yong Min Yi Zhong Zi No.894), “Li Mou v. So-and-So Co., Ltd. and Other Tourism Contract Disputes Case” (Furong District People’s Court of Changsha City, Hunan Province (2011) Fu Min Chu Zi No.209). 356 Some people think that the reasons for concurrence are more common in making up for the shortage of relief for liability for breach of contract with tortious liability, but less in making up for the shortage of tortious liability with contractual liability. (See Wu Qingbao, On the Limitation of Concurrence of Tortious Liability and Breach Liability, p. 31.) This view on the concurrence of liabilities is neither historical nor theoretical and legal basis, so it is difficult to call it appropriate. 357 According to Item 8 of Article 4 of the Supreme People’s Court’s “Several Provisions on Evidence in Civil Proceedings”, tort action caused by medical acts implements causality and reversion of burden of proof for fault. In this case, the advantage of contract litigation in the burden of proof does not exist. 358 In “Appeal case of medical service contract dispute between a hospital in Xinjiang and Hu Moumou” (Urumqi Intermediate People’s Court of Xinjiang Uygur Autonomous Region (2010) Wu Zhong Min Yi Zhong Zi No.1399), the patient went to the defendant for treatment, and then the defendant changed the operation plan without authorization, and the patient died after treatment. After identification, there is a major causation between patient’s death and hospital, which accounts for 90% of the case. Because the plaintiff chose to sue for breach of contract, his claim for mental damage was rejected by the court. Judging from the trial of the case, what is the difference between the composition of liability for breach of contract and the handling of tort action? In addition to mental distress, other compensation items can also be compensated in tort action, and there is no reason to show that the amount of compensation determined by the court in tort action will be different. Therefore, whether to allow compensation for the infliction of mental distress constitutes the substantive difference between the lawsuit for breach of contract and the tort action. In the case

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composition were eliminated because Item 8 of Article 4 of the Supreme People’s Court’s “Several Provisions on Evidence in Civil Proceedings” confirmed the rule of reversion of burden of proof in medical tort disputes. At the same time, because the medical service contract is an innominate contract, its imputation standard is not clear, and the determination of compensation liability also needs to be handled in according with the rules of tort. Naturally, both the parties and the court tend to choose the infringement method to deal with medical disputes. However, as Article 54 of the Tort Law has changed the aforementioned rule of reversion of burden of proof, the advantages of contractual liability in proof have been highlighted. It remains to be seen whether this will lead to more medical damage disputes that resort to contract lawsuits. In the case of product defects and damages, because there is no obvious difference between the liability for breach of contract and the tortious liability for product in the imputation principle (whether the tortious liability of the seller’s product is fault liability or not is controversial in theory, in terms of judicial practice, most judgments still affirm it as strict liability), Therefore, the liability for breach of contract is not superior to tortious liability in the constitution of liability. Besides, in most cases of practice, courts usually include the damage of the product itself into the product’s tortious liability and solve it together. Therefore, the tortious liability for product has obvious advantages when there is personal injury and compensation for mental distress in breach of contract is not allowed. If the plaintiff sues the seller and the manufacturer together, the case is often handled as a tort.359 Since product liability is aimed more at the situation where the aggrieved party has no contractual relationship with the seller or producer of the product, this unified cause of action treatment does leave an impression that the liability for product defects and damages is basically treated as a tort, but there is no evidence to show that this situation is related to the court’s position of rejecting concurrence of liability.360

of denying compensation for the infliction of mental distress for breach of contract, the choice of the lawsuit for breach of contract is unfavorable to the plaintiff. 359 The reason for this is not clear, because in such cases, the plaintiff who seeks to maximize the benefits should be able to sue the seller according to the contract (to ensure the benefit of performance) and the producer according to the infringement (to ensure the compensation of mental distress), thus obtaining the maximum compensation. However, such a situation has not been found in cases involving product quality responsibility. It is not clear whether the court restricts the parties to make this choice based on the reason of determining the cause of action of the case, or whether it fails to reflect the possibility of this choice due to insufficient case samples. 360 For example, “Appeal Case of Dispute over Compensation for Quality Damage of Rugao Kone Battery Factory and Zhang Hui’s New Products” (Zhengzhou Intermediate People’s Court, Henan Province (2011) Min Zheng Er Zhong Zi No.774), Ma Qunjie v. Han Wanqing et al. (Xinye County People’s Court of Henan Province (2001) Xin Min Chu Zi No.288) and Liu Lijun et al. V. Shanghai Volkswagen et al. Product Quality Personal Injury Dispute (Wuzhi County People’s Court of Henan Province (2006) Wu Min Chu Zi No.570-1), etc. In these cases, since the plaintiff’s claim does not involve the value of the subject matter itself, but only involves compensation for personal injury, there is no meaning for the seller and the producer to sue separately, and the court confirms the

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Although plaintiffs in litigation tend to choose only one type of liability in some types of concurrence of liabilities cases, we don’t have reason to believe that it is because the court limits the obligee in question to make a choice. Under the specific factual background, one choice will be obviously superior to the other, thereby causing rational parties to be more inclined to one choice, which does not mean that the legal effect of concurrence of liabilities has been excluded. It is worth noting that there are still a few judgments that deviate from the concurrent mode of claims and adopt different approaches. For example, in the “Appeal Case of Disputes over Photography Service Contracts between Zhou Mingjia and Mary”,361 the defendant lost the wedding video materials filmed for the plaintiff according to the contract. The Court of First Instance held that the defendant’s actions constitute both breaches of contract and tort,362 “Although according to the provisions of the Contract Law on the concurrence of liabilities, the plaintiff had to choose one. Due to the particularity of compensation for mental distress in compensation for breach of contract of wedding camera service, however, if consumers are only allowed to put forward one kind of claim, it is obviously not conducive to the protection of the legitimate rights and interests of consumers. Allowing the plaintiff in this case to exercise both the claim for breach of contract and tort is more in line with the joint and proportionate liability of the producer and the seller in accordance with the infringement standard. 361 In Quzhou Intermediate People’s Court of Zhejiang Province (2008) Qu Zhong Min Yi Zhong Zi No.14), the defendant sold the plaintiff’s patented products in violation of the agreement, and the plaintiff claimed payment of indemnity and other damages for breach of contract after obtaining compensation for infringement. The court held that since the plaintiff did not provide evidence to prove the existence of new infringement facts by the defendant, and the defendant had already assumed tortious liability for the breach of contract claimed by the plaintiff in this case according to the definite judgment, the plaintiff had no right to claim that the defendant should bear the liability for breach of contract for the same act. 362 The constitution of infringement is expressed as follows: “Wedding image data is a specific commemorative item for couples to relive their wedding happiness, obtain spiritual pleasure and enhance their feelings in the future. It has great symbolic significance of personality and cannot be returned once lost or damaged. The defendant’s breach of contract prevented the plaintiff from obtaining the image reproduction of the marriage scene in the future, and the breach of contract also caused mental distress to the plaintiff. According to the judicial interpretation of the Supreme People’s Court, the defendant shall bear the liability of compensation for the infliction of mental distress.” However, “data” must be loaded on a certain carrier to become “articles”, However, the camera equipment is usually provided by the cameraman himself (i.e. The defendant in this case), and his “wedding camera materials” are loaded on all his articles. The plaintiff does not have the ownership of “commemorative articles”, thus the problem of the defendant “damaging” his articles does not occur, and there is no premise for the defendant to bear the compensation for the infliction of mental distress according to the Judicial Interpretation of compensation for the infliction of mental distress. (For the ownership of the subject matter of the Contract of Hired Work, see Shi Shangkuan, On Laws of Obligations, China University of Political Science and Law Press, 2000, pp. 328 seq.) Therefore, the court said there should be some deficiencies. If the plaintiff’s enjoyment of “commemorative articles” cannot be explained, the court cannot determine that the defendant has committed infringement and the concurrence of liabilities cannot be established. However, the significance of this case is not affected by this issue, because the court’s judgment is based on the effect of concurrence of responsibilities to put forward opinions, which are of analytical value to this article.

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basic principles of full compensation, justice and equity, and is more in line with the basic requirements of litigation convenience and economy.” The court of the second instance also held that “the claim made by the appellee in this case, in terms of the right to terminate the contract and refund the expenses, is based on the contractual relationship. In terms of compensation for mental distress, it is a claim based on tortious liability. The combined trial of the three claims is conducive to facilitating the litigation of the parties and reducing litigation fatigue. Only when the three claims are supported at the same time can the appellee’s losses be made up. The combined trial of the three claims does not have the problem of double compensation and does not violate the legal provisions.” Obviously, without considering whether the case really constitutes a concurrence of liabilities, the case clearly reflects the negative effects of the concurrent mode of claims: Under the concurrent mode of claims, there will inevitably be a choice between the interests of contract performance and compensation for mental distress in tort (if compensation for mental distress in breach of contract is not allowed), and the plaintiff will face insufficient relief no matter what he chooses. In order to avoid this problem, the court “creatively” allowed the plaintiff to claim all the aforementioned damaged items at the same time, thus realizing the effect of the mode of “normative concurrence of claims” in the name of pursuing litigation economy.363 In terms of procedures related to the selection of claims, the logical results of the concurrent mode of claims will have an impact on the jurisdiction of litigation and the enforcement of arbitration agreements. If the parties have a jurisdiction agreement or arbitration clause in the contract, when there is a concurrence of liabilities, whether one party can avoid the jurisdiction agreement or arbitration clause agreed in the contract by choosing to bring a tort action often causes problems. If the obligee’s right to choose under the concurrence of liabilities is affirmed, then the court has no right to interfere with the parties’ choice of the cause of action. However, if the parties have already agreed on the jurisdiction of the case in the contract, they can avoid the jurisdiction agreement by using different litigation jurisdiction provisions in a tort action, which can also be regarded as a deviation from the agreement of the parties (breach of contract?). In response, some courts explicitly denied and prohibited the parties to use concurrence of liabilities to avoid the jurisdiction agreement. They held that both parties could not break away from the jurisdiction agreement no matter it was a contract dispute or tort action.364 However, some courts also admitted the avoidance effect of the parties and held that the agreement on contractual jurisdiction 363

It should be noted that the court of second instance did not actually adopt the mode of “normative an concurrence of claims”, because its judgment stated that “it meets the basic requirements of litigation convenience and economy” and “reduces litigation fatigue”. Therefore, it actually believed that the parties could realize the two claims of breach of contract and infringement respectively according to different litigation, which contradicted its position of admitting concurrence of liabilities. Only by adopting the mode of “normative concurrence of claims” can this dilemma be eliminated. 364 For example, “Watanabe Junichi v. Culture and Art Publishing House and Other Disputes over Infringement of Personal Rights and Property Rights of Works” (Shanghai No.1 Intermediate People’s Court (2008) Hu Yi Zhong Min Wu (Zhi) Chu Zi No.210) and “Lai Mou et al. and

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in contract dispute cases does not apply to the case when the parties choose a tort action.365 Obviously, if the court completely allows the parties to choose freely to determine the cause of action, since the concurrence of liabilities is often determined through the substantive trial, the parties may intentionally choose the cause of action to avoid the jurisdiction agreement even if no concurrence of liabilities occurs.366 Therefore, dealing with the concurrent mode of claims according to the concurrence mode of claim rights will cause obviously unreasonable results. The above situation also exists in cases where the arbitration agreement is avoided by using the option under the concurrence of responsibilities. If the parties choose to bring a lawsuit of tort, the question on whether the court should reject the plaintiff’s lawsuit on the grounds that there is an arbitration agreement between the parties also rises. In the Appeal Case of China National Technology Import and Export Corporation v. Swiss Industrial Resources Corporation for Tort Damage Compensation Dispute,367 the court held that the defendant’s fraud constituted tort and the plaintiff “has the right to bring a tort action to the court without being bound by the arbitration clause concluded by both parties”. In the appeal case of Jiangsu Material Group Light Industry Textile Corporation v. (Hong Kong) Yuyi Group Co., Ltd. And (Canada) Prince Development Co., Ltd.368 For damages in tort, the court held that according to the provisions of the Arbitration Law, the arbitration institution has the right to accept tort disputes. If the arbitration clause agreed on by both parties is not confirmed invalid by the relevant authorities, both parties shall be bound by the terms of the contract, so the plaintiff’s lawsuit is rejected. The “Light Textile Company Case” changed the interpretation rules established in the “Import and Export Company Case”. The court changed from allowing the plaintiff to choose to avoid the arbitration agreement through the cause of action to denying the plaintiff to choose to avoid the arbitration agreement through the cause of action.369 ABN AMRO Bank N.V.) Property Damage Compensation Dispute Appeal Case” (Shanghai Higher People’s Court (2010) Hu Gao Min Wu (Shang) Zhong Zi No.49). 365 Changsha Intermediate People’s Court of Hunan Province (2011) Chang Zhong Min San Zhong Zi No.1547. 366 For example, in the case of “Beijing Sanzhou Xinlei Construction Block Co., Ltd. V. Zhangzhou Xiangcheng Kehui Municipal Construction Machinery Co., Ltd. Product Liability Dispute” (Beijing Higher People’s Court (2006) Gao Min Zhong Zi No.527), the plaintiff filed a lawsuit for tort compensation on the grounds that the equipment delivered by the defendant did not meet the requirements and caused economic loss. The defendant raised a jurisdictional objection, believing that both parties should be in a contract dispute. The court held that the liability for product tort should be based on the loss of personal or other property other than the product itself. In this case, the evidence presented by the plaintiff could not prove the existence of such damage, so only a Contract Lawsuit could be brought and the defendant’s objection to jurisdiction was established. It is worth noting that if the literal meaning of Article 41 of the Tort Law is understood, the “damage” mentioned in the product tortious liability can include the damage originally told for compensation in this case, the court’s ruling reason will lose its basis. 367 The Supreme People’s Court Bulletin, No.1, 1989. 368 The Supreme People’s Court Bulletin, No.3, 1998. 369 However, the parties may still successfully evade the arbitration agreement by increasing the number of litigants. In the Appeal Case of Jurisdiction Objection Dispute over Tort Damage

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(3) Brief Comments Through the judicial cases, we found that the vast majority of court decisions are in accordance with the law, allowing the parties to freely choose when the responsibilities are concurring and hearing according to the cause of action chosen by the parties. By allowing the choice of the cause of action to provide the best protection to the aggrieved party, there is no problem in itself. The problem is how to coordinate it with the overall value system of private law. Under the concurrent mode of claims, it regards contract and tort law as independent and opposite rules, and only pursues the consistency or coordination of the internal values of a single rule, but ignores the fact that they are only components of the whole private law system, thereby failing to bring the internal coordination of each component into the overall coordination of private law, which may have the effect of systematical violation in specific conclusions. Based on the normative opposition established by the distinction between the concepts of contract and tort, we have repeatedly aroused our attention to the coordination of the overall value of private law in marginal cases. For example, in a passenger transport contract, when losses are caused by traffic accidents between the carrier and a third party, why are there obvious differences between resolution based on contract and tort? Why should the carrier bear full liability for the consequences of the accident that should be entirely borne by the third party? Can the provision that “the obligor shall be liable for the breach of contract caused by the third party” (Article 121 of the Contract Law) provide sufficient reasons for this effect? Why is it that when personal injury is caused by a violation of contractual obligations in a medical service contract, compensation should not be paid for mental injury according to the contract, but should be paid according to tort? Why does the same fact have different legal effects just because of legal classification? The correction of causality and fault presumption in the Tort Law of the Supreme People’s Court’s “Several Provisions on Evidence in Civil Proceedings” may fail because medical damages are included in the litigation of contracts under the condition of admitting a concurrence of claims. Is this result appropriate? In tortious liability of product, allowing the breakthrough of logical restrictions to include the damage to product per se in compensation, will the pursuit of litigation convenience undermine the legitimate value of the principle of privity? If the objective of limitation of liability in the Contract Law (such as the provision of not being liable for negligence or general negligence) or the limitation of liability of the parties in the contract (such as liability exemption clauses) or the litigation jurisdiction agreement (jurisdiction agreement)

Compensation Dispute between Jilin Chemical Industry Co., Ltd. and W.P.INT ’LGROUPINC of the United States (Supreme People’s Court [2005] Min Si Zhong Zi No.16), The Supreme People’s Court ruled to reject the defendant’s objection to jurisdiction on the grounds that the obligor of the contract and the third party formed a joint infringement and the lawsuit brought by the plaintiff was a necessary joint lawsuit. This kind of avoidance of arbitration agreement is still controversial in theory and practice. Usually there are three ways to deal with cases under the jurisdiction of the court, some cases are submitted to arbitration and all cases are submitted to arbitration. (See Guo Yujun Xiao Fang, On the Settlement of Disputes Between Arbitration and Litigation in Concurrence Cases of Contract Infringement, Law Review, No.2, 2007, pp. 155 ff.)

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is evaded in a tort action, does it excessively limit the validity of such norms or agreements? These questions cannot get perfect answers under the existing legal framework. In order to pursue systemic coordination, some countermeasures have been proposed both in theory and practice. For example, in order to fully safeguard the interests of aggrieved parties, if the aggrieved party fails to choose a claim for full compensation, he can choose another claim for the insufficient part.370 Or The party, in the case of unsuccessful choice, can be provided with additional compensation, such as compensating the property damage that they cannot claim according to the liability for breach of contract by appropriately increasing the compensation for mental distress in the tortious liability,371 uniformly applying the liability relief provisions of the law or the valid agreement of the parties to reduce the liability.372 These suggestions are undoubtedly reasonable, but they are beyond the framework confirmed by the current law, violate the formal rationality in legal interpretation, and have the reference value of legislation at most. Therefore, they cannot become binding interpretation conclusions. Thus, unless we go beyond the logical structure confirmed by the current law, it is more difficult to realize the goal of adequate relief for the aggrieved parties and system coordination.

2.4 Reflection on the Concurrence of Claims (1) Procedural Law Effect of Concurrence of Liabilities The concurrent mode of claims treats the legal effects caused by multiple basic norms of claims as different claims and determines its specific content and scope by allowing the obligee the right to choose. Because the law of obligations takes contract law and tort law as its basic components, they are organized or arranged as different rules, The distinction between contract and tort is also the basis for determining the litigation jurisdiction. Therefore, the concurrent mode of claims not only keeps consistent with the organization mode of this normative system but also strengthens the legitimacy of this normative organization form on the opposite side. In particular, the procedural provisions involving litigation categories hinder the integration of the two normative effects to a certain extent. Specifically, if the concrete effect of concurrence of liabilities depends on the aggrieved party’s choice of the basis of the claim, then unless the aggrieved party always exercises this choice and bears all the consequences, the system value of the choice cannot be implemented. This kind of practice, in which the aggrieved party chooses the basis of the lawsuit and bears the adverse consequences arising therefrom, will lead to very harsh consequences for the aggrieved party. If the plaintiff claims damages of the breach of contract, 370

Wang Shihu, Study of the Coincidence of Contractual and Tortious Liabilities, p. 115. Wang Liming, Re-discussion on the Concurrence of Liability for Breach of Contract and Tortious Liability (Continued), China Foreign Trade, No.42, 2001, p. 31. 372 Ibid., p. 32. 371

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but by the facts found in the lawsuit, he can only obtain compensation according to tort. Therefore, the plaintiff’s claim may be rejected, and the possibility of obtaining relief according to the tort action will eventually be lost due to the reason of “res judicata”. This kind of litigation system is contradictory to the goal of substantive law to remedy rights, and has been replaced by the litigation form of a factual plea in modern times. The plaintiff only needs to put forward the contentious facts that he claims relief, and the court, not the party, has the right to decide the applicable law (jura novit curia).373 Judging from the provisions of Chinese Civil Procedure Law, although the plaintiff is required to indicate the legal basis (litigation reason) of his claim in the complaint, this reason neither determines the cause of action nor the application of the law when the court decides. That is to say, even if the plaintiff thinks that he can obtain relief according to a breach of contract, if the facts show that he can only obtain relief according to tort, then the judge can determine the defendant’s liability according to tort rather than breach of contract within the scope of his claim, instead of simply denying the plaintiff’s claim for compensation for breach of contract. It can be seen that in the event of concurrence of liabilities unless both kinds of responsibilities can be successfully realized, the court will not be bound by the type of litigation chosen by the plaintiff in the application of the law. There is also an obvious problem with the courts deciding on the application of the law, that is, if the constituent facts of different liabilities and the scope of defense are different, while the defendant did not debate the basic norms that may eventually be applied in the lawsuit, the court’s initiative to apply the legal norms that have not been debated in the lawsuit may make the defendant lose the opportunity to present evidence to refute, thus violating the principle of litigation debate and causing injustice to the defendant. Moreover, it may also cause the plaintiff to take advantage of the defendant’s defense disadvantage and intentionally avoid the legal norms that may support his claims, thus putting the defendant at a disadvantage in preparation for defense and obtaining procedural benefits accordingly.374 The only reason that can be justified in this regard may be as the famous judge Tate said: “The parties can obtain any relief they are entitled to, as long as the alleged facts of the case enable the other party to notice the existence of the potential cause of action.”375 In other words, the facts of the lawsuit determine the legal basis, and the defendant should make pre-defense against the potential cause of action instead of relying on the plaintiff’s possible choice of the cause of action to evade liability. The court can also make an explanation in the trial, that is, point out to the plaintiff “whether it is appropriate not to advocate another potential cause of action” so that the plaintiff can put forward the relevant cause of action in the lawsuit. However, as this practice will increase the interpretation burden of the court, it may not be approved by the court.376 373

See Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review (1999), p. 38. Ibid. 375 Ibid., p. 39. 376 See Takahashi Hiroshi, Civil Procedure Law: Deep Analysis of System and Theory, p. 26. In our judicial practice, there is indeed a practice that the court reminds the plaintiff of the choice of cause 374

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Even so, why do we need to distinguish different situations and decide the application of the law when the two kinds of responsibilities are concurring? In other words, when the two kinds of liabilities can be successfully realized, we should determine the application of the law according to the cause of action chosen by the parties. It is puzzling that when one kind of liability is blocked by obstacles to its realization, the court will choose to apply the legal norms of another kind of liability instead of leaving the decision on the application of the law to the court alone. Based on doubts about the rationality of this choice of the cause of action, people begin to realize that the only problem to be dealt with in the case of concurrence of liabilities is to prevent double compensation for a single wrongful act.377 In this way, the problem once again goes back to the determination of the effect of the substantive law of concurrence of liabilities. (2) Substantive Law Effect of Concurrence of Liabilities The substantive law effect in the case of concurrence of liabilities mainly involves two issues: first, how to treat the differences in legal effects of different types of liabilities, or whether it is appropriate to give different treatment just because of legal classification when involving the infringement on the same rights and interests? The second is whether the contract agreement or the special provisions of the law, especially the liability relief agreement or the legal provisions, can be avoided due to the choice of the cause of action? These two issues are only related to the assumption of liability but irrespective of the composition of liability in that, once the concurrence of liability is formed, the constitutive elements of liability for breach of contract and tort have been met. a. Differences in legal effects based on types of liability Generally speaking, the difference between the liability for breach of contract and tortious liability in the content or scope of compensation is undeniable. As French scholar J. Huet said, one of the purposes of liability for breach of contract is to “enable obligees to obtain the expected but unrealized equivalent benefits of performance and give them corresponding compensation for the lost expected contractual benefits”, which constitutes a fundamental difference from tortious liability.378 The legislation that provides consistent rules for compensation for breach of contract and compensation for tort still needs to recognize the differences between the two.379 of action by way of interpretation. For example, “Appeal Case of Dispute over Right to Life, Health and Body between a Travel Passenger Transport Company in Zhuzhou and Cui Mou” (Xiangtan Intermediate People’s Court of Hunan Province (2010) Tan Zhongmin Yizhong Zi No.207), “Yuan Hua v. Guangdong Dahe Film Co., Ltd. Copyright Contract Dispute Case” (Guangzhou Intermediate People’s Court (2005) Sui Zhongfa Min San Zhichu Zi No.574). However, this practice is not common. 377 See Saul Litvinoff, Contract, Delict, Morals, and Law, 45 Loyola Law Review (1999), p. 39. 378 Yin Tian, Theory and Practice of French Contractual Liability, Liang Huixing, Editor-in-Chief, Civil and Commercial Law Review (Vol. 3), Law Press, 1995, p. 131. 379 For example, Article 6: 98 of the Dutch Civil Code stipulates: “The damage is related to the event that gives rise to the obligor’s liability, and the damage can be attributed to the obligor as

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However, at least from the experience of Europe, the legal effects of the two types of liability are approaching when the liabilities concur.380 It doesn’t follow that there is no difference in legal effect between contractual liability and tortious liability, but that when the same rights and interests are infringed, the characterization of liability for breach of contract and tortious liability will not affect the assumption of liability. Contractual liability also has a “repair” function similar to tortious liability, making up for other losses obligees suffer besides the expected interests. As a general principle of damages, compensation should restore the aggrieved party to the state where he should have been if the circumstances leading to the obligation to compensate had not occurred.381 Therefore, the basic standard for determining the content and extent of damages is the consequences of detriments caused by the breach of duty rather than depend on the causes and nature of detriments. Judging from the provisions of Chinese Contract Law, the limitation rules of liability for breach of contract are only foreseeable rules (Article 113, Paragraph 1, “proviso”), derogation rules (Article 119), and the rules of Mitverschulden and compensatio lucri cum damno, which should be affirmed in legal theory,382 instead of making abstract restrictions on the types of damages. Judging from the provisions of the Tort Law, the law only stipulates the compensation conditions and standards for specific types of damages (such as Articles 16, 18, 19, and 22 of the Tort Law) and also does not generally exclude specific types of damages. Therefore, we have reason to believe that the aforementioned general principles of damages have also been affirmed in Chinese law. However, as far as Chinese judicial practice is concerned, on the one hand, when personal injury is caused by a breach of contract, the rules of Tort Law on personal injury damages are applied to determine the compensation liability so that compensation for breach of contract is subordinate to the norms of liability in Tort Law; on the other hand, when the breach of contract causes tort of personal rights and interests or specific types of property, the mental distress that can be compensated according to tortious liability is excluded from the extent of compensation for breach of contract. Since the rule of foreseeability does not constitute a legal obstacle to compensation for mental distress in breach of contract,383 this practice should logically be regarded as a deviation from legal principles and needs to be corrected. Given the background of concurrence of liabilities, we will come to different conclusions from the concurrent mode of claims. If “the right claim” is considered to be determined by the characterization of the injuring act, and the classification of the causes of damage presupposes the corresponding legal effect, then the advantage of “providing the best relief for the aggrieved parties” of the concurrence mode of a result of the event after considering the nature of its loss and liability, and the damages can be claimed.” 380 Von Bar, European Comparative Tort Law (I), pp. 555–558; Helmut Koziol, Unification of Tort Law: Wrongfulness (Principles of European Tort Law Set), Zhang Jiayong Trans, Law Press, 2009, p. 30; Vgl. Peter Gault, Die Vereinheitlichung der Delikts-und Vertragshaftung, 116 Zeitschrift f ü r schweizerisches Recht (1997), S. 318. 381 See Dieter Schwab, Introduction to Civil Law, p. 254. 382 See Han Shiyuan, The Law of Contract (3rd ed.), pp. 634 seq. 383 Nelson Enonchong, Breach of Contract and Damages for Mental Distress, p. 501.

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claims is precisely based on the premise of setting rules that provide different relief for the same rights and interests due to different nature of liability. Once this premise does not exist, the aforementioned advantage will no longer exist. For instance, when product defects cause damage, it may not only cause tort of absolute rights and interests (such as personal rights and interests or other property other than defective products) but also cause economic damage (such as loss of profits, futile expenses, as well as damage to the subject matter). As economic loss depending on the contractual relationship between the parties becomes the object protected by law, it should not be included in damages in tort.384 If it only involves material losses (property or economic loss), there is almost no difference between the liability for breach of contract and the tortious liability in Chinese legislation and judicial practice. At this time, there is no difference in the result whether the aggrieved party claims compensation for breach of contract or tort according to the provisions of product liability in the Tort Law. When the product defect causes personal injury to the buyer, if compensation for mental distress is not considered, the actual effect is the same as before. If the buyer claims compensation for mental distress, the advantage of tortious liability over liability for breach of contract will be established based on the position that “mental distress can only be relieved according to tort rather than contract”. In judicial practice, mostly thanks to this reason, almost all cases of personal injury caused by product defects will be dealt with as tortious liability. If the above position is abandoned, the advantage of tortious liability will no longer exist, while the liability for breach of contract will be more beneficial to the buyer because of its advantage in protecting economic loss.385 Scholars may say that the main benefits of concurrence of contractual liabilities and tortious liabilities lie in medical malpractice or solatium. When death is caused by medical negligence, according to Gesetzeskonkurrenz, the near relatives of the decedent are neither allowed to claim solatium under the name of a tort, nor allowed to claim contractual liabilities. They are not parties to the contract. This provision

384

Of course, it is not impossible to take a broader interpretation that this kind of loss is also the consequence of defective products, so this kind of loss is listed in product liability. However, the strictness of liability imputation in product liability will make the scope of liability too broad to be feasible in legal policy. 385 It can also be illustrated by taking a contract of hired work as an example. If contract compensation includes both performance interests and inherent interests, remedy for breach of contract is more beneficial to the aggrieved party. For example, “Tianjin Junfei Decoration Engineering Co., Ltd. and Xiang Zaiyong Appeal Case of Dispute over the Contract of Hired Work” (Dongying Intermediate People’s Court of Shandong Province (2006) Dongmin Sanzhong Zi No.26), “Liu Xuefu and Zeng Chuanlin Property Damage Compensation Dispute Appeal Case” (Ganzhou Intermediate People’s Court of Jiangxi Province (2010) Ganzhong Min Sanzhong Zi No.41). On the contrary, if the performance interests is too small to require compensation, this advantage is not obvious. For example, “Feng Jiangang v. Qingyuan Kaiyi Hotel Co., Ltd. Peony Court Health Center Dispute over the Contract of Hired Work” (Guangdong Qingxin County People’s Court (2007) Qingxin Famin Chuzi No.746), “Song Yongguo v. Xu Hui Dispute over the Contract of Hired Work” (Weihai City Huancui District People’s Court (2007) Wei Huanmin Erchu Zi No.775).

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is obviously inappropriate.386 However, if the claim for solatium does not vary from the contractual liabilities and tortious liabilities (for example, Article 227-1 of the revised Taiwan Civil Code already stipulates that the aggrieved party may also claim compensation for solatium if the debtor’s non-performance of liabilities damages the personality rights), the first rebuttal has become invalid. As for the wide scope of the subject of the claim for tortious liabilities, the near relatives of the decedent can claim for tortious liabilities, but it is impossible to do so according to the contractual liabilities. This view is also insufficient. When the tort causes death, it is usually an explanatory question on what kind of role the near relatives of the aggrieved party should be to obtain the subject status of the claim. The claim for compensation such as medical expenses, loss of income and physical pain before death will not be extinguished by the death of a person. As a property interest, this right must be claimed by his near relatives and other heirs. We can’t say they are unable to claim compensation according to the contract. In the case of death caused by tort, the detriments involved in the claim for damages by the near relatives of the decedent in accordance with tort law include the aforementioned detriments to the injured deceased victim and those to the near relatives themselves. If it is settled according to the contractual liabilities, the latter kind of detriments will not be included. Therefore, the law is simple and convenient, and all kinds of detriments will be settled together in tort disputes, so as to avoid the obstacles caused by the contractual liabilities being restricted by the privity of the contract. However, it does not mean that contract law has no remedy function in such cases. When the liability for breach of contract and the tortious liabilities is concurring, the advantage of the liability for breach of contract in the scope of protection will lead to the meaningless choice of the aggrieved party under the concurrent mode of claims. Since the liability for breach of contract is better, even if there is a choice, rational parties will not choose the tortious liabilities. In this way, the results of the concurrent mode of claim norms and the principle of non-concurrent liabilities also tend to be consistent.387 b. Agreements or legal provisions of liability mitigation and exemption

386

See Wang Zejian, Theory and Case Study of Civil Law (Vol. 8), Peking University Press, 2009, p. 201. 387 When criticizing the theory of concurrent claims norms, scholars think that since the basis of most claims can produce a unified claim, why should there be concurrence of claims? It is also believed that the theory has the meaning of reverting to the non-concurrence theory. See Qi Shujie & Guo Zhenzhong, Research on Concurrence of Contract Liability and Tortious Liability, Tribune of Political Science and Law, No.2, 1997, p. 68. In addition, those who advocate Gesetzeskonkurrenz (such as Professor Wang Boqi) believe that, even if the parties have an agreement to exclude tortious liabilities, the agreement is still invalid in the case of intentional or gross negligence liabilities and liabilities for harming personal rights, and the aggrieved party may choose to claim tortious liabilities (see Wang Zejian, Theory and Case Study of Civil Law [Vol. 1], Peking University Press, 2009, p. 215). If there is no difference between tortious liabilities and breach of contractual liabilities under such circumstances, it is meaningful to allow claims of tortious liabilities to be more than litigation and should be worthless in substantive effect.

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As mentioned earlier, from the perspective of the interpretation theory of the concurrent mode of claims confirmed by Chinese Contract Law, it is difficult to establish the theory of the mutual influence of claims, which means that liability mitigation and exemption stipulated in the contract or the law may be evaded due to the aggrieved party’s choice of the basis of claims. However, although this effect follows the institutional logic of legal interpretation, it is not in line with the experience of comparative law and general jurisprudence. In the common European law approach, if contract law has special provisions on the liability between the parties, especially in the case of gratuitous commission contract, loan contract or bailment contract, gifts and other gratuitous contracts, the debtor will only bear the liability for his intentional or gross negligence. And such restrictions are also applicable to tortious liabilities or exclude tortious liabilities at all.388 The reason is very simple: if not, this special provision of the law will lose its meaning!389 This kind of situation should be treated in the same way and for the same reason when it comes to limited compensation provisions such as a passenger transport contract.390 As for the agreement of liability mitigation and exemption for the parties, it is generally believed in the theory that no matter whether the creditor claims according to the contract or tort, it should be bound by the agreement.391 However, there are also views that tortious liabilities involve public order, and legal provisions on tortious liabilities are Jus Cogens and cannot be excluded from the application because of the will of the parties concerned. Therefore, exemption clauses involving tortious liabilities are invalid in principle.392 This view involves how to view the state enforcement of civil liabilities. In terms of the purpose of civil liabilities, it aims to correct the damaged private rights and interests, and realizes it by giving the aggrieved obligee the right to claim from the inflictor, that is, “the liability transforms the aggrieved party’s right to avoid the wrongful acts of the actor into the right to obtain compensation, which is related to the defendant’s obligation. This remedy does not exist in two separate operations-one to punish the defendant and the other to benefit the plaintiffbut in a single operation that connects the parties as obligees and obligors.”393 The 388

Christian Von Bar, The Common European Law of Torts (Band 1), pp. 558–560 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 1), Peking University Press, 2009, p. 142. On the contrary, the view is that it is not that such norms can only be applied to cases where there is concurrence, and there is still much room for application in cases where there is no concurrence of contractual liabilities. See Helmut Koziol, Basic Questions of Tort Law: From a Comparative Perspective, Fiona Salter Townshend Trans, Jan Sramek Verlag, 2012, p. 107. 390 See “Lu Hong v. United Airlines International Air Passenger Transport over Damage Compensation” (Bulletin of the Supreme People’s Court, No.5, 2002). 391 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 1), p. 213 below; See Han Shiyuan, Studies on Exemption Clauses, in Liang Huixing’s Editor-in-Chief, Civil and Commercial Law Review (Vol. 2), Law Press, 1994, p. 461; Wang Liming, Studies on Civil and Commercial Law (Series 4), Law Press, 2001, p. 558; [English] Atia, An Introduction to the Law of Contract, p. 398. 392 See Han Shiyuan, Studies on Exemption Clauses, p. 461, note 2. 393 See Ernest J. Wenlib, The Idea of Private Law, Xu Aiguo Trans, Peking University Press, 2007, pp. 68–69. 389

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national compulsion of civil liabilities is only reflected in the realization of the liability that the liable person should bear with the help of the national strength, rather than requiring the obligee to claim rights under any circumstances to realize civil liabilities. Therefore, the compulsion of civil liabilities only aims at the liable person rather than the obligee. In this way, civil liabilities is just another manifestation of private rights and interests (i.e. restoring the original condition of the damaged rights and interests in the form of civil liabilities), which is obviously “private.” Since the primary purpose of civil liabilities is to realize corrective justice between the parties, it is of great significance to pay attention to the autonomy of both parties, one of the features of private law, in the case of tortious liabilities.394 As the law allows the parties to freely dispose of their property rights and interests without violating the law and the public interests or the benefits of the third party, the parties should not be prohibited from exempting the possible parties from civil liabilities through exemption clauses.395 From a practical point of view, the law not only allows the parties to reduce their liabilities (or exempt part of their liabilities) through a settlement agreement after the occurrence of tortious liabilities, but also implements the general principle of “no complaint, no case” in civil litigation for tort remedy, which shows that the exemption agreement is not necessarily related to public order. Thus, there is no sufficient reason to deny the validity of the agreement of liability exemption on the grounds of public order. In Article 53 of Chinese Contract Law, it only determines the validity of the exemption clauses from the perspectives of the types of damaged rights and interests and the forms of fault, and does not limit the scope of application of the exemption clause. In interpretation, the stipulation should be considered to be applicable to both contractual liabilities and tortious liabilities. In special civil law, the validity of the exemption agreement is more strictly controlled. Article 24 of Law on Protection of the Rights and Interests of Consumers stipulates that the contract terms or declarations, notices, etc. of business operators “… reduce or exempt their civil liabilities for damaging the legitimate rights and interests of consumers” are invalid. Paragraph 1 of Article 126 of the Maritime Code stipulates that the agreement in the contract of carriage of passengers by sea exempts the carrier from the statutory liabilities to the passenger, reduces the limitation of the carrier’s liability stipulated in this chapter and restricts the passenger’s right to claim for damages is null and void. These provisions are not specifically aimed at tortious liabilities, and should be considered to be applicable to both liabilities for breach of contract and tortious liabilities. It can be seen from this that the provisions of Contract Law are just opposite to the provisions of the aforementioned jus singular (special law) in orientation. The former allows the exemption clauses that do not violate the mandatory provisions to be valid, while the latter stipulates that the exemption clauses from statutory liabilities are invalid. We can say that as long as it does not violate the prohibitive provisions of the law, the exemption clauses can be effective regardless of whether it involves the 394 See Greer J. Postma, Search for an Explanatory Theory of Torts, in Postma’s Editor-in-Chief, Philosophy and Tort Law, Chen Minyun, Jianfang Trans. Peking University Press, 2005, p. 20. 395 Wang Liming, Studies on Civil and Commercial Law (Series 4), p. 559.

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liability for breach of contract or tortious liabilities. If the parties have an agreement to reduce or exempt their liabilities in the contract, they shouldn’t claim that they are not bound by the agreement of liability mitigation and exemption by choosing tortious liabilities because of the concurrent liabilities. This kind of defense is contrary to the prior agreement and constitutes an abuse of rights or breach of confidence. In this regard, the non-concurrence of liabilities, the theory of the mutual influence of claims and the theory of concurrent claims norms has the same understanding. In this way, the following views are pertinent: Under the condition of concurrence of contractual liabilities and tortious liabilities, the view that all the provisions of tort law should be applied is outdated, and in some debtor-creditor relations, the limitation of liabilities stipulated in advance by law should also be applied to concurrent tortious liabilities in principle. The liability limitation agreed on by the parties should also apply to tortious liabilities according to its meaning and purpose when it is doubtful. Therefore, in the event of concurrence between the contractual liabilities and tortious liabilities, the claim on the contract should take precedence over the claim on the tort and be examined.396 To sum up, it is not unfavourable to the aggrieved party to deal with the concurrent liabilities according to the contract instead of a tort, and it is consistent with autonomy of will, a concept in private law, which can more smoothly implement the purpose of the law and the intention of the parties. Therefore, it is more reasonable to adopt Gesetzeskonkurrenz than other treatment modes. Therefore, the distinction between concurrence and non-concurrence of liabilities is only meaningful in proceeding (mainly jurisdiction, the burden of proof, temporis exceptio etc.), and its significance in substantive law should be excluded.397

2.5 Summary Under the classification of legal confirmation, if a fact conforms to multiple legal constitutive requirements, it is necessary to solve the problem of which legal norms (formal issues) should be used to determine the legal effect (substantive issues). If we focus on the classification of legal norms and include the same fact under different constitutive requirements of liabilities, the appropriateness of legal effects will depend on the substantive rationality of relevant rules. If we focus on the legal remedy for the aggrieved party and the liability limitation for the inflictor, the distinction of types of legal norms must be subject to the need of a substantial balance of interests. The former focuses on the consistency of institutional logic, while the latter emphasizes the appropriateness of substantive effects. Therefore, the concurrent liabilities may lead to conflicts between legal form and legal substance. 396

Dirk Looschelders, Schuldrecht: Allgemeiner Teil, Carl Heymanns Verlag, 2008, S. 7. In Private International Law, this problem may indirectly affect the substantive effect of case handling because of the influence of the choice of cause of action on the applicable law. Therefore, the conclusion here is limited to the laws within a judicial district.

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As we can see, both contract and tort Law have their special presuppositions in theory and legislation. Only under this theoretical presupposition, can we understand the rationality or appropriateness of their regulation effect. For example, the traditional theory holds that the contract is intended to make things better (to satisfy the expectation interests), while tort prevents things from getting worse (to safeguard inherent interests or integritätsinteresse). However, when the contract itself involves not only the realization of expectation interests, but also the protection of inherent interests or integritätsinteresse, the distinction established by traditional theories fails. For example, in a beauty contract, a woman who wants to become more beautiful may frustrate her expectations due to the dereliction of duty of the organization providing beauty services and suffer from worse health than before the contract. Under such circumstances, she has suffered economic loss (in vain expenses for beauty and medical treatment) and physical pain and mental pain. If different remedy effects are given due to legal classification, it will be difficult to provide convincing explanations. This shows that with the expansion of the regulation scope of contract and tort law, the consistency of the internal logic in contract and tort law has been disturbed, and they are facing the need of reregulation. Still, sticking to the traditional theoretical logic will inevitably lead to reasonable doubts about the appropriateness of the legal regulation effect. As a remedial means for damaged rights and interests, the crux of civil liabilities is, for one thing, to provide a remedy for detriments caused by imputable acts, and, for another, to reasonably limit the liabilities based on the characteristics of the relationship between the parties. As far as the liability for breach of contract is concerned, because the expectation interest is within the plan of the parties concerned, the damages should be limited by the foreseeability rule based on the interest balance requirements of the transaction relationship. In contrast, inherent interests may be either within the transaction relationship (e.g. contracts with protective purposes) or outside the transaction relationship but related to the transaction relationship (e.g. protection situations unrelated to performance). For the latter, the damage is not within the parties’ plan, so there is no question of foreseeability. When a breach of contract causes both of the aforementioned types of damage, due to the limitation of the litigation system, the parties are not allowed to sue separately for different types of detriment caused by the same cause of action. Therefore, all detriments caused by a breach of contract should be uniformly included in a separate lawsuit to be dealt with, which leads to the staggering consequences of breach of contract and to (the typical situation is that the compensation for breach of contract includes the objects of possible damages in tort). Since the damage to inherent interest in the performance of the contract may not be within the parties’ plan (unforeseeable), foreseeability does not apply to the remedy of such interest damage. In judicial practice, especially in compensation for breach of contract involving personal injury, the court usually directly determines the relevant liabilities according to the tort norms, without considering the application of foreseeability, showing a prominent phenomenon of “tort of compensation for breach of contract.” This phenomenon is based on the expansion of the scope of contract protection, which changes the inherent logic of traditional contract compensation rules. Therefore, in the case of

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concurrent liabilities, it has obvious advantages for the aggrieved party to deal with it according to the contract instead of tort.398 The concurrent mode of claims established in Article 122 of Contract Law of People’s Republic of China opposes contract and tort law established on the basis of the distinction between contract and tort, on the whole, pays too much attention to the value of distinction, ignores the coordination value of the legal system, and lays particular stress on the external system of the law and neglects the internal system of the law. It neglects the remedy function of tort law of the People’s Republic of China but lays particular stress on the logical implementation of formal norms. Therefore, it needs to be re-examined.

3 Third Party Issues Related to Performance of Contract According to the principle of privity of contract, the contract should not impose contractual obligations or liabilities on the third party who is not a party to the contract, nor should the third party obtain rights and benefits according to the contract.399 According to this principle, the validity of the contract is limited to between the parties and not to the third party. On the one hand, the third party does not assume the contractual obligations or the liability of non-performance. Even the claims corresponding to such obligations are endowed with strong humanity and have no binding force on the third party. Even if the third party hinders the realization of such claims, it does not need to assume any liability. On the other hand, based on the tradition that “no one is allowed to conclude a contract for others,” the concept of privity of claims has been formed in Civil Law to prevent the third party from obtaining rights or benefits from the contract. In Anglo-American law, similar effects occur mainly based on requirements of causa through the form of “contractual connection.”400 However, these two “prohibited” elements have been conditionally broken through sooner or later in the legal systems of modern countries. The law not only allows the contractual liabilities to be borne by the third party according to the consensus between the parties and the third party or the provisions of the law, thus enabling obligees to obtain their claims against the third party. At the same time, the law regards the contractual claim as the object protected by tort law, making the third party bear tortious liabilities for the obstacles to realizing claims caused by 398

Although French judicial practice adheres to the principle of non-concurrence of claims, judicial precedents still allow exceptions due to insufficient remedy for contractual liabilities under special circumstances. For example, some cases hold that the liability exemption stipulated in the contract only has effect on the contractual liabilities, and obligees still have to claim compensation for tort according to Article 1382. See Zhang Min’an, Research on Modern French Tortious Liabilities System, Law Press, 2007, p. 31. To get remedy, this practice excludes the application of exemption agreement to tortious liabilities, which should not be approved according to the previous discussion. 399 Vernon Valentine Palmer, The Paths to Privity: A History of Third Party Beneficiary Contracts at English Law, 1992, p. 1. 400 See Zhang Jiayong, Institutional Structure of Contracts for the Benefit of Third Parties, Law Press, 2007, pp. 151 seq.

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his acts. Moreover, the law also allows the parties to the contract to grant rights or interests to the third party, especially allowing the third party to claim rights from the parties to the contract according to the contract. This kind of contract is theoretically called the empowering contract for the benefits of the third party (or the real contract for the benefits of the third party). Some legal systems also expressly stipulate that protective duty in the obligation relationship also occurs to those who should not be parties to the contract, thus creating an “obligation relationship (or contract) with protective effect on the third party.”401 The protection of the third party through the contract must be based on the contract, which is more inclined to be regulated by contract law. However, since the third party is not a party to the contract, the obligor’s liability to protect the third party is a kind of “contractual liabilities without a contract”, showcasing the expansion trend from contract law to tort law. On the contrary, the third party’s tort of contractual claims has made up for the shortage of remedy in contract law by expanding the scope of protection in tort law. It can be seen that the protection of the third party according to the contract and the third party’s tortious liabilities for breach of contract are typical characteristics in the intermediate field of contract and tort law. Next, we will first discuss the protection of the contract on the third party, and then discuss the issues of the third party’s tort of the contractual claims.

3.1 Role of Contract in Protection of a Third Party Although there are many examples that contracts have a protective effect on third parties in comparative law, the relevant rules are usually developed through case law and are not found in the explicit provisions of statute.402 In different legal systems, there are huge differences in their basis, manifestations and scope of application. It is necessary to examine them in combination with specific legal systems in order to understand their actual functions. (1) Investigation of Comparative Law a. “Contract with Protective Effects towards the Third Party” in German Law “Contract with protective effects towards the third party” is usually considered to be the invention of German jurists.403 According to this system, although the third party does not enjoy the claim for performance in the contract, it can still claim for damages

401

See German Civil Code (BGB, Bürgerliches Gesetzbuch), Article 253, para. 2, Article 311, para.

3. 402

Germany’s new law of obligations affirms that the protective duty of contract is also established for the third party (Article 311, Paragraph 3, of the German Civil Code), which can be regarded as a special case in comparative law. 403 Christian Von Bar, The Common European Law of Torts (Band 1), p. 582.

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from the debtor when some obstacles to performance (Leistungsstoerungen)404 occur. The interests of the third party protected by this system are either absolutely protected legal interests (personal absolute legal interests or property rights such as property ownership) or other economic loss under specific circumstances.405 Judging from the origin of this system in Germany, it was first developed from the liability for personal injury and damage to property ownership. Its main purpose is to avoid the problem that the third party cannot obtain a remedy according to tort due to the employer’s exemption rules in the second sentence of Article 831, Paragraph 1, of the German Civil Code.406 However, sometime after the establishment of the system, more and more judgments use contracts with protective effects towards the third party to establish so-called professional liabilities. As long as the answers, appraisals or certificates given by lawyers, accountants, tax consultants and other experts are considered as the basis for the third party to make decisions, they may be liable to third parties who have interests in the professional notification.407 In these cases, the loss the third party has suffered is usually pure economic loss. Thus the system achieves another function, that is, to avoid the excessive restrictions on compensation for pure economic loss imposed by Articles 823, Paragraph 2, and 826 of the German Civil Code. In order to confirm the protective effect of the contract on the third party, based on the contract for the benefits of the third party stipulated in Article 328 of the German Civil Code as the basis, through supplementary contract interpretation, and according to the purpose of the contract, the intention of the parties and the nature of the transaction, the Imperial Chamber of Justice initially decided that the contract contained the content of giving the third party a direct claim for damages.408 Professor Larenz criticised that. In his view, the “third party beneficiary contract” takes performance as its content. The third party has the claim for performance from the obligor. However, the protective effect of the contract to the third party is manifested in the duty of care and protective duty according to the principle of good faith. The third party has no original claim for performance from the obligor except for the claim for damages according to the principle of the contract. Therefore, it is called a “contract with protective effects towards the third party”, which is different from “a third party beneficiary contract”.409 This view was adopted by the Federal Court of Justice of Germany and had acquired the status of customary law before the German law of obligations was revised. 404

Dieter Medicus, Schuldrecht I: Allgemeiner Teil, Du Jinglin, Lu Chen Trans, Law Press, 2004, p. 591. 405 Walter Bayer, Der Vertrag zugunsten Dritter: Neuere Dogmengeschichte- AnwendungsbereichDogmatische Strukturen, 1995, SS. 186 ff. 406 Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 612. 407 Walter Bayer, Der Vertrag zugunsten Dritter: Neuere Dogmengeschichte- AnwendungsbereichDogmatische Strukturen, 1995, S. 189. 408 See Wang Wenqin, New Development of the System of “Vertrag mit Schutzwirkung fur Dritte” in German Law, Chinese and Foreign Law, No.2, 1994, p. 65. 409 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 2), Peking University Press, 2009, p. 25.

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The basic types of cases applicable to “contract with protective effects towards the third party” in the justice of Germany mainly include the following: First, passengers who are not parties to the contract in passenger transport contract are victimized by car accidents. If a person takes his wife and children in the defendant’s car, his wife and children are injured due to the car accident. Or: if a monastery hired the defendant’s carriage to pick up the doctor invited to treat the disease, the doctor was injured in a car accident. In the above circumstances, the injured wife, children and doctors are allowed to claim for damages according to the contract, although they are not parties to the contract. Second, the residents in the leasing contract suffered damage due to defects of the house. If the defendant rents the house infected with lung disease virus to others without thorough disinfection, causing the lessee’s relatives to catch lung disease, he is deemed to be liable for damages according to the leasing contract. Or in the case that the defendant leased the hotel stage for others to hold a party. As the room beside the stage for the performers to rest has an aisle leading to the garden, the exit was much higher than the ground, and the defendant did not set up warning and lighting facilities, causing the plaintiff to enter the tunnel and fall into the garden trees during the party, causing serious eye damage. The court also held that the defendant had an obligation to pay attention to the safety of those who could be expected to participate in the party and should be liable for damages according to the contract.410 Third, the buyer’s family members or employees in the ales contract are injured due to defects of the subject matter. If the electric kettle delivered by the seller explodes due to defects, causing damage.411 Fourth, in consulting contract, the experts caused economic loss to the third party due to their bad performance when they were entrusted to deal with professional affairs. If the defense lawyer is entrusted to handle testamentary affairs, after the testator dies, forcing the plaintiff who could have inherited the estate according to the will as the sole heir to divide the estate with others due to failure to handle them in time. The court determines that the plaintiff has the right to obtain compensation according to the contract for the difference between the estate that he could have inherited according to the will and the estate actually obtained.412 Or an appraiser is invited to evaluate the value and rental income of a certain property. Due to its negligence, it gives too high an evaluation of the price. The third party (plaintiff) who relied on the evaluation conclusion suffered huge losses. The court held that the opinions issued by professional experts are often used as the basis for decision-making by other people without contractual relationship. In this case, the client invited the defendant to issue evaluation opinions for the specific scope of people to use as the basis for decision-making. Therefore, the contract has the effect of protecting the interests of people within the specific scope, and the plaintiff has the right to claim for damages according to the contract.413 410

Ibid., p. 27. Jörn Eckert, Schuldrecht: Allgemeiner Teil (4 Aufl.), Baden-Baden, 2005, SS. 292 and 293, Rn. 1016. 412 Wang Wenqin, New Development of the System of “Vertrag mit Schutzwirkung fur Dritte” in German Law, p. 66. 413 See ibid., pp. 67–68. 411

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Obviously, if the scope of the third party is not limited, the liability limitation formed by the principle of privity of contract and the regulations in tort law will be completely broken, and the obligor will face incalculable liability risks due to the uncertain number of third parties being included in the obligation relationship. Therefore, the Federal Court of Justice of Germany pointed out that it is a principle that the scope of the third party should not be too expanded, “not anyone who causes damage due to the obligor’s breach of the duty of care can claim for damages according to this contractual relationship. The scope of the third party should be consistent with the purpose and purpose of the contract and the principle of good faith. The obligor’s duty of care is limited to those who are related to the performance of their obligations, and obligees also have the duty of care and the protective duty for them, thus having a close relationship to their fortunes, such as family members of obligees or employees of enterprises. It is not improper for the obligor to assume contractual obligations, because he should know that the obligee is as concerned about the safety of a certain range of third parties protected by the contract as his own.”414 Theoretically, the “contract with protective effects towards the third party” should meet the following constitutive requirements415 : First, the third party is in a state close to performance (Leistungsnähe), that is, it can require the obligor’s performance or the subject matter of performance to conform to the provisions of the contract like the obligee, thus being in danger of the same performance obstacle (Leistungsstoerungen) (such as case type 1– 3); Second, obligees have protective duties or Schutzinteresse. Earlier judgments required obligees to have protective duty to the third party. This standard is called the “Wohl-und-Wehe” standard. The “third party” determined by it is usually the person who has a special relationship with the obligee in personality rights law, mainly the person affected by the obligor’s performance in a family relationship (such as relatives) or employment relationship (such as employees). However, today’s standards no longer support such strict restrictions. It has been replaced by the obligee’s protection standard of interests, that is, as long as the third party “has a purposeful contact with the performance agreed on in the contract”, or at least under specific circumstances, through the interpretation of a contract, it can be considered that the obligee wants to bring the third party under the protection of the contract (such as case type 4), and he can be regarded as the protected third party.416 Third, the obligor can identify the expansion effect of the contract protective effect (i.e. The third party’s near performance and the 414

Ibid., p. 66. Vgl. Jacob Joussen, Schuldrecht I: Allgemeiner Teil, Stuttgart, 2008, S. 410f; Jörn Eckert, a.a.O., SS. 293–294; Dieter Medicus, Schuldrecht I: Allgemeiner Teil, pp. 592–595. 416 Jacob Joussen, a.a.O., S. 413, Rn. 1213. Some people think that the Federal Court of Justice of Germany actually deals with different situations, that is, in cases involving personal injury, obligees are required to have duty of care and protective duty for the third party, and the third party must entrust its fortunes to obligees, such as employment, lease and other contractual situations; in cases involving pure economic loss it is required that the contract must be exactly or intended to protect the third party. In these cases, the requirement that obligees and the third party share Wohlund-Wehe is considered inappropriate from the beginning. See Ye Yuping, Collateral Obligation 415

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creditor’s protection interests) (Erkenbarkeit). The judgment point is when the contract is formed or negotiations begin, so that the obligor can estimate the increased risks and have the opportunity to avoid them. Fourth, the third party needs to be protected, that is, any third party who enjoys his claim in the contract is not allowed to be included in the scope of protection. However, if the third party only enjoys the claim in tort law, it will not hinder the need for protection.417 Judging from the actual situation, the above standards have not fully exerted the effect of limiting the scope of the third party. First of all, if the parties agree in the contract that the third party can directly enjoy the claim for damages against the obligor, then such agreement will not fall through because it involves nonperformance damages or because it lacks the requirements that obligors are responsible for the Wohl-und-Wehe of the third party.418 More notably, in some cases, through contract interpretation, those who are far away from the obligee are also included in the scope of protection of the contract. Even in cases where the obligee and the third party have opposing interests and are therefore not interested in protecting the third party at all, they also try to “find” in the contract that the parties to the contract have the intention of bringing the third party into the scope of protection of the contract. Scholars criticized that contract interpretation theory is a kind of chicanery or only a superficial reason (Scheinbegrründung). In fact, the protective effect for the third party does not come from the contract, but from the legal force of certain specific the debtor-creditor relation, which has nothing to do with the will of the parties to the contract and the third party. “If the contract interpretation is far-fetched, the respective roles of legislators, judges and parties to the contract will be completely confused.”419 Even after the revision of the law of obligations and the confirmation that the contract with protective effects towards the third party has been transformed from customary law to statutory law, the scope of the third party still cannot reach a consensus.420 Once the protected status of the third person has been established, there is an independent contractual relationship between the third party and the obligor. Any type of damage (personal injury or property losses) the third party has suffered due to the obligor’s violation of protective duty can be claimed according to this relationship, which has similar effects to third party beneficiary contracts. The difference is that the third party in contract with protective effects towards the third party has no claim for performance of its interests.421 In addition, according to the authoritative view of Germany, the stipulation in Article 334 of the Civil Code that the obligor can claim and the Protective Effect of Contract on the Third Party, Journal of South-Central University for Nationalities, No.2, 2006, p. 104. 417 A.a.O., S. 415, Rn. 1218. 418 Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 595. 419 Gernhuber, Gläubiger, Schuldner und Dritte, JZ 1962, 553 (555). Quoted from Xu Defeng, Contracts and Trust Liabilities with Protective Effect on the Parties, in Yi Jiming’s Editor-in-Chief, Private Law (Vols. 2 and 4), Peking University Press, 2004, p. 265. 420 Jacob Joussen, Schuldrecht I: Allgemeiner Teil, S. 410, Rn. 1205. 421 A.a.O., S. 415, Rn. 1220.

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the right of defense arising from the contract against the third party in third party beneficiary contracts is also applicable to contract with protective effects towards the third party. This means that the agreement between the obligee and the obligor on the liability limitation in the contract is also effective for the third party involved in the contract, which makes the third party unable to claim for damages from the obligor due to the agreement on the liability limitation.422 b. The Protection of the Third Party in French Contract Law The protection of the third party in French Contract Law is mainly reflected in two forms: one is the implied-in-fact third party beneficiary contract; the second is to use the chain contract theory to protect consumers as the third party. According to Article 1121 of the French Civil Code, the parties to a contract may conclude a contract for the benefit of a third party, thus enabling the third party to enjoy the benefits granted to him by the contract. This system was initially used as a tool for stipulators to achieve specific purposes (“enter into contracts for themselves or donate property to others”), but was later given other functions beyond the original purpose of the system. In the case where the parties have not clearly set terms for the interest of the third party, the court may, according to the specific circumstances, confirm the existence of an “implied term” in the contract through the way of contract interpretation to realize the parties’ claims for damages.423 It includes the following specific types of cases: First, the agreement concluded between the public assistance department and the blood transfusion centre is considered to be accompanied by the “agreement for the benefit of the third party” concluded “in the name of the patient”; Second, the fund transfer contract concluded between the bank and the fund transfer enterprise is considered to include contracts concluded for the benefit of bank customers; Third, in order to supply power to a residential area, the power supply contract concluded between the construction and development company and the power company is considered to be “concluded for the benefit of people who may live in the residential area and obtain housing”; Fourth, contract for carriage of passengers is “presumed to have been concluded for the benefit of the passengers who suffered fatal injuries in traffic accidents for the benefit of those who bear the living obligations due to legal relations.”424 This kind of implied-in-fact third party beneficiary contract has an obvious legal fiction tendency. Thus, it becomes irrelevant whether the covenantee actually has the intention to “enter into a third party beneficiary contract.” Obviously, in the above-mentioned contracts, the “third party beneficiary contract” is not to provide performance to people who are not parties to the contract, but to provide the basis of a claim for damages. Just as scholars have said, this is just a more realistic and practical approach in modern case law. When the parties exercise their claims according to this implied-in-fact third party beneficiary contract and cannot realize it due to the existence of exemption clauses

422

A.a.O., S. 416, Rn. 1222. See Yin Tian, Droit contemporain des contrat en France, p. 280. 424 See French Civil Code (Part Two), Luo Jiezhen Translation Law Press, 2005, pp. 812–813. 423

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in the contract, they can still require the violator to bear the liability for breach of duty, which does not violate the rules of non-concurrence of liabilities.425 The protective obligation in the contract chain is to break through the restriction of the privity of the contract by giving the final buyer of the subject matter the right of appeal to the initial seller at the source of the contract chain, and to protect contract law to the final buyer (consumer) as the “third party” of the initial sales contract (or work and service contract). This approach is usually applicable to products sold on the market (movables), but not to the sale of immovables.426 In French law, it is believed that it is based on three assumptions: First, each person who transfers the subject matter transfers its security right in the contract against the earlier seller to the later buyer, thus enabling the final buyer to obtain a direct right of appeal against the original seller; Second, based on the above assumptions, the final buyer has the claim against the original seller in the contract. According to the non-concurrence rule of liabilities, the final buyer can only claim the rights in accordance with the contract. Third, the manufacturer should bear strict liability for product defects and bear the obligations of ensuring the safety of the results.427 Obviously, this approach according to contract is not always beneficial to the final buyer (consumer), because according to the principle of the contract, the original seller can claim its rights in the contract to defend against the original obligee from any person who obtains the obligee’s right according to the assignment of the obligee’s right. However, courts are increasingly inclined to exclude manufacturers from opposing the ultimate consumer based on contractual defenses between them and the initial purchaser.428 It can be seen that the chain contract theory is only a certain explanation mode, and the product liability of this contractual nature itself should perhaps be regarded as a tortious liability.429 This way of solving the problem is actually a means before the product liability has not been fully developed. When the product liability tends to mature, the solution in the contract is inappropriate. c. The Protection of the Third Party in American Contract Law In American law, people who have interests in other people’s contracts are called “contract beneficiaries,” of which “intended beneficiary” can enforce the contract by litigation, while “incidental beneficiary” has no such rights. As for the judgment of the third party beneficiary, the second restatement of the U.S. Contract Law changed the practice of the first restatement and clearly emphasized the importance of the intention of the parties (especially the intention of the covenantee) to the determination of the beneficiary. Of course, this intention is objective, not some hidden or undisclosed subjective intention.430 This enables the court 425

See Zhang Min’an, Research on Modern French Tortious Liability System, Law Press, 2007, p. 50. 426 Christian Von Bar, The Common European Law of Torts (Band 1), p. 588. 427 Ibid., p. 591. 428 See ibid., pp. 590–591. 429 Ibid., p. 592. 430 Jeffrey Ferrier Michael Navin, Understanding Contracts, Chen Yanming Trans, Peking University Press, 2009, p. 653.

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to include some third parties into the protective effect of the contract not only when the parties have a clear intention to protect the third party, but also when there is no such express intention, with the help of contract interpretation and specific policy judgment. Among a large number of lawsuits about the third party beneficiary, the following types deserve special attention: One is the third party beneficiary in the government contract. “Government Contract” is a contract concluded between the government or government departments and private individuals to provide public services to the public through the latter. Generally speaking, unless the contrary intention is expressed in the contract, several public members can only be regarded as incidental beneficiaries.431 After the 1970s, there were many beneficial litigations filed by third parties based on government contracts, especially those related to social welfare, but most of them were rejected.432 The most typical case is the judgment of the New York State Court of Appeals in 1928 against H.R. Moch Co. V. Rensselaer Water Co. In this case, a water company entered into a contract with the municipal authorities to supply water to fire hydrants. The plaintiff’s warehouse was destroyed in the fire because the water company did not maintain sufficient water pressure. The beneficial litigation for the third party brought by the plaintiff was rejected.433 There are also some cases where the court has supported the plaintiff’s request. For example, in La Mourea v. Rhude (1940), the court held that “when the contract explicitly stipulates that the contractor is liable for damages to private property and personal injury’, the contractor is not liable to the government, but to the aggrieved individual.”434 According to the second restatement of contract law, the benefits of the third party based on the government contract should meet the following conditions: either the terms of the contract clearly stipulate this kind of liability, or the government or government departments should bear the liability for damages to members of the public.435 The annotation clarifies that it is a matter of interpretation to determine whether a specific claimant is an intended beneficiary. We should particularly consider the following: “arrangements of government control of litigation and dispute resolution, the possibility of service reduction or excessive financial burden, and the possibility of other options such as insurance.”436 Second, in contracts in which lawyers, accountants and other professionals provide services, the third parties who are not parties to the contract and enjoy benefits from 431

Restatement (Second) of Contracts §313 comment a. Anthony Jon Waters, The Property in the Promise: A Study of the Third Party Beneficiary rule, 98 Harvard Law Review (1985), p. 1174. 433 Farnsworth, Contracts, 1999, p. 689. In other similar cases, the Court has rendered similar judgments. Due to concerns about the liability imposed by utility companies beyond reasonable limits and the consideration that the plaintiff’s damages can be compensated through fire insurance, the plaintiff’s claim for tort damages usually does not succeed. (Ibid., note. §10.6–7.) 434 E. Allen Farnsworth, American Contract Law, Ge Yunsong, Ding Chunyan Trans, China University of Political Science and Law Press, 2004, p. 684. 435 See Restatement (Second) of Contracts, §313.2. 436 Restatement (Second) of Contracts, §313 comment a. 432

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the services are sometimes regarded as “intended beneficiaries” and can claim for damages caused by defective services of these professionals based on the contract. For example, many states give contractual protection437 to people who have not received the inheritance they could have received as intended beneficiaries due to lawyers’ dereliction of duty in drafting wills. The most famous case is Lucas v. Hamm. In this case, because the lawyer who wrote the will failed to correctly fulfil his obligations in the contract with the client, the beneficiary of the will lost the rights that could have been obtained according to the will. The court allowed the third party to claim for damages as the intended beneficiary without proving the lawyer’s fault.438 However, there are also some similar cases in which tort law is used to protect third parties.439 In Heyer v. Flaig, the court took the negligence of the lawyer as the basis for the lawyer to bear the liability, and held that contract law is not the only basis for the beneficiary to sue, and the lawyer’s obligations to the beneficiary and the testator are independent and completely different, as are the remedy obtained for breach of obligations.440 The third is “the suretyship of the third party in interest.”441 According to Articles 2–318 of the United States Uniform Commercial Code, the seller is liable for damage (personal or property damage) suffered by the non-parties to the contract under an express or implied warranty. The seller is not allowed to restrict or exclude the personal injury to the third party.442 There is a lack of consistency between relevant judgments in this regard. The common practice of courts is not to allow third parties to claim contractual claims based on breach of guarantee and negligent tort or product liabilities, especially in cases involving economic loss.443 However, we can still find positive judgments in this regard. For example, in McBurnette v. Pleygroup Equip. Corp. (Fla 1962), the Florida Supreme Court held that the minor son of the buyer injured by the use of defective sports equipment sold by the defendant was the “intended beneficiary” of the contract to purchase 437

See Harry G. Prince, Perfecting the third Party Beneficiary Standing Rule Under Section 302 of the Restatement (Second) of Contracts, 25 Boston College Law Review (1984), p. 946. 438 Jeffrey Ferrier Michael Navin, Understanding Contracts, p. 655. 439 Restat 2d of torts §766C cmt. e. 440 See Lynn Curtis, Changing Standards of Third-Party’s Liabilities in Estate Planning, 66 UMKC Law Review (Summer, 1998), pp. 874–875. Generally speaking, in cases involving professional liabilities, the court only emphasized that the third party can reasonably expect the proper performance of the obligor (defendant), It does not give the third party a direct claim to the contract (the third party is actually a kind of “incidental beneficiary”), and the defendant’s liability is not based on the contract, which seems more like the court’s recognition of the defendant’s improper performance as a fault in Tort Law. Bonita A. Daly & John M. Gibson, The Delineation of Accountants’ Legal Liabilities to Third Parties: Bily and Beyond, 68 St. John’s Law Review (1994) p. 609 441 For a more detailed description of this issue, see Wang Zegan, Theory and Case Study of Civil Law (Vol. 2), pp. 29 seq. 442 See Uniform Commercial Code, Sections 2–318. This article provides three options, which are different in the scope of protection subject and the type of damage. The first option has about 30 judicial district. (Gary L. Monserud, Blending the Law of Sales with Common Law of Third Party Beneficiaries, 39 Duquesne Law Review (2000), p. 130.) 443 Jeffrey Ferrier Michael Navin, Understanding Contracts, p. 656.

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the equipment for domestic purposes and was therefore entitled to sue the retailer for breach of implied warranties.444 However, courts are relatively conservative in terms of implied warranty of marketability. Only a few courts allow the seller to claim for damages from the prior party without contractual connection for the direct economic loss the seller has suffered. In Morrow v. New Moon Homes, Inc., the Alaska Supreme Court allowed the seller to bypass the direct seller who could not pay and claim economic loss under an implied warranty from the manufacturer of the defective mobile house.445 d. Summary According to the above-mentioned investigation of comparative law, different legal systems have their own characteristics in the system of protecting the benefit of the third party through contracts. Two points deserve special attention: First, contracts for the benefit of the third party are usually tools shared by all countries to solve the problem of protecting the contracts of the third party. When the parties to the contract explicitly give the third party contractual protections, the protections on and judicial cases we have examined both admit that the third party can obtain the claim to damages in the contract. In the absence of such a clear agreement, different legal systems hold different views. German law focuses on the distinction between the performance and protective duty, and entrusts the task of protecting the third party through contract law to “contract with protective effects towards the third party.” In contrast, French law achieves similar purposes through implied-in-fact contracts for the benefit of the third party or chain contract theory, and American law also has similar solutions. In doing so, contract interpretation is usually a technical means to achieve the protective effect by using the contract, that is, to include the third party in the protection of the contract by using the fictitious intention of the parties (especially the intention of the obligee to the contract), and to restrict the third party by the standard of whether the obligor can reasonably foresee (or identify) it. The second is to bring the problems that could have been solved by tort law into contract law to be dealt with. The most typical one is to use the protection effect of the contract on the third party to solve the problem of damage to the third party caused by product defects. This kind of situation can usually be solved by product liabilities (tortious liabilities). Contract-based product liabilities446 is the solution when product liabilities are not perfect in tort law. When it comes to the liabilities of lawyers, accountants and other experts, there is a problem that the boundary between tort and contract resolution is unclear. Although the protected third person suffers financial losses as a result of 444

John B. White, Implied Warranty-Sales by Retailers-Third Party Beneficiary, 16 University of Miami Law Review (1961), p. 758. 445 Ibid., p. 139. 446 This concept is used in contrast to product liabilities in Tort Law (Richard C. Ausness, Replacing Strict Liability with a Contract-Based Products Liabilities Regime, 71 Temple Law Review (1998), p. 215). However, Article 2-318 of the Uniform Commercial Code of the United States regulates not only the liability of commodity manufacturers, but also the liability of indirect sellers to third parties in circulation, such as the liability of wholesalers to consumers. In theory, there are still different views on this issue. (See Gary L. Monserud, supra n.49, p. 130).

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the defendant’s improper professional conduct, moreover, the third party belongs to the scope of personnel that the defendant can foresee to use his opinions. Still, there seems to be no clear judgment standard regarding whether the defendant’s liability is regarded as a contractual liability. It is also impossible to see what kind of substantial impact the characterization of this liability will have on the judgment result. (2) Chinese Legislation and Judicial Practice There is no direct provision on the principle of privity of contracts in the existing law of China. Still, according to Article 84 of the General Principles of the Civil Law and Articles 8, 64, 65 and 121 of Contract Law, this principle can be indirectly proved. Moreover, Chinese Contract Law theory and judicial practice also affirm it, so the privity of contracts as a principle of Chinese Contract Law cannot be denied.447 Therefore, as an exception to this principle, the protective effect of the contract on the third party must be subject to special provisions in the law, so such legislative exceptions should be identified. In modern legal practice, judicial precedents also create exceptions, so this article also examines them. a. Legislation In terms of comparative law, the protective effect of the contract on the third party is first related to third party beneficiary contracts. Article 64 of Chinese Contract Law affirms the validity of the parties’ agreement that the obligor performs to the third party. This agreement is the legal basis for the third party to receive performance interests, and its interests do not constitute unjust enrichment. Because this article does not clearly stipulate the third party’s claim for the obligor’s performance, there are different views in theory on whether it has the legal effect of recognizing the third party’s claim for performance.448 As far as the subject discussed here is concerned, no matter how we understand it, in order to establish the relationship between this article and the protective effect of the contract on the third party, we must first determine that the “obligation” mentioned in this kook includes protective duty. As far as the protective effect of the contract on the third party is concerned, the legal 447

For a detailed explanation of whether Chinese Contract Law has established the principle of privity of contracts, please refer to Zhang Jiayong, Institutional Structure of Contracts for the Benefits of Third Parties, pp. 355 seq. For relevant important cases, please refer to the Appeal Case of Damage Compensation Dispute between Dongshan Town Sideline Company of Jiangning County and Nanjing Airport Expressway Management Office of Jiangsu Province (Gazette of the Supreme People’s Court No.1, 2000), “Dongfang Company Nanning Office v. Wuyang God Company and Other Loan Guarantee Contract Dispute Case” (Supreme People’s Court (2003) Min Er Zhong Zi No.47), “Industrial and Commercial Bank of China Shandong Branch v. Prudential Company and Other Loan Contract Disputes” (Supreme People’s Court (2003) Min Er Zhong Zi No.106), “Zhou Peidong v. Jiangdong Agricultural Bank over Savings Contract Dispute” (Supreme People’s Court Bulletin, No.2, 2006) and “Dalian Bohai Construction Engineering Corporation and Dalian Golden Century Housing Development Co., Ltd., Dalian Baoyu Real Estate Development Co., Ltd., Dalian Baoyu Group Co., Ltd. Construction Contract Dispute” (Supreme People’s Court (2007) Min Yi Zhong Zi No.39), etc. 448 For a more comprehensive introduction of different understandings of the provisions of this article, please refer to Han Shiyuan, The Law of Contract (3rd ed.), pp. 266 seq.

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status of the third party does not lie in obtaining performance interests due to the obligor’s performance, but in obtaining more comprehensive protection for its own inherent interests such as personal or property according to other people’s contracts. The debtor should have assumed the obligation not to infringe upon the civil rights and interests of the third party according to the Tort Law (Article 2, Paragraph 1, of Tort Law), and the additional protection of the contract will not be beneficial to it unless it is strengthened. As far as the meaning of “debt” is concerned, according to the provisions of Articles 60, 107, 108, 112 and 113 of Contract Law, “debt” and “obligation” has the same meaning, which should include the obligation to perform and the obligation to protect. There is no doubt that “performance of debt” can refer to the performance of both performance and protective duty. Failure to perform these obligations will lose its significance if it is not connected with the claim for damages. As far as legal principle is concerned, there is no claim for damages without performance, and vice versa. Therefore, third party beneficiary contracts without performance are of no value to the protection of the third party. According to this logic, unless the contract regulated by Article 64 of Contract Law is interpreted as an empowering (or pure and real) third party beneficiary contract, it cannot have the attribute of a contract with the effect of protecting the third party. In other words, if the empowering third party beneficiary contract is recognized, when the obligor violates the protective duty, even if the third party is not allowed to claim for performance according to the agreement due to the nature of the obligation, it can still claim for damages of the inherent interest (or integritätsinteresse) due to the non-performance of the obligation. If we deny the empowering third party beneficiary contract, because the third party has no right to claim for the obligor’s performance in the contract, we should not claim for damages caused by non-performance of the obligation. At this time, the third party only has to claim for damages according to the tort when the obligor’s action meets the constitutive requirements of tortious liabilities. Judging from the provisions of the existing law, since the privity of contracts has been recognized as a principle by law and judicial practice, and Article 64 of Contract Law does not explicitly endow the third party with the claim for the obligor’s performance, according to the interpretation rule that exceptions must be limited to the explicit provisions of the law. It is believed that the interpretation conclusion that this Article cannot confirm the third party’s claim for the obligor’s performance according to law is more worthy of affirmation.449 However, third party beneficiary contracts have a unique system function and can meet the needs of social life (especially 449

Professor Han Shiyuan believes that what is the basis for legislators to maintain “meaningful silence” on contracts that empower the benefits of the third party, and how to break through this “silence” and establish a general contract system for the benefit of the third party? See Han Shiyuan, The Law of Contract (3rd ed.), p. 268. The judgment of “meaningful silence” is based on the fact that since legislators have taken the privity of contracts as a principle and do not explicitly stipulate the exception for the third party to claim to performance, they can naturally confirm that they have no intention of stipulating exceptions according to the principle. In terms of legislation doctrine, it is affirmed that the contract is generally for the benefit of the third party, and only the above exceptions need to be substantiated. The author has put forward five reasons for substantiation, and “how to break through” has no answer. (See Zhang Jiayong, Institutional Structure of Contracts for the Benefit of Third Parties, pp. 365–367.)

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commerce).450 As far as legal policies are concerned, it is reasonable and necessary to confirm that the contract is generally for the benefit of the third party. Before the law is amended, it is still worth affirming that the judge “continues to create laws beyond the legal scheme” to recognize this system, which is obviously necessary in legal transactions.451 However, in the fields of insurance, trust and transportation, the existing law still confirms the empowering contract for the benefit of the contract. Since the interests obtained by the beneficiaries of insurance and trust through the contract are the performance interests rather than the protection interests,452 the only party related to the third party protective effect of the contract is the transport contract. According to Article 302, Paragraph 1, of Contract Law, the carrier shall be liable for damages for personal injury or death of passengers during transportation. Paragraph 2 extends this provision to “passengers without tickets who are exempt from the regulations, hold preferential tickets or are allowed to travel by the carrier.” Whether “ticket-free passengers and passengers without tickets” should be regarded as “third parties” in passenger transport contracts should be determined under different circumstances. “Ticket-free passengers” are passengers who do not have to buy tickets, such as the elderly or the disabled who are free of charge according to regulations, or minors who are free of charge according to regulations carried by ticket-holders. “Passengers without tickets” include passengers who travel first and then buy tickets, or passengers who travel free of charge without buying tickets with the permission of the carrier, and passengers who buy tickets or pay for them with the permission of the carrier. The third situation is common in the “charter contract,” in which one person pays for many people’s travels. Therefore, the aforementioned provisions on “ticket-free” or “nonticket” passengers can be interpreted in two ways: First, an independent gratuitous (or onerous) passenger transport contract is established between the carrier and free or non-ticket passengers; Second, there is an agreement between the carrier and the paid passenger for the interests of “non-ticket or non-paid passenger” (such as minor “non-ticket passenger” carried by adults and the third type of “non-ticket passenger”). The first explanation can avoid breaking through the principle of privity of contract, but the second explanation is more natural when the parties explicitly agree that individual passengers will pay for the travel. However, there is no difference in the actual legal effect between the two interpretations. In this regard, although it may be considered that Article 302 of Contract Law contains the significance of recognizing that the passenger transport contract has a protective effect on the third party, as a type of legal liability, it is not necessary to make such an interpretation. In addition, there are several provisions in contract law that non-parties to the contract and the obligor of the contract shall bear joint and several liabilities. For 450

See Zhang Jiayong, Institutional Structure of Contracts for the Benefit of Third Parties, pp. 27 seq. 451 For a detailed discussion of the continuation of law based on the needs of legal transactions, see “De” Karl Larenz, Methoden lehreder Rechtswissenschaft, Chen Aie Trans, Commercial Press, 2003, pp. 287 seq. 452 See Article 2 of the Insurance Law of the People’s Republic of China and Articles 2 and 43 of the Trust Law of the People’s Republic of China.

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instance, see the first sentence in Paragraph 2, Article 272 of Contract Law, subject to consent by the developer, the prime contractor, or the contractor for survey, design, or construction may delegate part of the contracted work to a third person. The third person and the prime contractor or the contractor for survey, design, or construction shall be jointly and severally liable for the developer in respect of the work product completed by such third person. A similar situation is also seen in Article 313 of the cargo transport contract. When two or more carriers jointly carry the cargo using the same method of transportation, the carrier contracting with the consignor and the carrier responsible for this section (the third party) shall be jointly and severally liable for the loss of goods. These provisions obviously break through the restriction of privity of contract and make the subcontract or the section transport contract have the effect of protecting the developer and consignor (or consignee). The liability of the third party includes both inherent interest losses and pure economic loss, which are related to the protective effect of the contract. However, as a special statutory liability, whether this kind of liability is based on the protective effect of the contract on the third party is purely a matter of interpretation and has no substantive significance. As far as the relevant legal provisions on the professional liability are concerned, there is no provision in the existing law that experts should bear contractual liabilities to the third party. See Article 54 of lawyer law, if a lawyer practices illegally or causes losses to a party due to his fault, the law firm in which he practices should bear the compensation liability. According to the commission contract, there is no stipulation that the law firm should bear the compensation liability. The provision in the middle of Article 39 of the Medical Practitioners Law that doctors or medical institutions should be liable for compensation to patients, as a type of legal liability, does not need to be based on the protective effect of medical contracts (especially the effect of protecting third parties). According to this, it can be considered that the existing law of China takes statutory liabilities as the basic normative feature in the occasions involving the professional liabilities of the third party. It is obviously more natural to interpret this liability as a tortious liability, and there is no need to compulsorily compare it with a contract with protective effects towards the third party. b. Judicial Practice In terms of judicial cases, the court usually insists on the privity of the contract and does not recognize the protective effect of the contract on the third party. For example, in the case of Wang Baofu v. Sanxin Lawyers’ Property Damages Dispute,453 the defendant was entrusted with appointing a lawyer to provide legal services for the principal to witness the will. The witness will have a disability because it did not meet the formal requirements of more than two witnesses. As a result, the plaintiff failed to obtain the property that could have been inherited according to the will. He claimed compensation because the defendant’s witness action was at fault and caused him to suffer property losses. Although the court of the first instance rejected the plaintiff’s request for a refund of the “agency fee” collected on the grounds that the plaintiff chose the action of tort rather than the action of contract and that the 453

Gazette of the Supreme People’s Court, No.10, 2005.

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successor of the principal (testator) was not the plaintiff alone, it was impossible to see how the plaintiff would have different effects on the handling of the case if he chose the action of contract. The court of the first instance and the court of the second instance both held that the defendant’s improper performance of service was the root cause of the plaintiff’s damage, so it should be liable for compensation in accordance with the second paragraph of Article 106 of the General Principles of the Civil Law. It can be seen from this that if the lawyer’s dereliction of duty causes economic loss to the third-party beneficiary, he should be liable for compensation according to the provisions of tortious liabilities. However, some judicial cases are vague in determining the basis of compensation for the third party. For example, in the “Appeal of Dispute over Medical Service Contract between Xiao Yanxiu and others and Xiaotang Hospital, Shishan Town, Nanhai District, Foshan City,”454 the patient went to the defendant’s office for medical treatment due to illness and died after ineffective treatment. After identification, there is no direct causation between the death of the patient and the defendant’s medical treatment, but the defendant has medical negligence. The court held that the plaintiff, as a near relative of the patient, had a medical service contract with the defendant, so the defendant should bear the liability according to the medical service contract. From the judgment of this case, we cannot see how the medical service contract between the patient’s near relatives and the defendant is determined. The court that established the case as a dispute over a medical service contract aims to avoid the oneyear limitation for action related to the claim for damages. Even if this understanding is confirmed, this case is only a concrete application of Article 64 of Contract Law and has nothing to do with the protective effect of the contract on the third party.455 By confirming that the aggrieved party is a party to the contract, the court has maintained the logical implementation of the principle of privity of the contract to a certain extent and avoided the problem of the protective effect of the contract on the third party. For example, in the “Appeal of Dispute over Travel Service Contract between Shanghai Weicheng Travel Service Co., Ltd. And Gu Mou,”456 the plaintiff was injured in a travel activity organized by the school, and the school had a tourism contract with the defendant. The court held that the plaintiff’s school purchased the defendant’s tourism services in the name of the group, and the plaintiff who joined in the travel and the defendant established a travel service contract. The defendant should bear the compensation liability for breach of contract in that he failed to 454

Fuoshan Intermediate People’s Court (2006) Fuo Zhong Fa (Min) Yi Zhong Zi No.204. For similar cases, please refer to the Appeal of Medical Service Contract Dispute between Mo Yewen et al. and 157 Clinical Department of the 458th Hospital of the Chinese People’s Liberation Army (Guangzhou Intermediate People’s Court (2008) Sui Zhong Fa Min Yi Zhong Zi No.1961). However, in this case, the patient is a minor, and it is reasonable and feasible to treat the medical service contract in this case as a third party beneficiary contract (especially to solve the problem of confirming the subject of paying medical expenses). At this time, the near relatives, as the parties to the contract, claim the liability for breach of contract, which has nothing to do with the protective effect of the third party in the contract. 456 Shanghai No.1 Intermediate People’s Court (2008) Shanghai No.1 Zhongmin No.1 (Min) Zhong Zi No.5363. 455

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fulfill the safety guarantee. Obviously, there is only one tourism contract in this case. The court interpreted the contract that the plaintiff’s school entered into a contract with the defendant on behalf of each tourist participant. Formally, a contract was treated as several separate contracts, thereby making the defendant bear contractual obligations to each tourist and avoiding the third parties claiming rights under the contract.457 Similar methods are often seen in passenger transport contracts. For example, in the “Appeal of Disputes over Passenger Transport Contracts between Xie Bingxian and others and Yizhou Car Company in Ping’an County,458 ” the two plaintiffs (they are in-laws) and their wives, four of them, rented the defendant’s taxi to visit Qinghai Lake. In the case of the traffic accident in which the third party was fully liable, resulting in the death of the wives and the injury of the plaintiffs, the plaintiffs claimed damages for their own injuries and the death of their near relatives in accordance with the passenger transport contract. The court held that the defendant had established a passenger transport contract with the plaintiffs and the decedents, and the defendant should be liable for non-fault compensation for violating the obligation of safe transportation. Once again, the court held that each passenger in the taxi and the carrier, separately or jointly, had established a passenger transport contract, and did not determine the subject scope of the contract relation in combination with the agreement of the parties and the obligation to pay the freight, thus avoiding the protection of the third party in the contract.459 c. Summary Although there are provisions on contracts for the benefit of the third party in legislation in China, it is still insufficient to use them as the basis for the protection of the third party because they do not give the third party the claim for performance. At the same time, although there are some provisions in the existing law that the parties to the contract should bear the compensation liability to the non-parties to the contract (such as the first sentence of Article 272, Paragraph 2, Article 302 and Article 313 of Contract Law), as a form of statutory liability, it is unnecessary to forcibly incorporate the protective effect obtained by the third party into a contract with protective effects towards the third party. As far as judicial practice is concerned, there is no way to find the judicial practice of contract with protective effects towards the third party. As such, we can think that the current legislation and judicial practice in China have not recognized the protective effect of the contract on the third party.

457

From the perspective of interpretation possibility, the school can be regarded as the agent of students who joined in the tourism to sign a tourism contract with the defendant. According to Article 402, students can directly claim for their rights from the defendant according to the contract. 458 Qinhai Higher People’s Court (2007) Qin (Min) Yi Zhong Zi No.11. 459 For similar cases, please refer to the Appeal of Dispute over Road Passenger Transport Contract between Nakamura Miduri and Mass Transit (Group) Co., Ltd. (Shanghai No.1 Intermediate People’s Court (2008) Shanghai No.1 Zhongmin No.1 (Min) Zhong Zi No.1828).

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(3) The Instrumental Value of the Contract with Protective Effects towards the Third Party As an expansion of contract law, the protective effect of the contract on the third party reflects the obvious value of legal tools. Professor von Barr pointed out that the existence of a contract with protective effects towards the third party in German law must have the following three prerequisites: First, exceptions to the principle of privity of contracts must be legally allowed; Second, the laws of a country must allow the inherent interests such as personal or property to be protected by contract law, that is, not to be regarded as the exclusive regulation field of tort law. Third, tort law improperly excludes the damages that should have been remedied due to its design defects, which need to be remedied by contract law.460 The first and second premises point out the necessary basis for establishing a contract with protective effects towards the third party, while the third one demonstrates the purpose and value of the system: If there is no defect in tort law itself, the third party does not need to be protected by contract law! Of course, the protection of the third party who is not a party to the contract through contract law is not to overcome the shortcomings of tort law, but to provide more favorable protection for the third party outside tort law. For example, the benefits of the third party protected by the implied-in-fact third party beneficiary contract or the chain contract theory in French Law can also be protected according to tort law. In this case, the protection given to the third party in contract law is obviously based on the fact that this protection is more generous or convenient for the third party. the judicial person either allows the third party to claim remedy according to tort when the third party cannot realize the contract protection due to the exemption agreement in the contract (the implied-in-fact third party beneficiary contract), or allow the parties to claim the defense based on the contract to the third party (chain contract theory), which leads to the change of the tort remedy into the “substitute remedy” besides the contract remedy of the third party in the non-concurrence theory. Similar situations also exist in the security system of the third-party beneficiary in American law. According to the drafters of the United States Uniform Commercial Code, recognition of express or implied warranties against third parties outside the contract. “Its purpose is to free any such beneficiaries from the technical rules relating to a direct contractual relationship by giving certain beneficiaries the same security that the buyer obtains in the Sales Contract,” and “it seeks to achieve this purpose without derogating from any rights or remedies arising out of fault.”461 we can find that the systemic setting of the protective effect of the contract on the third party has two basic functions: One is to make up for the defects of tort law itself (such as in Germany); the second is to provide specific types of third parties with enhanced 460

Christian Von Bar, The Common European Law of Torts (Band 1), pp. 583–585. American Law Institute, Commission on Uniform State Law, American Uniform Commercial Code and Its Official Comments, Sun Xinqiang Trans, Renmin University of China Press, 2004, Articles 2318, Formal Commentary 2, p. 108.

461

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or supplementary contract protection other than tort law (such as in France and the United States). Some scholars in China advocate the introduction of Germany’s contract with protective effects towards the third party.462 For Chinese civil law, which is deeply influenced by traditions in German Civil Law, this proposition needs to be taken seriously. We will discuss the possibility of implementing the aforementioned system function of the protective effect of the contract on the third party under Chinese law. a. Make Up for the Deficiency of Tort Law through Contract Law Based on Professor von Barr’s observation of the three prerequisites for establishing the German contract with protective effects towards the third party, we find that the third premise is not available in Chinese law. In Chinese law, the law allows exceptions to the principle of privity of contract. In the General Provisions of the Contract Law, there are simple general provisions on contracts for the benefit of the third party and contracts for the burden of the third party. In the Specific Provisions of the Contract Law, there are provisions on the rights of the third party in leasing contracts and transport contracts. In special laws such as trust and insurance, there are also provisions on the rights of the third party in contracts. These provisions undoubtedly provide the basis for the third party to claim contractual rights or interests in the form of explicit provisions. Just as mentioned earlier, some of them do have the effect of protecting the third party. Judging from Chinese Contract Law theory and judicial practice, there is no obstacle to allowing exceptions to the privity of contract. Paragraph 2 of Article 60 of Chinese Contract Law recognizes the legitimacy of the existence of an ancillary obligation of the contract. Theoretically, it is usually considered the legal basis of the protective duty of contract. Judicial practice and juristic theory also hold the same view.463 Therefore, we can say that Chinese Contract Law also allows contractual protection of the inherent interests of the parties, such as personal and property interests. However, there is no need to establish a German contract with protective effects towards the third party, i.e., Chinese Tort Law does not have inherent defects similar to that in Germany’s Tort Law. In German law, the “contract for protecting the right of the third party” mainly aims to overcome the two deficiencies of tort law, namely, the employer is exempted from liabilities without fault for employees’ damages, and the restriction on compensation for pure economic loss is too strict. According to the second sentence of Article 831, Paragraph 1, of the German Civil Code, the employer can prove that he has fulfilled the duty of care in the transaction, or if he still suffers damages even if he has fulfilled these obligations, he can be exempted from liabilities, thus causing the problem of insufficient remedy to the aggrieved party. On the contrary, according to Articles 34 and 35 of Chinese Tort Law, employers should bear strict or non-fault liability for employees or their users who cause damage to others due to imputable acts, which enables the aggrieved 462

See Ma Qiang, Research on Contract with Protective Effects Towards the Third Party, Political Science and Law, No.1, 2005, p. 41; Qiu Xuemei, On the Contract Attached to Protecting the Role of the Third Party: Also, on the Construction of Civil Liabilities System in the Compilation of Chinese Civil Code, Gansu Social Sciences, No.1, 2006, p. 150. 463 See the relevant analysis in Sects. 1 and 3 of this chapter.

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party to obtain sufficient remedy. In German law, pure economic loss can only be remedied under Articles 823, Paragraph 2, and 826. The former requires meeting the requirements of violating the law aimed at others, while the latter requires intentionally violating the requirements of bonos mores. The requirements are relatively harsh. If the aggrieved party suffers damage due to the negligence of the actor or lacks the requirements of backsliding, they cannot obtain a remedy according to the tort law. On the contrary, Article 2 of Chinese Tort Law stipulates the scope of protection of Tort Law as “civil rights and interests.” Moreover, setting up unified constitutive requirements of liabilities without distinguishing “rights and interests” means that cases related to pure economic loss can also be remedied by means of the general clause of fault liability, and especially pure economic loss under tort without fault or with general fault can also be remedied. Although there are views in theory that this kind of too extensive protection should be restricted,464 it just shows that the problem faced by Chinese law lies not in insufficient remedy, but in excessive remedy. As such, in Chinese Law, the problem of insufficient remedy to the aggrieved party due to the defects of tort law itself does not exist. In this sense, it is not necessary to introduce the German theory or system of “contract with protective effects towards the third party.” b. Provide more Generous or Convenient Protection to the Third Party through Contract Law Obviously, when some scholars in China advocate to introduce German “contract with protective effects towards the third party” theory, they cannot fail to notice the lack of the above premise, because they emphasize the second function of the contract theory of protecting the third party. For example, they believe that recognizing the contract with protective effects towards the third party in China can solve two problems: First, the parties to the contract and the third party injured by the same act may receive different legal remedies. Second, the parties to the contract who suffers damages due to the same act can obtain a remedy, while the third party cannot.465 A similar view holds that when the product is damaged due to defects, if the seller closes down, goes bankrupt, goes out of business, etc., the aggrieved party will not be able to obtain remedy for the losses suffered by the product itself, and the contract with protective effects towards the third party can play a role in this respect.466 However, these views are either specious or confuse different issues. Even in the case of damage caused by the same act or similar acts, the difference in protection between parties with contractual relationship and non-contractual relationship does not prove that the result is improper, especially when the contract has a stronger protection agreement or provision for the parties than tort law. In a contract, not only the injured party provides consideration for such protection (onerous contract), but 464

See Ge Yunsong, Civil Rights and Interests Protected by Tort Law, China Legal Science, No.3, 2010. 465 See Qiu Xuemei, On Contracts Attached to Protect the Role of Third Parties: Also on the Construction of Civil Liability System in the Compilation of Chinese Civil Code, pp. 150–151. 466 See Ma Qiang, Research on Contract with Protective Effects Towards the Third Party, p. 41.

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also the breaching party can consider the possibility of such damage in advance (whether the contract is onerous or not), which justifies the stronger protection obtained by the parties to the contract. If the third party wants to obtain this kind of protection, it can only be justified based on the intention of the parties to the contract, or directly manifested in the form of statutory liabilities. At the same time, if the damage to the absolute legal interest of a third person, such as a person interest or property interest, according to the provisions of Chinese law. The remedy provided in contract law is not superior to that provided in tort law, especially because the current judicial practice holds too conservative a position on compensation for mental distress, and the third party will face exemption or defense agreed on in the contract, so the contract remedy is not beneficial to the third party. Even if we observe the burden of proof and the limitation of action, the difference between the presumption of the fault and the general fault is not obvious in the case of violation of the protective duty. In practice, the court usually combines the breach of duty with the determination of attribution, basically eliminating the difference in the burden of proof for fault. The advantages of contractual action in limitation of action (the application of one-year limitation of action to avoid personal injury) do exist, but it is obviously insufficient as the basis for introducing the contract with protective effects towards the third party. In cases involving pure economic loss, either the actor himself does not bear the duty of care in tort law to the third party (e.g. The third party suffers from damages by relying on advisory opinions), or the third party simply fails to claim for compensation from the seller due to accidents (e.g. The defective product cannot claim for compensation from the seller for its own damage). Under the circumstances, allowing the aggrieved party to claim the contractual rights from the contract obligor not only lacks justifiable reasons, but also damages the justifiable basis of contractual liabilities and tortious liabilities. Indeed, we can see in comparative law that the rights of the third party are not established on the intention of the parties, but on public policies or the reliance on protection. However, the unlimited application of the reliance principle (Der Vertrauensgrundsatz) and the recognition of the rights of the third party based on public policy reasons may weaken the importance of the third party beneficiary law in transactions.467 The protection of the public needs to be provided by tort law, and strict liability is one of the means to strengthen this protection. Once the claim is established based on the contract, the legal expectation of the parties should be protected, and the claim of the third party must be bound by the terms of the contract.468 From this point of view, for compensation cases for economic loss, U.S. Courts are more likely to recognize beneficial litigation for the third party in the case of express warranty than in the case of an implied warranty. From this point of view, in Chinese law, the problem faced by the protective effect of the contract on the third party is not whether a remedy in contract law 467

See Gary L. Monserud, Blending the Law of Sales with the Common Law of Third Party Beneficiaries, p. 113. 468 See Jean Fleming Powers, Expanded Liabilities and the Intent Requirement in Third Party Beneficiary Contracts, 67 Utah Law Review (1993), p. 147.

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can be provided to the third party through the contract, but under what conditions such remedy can be provided to the third party. As long as we admit that contract and tort law have different value objectives, we cannot prove the protective effect of the contract on the third party simply based on the abstract objective of providing a better remedy for the aggrieved party, and the protected status of the third party in the contract can only be based on the contract itself. (4) Protecting the Third Party through Third Party Beneficiary Contract As we have seen, the German contract with protective effects towards the third party is independent of third party beneficiary contract. It is believed that the former creates the obligor’s obligation to protect while the latter is performance.469 In fact, it is not always possible to distinguish between protective duty and performance. Some obligations may be both performance and the protective duty. For example, defective performance may cause damage to the performance interests (violation of performance) and damage to the inherent interests of obligees (violation of the protective duty). Since the law recognizes the legitimacy of third party beneficiary contracts, even if the obligor’s obligation to the third party is a certain performance interest, the obligor may cause damage to the integritätsinteresse of the third party in the process of providing such performance. In this way, it is meaningless to divide performance and the protective duty to protect the third party. If the parties to a contract regard the protection of the third party as the purpose of the contract, they cannot deny the nature of third party beneficiary contracts because this obligation lacks the usual performance interests. Therefore, although the “contract with protective effects towards the third party” is indeed different from the typical third party beneficiary contract in that it simply changes the effect of the performance direction. It enlarges the scope of the object of the action of care (sorgsamen Verhalten). That is to say, it expands the obligor’s performance risk.470 However, the distinction between performance and the protective duty is not helpful in solving the problem of the protection of the third party contract. It is not inappropriate to treat it as a special form of third party beneficiary contract, but it can more effectively limit the scope of the third party. This restrictive effect is self-evident when the parties explicitly include the third party in the scope of the protected subject. In the absence of a clear agreement between the parties, the boundary between a contract with protective effects towards the third party and third party beneficiary contract becomes blurred. In other words, unless a sufficient distinction is established between the implied-infact third party beneficiary contract and the contract with protective effects towards the third party, the balance function between contract law and tort law for the benefit of the third party cannot be realized. Therefore, the key to the problem is whether the parties to the contract have the implied intention to protect the third party. The German judicial practice persists in confirming the intention of the parties according to the supplementary contract interpretation.471 In contrast to the juristic 469

See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 25. Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 592. 471 Walter Bayer aaO., S. 191. 470

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theory, which emphasizes the importance of the “obligee’s protection of interests” in determining the scope of the third party, the former pays more attention to the agreement of the parties to the contract and the purpose and nature of the contract, while the latter emphasizes more on the relationship characteristics between the obligee and the third party. It should be noted that if it is insisted that “the obligee has a special interest in protecting the third party,” it means that the obligee and the third party should be consistent in their interests, thus excluding the possibility to f find the obligee’s intention to protect the third party when there is a conflict of interests between them. Conversely, from the point of view of avoiding the limitation of the obligor’s liability risk, the consistency of the relationship between the obligee’s and the third party’s interests should not be decisive in determining the obligor’s obligation to protect third parties. The reason is that, unlike performance, the protective duty is to protect the integritätsinteresse (or inherent interests) of the third party. The interest does not derive from the transfer of the obligee’s interest. Therefore, what the law needs to balance is not the interest relation between the obligee and the obligor, that is, whether the obligor’s obligation to the obligee can be eliminated because the obligor performs to a third party, but whether the obligor’s liability risk due to the expansion of the protected subject has been fully compensated by the obligee. In the case of third party beneficiary contracts with the purpose of performance, we should pay more attention to the intention of the oblige when we determine the rights of the third party, while in the case of third party beneficiary contracts for the purpose of protection, more attention should be paid to the intention of the obligor. In this sense, even when the intention of the parties is determined through supplementary contract interpretation, the court cannot but give more consideration to the obligor’s special interests in the protection of third parties in the contract. The German theory and practice require the obligor should be in a position of performance to a third party, and the Austrian theory and practice on contracts for the protection of third parties have the same requirements: “Courts and scholars require that experts should know that the person who consults the expert is also acting for the benefit of a third party.”472 If the parties to the contract explicitly exclude the protection of third parties outside the contract, will the situation be different? In a contract, it is relatively easy to exclude such liability. If there is a statement of such exclusion of liability, the third party has no reason to rely on the obligor’s action.473 Therefore, even if the third party still wants to trust the obligor, it should also bear its own risks. For example, a lawyer issued a brief to the bank for his principal and stated that he was not liable for the authenticity and accuracy of the information provided by others other than the principal on the brief. The bank usually does not consider this brief when making a decision. It either requires the principal to provide a new brief, or hires its own legal counsel to check the relevant facts and issue a brief. It can even refuse to provide the 472

Mauro Busani & Vernon Valentine Palmer, Editor-in-Chief, Pure Economic Loss in Europe, Zhong Hongming, Zhang Xiaoyi Trans, Law Press, 2005, p. 350. 473 John H. Bauman, A Sense of Duty: Regulation of Lawyer Liability to Third Parties by the Tort System, 37 South Texas Law Review (1996), p. 1014.

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loan. If lawyers reissue a brief without such an exclusion declaration, it is difficult to deny that the parties have the will to include the bank in the scope of protection (even if they do not want to do so). If the obligor’s performance of the contract causes damage to the third party, the law may endow the obligor with liabilities not based on the contractual agreement, but the specific social significance of the act. For example, notaries, which are given more social obligations, are more likely to be given liabilities than auditors because their breach of vocational obligations leads to damages to third parties.474 If we focus on the social significance of the act, it is more reasonable to regulate it through tort law than to protect contracts. Moreover, even if the parties to the contract exclude the protection of the third party, it will not affect the third party’s claim for tortious liabilities. In this case, it has obvious institutional advantages to use the contract system for the benefit of the third party to protect the third party. In doing so, we should insist on the importance of the parties’ intention to bring the third party into the scope of contract protection. Where this intention is obviously absent, we should provide remedy through tort law, instead of achieving the purpose by blurring the boundary between contract and tort. (5) Summary Bringing the third party into contract protection is one of the signs of socialization of contract theory, which reflects an obvious feature of modern contract law: re-strengthening and highlighting the “tort” nature of the breach of contractual obligations.475 The fundamental difference between it and the general liability for breach of contract is that the liability for breach of contract is usually based on the principle of protecting the expectation interests of the other party to the contract, while the aforementioned liability is intended to protect the inherent interests or integritätsinteresse of non-parties to the contract. In different legal systems, the use of contract law to protect the benefits of third parties may be based on fundamentally different institutional reasons. Some are to overcome the defects of tort law itself, while others are based on social policy, which needs to provide more generous or convenient protection for the third party than tort law. If legislators affirm the necessity of such protection and confirm it according to special legal rules, at least there will be no doubt in the application of the law. If there is no such clear provision in the law and the third party is included in the contract to be protected, the risk of excessive socialization of contract theory must be avoided, and the legitimate basis of the distinction between contract and tort law, 474

Mauro Busanim & Vernon Valentine Palmer, Editor-in-Chief, Pure Economic Loss in Europe, pp. 300 and 338 seq. 475 Peter Gauch, Der vernünftige Mensch – Ein Bild aus dem Obligationenrecht, in: Peter Gauch, Der vernünftige Mensch – Ein Bild aus dem Obligationenrecht, in, Das Menschenbild im Recht, Festgabe der Rechtswissenschaftlichen Fakultät zur Hundertjahrfeier der Universität Freiburg, Freiburg 1990, S. 188; P.S. Atiyah, THE rise and Fall of Freedom of Contracti, Clarendon Press. Oxford, 1979, p. 733.

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and the systemic structure thus established must be prevented from being undermined. In Chinese law, since the Tort Law has already provided sufficient remedy in protecting civil rights and interests, there is no need to introduce a German contract with protective effects towards the third party. Based on the instrumental value of third party beneficiary contracts, it can play a role in providing more convenient or generous contract protection to the third party than tort law and its existence value should be affirmed. From the perspective of comparative law, when we protect the third party through the contract system for the benefit of the third party, the following tendency should be prevented in the judicial application, that is, to identify the rights of the third party solely on the grounds of social and economic policies, instead of focusing on the exploration of the intention of the parties.476 The expansion of modern beneficial litigation for the third party is mainly manifested in the expansion of beneficial litigation that is not based on the intention of the parties. In legal theory, it is largely caused by reasons within the system: some detriments cannot be remedied by tort law, and the aggrieved party turns to contractual claims as an alternative and convenient tool. However, it is doubtful to justify the concept of “contract assumes social obligations” without restriction. When the contract starts to expand its scope, its meaning also changes, and as a result of the change, the meaning of the distinction between traditional contract and tort also declines. It is not easy to make a proper evaluation on this phenomenon. It is only necessary to point out that the distinction between contractual liabilities and tortious liabilities has not only an established institutional fact, but also a basic value orientation behind it. In order to avoid overimposition of liabilities to the obligor, the value of the liability system established by the traditional contract law and tort law should still be maintained. In judicial practice, it is obviously more conducive to maintaining the stability of the law to deal with the protection of the third party with the help of the existing institutional construction than relying on judges to continue to create the law. This may be the reason why German judicial practice still insists on the “conservative” position even after recognizing the “contract with protective effects towards the third party.” In the United States, when the intention of the parties to grant the rights to the third party is unclear, the probability of loss in the beneficiary’s lawsuit brought by the third party is extremely high,477 which basically reflects the same position.

476

See Orna S. Paglin, Criteria for Recognition of Third Party Beneficiaries’ Rights, 24 New England Law Review (1989), p. 113. 477 Anthony Jon Waters, Privity, Property, and Pragmatism, in Peter Kincaid ed., Privity: Private Justice or Public Regulation, 2001, p. 329. See Wang Wenqin, Interference with Claims by a Third Party, in Liang Huixing ed., Civil and Commercial Law Review (Vol. 8), Law Press, 1997, p. 771; Wang Liming, Breach of Contract, pp. 735 seq.; Han Shiyuan, The Law of Contract (3rd ed.), pp. 723 seq.

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3.2 Interference with Contractual Claims by a Third Party A claim is the right to demand an act or forbearance (performance) by a specific obligee from a specific obligor. It is a right in personam, manifestly characterized by privity. In the case of an executory obligation (claim) that will not be settled immediately (a typical form of claim), its realization depends on the performance of the obligor. The obligee who suffers any damage due to the obligor’s non-performance or improper performance can generally obtain adequate remedy by imposing liabilities on the obligor for non-performance, and there is no need to grant remedy by tort law. Moreover, a claim does not have the typical social openness that the protected object under tort law generally requires. If it is regarded as the protected object of tort law, the freedom of action for a third party and the economic order of free competition may be undermined. Therefore, different countries were once faced with controversies on whether to recognize the institution of interference with claims. However, if a third party’s act hinders the performance of an obligation, and the obligee is unable to obtain a remedy through the institution of non-performance of obligation, it is necessary to reconsider the position that the third party is not liable for the frustration of claims. From the comparative law perspective, it has been accepted that claims (especially contractual claims) are regarded as the protected object of tort law.478 An important overlapping phenomenon, the institution of interference with claims has the normative characteristics of crossing the borderlines between contract and tort law. It, therefore, needs to be observed in view of the private law system. (1) The Significance of Claims as the Protected Object under Tort Law Generally speaking, privity of contract or privity of claims is the major obstacle to the institution of interference with claims. Privity of contract is a basic principle established through legislation, judicature, and the jurisprudence of contract in most countries, aiming to prevent a third party from obtaining rights and assuming obligations based on a contract. Whether it also has the effect of preventing a third party from assuming tortious liabilities in accordance with the tort law involves the relationship between the institution of interference with claims and the privity of contract. In order to answer this question, some scholars contend that the effects of the privity of claims can be divided into internal and external effects. The internal effect means that both the obligee and the obligor should be bound by the relation of claims, while the external effect means that no third party should hinder the parties involved in the relationship of obligation from enjoying their rights and assuming their obligations.479 However, it is hardly appropriate to draw a conclusion by defining a concept as, in doing so, it has changed the original meaning of the privity of claims. For the experience of comparative law, the basic way the privity of contract (claim) 478

See Wang Wenqin, Interference with Claims by a Third Party, in Liang Huixing ed., Civil And Commercial Law Review (Vol. 8), Law Press (1997), p. 771; Wang Liming, Breach of Contract, p. 735 seq.; Han Shiyuan, The Law of Contract (3rd ed.), p. 723 seq. 479 Wang Liming, ibid., p. 747.

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hinders the institution of interference with claims is to examine a third party’s liability from the perspective of contractual liabilities. In other words, the third party will not be bound by the rights and obligations created by the contract since he is not the party to it. For this reason, French and Anglo-American courts have denied that third parties are liable for the consequences of obstructing the realization of claims.480 This judicial practice is grounded on the following assumptions: privity is both the premise of establishing contractual and tortious liabilities; the lack of privity hinders both of them.481 This understanding of privity is apparently an ideological residue of the time when the contract and tort were not clearly distinguished. After establishing a clear distinction between contract and tort, the privity of contract (claim) only plays a role within the scope of obligation relations (contract), and does not affect tort relations. Once courts no longer consider it in light of contractual liabilities, and instead define the third party’s liabilities as tortious liabilities, the privity will no longer have an obstructing effect on the institution of interference with claims. In Raudnitz v. Doeuillet, the French Supreme Court made it clear that the liability of a third party for compensation was not based on the breach of contract, but on quasi-tortious acts (quasi-delictual acts) that were conducted intentionally by the defendant and caused the obligor to breach his obligations.482 In Lumley v. Gye, the landmark case of establishing the institution of interference with claims in Anglo-American Law, most judges also restricted the effect of privity of contract to the liability for breach of contract and held that it had no effect of hindering the tortious liability.483 Therefore, privity of contract plays its role as an obstacle to the interference with claims by expanding its application to the field of tort beyond the contractual relationship. As long as the privity is taken back to the contractual field, it will no longer be a factor hindering the institution of interference with claims. Even if the principle of privity of contract has been removed, it does not follow that the problem has been completely addressed. It needs to theoretically explain the legitimate basis of interference with claims. In German law, the problem has been dealt with in terms of the object of tort by discussing whether claims are the “rights” provided in Section 823 of the German Civil Code. On the contrary, in Anglo-American law, it has been dealt with based on the theory of interference with contracts, namely from the perspective of injurious acts. The object protected by the institution of interference with claims is the claim obtained from obligation (contract) relations, and the liability for interference with claims is imposed in accordance with the law on the basis of the hindrance inflicted by a third party upon the realization of 480

See Wang Wenqin, Interference with Claims by a Third Party, pp. 760, 765. This way of thinking is typical in Anglo-American law in the nineteenth century. See P.S. Atlyah, An Introduction to Law of Contract (3rd ed.), p. 396. In France, it may be related to its position of non-concurrence of liabilities, and contractual liabilities takes precedence over tortious liabilities. In this way, when there is a contractual relationship, the tortious liabilities of the third party is excluded because of privity. 482 V.V. Palmer, A Comparative Study of the French Action for Wrongful Interference with Contract, The American Journal of Comparative Law, Vol. 4, No.4, 1992, pp. 305–306. Quote from Wang Wenqin, Interference with Claims by a Third Party, p. 761. 483 Wang Wenqin, ibid., p. 767. 481

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claims. Hence in light of the balance between the protection of rights and interests and the freedom of action, it is of great significance for both the legitimate basis and the construction of the institution to identify the protected object of the institution. In view of the protection of rights and interests, if a third party injures the claim of the obligee, in a legal system that does not distinguish between rights and interests, it suffices to confirm that the claim is the legitimate interests protected by tort law. There is no need to clarify further whether it is protected on the basis of the attribute of rights. For example, according to the French theory, it will not affect the establishment of interference with claims whether the rights arising from the contractual relationship are rights in rem or rights in personam. The reason why a third party should be held liable for interference with the contractual claim is that the contractual claim has property value and is an integral part of the general property of the obligee. The injury committed by the third party reduces the assets of the obligee’s general property and increases the liabilities thereof.484 Initially, based on the understanding that a contract was the tool for transferring ownership, Anglo-American law equated the ownership acquired by the contract with the ownership per se. The interference with contracts, therefore, was not an obstacle to the performance of an obligation, but damage to the ownership. With the legal significance of the executory contract being recognized, the expectation interests arising from the contract are protected as property rights, and the property theory of contract has become justifiable to interpret the institution of interference with claims, which is akin to the French doctrine.485 In contrast, in the legislation that sets up different constitutive requirements of tort by distinguishing between rights and interests, it is not sufficient to establish a third party’s liability by simply affirming the protected status of the claim. It is necessary to further determine whether the protected status of claims is a right or an interest (legal interest). In German law, for example, an act of interference with rights provided in Section 823(1), namely, the right to life, body, health, liberty, ownership and other rights, is illegal and satisfies the requirement of imputation by negligence. Conversely, the constitutive requirements of tortious liabilities for violation of laws and regulations on the protection of other rights provided in Section 823(2) and for intentional damage contrary to bonos mores provided in Section 826 are more stringent. Whether claims belong to “other rights” stated in Section 823(1) is, therefore, of great importance in the application of the law. According to the general theory in Germany, the “other rights” stated in Section 823(1) do not include claims, and the injury to claims should be subject to Section 826.486 As such, claims are protected by Tort Law as “interests” rather than “rights.” The reason why claims are protected by tort law is that it is a kind of property interest protected by law, and the privity of claims is only meaningful in the realization of the content of claims. In other words, only the obligor is obligated to actively realize 484

See ibid., pp. 762–763. See ibid., p. 768. 486 Münchener Kommentar zum BGB (4. Aufl.), 2004, §823, Rn. 154. See Wei Shengli, Interference with Claims by a Third Party: Theoretical Innovation or Jurisprudential Divergence? HeBei Law Science (2005), pp. 47–48. 485

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the content of claims, whereas a third party does not have a similar obligation. A claim per se, however, is an attributable interest recognized by law. The duty to respect and not to hamper what arises out of this attributable interest should be assumed by others, including the obligor (exclusivity of interest attribution). Attribution of this kind and its exclusivity is also called, in theory, the inviolability of claims, which does not erase the borderlines between real rights and claims, or leads to the confusion of the logical system of private law.487 The distinction between real rights and claims, or between absolute rights and relative rights, is not reflected in the attribution of the interests involved in the right, but in the realization of the right. The real right or the absolute right can be realized through the acts of the obligee himself as long as others do not hamper or interfere with the realization of his rights, whilst the claim or the relative right can only be realized by the obligor’s assistance (performance). In the event of injury to claims, as long as the obligor still can perform the obligation, the obligee does not need to resort to the institution of torts to protect his interests. Only when the institution of non-performance of obligation fails to relieve the obligee (the obligor loses the capability to perform because of a third party’s interference), do other remedies other than the institution of non-performance of obligation need to step in. Tort remedy may thereby be taken into account. If the attributable interest of claims is protected by tort law, a third party’s liability for interference with claims can still be established even though the institution of non-performance of obligation can accomplish the goal of remedy. In most countries, such inference has not been recognized in legal practice. The reason may rest on the protection of a third party’s freedom of action. First of all, the claim does not have the typical social openness. If tortious liabilities are imposed on a third party whose act obstructs the realization of the claim due to his fault, the third party will face an unpredictable risk of liabilities. Secondly, it is unnecessary to apply tortious liabilities to all cases even though the third party knows that other people have valid claims. On the one hand, it involves the choice of legal policy. “if a third party should be liable for a tort only because the third party in question intentionally or negligently injures the subject matter of the performance or the obligor, which results in the impossibility or delay of the performance, it is difficult to maintain the social trading activities and the competitive order”488 ; on the other hand, it is hardly unfair to the obligee since he could still share such risks with the obligor through the institution of non-performance. In this regard, while different countries admit the institution of interference with claims, they also recognize “fair competition,” “advice,” and “duty” as defences against the liability.489 In addition, it needs to be noted that the interference with claims should be established on specific claims. If a third party’s act does not target the specific claim, it is unlikely to apply to the institution, which usually occurs when a third party’s 487

See Wei Shengli, Interference with Claims by a Third Party: Theoretical innovation or jurisprudential divergence? HeBei Law Science (2005), pp. 47–48. 488 See Wang Zejian, Theory and Case Study of Civil Law (5th ed.), Beijing University Press, 2009, p. 142. 489 See Wang Wenxin, Interference with Claims by a Third Party, pp. 800–801.

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duty to protect claims is specially provided in law. Typically, suppose the company’s shareholders are liable to liquidate the company at the time of dissolution (Article 184 of the Company Law). If they cancel the company without liquidation or fail to liquidate it promptly, or fail to liquidate due to their acts, leading to losses of the claim, they shall be held jointly liable for such losses.490 In the course of liquidation, if the members of the liquidation group cause losses to the obligees by intent or negligence, they shall be liable for compensation (Article 190 (3) of the Company Law). This kind of liability is often regarded as the liability for interference with claims in judicial practice, which should be corrected. In Chen Rongzhong v. Peng Bingyi491 (a trial de novo case on the dispute over the private lending), the company invested by the defendant agreed, on behalf of the third party, to repay the obligation to the plaintiff. But the company did not actually perform and was closed down without liquidation. In trial de novo, the court held that the defendant, as the shareholder of the limited company, failed to perform the duty of liquidating the company’s claims and obligations under the circumstances where the company had actually suspended business for many years, and waited for the industrial and commercial administration to revoke the business license, which “not only evaded the mandatory provisions of the Company Law, but also did not conform to the principle of good faith, and had the nature of interference with claims.” Therefore, the defendant should be held liable for repayment obligations to the plaintiff. In fact, the court can directly hold the defendant liable for damages caused by a breach of liquidation obligations. It was unnecessary for it to determine that the defendant interfered with claims and should be liable for repayment obligations based on the so-called non-conformity with the principle of good faith.492 (2) Legal Requirements of the Institution of Interference with Claims Once the status of claims, as the protected object of tort law, has been recognized, the problems following should be the constitutive requirements and legal effects of the liability for interference with claims. Combining theory and practice, this section will then give a brief explanation concerning the practice in comparative law. 490

See Provisions of the Supreme People’s Court on Some Issues about the Application of the Company Law of the People’s Republic of China (II), pp. 10–20. 491 Fuoshan Intermediate People’s Court (2005) Fuo Zhong Fa (Min) Yi Zhong Zi No.10. Similar cases can refer to: “Taicang Port Bailida Investment Management Co., Ltd. v. Yang Zhongchun and other shareholders in a dispute over compensation for improper liquidation” (Jiangsu Wuxi Intermediate People’s Court (2008) Xi (Min) Er Zhong Zi No.0203), “Zhuzhou Xiangrui Real Estate Development Co., Ltd. v. Tan Shengming and other four defendants in a dispute over shareholder infringement” (Hunan Higher People’s Court (2006) Xiang Gao Fa (Min) Yi Zhong Zi No.141). 492 Some people from judicial practice branch believe that interference with claims by a third party includes interference with claims by providing a false capital verification report by intermediary service agencies such as accounting firms, interference with claims caused by false capital contributions of shareholders, and interference with claims caused by violation of statutory obligations of the directors, etc. See Ma Qiang, Interference with Claims System and Its Application in Trial Practice, see http://www.civillaw.com.cn/qqf/weizhang.asp?ID=28872. Date of visit: May 17, 2012. The aforementioned situation is a violation of statutory obligations and causes pure economic loss to others, which is not implemented for specific claims, so it is difficult to call the third party harms the normative object of claim system.

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a. Constitutive Elements of Interference with Claims (a) Requirements of Facts The facts that constitute interference with claims include interfering acts, damaged rights and interests, and causation. Theoretically, the interfering act can, in general, be divided into two forms: direct interference and indirect interference. The former refers to the interference with the claim per se, leading to the extinction of the claim or adverse impact on its realization; the latter refers to the one that indirectly obstructs the realization of the claims by committing wrong to the obligor or the subject matter of performance, including inducement of breach of contract, malicious collusion, destructing the subject matter of performance, injuring or restricting the obligor’s body so that he is unable to perform his obligations, etc.493 Some scholars distinguish the interference with claims into four main forms: the injury to the subject matter of performance, the injury to the obligor’s body, the inducement of breach of contract and injury to the attribution of claims494 ; or it can be divided into three main forms: the injury to the attribution of claims, the injury to the performance, and the injury to reduce the general property of the obligor.495 It deserves noting that such a distinction in theory not only purposes to describe the tortious interference, but also intends to meet the normative goal that different imputation standards are set for different forms of interference.496 The form of interference with the attribution of claims, namely, direct interference, mainly manifests in the act that the non-obligee receives or disposes of claims on the basis of the status of quasi-possessor of claims. On the occasion of receiving payment, provided a third party benefits from the interference, it may amount to harmful unjust enrichment. Whether it should be allowed to concur with the liability for interfering with claims is a matter of choice of legal policy. We will explain it later on. The extinction of the claim caused by a third party’s unauthorized disposition can only occur in bearer bonds. In other cases, the destruction of the certificate of claims only impedes the realization of the claim instead of resulting in its extinction. Therefore, there is no need to recognize the act of interference with claims. If the obligee suffers losses of expenditure, he may claim for compensation in accordance with the provisions on general tortious acts. If so, it is hard to see that his claims have been interfered with.497 493

See Wang Liming, Breach of Contract (Revised ed.), at the bottom of pp. 751 seq. See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 13. 495 See Han Shiyuan, The Law of Contract (3rd ed.), pp. 728–729. 496 See Han Shiyuan, ibid., pp. 730–731; Wang Wenqin, Interference with Claims by a Third Party, pp. 774, 781. 497 Scholars take Section 766A of the Restatement (Second) of Torts as an example to illustrate that the third party’s act constitutes interference with claims if his act increases the cost or difficulty to exercise the claims. See Wang Liming, Breach of Contract (Revised ed.), p. 756. The regulatory content of this section is an act that interferes with other people’s performance of their own contracts 494

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The indirect interference with claims indirectly affects the obligee by committing an injury to the obligor’s acts of performance or performance capabilities. Different from interference with the attribution of claims, the third party may or may not know the existence of claims in the case of indirect interference (regardless of negligence). Even if the third party is aware of legitimate claims, he may either actively pursue the effect of the interference or just recklessly ignore its result. Indirect interference may either result in the failure of claims, or just increase the risk of its realization (such as a priority claim is converted into a general claim); obligees may only suffer pure economic loss due to the interference with claims, or may suffer entity interference (interference with absolute rights and interests, such as body, property, etc.). Based on different value judgments, there may exist different understandings of whether or not these different cases can be uniformly dealt with. There are different understandings, in theory, of whether the interference with claims requires a damaged result, which is related to the form of tortious liabilities a third party should bear. In other words, if the liability for tortious interference is limited to damages, the element of damage should be required, which includes losses caused by the extinction of claims or impossibility of performance, defective performance or delay in performance of the obligor; if, however, it is recognized that a third party has an obligation to exclude hindrance, there is no requirement of damage.498 The cases in which the obligee may claim to a third party for hindrance exclusion mainly involve possession that has features of a claim. For example, a third party has no right to possess the real estate leased by the lessee. It is argued in theory that the lessee should be recognized to claim for hindrance exclusion on the basis of the damage to his right to lease.499 In my opinion, in the foregoing case, the obligee may claim for remedy based on the claim for the protection of possession (the claim for the hindrance exclusion of the possessor) or by analogy to the claim of the real right holder for hindrance exclusion. In terms of legal constitutive requirements, as the claim of possession or real right protection provided in the real right law is superior to tort law, the requirement of intent or negligence doesn’t have to be taken into account.500 Whereas it makes no difference in remedy effect, there is no need to turn to the institution of interference with claims. It, therefore, is reasonable for the interference with claims to meet the requirement of damage. intentionally, namely, the obligor’s performance, and the subject is the obligor himself. Therefore, it is obviously not the regulatory content of the institution of interference with contractual claim by a third party, but only the general tort related to the performance of the contract. See Restat 2d of Torts, §766A, cmt. c and g. 498 See Han Shiyuan, The Law of Contract (3rd ed.), p. 732. 499 See Sun Senyan, General Review of Obligations on Civil Law (Part 1), Law Press China, 2006, p. 185. 500 In terms of legal interpretation, the right to claim for nuisance exclusion under tort law should have the element of fault according to the requirements of logic, but such interpretation may cause the problem of insufficient remedy or contradictory evaluation for victims under tort law. Therefore, there are views in theory that the liability for nuisance exclusion should be treated differently from the general form of tortious liabilities, and fault is not necessary. See Cui Jianyuan, On the Relationship between Attribution Principles and Tortious Liability, Chinese Law Science, No.2, 2010, p. 43.

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It is clear that causation between a third party’s injurious acts and damage to the obligee must be required, so we don’t have to further elaborate on this problem. (b) Imputation Standards for Interference with Claims As we have seen, there are different forms of interference with claims. There are different understandings or practices of whether to adopt a unified element of imputation or deal with different cases in a different fashion. From the comparative perspective, in French law, interference with claims can only be constituted by intent. In other words, a third party is not liable for a tort even though he negligently fails to investigate or ascertain the existence of valid claims.501 In Scandinavian and common law countries, inducing a third party to breach the contract is also identified as the action of malicious tort.502 In German theory and practice, interference with claims is included in Section 826 of the German Civil Code, which requires that a third party, contrary to bonos mores, intentionally inflict damage on another person. Most scholars in Taiwan hold the same view.503 Article 766 of the Restatement (second) of Torts provides that a person who intentionally and improperly interferes with a contract of another person by inducing breach of contract or other means that cause the obligor to fail to perform the contract should be liable for tort in respect of the economic loss suffered by the obligee. The main reason for limiting the liability of a third party to intent is to avoid overburdening the freedom of action of the third party.504 If, however, the third party’s negligence causes physical harm505 to the obligee, he still has to compensate for the corresponding direct and indirect losses.506 Consequently, the interference with claims is not only recognized in exceptional circumstances, but also requires intent or even violation of bonos mores.507 Most Chinese scholars contend that the interference with claims should be intentional (or malicious)508 ; a few argue that it should be limited to 501 See Zhang Min’an, A Study of Third-Party Contractual Tortious Liabilities, Journal of Sun Yat-sen University, No.4, 1997, p. 38. 502 Christian Von Bar, The Common European Law of Torts (Band 1), pp. 396–397. 503 See Sun Senyan, General Review of Obligations on Civil Law (Part 1), Law Press·China, 2006, p. 184; Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 144. 504 See Restat 2d of the Law, Torts, §766C cmt. a. However, there are still some cases that affirm the tortious liabilities of the third party for negligent interference with claims. Ibid. “ Physical harm” means physical damage to land, movable property or the body of a person. (See Black’s Law Dictionary [8th ed.], p. 734.) 505 “Physical harm” means physical damage to land, movable property or the body of a person. (See Black’s Law Dictionary [8th.ed.], p. 734.) 506 Ibid., §766C cmt. b. However, in the case where the act of the third party indirectly causes physical harm to the obligee, even if the institution of interference with claims by a third party is not accepted, the aggrieved party can also be entitled to claim compensation from the actor according to the provisions of general tort. Therefore, indirect tort is usually limited to the situation that causes economic loss to obligees. 507 See Shen Jianfeng, Interference with of Labor claims by a Third Party: Theoretical Deconstruction of Article 91 of the Labor Contract Law of the People’s Republic of China, Western Law Review, No.3, 2011, p. 45. 508 See Wang Liming, Breach of Contract, p. 754; Zhang Jianyuan, System of Interference of Claims, Science of Law, No.4, 1993, p. 41; Zhang Min’an, A Study of Third-Party Contractual Tortious

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the manner in which a third party intentionally violates the bonos mores.509 Still, others believe different imputation standards should be set to distinguish between direct and indirect interference. Whereas direct interference requires negligence,510 indirect interference should be intentional.511 As the existence of claims can, in terms of direct interference, be identified by a third party, the problem no longer exists that the claims may hinder the freedom of action due to the absence of social openness, and hence there is no need to limit the liability for interference by intent. Where the third party receives payment based on the status of quasi-possessor of claims, the institution of unjust enrichment is sufficient to remedy the obligee. As such, the institution of interference with claims is only based on logical reasons rather than on practical value.512 In the case of the unauthorized disposition of the claims, if a third party thereby gains profits, the obligee may also obtain a remedy through the institution of unjust enrichment; if the third party gains no profit and the obligee has no other remedy (for example, the obligee cannot get the return from the person, who obtain the claim free of charge through unjust enrichment, because the person in question has no property capability), or the third party’s gains are less than the losses suffered by the obligee, it is then necessary to recognize the interference with claims. In this case, because the third party can identify the existence of claims, it is reasonable to recognize the liability for interference with claims by negligence. Therefore, there is no need to admit the institution of interference with claims in the case of direct interference. Even if it is admitted on the basis of a conceptual logic, it should be treated the same as general tortious acts. Hence the special significance of the interference with claims rests only on indirect interference. At this point, it is generally contended that the requirement of intent should be met. The judgment of intent not only requires a third party to know the existence of other people’s valid claims (cognitive factor), but also needs to damage

Liabilities, p. 41; Li Qingchao, A Concept of Interference of Claims by a Third Party, People’s Court Daily, 4.28, No.007, 2004; Wang Rongzheng, The Concept of Establishing a System of Interference of Claims in the Civil Code, Modern Law Science, No.5, 2004, p. 146; Mei Xiaying & Zou Qizhao, On the Relationship Between the Privity and the Inviolability of Claims, Journal of YanTai University, No.1, 2005, p. 22. 509 See Li Shaozhang, Constitution of Interference with Claims by a Third Party, Journal of Beijing College of Politics and Law (2002), No.3, p. 35. See Shi Shangkuan, General Theory of Civil Law, p. 137; Wang Wenxin, Interference with Claims by a Third Party, p. 781; Han Shiyuan, The Law of Contract (3rd ed.), p. 730. 510 See Shi Shangkuan, General Theory of Civil Law, p. 137; Wang Wenxin, Interference with Claims by a Third Party, p. 781; Han Shiyuan, The Law of Contract (3rd ed.), p. 730. 511 As for the connotation of intention, there is a difference between ordinary intention and “harmful intention” or “malice”. The former only requires the third party to know the existence of claims, while the latter requires the third party not only to know the claims, but also to have the purpose of interference with claims. See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 146. 512 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 146.

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the claims intentionally (factor of will).513 Whether the claim is valid or not should be judged objectively. A revocable claim should be treated as valid before it has been revoked, unless a third party has the right to revoke it in accordance with the law.514 The intent to damage the claim should be the sole or main purpose for which the third party commits a wrong because, without such a limitation, the liability of the third party would be too extensive to be desirable in legal policy. Especially in the realm of free competition, even if the third party is aware that his acts are harmful to the claims, it does not necessarily constitute an interference with the claims, because such acts can be justified on the grounds of economic freedom. In this sense, emphasizing that interference with claims requires malicious intent is, in effect, the same as it does an intentional violation of bonos mores.515 In Chinese legislation, there are no general provisions on the interference with claims, so it is difficult to judge the legislative orientation of the imputation element involving the institution. Article 91 of the Labor Contract Law, nevertheless, provides that “Where an employer hires any employee whose labour contract with another employer has not been dissolved or terminated yet, if any loss is caused to the employer mentioned later, the employer first mentioned shall be held jointly and severally liable for compensation.” This provision does not explicitly limit the imputation standard of the employer in such cases. Suppose an employer negligently employs workers who have not dissolved or terminated the labour contract. If he, for example, doesn’t fulfill the duty to investigate or does it in an improper way (the common practice is that the employer simply requires the labourer to guarantee that there is no case of undissolved or non-terminating labour contract), or even employs workers absent fault, literally he still should be liable for compensation based on the aforesaid provision.516 In judicial practice, there were such cases where the court determined the third party had negligently interfered with labour claims. In a compensation dispute over a doctor’s job-hopping, the court held that, when employing, the employer (the defendant) did not have the employed person show the work transfer formalities and did not strictly examine whether the working relationship between the defendant and the first employer was terminated, the defendant, therefore, accepted the employment in violation of the relevant provisions on the staff transfer of the state-owned institutions. Together with the employed person, the defendant should be held jointly and severally liable for compensation to the first employer because

513

See Wang Wenqin, Interference with Claims by a Third Party, p. 782; Wang Liming, Breach of Contract (Revised ed.), p. 755; Han Shiyuan, The Law of Contract (3rd ed.), pp. 730–731. 514 See Restat 2d of torts, §766 cmt. f. 515 Wang Zejian holds that the interpretation can be considered to constitute a tort intentionally contrary to good morals if a third party destroys a specific subject matter with the intention of interference with claims, or restricts the obligor’s person to make him unable to perform. See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), p. 144. 516 See Shen Jianfeng, Interference with of Labor claims by a Third Party: Theoretical Deconstruction of Article 91 of the Labor Contract Law of the People’s Republic of China, Western Law Review, No.3, 2011, p. 45.

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he was at fault.517 In light of interest trade-off, it is manifestly inappropriate hat the provision, on the one hand, overburdens the employer who recruits labourers, and overprotects the labor claim of the first employer on the other, thereby hindering the free flow of labour force. In other cases regarding interference with claims, courts generally adhere to the element of intent or malicious intent. In the Economic Union of Xiajiangcheng, Gaozhen Town, Dongguan City v. Zhao Jiumei (a case of an appeal on the dispute over interference),518 the court held that, in accordance with the legal principle, the constitutive requirements for interference with claims are as follows: “(1) there is a legally protected claim; (2) the subject of the interference is a third party other than the parties to the contract; (3) the third party violates its legal obligations and commits the interference intentionally; and (4) the third party’s harmful act has objectively caused damage to the claim.” The court examined the facts involved in the case and denied the plaintiff’s tort claim on grounds that the defendant did not inflict harm intentionally. Similarly, in Shenyang Jinlong Hotel v. Shenyang Commercial City Advertising Co., Ltd. (a case of an appeal on dispute over a contract),519 the court pointed out that there was an academic view that due to the absence of social openness of the claim, a third party should be liable only when he interfered with the claim by intentional violation of bonos mores. Meanwhile, it also held that the liability should be determined by combining the specific facts with the balance between the protection of the obligee’s interests and the third party’s freedom of action. Nevertheless, through the reasoning of the final judgment, the court still believes that only intent can constitute the interference with claims. b. Legal Effect of the Interference with Claims A third party should be held liable to the obligee due to the interference with the claims in accordance with tort law. The scope of this liability is limited to the loss of claims caused by the third party’s interference. However, three questions still need to be answered in the application of the institution: first, is the obligor exonerated from the liability for non-performance of the obligation due to the obstruction of performance by a third party? Second, can the obligor constitute joint liabilities with the third party for interference with claims? Lastly, does the obligor have the right to recover from the third party for the liability he assumes to the obligee? (a) The Obligor’s Liabilities for Non-performance of Obligation and Third Party’s Interference with Claims 517

See Wu Yonghong, Yang Lihong, Huge Compensation Claim Caused by Job-Hopping of a Doctor Studying in the United States, see http://oldfyb2009.chinacourt.org/public/detail.php?Id= 43029. Date of visit: May 18, 2012. See Guangdong Donguan Intermediate People’s Court (2001) Don Zhong Fa (Min) Zhong Zi No.42. 518 See Guangdong Donguan Intermediate People’s Court (2001) Dong Zhong Fa (Min) Zhong Zi No.42. 519 See Liaoning Shengyang Intermediate People’s Court (2005) Sheng Zhong (Min) (3) Quan Zhong No.59.

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Suppose the obligor is unable to perform the obligations to the obligee because of the interference of a third party, such as the damage to the subject matter of the obligations or the detainment of the obligor by the third party. Since the obligor is not responsible for the third party’s acts (namely, the third party is not the assistant who helps the obligor with the obligation performance), it is doubtful whether the obligor can be exonerated from the liability for non-performance of the obligation. It depends on the principle of the imputation of liabilities for non-performance. In the civil law system, the liability for non-performance generally adopts the fault liability; that is, the obligor is only liable for non-performance at fault. Exceptionally, it also provides that the obligor should be liable for non-performance of the obligation according to the acts of the person who participates in the performance of the obligation with intention. Typically, Section 278 of the German Civil Code provides that “the obligor is responsible for a fault on the part of his legal representative, and of persons whom he uses to perform his obligation, to the same extent as for fault on his part.” In theory, it is named the rule that “the obligor is responsible for the performance of the assistant.”520 Whereas there is no general norm of liabilities for non-performance of obligations in Chinese law, many principles of imputation have been adopted in various standards for non-performance. Strict liability or no-fault liability is the imputation standard of the liability for breach of contract under general circumstances (Article 107 of the Contract Law) and some statutory liabilities (Article 92 of the General Principles of the Civil Law on the liability for the return of unjust enrichment, Article 92 of the Property Law on the liability for damage caused by the use of adjacent real estate); the imputation standard of the liability for breach of contract under exceptional circumstances (such as the provisions of Article 189 and Article191 on the liability of donors, Article 303 on the carrier’s compensation liability for passenger’s own baggage, Article 374 on liability of non-reimbursable custodian for compensation, etc.), some statutory liabilities (such as the provisions of Article 42 and Article 58 of the Contract Law on liability for damages for culpa in contrahendo) and the types of liabilities that should be attributed to fault in theory (such as the liability for breach of protective duty of contract that is unrelated to the performance, the compensation liability for damage caused by the negotiorum gestor due to his own mismanagement) falls within fault liability. In the case of no-fault liability or strict liability, if the obligation is not performed due to a third party’s interference, the obligor should still be liable for the nonperformance of the obligation because the third party’s act, which is called a “normal event” in the theory of the civil law, can’t be attributed to force majeure. If, however, there is an agreement between the obligee and the obligor that the obligor is not liable for non-performance due to the act of a third party, such an agreement is still valid and has the effect of exonerating the obligor’s liabilities. On the contrary, suppose the obligation is not performed due to a third party’s act in case of fault liability. If the third party participates in the performance of the 520

Further discussion please refer to Wang Zejian, Liabilities for the Performance of the Assistant, Theory and Case Study of Civil Law (Vol. 5), Peking University Press, 2009.

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obligation—an act that is not based on the obligor’s intention, he then should not be regarded as an assistant for the performance of the obligation. It is, therefore, worth discussing whether the obligor should be liable for the non-performance caused by the act of the third party.521 According to the principle of self-liability, the obligor should be liable for the non-performance of the obligation caused by his own fault; when the third party participates in the performance of the obligation with the intention of the obligor, the obligor should be held liable for the third party’s acts even though he is not at fault.522 Suppose the third party is not the person used by the obligor. If the obligor should be liable for the consequences brought about by the third party’s acts, it will conflict with the imputation principle of negligent liabilities. In order to avoid such a conflict, it seems that the obligor should be exonerated from the liability for the non-performance of obligations. However, in Chinese law, it does not handle non-performance by distinguishing different imputation principles of the liability for non-performance of the obligation. Article 116 of the General Principles of Civil Law provides that “if a party fails to fulfill his contractual obligations on account of a higher authority, he should first compensate for the losses of the other party or take other remedial measures stipulated in the contract and then the higher authority shall be responsible for settling the losses suffered by the party.” Article 121 of Contract Law further provides that “where a party’s breach is attributable to a third party, it shall nevertheless be liable to the other party for breach. Any dispute between the party and such third party shall be resolved in accordance with the law or the agreement between the parties.” What is the effect of such provisions? Theoretically, the foregoing provisions are interpreted as an extension of the liability for breach of contract, which holds the obligor liable for any nonperformance caused by a third party.523 Although this interpretation is, to the greatest extent, literally consistent with the law, it still needs to be amended. It should be noted that no matter whether Article 116 of the General Principles of the Civil Law or Article 121 of the Contract Law is only connected with the liability for breach of contract, hence these provisions do not affect the conclusion that was reached on the liability for non-breach of contract in the foregoing discussion. Consequently, the following discussion is limited to the case of the liability for breach of contract. What Article 116 of the General Principles of Civil Law provides is related to the situation in which the obligor fails to perform his obligations on account of a higher authority, which is distinctively characterized by the times of the planned economy. While this special provision was provided for the special management model of economic organizations in the era of the planned commodity economy, it is incompatible with today’s society and economy, And thus, only Article 121 of 521

Scholars believe that the concept of “performance assistant” does not seem to be used in Chinese legislation. (See Han Shiyuan, The Law of Contract [3rd ed.], p. 597.) However, even if it is true, there is no barrier to use of this concept in theory or in interpretation of law. The concept of performance assistant has a special analytical function, even if this concept is not adopted in legislation. 522 For the nature of the obligor’s liabilities for the negligence of the performance assistant, please refer to Wang Zejian, Theory and Case Study of Civil Law (Vol. 6), pp. 52–54. 523 See Han Shiyuan, The Law of Contract (3rd ed.), pp. 599–600.

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Contract Law is worth our special attention. Literally, Article121 does not impose any restriction on the scope of third parties. Systematically interpreted, however, it should be holistically considered, together with Article 107 of Contract Law. In other words, it should be regarded as a special provision guided by the general imputation principle of the liability for breach of contract. As the imputation principle established in Article 107 is a strict liability or no-fault liability, Article 121 should also be treated as a provision of liabilities only related to strict liability. Such interpretation not only conforms to its features as a general provision of the liability for breach of contract, but also avoids the normative conflict that the obligor should be held liable for a fault on the one hand and for the third party’s acts against his own intention on the other. Therefore, Article 121 should be interpreted in a restrictive way as follows: if the obligor breaches the contract due to a third party’s act, he should be held liable for breach of contract to the other party, except that the liability for breach of contract is improper according to the nature of the liability. Accordingly, in case of fault liability, the obligor should not be held liable for breach of contract unless it is caused by a third party as the assistant to the performance of the obligation. (b) The Joint Interference with Claims by the Obligor and a Third Party? Suppose a third party and the obligor maliciously collude to harm the obligee’s interests. Whether or not this malicious collusion should be dealt with as joint and several liabilities in tort, there is no clear provision in Chinese law. For malicious collusion, the General Principles of the Civil Law of the People’s Republic of China only provide that the legal transaction carried out by malicious collusion is null and void (Article 58 (1)(d)), and that the property acquired by the actor through the collusion should be returned to the damaged person (Article 61 (2)).524 The issues about the nature of the damaged interests and the liability for such damage are not included in the law. Article 2 of the Tort Law of the People’s Republic of China provides that those who interfere with civil rights and interests shall be subject to tortious liabilities under this law. According to Article 8 of the Tort Law, the acts of the obligor and the third party should constitute joint and several liabilities in tort in the foregoing case.525 In addition, the obligor should be held liabilities for non-performance of the obligation or breach of contract due to his own obligation to perform. As we can see, the act of the obligor simultaneously meets the constitutive requirements of the liability for non-performance (or breach of contract) and of tortious liabilities, hence a concurrent liability.526 If the obligor and a third party collude maliciously for the purpose of damaging the interests of the oblige such as forging false transactions to transfer property and evade obligations, the act of the obligor amounts to an active breach of contract, 524

Articles 52(2) and 59 of Contract Law also have the same stipulation. See Wang Liming, Breach of Contract (Revised ed.), pp. 752–753; Wang Zhongyi, Jin Fuping, & Yuan Yong, Analyasis of Interference with Claims by a Third Party, Hubei Social Sciences, No.12, 2004, p. 33; Lu Wendao & Ying Zhenkun, Interference with Contract Claims, Law Science, No.9, 1994, p. 15; Li Qingchao, A Concept of Interference of Claims by a Third Party, People’s Court Daily, 28th April 2010, p. 7. 526 See Wang Liming, Breach of Contract (Revised ed.), p. 761. 525

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whilst the third party is characteristic of a joint tortfeasor. Under such circumstances, it can be logically determined that the acts of the two parties constitute joint and several liabilities in tort. Once the act with malicious collusion is determined to be null and void, the property transferred due to the collusion will be returned to the obligor as the liability property, whereby the interests of the obligee can be fully protected. Consequently, other than meaningful in procedural jurisdiction, it is of no practical value for the obligor to be held liable for tort in addition to the liability for non-performance of the obligation.527 Admitting the joint and several liabilities of the obligor and the third party may overshadow the constitutive requirements of the liability for interference with claims. If so, it will inappropriately expand the application of the institution of the interference with claims. Take dual sale, for example. If the second buyer knows the existence of the first buyer and still colludes with the seller to register in advance, does it constitute malicious collusion which interferes with the first buyer’s claim? Some scholars think it does.528 It is generally believed, in theory, that several sales contracts established on the same subject matter of performance are equally valid due to the non-exclusivity of claim, and therefore claims formed earlier have no priority over those formed later. This viewpoint is, however, not entirely consistent with what the Supreme People’s Court holds. According to the Interpretation of the Supreme People’s Court on the Relevant Issues concerning the Application of Law for Trying Cases on Dispute over Contract for the Sale of Commodity House (Interpretation 7 [2003] of the Supreme People’s Court), if a seller conclude another housing sales contract through malicious collusion with a third party and delivers the house to the third party for use, thus making the first buyer unable to obtain the house, the first buyer can claim to confirm that the contract in question is invalid.529 This interpretation, on one hand, requires that the sales contract be concluded in malicious collusion. On the other hand, it requires there be a damaged result: the seller delivers the house to the second buyer for use so that the first buyer cannot obtain the house. If the seller just enters into the sales contract with the second buyer without delivering the house to him for use, or deliver it for use without maliciously colluding with him, it should not be applied to invalidate the contract in question. Some questions need to be discussed as follows: First, how can the malicious collusion between the seller and the second buyer be determined? There are different views on it in the theory of Chinese civil 527

See the Supreme People’s Court, Provisions of the Supreme People’s Court on Several Issues concerning the implementation of the people’s Court (for Trial Implementation) (Judicial Interpretation [1998] No.15), Article 33 provides that if financial institutions unfreeze the funds frozen by the people’s court without authorization and causes damages to the applicant for implement, it shall bear the corresponding liability for damages; Articles 37, 56, 58, 67 provide that if the assisting executor fails to cooperate with the implement and causes damages to the applicant, the assisting executor in question shall bear the corresponding liability for damages. 528 Ibid., p. 753. 529 See Supreme People’s Court, Interpretation of the Supreme People’s Court on the Relevant Issues concerning the Application of Law for Trying Cases on Dispute over Contract for the Sale of Commodity Houses, (Judicial Interpretation [2003] No.7), Article 10.

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law. One is that malicious collusion refers to the act of profiting from collusion with others for the purpose of harming the interests of the state, the collective or individuals530 ; the other is that both the actors intentionally collude to conduct a false act.531 Literally, malicious collusion is characterized by joint intent (namely, harming the interests of the state, the collective or a third party), regardless of whether it is a “false act” or not. In other words, the act conducted by collusion may be either a real legal transaction or a false one. No matter what it is, it is invalid in accordance with the General Principles of Civil Law and Contract Law. If the parties do not collude to conduct a false act, but only realize that the act will damage the interests of the third party, is it sufficient to constitute a “malicious collusion”? In fact, resources being limited, any legally competitive transactions may cause more or less adverse effects or damage to others. For the purpose of free competition, it is obviously impossible to impose liabilities on all acts that will knowingly cause damage to others. Instead, only those that mainly intend to harm the interests of others should be prohibited by law. Likewise, it is appropriate to interpret legal transactions based on malicious collusion in this way. The second buyer’s act therefore should not be simply determined as malicious collusion just because he knows the existence of the first buyer. It should also meet the requirement that the main purpose of the act is to harm the first buyer. Second, suppose the second buyer does not know the existence of the first buyer when forming the contract until at the moment of performance and then colludes with the seller to obtain possession and ownership of the subject matter, leading to damage to the first buyer. How is it to be dealt with? The effect of this kind of act to the first buyer is the same as in the previous case, and there exists a similar collusion between the second buyer and the seller. Nevertheless, the collusion is not intended to conclude a contract, but to transfer the possession and ownership of the subject matter. Hence the contract between the seller and second buyer cannot be invalidated, as it is inconsistent with the requirements of the judicial interpretation. How can the different results be rationalized? In case of multiple transfers of the right to use the state-owned land, the relevant judicial interpretations read that the second transferee can claim for priority protection in disregard of the contract formed between the seller and first buyer.532 For sales 530

See Supreme People’s Court, Interpretation of the Supreme People’s Court on the Relevant Issues Concerning the Application of Law for Trying Cases on Dispute over Contract for the Sale of Commodity Houses (Judicial Interpretation [2003] No.7), Article 10. See Li Youyi, Civil Law, Peiking University Press, 1988, pp. 129–130; Wang Liming, Fuo Mingrui, & Fang Liufang, New Analysis on Civil Law, China University of Political Science and Law Press, 1989, p. 391. 531 See Zhang Junhao eds. The Principle of Science of Civil Law (3rd ed.), China University of Political Science and Law Press, 2000, pp. 277–278; Long Weiqiu, General Theory of Civil Law, China Legal Publishing House, 2001, p. 585. 532 See Interpretation of the Supreme People’s Court on the Application of Law for the Trial of Cases of Disputes on Contracts Involving the Right to Use State-owned Land, Article 10, para.1 (1)(2)(3). Shanghai First Intermediate People’s Court (2009) Hu Yi Zhong Min Er (Min) Zhong Zi No. 898.

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contract of housing, if it is likewise carried out in practice, the right to the subject matter acquired by the second buyer should be protected by law. Whereas an act intended to harm interests of others is not necessarily beyond the protection of law, merely one that has not been permitted by law is prohibited. It follows that acts that primarily aim at harming the interests of others amount to prohibited acts. Third, according to the above-cited judicial interpretation, whether or not the buyer is able to obtain the house is premised on the delivery of the house for use, which is obviously contrary to the rule that the ownership of a house is transferred by registration (especially confirmed after the enactment of the Property Law). Although the second buyer takes delivery of the house, the first buyer obtaining the ownership of the house through registration can still request the second buyer to return the house based on the ownership, rather than claiming to invalidate the second buyer’s contract. In other words, whereas the delivery is not sufficient to prevent the first buyer from obtaining the house, he has barely suffered damage. If the delivery was amended as “ownership transfer by registration”, the requirements of damage to the first buyer would be satisfied. As analyzed earlier, however, it is inappropriate to excessively restrict economic freedom by recognizing the contract concluded between the second buyer and the seller as malicious collusion without strict requirement for the subjective intention. More importantly, suppose a loose standard has been adopted to determine a malicious collusion between the second buyer and the seller (that is, merely joint intent is required). It does not follow that the joint and several liabilities to the first buyer can be further established. Since the second buyer usually makes the purchase in order to obtain his own competitive interests in case of dual sale, it seems insufficient to regard all such acts as contrary to bonos mores. Moreover, it is too harsh for the second buyer to be held liable for tort as he has been sanctioned by nullifying the transaction. Therefore, where the seller and the second buyer intentionally enter into a contract that damages the first buyer’s interests, it is sufficient to protect the first buyer’s interests at his request by determining that the second contract is null and void. It is inappropriate to hold the seller and the second buyer jointly and severally liable on the grounds of joint interference with claims. A second example might be: suppose an obligor waives a mature claim or transfers his property gratuitously or at an unreasonable low price to a third party. If the third party knows that the obligor’s act will harm the interests of the obligee but still accepts it, do their acts constitute joint interference with claims? Some judicial cases hold a positive view. In Shanghai Senben Real Estate Co., Ltd. et al. v. Shanghai Yongyi Real Estate Co., Ltd (an appeal case on dispute over a joint real estate development contract),533 defendant A was a project company jointly established by the plaintiff and others, and assumed specific obligations to the plaintiff. Defendant A entered into a contract with defendant B for the transfer of the project under construction, but the rights and interests of the plaintiff were not included therein and defendant 533

Shanghai First Intermediate People’s Court (2009) Hu Yi Zhong Min Er (Min) Zhong Zi No. 898.

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B knew the fact. The court held that the transfer of the project by the two defendants at an excessively low price constituted a joint interference with the plaintiff’s claim. Whilst Article 74 of Contract Law provides the right to revoke, it does not explicitly provide the institution of interference with claims by a third party. It is, nevertheless, necessary to grant judicial remedy to the interference. Although in this case the plaintiff can realize the claim by exercising the right to revoke, “it is an indirect way in which a new action is required, and is restricted by the scheduled period. Now Yongyi does not exercise the right to revoke, but directly requires Huihui be jointly held liable for compensation. Being factually and legally based, its claim is conducive to the settlement of contradictions and to the protection of claims as well.” Consequently, the two defendants were ordered to be jointly and severally liable for the losses suffered by the plaintiff. According to the reasoning of the judgment in this case, where the obligor abandons the due claims or assigns his property gratuitously or at an unreasonable low price, the assignee may be deemed as “malicious collusion” by the court as long as he knows that the act will harm the interests of the oblige. Hence the assignee’s act meets the constitutive requirements of interference with claims in addition to the obligee’s right to revoke. It is worth noting whether the interests are properly balanced as interests of a third party are largely influenced by this practice. In practice, “malicious collusion” related to the right to revoke is mainly manifested in the cases where an obligor and a third party transfer the property through legal transaction to evade the obligation, or maliciously create real rights for security to harm the interests of a general obligee. In the former case, after the obligee exercises the right to revoke, the obligor’s acts of exemption and transfer are void ab initio. and the third party should return the acquired property to the obligor. At this point, the interests of the obligee can be fully protected, and there is therefore no need to trigger the institution of interference with claims. In the latter case, there are special provisions in the judicial interpretation of the Security Law by the Supreme People’s Court. According to the interpretation, where the obligor, through malicious collusion with some general obligees, collateralizes all or part of his property to the obligees in question, leading to a failure to perform other obligations, other obligees whose interests have been damaged may request the court to rescind the collateral act.534 It limits the malicious creation of the real rights for security to malicious collateral act, and thus excludes other real rights for security. Whether or not it can analogously apply to other real rights for security should be interpreted affirmatively so as to maintain consistency in value judgment. Once the real rights for security is revoked, the interests of obligees can also be fully protected. As discussed in the sample case, if the acts of the obligor and the third party amount to a joint and several liabilities in tort according to a normative logic, the institution of interference with claims tends to be expanded. In the case of malicious collusion, though the third party knows his act will damage the claim, he proceeds to accept the exemption or gratuitous property or property at an unreasonable low price. it is still difficult 534

Judicial Interpretation of the Supreme People’s Court on Some Issues Regarding the Application of Security Law of the People’s Republic of China, Article 69.

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to satisfy the subjective imputation requirement of interference with claims. Under such circumstances, the third party primarily aims to secure the payment of his claim prior to others, rather than damage the obligee. It is therefore insufficient to meet the requirement of subjective imputation for interference with claims. If, however, the obligor’s obligation of performance based on the obligation relationship involves the inherent interests of the obligee, his breach of contract satisfies the constitutive requirements of tortious liabilities. There are therefore no obstacles to the establishment of joint and several liabilities in tort, provided that the third party colludes with the obligor to harm the obligee’s interests in question. In Nanjing Yuanchao Transportation Co., Ltd. et al. v. China Railway 18th Bureau Group Co., Ltd. Nanjing Branch (an appeal case on dispute over compensation for property damage),535 the defendant, when transporting cement for the plaintiff, stealthily replaced the designated cement along with others, resulting in quality problems of the ready-mixed concrete supplied by the plaintiff to the third party. The plaintiff suffered loss of profits due to the suspension of the supply for a certain period of time, thereby claiming compensation from the defendant. The court of the first instance held that the contractual claim, as a kind of right, was inviolable. The defendant’s act leading to the plaintiff’s interruption of the supply contract was illegal and at fault. The court held the defendant liable for tort in that a causation occurred between the loss suffered by the plaintiff and the defendant’s replacing act. The court of second instance held that whilst the defendant breached the contract, the replacing act was carried out jointly with a third party outside the contract. The plaintiff had a legal basis to file an action of tort to hold relevant persons liable. In the present case, the loss of profits suffered by the plaintiff is merely an indirect one resulting from the injury to the ownership of cement rather than a loss of expected interests caused by the non-performance of the obligor. It therefore cannot be regarded as the sole outcome of the interference with claims. Strictly speaking, it is not a case of interference with claims, but a common intentional tort. Though in normative logic, malicious collusion between the obligor and a third party meets the requirements of joint and several liabilities in tort, it should be conceived of as normative concurrence between the right to revoke and the interference with claims. Suppose the damage suffered by the obligee is no more than an undue reduction in the general property of the obligor that would have otherwise been used to pay off the obligation. In terms of normative concurrence, the norm concerning the right to revoke should take priority; therefore, there is no need to recognize the joint and several liabilities in tort. This kind of priority does not derive from the relationship between the special norms and general ones, but from the fact that it is not only compatible with the degree to which obligees are protected, but also conducive to the maximum implementation of the principle of privity of contract. (c) Allocation of Liabilities between Obligors and Third Parties

535

Shanghai Railway Transportation Intermediate People’s Court (2008), Hu Tie Zhong (Min) Zhong Zi No.17.

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Theoretically, in the case of interference with claims, where the liability for obligor’s non-performance of obligation and the liability for interference with claims point to the same performance, it is generally believed that joint liability or joint obligation occurs. In view of the nature of joint liability, there is a viewpoint, in theory, that it constitutes unreal joint liability.536 The feature of unreal joint liability is that more than one obligor are responsible for the same performance for different obligatory reasons. Recourse does not naturally arise within these obligors, unless there is a special legal relationship among them, such as a contractual or tortious relationship. However, this kind of recourse, which does not derive from the subjective correlation, is caused by other legal relations other than by joint obligations. It is therefore fundamentally different from those arising from common joint obligations.537 For unreal joint obligations caused by a third party’s interference, the existence of recourse between the obligor and the third party and its scope should be determined under different circumstances. Suppose the obligor fails to perform obligations due to a third party’s tortious act. The obligor is liable for the non-performance to the obligee and has the claim of compensation for tort to the third party. The third party is liable for interference with claims to the obligee and for general tort to the obligor. If the obligor has compensated the obligee for damage in advance, he does not necessarily seek recourse from the third party, but claims compensation for the damage caused by the third party based on the provisions of the general tort. The scope of compensation includes not only the losses caused by the tortious act (such as personal or property losses), but also those arising from its liabilities to the obligee for non-performance of the obligations. However, the value of the reciprocal performance obtained from the obligee should be deducted. If the third party has compensated the obligee for damage in advance, he may claim for recourse from the obligor within the scope of performance that the obligor should have made, but the obligor may claim offset through his own claim for compensation of tort. Where a third party instigates or induces the obligor to breach the contract, it is different from the situation mentioned above in that the obligor actively participates in the breach of contract. If the obligor has obtained the reciprocal performance from the obligee and compensates the obligee for the losses in advance related to the performance that he originally bears, the obligor should not seek recourse from the third party; if the third party compensates the obligee in advance, he may claim the losses from the obligor. It is worth discussing how to allocate between the obligor and the third party the increased expenditure due to non-performance, such as delay damages, earnest money, loss of profits and even punitive damages. To begin with, when the obligor and the third party have an agreement on the allocation of the aforesaid losses, should the validity of this agreement be affirmed? That is to say, is it invalid if it is contrary to bonos mores? It seems undeniable 536

See Wang Liming, Breach of Contract (Revised ed.), p. 761. See Sakae Wagatsuma, The Civil Law IV: General Theory of Debt, Wang Yan Trans, China Legal Publishing House, 2008, pp. 393–396.

537

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that this kind of agreement is contrary to bonos mores as it is based on intentional non-performance. Furthermore, if the intentional non-performance is regarded as a wrongful act that should be prevented by the contract law or the law governing nonperformance, denying the validity of such agreements will contribute to deterring both the obligor and the third party, whereas recognizing it may only deter one party. If so, the obligor and the third party cannot seek recourse from each other according to the agreement between them on the allocation of liabilities.538 Next, where there is no agreement between the obligor and the third party on the aforesaid losses allocation or the agreement is found null and void, the allocation of liabilities will still arise between them. After all, for the joint obligors, those who have compensated the obligee for damage in advance due to the casual choice of the obligee should not also be held ultimately liable in the internal relations with other joint obligors.539 As such, if the principle of the liability for negligence is to be implemented, Article 87 of the General Principles of Civil Law and Article 14 of Tort Law may apply. Accordingly, the obligor and the third party should assume the losses based on the degree of fault; and if the degree of fault cannot be determined, the two should be obliged to perform the entire obligations evenly. For the purpose of deterring intentional breach of contract, both the obligor and the third party can be conceived of as voluntarily assuming the liability risk because of their intentional acts so as to impose heavier liability risk on the parties participating in the intentional breach of contract. In other words, each of them is held liable for the entire obligations, thereby denying their reciprocal recourse between them. As a result, neither the obligor nor the third party can claim the aforesaid losses from the other party after they have compensated the obligee. For the application of law, the previous approach should be affirmed since it is more consistent with the provisions of law. (3) The Status of the Institution of Interference with Claims by Third Parties in the System of Law of Obligations in China So far, as we have seen, although both the theory and the judicial practice of China have affirmed the institution of interference with claims, there still exist divergent opinions on the legal configuration and functional orientation of the institution. a. Is there any legal gap left in the institution of interference with claims? Some scholars hold that there are no relevant provisions governing the interference with claims in the existing law, so it leaves a gap in the law, which should be bridged by judicial interpretation and precedents.540 It does not seem to be sufficiently justifiable that a gap occurs due to the lack of express provisions of law. A gap in law does not mean that there is “no provision”, but that it lacks specific rules that are schemed 538

However, there is a view that in the case of interference with labor claims, if there is an agreement between the laborer and the new employer on the loss sharing of the liability for breach of contract, it should be followed. See Shen Jianfeng, Interference with of Labor Claims by a Third Party: Theoretical Deconstruction of Article 91 of the Labor Contract Law of the People’s Republic of China, Western Law Review, p. 47. 539 Dieter Medicu, Schuldrecht I: Allgemeiner Teil, p. 612. 540 See Wang Liming, Breach of Contract (Revised ed.), p. 743.

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based on law or expected in the whole picture of law.541 “There are gaps in law only when the law lacks appropriate rules for the specific types of cases within its scope of regulation. In other words, they occur when law remains ‘silent’ about the cases.”542 As for the scope of object protected by tort law, in Chinese law, there are no, even after Tort Law came into force, statutory restrictions of any kind imposing on the legally protected object of tort. In other words, as Chinese Tort Law adopts the model of general provisions of tortious liabilities, the protective scope is so extensive that almost all civil rights and interests can be encompassed in it. It is generally believed, in theory, that the term “property” mentioned in Article 106(2) of the General Principles of the Civil Law refers to both rights and interests to property. Accordingly, the act of interference with claims falls within the regulatory scope of the provision. Some judicial cases also hold the same view. In Shanghai Senben Real Estate Co., Ltd. et al. v. Shanghai Yongyi Real Estate Co., Ltd (an appeal case on dispute over a joint real estate development contract),543 the court of second instance held that the legal basis for interference with claims lies in Article 106(2) of the General Principles of Civil Law, which says that “claims, as expected property rights, should fall within the category of ‘property’, and for malicious interference with claims, the tortfeasor should be made to bear the corresponding liabilities…” ‘Claim’ does not included in the enumeration of the scope of “civil rights and interests” protected by Tort Law in Article 2(2), and there are different opinions on the interpretation of this enumeration. The opposite opinion argues that claims in nature are difficult to become the protected object of the tort law, although they can be theoretically included in it.544 In contrast, the affirmative one contends that in this provision the expression of “and other personal and property rights and interests” is used after enumerating some civil rights and interests, and hence covers the interference with claims.545 It is not hard to see, whereas these explanatory conclusions are ostensibly opposite, their basic standpoints are consistent. In other words, they both agree that claims should be protected by tort law, and the requirements of the liability for interference with claims should be treated differently from general tort. In this regard, there aren’t gaps in the current law in terms of whether the claim is the object protected by tort law. Nevertheless, for the legal structure of interference with claims, as analyzed earlier, the requirement of “negligence” is not enough, given the nature of claims for one thing and the protection for economic freedom for another. It therefore needs to meet the requirement of “harmful intent” or “malicious intent”. Consequently, the general provisions of tortious liabilities in law (Article 106(2) of the General Principles of Civil Law and Article 6(1) of Tort Law) cannot 541

See Karl Larenz, Methoden lehreder Rechtswissenschaft, Chen Ai’e Trans, The Commercial Press, 2003, p. 253. 542 Ibid., p. 249. 543 See Shanghai First Intermediate People’s Court (2009) Hu Yi Zhong Min Er (Min) Zhong Zi No.898. 544 See Chen Xianjie eds, The Essence of Articles and Case Analysis of Tort Law of the People’s Republic of China, p. 7, n. 4. 545 See Wang Shengming eds, Interpretation of Tort Law of the People’s Republic of China, Law Press·China, 2010, p. 27.

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be directly applied to the interference with claims. In this sense, the law governing the interference with claims is far from perfect, and the “normative gap” needs to be filled through legal activities. b. Should the Institution of Interference with Claims be Conceived of as a Complementary Norm? Some people believe that an obligee can obtain remedy from the institution of interference with claim only when the institution of non-performance (or contractual liabilities) fails to protect the obligee’s interests effectively. Otherwise, contractual claims will no longer be the main object protected by contract law, which will certainly undermine the logical system and rational division between contract law and tort law.546 This view, though reasonable to a certain extent, is less convincing. It is obviously overstated that the institution of interference with claims will change contractual claims as the main object protected by contract law. From the comparative perspective, the conditions that can apply to the institution are often strictly restricted, not least on part of the third party’s intent or ways to inflict harm. This is also true of the experience of judicial practice in China. As a result, the institution can only apply to the third party’s acts under special circumstances, extremely limiting the protective functions of tort law. Thus, claims are mainly protected by the institution of non-performance of obligation. Conversely, uncertainties may arise in the application of law if the interference with claims functions as a complementary legal institution. The uncertainties mainly rest on the question: how can we decide that contractual liabilities “fail to effectively protect an obligee’s interests”? If the standard is loose, the “complementary legal institution” will be of little significance; if it is too tightened, it will be contrary to the institutional goal that enhances remedies for obligees by the institution of interference with claims. In fact, compared with the institution of non-performance, the institution of interference with claims requires to meet more stringent applicable conditions. As long as the institution of non-performance effectively protects claims, a rational obligee will not imprudently choose to claim the interference against the third party. Therefore, the institution of interference with claims will not be excessively abused even if it is not established as the complementary norm. However, it does not follow that the application of the institution cannot be properly restricted. As discussed earlier, in case that the claim can be fully protected through the invalid contract or right of subrogation or right to revoke of the obligee, the liability of a third party for interference with claims should not be confirmed solely on the basis of normative logic. Take preservation of claims. If the obligor and a third party (sub-obligor) agree to impede the fulfillment of conditions for right of subrogation through an obligation rollover; or if the obligor colludes with the third party to harm the interests of the obligee by waiving the due claim or transferring property at a low price, or purchasing property at a high price, the system of right of subrogation or right to revoke of the obligee is sufficient to protect the interests 546

See Wang Liming, Breach of Contract (Revised ed.), p. 749; Wang Yaning, The Opinion of Interference with Claims by a Third Party, Legal Forum, No.4, 2006, p. 108.

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of the obligee. It is not necessary to hold the third party and the obligor liable for interference with claims due to their collusion. Generally speaking, a third party should be liable to the obligee in accordance with the tort law as long as the third party’s acts satisfy the constitutive requirements of interference with claims. Even if the obligor is also liable for non-performance of obligation based on the same performance, the obligee can voluntarily choose to claim rights against either the obligor or the third party for the obligee, the unreal joint liabilities assumed by the obligor and the third party on the basis of independent liabilities should have the same effect as does the common joint and several liabilities.

3.3 Summary The protection of the contract to the third party expands the scope of the subject protected by contract law, while the interference with claims by the third party provides enough remedy to the aggrieved party in contract law through tort law. Therefore, faced with system division, both systems show that contract and tort law can mutually cooperate with each other. The reason why we should emphasize system division is that contract and tort law have different objectives and foundations. If we fail to avoid the functional disorder that may be caused by the improper intersection of the two, we cannot realize the harmony and consistency of the intrinsic value of the legal system. Whether it is “contract hypertrophy” or “excessive expansion of tort law,” the problems caused by it need to be treated cautiously. However, taking system division as a rigid dogma that cannot be changed easily may damage the practical value of law. Technically speaking, law is a tool to meet practical needs and achieve appropriate social goals. Therefore, its application must be regulated according to social needs. In terms of comparative law, the determination of the boundary between contract and tort is often required to serve or obey practical needs, such as to avoid statutes of limitation or restrictive provisions on pure economic loss in tort law. If there is no difference in this respect, there is no reason to include damage to the third party caused by a breach of contractual obligations into contract law. Therefore, as the basic remedy system for right, contract and tort law need to cooperate with each other to realize the normative goal of law. When we deal with system division and coordination, we should have a clear understanding of them and maintain a moderate balance between them. For example, when expanding the social function of contracts, we should try our best to use the systemic setting in contract law to achieve the goal and avoid disturbing the existing system because of the introduction of a new system. This is why we emphasize using third party beneficiary contracts instead of using a system similar to a “contract with protective effects towards the third party” in German law to realize the protection of the third party by contracts. Similarly, when contract law system can fully protect claims, there is no need to identify the liability for interference with claims for logical reasons, though we do not agree to set up a supplementary system for interference with claims. In a word, when it comes to the legal regulation involving the phenomenon that contract and tort law mix up with

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each other, we should not form a conclusion by purely conceptual logic deduction, but make a system structure from the overall characteristics of legal system.

4 Summary of the Chapter The parties to a contract usually assume that the parties will perform their respective obligations in accordance with the contract. Therefore, they pay more attention to the content and conditions of performance than how to deal with non-performance.547 For this reason, performance of a contract has become a special normative content that distinguishes contract law from tort law. In theory, the goal to be achieved by the parties through their performance of contractual obligations is usually called “expectation interests”, which is distinguished from tort law that protects inherent interests or integritätsinteresse. As we have repeatedly stressed, contracts can realize functions of tort law by itself because of its instrumental value. As long as the legal concept of private rights and autonomy of private law is recognized, this special function of contracts cannot be denied. In this sense, any attempt to distinguish contract law and tort law by distinguishing protected objects may run the risk of being deviated from reality. In contractual relationship, the parties may not only pursue the safety of inherent interests or integritätsinteresse through contracts, but also undertake protective duty according to the agreement, legal provisions or the principle of good faith because the performance process is accompanied by the danger of injuring the aforementioned interests. In the latter case, the risk of damage is so closely related to the special relationship between the parties that the obligation to prevent the risk of damage can only be determined by combining the characteristics of this relationship. At this time, whether it is regarded as “contractual damage” or “extra-contractual damage” depends entirely on the judge’s evaluation of the legal significance of this combination. Generally speaking, as long as the aggrieved party can obtain compensation, there is no problem in separating the aforesaid damage from contract performance as “extra-contractual damage” to give remedy. Why do we stick to this “characterization”? As we can see when discussing the concurrence of contractual liabilities and tort liabilities, if we take the concurrence of liabilities as the aggregation of liabilities according to different nature of damage interests, divergences in the concurrence of claims are no longer meaningful. The question is, Is this approach consistent with judicial practice? and Is it consistent with rules in substantive law and procedural law based on the distinction between contract and tort? Judging from our investigation, the answer is no. It is precisely because it is not feasible to separate the protection of inherent interest or integritätsinteresse from the contractual relationship. Although “protective duty of contract” (including the obligation to protect life, body and property) is still controversial in theory and even

547

See E. Allan Farnsworth, Contracts, p. 517.

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considered to reflect the “duty of care” of tort law in contract law,548 its legitimacy in contract law should still be affirmed for the above reasons. Admitting the legitimacy of protective duty has impacted the classical contract rules, which focus on the protection of expectation interests, and has stimulated the needs to regulate the classical contract theory. First of all, the convergence of contract and tort law in the scope of the protected objects leads to the convergence of liabilities between contract law and tort law in protecting inherent interests or integritätsinteresse. In the legislative system of distinguishing the rules of contractual compensation and compensation for tort, the application or mutatis mutandis of rules of tortious liabilities in breach of contract cases is a typical manifestation of this convergence. The expansion of rules of unified damages has become a more modern legislative trend. For example, Germany’s new Law of Obligations unifies non-material damages in contracts and torts by amending the former Article 253, Paragraph 2, of its Civil Code, and corrects the practice that denies compensation for mental distress because of breach of contract based on conceptual logic. It can be seen from this that the real difference between compensation for breach of contract and compensation for tort lies not in the abstract nature of the damaged interests, but the damaged content in the specific situation. For example, delay damages, loss of profits and agreed compensation can usually only exist in compensation for breach of contract. However, in the case of interference with claims, they can be compensated as “pure economic loss” caused by interference with claims in the form of transformation. Therefore, although delay damages and damages for substitute performance constitute the general difference between compensation for breach of contract and compensation for tort, it is obviously insufficient to take it as the reason to deny the uniform compensation rules. Due to the convergence of compensation rules, the legal significance of concurrence of contractual liabilities and tortious liabilities in substantive law has also been weakened. Secondly, in the establishment of liabilities, the recognition of protective duty in contract law also blurs the distinction between contractual liabilities and tortious liabilities. As for the consequential protective duty, contractual liabilities, as strict liabilities or no-fault liabilities, is obviously different from tortious liabilities. However, given that the protective duty as an instrument is unrelated to the purpose of contracts, there is almost no difference in imputation judgment between the protective duty and the security obligation of communication (Verkehrspflicht) in tort law. In judicial practice, judgment on breach of obligation and imputation are treated as one, which leads to the strictness of imputation, both for contractual liabilities and tortious liabilities. This convergence of imputation supports the claim to deny the distinction between contract and tort. However, this view is not accurate because it negletcs the scope and conditions of convergence. What’s more, the recognition of protective duty in contract law makes the third party who is not a party to the contract to be included in the protection of contracts. In comparative law, although there are differences in specific forms and causes of 548

See Gerhard Wagner, Comparative Tort Law, Gao Shengpin, Xiong Binwan Trans, The Jurist, No.2, 2010, p. 113.

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institutional construction, the protective effect of contracts on third parties is still generally recognized, which is possibly motivated by pure practice. For example, German law recognizes a “contract with protective effects towards the third party” through judicial legislation in order to avoid unfair exemption rules in tort law or too strict restrictions on pure economic loss of third parties. In order to avoid the restriction of privity rules, American Law recognizes “implied security with the benefit of the third party” to protect non-parties to the contract who suffer damages due to product defects when product liabilities are not mature. However, from the fact that all countries recognize the protective effect of “third party beneficiary contracts” on the third party, it can be found that the protective effect of contracts on the third party can still be proved even if it is only based on principle rather than pure practice. It not only changes the characteristic of “performance interests” to the third party in “third party beneficiary contracts” and enables the third party to enjoy “protective interests” through contracts, but also replaces the protective function of tort law with the form of contracts again. Finally, once the protective duty in contract law has established its legitimacy in a contract, it will also expand its application scope along with the expansion of regulative scope of contract law. This is especially obvious in the legislation that uses culpa in contrahendo to expand the protection scope of contract. Just as what scholars have held, if we only look at the damage caused by an active breach of primary performance obligation in contract, there is nothing special because this damage should have fallen within regulative scope of contract law in its own right. However, when the theory is applied to personal or property damage that is not caused by improper performance of the main obligations of contracts, the uniqueness of German law becomes apparent.549 As the protective duty is established as a general obligation in the obligation relationship, not only in valid contracts, but also in other obligation relationships without contractual relationship, the result is that the general rules of remedy in the law of obligations are established. If the contractual performance obligation is a sign to distinguish between contract and tort, then the protective duty in contract law is a bridge between contract law and tort law. It not only makes the two kinds of law tend to be consistent in protected objects, but also makes their assumption of liabilities and composition tend to be consistent even in special cases. In this regard, it should be agreed that assigning a case or basis of liabilities into the field of contract or tort does not necessarily lead to a different result, and even a dogmatic distinction on the protective duty can usually only guarantee the same or similar results to its neighboring legal system.550

549 550

See Christian von Bar, The Common European Law of Torts (Version A), p. 569. Ibid., p. 543.

Chapter 5

Legal Regulation on Courtesy Relationships

Some daily interpersonal communications, such as inviting friends to attend parties, driving a friend home after parties, or giving others directions at their request, are obviously gratuitous and altruistic, and usually do not produce corresponding legal obligations. Theoretically, it is called an act of courtesy, and the relationship thus created is a courtesy relationship. However, in this kind of interpersonal relationship, changes may arise in legal interests. For example, one party transfers or promises to transfer property or provide services to the other party, or the receiver of the performance suffers the loss of personal or property interests in the process of performance, or the receiver suffers the loss of expectation interests or vertrauensinteresse due to the failure to provide performance resulting in the failure of future arrangements. On this occasion, if the party who performs demands compensation or restitution of performance afterwards, or the receiver claims compensation from the performing party for the detriments he has suffered, it still causes legal disputes. This kind of dispute mainly involves two questions: First, Has the performing party or the party who promises to perform made a declaration of will with binding force, which leads to the receiver’s claim for performance in obligation relationships, or performing party’s claim for compensation or restitution of performance? Second, when one party’s act of performance or non-performance causes losses to the other party, can the aggrieved party obtain compensation? If compensation can be obtained, on what legal basis or constitutive requirements and for what kind of damage can he obtain the compensation? In other words, does the “courtesy” relationship between the parties affect the composition and assumption of relevant liabilities, and how? The legal issues involved in courtesy relationships obviously concerns about the overlapping field between contract law and tort law. On the one hand, The act of courtesy appears to have a “declaration of will” or “consensus,” and the distinction between it and legal transactions (Rechtgeschäft), especially contractual relationships, has always been the central concern of theory and practice. Specifically, it is embodied in the determination of the parties’ willingness to accept legal binding, or the determination of the legal effect of the performance or the promise to perform,

© Huazhong University of Science and Technology Press 2023 J. Zhang, Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law, https://doi.org/10.1007/978-981-19-9107-3_5

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which of course belongs to the issue dealt with by legal transactions or contract theories. On the other hand, even if the “contractual” relationship between the parties is denied, its influence on legal liabilities still remains a difficulty. Since the existing law does not set up specific regulation rules in this regard, whether to apply the rules of contract law or tort law by analogy has become a difficult problem to be solved or even a legal loophole to be filled in application of law. Therefore, we will firstly discuss the basic characteristics and types of act of courtesy, as well as the distinction between it and relevant legal phenomena such as gratuitous contracts, so as to define act of courtesy. Secondly, we will determine the nature and content of courtesy relationships, then focus on the selection of remedy rules for damage caused by courtesy relationships.

1 Distinction Between Act of Courtesy and Legal Transaction Act of courtesy, a symmetric concept for “legal transactions (Rechtgeschäft)”, is a type of transaction or action (Geschäften), so it is often discussed under the definition of legal transaction.1 An “expression” is either a declaration of will with binding force or a pure “ fact of social interaction “ without legal binding force. However, act of courtesy refers to the latter, so it is also called “acts at social level” in theory.2 However, since the change in legal interests due to such an act still belongs to the fact that it should be subject to legal regulation. The “non-juridical” nature of act of courtesy does not exclude act of courtesy from legal regulation. The damage caused by act of courtesy may still cause legal issues about damages. Though act of courtesy wears the appearance of legal transactions or contracts, it cannot produce the same legal effect as legal transactions. In this sense, the distinction between act of courtesy and legal transactions or contracts is an important issue in theory.

1.1 Definition of Act of Courtesy In German theory, act of courtesy is the general term for all agreements or acts which occur out of the legal level without the legal meaning of legal transactions (nicht rechtgeschäftliche Vereinbarung order Handlung).3 In the theory of Chinese Civil Law, the definition of act of courtesy or acts of goodwill also vary. Generally speaking, the expressions about act of courtesy are made mostly from the perspective of negative meaning such as “it has no intention of legal transactions (nicht als 1

See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, Shao Jiandong, translator, Law Press. China (2000), p. 148 seq.; Werner Flume, Das Rechtsgeschäft, 4. unveränderte Aufl. 1992, S.86 f. 2 See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 148. 3 Werner Flume,a.a.O., S.87.

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rechtsgeschäft)”,4 “it lacks the intention of legal effect of legal transactions”,5 “it is an act out of legal level”,6 “it is out of the scope of law, and without binding force”,7 or “it is neither regulated by law, nor can form a legal relationship”8 and so on. In a positive sense, act of courtesy is an act that provides benefits to others without compensation, and has two characteristics: gratuitous and altruistic.9 We will find that it is impossible to accurately define act of courtesy in a purely negative or positive sense. (1) Act of Courtesy is Altruistic and Gratuitous a. Act of Courtesy is Altruistic Act of courtesy is expressed as a kind of performance, either the performance of things or the provision of labour, which both is “the act of giving benefits to others”.10 This benefit can be material, such as food or consulting, or mental, such as psychological pleasure or convenience in act. He may have different considerations when he does such act. Taking banquet, a social act, for example. The actor may do this act out of friendship, out of courtesy, thanks for others’ help, out of career advancement (such as banqueting a boss) or financial benefits (such as wanting to get a loan from the invited person). Whatever the consideration is, the act of courtesy is considered to be clearly altruistic from the perspective of the general social perspective. That is to say, the altruism of act of courtesy does not depend on actor’s subjective intention, but from the perspective of the general trading of the third person outside the courtesy relationships.11 In this sense, act of courtesy still meets the general requirements of the view that “legal transaction does not ask for motivation”. People who accept the courtesy performance may be the counterpart who has a direct courtesy relationship with the actor, such as a husband providing business consultation to his wife who is engaged in business or helping his wife in the store. It may also be a third person outside the direct courtesy relationship (act of courtesy for the benefit of the third party), such as a repairman who maintains a car for a friend of his sister for free. In the former case, there is usually no problem with the altruism of act of courtesy. In the latter case, since the recipient of courtesy and the counterpart are separated, it may be doubtful whether it is altruism at this time. Here, the general 4

A.a.O., S.87. See Wang Zejian: Civil Law Researches: Principles of Obligation Law, Peiking University Press (2009), p. 156. 6 See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 48. 7 See Huang Li: General Review of Obligations on Civil Law, China University of Political Science and Law Press (2002), p. 17. 8 Wang Liming: Discussion on the Basic Methods of Civil Law Case Analysis, Tribune of Political Scinece and Law (2004), No.2, p. 121. 9 Bettina Hürlimann—Kaup, Die privatrechtliche Gefälligkeit und ihre Rechtsfolgen, Freiburg, Schweiz, Univ. -Verl.1999, S.7 f. 10 A.a.O., S.6. 11 A.a.O., S.11. 5

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principle of third party beneficiary contracts still needs to be applied by analogy. It should be determined that there is altruism between the actor and the recipient in the act of courtesy, and the relationship between the actor and the third person is not incorporated into the evaluation of the courtesy relationship.12 It should be noted that although the value of the courtesy performance may affect the judgment of the act of courtesy, the act of courtesy in daily life is mostly limited to the transaction with a small amount. However, the value of a transaction itself cannot be viewed as the criterion for judging the act of courtesy. This is especially true of act of courtesy that is difficult to value, such as providing labour. Therefore, whether or not it constitutes an act of courtesy cannot only be judged by the value of courtesy performance. For example, banquets for guests in luxury restaurants and banquets at a street restaurant should be evaluated in the same way, although the cost of them may vary greatly. b. Act of Courtesy is Gratuitous Although act of courtesy can benefit the counterpart of courtesy, he or she does not have to pay for such benefits or give consideration to the actor of courtesy, i.e., the actor should bear the cost of the act on his own. Therefore, act of courtesy is gratuitous. The gratuitousness of one’s act can usually only be determined in a separate fact, such as temporarily looking after a neighbor’s pet, a feast, a consultation, and so on. In the long run, these gratuitous performances may seem like exchanges. Consider, the mutual helps between neighbours for example. People who offer help may expect that the other side can help them in the future. However, such intention to “exchange” generally only has morally binding force, and no legally binding force, so it does not affect to ascertain whether a specific act is gratuitous. The parties may have an understanding or even a consensus on the gratuitousness of an act, which is more common in some typical social acts, such as carpooling in good faith from acquaintances, or offering simple consultation. However, the understanding or consensus is not necessary to determine the gratuitousness of an act. If the parties have a dispute over the gratuitousness of an act, it should be solved according to the principle of good faith.13 For example, if a person asks his neighbour who is a lawyer for advice on a specific legal matter, is it a consultation service contract or just an act of courtesy? Such factors should be comprehensively considered as whether the matter involved in consulting service is important, whether he knows his neighbour’s identity as a lawyer, and the location of the consultation. If this act happens at the office or involves major and complicated legal matters, it is advisable to establish a contract rather than an act of courtesy, and he is obliged to pay for the service. Conversely, if a person asks a university law professor for general legal matters, it is prone to be considered an act of courtesy. 12

It has also been argued that by the offer of a courtesy performance, a secondary courtesy relationship is formed between the courtesy actor and the third person receiving the courtesy. A.a.O., S.14. 13 A.a.O., S.10.

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In some cases, it may still be difficult to determine the gratuitousness of an act. For example, friends agree to take turns to drive each other to work, or agree on carpooling in good faith, but the hitchhiker has to pay a certain gas bill or share the relevant expenses. In the former case, a single ride is of course gratuitous, but if the ride is in continuous interaction, the gratuitousness is no longer obvious. Considering the specific circumstances of the act, actors generally does not expect the law to intervene in the performance of such an agreement, so it is appropriate to determine this act as an act of courtesy. In the latter case, cost sharing is not a consideration for providing a ride, so it does not affect the gratuitousness of such act, and it is still an act of courtesy.14 In a positive sense, an act of courtesy is an act that provides benefits to others without compensation, which is characteristic of “goodwill”. (2) Act of Courtesy is not Legal Transaction It is not difficult to find that creating a definition for the act of courtesy aims to form a comparison with legal transaction (or contract, the same below). Therefore, pointing out the “non-legal transaction” attribute of the act of courtesy aims to express the consideration clearly. The real problem is what is the theoretical significance of the proposition that “an act of courtesy is not a legal transaction”. a. Act of Courtesy is not Equal to Act with Courtesy Factors There is a misunderstanding in theory that acts with courtesy factors are confused with act of courtesy, because the “courtesy” in an act of courtesy is overemphasized.15 This view holds that it is more conducive to resolving relevant legal disputes by treating the parties’ consensus or agreements involving rights and obligations as a legal transaction. Although this idea of dispute resolution has good intentions, it does not really get the point of the theory on act of courtesy theory. In German, “gefälligkeit” has the meaning of “goodwill, affection, help, and service”, etc. It means helping others with good intentions that is usually not too difficult or time-consuming.16 Therefore, the concept can refer to all courtesy-based acts in the broadest sense, regardless of its legal nature. In other words, not only some social acts that do not have direct legal significance, but also certain legal transactions or even factual acts can act with courtesy factors. For example, contractual acts such as gifting, borrowing, gratuitous deposit, entrustment or consulting, as well as certain negotiorum gestio acts (such as watering neighbor’s flowers when he is out) may have the basis of courtesy. Act of courtesy with non-legal transaction character is similar 14

Wang Lei, Problem of the Liability of the Owner in Transportation in Good Faith, in Journal of Yunnan University (Law Edition) Vol. 5, 2009. Different view please see Wang Zejian, Civil Law Researches: Principles of Obligation Law, pp. 171–172. 15 See Huang Xisheng, Guan Hui: On the Handling of Disputes Arising from Goodwill Offerings, Hebei Law Science (2005), No. 4; Wang Wei: Legal Position of Act of Courtesy: Constructing a Dispute Resolution Mechanism, Journal of Shandong University of Technology (2005), No. 3; Wang Zhengcang: On the Influence of Courtesy Factors on liability Degree, Philosophy and Social Sciences of Journal of XiangTan Normal University (2007), No. 2. 16 See Ye Bendu, editor: Lang’s German-Chinese Dictionary, Foreign Language Teaching and Research Press(2000), p666, “gefälligkeit”.

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to legal transactions with courtesy factors. In other words, we should take courtesy factors into considered while we deal with the effect of these acts. The liability mitigation provision in Contract Law of the People’s Republic of China about the donors, a depositary by gratuitous title and so on can all be explained from this angle. However, the fact that the meaning of the act of courtesy theory is limited to the influence of courtesy factors on act effects is possibly misleading. As mentioned above, act of courtesy is first proposed as legal concept that distinguishes from legal transaction, or to separate certain acts with the appearance of legal transactions from the evaluation scope of legal transactions, so that it is not dealt with based on the legal transaction theory. According to scholar’s explanation, the law is unwilling or unable to regulate such acts because they involve the allocation of judicial power and the protection of the right to sue.17 Therefore, the effect of courtesy factor in legal transactions is different from that in act of courtesy. In legal transactions, the courtesy factor is the reason for liability mitigation or even exemption in certain circumstances, while in act of courtesy, it is the reason for excluding the application of rules of legal transactions. Although we can also regard the non-regulation of law as a special form of liability exemption, in the case of an act that only one party assumes obligations, if the party is excluded from fulfilling his obligations or liabilities, there is no point that the act is treated as a legal transaction. This is different from the case where obligor’s liabilities are mitigated or exempted from the general negligence or even the gross negligence in gratuitous contracts. In this way, the first and foremost problem faced by the act of courtesy is how to determine whether certain act has the intention of legal transactions rather than the influence of courtesy factors on the effect of the act. b. The Lack of Legal-Binding Force in Act of Courtesy As legal transactions are a tool of autonomy of private law, its legitimacy is based on the free will of the parties. In theory, legal transactions should imply the premise that the actor has an intention to be legally bound. In the Anglo-American contract theory, this intention is called “an intention to create legal relations” or “contractual intention”. And it is classified as the Erklärungswille of subjective constitutive requirements or Erklärungbewußtsein18 in German law theory. That is “the intention of pursuing effects in private law”. They all belong to issues about “seriousness 17

See Xie Hongfei: Intention to Create Legal Relations: Limits of Interference of Law into Social Life, Global Law Review (2012), No. 3, p. 15seq. 18 According to Professor Wang Zejian, the act of Courtesy is “the absence of the legal effect of the act in law, without the intention to be legally bound”. See Wang Zejian: Civil Law Researches: Principles of Obligation Law, p156. Professor Wang’s expression may easily lead to the misunderstanding that the act of courtesy lacks legal meaning. In fact, according to his explanation, the “Erklärungswille” in the subjective requirements of legal act refers to “the actor’s awareness that his act has some legal meaning”. In fact, according to his explanation, the “consciousness of expression” refers to “the actor’s awareness that his act has a certain legal meaning”, while the “meaning of effect” refers to “the actor’s intention to have a specific legal effect according to his expression. See Wang Zejian: Series of Civil Law: General Provisions of the Civil Law, China University of Political Science and Law (2001), pp. 336–337. In other words, the “Erklärungswille” is only the abstract meaning that forms the private law relationship, while the “meaning of legal effect” is

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standard”19 in contract theory, which is collectively referred to as “ the intention to be legally bound “. In English law, “the intention to create legal relations” is the third effective element of a contract other than agreements and considerations.20 Acts lacking of such intentions include boasting or advertising, inviting contracting, various expressly unconstrained agreements, acts in family or social interactions, agreements that give one party too much free of decision, comfort letters, collective agreements and other forms.21 It can be seen that not all these acts have the feature of “courtesy”. Their commonality is that they all have the appearance of contracts, but they cannot produce binding force on the contract. Conceptually, the intention to create legal relations is subjective, but its judgment is based on objective criteria. Commonly considered factors are the nature of agreements or the parties’ relationship, such as distinctions between implied and expressed agreements, family agreements or social acts and commercial agreements. For the implied agreement, the court holds a position that “a contract cannot be easily implied by facts.” Therefore, the claimant should provide evidences to convince the judge that the parties have the intention to imply a contract with facts.22 A similar approach is also seen in agreements between family members and agreements reached in general social interactions, which is often presumed that the parties have no intention to conclude a contract, and the claimant with opposite opinion has the burden of proof.23 For explicit agreements, especially for general commercial agreements, it does not need to prove that intention is to be bound by law and it is basically a question that the judge should recognize by interpreting the agreement. The court will specifically consider the importance of the agreement to the parties and the act of one party due to trust. If necessary, the party that denies the presence of such intention should bear the burden of proof.24 However, it should be noted that although the criterion for “the intention to create legal relations” is objective, if the party who claims a valid contract actually knows that the other party has no such intention, the contract is still not established. The same is true of an actor who is actually unwilling to be bound.25

the meaning that aims to cause specific legal consequences. See Zhang Jinhai: A Study on the Subjective Elements in Declaration of Will, China Legal Science, pp. 61–62. Since there is no specific content of the act of courtesy, the aforementioned description of “Erklärungswille” and “legally valid meaning” should refer exclusively to the lack of meaning. However, in the German documents, there is still a view that the “Rechtsbindungswille” is also the “Rechtsfolgewille”. Vgl. Bettina Hürlimann—Kaup, a.a.O., S.44. 19 See Hein Kötz, Europäisches Vertragsrecht, Zhou Zhonghai, Li Juqian, Gong Liyun, translators, Law Press.China (2001), p. 78. 20 Cheshire, Fifoot & Furmston, Law of contract, 13th ed., Butterworths 1996, p. 114. 21 See G. H. Treitel, The law of contract, 9th ed., Sweet & Maxwell, 1995, pp. 150–158. 22 Ibid, p. 158. 23 Cheshire, Fifoot & Furmston, ibid, p. 115. 24 G. H. Treitel, ibid, p. 158. 25 Ibid, pp. 158–159.

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With the influence of Williston, the American law does not require that the parties to the contract have the “intention to create legal relations. “ The Restatement (Second) of Contracts in America clearly stipulates that any actual or obvious intention to be legally bound is not necessary for the establishment of contracts. However, if the party expressly states that his promise is not bound by law, the contract is not established.26 The regulative effect, as pointed out by Treitel in his comments on Williston’s view, can be interpreted in two ways: First, the regulation only emphasizes the burden of proof on “the intention to create legal relations” (as in the case of an expressed agreement) and the objective criteria for determining that intention. The second is to fundamentally deny that the intention is a requirement for the establishment of contracts.27 Either way, there is actually no good explanation for the following situations: Why doesn’t some agreements between family members or social agreements, such as entertaining friend or one party of spouse who promises to give the other party a certain amount of money on a monthly basis28 , constitute a contract? Why isn’t a joke or an outrageous expression binding? This shows that negation of the “intention to create legal relations” is a requirement for the establishment of a contract may result in difficulties in interpretation. In German law, it is generally believed that the declaration of will, the crux of legal transactions, includes subjective elements such as intention of acts, Erklärungswille and Rechtsfolgewille. Among them, Erklärungswille is an abstract intention to establish a legal relation. There are different views in theory on whether it is a necessary component of the declaration of will. The traditional view is that the lack of Erklärungswille means that the declaration of will should not exist. However, based on the protection for transaction security, nowadays most of views believe that lack of Erklärungswille only can revoke the effect of the declaration of will due to mistake rather than negate the existence of the declaration of will. The German Civil Code treats the reservation of intention and act of teasings that the counterparty has already known as an invalid declaration of will rather than inexistent declaration of will. From this point of view, the present view is interpretatively preferable. However, it is puzzling that on the one hand, it is considered that Erklärungswille is not a necessary factor for the declaration of will, on the other hand it also believed that the lack of intention to be legally bound will negate the existence of legal transactions. That is to say, the latter is treated as an act of courtesy that does not belong to legal transactions. It is quite doubtful in terms of logical consistency. Article 2.1.2 of the Principles of International Commercial Contracts clearly stipulates that the offeror should have an intention to be bound when he gets the acceptance. The commentators pointed out that the determination of such intentions is usually inferred on a case-by-case basis, such as the way in which the proposal is made and the content of suggestions and its recipients. In general, the more definite and detailed the proposal is and the more specific the recipients of the proposal (i.e. one or more specific persons), the more likely the proposal will be recognized 26

See Restatement of contracts, 2d, § 21. See G. H. Treitel, ibid, p. 160. 28 See Restatement of contracts, 2d, § 21, cmt. c, illustration 5 & 6. 27

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as an offer.29 Article 2:201 of the Principles of European Contract Law also has the same provisions.30 Such a provision and understanding, the same as the provisions of Article 14 of the United Nations Convention on Contracts for the International Sale of Goods, can be seen as an acceptance of Convention’s provisions. The provisions of Article 14 of Contract Law of the People’s Republic of China on the offer are consistent with the aforementioned international legal documents. Since the intention to be legally bound is a constitutive requirement of an offer, we can of course treat it as a requirement of a contract. Without such requirements, a contract can be impeded to be established. Accordingly, although there are different approaches, in comparative law, whether or not the intention to be legally bound is a requirement for establishment or validity of contracts or legal transactions, certain acts that lack such intention are always excluded from contracts or are outside the evaluation scope of legal transactions. However, it should be noted that although the act of courtesy lacks the intention to be legally bound, not all acts that lack legal intention is an act of courtesy, such as the reservation of intention and act of teasings in German law. It is difficult to explain from the perspective of logical consistency because it involves the choice of law policy, c. Act of Courtesy Does not Create Performance Obligations in Law Regarding the legal effect of act of courtesy, the non-controversial view holds that act of courtesy cannot produce the recipient’s claim for performance and his claim for damages for substitute performance, but the relationship of courtesy can still be used as a reason for recipients to get their legal benefits, and the actor must not claim to restitute the unjust enrichment from recipients.31 Moreover, because of its altruism and gratuitousness, the actor cannot seek cost compensations from courtesy recipients. Since the act of courtesy is not a legal transaction, it is logically natural that it does not produce the other party’s claim for performance and damages. The question is, since the performance obligation does not exist, on what ground should the retention effect of the performance be affirmed? In order to establish the legitimacy of the difference between the act of courtesy and the non-performance, the theory must explain the basis for denying actor’s right to claim the restitution of unjust enrichment. After all, actors often are, in effect, willing to voluntarily allow benefits to the other party. If the maintenance of performance consequences is linked to this intention, it can be interpreted that it is a kind of intention to be legally bound based on the autonomy of private law. In this way, it is necessary to divide Erklärungswille into the intention of setting the performance obligations and the intention of agreeing on the transfer effect of interests. The act of courtesy is an intention that simply lacks the obligation to set performance obligations. 29

See Principles of International Commercial Contracts(2010), Article 2.1.1, Note2. Article 2:201, paragraph 1 of PICC states: “An agreement constitutes an offer if it (a) has the intention to form a contract upon the promise of the other party; and (b) includes sufficiently definite terms for the formation of the contract.”. 31 See Wang Zejian: Civil Law Researches: Principles of Obligation Law, p. 157. 30

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If this is the case, there will be an “incomplete Erklärungswille”, namely, it is an intention that does not set a performance obligation but accept performance consequence. This intention is the same as all legal transactions that need not be fulfilled, and it mainly focuses on the transfer effect of interests (right), rather than on the explanation of legitimate reasons why such transfer effects occur.32 Although we can provide other explanations for the performed act of courtesy that denies the claim for the restitution of unjust enrichment, the explanations presented here are not entirely unreasonable. Therefore, the true concern of act of courtesy without intention to be legally bound is that the actor does not have the obligation to set a performance obligation. Whether the party actually has other intentions does not affect the judgment of the act of courtesy. Since the consequence of the act of courtesy that has been performed normally is actually the same as that of legal transactions, whether or not the act of performance is the result of legal transactions has no practical significance except for theoretical clarification. In this regard, only promises to performance that have not been fulfilled and the regulations of consequence when the performance cannot not achieve its goal are focus of act of courtesy. It should be specially stated that if we only focus on the fact that actors have no intention to set performance obligations, the act of courtesy and some defective legal transactions are difficult to be distinguished. For example, reservation of intention, act of teasings, fraudulent declarations, hypocritical acts, and representations due to mistakes may all indicate that the actor lacks the intention to set performance obligations. From the perspective of the comparative law, it is also obvious that the lack of intention to be legally bound may exclude the evaluation of legal transactions at all, or may be dealt with as a defective legal transaction. The distinction between act of courtesy and defective legal transactions can be understood from two angles: First of all, we need to observe whether there are specific provisions to regulate related acts. On the grounds of autonomy of private law, the defects of contracts or legal transactions generally should be strictly limited, as embodied in the specific provisions relating to defective contracts or legal transactions. Only those acts that are not clearly defined and has no intention to be legally bound involve whether they should be evaluated as an act of courtesy. For example, although the reservation of intention and act of teasings also have no intention to be legally bound, they are only dealt with as defective legal transactions because they are specifically regulated by law. The second is whether the act is judged by other actual characteristics other than the lack of legal intentions. The act of courtesy simply has no intention to be legally bound, while the defective legal transaction must have other actual characteristics that are evaluated by law at the same time, such as the existence of fraud and conspiracy. A more precise view is that an intention not to be bound by law is not a direct factor 32

“legal Transaction not subject to performance” includes both acts of disposition and acts of burden. An act of disposition can itself be an act of performance of an act of burden, while an act of friendship should not be an act of performance of any other act. Therefore, similar acts are limited to acts of burden not subject to performance, in other words, acts of burden that are immediately settled. However, even in the case of an act of burden that is immediately settled, the obligor still has an obligation to perform, and liability for defects can be seen as a variant of this obligation, whereas an act of friendship does not have this effect.

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in evaluating defective legal transactions, but a consideration for identifying defects of acts. For example, according to German theories, an act without Erklärungswille is revocable. Similarly, that fraudster have no intention and ability to perform the contract can be used as evidence of fraud. Therefore, the lack of intentions to be bound by law plays different roles in act of courtesy and defective legal transactions. In a negative sense, the act of courtesy is an act that lacks legal effect of setting performance obligations and cannot produce the act of performance obligation. In this way, the two positive characteristics of act of courtesy, altruism and gratuitousness, are subordinated to the negative characteristics of non-performance obligations. Only the realized courtesy performance can produce positive effects. In this regard, the act of courtesy is manifested as a negative way to regulate law in the change of interests between the parties: legal recognition of changes in equity or attribution of loss of profits is achieved indirectly by not interfering with changes of the parties’ rights and interests. Therefore, the act of courtesy is insignificant in terms of legal transactions, which doesn’t follow that it is insignificant in terms of law. (3) The Form of Act of Courtesy Act of courtesy is either expressed as a promise to perform just like a contract to be performed or as an act to directly perform just like a contract that can be immediately settled. As stated earlier, the most important thing of act of courtesy is promises of courtesy. In the promise of courtesy, a promise creates a courtesy relationship, which has two development phases: First, the actors make a promise of courtesy, and a courtesy relationship is usually made upon the acceptance of the opposite party; The second is that the actor actually makes a promise to performance and fulfill the aforementioned promise.33 For example, A promises to help B move into a new house the next day, which is a promise of courtesy. A actually helps B in the next day, which means A actually fulfilled his promise. The legal issues involved in these two phases are different: in a simply promise of courtesy, the question that needs to be addressed is whether the actor has a legal obligation to perform the promise; in the specific performance, the problem that needs to be dealt with is what effect will be achieved if the performance cannot achieve its goal, such as whether the defective performance can require remedies, or whether the defective performance can be claimed for damages. In the first phase, it only deals with the issue of whether the recipient has the right to demand the promiser to fulfill his promise. In the second phase, it may involve the recipient’s request to the promiser(his claim for correction of defective performance or damages), or the promiser’s request to the recipient (his claim for damages arising from a breach of protective duty). In contrast, in an act of courtesy that performance is directly fulfilled, the issues involved are the same as those involved in the second phase of the promise of courtesy: the actual fulfillment phase. The courtesy relationship is made based on the proposal of courtesy performance.34 33 34

Bettina Hürlimann—Kaup, a.a.O., S.13. A.a.O.

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It can be seen that the act of courtesy as a concept that is different from legal transactions cannot set a performance obligation for itself because it has no intention to create a legal relation, thus to distinguish it from legal transactions; because it is a act form that is not clearly defined by law, it is distinguished from certain defective juridical acts that is defined by law (such as reservation of intention, conspiracy hypocrisy, etc.); because it is an altruistic and gratuitous act, it is different from certain agreements that is not regulated by law (such as “gentlemen’s agreements”) in business activities; because it involves changes in legal interests, it is different from certain social communication acts or “extra-judicial space” (such as meeting or agreeing to make friends). Only by taking a holistic examination of all above aspects can we fully understand the act of courtesy.

1.2 Judgment of “Intention to Be Legally Bound” As mentioned earlier, whether or not the intention to be bound by law exists is a general standard to determine that it is an act of courtesy or a legal transaction (or contract). Here we will examine the specific application of this standard. (1) Subjective Criteria vs. Objective Criteria In terms of comparative law, although on the surface, the party’s act clearly has the characteristics of contracts, the court often excludes actor’s contractual liabilities on the grounds that the party lacks the intention to be legally bound. For example, in the famous Balfour v. the Balfour case, a husband living in a foreign country promised to pay a £30 monthly allowance to his sick wife living in the UK. The wife filed a lawsuit against her husband that her husband should fulfill his promise, but the appellate court dismissed the request based on two aspects: First, the wife, as a plaintiff, did not provide any consideration. Second, the parties have no intention to be legally bound.35 Since “natural love and emotion” often meets the requirements of consideration in the agreement between family members, the more convincing reason for denying the validity of the contract in this case should be the lack of an intention to be legally bound, though any one of the aforementioned reasons alone is sufficient to play a role in negating the validity of the contract. The same standards have been adopted in German judiciary, requiring that juridical acts should meet the requirement that “people who intends to make his actions has legal force, that is, he wants to cause some kind of legal binding... and the recipient also in this sense receive this kind of performance.36 This kind of criterion to determine whether a contract exists by actor’s subjective intention is a subjective standard. In this regard, it is criticized that the actor usually does not explicitly consider whether or not the law is bound by law when implementing his act, but only when the promising party does not voluntarily perform or the dispute arises due to damage 35 36

G. H. Treitel, ibid, p. 152. See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 153.

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in the performance, the question of legal binding force then arises. Therefore, the court is more willing to adopt objective criteria to determine whether there is a contract based on specific circumstances. For example, the English courts usually use objective criteria to determine the existence of contractual intention,37 and the German Federal Supreme Court also requires that, in judging whether there is a legal obligation, it should “consider the interests of both parties, based on the principle of good faith and trading customs.”38 On the surface, there is a contradiction between subjective standards and objective standards, and objective criteria may be more in line with the needs of judgment practice. The judges can only infer such subjective intentions by considering them in accordance with various objective situations related to the act because the subjective intentions of the parties are usually difficult to be identified. At the same time, whether it is an act of courtesy or a legal transaction, usually affects both parties. Therefore, the judgment should not consider one party’s inner intention that cannot be confirmed, but the balance of both parties’ interests. In this sense, the so-called “the intention to be legally bound “ doesn’t actually focus on “intention” but on “to be bound by law. “ That is to say, the judge needs to judge the circumstances in which the party “should be bound by law”, rather than whether it actually has such intention. Just as scholars have said, the declaration of will has dual functions: On the one hand, it is a means for one to achieve the intention of his legal transactions. In this sense, his inner intention is of key significance to determine the consequences of declaration of will; On the other hand, the declaration of will is a social act, so the other party can only act according to his understanding and trust on the connotation of this declaration, so that this kind of understanding on the connotation of this declaration has an independent intention to determine the effect of this declaration.39 Generally, the legislators will not simply adopt any one of these aspects, instead, they will sometimes emphasize this aspect and sometimes another, depending on Geschäften, which also applies to the judgment of “the intention to be legally bound”. Despite the divergences, in terms of comparative law, the more precise point is: Courts usually only judge according to objective criteria when the parties have no clear declaration of will. For example, Restatement(second)of contract in America does not require that the parties to the contract have intention to be legally bound, but it still recognizes that the parties’ explicit intentions that are not bound by law have the effect to prevent the establishment of a contract. Sometimes, even if the parties do not explicitly say that he has the relevant intention, the court may still determine whether the party has an intention to be legally bound through relevant circumstances.40 In particular, a party’s act has the intention of a legal transaction on the surface, but he have no such intention in its heart. In such cases, as long as 37

G. H. Treitel, ibid, p. 158. See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 154. 39 See Karl Larenz, Allgemeiner Teil des Deutschen Bürgerlichen Rechts, Wang Xiaoye, Shao Jiandong, Cheng Jianying, Xu Guojian, Xie Huaishi, translators, Law Press.China (2003), pp. 545– 555. 40 In a case that occurred in the United States, the defendant purchased a silver watch worth approximately $15 from the plaintiff for a blank check worth $300. The court held that since the entire 38

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such inner and true thoughts can be known to the other party, the court will still deny the validity of this act, which is more common in the so-called “reservation of intention” (including three forms: true intention retention, feigned conduct and act of teasing). In Germany, when subjective criteria fail to provide sufficient certainty, it is necessary to rely on the so-called objective criteria, namely, to determine the intention that the parties can infer.41 In China, there are cases about disputes over the exaggerated expression of a rewarded advertisement. In the “Xing Liangkun and Sun Zhen’s Rewarded Advertisement Disputes”,42 during recording CCTV’s “Township” programs, Xing Liangkun (defendant), a famous ceramic artist known as “Ceramic Maniac”, declared that his five-layer hanging ball pottery was a world mystery that no one could imitate. If someone successfully imitates it, he is willing to give him three-storey houses with more than 2,000 square meters and all its assets. The plaintiff, Sun Zhen, completed the five-layer hanging ball pottery after research, but the defendant refused to perform the promise. Then plaintiff filed a lawsuit against defendant. The court of first instance held that the parties established a valid contract on the grounds that the defendant’s public expression was specific and definite and that it was his true declaration of will to be bound, thus constituting an offer, and thus supported the plaintiff’s request. The court of second instance held that the “township” program was not an advertisement program, and the interview was not an advertisement act. Defendant’s expression was not for profit, but merely wanted to boast the uniqueness of his work. Therefore, the reward is a unilateral fictional expression, which does not belong to the “declaration of will to conclude a contract with others”. It does not constitute an offer, and the contract is not established. So the first-instance judgment is revoked, and the plaintiff’s claim is rejected. The court of first instance only pays attention to the act itself and does not consider other factors related to the declaration. In particular, it directly found that the parties had the intention to be legally bound by the specificity and certainty of the declaration’s content. In fact, it is inappropriate to reduce the two elements of validity of the offer stipulated in Article 14 of Contract Law; that is, the second element was incorporated into the first one. The court of second instance, based on the specific circumstances and the gratuitousness of the act, determined that the defendant had no declaration of will to be bound by law, which should be affirmed. The shortcoming is that the court of second instance only found that the defendant lacked the intention to be legally bound, and failed to consider the plaintiff’s possibility of understanding the declaration, which was unbalanced. Accordingly, we may consider that in determining whether a party has the intention to be legally bound, the party’s clearly expressed true intention is decisive. If there is no such a clear expression, the court has to consider the specific circumstances of transaction between the parties was a farce and a joke, and there was no intent to buy or sell between the plaintiff and defendant, there was never a contract between the parties. See E. Allan Farnsworth: Contracts, Ge Yunsong, Ding Chunyan, translators, China University of Political Science and Law Press (2004), p. 120. 41 Harm Peter Westermann/Peter Bydlinski/Ralph Weber, BGB-Schuldrecht: Allgemeiner Teil, C.F. Müller Verlag, Heidelberg, 2007, S.33. 42 Henan Luoyang Intermediate People’s Court(2008) Luo (Min) Zhong Zi No.198.

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the act and judge it in accordance with good faith, trading customs or general social concepts. In this way, what is really important is not the opposition between subjective standards and objective standards, but how to combine this abstract standard with specific actual forms. (2) Types of Acts (Geschäften) and “Intention to Be Legally Bound” In determining the intention to be legally bound, it is theoretically considered that different types of acts should be distinguished. However, there are different opinions as to what Geschäften is meaningful to determine the aforementioned intention. One view is that it should be treated differently according to the distinction between explicit contracts and implied-in-fact contracts According to this view, those who advocate the establishment of an implied-in-fact contract should prove that the contract has been established, including relevant evidence that the parties have the intention to be legally bound. Conversely, an explicit contract does not require a burden of proof for the existence of the aforementioned intention, and a person who denies such an intention should bear a burden of proof, unless the absence of such an intention can be inferred from the agreement itself.43 In my opinion, this distinction is meaningless for the judgment of act of courtesy in that only if it is proved that there is an act, it is possible to discuss the nature of the act further. It is hard to imagine that the parties have fully proved the existence of implied promises, but failed to prove the existence of the intention to be legally bound, i.e., it is meaningless to use the implied promise and the implied intention to be legally bound as two pieces of evidence. In determining whether it is an act of courtesy, there is no doubt about the existence of the “act”, but only about the “intention to be legally bound “ that affects the effectiveness of the act. Another view is that an intention to be legally bound should be distinguished from family agreements (or social agreements) and commercial agreements. For agreements between family members and social agreements, the Anglo-American law generally presumes that the parties have no intention to be legally bound unless there is evidence to the contrary. Conversely, commercial agreements (including commercial agreements between family members) are presumed to have the intention to be legally bound unless there is evidence to the contrary.44 This distinction can often provide a useful indication for determining the intention to conclude a contract, but it is of limited assistance for act of courtesy. There are many agreements with legal force between family members, such as family separation agreements and separate property agreements between husband and wife. In some family agreements, the parties have clear intentions to be bound by law, such as loyalty agreement between couples, divorce agreements. Some agreements are obvious characteristic of commercial contracts, such as employment agreements. Other agreements have no performance effect regardless of whether the parties have an intention to be legally bound because of their content characteristics, such as separation agreements between husband and wife. For these agreements, their legal 43 44

G. H. Treitel, ibid, p. 158. Cheshire, Fifoot & Furmston, ibid, p. 115f.

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attributes are relatively clear and usually do not need to be presumed. What is often controversial in family relations is that the parties do not have a clear understanding on the specific content of the relationship, while one party has already acted according to the requirements of the other party, or has already provided benefits to the other party. At this time, it is necessary to determine whether the other party should fulfill his promise or whether the recipient should pay for the promise. In this case, it is often impossible to make a proper judgment by simply considering the family member relationship between the parties. Other factors must also be considered, such as whether the act is in line with statutory duty of support, the value of the act, etc. Therefore, it is not significant to make a presumption based on the aforementioned type distinction. Because of the gratuitousness of the act of courtesy, whether the commercial agreement is concluded between the parties is a problem that needs to be judged. Once it is a commercial agreement, even if it lacks the intention to be legally bound, it is not related to the act of courtesy, so the determination of commercial agreement is of no significance to determine the act of courtesy. Suppose a person consults an accountant about personal financial problem. Whether the agreement should be classified into a general social agreement or a commercial agreement depending on the act of providing consultation is altruistic or gratuitous, which will also significantly impact on the judgment of the act of courtesy. In other words, the fact that the act is altruistic or not, rather than whether the act is a commercial agreement, is truly meaningful to determine the act of courtesy. From this perspective, actor’s identity or professional and the relevance between his act and this identity or occupational feature are helpful in making a judgment.

1.3 Borderlines Between Gratuitous Contract and Act of Courtesy Act of courtesy are gratuitous, and gratuitous contracts often have courtesy factors. The problem that arises from it is: Can the problem that is dealt with by the act of courtesy be dealt with by the rules of gratuitous contracts? If the answer is yes, then the act of courtesy loses its independent theoretical value. If the answer is no, the theory of act of courtesy will not face doubts in this regard. (1) Differences in the Effects of Act of Courtesy and Gratuitous Contracts After one voluntarily implements an act that can generate benefits for others, whether the act is deemed as an act of courtesy or a gratuitous act, he cannot claim to restitute the interests or require compensations for the cost of his act. Whether a fulfilled performance is based on the act of courtesy or a gratuitous contract is of no pragmatic value but usually useful to clarify the relevant theory. The distinction between the gratuitous contract and the act of courtesy can better highlight its intention. According to the provisions of Contract Law, “a contract established according to law is binding on the parties.“ The parties should perform their obligations in accordance with the contract. Therefore, the gratuitous contract can set the performance

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obligation for the party who provides interests and the liability for damages arising from non-performance. On the contrary, the act of courtesy by definition excludes the aforementioned effects, so the act of courtesy and the gratuitous contract are different in consequence. However, since the gratuitous contract has special provisions different from the altruistic contract in terms of obligation performance, the above-mentioned differences based on logical derivation need to be further refined. Take several typical gratuitous contracts for example, and analyze them according to the provisions of Contract Law of the People’s Republic of China. As far as gift is concerned, although today’s Contract Law changes the previous legal rules and changes gift from a practical contract into an acceptance contract (Article 185), since the donor’s flexible right of revocation is provided by the legislation (Article 186, Paragraph 1), the donee’s claim for performance is actually better than nothing.45 Only in the case of a “gift with a public welfare or moral obligation, such as disaster remedy, poverty alleviation, or a notarized gift” (Article 186, paragraph 2), the actual performance obligations of the donor will be truly set. However, if the agreement is notarized, there will be no qualitative question. Therefore, it is only in the case of the gratuitous promise with public social welfare and moral obligation, such as disaster remedy and poverty alleviation, the distinction issue will arise. Promises for gift with flexible right of revocation has no difference with act of courtesy in terms of effect. In this way, unless the gratuitous transfer of property can be recognized as a Gift that can be a compulsory performance for the donor. Otherwise, there is no real benefit in distinguishing a Gift from an act of courtesy. As far as the gratuitous passenger transport contract is concerned, the carrier is obliged to transport passengers211 who are free of tickets according to regulations or passengers who have no ticket with the consent of the carrier,46 and is obliged to protect passenger’s safety (Articles 301 and 302). This obligation of carriage and protective duty of contracts are strictly related to passengers’ personal interests (Article 302) or nearly strict (Article 301). Only when certain property interests are involved (Article 303, passengers with baggage), are liabilities only necessary for fault. On the contrary, in the case of act of courtesy (carpool in good faith), since 45

Article 189 of Contract Law provides that “as for donor’s liability, the donor agrees to be liable for damages if the donor intentionally or through gross negligence causes the destruction or loss of the gifted property.” This article does not distinguish whether Gift must be performed or whether it has been performed, and therefore includes in the textual sense a Gift to be performed that can be revoked at will but has not yet been revoked. However, since the donor can revoke it at will when it can be performed, and force it to be performed when it cannot be performed (intentionally causing the destruction of the gift), obviously it is not consistent in value measurement, and its intentional destruction of the subject matter to be performed should be regarded as the same as refusal to perform, and it can be considered as the declaration of will to revoke by the act of destruction, so it does not bear the liability for damages for non-performance. Accordingly, this article is only a special provision for Gift that can be compulsory performance, for ordinary gifts, the donor still does not bear non-performance liability if the donor causes the destruction and loss of the gift before the revocation. 46 The existing law does not stipulate whether the carrier has the obligation to continue to transport passengers who have agreed to ride without a ticket, but the interpretation seems to be that the carrier should be obliged to continue to transport if there is no good reason.

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the establishment of act of courtesy does not exclude tortious liabilities,47 when act of courtesy cause the losses, the liable party still has to bear compensation liability according to the provisions of tort law. At this time, carrier’s liability (the courtesy actor) must be based on fault, and his liability is lighter than the gratuitous carrier. The difference will be more obvious when the liability of the general affirmative factor is mitigated. In gratuitous safekeeping contracts, a safekeeping contract is considered to be gratuitous only if there is no agreement on safekeeping fee or the agreement is unclear and cannot be determined by other means (Article 366, Paragraph 2). Since a safekeeping contract is established at the time of delivery of one deposit (Article 367),48 the distinction between gratuitous safekeeping contracts and the similar safekeeping acts usually occurs only after the deposit is delivered. In this case, if there is a dispute between the parties as to whether there is an obligation to continue the safekeeping, it seems that a depositary by gratuitous title should be allowed to terminate the contract, whether or not there is an agreement of time limitation. (integrated analogy to Paragraph 1 of Article 186, Article 268, Article 367 of Contract Law; 1 Sect. 410). The provision on liability for the flexible right of revocation of entrustment contracts (Article 410) applies by analogy, making the depositary by gratuitous title liable for damages attributable to the depositor. When the deposit is damaged or lost, the depositary by gratuitous title in gratuitous safekeeping contracts can only be exempted from liabilities if he proves that there is no gross negligence (Article 374). Conversely, in similar act of courtesy, if the friendship factor’s mitigating effect is recognized in general, the depositary would only be liable for gross negligence or intent, in the same way as in the case of safekeeping contracts. However, at this time, because the depositary should bear liabilities in tort law, the victim should bear the burden of proof for the existence of gross negligence. As far as the commission contract is concerned, although the existing law on the obligations of the parties is not limited to paid commission, Article 405 of the Contract Law stipulates that “when the trustee completes the entrusted affairs, the principal shall pay remuneration to him. If the entrusted affairs are discharged or cannot be completed due to any reason not attributable to the trustee, the principal should pay to the trustee an appropriate amount of remuneration. However, if the parties agree otherwise in the contract, such provision prevails. According to this stipulation, commission contracts in Chinese Contract Law are onerous in principle, except when the parties expressly or implicitly agree that the commission is gratuitous.49 47

See Huang Li: General Review of Obligations on Civil Law, China University of Political Science and Law Press (2002), p. 18. 48 Although contract law provides that a safekeeping contract may be exceptionally concluded by promises, in the case of gratuitous safekeeping without delivery of deposit, a gratuitous safekeeping contract shall not be established unless the parties have expressly agreed on the effect of the agreement. At this point, the distinction between an act of friendship and a (non-established) gratuitous safekeeping contract has no practical benefit. Therefore, this article is not concerned with the determination of the nature of gratuitous safekeeping promises here. 49 Article 662 of the German Civil Code stipulates that commission is free of charge, while Article 1986 of the French Civil Code, Article 394, paragraph 3, of the Swiss Civil Code and Article 1158,

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In this regard, a person who asserts that the commission is gratuitous should bear the burden of proof regarding the existence of an explicit or implied gratuitous agreement between him and his trustee. In commission contracts, although both parties to the contract have the flexible right of revocation, they are still liable for damages due to the cause attributable to the party who terminates the contract (Art. 410). Therefore, even if a commission is gratuitous, the trustee may be liable for the damage suffered by the principal due to his arbitrary termination of the contract.50 In this way, a promise to be entrusted with affairs without remuneration may still have a performance effect, as distinct from a delegation-like act of courtesy. In addition, the gratuitous trustee is only liable for principal’s losses caused by intentional or gross negligence, which is similar to the act of courtesy in the case of liability mitigation. However, because they have different liability basis (contract vs. tort), there are still differences in their burden of proof for gross negligence. Moreover, when the trustee has actually completed the transaction, he or she will be able to claim the expenses incurred in the conduct of the affairs and the losses incurred in the conduct of the affairs for reasons not attributable to him from the principal (Articles 398 and 407). In courtesy relationships, if the damage the actor has suffered in the transaction is not attributable to the courtesy recipient, the loss should be borne at his own risk. Therefore, the commission contract is obviously different from a commission-like act of courtesy.51 In the case of other gratuitous contracts or gratuitous innominate contracts, such as gratuitous contracting (e.g., fixing someone’s car for free) or loan contracts (e.g., temporarily borrowing a neighbor’s lawnmower), the distinction between it and similar act of courtesy may also be involved. In such gratuitous contracts, if the paragraph 1, of the Portuguese Civil Code stipulate that commissionis free of charge in principle, but it can be paid according to agreements o r trading habits; Article 1709 of Italian Civil Code stipulates that commission is presumed to be paid. It can be seen that the provisions of commission contract in Chinese Contract Law are more similar to those in Italy’s Civil Code. However, it is worth noting that Article 410 of Chinese Contract Law stipulates the right to terminate the commission contract at will, while the Italian Civil Code has no similar provisions (see Articles 1723 and 1727 of the Italian Civil Code). In paid commercial commission, the executory interests of both parties to the contract are worth protecting, so they should not be allowed to have the right to terminate arbitrarily. Although the second sentence of Article 410 of the Contract Law of our country stipulates the compensation obligation of the right to terminate (the second sentence of Article 405 of the Contract Law can be interpreted as compensation for breach of contract), on the one hand, it affirms the right to terminate arbitrarily, while on the other hand, it stipulates the compensation obligation, which is difficult to be sound in legislation. In fact, the so-called right of termination without any reason is not aimed at the commission contract, but at the authorization of commission. Legislators fail to distinguish commission contract and delegation authorization, so this disadvantage must be eliminated by explanation or legislation. 50 According to Article 671 of the German Civil Code, unless the principal can handle the entrusted affairs in other ways, the trustee shall not terminate the appointment by issuing a notice of termination, otherwise he shall compensate the principal for the losses suffered by it. 51 This is also applicable to the distinction between friendship behavior similar to commission and management behavior without cause, because the difference between management without cause and gratuitous commission is only whether there is commission in advance, and there is no difference in consequences between them.

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promised party refuses to perform, it usually does not cause legal disputes.52 Distinguishing issues mainly occurs in two situations: First, if one party possesses or uses the other party’s property with consent, and refuses to return it at the request of the other party, can the owner demand its restitution according to the contract? In terms of the restitution of the subject matter, whether it is based on the contract or the requirement to restitute possession, there is no difference in actual effect, and the latter is even more convenient than the former. Under similar courtesy relationships, although the parties do not form a contract, it does not exclude the owner’ s right to claim restitution of the property in accordance with other regulations (such as possession or ownership). Therefore, in the foregoing cases, regardless of whether a contract is established between the parties, the obligee can require another party to restitute it according to the possession, and whether the possession is based on the contract does not affect the realization of the claiming purpose. However, if the current possessor has a need for a continued possession based on the current possession (such as continued use), Can the obligee claim for restitution at any time? There is no clear provision and it is worth discussing. In my opinion, under this circumstance, borrower’s right to terminate the contract at any time can still be confirmed (the overall analogy). However, in order to balance user’s interests, the borrower should be given some time for preparation. Before the expiration of this period, even if the contract has been rescinded, the borrower’s possession isn’t an unentitled one.53 This effect should also be applied to the return of the subject matter due to the act of courtesy, such as the temporary borrowing of the adjacent telescope at the ballgame. This shows that, in terms of the return of subject matters, there is no need to distinct that whether the basic relation of possession is an act of contract or act of courtesy. Second, after the actor implements the relevant act, such as helping to repair the car for a person, or inviting friends to share a meal, if there is a dispute over the sharing of related expenses (such as repair materials costs, meals) or bonus after the repairment or meal (contracting act) has been finished, there will be different consequences according to contract and act of courtesy. If it is handled according to the contract, the claim for cost-sharing will be affirmed. On the contrary, it should be denied according to act of courtesy. According to this, different types of gratuitous contracts and the similar act of courtesy have different effects in different aspects. It is necessary to make an individual investigation on the problems arising from specific acts in order to understand the intention and focus of the distinction. In general, according to the existing law, except for certain gifts that can be enforced in practice due to their special natures, the obligations of the party who has the obligation to pay in gratuitous contracts can

52

Theoretically, free borrowing takes effect upon the delivery of the borrowed goods (Shi Shangkuan: On Debt Law, China University of Political Science and Law Press, 2000, p. 265), so the performance of the borrowing promise should not occur before delivery. 53 Ibid, p. 266.

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usually be arbitrarily revoked,54 but the obligor should bear the losses caused by an imputable cause. Therefore, the true intention of the distinction between gratuitous contracts and act of courtesy in the claim for performance is whether the actor should be liable for the damage caused by non-performance of promises to the beneficiary. Generally speaking, the promiser of act of courtesy has no such liability. However, if the promiser’s act satisfies imputation requirements of tortious liabilities, he should still bear tortious liabilities in accordance with the provisions of tort law. At this time, imputation standards and burden of proof may be different from the contractor’s liabilities of the gratuitous contract in similar situations. In addition, for gratuitous commissions and similar entrusted act of courtesy, it is also useful to distinguish whether the receiver’s compensation obligation occurs, and the value of this distinction also applies to the distinction between the act of courtesy and the negotiorum gestio. (2) The Criteria for Distinguishing Act of Courtesy and Gratuitous Contracts The general criteria for distinguishing act of courtesy and legal transactions or contracts certainly apply to the distinction between act of courtesy and gratuitous contracts. However, as Corbin said, although the relevant classification criteria exist, it is determined by different referees according to the specific cases, so it not only is rough, but may lack clarity and consistency.55 This view has two meanings: First, the relevant classification criteria are not directly operational, but only indicative; Second, it must be judged based on the specific facts of cases. Chinese scholars also believe that, in addition to types, it is actually not feasible to establish a unified judgment standard.56 Since the lack of intention to set performance obligations is the basic characteristic of act of courtesy, the general trade-off factor for gratuitous contracts and act of courtesy is actually a type of thinking, which can provide useful instructions for relevant legal judgments. Since the general standard is not a clearly defined operational rule, but a collection of various factors that contribute to the judgment, its guiding role depends on referee’s comprehensive trade-off of these factors. For these trade-offs, judicial practice and theory have made useful explorations. For example, the UK judicial practice considers whether the agreement is explicit or implied, whether it is a family or a social agreement or a commercial agreement to determine whether there is an intention to be legally bound; The Federal Court of Justice of Germany held that in judging whether the aforementioned intention exists, two main factors should be considered: One is risk and the other is whether the parties are liable for this risk.57 The Swiss 54

Exceptionally, the principal’s obligation to compensate the trustee’s expenses in the commission contract (Article 398 of the Contract Law) shall not be relieved after it occurs. This kind of incomplete obligation to treat is the particularity of commission contract, which is different from other gratuitous contracts where only one party bears obligations. 55 See A.L. Corbin: Corbin on Contracts (Vol.), Wang Weiguo, Xu Guodong, Xia Dengjun, Translators, Encyclopedia of China Publishing House(1997), p. 73. 56 See Xie Hongfei: Intention to Create Legal Relations: Limits of Interference of Law into Social Life, pp. 8–9. 57 See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 155.

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Federal Court has proposed more and more detailed trade-offs, such as the type of performance, its basis and purpose, its legal and economic significance, the circumstances of performance and the interests of the parties, and blood, friendship, the familiar relationship between the parties, the duration and intensity of performance, Whether the benefactor offers his performance at his own initiative or at the request of the beneficiary, the risk of damage that the party knows or should have known.58 Chinese scholars also point out such factors should be weighed as the nature of the interests involved in an act, the identity and interrelationship of the actor, interests of both parties (including the distribution of rights and obligations between the parties, the awareness of transferring risk and magnitude of risk on the parties), the actual situation and the development process of an act, and the party’s trust status.59 Just as stated above, in judging whether a party has “an intention to be legally bound”, both parties’ willingness to express clearly should be first examined. Only when such willingness is unclear or not expressed, is it necessary to judge the relevant acts according to objective criteria. In fact, this process of judgment is similar to the process of interpreting or supplementing the declaration of will. In this process, the “intention of the parties” to be determined is not the intention they actually have, but the normative intention. Therefore, this process necessarily contains a clear element of legal policy judgment, that is, there is need to handle certain relationships negatively in a way that the law does not intervene. Based on this consideration, we propose the following factors to discriminate gratuitous contracts and similar act of courtesy: The first factor is the significance of interests involved in the act. As the law does not regulate trivial matters, there is no need for legal regulation in small interactions that occur in daily life, even if there is a change of rights and interests. For example, legal regulation is unnecessary in the following situations: a temporary borrowing of an egg or a spoonful of salt between neighbors or a telescope from the neighbouring seat during the game. However, legal regulation should be considered if the interests involved are considerable, especially if the basic constitutional rights or the personal rights or interests(personality rights) of the private law are involved. The act of courtesy is not conducive to the value declaration of those important interests as it is an indirect and passive way, so it is inappropriate to be treated as a way to deal with disputes over such interests.60 Therefore, whether the property interests should be included in the legal regulation depends on their value. The significance of the interest is not identical to the so-called risk factor. Generally speaking, the greater the risk of damage or liability involved in the act, the greater the relevant interests, and the higher the actors’ willingness to include it under legal regulation. However, there are situations where the interests related to the act are 58

Bettina Hürlimann—Kaup, a.a.O., S.47–48. See Xie Hongfei: Intention to Create Legal Relations: Limits of Interference of Law into Social Life, pp. 11–12. 60 For the opposite view, see Xie Hongfei, cited above; see Shao Jiandong, “An act of courtesy or legal transaction: A review of the Federal Court of Justice of Germany ”Lotteriefall“ case, Anhui University Law Review, 2004, vol. 4, no. 1, p. 9. 59

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low, but the risks are high, as is a case in Germany.61 In the case, the court held that the actor would not be willing to be bound by the law since he may assume the risk concerning his living without corresponding remuneration.62 The risk factor is the description of the act from a passive way, while the importance of the interest is the description of the act from an active way. The major interests do not mean major risks, and vice versa. Legal transaction involves active regulation (such as setting performance obligations), so it is advisable to consider it actively. More importantly, the risk factors may have the opposite effect. In other words, the parties may have the intention to include the act in the legal regulation, or have no intention to do so when facing considerable risks. Therefore, risks do not provide a valid indication. The second factor is the urgency in the need for legal protection. In addition to considering the materiality of the involved interests, the distinction between an act of courtesy and a gratuitous contract also depends on whether the relevant interests are urgently protected by law. Specifically, the compulsory performance of the obligation is usually not incurred in gratuitous contracts. Instead, the obligee will be remedied by damages for the loss incurred by the obligor. So if the parties can resolve the differences of interest at a low cost, the legal regulation is unnecessary. This kind of remedy is equal to the tort remedy in liability, but there are differences in remedy conditions. In other words, a contract-based remedy is more restrictive to the liability holders(such as no-fault imputation or presumption of fault). Given the gratuitousness of the act, there is no need to impose an undue burden on the promising party when there is no urgent need to protect interests. Therefore, it would be appropriate to define a gratuitous agreement as an act of courtesy than as a gratuitous contract if the nature of the act is unclear. The third factor is the identity and relationship of the parties. In general, commercial agreements (where at least one party is a businessman and the content of the agreement is within his or her profession) should be deemed to be legally binding and onerous. In making judgments, consideration should be given to the occasion of act and whether the opposite party of promiser or performance receiver understands the profession identity of the actor. A consultancy contract will not be formed if the opposite’s profession is not known by one party and the involved interest is low. E.g. when a neighbour with legal background is consulted on a legal issue of daily life, there is not a consultancy contract even though he is a lawyer. Conversely, unless there is evidence to the contrary, the consulting contract (whether the act is gratuitous or not) should be deemed to be valid if the consultation takes place in the workplace, regardless of how closely the parties are. However, this consideration is mainly used to judge the validity of the following duty in non-performing promise or paying remuneration or compensations. Judicial practice has tended to treat it as a

61

The situation of the case is as follows: A, B, C, D and E agreed to pay 10 Mark to E per week, and then E bought the lottery ticket with a total amount of 50 Mark and filled in the numbers in a predetermined order. Nevertheless,E lost the opportunity to win 10,000 Mark for he did not fill in the numbers according to the agreement,. 62 See Dieter Medicus, Allgemeiner Teil Des BGB, p. 155.

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contract to reinforce professional liability if damages for defective performance are involved in this situation.63 Comparative law generally does not treat agreements concerning family or social relationships as binding contracts. For example, the court will generally deny the validity of the contract for the lack of intention to be legally bound if a husband promises to pay a certain amount to the wife or relatives promise to pay a specific amount to the opposite party. However, the significance of this presumption is limited. For instance, whether a contractual relationship has been established cannot be judged solely based on the spousal relationship if a husband helps his wife to deal with related affairs in her business. It is appropriate to treat it as an act of courtesy if the assistance is occasional, while it is proper to treat the relationship as a contractual relationship if the act of affairs is stable and permanent and the husband becomes an employee of the wife’s business. In addition, if other relationships among family members are involved, the validity of an agreement can be denied for contrary to the public order and good morals. For example, the German case,“Lotteriefall,”,64 does not need to resort to the theory of act of courtesy. The fourth factor is to judge the act according to the general social concepts or communication customs, and the principle of good faith. Some social interactions should generally be treated as an act of courtesy such as inviting friends to a party, helping each other in the neighborhood, and promising a reward to minor children. However, qualitative difficulties may arise sometimes. For example, colleague A invites colleague B to have a meal with him. After that, A asks B to share the cost of the meal, while B thinks that he promised to have the meal because A has invited him and he does not have duty to pay for the meal. In this case, there will be no problem in defining it as an act of courtesy if the involved cost is low. And it will be appropriate to require A to take adverse consequences because his act has given rise to B’s reasonable reliance even if A had not intended to treat B. On the other hand, the nature of the act should be judged in combination with the intimacy and the affordability of the parties if the amount of fee for meals are large. Either it is handled as an act courtesy, and A should assume all the meal cost; or an innominate contract, and B shares the meal cost.65 Sometimes an act or promise needs to be treated differently depending on its development process. Just as what the Federal Court of Justice of Germany considered in 63

Ibid., p. 156. The case situation is that a man and woman living in a non-marital community agreed that the woman should take the contraceptive pill. After that, the woman stopped taking medicine without warning the man, so she gave birth to a child. The court ruled that the man should assume the fees to support the child, while the man asked the woman to assume the damages. The Federal Court of Justice of Germany denied that it was bound by law for men and women in non-marital relationships were generally not under the jurisdiction of law. At the same time, it is considered that, despite its exceptional meaning, the man’s claim for compensation is rejected because the agreement involves the most secret field of personal freedom and should not be binded by law. Id. at 157. 65 From the perspective of legal technique, it is also appropriate to treat a meal shared by friends as a innominate contract, and the obligation to assume the cost of the meal can be dealt with contract interpretation. This kind of act is treated as act of courtesy because,it excludes legal regulatioin according to the general social concept. 64

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the case about a community of lottery, there is legal duty(contract basis) for the parties in the allocation of the winnings or compensation for the purchase of lottery tickets. But there is no legal duty (an act of courtesy) in the compensation for the available profit.66 This view vividly shows that the distinction between an act of courtesy and a contract is not a legal technical issue, but a choice of value or a measure of interest.67 Therefore, the referee should always combine the case’s specific circumstances and various relevant factors to make a comprehensive trade-off.

1.4 Summary As an altruistic and gratuitous act, the act of courtesy does not set the performance obligations of the actor of courtesy and the substitute liability for damages for nonperformance, nor does it create the compensation obligations of the recipient of courtesy. The interests received by the recipient of courtesy are a legal enrichment and he does not need to assume an obligation to make restitution. Therefore, it is necessary to regard the act of courtesy and the related courtesy relationships as the object of legal regulation because the act still produces the effect of the change of relevant legal interests. Although the act of courtesy does not apply to the regulation of legal transaction or the rule of contract law, the results of the change of rights and interests are still indirectly confirmed in a passive way. The act of courtesy has formed an opposite relationship with an onerous contract for its gratuitousness. The practical significance of this kind of opposite relationship is that the act of courtesy can be used to negate the claim of counter-performance by the party providing the benefit. Defining the relevant acts as act of courtesy excludes the counter-performance of the receiving party; On the contrary, it also denies the possibility of applying the theory of an act of courtesy once the act is recognized as an onerous act. This function of the act of courtesy partially shares the significance of the distinction between onerous contracts and gratuitous contracts. In this sense, the significance of the distinction between an act of courtesy and an onerous contract depends entirely on that between an act of courtesy and a gratuitous contract. In other words, it is necessary to affirm the significance of the distinction between an act of courtesy and an onerous contract only when the independent value of the act of courtesy concerning a gratuitous contract is established. In contrast to gratuitous contracts, an act of courtesy is distinguished by the lack of performance obligations and the liability for damages for non-performance. From the normative logic, all legally valid debt contracts can generate enforceable obligation. Therefore, the obligor of the gratuitous contract should assume the performance obligations and the liability for damages for non-performance, and its obligations 66

See Dieter Medicus, Allgemeiner Teil Des BGB, p. 154. See Xie Hongfei, Intention to Create Legal relationships: Limits of Interference of Law into Social Life, p. 15. See Zhu Guangxin, General Principles of Contract Law, China Renming University Press, 2008, p. 90.

67

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can even be performed enforcedly. For example, Article 188 of the Contract Law regulates the donee’s right to claim for delivery. Moreover, in accordance with the provisions of the current law of China, the liability is also possibly a strict liability, such as the liability of the carrier of the gratuitous passenger transport contract. The gratuitous nature of an act of courtesy is also not equal to that of a commission contract which is a kind of incompletely bilateral contract. Even in a gratuitous commission contract, the party receiving the benefit (consultant) still has to perform compensation to the performing party (principal) for the fees incurred by the performing act; On the contrary, the recipient of the courtesy does not need to provide compensation for the performance of the courtesy. Therefore, the difference in the effect of gratuitous contract and act of courtesy is obvious. However, the practical significance of this difference is limited. The reason is that the law may reduce the burden on the obligatory party in the gratuitous contract in two ways based on the gratuitousness: On the one hand, the law gives the obligor right to freely rescind (such as a commission contract) or the right to freely revoke (such as a donation); At the same time, the obligations of the obligor in the gratuitous contract are not enforceable. Generally, the obligee will be remedied by substitute damages (such as Article 410 of the Contract Law of China).68 In this way, the legal effect is similar whether the obligor has the original obligation to perform or not.69 On the other hand, the law provides provisions for the mitigation of liability for losses incurred in the performance. For example, the liability is usually assumed in the case of intention or gross negligence, which is basically consistent with the liability of the actor of the courtesy in the case of liability mitigation. It can be seen that the act of courtesy is distinguished from the gratuitous contract by its legal technique of passive regulation and it has its own uniqueness in the legal construction, but the practical significance of the distinction is still limited. In this sense, the theory of an act of courtesy is more of a supplementary legal regulation technique. It only plays a normative role when the legal rules of the gratuitous contract are insufficient to resolve the conflict in interests of the parties properly. It is obviously too broad to treat the act of courtesy as a normative concept as opposed to legal transaction, or as an act lacking “the intention to be legally bound.”

2 Legal Construction of Act of Courtesy A courtesy relationship is a social relationship between specific subjects that occurs due to the promise of courtesy or the direct performance of courtesy. Although this relationship does not result in the beneficiary’s claim for performance,it still needs legal regulation due to the change of rights and interests, and the attribute of a nonlegal transaction does not mean that the courtesy relationship is completely outside 68

The only exception that is clearly stipulated in legislation is the enforceable donation (Article 188 of the Contract Law). 69 Vgl. Werner Flume, Das Rechtsgeschäft, 4. unveränderte Aufl. 1992, S.87.

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the legal regulation. As a legally regulative technique that indirectly and passively confirms the results of change of rights and interests, the act of courtesy involves the construction of law on courtesy relationships.

2.1 Nature of Courtesy Relationships a. A Courtesy Relationship is a Legal Relationship Since a typical courtesy performance usually occurs between subjects with blood, friendship, and social relationships, the traditional theory holds that a courtesy relationship is only a factual relationship, rather than a legal one.70 This view may also be based on another conceptual way of thinking: Since the act of courtesy lacks the “intention to create legal relationships”, it certainly does not belong to the object of legal regulation, and thus cannot form a legal relationship. However, there are also viewpoints that a courtesy relationship can be defined as a legal relationship because it can be used as a reason for the claim for the restitution and has a protective duty according to its nature.71 We agree with the latter for the following reasons: As stated earlier, there are two problems that the theory of an act of courtesy needs to deal with: The first is the distinction between legal transactions or contracts, and the second is the issue of damagess related to performance. The lack of “intention to create legal relationships” or “intention to be legally bound” only means to negate the act of courtesy’s nature as a contract and more specifically, to negate the performance obligation incurred by it (ohne vertraglichen Verpflichtungswillen)). For the theory of an act of courtesy, if there is no change of rights and interests, there is no need to discuss whether the specific act is a matter of courtesy or legal transaction. Like legal transaction, the act of courtesy is related to the legal change of rights and interests. And it has the indirect normative effect of confirming the result of the change of rights and interests, so it should be regulated by law as a life relationship. No matter it is the positive effect determining the courtesy performance, or the negative effect related to damages incurred by the courtesy performance, they are all characteristics of a legal relationships. First, the positive effect of courtesy relationships determines that it is a legal relationship. Although courtesy relationships do not produce the performance obligations of the courtesy promiser, they can be used as a legal basis for the recipient of the courtesy to obtain interests, thereby excluding the right of the actor of courtesy to claim restitution or compensation.72 Only when the courtesy performance brings economic benefits to the recipients of the courtesy, can the courtesy relationships become the reasons for the effect of 70

Vgl. Bettina H ü rlimann-Kaup, a.a.O., S. 115, Nr. 254. A.a.O., S.116 f. 72 See Wang Zejian, Civil Law Researches: Principles of Obligation Law, p. 157. Incidentally, because the reason for keeping is only based on the premise that the performance has economic value, not all act of courtesy can bring economic benefits to the recipient of courtesy. 71

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performance. Some act of courtesy, such as picking up a kite hanging on a tree for a child, are of no direct economic value or there is no or extremely low cost on the part of the actor of courtesy, then no problem of courtesy performance on the part of the courtesy recipient is involved. In other cases, the courtesy recipient gets enriched (such as obtaining a birthday cake or flowers) or saves some expenses (in the case of avoiding fees due to accepting an offer of help). Then a problem of courtesy performance on the part of the courtesy recipient arises. There are different views on whether a courtesy actor has a legal foundation to claim for the restitution of a courtesy performance. One view holds that the actor of courtesy should not claim for restitution in that the performance of courtesy is based on moral reasons, following the legal principle “for the performance of moral obligations, the performance cannot be required of restitution”. Another point of view argues that the actor of courtesy is not subject to legal regulation. Consequently, it isn’t the legal foundation for the restitution of courtesy performance in terms of value and logical inference.73 Both explanations are deficient. The “moral obligation” should be determined according to the social concept, and it is mainly limited to the performance between the relatives who have no support obligation and other performance in accordance with social etiquette.74 This is different from the performance of act of courtesy on the basis of good faith. The biggest shortcoming of this view is the complete separation of performance effect from the will of the parties, as it is a purely objective judgment. Besides, it does not conform to the situation in which the establishment of courtesy relationships is still in accordance with the principle of autonomy of private law. Similarly, if the effect of no-restitution is explained from the perspective of value measurement and logical inference, it is necessary to explain the specific content of the measure of interest and whether there is a substantial difference between the needless of legal regulation and the passive legal regulation. Otherwise, this view will face the same doubt as the moral obligation theory. According to the German scholar Spiro, the effect of not requesting restitution stems from the effect that the law allows the parties to “recognize them as valid legal grounds” (Anerkennung als Rechtsgrund gultigen Erwerbs).75 However, this view does not explain why the law provides validity. Other scholars believe that this is because the actor and the recipient have a consensus on interest transfer. In other words, the actor carries out the performance for transferring the interests, and recipient receives performance for accepting interests.76 Jäggi even believes that the will still belongs to the declaration of will that can change the existing legal situation although it cannot set an obligation of appeal for performance. 77 However, this 73

Xie Hongfei, Intention to Create Legal relationships: Limits of Interference of Law into Social Life, p. 19. 74 Wang Zejian, Civil Law Researches: Unjustified Enrichment, Peking University Press, 2009, P.90. 75 Spiro Karl,Die Haftung f ü r Erf ü llungsgehilfen, Bern 1984, S. 332f. Ausf. Bettina H ü rlimannKaup, a.a.O., S. 119. 76 Bettina H ü rlimann-Kaup, a.a.O., S.120. 77 Vgl. Bettina H ü rlimann-Kaup, a.a.O.

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“declaration of will” just has the intention of confirming the attribution effect of the change of rights and interests, and does not create the performance obligations. Thus, it is similar to the debt contract that will be immediately performed. From this perspective, the promise of courtesy is similar to a donation that can be freely rescinded: although both of them have no mandatory obligations to perform, an act of courtesy and donation are still the legitimate reasons for claiming for keeping the effect of a courtesy performance. The courtesy relationship should be treated as a legal relationship since it can allow the recipients to claim for keeping the interests or to be exempt from the obligation of compensation, regardless of interpretations. Secondly, the passive effect of a courtesy relationship also generates its characteristic of a legal relationship. Since the courtesy performance is not achieved as planned, the reliance loss of the opposite party may occur; In the process of a courtesy performance, both the actor and recipient of the courtesy may suffer losses due to the opposite party’s unfulfilled duty of care. An act of courtesy does not have characteristics of a legal transaction or contract, but the actor can assume liability according to other legal provisions. The act of courtesy can produce legal remedy, as a fact that can cause damage, thereby establishing a remedy legal relationship between the parties. Therefore, both the transfer of interests in the courtesy performance, or the damages caused by the promise of courtesy or direct courtesy performance provide a basis for the legal characteristic of the courtesy relationships.78 b. A Courtesy Relationship is Similar to a Contractual Relationship As an act in private law, the act of courtesy should follow the principle of autonomy of private law in principle. The parties involved in a courtesy relationship are free to establish the content of the relationship, which is similar to a legal transaction. An obligation relationship is only formed by a unilateral will in the statutory or agreed circumstances (except for circumstances stipulated by the principle of contractual necessity). However, a courtesy relationship does not have to acknowledge a unilateral promise since the promise of courtesy does not create performance obligations. Where the beneficiary accepts the promise of courtesy or the actor proposes the performance of courtesy, there is a need for determining the resulting legal effects.In this sense, a courtesy relationship can be formed only when the parties agree on its content. However, the act of courtesy can still be included in a purposeful act of expression, because such consensus could be treated as a legal foundation for a courtesy actor to claim for the restitution of a courtesy performance. Thus, a courtesy relationship have certain characteristics that is similar to a contractual relationship. The only difference between the two relationships is that a courtesy relationship only involves courtesy performance on the part of the courtesy recipient, while a contractual relationship involves both the performance obligations and the foundation for 78

Vgl. Gauch/Schluep/Schmid/Rry, Schweizerisches Obligationenrecht Allgemeiner Teil, 8 Aufl., Zürich 2003, S.259.

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the retention. From the specific performance of such a similarity, the courtesy relationship is similar to a donation contract in terms of property performance, and is similar to a gratuitous commission contract concerning the provision of services.79 Since the courtesy relationship has the aforementioned similar characteristics of a contract, the laws on the capacity of acts and the relevant legal provisions of the agent or obligation performance assistant should be applicable for the act of courtesy. Owing to the gratuitousness of the act of courtesy, the corresponding capacity to act of the courtesy promiser or the courtesy provider is the only requisite. Therefore, the acquisition of his or her interests is not affected by the capacity to act of the courtesy recipient or the beneficiary. At the same time, the content of a courtesy relationship should be determined by the parties’ consensus because its formation depends on the parties’ consensus. When we determine the content of the courtesy relationship according to the parties’ intention, the parties are required to provide a verifiable, specific and certain consensus about the courtesy performance. The content and effect of the courtesy performance are subject to the agreement. For example, someone wants to go out all day and asks the neighbour to help feed his pet dog with the prepared food, which is an act of courtesy that is similar to entrustment. But when he fails to get back in time and the pet dog died of starvation after a few days, there is no need for the entrusted neighbour to assume liability for its death because the nighbour agrees to help feed the pet dog only for one day. Suppose Party A invites Party B for a meal in a restaurant. It is an act of courtesy similar to an innominate contract, and Party B may not ask Party A to drive him home in addition to enjoying the benefits of the meal. In addition to determining the content of the courtesy relationship according to the parties’ intention, the similarity between the courtesy relationship and the contract is also reflected in the protective duty. The protective duty in the contract is related to the form and intensity of the association between the parties to the contract, which is similar to the protective duty in the courtesy relationship. In the process of courtesy performance, each party should take on the protective duty to take the other party’s personal and property safety into consideration if one party gives permission for their realm of right to the other party. On the one hand, in terms of the courtesy relationship, the courtesy recipients should voluntarily give permission for their realm of right in order to obtain the courtesy performance, such as allowing the actors of courtesy to enter their own private places, or to approach their own bodies, which thereby makes their personal or property rights and interests more vulnerable to the tort of the actors. Correspondingly, the actors of courtesy may also be faced with risks posed by the courtesy

79

The similarity between the act of courtesy of giving property gratuitously and the donation is needless to say, while the similarity between the act of courtesy of providing service gratuitously and the gratuitous contract of mandate is based on the attribute of commission contract as a service contract. In this regard, the provisions of Article 394, paragraph 3, of the Swiss Code of Obligations may be the best reference: “The provisions of the commission contract shall apply to contracts involving the payment of labour, in the absence of special provisions for other types of contract in this Act.”.

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recipients. For example, the actors of courtesy may suffer damage due to the insecure place provided by the recipients during the courtesy performance. Therefore, in the courtesy relationship, an enhanced protective duty is created to respond to the risk of damage which is increased by the proposal of the courtesy performance.80

2.2 Content of Courtesy Relationships Although a courtesy relationship has the attributes of a legal relationship, there are no directly applicable legal provisions because the change of rights and interests it causes is determined passively. As such, it generates legal loopholes that should be supplemented by a method of hole-plugging. Such loopholes are inherently “open”, so they should be filled by analogy.81 Based on the similarity between the courtesy relationship and the contractual relationship, it is explained from two aspects: the obligation of performance (Leistungspflicht) and the protective duty (Schutzpflicht) according to the general content of a contract. a. Courtesy Performance In terms of an (obligation) contract, the obligor has an obligation to perform in accordance with an agreement or the legal provisions, and assumes the liability for damages for specific performance or substitute performance due to the nonperformance of obligation (Article 107 of the Contract Law). On the contrary, the courtesy promiser in the courtesy relationship does not have the original obligation to perform, nor the liability for damages for non-performance. There are two special instructions for this situation. First, although courtesy relationships have no primary obligations to perform, the actually proposed courtesy performance can still have an effect similar to the performance of contract. The actually proposed and accepted courtesy performance does not create an obligation of restitution or compensation, so its effect is consistent with that of the performed contract. In the case of the courtesy performance to a third party, although the actor does not have the primary obligations to perform to the courtesy recipient and the third party, the actual courtesy performance is still similar to the performance of the third party beneficiary contracts. In other words, the actual performance constitutes a courtesy performance to the courtesy recipient (i.e., the other party of the courtesy promisor), and can eliminate the obligation relationship between the third party and the courtesy recipient, or establishes a relationship between the recipient and the third party. Second, in principle, the actor of courtesy may not assume liability for nonperformance or inappropriate performance. The courtesy recipient does not have the right to claim for available interests, because the actor has no primary obligations to 80

Bettina H ü rlimann-Kaup, a.a.O., S.129. For a general analysis of the protective duty, see chapter 3, section I, article II (iii) of this book. 81 See De Karl Larenz: Methodology of Law, Trans. Chen Aie, Commercial Press, 2003, p. 258.

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perform. Even if the actor inappropriately performs or refuses to perform the courtesy promise, he will not take the liability for damages of the available interest. Such an effect is similar to that of a donation contract with the right to freely revoke. Exceptionally, if the opposite party of the courtesy promisor suffers damage of reliance due to non-performance, or suffers from the loss of the inherent interest beyond the performance interest due to defective performance, views on whether or not the actor should assume the liability for damages like that for culpa in contrahendo or for positive breach of contract (positive forderungsverletzung) vary and will be discussed later.82 b. Protective Duty A protective duty in a contract is determined by law or by the principle of good faith, which is separate from the obligations to perform and is related to the nature and purpose of the contract. A courtesy relationship has no obligation to perform in the first place, and its nature is similar to that of the contract, so it is feasible to form a protective duty that is similar to a contractual relationship83 However, the protective duty in the courtesy relationship can only be determined by a judge in accordance with the principle of good faith, because there is no room for the existence of the legally protective duty in a courtesy relationship that lacks direct legal regulations. Unlike a gratuitous contract where the obligations only happen to one party, the protective duty is a legal obligation incurred by mutual contact. So both parties in contact may have to assume the duty of care or protective duty and take into account the respective personal and property safety. There are similar situations existing in a courtesy relationship, in which both the actor and recipient of courtesy may assume the protective duty. In the case of the courtesy promise, the promisor has no obligation to perform the promise. But if the promisor does not intend to perform, he should bear the obligation to give notice and disclose in order to protect the other party from suffering losses due to reasonable reliance. Such a duty to disclose must be determined based on the specific circumstances of the promise. If the courtesy promisor makes a reserved promise in advance (such as “I will drive you to the airport tomorrow if time permits.“), he should not assume the duty to give notice; Otherwise, he should assume the aforementioned obligation depending on the situation (such as “I will drive you to the airport tomorrow”). Such an obligation to give notice or disclose is similar to the pre-contractual duty borne by the parties in the process of concluding the contract, which is based on the principle of good faith in positive law to protect the general property safety (i.e. pure economic interest) of the other party.84 82

Please refer to Article 3 of this section. Scholars also call it the legal obligation based on the guarantee status or social contact. For example, if a number of people meet on foot and climb mountains together, although there is no involvement of fulfilling the obligation, they shall still assume legal obligation of helping or rescuing each other. Flume, A.A.O., S.84. 84 Bettina H ü rlimann-Kaup, a.a.O., S.143.For the opposite party of courtesy promise, he or she usually does not assume similar obligations. Exceptionally, in a courtesy relationships similar 83

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In the case of the actual proposal for the courtesy performance, the parties have closer contact with each other, and courtesy relationships usually occur between acquaintances, so reliance will be greater and the permitted realm of right will be broader in the situation where a consensus on the courtesy performance has been reached. Thus, there will be a higher risk of detriments, in other words, both the general property safety and the absolute interests concerning the physical, property, etc. may be damaged by the opposite party. Therefore, the actor should assume a protective duty similar to the contract. For the protective duty in courtesy relationships, there are four additional explanations: Firstly, the protective duty derived from the courtesy performance should in principle be functionally linked to the courtesy performance. That is to say, the object of the protective duty must be the risk that is always involved in the courtesy performance, or the risk of damage should be consistent with the realm of right that the parties agree on because of the courtesy performance. Otherwise, the protective duty in courtesy relationships may not be established.85 For example, if B was beaten by other people owing to alcohol-attributable violence in a wedding banquet that A invited him to attend, B should not claim that he was injured because of the courtesy performance. A does not assume the protective duty related to the courtesy performance, because B was invited to attend a wedding where there is usually no risk of fight.86 On the contrary, if C felt depressed and invited D to drink together, and when D, being drunk, rode a motorcycle to go back home and died in an accident, C should assume the protective duty for D. C should assume the compulsory duty of care for D because D’s drunk driving is directly related to C’s invitation to drink, meaning that he should bear the obligation of dissuasion while knowing that D would drive under the influence of alcohol in order to protect D from danger. Secondly, the protective duty in a contract must be the object of the contract performance, so it can be claimed for performance. Such a phenomenon in which the aforementioned protection acts as the purpose of the contract is also seen in a courtesy relationship. For example, in the case of helping the neighbour temporarily look after the items placed outdoors, the safety of the subject matter is the content of the courtesy performance. Even the actor does not assume the obligation of performance stipulated by the contract, he or she needs to assume the protective duty. In this sense, a gratuitous contract of custody is consistent with an act of courtesy that is similar to custody in its actual effect. Thirdly, there are two types of the protective duty in a contract,87 –the obligation of result and the obligation of means. The protective duty in a courtesy relationship to entrustment, the recipient of courtesy should still assume the consultant’s fee compensation obligation under a similar commission contract. Therefore, if he or she does not will to accept courtesy performance, he or she should assume the obligation to give notice or duty to disclose to the promiser, so as to avoid useless fees. A.a.O. 85 A.a.O., S.146. 86 At this time, whether A assumes the general security obligation of communication of tort law is another matter. 87 See part 1 (i) 4, Sect. 1, Chapter 3.

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should only be the obligation de üoyen instead of the obligation de résultat according to its nature. If the protective duty in the courtesy relationship is treated as the obligation de résultat, the actor of courtesy will assume no-fault liability, which is too harsh and inappropriate for him. Fourthly, in the case of an actor of courtesy with a professional identity, the actor’s duty of care is higher than that of an ordinary person in a similar situation. For example, the Swiss Federal Court holds that as long as a counselor with a professional identity knows that his opinion can have a great influence on the other parties, he should assume the liability for detriments that the other parties have suffered owing to his persuasion or advice. Such a higher duty of care is not based on the similarity between courtesy relationships and contracts, but on the following factor: The courtesy provider is in a security position based on his expertise and assumes liabilities in accordance with the duty of care (outside the contract).88

2.3 Liabilities for Damages Arising from Courtesy Performance In practice, the problem caused by the act of courtesy is not the courtesy performance itself, but what regulations or principles should be applied to handle the situation in which the aggrieved party (i.e. the courtesy recipient) claims for damages caused by the courtesy promise or courtesy performance. In a courtesy relationship, although the liability for damage to the actor caused by the recipient’s breach of the protective duty may also occur, such liability is similar to the liability of the actor in a literal way, it is somewhat different in liability mitigation. Therefore, we will focus on the courtesy actor’s liability for damages in this book. (1) Choice of the Basis for the Right to Claim According to the traditional dichotomy liability construction system featuring a contradiction between the contractual liability and the tortious liability, the relevant damages in a courtesy relationship are explained based on either the contract law or the tort law, and there is no middle way to follow. Logically, since courtesy relationships neither are contracts, nor intended to conclude a contract, the resulting detriments cannot be resolved by the contract law. Therefore, it is natural to apply the tort law to deal with the damages incurred in courtesy relationships. Such an opinion is more popular theoretically, and is generally adopted in judicial practice.89 88

A.A.O., S. 149. The same is true of German courts. See Medecus, Allgemeiner Teil Des BGB, p. 156. 89 Gauch/Schluep/Schmid/Rry, a.a.O., S. 259. See Medecus: Allgemeiner Teil Des BGB, p. 157; Wang Zejian: “Civil Law Researches: Principles of obligation Law”, p. 157; Huang Li: “General Introduction to Civil Law obligation Compilation”, p. 18 Yang Chan: “Liability in the relationship of” kindness and favor “: from Case analysis ”, Law Forum„2005(01), p. 123 seP.; Qiu Lufeng: “On tortious liability of courtesy Act: Taking the Judgment of a” courtesy Act tort Case “as an Analysis

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a. Problems in Applying the Tort Rules The damage that occurs in courtesy relations is exclusively handled in accordance with the rules of tort law, which is simple and easy for application of law. But the following problems may arise: First, there may be obstacles to remedy of pure economic loss. Although there is generally no problem when handling damages arising from detriments to absolute legal interests in accordance with tort liability, there are obstacles in situations involving pure economic loss. Chinese Tort Law adopts a legislative model to equally protect rights and interests, in which rights and interests apply to the unified constitutive requirements in the constitution of liability so that there is no general legal obstacle to the protection of pure economic interests. However, “equal protection” does not mean that all protected civil rights and interests should be treated in a unified manner in terms of protection conditions and protection effects. Regardless of the approach taken, we must recognize that there are specific characteristic differences within civil rights and interests protected by tort law, which are not only manifested as a difference in social publicity or obvious distinctiveness, but also as a difference in value hierarchy, and also a difference in intensity or nature in the conflict with other protected interests or public interests. Equally protecting civil rights and interests with great differences in characteristics will lead to insurmountable problems in legal system and protective effect. For example, if claims are brought into the protection of tort law according to legal textual meaning and protected as real rights to the same degree, it is not only theoretically unsupported, but also not feasible in practice.90 Different jurisdictions work differently on whether to generally recognize the protection of the pure economic loss in tort law, but in fact, they all have restrictions on the protection. Protection is granted only for pure economic loss under certain types or modes of tort.91 Although Chinese tort law does not have general legal obstacles to protecting pure economic loss, there are legal uncertainties in which pure economic loss should be remedied and how to remedy them. In courtesy relationships, pure economic loss mainly arises in the case of the breach of protective duty, such as vain fees or other economic loss. Since this kind of pure economic loss is often voluntary, even if there is a bad faith of the actor, it does not mean that it is illegal. However, it is also doubtful to deal with this pure economic loss from the perspective of tort law. Secondly, the general duty of care for tort law does not match the attributes of courtesy relationships. In terms of tortious liabilities, the parties have no contact Sample”, Journal of Nanjing University (Philosophy and Social Science Edition), 2008(05), p. 122; Guo Pingyi: “Legal Thinking About The Help In Good Faith”, Law Science Magazine, 2008(01), p. 141; Qiu Xuemei: “A Preliminary Study of Tort in Friendship Activities”, Journal of Foshan University, 2010(04), p. 20; Xie Hongfei, “On the Intention of Creating Legal relationships: The Limits of Legal Intervention in Social Life”, p. 20. 90 See Ge Yunsong: “On the Civil Interests Protected by Tortious liabilityLaw”, China Legal Science, 2010(03). 91 James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, Zhang Jiayong Trans, Law Press China, 2007.

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before the damage occurs, and they only have the general duty of care to “not to harm others”. In order to balance the freedom of act and the protection of rights and interests, the tort law limits the remedy for the rights and interests based on fault imputation and illegality. In the courtesy relationships, before the damage occurred, there was a normal contact based on voluntariness between the parties, and they opened their own rights field based on reliance. The increased risk of intervention made more needs for protection between parties. Thus, the protective duty based on the Sonderverbingdung is higher than the general duty of care in the tort law. If only from the perspective of the general duty of care of tort law, the aggrieved party may not be able to obtain remedy from the damage suffered. For example, it is difficult to determine the duty to salvage of others according to the general duty of care in the tort law when several people hike a mountain as they meet, and one of them encounters the risk of damage not derived from their companions. However, given the special relationship between the parties, it is easy to determine the duty. If the general security duty of communication is recognized in the legislation, it isn’t problematic to apply the tort law to the above situation. However, the problem is that Chinese law does not form any direct provisions on the general security duty of communication in tort law. It only stipulates the security guarantee duties of specific venue administrators or organizers of mass activities. And it is undoubted whether the dealing way of tort law can provide an adequate remedy for various damage in courtesy relationships. Thirdly, it may also be too harsh for the tortfeasor to deal with damages in courtesy relationships under the tort law. Even if there is no obstacle to the determination of the tort law obligations, the tortfeasor is liable for any damage caused by negligence. Therefore, it may be too harsh for the liable person and the interests are also difficult to measure. In order to avoid possible imbalances in interests, rules of liability mitigation in courtesy relationship are established in theory and judicial practice. There are basically two approaches to mitigate liability: The first approach is to apply the rules for liability mitigation of the contract law analogically. If the principle of mitigating liability is applicable to the performance carried out by legal transactions, it should also be applicable to the tortious liability of the act of courtesy that is not a legal transaction.92 The second approach is to limit the tortious liability in the courtesy relationships by raising imputation standards, which means that the actor of the courtesy only assumes the tortious liability for the loss of the recipient of the relationship caused by intention or gross negligence.93 The former practice has actually taken into account the special nature of the courtesy relationships, but it not that logic in law to apply the mitigation rules of contractual liability when determining tortious liability. The reasonable basis for it is to avoid the fact that special provision of liability mitigation can be evaded for the choice of the parties, and to achieve a substantial appropriateness. However, just like the situation in which contractual liability and tortious liability concur, it seems that the contract prevails 92

See Medicus, Schuldrecht I:Allgemeiner Teil Des BGB, p. 157. For example, the Car Guest Act of some American States stipulates that the actor of courtesy is only liable for the damage of the courtesy recipient caused by intentional or gross negligence. 93

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in this case. The second approach is either based on a legal provision or achieved by the Rechtsfortbildung of judges. In current Chinese law, there are no provisions to mitigate the tortious liability of courtesy relationships, so it can only be mitigated through Rechtsfortbildung of judges. Since the damage can be applied for general clause of tortious liability, mitigation of liability should be based on confirming the existence of “hidden” legal loopholes and fill the gap through the teleological restriction 94 However, the conclusion is uncertain in that, in theory or practice, there is still a different understanding of whether a “hidden loophole” can be established. The legal practice of carpool in good faith is a good case in point.95 Finally, the damage generated in the courtesy relationships is exclusively dealt with according to the tort law, which is logically inconsistent with its characteristics that are similar to contractual relationships. The tort law is more focused on a remedy for damage, and pays insufficient attention to the relationship of the parties before damage occurs. Therefore, it is impossible to make a consistent legal arrangement. Some scholars believe that once damage occurs in the courtesy relationships, the act of courtesy is transformed into a tort of act of courtesy.96 However, scholars did not point out why this transformation is necessary. Even if the tortious liability can be affirmed, it does not mean that other remedy methods should be ruled out, just as the contractual liability can also be determined despite the determination of tortious liability in the case of injuring performance. So the method is only one of the applicable alternatives. b. The Possibility and Deficiency of Applying Rules of Gratuitous Contract in Analogy Since the courtesy relationship has a Sonderverbingdung attribute that is similar to contracts, it is also very natural to apply the rules analogically in contract law to deal with the remedy for damage in the courtesy relationship. As far as the courtesy relationships’ contract-like form are concerned, it can be observed from two perspectives: The first one is the similarity between the courtesy relationships and contracting relationships. The courtesy relationships are generally based on the consensus of the parties. Not only should the actor of courtesy make a promise or performance, but the recipient of courtesy should also accept the offer or act of courtesy. In the contractual relationship, the parties may also have a similar consensus, such as signing a preliminary agreement or a letter of intent. Although the agreement in the contracting party is for the purpose of contracting while the courtesy relationship is to offer benefits free of charge, neither of them sets the performance obligations of the parties. At the same time that the parties breach the obligation of good faith negotiation and fail to conclude the contract, the breaching party should assume the liability for damages for reliance. This kind of liability should reduce the unwillingness of contracting parties 94

See Karl Larenz: Methodology of Law, Trans. Chen Aie, Commercial Press p. 267 seq. See “IV” in this section. 96 See Qiu Lufeng, On the Liability for tort of courtesy Acts: Taking the Judgment of “tort of courtesy Acts” as Analysis Sample, p. 129; Qiu Xuemei: A Preliminary Study of Tort in Friendship Activities, p. 20. 95

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from investing because of insecurity, which may incur the failure of transactions that are beneficial to both parties. And it should also avoid unnecessary investment by the parties, which may hinder free economic activities due to liability assumptions. Similarly, in the courtesy relationships, the promised party’s breach of confidence may also result in the reliance loss (economic loss) of the opposite party, and similar balances should be taken into account when we consider the allocation of loss. It is necessary to avoid the consequences of deviating from the act of courtesy due to wrongful act, which may result in improper legal regulation on the relationship in everyday life that should otherwise be regulated by ethics or other social norms, so that some damage caused by a breach of confidence cannot be remedied. In terms of the similarity of the two relationships or the specific form of the balance of relevant interests, it is less convincing to deny the legitimacy of reliance compensation just because the relationship of courtesy is not a contract. In this sense, it is appropriate to generalize the principle of culpa in contrahendo to the legal foundation of Vertrauenshaftung: A contract-like Sonderverbingdung produces an obligation of damagess determined on the basis of principle of good faith.97 The second perspective is the similarity between the protective duty in the courtesy relationships and that in contracts. As mentioned above, since courtesy relationships and contracts both belong to Sonderverbingdung, courtesy relationships can create a contract-like protective duty. Compared to the general duty of care of tort law, uniqueness of this protective duty lies in the following ways. On the one hand, the protective duty in the Sonderverbingdung is the expected purpose of performance, and the protection and performance are integrated; On the other hand, the Sonderverbingdung can increase protection needs, leading to a higher duty of care of the parties. In this sense, analogically applying the relevant rules of the contract law to deal with the damages in the courtesy relationship can avoid the consequences of violating the system in legal evaluation. Given the provisions of several typical gratuitous contracts in current Chinese contract law, the compensation liability of the obligatory party is imputed by the mitigated fault liability in principle. For example, Article 191, Paragraph 2, stipulates that the donor is only liable for damage of the donee caused by the intention, and Article 374 stipulates that the depositary by gratuitous title shall not be liable for the destruction or loss of the deposit when proving that he has no gross negligence. Article 406 stipulates that the gratuitous consultant shall only be liable for the loss caused by intention or gross negligence. Exceptionally, Article 302 stipulates that gratuitous passenger transport contract carriers assume strict liability for casualties during transportation. Therefore, in general, in addition to the gratuitous passenger transport contract, analogically applying contract law rules has the advantage of a clear standard in liability mitigation.98

97

Bettina H ü rlimann-Kaup, a.a.O., S.160. Because courtesy relationships are similar to donation and gratuitous contract of mandate in basic aspects, and these two contracts have clear liability mitigation norms, which weakens the problems caused by analogy of norms of gratuitous passenger transport contract to a certain extent.

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However, there are possible deficiencies in the process of analogically applying rules of contract law. The shortcomings of analogy are mainly manifested in two aspects: First, analogically applying rules of contract law should be based on the situation in which no direct stipulation can be applied. However, for damage of courtesy relationships, the tort relief is the most direct and convenient way when the contract law cannot be applied to provide relief, because current Chinese tort law covers a wide range of scope. In particular, the integration of contractual protective duty into remedy for breach of contract can facilitate lawsuits and avoid treating different outcomes from a single breach act as multiple lawsuits. However, there is no such situation in the protective duty in courtesy relationships in that the courtesy relationships do not involve the protection of the expectation interests. The breach of the protective duty will only cause damage to the opposite party’s Integritätsinteresse, so there is no problem of convenience similar to that in the lawsuits for breach of contracts. If there are legal norms that can be directly applied, the circumvention of the application of such norms requires the necessary duty to interpretation. However, judicial judges are usually unwilling to assume this duty. If there is no legal obstacle to determining a general security obligation of communication (tort adjudication always needs to make individual judgments on the specific circumstances in which the tort facts occur, so it isn’t difficult for the judiciary to determine such an obligation. Applying tort law will be proper in terms of the constitution of liability. The main problem is how to mitigate tortious liability. Secondly, analogically applying contract law may result in overburden of the aggrieved party, especially in carpool in good faith. Since current Chinese law stipulates the liability of carriers in the gratuitous passenger transport contract as strict liability (Article 302 of the Contract Law), it strengthens the carrier’s guarantee liability for the passenger’s personal safety, and carriers must assume the joint and several liability for the damages caused by third parties. If it is handled by analogy, the carrier (the actor of courtesy) may need to assume the same no-fault liability. This result may be too far from the nature of the courtesy relationships, and it is not fair. c. Does the Middle Road Exist? Scholars point out that the perception that a certain relationship in everyday life can only be based on a contract or based on tort is rigid. In the intermediate field between contract law and tort law, there is a legal relationship that has no contractual basis but is more or less subject to the contractual liability rules and the contractual relationship is a typical one. For this kind of intermediate field, it can neither be limited generally nor regulated unified. Instead, it is necessary to be considered both from the fundamental idea of tort law and that of contract law according to the interests of the party in various typical situations.99 A courtesy relationship is a kind of intermediate field between contract law and tort law, and its application of law can also be dealt with according to the above ideas. We have found that the application of tortious liability provisions and analogically applying contract law have their own advantages and disadvantages. In determining 99

Bettina H ü rlimann-Kaup, a.a.O., S.154 f.

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the breach of duty related to damage, analogically applying the rules of contract law has an obvious advantage to achieve the purpose and it is also advantageous in the mitigation of liability (there are norms of liability mitigation of gratuitous contract in the contract law in similar situation). On the contrary, the application of tortious liability provisions is convenient in the application of law. The judge can directly apply the tort norms to deal with the relevant compensation disputes without interpreting reasons for judgment when analogically applying contract law., And applying the fault liability as the general imputation standard is also conducive to the balance of interests of the parties. However, there are deficiencies in dealing with damages in the courtesy relationships simply by the application of tortious liability provisions or by analogically applying contract law. There possibly exists situation in which the excessive liability is imposed on the liable person. The problem with application of tortious liability provisions is that it cannot mitigate the tortious liability of the liable person from the positive law in order to be compatible with the gratuitousness of the courtesy relationships. The problem of analogically applying the contract law is that the actor of courtesy may have strict liability in special circumstances (such as carpool in good faith). This liability is too biased towards the aggrieved party’s relief for rights and interests and inconsistent with the lack of intention to be legally bound of the actor of courtesy, and the gratuitousness of courtesy performance. Therefore, when dealing with the damage in the courtesy relationships, we should combine the different interest forms in the courtesy relationships with the characteristics of the relationship between the parties. It is also necessary to comprehensively balance the factors according to the contract law and the tort law to construct norms of liability. Therefore, the feasible solution will no longer be a standard tort or contract processing method, but a combination of the two. From the perspective of legal practice, it is not important to establish a special type of tort of act of courtesy. What is really important is how to construct practically appropriate norms of liability for damages in courtesy relationships. (2) The Constitutive Requirements of Liability for Damages in a Courtesy Relationship The types of damage in the courtesy relationship can actually be divided into two categories: One is the damage to reliance caused by the failure of expectations related to the performance of courtesy, and the other is the damage to benefits out of the value of performance generated in the process of courtesy performance. They are different in terms of the causes. The former stems from the frustration of the established reliance (Enttäuschung erweckten Vertrauens), while the latter stems from the voluntary opening of the rights field. For the former, reliance plays a decisive role in the occurrence of damage, while in the latter case, reliance is only one of the influencing factors. Based on the difference, scholars advocate separately to examine the constitutive requirements and legal consequences.100 Since both types of damage involve a breach of the protective duty, and the specific form of the damage usually 100

A.a.O., S.157 ff.

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does not affect the constitution of liability and the legal effect, we will discuss them together in the book. a. Damage In the dispute over damages in the courtesy relationship, the recipient of courtesy who suffers damage in the courtesy performance may claim compensation related only to Integritätsinteresse (erga omnes right or pure economic interest), irrespective of the value of the courtesy performance. Therefore, neither the damage to interests in the case of non-performance nor the damage caused by the depreciation arising from the discrepancy between the actual performance and that promised by the actor of the courtesy. For example, someone agrees to help, but temporarily changes his mind and is unwilling to help, so the other party is forced to hire someone else to handle the matter and pay for the service. Although the opposite party costs more compared with the situation in which the promise is performed, the additional fee is the substitute value of the courtesy performance and thus does not constitute a reimbursable reliance damage. On the contrary, if A promised to drive his colleague to the airport, and made other arrangements for forgetting the time. As a result, the colleague did not arrive at the airport on time and missed the flight, and the damage incurred by the accident was a reimbursable damage to reliance. b. Breach of Duty If there is compensable damage, it is necessary to further determine whether the actor of courtesy breached the protective duty. In the case where the aggrieved party opens the rights field for reliance, the opposite party has the duty to protect the security of Integritätsinteresse of the aggrieved party. If the non-performance or improper performance of the obligation causes damage, it constitutes a breach of duty. In the case of the promise of courtesy, as long as the content of the promise is specific and certain, and it is accepted explicitly or implicitly by the opposite party, the existence of reliance can be presumed and the corresponding protective duty arise. If the promised content is ambiguous, or if the willingness to perform is unclear, a promise or protective duty cannot normally be considered to be determined. For example, a promise like “I’ll help you if you need it,” or “I’ll help you move to the new house tomorrow if I’m free “ cannot be treated as the promise of courtesy that generates protective duty (i.e., obligation to give notice). The claimant of the compensation should assume the burden of proof if the promise is specific and confirmed, and the respondent should assume the burden of proof for the fact that the specific promise does not result in reasonable reliance of the opposite party. In the case where A promised to drive colleague to the airport, for additional fees incurred by the accident, A should prove that his promise cannot be mistaken as a confirmed one (such as a joke) in that situation or there are other valid reasons. Otherwise, A should be liable for compensation. In courtesy relationships where the performance is actually proposed, the actor of courtesy has a diverse protective duty for the recipient. The damage in the performance includes both the damage to the recipient caused by defective performance,

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such as the damage to passengers incurred by improper driving of the actor in carpool in good faith, and the damage beyond performance interests caused by defective performance, such as a poisoning incident caused by the defective food. c. Causation There is a causation between the damage the recipients of courtesy suffers and the breach of the protective duty by the actor of courtesy. The judgment of such causation also adopts a “ causation theory”,101 which isn’t different from the causation judgment of the general liability for damages. d. Fault There are general provisions regarding injury out of fault in Article 6(1) of the Tort Law. And contract law stipulates that culpa in contrahendo, a typical form of Sonderverbingdung, and the obligor’s liabilities of typical gratuitous contract are fault liabilities that breaches the obligations from duty of care.102 Moreover, contract law adopts the fault imputation standard where there are no corresponding legal regulations or special agreements between parties. Considering these situations,103 liability for damages in a courtesy relationship should regard fault as imputation standard.104 There are possible doubts about the above inference. Since Article 302 of the Contract Law clearly stipulates that the carrier of the passenger transport contract should assume strict liability, if the analogy is reasonable, the carrier in carpool in good faith should also assume strict liability. Therefore, it is necessary to make explanations in theory to advocate that the transporter of carpool in good faith is only liable for his fault. In my opinion, the carrier of carpool in good faith is not a public carrier, so he should not assume strict liability in analogy according to the application of Article 302, paragraph 2 of the Contract Law. The provisions of the contract law relating to the liability of the passenger transport contract carrier are stipulated on the basis of relevant provisions of the passenger transport contract which were promulgated earlier.—mainly the Railway Law (1991), the Maritime Code (1993) and the Civil Aviation Law (1995)105 Both the Railway 101

A.a.O., S.183. Article 42, Subparagraph 1 and 2 and Article 58 of the Contract Law clearly stipulate that the relevant liability for culpa in contrahendo is fault liability. Although Subparagraph 3 of Article 42 does not specify the imputation standard, treachery is prerequisite of it. From the perspective of objective fault, it is extremely difficult to distinguish treachery from fault, so the culpa in contrahendo involved in this provision should still be interpreted as fault liability. The same is true of Article 43. See Zhu Guangxin, Reliability Research: Taking Contract Conclusion as the Analysis Object, Law Press, (2007), pp. 283–284. For the deviation of the strict liability of the carrier in Article 302 of the Contract Law from the fault mitigation liability of other obligor of gratuitous contract, please refer to the relevant explanations in Sect. 3 of this chapter. 103 See the relevant discussion in the forth part (i)3, Sect. 1,Chapter 3. 104 Bettina Hürlimann –Kaup, a.a.O., S.184. 105 Selected Legislative Materials of Contract Law of the People’s Republic of China, Civil Law Office of the Legal Affairs Commission of the National People’s Congress, Law Press China, 1999. 102

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Law and the Civil Aviation Law stipulate that the carrier assumes strict liability for passengers’ personal injury and death during the transportation process. And the Maritime Code combines general fault and fault presumption to determine the carrier’s liability for passengers’ personal injury.106 At the same time, the carriers in the railway passenger transport contract and the air passenger transport contract are all enterprises engaged in public transport.107 Although there are no clear regulations on the maritime passenger transportation, in accordance with relevant management regulations, engaging in passenger transportation in the sea still needs to meet the corresponding market access rule.108 Therefore, the passenger transport contract stipulated in the aforementioned legislation basically belongs to the “commercial contract” in the traditional sense, and there is a significant difference from the occasional carpool. It is worth noting that, before the enactment of contract law, the transport contracts have no relevant provisions on gratuitous passenger transport contracts. It can also strengthen the understanding that the aforementioned passenger transport contracts have the nature of commercial contracts. In 1995, the “Draft” of the Contract Law written by professor Liang Huixing still had no clear provisions on the strict liability of the carrier of the gratuitous passenger transport contracts. Although Article 316(1) of the “Draft” outlines that the carrier assumes strict liability for damage to passengers, which may be applied to gratuitous passenger transport contracts, the possibility of applying the foregoing provisions to gratuitous passenger transport contracts should be excluded in combination with the definition of “remuneration” in paragraph 1 of Article 308. The provisions on the strict liability of carriers of the gratuitous contract can firstly be seen in Article 180 of the “Draft Version” published in May 1997. It states that the provisions about the strict liability of the carriers to the casualties of passengers during the transportation also apply to “a passenger who is exempted from buying a ticket or holds a preferential ticket pursuant to the relevant provisions, or is permitted by the carrier to be on board without a ticket” (paragraph 2). The provision that strict liability of the carrier also applies to the gratuitous passenger transport contract was retained in the “Draft” in August 1998 (paragraph 2, Article 301 of the “Draft”), with the addition of “except as otherwise provided for by any law.” (The second sentence of paragraph 1). The aforementioned additional provisions were deleted in the official text, but the rest were retained and translated into Article 302 of the current Contract Law. Judging from the formulation process and final provisions of the Contract Law, the passenger transport contract still take the form of paid transportation by public carriers as the standard, which can be illustrated by the emphasis on “payment of the ticket” and the special status or function of the passenger ticket in Articles 288 and 293–295 of the Contract Law. According to this understanding, the legislators “creatively” insert the relevant content about “passenger who is exempted from buying a ticket or holds 106

See Article 58 of the Railway Law, Article 124 of the Civil Aviation Law and Article 114 of the Maritime Law. 107 See Articles 10–12 of the Railway Law and Article 106 of the Civil Aviation Law. 108 See Regulations of the People’s Republic of China on International Ocean Shipping “Chapter 2 Operators of International Ocean Shipping and the Auxiliary Businesses Thereof”.

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a preferential ticket pursuant to the relevant provisions, or is permitted by the carrier to be on board without a ticket,” in the “draft” for the consideration of strengthening public transport carriers’ protective duty to passenger’s personal safety. It can also strengthen public transporters’ risk control ability, affordability and ability to diverse risks (transferring risks through insurance and bills).109 In contrast, the basis of the above-mentioned legitimate carrier’s strict liability does not exist for the carrier who accidentally performs the act of transportation. It is improper to apply Article 302 of the Contract Law to the field of courtesy relationships such as carpool in good faith. In theory, it is generally believed that the liability of the carrier should be mitigated and this concern is generally reflected. However, the practical significance of treating the liability for damages of the actor of courtesy as fault liability should not be overestimated. Like other breaches of the fiduciary relationship or Sonderverbingdung, the determination in breach of duty can produce the effect of fault presumption, thereby reducing the burden of the aggrieved party in proving the fault. At the same time, since the referee often combines the breach of duty with the fault determination, the shortened judgment process also has the effect of strengthening the liability. Therefore, like other breaches of protective duty, in terms of imputation, the liability for damages in the courtesy relationships also belongs to an intermediate form of liability between general fault and strict liability. (3) Mitigation of the Liability for Damages of the Actor of Courtesy It is generally believed that the liability for damages of the actor of courtesy should be appropriately mitigated.110 The author agrees with this view for the following reasons: Firstly, from the perspective of laws and policies, acts that deter positive social values should be avoided. The law does not treat the act of courtesy as a legal transaction for the purpose of avoiding improper legal involvement in social life rather than the absence of positive social value of the act of courtesy. In fact, an act of courtesy usually has positive social values worthy of recognition, such as helping others or promoting social harmony, and even saving social resources (carpool in good faith). In this sense, even if establishing courtesy relationships is not an act encouraged by law, nor is it an act prevented by law. Image that there is someone pointed out the way for others in good faith but actually indicated the wrong path, if he should assume liabilities, who is willing to do good things in the future? Or the host invites guests to dinner, but accidentally spills wine on his clothes. In this case, won”t the assumption of liabilities undermine the originally harmonious relationship between the guests 109

From the “Draft” to the formal adoption of the Contract Law, there is no different opinion on the strict liability of the carrier in the gratuitous passenger transport contract in the relevant legislative discussion, which seems to indicate the existence of relevant consensus. Selected Legislative Materials of Contract Law of the People’s Republic of China, Civil Law Office of the Legal Working Committee of the National People’s Congress,Law Press China, 127. 110 For the opposite view, please refer to Wang Zejian: Civil Law Researches: Principles of Obligation Law, P158; Zhong Fusheng & Hu Xin, Qualitative Analysis and Ability Undertaking on Lifts with carpool in good faith, People’s Judicature Vol. 2, 2009, p. 34.

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and the host? Or, if the carrier should assume liabilities due to slight negligence in the carpool in good faith, who dares to do such similar things that injure themselves and benefit others”? Once the liabilities are legally recognized, even if the aggrieved party does not make a claim for compensation based on considerations of courtesy factors,111 the potentially negative impact of these liabilities is also of concern. Secondly, from the perspective of a balance of interests, the liability of the actor should be mitigated for the gratuitousness of the act of courtesy. The act of courtesy is carried out for the benefit of the recipient of the courtesy, and the actor does not obtain the consideration due to the performance of the courtesy. Only by mitigating the liability for damages of the actor of courtesy due to the courtesy performance, can the balance of interests be realized. In comparative law, there are also examples of the general determination of the mitigation of tortious liability or non-performance liability of the liable person in similar situation. For example, Article 99, paragraph 2 of the Swiss Code of Obligations states: “The scope of such liability is determined by the particular nature of the transaction and in particular is judged more leniently where the obligor does not stand to gain from the transaction.“ Article 220, paragraph 2 of the Civil Code of Taiwan, has similar provisions: “The extent of responsibility for negligence varies with the particular nature of the affair; but such responsibility should be lessened if the affair is not intended to procure interests to the debtor.” Given the similarity between the courtesy relationships and the typical gratuitous contracts, the liability of the recipient of the courtesy should be mitigated. Judging from the provisions of the typical gratuitous contract in Chinese Contract Law, the donor, the depositary by gratuitous title and the gratuitous agent enjoys the benefit of mitigating the liability. As mentioned earlier, the courtesy relationship is similar to a donation in the case of providing gratuitous benefits, and is similar to a gratuitous commission contract in the providing of gratuitous services. In view of this similarity, it is reasonable to analogically apply the preferential treatment of liability under contract law for donors and gratuitous agents to courtesy actors. There are different opinions in theory in terms of the justification of liability mitigation, and we summarize as follows: Firstly, based on the gratuitousness of the act of courtesy, limit the liability of the courtesy actors to intention or gross negligence112 ; Secondly, analogically apply provisions about mitigating the liability in typical gratuitous contracts in the contract law; Thirdly, establish a fiction that the parties have “implied agreement” on excluding liability for slight negligence113 ; Fourthly, based on the principle of fairness, the actors of courtesy are only liable 111

According to online reports, in Hefei, a peasant woman enthusiastically took an old woman on a “hitching”. But unfortunately a car accident caused the old man to die. The guilty peasant woman and her families gave medical fees and compensation to the old woman’s children several times, but they were rejected again and again. The old woman’s children always insisted on a “a certain reason”: Good people should be rewarded for good deeds. see http://www.zggjxww.com/ News/HTML/85057.html. Visit time: June 9, 2012. 112 Qiu Lufeng, On the Liability for tort of courtesy Acts: Taking the Judgment of “tort of courtesy Acts” as Analysis Sample, P130; See Guo Pingyi, Legal Thinking About The Help In Good Faith, Law Science Magazine, 2008(01), p. 142. 113 See Dieter Medicus Allgemeiner Teil Des BGB, p. 158.

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for the corresponding compensation.114 The first claim limits liability based on the measure of interest, while the second claim limits liability based on analogy. The two views are actually the same in effect. The third uses legal fiction, which is convenient, but covers up the real reasons and has limited persuasion. The fourth one is to define the liability of the actor of courtesy as “compensation liability”, and excludes the possible illegality of an act of courtesy, which is inconsistent with the fact that the actor may be harmed by fault. Therefore, this claim is undesirable. In comparative law, there are two basic approaches to mitigate liability: First, considering the nature of the relationship between the parties, the liability of the parties should be appropriately mitigated. For example, Article 6:109 of the Dutch Civil Code stipulates that the judge may reduce the amount of compensation according to the type of liability, the relationship between the parties, and both parties’ ability to perform. The second is to raise the imputation standard, so that the liable person is only liable for the damage caused by the specific faulty form (such as intention or gross negligence), and the ordinary negligence or slight negligence liability can be excluded. In most cases, the effects of the two approaches are consistent, but their differences should not be ignored. Under the first approach, ordinary negligence or even slight negligence still meets constitutive requirements of liability, while the second approach will wholly negate the constitution of liability; On the contrary, under the first approach, liability may be mitigated even in the case of gross negligence, while in the second approach, the liable person may be fully liable. In short, the second approach adopts the method of “all-or-nothing” to determine liability and regards liability mitigation as a question of the constitution of liability; The first approach regards liability mitigation as a liability-assumption issue, so it is more flexible, allowing the judge a greater scope to consider the specific circumstances of the case. The provisions on the mitigation of the liability of gratuitous contracts in Chinese Contract Law adopt the second approach. But in tort law, the first approach is basically adopted.115 The domestic views in mitigating the liability of the actor of courtesy usually adopt the second approach, and only a few views advocate the first approach. We believes that considering the liability mitigation as a problem of liability assumption can make the results of liability mitigation more consistent with the actual situation of the case, which is worthy of approval. Specifically, we should take into special consideration the nature of the aggrieved interests and the faulty form of the actor of courtesy. In terms of the nature of the aggrieved interests in courtesy relationships, there are both property rights and interests (erga omnes rights such as real rights and pure economic interests) and personal rights and interests(such as physical health, etc.). Different rights and interests are different in value branches, and the protection they get is also different. It is generally believed that the protection intensity of personal rights and interests is higher than that of property rights and interests. Scholars 114

Article 1979 of the tortious conduct Part of the Draft Civil Code (Author: Wang Liming) stipulates: “If damage in a traffic accident was caused by hitching, the vehicle provider shall give appropriate compensation.”. 115 See Articles 26, 32 (1), 66, 72, 73, 76, 78 of the Tort Law.

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who oppose the mitigation of liability of the actor of courtesy mainly oppose the exoneration of general liability for negligence of the actor on the basis of courtesy, where the actor incurs personal injury to others.116 This view deserves attention. Article 53 of Chinese Contract Law stipulates that the exemption clauses exempting liability for personal damages shall be null and void, and the exemption clauses exempting liability for property damages should be invalid only if it involves intention or gross negligence. It reflects the special protection of personal rights and interests under the contract law. However, it makes sense to distinguish the exemption clauses and liability mitigation agreement. That is to say, the contract law only prohibits the parties from being exempted from the liability for damages of personal injury from the perspective of the constitution of liability, but does not restrict the parties from making special agreements on the scope of liability. It will lead in two collateral results. First, the contract law stipulates that the donor and the gratuitous agent are only liable for the intention or gross negligence. However, these provisions should not be applied to the damage of personal rights and interests, but only to the damage of property rights and interests. Second, even if the case involves damages to personal rights and interests, the court still will mitigate the injurer’s liability for damages according to the specific circumstances. In terms of the degree of fault of the actor of courtesy, it takes three forms: slight negligence, ordinary negligence and gross negligence. In the event of damage caused by the courtesy performance, if the damaged interests are property rights and interests, the relevant provisions regarding the mitigation of liability of the donor and the gratuitous agent should be applied analogically. In this case, the actor should be liable only for intention or gross negligence. If the damaged interests are personal rights and interests, the actor of courtesy should be liable for all kinds of negligence in principle. However, based on the principle of fairness, the liability of the actor of courtesy should still be mitigated, which means except for intentional liability, the actor of courtesy still has the privilege of mitigating liability even in the case of gross negligence. In the case of liability mitigation, the actor of courtesy should assume the burden of proof. (4) The Scope of Liability for Damages of the Actor of Courtesy Once the actor of courtesy meets the constitutive requirements of the liability for damages, the scope of liability should be determined by the provisions of the tort law. There are three reasons: First, the damages in the courtesy relationships only involve the Integritätsinteresse and do not involve the expectation interests. And our tort law has the most complete regulations in this regard, especially in the norms of personal damages. Second, in the judicial practice of China, there is a dispute over whether the compensation for breach of contract includes mental damage. If the damage caused by the courtesy relationships involves personal injury, the serious mental damage should also be compensated. In order to avoid the uncertainty of the scope of compensation caused by the above dispute, the tort law is applicable and reasonable; Third, the tort law has the nature of the liability law, and applying the 116

See Wang Zejian, Civil Law Researches: Principles of Obligation Law, pp. 171–172.

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norms of tort law is consistent with this nature. There is no doubt that, in determining the scope of liability, compensatio culpae and compensatio lucri cum damno are both applicable.

2.4 Theory of Act of Courtesy and Chinese Judicial Practice: Taking Carpool in Good Faith as an Example The act of courtesy is recognized by domestic scholars with the introduction of extraterritorial theory, and has a certain impact on the judicial practice in China.117 However, this book has no intention to discuss whether Chinese judicial practice recognizes the theory of an act of courtesy, but is more willing to focus on how the judicial practice of China deals with the cases with characteristics of courtesy relationship. Carpool in good faith is widely recognized as the standard area where the theory of actor of courtesy can be applied theoretically. And there are large amount of cases which mainly focus on disputes over the liability for damages of the actor (i.e., the carrier or the vehicle supplier), which is the most consistent with the purpose of this study. Therefore, this book takes it as the research object and studies the specific practice of damages caused by courtesy performance in the judicial practice in China. From the “PKUL(version 4.0)” and “Lawinfochina” database, the author collected 55 cases of carpool in good faith judged in different courts in the past ten years.118 There are 31 cases of first instance, accounting for 56.4%; and 24 cases of final instance, accounting for 43.6%. These cases all involve the personal injury and death

117

See “Dong Yuanding V. Zheng Shoujun and Others (appeal of csase regarding dispute over compensation for personal injury)” (Shenyang Intermediate People’s Court of Liaoning Province (2002) Shen Min (1) Zhong Zi No.1476),“the case of dispute over compensation for personal injury or death between Liu and others and Zhou” (Guangzhou Maritime Court (2002) Guang Hai Fa Chu Zi No.357),“Wang Yingqiang and othera V. Liu Yonghong(appeal of case regarding dispute over compensation for personal injury in a traffic accident)”(Chengdu Intermediate People’s Court of Sichuan Province (2005) Cheng Min Zhong Zi No.2029),“Yin Guosheng V. Jiang Chunlian (appeal of case regarding dispute over compensation for personal injury in a traffic accident)”(Chongqing Second Intermediate People’s Court (2009) Chongqing Second Middle School Fa Min Zhong Zi No. 413),“Fan Chundi v. Zhou Guiying and Other (A case about disputes over compensation for personal injuries in a road traffic accident)”(Wujin District People’s Court, Changzhou City, Jiangsu Province (2010) Wushan Minchu Zi No. 186);“Shao Qinfu v. Yang Qingguo and other(A case about disputes over compensation for personal injuries in a road traffic accident)s”(Jiangsu Liyang City People’s Court [2010] Li Min Chu Zi No. 1089),“Zhang Chuzhong V. Shao Jiping (appeal of case regarding dispute over compensation for personal injury in a traffic accident)”(Shaanxi Ankang Intermediate People’s Court [2010] An Min Zhong Zi No. 87),“Zhang Junfeng V. Chen Fulan and Other( Appeal Cases of Right to Health Disputes)”(Zhengzhou Intermediate People’s Court of Henan Province (2012) Zheng Min Er Zhong Zi No. 140), etc. 118 These cases represent almost all of the carpool in good faith cases currently available from the two databases, with the majority concentration in 2009–2011. Its regional distribution is: 18 in Henan, 6 in Chongqing, 5 in Jiangsu, 4 in Hunan and Shaanxi, 3 in Guangdong, Shandong, Guangxi and Jiangxi, 2 in Zhejiang and Sichuan, and 1 in Shanghai and Hainan.

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of gratuitous passengers and were handled as tort cases. Judging from the imputation standard, there are 51 cases handled according to the general fault principle, accounting for 92.7% of the total; 3 cases handled according to the no-fault principle, accounting for 5.5%; and one case handled according to equitable liability, accounting for 1.8%. There are 51 cases that explicitly mentioned the problem of carpool in good faith, among which 15 cases(29.4%)were denied the liability mitigation of the carrier, and 36 cases (70.6%) were approved of the liability mitigation of the carrier for carpool in good faith.119 Judging from the cases in which the liability of the carrier was mitigated for carpool in good faith, it was difficult to determine the extent of the liability mitigation in 10 cases.120 As for the other 26 cases, in 21 cases (80%), the degree of liability mitigation was less than 30%,121 and in 5 cases (20%), the degree of liability mitigation was more than 40%. The specific analysis is as follows: (1) About the Basis of the Right to Claim Article 302 of the Contract Law stipulates that the gratuitous contract carrier shall be liable for damages for breach of contract in respect of the personal injury or death of the passenger during the transportation process, and the cases of carpool in good faith we collected involve the personal injury and death of the passenger. However, no case directly applied the contract law. This shows that once the relationship between the parties constitutes a relationship of carpool in good faith, the contractual relationship will be denied, and there is a high consistency between theory and judicial practice. However, even if carpool in good faith does not form a contract, it does not mean that it cannot be analogically applied to the contract law. In fact, we can indeed find traces of analogical application in individual cases. For example, in Yin Guosheng v. Jiang Chunlian (appeal of a case regarding a dispute over compensation for personal injury in a traffic accident)”,122 The court of first instance held that, in the case of carpool in good faith, the vehicle owner had the status of a carrier. Although the driver did not receive the benefit, he still had a duty of care, so he should assume the no-fault liability. No matter the owner of the vehicle invited the passenger, or the passenger took the vehicle without the knowledge of the vehicle owner, or the passenger took 119

This ratio is basically consistent with the situation of related cases in Henan Province. Generally speaking, it can be considered that the regional distribution of cases has no influence on the statistical results. 120 In most cases, the court mentioned two mitigating reasons, namely,carpool in good faith (or carpoo for free) and the negligence of aggrieved party, so it is impossible to accurately distinguish singly the mitigating effect of carpool in good faith. In a few other cases, the court mitigated the liability of the carrier that hard to quantify, such as not allowing the obligee to claim compensation for mental damage (such as “Yin Youwen v. Liu Jianjun(A case about disputes over compensation for personal injuries in a road traffic accident)”(People”s Court of Shihe District, Xinyang City, Henan Province (2011) Xin Shi Min Chu Zi No. 1510)), so it is impossible to determine the mitigation range. 121 The frequency distribution is:The reduction extent was 5% in 2 cases, 10% in 5 cases, 15% in 4 cases, 20% in 6 cases, and 30% in 4 cases. 122 Chongqing Second Intermediate People’s Court (2009) Yuyi Zhongfa Civil Final No. 413.

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the vehicle secretly, it should be treated as the same. Since neither court of the two trials has stated the basis of the judgment, we believe that the judgment is made in accordance with Article 302 of the Contract Law. It is common in Chinese judicial practice to adopt the tort law to deal with the damages for personal injury in carpool in good faith. However, it should be noted that the majority of damages in cases of carpool in good faith are handled in the context of traffic accidents.123 It is easy to give the impression that the dispute over carpool in good faith is a dispute over traffic accident liability. However, this impression is not correct. There are two basic prerequisites to treating motor vehicle traffic accident liability as special tortious liability: First, the damage is caused by the motor vehicle in the process of transportation. Second, the aggrieved party is someone other than the motor vehicle driver and other imputable parties (driver or passenger). The second prerequisite is not clearly stated in the current law, but can be derived through an explanation. Scholars believe that because Article 3 of Regulation on Compulsory Auto Liability Insurance clearly excludes the insured and motor vehicle personnel from beneficiaries of compulsory liability insurance, “Liability for Motor Vehicle Traffic Accident” in tort law does not include damage to the personnel of the motor vehicle.124 This kind of explanation is conducive to the consistency of liability for damages caused by traffic accidents and compulsory liability insurance. However, the explanation is not perfect for it does not analyze the issue in the context of the tort law. In fact, the imputation principle for “liability for motor vehicle traffic accident” should be determined in accordance with Article 76 of the Road Traffic Safety Law, and the latter stipulates different imputation principles under different circumstances in which the accident occurs. In short, imputation of fault should be applied to traffic accidents where two sides are vehicles. A presumption of fault is applied to a traffic accident where one side is vehicle and another side is a nonmotor vehicle or a pedestrian.125 Therefore, the foregoing distinction is based on the risk control capabilities of both parties: Motor vehicles have the same risk control capability, so the damagess between them applies to general fault liability; The risk control of non-motor vehicles or pedestrians is obviously weaker than that of motor vehicles. Therefore, the presumption of fault should be applied to the motor vehicles as one side, and the general fault principle should be applied to the non-motor vehicle or the pedestrian as another. Regardless of the cause of the traffic accident, the motor vehicle driver and other passengers on the vehicle should have the same risk control ability for the accident. Only when the scope of the aggrieved party of motor vehicle traffic accidents is limited to someone other than the driver of the motor vehicle and other passengers who should be imputed, can the distinction between the imputation 123

The cause of action of related cases is often “… case regarding dispute over compensation for personal injury in a traffic accident”. 124 Wang Liming: Research on Tort Law (Volume II), China Renmin University Press, 2011, pp. 304– 305. 125 However, the presumption of fault here is limited to the motor vehicles’ liability to non-motor vehicles or pedestrians, and does not include the liability for damages caused by non-motor vehicles or pedestrians. Yang Lixin: Tort Law, Law Press, 2010, p. 348; Wang Liming, ibid., p.305.

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standards for motor vehicle traffic accidents be rationalized. In other words, even if the motor vehicle traffic accident caused damage to the passengers who should be imputed, liability for damages for the passengers of the driver or owner of the motor vehicle does not belong to “liability of motor vehicle traffic accident” of the tort law. Since the current law does not specifically regulate such a situation, it can only be resolved in accordance with the principle of general tort of fault. In addition, cases of damaged non-motor passengers are also treated as carpool in good faith cases in practice, such as damaged bicycle passengers,126 damaged agricultural tricycles passengers,127 and damaged ship passengers.128 This also shows that it is wrong to confuse the carpool in good faith case with the liability of motor vehicle traffic accidents. Accordingly, in cases involving carpool in good faith, the carrier is held for the general tortious liability rather than special tortious liability.129 (2) About the Imputation Standard When determining the liability of a motor vehicle traffic accident, the court usually respects the conclusion of the traffic management departments in the determination of the liability for the accident and applies it as the basis for determining the liability for damages. The court does not separately consider the constitution of liability for the damage between the liable party of the motor vehicle, and the co-passengers. Therefore, the imputation standard for the liability of motor vehicle traffic accidents is applied to determine the liability for damage for carpool in good faith in a concealed manner.130 There is an administrative pre-procedure for the certification of traffic 126

Such as “Shi Jiasheng v. Zhang Zhi, Zhangzhou Boiler Group Co., Ltd., Li Jianxiong and other (case regarding dispute over liability for a motor vehicle traffic accident)”(Guangxi Zhuang Autonomous Region Wuzhou Intermediate People’s Court (2001) Wumin Zaizhong Zi No. 3),“Ma × v. Liu × × , Chen × × , Chen × × , Dubang Financial Insurance Company Qianjiang Branch Company (A case about disputes over compensation for personal injuries in a road traffic accident)"(Chongqing Shizhu Tujia Autonomous County People’s Court [2011] Shi Famin Chuzi No. 20),“Appeal of case regarding dispute over compensation for personal injury in a traffic accident between Li Yonggang and Li Jinpeng in Road Traffic Accidents”(Qingdao Intermediate People’s Court of Shandong Province [2011] Qingmin Wuzhongzi No. 850),“Fan Chun Di v. Zhou Gui Ying and other(A case about disputes over compensation for personal injuries in a road traffic accident)”(Wujin District People’s Court, Changzhou City, Jiangsu Province (2010) Wushan Minchu Zi No.186), etc. 127 Such as “Yin Xiuying, Lu Wenfu, Lu Guanghui, Lu Xuelian, Lu Weihua v. Lu Changde (A case about disputes over compensation for personal injuries in a road traffic accident)” (Wuyang County People’s Court of Henan Province (2011) Wumin Chuzi No. 58),“Yu Chengduo and Yu Zhenxing (A case about disputes over compensation for personal injuries in a road traffic accident)” (Xuzhou Intermediate People’s Court of Jiangsu Province (2009) Xu Min Yi Zhong Zi No. 1738). 128 Such as “the case of dispute over compensation for personal injury or death between Liu and others and Zhou”. 129 For the opposite case, see “Yuan Pengfei v. Wang Haiguang(A case about disputes over compensation for personal injuries in a road traffic accident)” (Qinyang People’s Court of Henan Province [2010] Qin Min Chu Zi No. 290). 130 However, this way of taking traffic accident liability as the basis of liability for damages is not correct.“Certification of Traffic Accidents is the main evidence for public security organ to deal with

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accident liability, and the illegal facts are the basis for determining liability,131 so the significance of distinguishing general fault and presumption of fault for liability of motor vehicle traffic accident in imputation standard is eliminated. Judging from the three cases in which the court applied the no-fault liability, the correctness of its application of the law is doubtful. In the “appeal of case regarding a dispute over compensation for personal injury in a traffic accident between Cai Qiang and Zhang Yi “,132 the plaintiff and the defendant were on the same construction site and the defendant carried the plaintiff home free of charge. However, a traffic accident occurred on the way home, causing damage to the plaintiff. The court of the first instance held that the plaintiff took the defendant’s vehicle, and thus the defendant had a duty of care for the security of plaintiff. Then, without the explanation on whether the defendant breached the obligation, based on the “traffic accident of the defendant’s car on the way”, the court held that the defendant should assume full liability for damages according to Article 106 (which paragraph?) of the General Principles of the Civil Law. Therefore, the court adopted no-fault liability. Although the court of the second instance affirmed the relationship of carpool in good faith, it believed that the defendant should still assume appropriate liability. Finally, the court held that the defendant should assume 70% of the liability for damages for the traffic accident incurred by “tire burst” is an unexpected event. The court of the second instance did not illustrate the basis of its judgment, so it was hard to determine whether it adopted the no-fault or equitable liability. Obviously, it is not appropriate to apply the no-fault liability in this case. Since the case is handled as a tort case, the liability for damages of the liable party of motor vehicle to the copassengers can only be treated as a general tort (i.e., Article 106, paragraph 2 of the General Principles of Civil Law). In the other two cases involving no-fault liability, the court clearly stated that the carrier in carpool in good faith relationship should traffic accidents. Although it can be applied as evidence in civil litigation, which is different from the legal basis and imputation principle of tort determination in civil litigation for the conclusion of traffic accident identification is based on the corresponding administrative laws and regulations, and the imputation principle applied is special. Traffic accident liability is not completely equal to civil legal liability for damages, so the Certification of Traffic Accidents cannot be used as the only basis for the distribution of liability in civil damages cases. The fault degree of the actor in tort act should be comprehensively determined according to the imputation principle of civil litigation on the basis of the actual situation of the case.“Ge Yufei v. Shenqiu County Automobile Transportation Co., Ltd., Zhoukou Branch of People’s Insurance Company of China and Shenqiu Branch of People’s Insurance Company of China(A case about disputes over compensation in a road traffic accident)). 131 Despite Article 46 of the Regulations on Procedures for Handling Road Traffic Accidents issued by the Ministry of Public Security, the determination of accident liability should be based on the fault of the actor and the role of his behavior in the accident and the basis for determining the fault is not stated. Some local regulations often take driving without a license as the basis for liability distribution. When there are no other violations of laws and regulations, driving without a license is usually determined to assume secondary liability for the accident. For example, Subparagraph 1 of Article 11 of Sichuan Province Road Traffic Accident Liability Confirmation Rules (Trial) and Item 3 of Article 5, paragraph 2 of Henan Province Road Traffic Accident Liability Confirmation Rules (Trial). 132 Civil Judgment No. 927 (2011), Final, Commercial and Civil Division, Henan, of the Intermediate People’s Court of Shangqiu City, Henan Province.

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assume no-fault liability. However, the facts of the case did not explain the above argument, and the facts of the case have already fully demonstrated that the carrier is at fault.133 Thus, it is sufficient to determine the carrier’s liability in accordance with the principle of fault. Therefore, the general judgment that the carrier of the carpool in good faith should assume the no-fault liability falls short of the basis. And the argument lacks consistency in logic for it discussed the defendant’s fault based on no-fault imputation, thus, the conclusion is doubtful. If the carrier is not at fault and the court enters a judgment that he should be liable for the appropriate compensation (or offset), the application of equitable liability is a natural choice. In the “Tan Guangren v. Chen Binlian (appeal of case regarding a dispute over compensation for personal injury in a traffic accident)134 ” case, the plaintiff and defendant are the villagers of the same village. The plaintiff was injured in a collision with other tricycles while hitching a lift on the defendant’s motorcycle. A third person caused the accident and escaped. The court of final instance held that neither a contractual nor tort relationship was formed between the plaintiff and the defendant. So the defendant could only be given appropriate compensation (50%) in accordance with Article 132 of the General Principles of the Civil Law. This practice is related to the generalization of equitable liability in China. In the judicial practice of China, the application of equitable liability does not require that damage is caused by the actor, nor it requires that the aggrieved party shouldn’t be at fault for the damage. (The aggrieved party’s negligence is the only factor in determining the proportion of the damages).135 As a result, the equitable liability evolves into a no-fault liability without the content of exemption, thereby undermining the entire imputation system determined by tort law. Judging from the comparative law, equitable liability is the exception to tortious liability, which mainly aims to deal with the special situation in which the aggrieved party is unable to compensate the aggrieved party.136 Nevertheless, Article 157 of Chinese “People’s Opinion”(Repealed) determined beneficiary’s liability for fair compensation according to the principle of compensation. And it can limit the application of equitable liability. Even if the motor vehicle driver who is not at fault should assume part of the no-fault liability or equitable liability, and the scope of liability should also be limited. As for the traffic accident liability between the side of motor vehicles and the side of non-motor vehicles or pedestrians, the current 133

In “Yin Guosheng v. Jiang Chunlian(appeal of case regarding dispute over compensation for personal injury in a traffic accident)” The fact that the driving of the motor vehicle do not meet the technical standards and the driver operates improperly has been confirmed, and even the judgment clearly points out that the defendant is at fault; In “Yuan Pengfei and Wang Haiguang(A case about disputes over compensation for personal injuries in a road traffic accident)”, the fact that the driver’s improper operation caused traffic accidents was also confirmed. 134 Civil Judgment No. 157(2005), Final, Commerical and Civil Division, Henan, of the Intermediate People’s Court of Shangqiu City, Henan Province. 135 See Ping Li, Gong Nian v. Mayflower Company’s Dispute over Personal Injury Compensation, Bulletin of the Supreme People’s Court, No. 2, 2002; “the case of compensation for personal injury between Zhou Kaifeng et al. and Yichang County Construction Bureau,” Bulletin of the Supreme People’s Court, No. 4, 2001. 136 See Von Barr, Gemeineuropäisches Deliktsrecht (Vol. 1), pp. 110 seq.

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law has confirmed 10% of the no-fault liability. In other words, the corresponding ratio should not exceed 10%. As we can see from these cases, if the imputation standard of the two cases changes from no-fault liability to fault liability, the proportion of carpool in good faith cases adopting fault liability will be as high as 96.36%, which can confirm Chinese general practice in dealing with carpool in good faith cases. (3) About Liability Mitigation In the case of carpool in good faith, most of the judgments agree that the liability for damages of the carrier can be mitigated, irrespective of whether the damage to the aggrieved parties involves personal rights and interests. However, many judgments only make a general conclusion and do not explain the basis for mitigating liability. And the absence of such a basis is the reason why some judgments do not recognize liability mitigation.137 Therefore, the basis for liability mitigation of the carrier in the carpool in good faith should be given special attention. In some judgments, the court noted the attribute of courtesy of the relationship in carpool in good faith and supported the carrier’s claim to mitigate liability based on ethicality.138 Other judgments confirm the mitigation based on the gratuitousness of the hitching,139 or both of them.140 Also, some judgments believe that the carrier’s liability should be mitigated based on the principle of fairness, and even invoke Article 4 of the General Principles of Civil Law as the legal basis.141 In several 137

In “Fan Long and Xue Qiaofang’s Dispute over Motor Vehicle Traffic Accident Liability” (Pingdingshan Intermediate People’s Court of Henan Province (2011) Civilians Zhongzi No.206), the court of second instance refused to support the defendant’s claim that the liability should be mitigated or exempted for carpool in good faith because it lacked legal basis. 138 Such as “Yin Xiuying, Lu Wenfu, Lu Guanghui, Lu Xuelian, Lu Weihua v. Lu Changde(A case about disputes over compensation for personal injuries in a road traffic accident)”, “Hui Yangui v. Huang Denghua and Huang Dengcheng: (A case about disputes over compensation for personal injuries in a road traffic accident)”(Baihe County People’s Court, Ankang City, Shaanxi Province (2011) Bai Min Chu Zi No. 00056),“Cheng Xiuzhi and other v. Kong Qingxiu(appeal of case regarding dispute over compensation for personal injury in a traffic accident)” (Shangqiu Intermediate People’s Court of Henan Province (2009) Shang Min Zhong Zi No. 564). 139 Such as “Yin Youwen v. Defendant Liu Jianjun: Case of Personal Injury Compensation Dispute in Road Traffic Accident”,“Zhao and Hunan Hengyang Automobile Transportation Group Co., Ltd. and other road traffic accidents personal injury compensation disputes”(Hunan Leiyang City People’s Court (2010) Lei Xun Min Yi Chu Zi No. 63),“Zhu Xingqin and others v. Lu Jianzhong and other traffic accident damage compensation disputes”(Nanxun District People’s Court, Huzhou City, Zhejiang Province (2006) Hu Xunmin (I) Chu Zi No. 1536). 140 Such as “Yu Chengduo and Yu Zhenxing’s Dispute over Compensation for Personal Injury in Road Traffic”(Xuzhou Intermediate People’s Court of Jiangsu Province (2009) Xu Min Yi Zhong Zi No. 1738). 141 Such as “Shi Jiasheng and Zhang Zhi, Zhangzhou Boiler Group Co., Ltd., Li Jianxiong and other traffic accident liability disputes”,“Wang Moumou and Ye Moumou and other road traffic accidents personal injury compensation disputes” (Wuxi Intermediate People’s Court of Jiangsu Province [2011] Ximin Zhongzi No.0670),“Fan Chundi v. Zhou Guiying and Other Disputes over Personal Injury Compensation in Road Traffic Accidents”,“Gu Muren v. Jiangyan Pharmaceutical Co., Ltd. and other road traffic accidents personal injury compensation disputes” (Jiangyan People’s Court of

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decrees, the court held that the aggrieved party “implied the risk” when the hitching occurred, so that the liability of the carrier could be mitigated based on the “implicit consent” of the aggrieved party.142 As mentioned above, if the mitigation of the liability of the carrier is based on the aggrieved party’s “implicit consent on the risk,” it lacks a factual and legal basis. Because of it, some judgments clearly point out that carpool in good faith do not mean that the aggrieved party agrees to run a risk.143 Therefore, Chinese courts rarely use this technical means, unlike that of the Federal Court of Justice of Germany. It excluded slight negligence144 by “implicit agreement” in many judicial decisions. When we decide whether to mitigate the liability of the carrier, it is necessary to consider the ethical or courtesy attributes of carpool in good faith and to measure the interests. However, the actual measure of interest must be consistent with the formal logic of legal argumentation, or the results of the measure of interests should be supported by the positive law. Judging from the relevant cases, the principle of fairness stipulated in Article 4 of the General Principles of Civil Law is often applied as a positive law basis for mitigating the liability of the carrier in carpool in good faith, although not all such judgments explicitly refer to t this article. According to scholars, fairness is a legal value orientation, and good faith is a set of institutional arrangements that can serve fairness.145 Therefore, although the principle of fairness can be the guiding principle of legislation and judicial judgment, it does not have the role of becoming the basis of direct judgment.146 If this is the case, for the mitigation of liability of the carrier of carpool in good faith, the more appropriate legal basis should be the principle of good faith as stipulated in Article 4 of the General Principles of Civil Law rather than the principle of fairness. Whether based on the principle of fairness or the principle of good faith, the referee should assume the obligation of interpretation in value supplementation. At this time, the consideration of the measurement of substantial benefits becomes the specific analysis factor of such interpretation. In theory, the actor of courtesy should assume full liability in the case of intention or gross negligence. While in practice, the court usually does not consider whether Jiangsu Province (2004) Jiang Min Zai Chu Zi No. 8), “Lin Tingxin’s Dispute over Compensation for Personal Injury Due to Road Traffic Accidents” (Guangzhou Intermediate People’s Court of Guangdong Province (2011) Sui Zhong Fa Min Yi Zhong Zi No. 3761). 142 See “Wang Yingqiang v. Liu Yonghong(appeal of case regarding dispute over compensation for personal injury in a traffic accident)”. 143 Such as “Yin Guosheng and Jiang Chunlian(appeal of case regarding dispute over compensation for personal injury in a traffic accident)”, “Wang Moumou and Ye Moumou and other road traffic accidents personal injury compensation disputes”, “Lin Guilong and Lei Chunyuan’s Appeal Case of Road Traffic Accident Damage Compensation Dispute” (Foshan Intermediate People’s Court of Guangdong Province (2005) Fo Zhong Fa Min Yi Zhong Zi No. 996). 144 See Dieter Medicus Allgemeiner Teil Des BGB, p. 158. 145 See Xu Guodong,Interpretation of Basic Principles of Civil Law: Focusing on the Legal Analysis of the Principle of Good Faith (addition and deletion), China University of Political Science and Law Press(2004), p. 64. 146 See Liang Huixing, General Introduction to Civil Law (4th edition), Law Press China, 2011, note 1 on p. 46.

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there is gross negligence of a carrier in mitigating the liability in carpool in good faith except for a few cases.147 This showcases that even in the case of gross negligence, the carrier may still be given the privilege of mitigating the liability. In addition, in the case of carpool in good faith, the liability of the carrier can be mitigated if the aggrieved party has negligence in the occurrence or expansion of the damage. For example, the aggrieved party does not dissuade the driver from drunk driving,148 driving without license149 and dangerous driving150 or does not wear a seat belt151 or safety helmet.152 However, the aggrieved party’s negligence and the carpool in good faith are separate causes of liability mitigation. And the carrier’s liability can be mitigated based on the carpool in good faith separately or on both the carpool in good faith and the aggrieved party’s negligence.153

2.5 Summary The courtesy relationships occur because of the act of courtesy. Although the act of courtesy is not a legal transaction, it can still create a legal relationship between the parties. The proposal of courtesy promise or courtesy performance can change 147

In “Lin Guilong v. Lei Chunyuan( (appeal of case regarding dispute over compensation for traffic accident damage”. The court held that, “Since the accident in this case was caused by the appellant Lin Guilong’s gross negligence, and the appellee Lei Yuanchun was not at fault for the traffic accident,so the liability of Lin Guilong cannot be exempted or mitigated on the grounds of hitching in this case”. 148 Such as “Zhu Xingqin and others v. Lu Jianzhong and other traffic accident damage compensation disputes” (Nanxun District People’s Court, Huzhou City, Zhejiang Province (2006) Hu Xunmin (I) Chu Zi No. 1536), “Shen Yuanrong et al. v. Wu Zhiyu et al. Case of Personal Injury Compensation Dispute” (Dongtai People’s Court of Jiangsu Province (2004) Dong Min Yi Chu Zi No. 1049), “Chen Guocheng v. Wu Shiliang’s Appeal Case of Personal Injury Dispute in Traffic Accident” (Ningbo Intermediate People’s Court of Zhejiang Province (2010) Zhe Yong Min Er Zhong Zi No. 836). 149 E.g. “Luo Guiwu v. Lu Shixue, etc., a dispute over compensation for personal injury in a road traffic accident” (Laibin Intermediate People’s Court, Guangxi Zhuang Autonomous Region (2007) Lai Min Yi Chu Zi No. 17). 150 Such as “Yin Guosheng and Jiang Chunlian’s Appeal Case of Personal Injury Compensation Dispute in Road Traffic Accident”. 151 E.g. "Wang Hongpu v. Yuzhou City Tourism Bureau and Other Road Traffic Accident Personal Damage Compensation Dispute" (Yuzhou City People’s Court, Henan Province (2009) Yuminyi Chu Zi No. 1621), “Guo Moumou Road Traffic Accident Personal Damage Compensation Dispute Appeal” (Shanghai Shanghai No. 2 Intermediate People’s Court (2010) Shanghai No. 2 Intermediate Civil I (Civil) Final No. 2285). 152 Such as “Zhao v. Han and other road traffic accidents personal injury compensation disputes” (Gongyi City People’s Court of Henan Province [2010] Gong Min Chu Zi No.1817),“Liu Cunying, Feng Zhong and Bai Xinyang’s Dispute over Motor Vehicle Traffic Accident Liability” (Xunxian County People’s Court, Hebi City, Henan Province (2011) Jun Min Chu Zi No. 1149),"Lin Guilong and Lei Chunyuan’s Appeal Case of Road Traffic Accident Damage Compensation Dispute". 153 Of the 47 cases involving mitigating liability, 25 mitigated liability solely due to carpool in good faith. 11 solely due to negligence. And 11 due to both of the aforementioned reasons.

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legal rights and interest, thus, the courtesy relationships becomes the legal reason for the recipient of the courtesy to claim for the restitution of a courtesy. The courtesy relationships are formed based on the parties’ consensus, in compliance with the concept of autonomy of private law. The content and effect of courtesy relationships can be determined according to the willingness of the parties. Unlike the declaration of will in legal transaction, the purpose of will in acts of courtesy is not to create performance obligations, but to confirm the effect of performance. In the courtesy relationships, the parties voluntarily open their own rights field for reliance based on the will of the parties, so the protective duty is established. For the courtesy relationships, the positive effect is only to determine the fiduciary relationship between the parties and provide a legal basis for the performance of courtesy. Because of the characteristic, the confirmation of the performance effect can be carried out in a manner of passive regulation. Passive regulation is no longer proper once the damage, especially the inherent benefit damage outside the courtesy performance, has occurred in the process of courtesy performance. At this time, active legal regulation is necessary to provide regulation rules for damagess in the courtesy relationships. Like the contracting contact relationships and the contractual relationships., the courtesy relationships are Sonderverbingdung. Therefore, the damagess for breach of the protective duty in the courtesy relationships also follow the principle of protective duty in contracts. At the same time, because the courtesy relationships have characteristics of the intermediate field between contract law and tort law, we should consider fundamentals of the two legal fields when we deal with the damagess in courtesy relationships, and adopt appropriate rules according to the type of interest. The principle similar to the contract law should be adopted in the determination of the breach of duty, and the rules of the tort law should be adopted in the determination of the imputation standard and the scope of compensation. The most controversial issue in the theory of courtesy relationships is whether the actor of courtesy can enjoy the privilege of liability mitigation. From the perspective of laws or policies and interest measurement, the privilege in liability of the actor of courtesy should be affirmed. It is necessary to analogically apply the provisions of liability mitigation in the contract law relating to the donor and the gratuitous agent when property damage is involved. Thus, the actor is only liable for intention or gross negligence; In the case of personal injury, the actor of courtesy still needs to be liable for the ordinary negligence, and at the same time, the liability should be appropriately mitigated based on the principle of fairness or good faith.

3 Summary of the Chapter The theoretical composition of an act of courtesy involves two aspects: The first is the distinction between an act of courtesy and legal transaction or contract, and the second is the damagess caused by courtesy performance. The core of the first question is whether the act of courtesy has a unique normative value relative to the

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gratuitous contract; The core of the second question is the specific circumstance under which damagess arising from courtesy performance are different from that in general tortious act. In the above two theoretical components of the act of courtesy, the role of the “courtesy” is significantly different. In the distinction between act of courtesy and legal transaction or contract, “courtesy” is often considered as evidence of a lack of “intention to be legally bound “. For example, acts between family members or social acts are presumed as lack of the intention to create a legal relationship by parties in certain jurisdictions. The effect of this presumption is that the courtesy is regarded as evidence of negating the intention to be legally bound in the act of courtesy. However, such a presumption may be problematic because the courtesy may miss such an effect in other legal transaction that also involves courtesy factors. Therefore, a more appropriate understanding should be that the “ courtesy “ does not have the effect of negating the “intention to be legally bound “. And it is merely a proxy for some acts that lack “intention to be legally bound “. In addition, in a relationship that exclude courtesy factors, such as the gentleman’s agreement, the parties also lack the “intention to be legally bound “, so the “intention to be legally bound “ rather than the “courtesy” is the normative judgment standard with distinguishing value. At the same time, the “courtesy” contains the meaning of gratuitousness and altruism of act, while the latter is not a unique characteristic of courtesy performance, which provides characteristics of legal transaction for the effect of courtesy performance. In this way, the act of courtesy is different from the legal transaction or contracts for it does not set performing obligations; An act of courtesy is similar to a (valid) legal transaction or contract for the effect of performance occurred on the basis of free will. The courtesy relationships can only determine or protect the result of performance, and do not have the effect of setting the performance obligations characterized by the obligation relationship. Compared to legal transaction or contracts, the act of courtesy indirectly confirms the effect of changes in the rights and interests based on voluntary performance by passive legal regulation, thus establishing its uniqueness. However, courtesy relationships and legal regulation cannot be completely separated. On the contrary, in the case of damagess due to the performance of courtesy, the “courtesy” has a positive impact on both the liability component and the liability assumption, that is, it can be applied as a reason for the liability mitigation of the actor of courtesy. There are at least two issues that attention should be paid to the damagess in courtesy relationships: First, the damage in the courtesy relationships is based on the breach of protective duty; Second, the courtesy has the effect of mitigating liability. Unlike a general tortious act, the parties in a performance relationship already had a higher protective duty due to contact before the damage occurred. The party is liable for compensation for breaching the obligation. This liability for damages emphasizes that the fiduciary relationship determined by the party before the damage has a unique intention of confirming the content and extent of the protective duty. And it is distinguished from the general tortious liability that arose before the parties have prior contact. Therefore, the courtesy relationships do not establish a legal transaction or aim at establishing a legal transaction, but it is still a general obligation relationship

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as a relationship similar to the contact relationship in a transaction. And the parties still have the protective duty to take care of their respective personal and property security. The breach of these obligations will adopt a uniform legal construction with the breach of protective duty in the contact relationship of transaction.154 The “courtesy” is a reason for liability mitigation. Its legitimacy depends on the gratuitous and altruistic nature of the act. If the relationship of the party before the damage is not taken into account, the damagess in the courtesy relationship is not different from the general damages, especially for the tort damages. The practice of mitigating the liability of the actor is based on the gratuitousness and altruism of act, which makes the act of courtesy similar to a contract rather than a tort. However, the liability mitigation that the courtesy can affect depends on the degree of the fault of the actor and the nature of the damaged interest. It is the key to the whole issue whether the influence of the transactional contact relationship or similar transactional contact relationship between the parties on the recognition of the duty to protect, the standard of imputation and even the scope of liability, before the damage, is sufficient as a basis for distinguishing liability for breach of protective duty from tortious liability in the general obligation relationship. As we have already pointed out, regardless of the relationship of the parties before the damage (such as the existence of close relationship), regarding the tortious damage as a damage between strangers may be just an unconfirmed theoretical idea. In fact, damage to rights and interests always occurs under certain circumstances, and all tort judgments must be combined with this specific circumstance, which includes the specific type of relationship between the parties before the damage occurred. As long as the tort judgment needs to be judged individually depending on the specific circumstances of the damage, we have no way to abstractly determine the specific content and intensity of the “general duty of care in tort law”. And the so-called “enhanced protective duty” may be just the “obligation type” of artificial construction. In this sense, whether the courtesy relationships belong to a legal relationship similar to an obligation relationship does not have an important impact on determining the attributes of liability for damages in the relationship. Moreover, in this relationship, because the protective duty has the characteristic of duty of means, the breach of duty and the imputation judgment are usually delt with together in judicial practice in determining the liability for damages. Therefore, being different from the breach of protective duty, the positive value of the liability attribute of the breach 154

The traditional authoritative view in Germany is that damages in courtesy relationships do not belong to Vertrauenshaftung But the newly popular view is that because the protective duty is formed in social contact relationships, courtesy relationships contain obvious risks that may damage to rights and interests, especially when courtesy performance is to provide protection or give up related property interests. Thus, what is commonly referred to as a courtesy agreement, and falls within the meaning of "contact in a similar transaction" under Article 311, paragraph 2 (c), and entails liability in connection with the breach of duty under Article 241, paragraph 2, under the principle of legal transaction. Harm Peter Westermann/Peter Bydlinski/Ralph Weber, BGB-Schuldrecht: Allgemeiner Teil, C.F. Müller Verlag, Heidelberg, 2007, S.32.

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of duty in means is eliminated in determining the imputation standard. The adoption of tortious damages in respect of the detriments of courtesy relationship in both German and Chinese judicial practice indicates that the scope of the compensation for tortious damages may be far greater than the usual theoretical assumptions.

Chapter 6

Systematization of Legal Regulation in the Intermediate Field Between Contract Law and Tort Law

Through a specific examination of typical intermediate field, we find that although different intermediate field differ in factual form, they still show consistency in legal regulation, i.e., they all need to deal with the legal remedy or civil liability happened when a breach of obligation by one party causes damage to the rights and interests of the opposite party. Since the form of rights and interests involved in the intermediate field reflects the overlapping relationship between the protection object of contract law and that of the tort law, the legal regulation in the intermediate field shows some characteristics and needs a factual qualitative regulation mode beyond tradition— that is, whether the matter to be regulated is contract or tort must be determined prior to the selection of the relevant regulatory rules. To be aware of the necessity of the legal regulations beyond the normative attributes and make the corresponding selection of normative modes, we should not only solve problems under the special background of Chinese law in practice, but also reflect on the general development trend of contemporary contract law and tort law in theory. Due to the fuzzy attributes of the intermediate field between contract law and tort law, the traditional factual qualitative normative method is difficult to carry out. Determining the possible normative content of the intermediate field by defining the attributes of key issues can better adapt to the regulation needs in this legal field. The crux of the intermediate field is the relief for the rights and interests. Therefore, the relevant regulative norms have the general attributes of the remedy law. The first section of this chapter begins with this feature to discuss the normative objectives of the intermediate field. Since there have been many discussions on the systematization of legal regulation in the intermediate field between contract law and tort law in theory, it is necessary to study the results achieved in the current typical theories, and obtain the essential enlightenment from them. The “third way” (or the theory of Vertrauenshaftung) initiated by the German scholar Canaris and the all-standard integration theory proposed by the Japanese scholar Shinomiya Kazuo are typical representatives of these theories. The second section of this chapter takes them as the objects of investigation and identifies their theoretical characteristics. Legislative and judicial branches of various countries have carried out helpful exploration and © Huazhong University of Science and Technology Press 2023 J. Zhang, Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law, https://doi.org/10.1007/978-981-19-9107-3_6

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practice in integrating different types of liabilities. The legal regulation in the intermediate field needs to draw on the successful experience and make corresponding arrangements in accordance with the specific positive law background. In doing so, special attention should be paid to deal with the coordinated relationship of the special and general legal norms. This is what will be discussed in the third section of this chapter. And the last section is the conclusion of this chapter.

1 Normative Objectives of Legal Regulation in the Intermediate Field As a legal field between contract and tort, the intermediate field between contract law and tort law cannot implement the distinction logic between contract and tort. The distinction in type and the corresponding normative settings are related to specific normative objectives, and the legal regulation in the intermediate field needs to be inconsistent with them. This is the root cause of the aforementioned logical implementation obstacles. To the end, through the analysis of the differences in normative objectives between the contract law and tort law, it is possible to theoretically identify the regulatory needs and characteristics of the intermediate field.

1.1 Distinction between Creation of Rights and Interests and Relief for Rights and Interests As a law of rights, the basic function of civil law is the recognition and protection of private rights (civil rights). In terms of the recognition of rights, on the one hand, civil law directly stipulates rights based on legislation, and allocates social resources in accordance with the principle of proportionality among all members to achieve the distribution justice; on the other hand, it applies private autonomy to create relevant rights through legal transaction, and exchange resources among specific civil subjects in accordance with the principle of equality, to carry out the commutative justice. The creation of rights and interests is based on normal facts of life or interpersonal behaviors that conform to social norms. Under the circumstances in which the order of resource allocation is established, the creation of rights and interests is more likely to be realized through the parties’ private autonomy or legal transaction, among which the contract is the most important way. Therefore, what the creation of rights and interests will address is that under what conditions the effect pursued by private autonomy can be recognized and realized by the legal order. In contrast, the problem that the relief for rights and interests needs to deal with is that when the recognized attribution of rights and interests is injured due to other people’s wrongful acts or the special risks associated with them, whether the aggrieved party can exclude such damage or, in what way the damaged result can be passed on to the other person. When

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conditions of the relief for the rights and interests are satisfied, the consequences are also shown as the acquisition of the juridical relief right of the aggrieved party. Even so, this right is just a transformation form of the infringed rights, which is significantly different from the new rights generated from the creation of rights and interests. Bluntly, it is necessary for the creation of rights and interests to get the legally recognized facts of life or interpersonal behaviors, while the relief for the rights and interests must be based on the infringement or damage caused by wrongful act or special danger. (1) Private Autonomy in the Creation of Rights and Interests Despite differences in degree, all legal orders have recognized the principle of autonomy of private law in history, that is, the principle that individuals establish legal relationships based on their own will.1 As a tool for the implementation of autonomy of private law, legal transactions aim at generating the legal effects of private law; that is the establishment, change or elimination of rights and obligations.2 This kind of effect either acts on an existing right or legal relationship or creates one or more rights to performance. Broadly speaking, as long as a legal transaction results in the determination of the obligations of the actor or the acquisition of the rights or exemption of the obligation of the opposite party (or other related parties), we can say that a right and interest has been created by this act. For example, the will creates the expective right for the beneficiary to obtain the inheritance; the obligation contract creates the claim for performance of the parties; and the real property contract creates the real right of the transferee. However, people usually do not understand the effect of the creation of rights and interests of legal transactions in such a broad sense. Only when a legal transaction creates a right and interest that does not exist without this act will it be considered to have the creation effect of right and interest. Therefore, although the dispositive act that acts solely on existing rights or legal relationships can result in the other party getting its rights, such as real right, the rights acquired are not created by the transfer. Instead, they exist before the act and are transferred due to this act. In this sense, only the act of liability—the legal transaction that creates the claim for performance—is an act of creating rights and interests.3 Since the basic rules of contract law are usually based on obligation contracts,4 the contract has the effect of creating rights and interests.5 1

Werner Flume, Das Rechtsgeschäft, Chi Yin Trans, Law Press China, 2013, pp. 1–2. Karl Larenz, Allgemeiner Teil des Deutschen Bürgerlichen Rechts, Law Press China, 2003, p. 426. 3 This restriction excludes not only dispositive acts, but also common acts (such as resolution acts) that do not have opposing interests. On the contrary, the time of contract establishment and performance of the debt contract settled immediately are the same. The right to performance is not obvious, but it still has the effect of creating right. Incidentally, it is not appropriate to translate “privatautonomer Gestaltung” in German law theory into “the act of creating rights in autonomy of private law” while it is more appropriate to translate it into “the act of forming in autonomy of private law”, so as not to be misunderstood that all legal acts have the effect of creating rights. 4 Because German law also recognizes contract of real rights (consensus) besides debt contract, it should be regarded as an exception. Nevertheless, the most discussed “contract” in theory is still debt contract, which is consistent with the richer debt contract rules in the Civil Code. 5 Unless otherwise specified in this book, the concept of contract is used in the sense of debt contract. 2

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A contract has the effect of creating rights and interests because it has a directivity toward the future state. In other words, the existence of a contract always creates an expectation that “the future exchange will occur in a partially predictable pattern through the dynamics of existing relationships (whether hierarchical or not).6 Since the contract creates the expectation of the parties to the future, the protection of the law gives such expectation legal force. This can force the obligor to perform the contract in the agreed original way or in the form of damages. It is precisely because the contractual content agreed by the parties has the effect of enforcement with legal protection that the contractual claims are shown as “expectation interests”. It would be logically contradictory to argue, on the one hand that the effects of performance should be recognized (cause of retention) but on the other hand that an agreement that has not been performed cannot create an “expectation interest” (effect of performance). It is because performance itself cannot cause changes of rights and interests, only the legal transaction (consensus or promise) that is the basis for performance can justify the changes. Rather than establishing the recognition of the results of the performance based on the theory that the parties who “trust the existing performance will not be changed due to the later breach of contract” (“reliance theory”), it is more natural to think that this result is the party’s initial expectation (“expectation theory”). Of course, the “expectation interest” is understood in a normative sense, and generally has the same meaning as the claim for performance created by the contract.7 That is to say, the “expectation interest” can be regarded as the interest that the obligee intends to obtain through the claim for performance. It can either be an interest that does not exist when the contractual relationship is established, such as the acquisition of property rights that the obligee did not previously enjoy, or just an interest to protect the security of vested interests such as entering into a security guard services contract to protect personal safety. Since the security interest must be manifested through the vested rights, when the obligor performs obligations according to the contract, the obligee may in a better or worse state than the time when the contract was established. As long as this worse state cannot be attributed to the obligor, the obligee must take the 6

Ian R. Macneil, The New Social Contract, Lei Xining & Pan Qin Trans, China University of Political Science and Law Press, 1994. 7 Nevertheless, the understanding of the expectation interests created by contracts should still be limited. The rights and interests created by the contract and the rights and interests obtained after the performance of the contract are essentially considered to be the same, which has the effect of transforming the contractual claims into property rights. This effect is usually proper for dual contracts which are typical forms of transactions. This is because the rights acquired by the parties by the contract are considered equal according to the principle of equality. The equilibrium of the parties’ interests when the contract enters into force is consistent with when the contract obligation is performed. For the unilateral contract such as donation, since the contract only benefits the unilateral party, the legislation generally gives more restrictions to them, including the restriction or even exclusion of the right to perform and the expectation of compensation for benefits. However, the contract on the provision of security, which is a unilateral or gratuitous contract, is different from the general gratuitous contract. Because the secured claims usually arise from bilateral contracts or have compulsory execution, the effectiveness of the security right should be strengthened by claim secured, thus having the attribution of protected expectation interests.

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consequences. For example, despite the best efforts of the medical staff, the patient eventually died of illness. And the doctors would not be legally liable for the death. Therefore, the creation of expectation interests does not mean that obligee will be in a better state. A contract can create a better state of interest for a party or simply prevent existing interests from being too unpredictably worse. In this sense, the “expectation interest” created by the contract is broader than what we usually understand. The effect of creating rights of the contract depends on the proper exercise of autonomy of private law, and the autonomy of private law must be within the framework of the law. Therefore, the rules about legally binding force constitute most of the contract law.8 It is meaningless to ask whether the effect is based on the intention of the parties or the recognition of the legal order because “as long as recognized by the legal order, the autonomy of private law can establish legal relationship only based on the parties’ intentions.”9 In general, the effect of the determination of autonomy of private law should be based on indefective declaration of will. In other words, only when the contract should be recognized as valid according to standards set by law can the intention to form legal effect have the normative effect with the legal recognition. Invalid contracts are not recognized by law, so there is no problem in the creation of rights and interests. However, a defective contract is not necessarily excluded from autonomy of private law. If the defective effect is eliminated by ex post facto confirmation or correction or other statutory circumstances (such as the cancellation of the right of revocation due to the scheduled period), the effect of the defective contract is still intended rather than statutory, which is the same as that of an indefective contract. The reason is that the legitimate basis of legal transaction (contracts) is on the party who declares the intention instead of the party who relies on the intention.10 Since the declaration of will is made by the declaring party, the effect of the relevant private law is still pursued by the actor after the effect of the defective behavior is eliminated. The effect of rights and interests created by contracts on obligee’s side is shown as the right to request performance and accept performance (the claim for performance and the right of acceptance of performance), and on the obligor’s side as the obligation to perform. Scholars say that the focus of the contractual relationship is not on the obligor’s act of performance but on the obligee’s acceptance of performance because “the obligor’s act or forbearance is only a means of achieving the result of the performance”.11 However, there are an “obligation to transfer” and an “obligation to act” in terms of obligations, and the “obligation to act” may not incur a specific performance result. So the right to accept the performance is the general effect of the non-obligation relationship. Moreover, the effect of rights and interests created 8

Hein Kötz, Europäisches Vertragsrecht, Zhou Zhonghai, Li Juqian & Guan Liyun Trans, Law Press China, 2001, p. 5. 9 Werner Flume, Das Rechtsgeschäft, Law Press China, p. 7. 10 Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, Müchen 1971, S. 415. 11 Lin Cheng’er, Systematic Interpretation of Obligation Law, China Renming University Press, 2003.

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by contracts is discussed from the perspective of contractual purposes, and it needs to be reflected by the creation of the obligation to perform in the legal technology. In other words, it is necessary to realize the expectation interests of contract through the fulfillment of the performance obligation. The typical contractual duty is the purpose of the contract. If the parties have no intention to create the effect of performance when they interact with each other, the use of the concept of “contract” in the regulation of their relationship deviates from the inherent meaning of contract.12 Exceptionally, in the case of contract conversion, although the contract that has been recognized as valid due to the conversion is not what the parties intend (if the parties realize the conversion, they will not choose the contract form with validity barrier), the effect is still within the scope of what the parties really intend to achieve. It also means that “(conversion) should not lead to the protection of the parties contrary to the autonomy of private law.”13 Therefore, the typical contractual duty should be based on the (common) will of the parties, at least not beyond their possible will. A similar situation exists in the case of the so-called Vertrauenshaftung, especially the positive Vertrauenshaftung which takes the obligation of the right appearance as its basic system form. Under these circumstances, the legal effect is shown as a statutory liability, and the obligation to perform of the liable party does not depend on his or her own will. Nevertheless, the positive Vertrauenshaftung is consistent with the reliance of the relying party in content, and this reliance is precisely the purpose that the relying party intends to achieve through legal transactions. Meanwhile, the Vertrauenshaftung is logically premised on acts including legal transactions.14 Therefore, the Vertrauenshaftung functions to fulfill the protection of the loopholes that the legal transaction theory fails to do.15 It just shifts the focus of the obligation to perform from the self-discipline of legal transaction theory to the reasonable reliance of the opposite party, while they are still similar in function so that the relevant rules that are applied to legal transaction can be analogized according to the specific circumstances.16 It is precisely because of the similarity in function that reliance also has the function of creating rights and interests similar to legal transactions (or contracts) in the case of positive Vertrauenshaftung (especially those are shown as assumption of the liabilities). In the case of the negative Vertrauenshaftung, in which the damage 12

In this sense, “de facto contractual relationship” can constitute the necessary “consensus” of the contract only when the behavior of the parties in the relevant factual relationship is interpreted in a standardized way. Otherwise, it can only be misused. For example, in the famous “parking lot case” in Germany, if the defendant explicitly refuses to establish a contract while using the parking lot, it is unreasonable to forciblyregulate the interest relationship between the parties according to the so-called factual contract. A more appropriate normative way should be the restitution of unjust enrichment. 13 Dieter Medicus, Schuldrecht I: Allgemeiner Teil, translated by Du Jinglin and Lu Chen, Law Press, 2004, pp. 397–398. 14 Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, Müchen 1971, S.442. 15 A.a.O., S. 440. 16 A.a.O., S. 452.

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is the basic form, there is no problem of creating rights and interests according to the principle of reliance because the protection object is an inherent interest. (2) Compulsory Stipulation of Law in Relief for the Rights and Interests The relief for interests and rights is derived from damaged rights and interests. Unlike the creation of rights and interests based on autonomy of private law, the legal effect of relief for the rights and interests is not based on the will of any party in the relief relationship. Instead, it is directly regulated by law. Although the legal system affects the act effects in both the creation and relief of interests and rights, its role is not the same: In the case of the creation of rights and interests based on autonomy of private law, the law gives the actors the right to decide the effect of the free behavior within its framework. The law only confirms this effect; While in the case of relief for rights and interests, the law directly stipulates the effect of the act or fact that causes tort/damage to others’ rights. The relief for rights and interests is manifested as the liability forms such as prohibition of act, restitution, damages imposed on the actor. Its mandatory nature mainly means that the person on whom the liability is imposed must take the consequences even if he or she does not want to accept them. While for the beneficiary of the juridical relief right, it simply means that whether he or she expects such consequence is not a consideration in the recognition of this right.17 The relief for rights and interests limits the injurer’s freedom to act by regulating his or her liabilities. Therefore, the relief must have boundaries, and so the relief condition that reflect such boundaries plays a role of restricting the relief for interests and rights or legal liability. Thus, the legitimacy of relief for interests and rights cannot be solely proved by any side of the liability relationship, but by the balance of interests of both parties. In this regard, the sanctions theory, the compensation theory or the combination of the two cannot explain the institutional structure of the relief well: The concept of sanctions does not explain why compensation is only the right of a particular aggrieved party, while the concept of compensation does not explain why the aggrieved party’s loss should be compensated by the specific injurer. Combining the two concepts also does not establish a direct link between a particular aggrieved party and a specific injurer in a single normative structure.18 As a form of implementation of corrective justice, the liability system eliminates the state of tort by passing the damage to the person who illegally causes or ordering him or her 17

However, the compulsory relief for rights and interests should not be equated with the compulsory realization of juridical relief rights. It is because the private nature of juridical relief right determines that the parties can dispose it, which means that the parties can not only book the relief content before the tort/damage occurs, but also reach a settlement after it, thus producing the effect of “contract replacing tort”. At this time, the legal relief effect only provides a reference framework for the agreement of the parties, and is not compulsory. In this sense, the statutory norms of liability still belongs to the default rule in the main aspects. Private autonomy is not allowed only in certain matters, such as advance exemption of liability for the damage of intentional or gross negligence or for the personal injury, and considerable freedom is still reserved for the parties in the way and scope of liability. It may be misleading to equate the relief effect with the statutory effect. 18 Martin Stone. The Significance of Doing and Suffering, in Gerald Postema (Ed.), Philosphy and the Law of Torts, Cambridge University Press 2001, p.149.

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to restitute the unjust enrichment. “The concept of liability that related to corrective justice... will be reflected only when we consider the two interrelated parties and when they have equal interests in their actions and in the security interests.”19 In other words, the interests protected by law, under certain circumstances, should depend on the nature of the communicative relationships between the involved parties that have been defined by both the protected interests and the sanctioned conducts.20 Nevertheless, since the purpose of relief for rights and interests is to protect the private rights recognized by the legal system from being damaged by wrongful act,21 the protected rights and interests are at the center of the relief. First, protected rights and interests must exist before the fact of infringement. In the case of a contract, the breach of contract is premised on a valid contract, which indicates that the rights and interests of the relief for breach of contract precedes the fact of breach. In the case of tort, this truth is also obvious. In individual cases, the attribution of rights and interests affected by the tort referee is not clear, and it needs to be judged through the value balance between the protection of rights and interests and the freedom of action. But the determination of the tortious liability at most strengthens the conversion of the protected interest to the rights status instead of changing the situation that the protected rights and interests in individual tort relationship must precede the existence of tort. The statement that tort law protects the inherent interest (or Integritätsinteresse) reflects this characteristic of the tort relationship.22 Second, the damage to protected rights and interests is a prerequisite for initiating legal relief mechanisms. The bipolar nature of the liability relationship determines that simple wrongful acts or dangerous facts are not sufficient to trigger the relief. Only when they actually or have the imminent danger to cause the tort/damage of protected rights and interests will the relief mechanism be activated. In this sense, the relief for rights and interests becomes the purpose of the liability system, thereby distinguishing the private law liability system from the public one. Third, legal relief is consistent with protected rights and interests. Where certain restrictions are met, the relief should reflect rights or the policies behind them as much as possible. Thus, the clearer the protected rights and interests, the more explicit the relevant legal relief; The more

19

Ibid. p. 160. Peter Kane, The Anatomy of Tort Law, Wang Zhigang Trans, Peking University Press, 2010, p. 224. 21 Wang Liming, Study on the System of Civil Code, China Renming University Press, 2008, p. 631. 22 It should be noted that the inherent rights and interests are relative to the occurrence of the damage fact (the cause of the damage). For the damage caused by breach of contract, the expectation interests created by the contract have already been shown as the inherent interests of the aggrieved party in breach of contract in the aforementioned sense. Of course, this is discussed from the perspective of the fact that the expectation interests of the contract are protected by law, and has nothing to do with whether the contract should protect the expectation interests. In other words, only when the law actually protects the expectation interest can we say that the expectation interest has become an “inherent interest” after the contract comes into effect. 20

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explicit the legal relief, the more certain the content of the protected rights and interests.23 Specific damaged rights and interests are usually associated with the obligation of conduct of the person who is liable for the remedy for the rights and interests. This kind of obligation of conduct can be roughly divided into two types: The first one is the obligation of conduct related to the special effect of the attribution of rights and interests, such as the obligation not to jeopardize or infringe on the ownership of others, the obligation not to use other people’s patents without permission, and the obligation not to infringe on the right to life and health of others; The second one is the obligation of conduct related to the general order of the attribution of rights and interests, such as the general act requirements of not hurting others, the respect for the personality of others or the need of not participating in unfair competition. The stronger the exclusivity of the rights and interests and the clearer of its definition or borders of belonging; the more explicit the act indications to others and the easier to determine the obligation of conduct; On the contrary, specific actions need to be clarified through legislation, judicial adjudication or parties’ agreement. Although the fact of the attribution of rights and interests is the premise of the relief, the judges cannot make the relevant conclusions only based on the determination of the attribution when making the judgment on whether to start the relief. Instead, they need to make comprehensive trade-offs by allowing for other factors, and in this case, the nature of the infringed rights and interests is important. The specific characteristics of the interfering act (such as whether it is due to intent or gross negligence) and whether the relationship between the parties is close also will be considered. Moreover, there may be alternative effects between different constituent elements of liability: the higher satisfaction of one element can make up for the lower satisfaction of other elements. For example, if the act risk is higher, the fault requirement is lower or even will be completely replaced.24 This dynamic system theory about the composition of tortious liability is proposed by Wilburg. It requires an evaluation of act from its overall value, rather than placing the focus of judgment on a single element. It can also be seen as the specific operation mode by which the relief and freedom for rights and interests maintain their balance. Exceptionally, the relief may also be unrelated to whether the liable person breaches the obligation of conduct. The unjust enrichment that occurs not because of the acts of the liable person and the tortious liability based on special risk typically reflect the situation. On the former occasion, the basis for restitution is not the fact that the liable person has caused unjust enrichment, but that he or she has maintained it; In the latter case, the basis of liability is not the wrongfulness of the activities that cause the damage, but rather the special risk inherent in such activities. In this case, the characteristics of the liability system of the relief for rights and interests are the most obvious. 23 See Dan B. Dobbs, Law of Remedies: Damages-Equity-Resitution, Hornbook Series (2nd ed.), 1993, pp. 22–23. 24 Vgl. Nils Jansen, Die Struktur des Haftungsrecht: Geschichte, Theorie und Dogmatik außvertraglicher Ansprüche auf Schadensersatz, 2003, S. 595.

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However, the above abstract framework is too simplistic for specific trade-offs in the relief for rights and interests, because it has not yet taken into account the specific form of the relief. The one who initiates the relief for rights and interests should not only consider whether to provide relief but also consider how to carry it out. For example, when the use of someone’s real estate is affected by fumes emitted from a neighbor, whether to prohibit it or to allow it with compensation will have different effects on the liable parties and reflects different legal policy orientations. In general, the purpose of compensation liability is to protect the economic integrity (wirtschaftliche Integrität) of the damaged rights and interests, while the purpose of the cessation of infringement, removal of nuisance, restitution liability and self-assistance or self-defense (Eigenhilferechte) is to guarantee the integrity of the subject (gegenständliche Integrität).25 Using what kind of relief in a specific situation will face more considerations beyond the foundation of the relief. In other words, the applicable conditions of the specific relief are more practical than the abstract constituent elements of liability. These elements do not constitute a direct link with the liability forms. The law of remedy has its own independent normative meaning as the normative body of addressing the problem of the relief form and scope after the determination of liability.26 (3) The Significance of Distinguishing between the Creation of Rights and Interests and the Relief for Them The creation of rights and interests and the relief for them generally reflect the distinction between the normative functions of contract law and tort law: The contract law has the functions of creation of rights and interests and relief for them while the tort law only has the function of relief.27 From the perspective of the composition of basic rules, the contract law can be divided into three parts: rules of the creation of contractual rights, rules of the performance of contract, and relief rules of the non-performance contract. Among them, the rules of the creation of contractual rights include those of the establishment and validity (including the defects) of contract, which set the preconditions for the creation of contractual rights. The narrow validity rule refers only to the rule that confirms the validity and invalidity of the contract, while the general validity rule also includes the rules for confirming the specific content of the valid contract. Therefore, the rules about contract content and interpretation can be regarded as the 25

A.a.O., S. 62–63. See Dan B. Dobbs, Law of Remedies: Damages-Equity-Restitution, Hornbook Series (2nd ed.), 1993, p. 1. 27 Theoretically, we also use the concepts of creation and protection of rights and interests to explain the normative functions of contract law and tort law. However, the concept of protection is broader than that of relief, which includes the protection of rights and interests without infringe or damage of rights and interests such as the protection effect of contractual obligation on Integritätsinteresse. While the protection in tort law should be based on the infringement or damage of rights and interests. Therefore, we use the concept of relief for rights and interests with a richer connotation instead of the protection function of rights and interests, and use it to form a corresponding relationship with the broader concept of “expectation interests” in contracts. 26

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general validity rules, and are related to contract performance; The performance is the way to realize the contractual rights. Whether from the obligor’s active performance, or passive performance because of the obligee’s request, the expected purpose of the contract can be realized as long as the parties can autonomously coordinate. Generally speaking, only the obligation to perform in the contract has the problem of claiming performance. Therefore, the claim for performancee in the contract is mainly related to the obligation to perform, but not to all the contractual obligations especially the so-called protective duty of contract. The latter’s main purpose is to provide an imputation basis for the acts that are related to the performance and cause damage to the Integritätsinteresse of the obligee. And it is more related to relief for interests and rights rather than the creation of them. Although the obligation to perform and the breach of it are the constitutive requirements of the relief for rights and interests, it is not necessarily related to the relief. Thus, the rules about the creation and performance of the obligation to perform (contractual rights) in contract law become the unique rules that distinguish between contract law and tort law,28 and they have the significance of determining the basic structure of the law of obligations. Contract law plays the role of relief for rights and interests only if the breach of duty causes damage to them. It is worth noting that the relief function of contract law is not limited to a certain interest form. It can be either the inherent interest (or Integritätsinteresse) without the basis on the valid contract or the expectation interest created by the contract. In other words, whether the relief target of the breach of contract is set as restitution interest, reliance interest or expectation interest, it only concerns the legitimacy of relief or the corresponding relief standard, and does not change the characteristic of relief for breach of contract as the relief for rights and interests. Unlike contract law, the function of tort law lies only in relief for rights and interests. The damaged rights and interests are necessary to establish tortious liability, and there is no tort without damage.29 Generally speaking, the rights and interests protected by tort law are determined according to other legal rules. For example, the property rights law and the personality rights law create or confirm the property rights and personality rights protected by tort law, but the tort law does not set rules for the recognition of these rights. Moreover, the relief for rights and interests should be determined in accordance with the protected rights and interests, and the content should be consistent. However, legislation, custom or judicial practice cannot stipulate all the contents of the protected rights and interests without any omission, and use them as the precondition for judging whether to allow the relief. Therefore, people often understand the rights and interests through the legal relief they get30 This is especially true of the protection of rights and interests that has not 28

Although there are performance problems in contractual obligations and debts arising from tortious liability, from the perspective of comparative law and legal practice, the main applicable objects of legal rules on debt performance are contracts. In this regard, the rules of contract performance can also be regarded as the unique rules of contract law. 29 Long Jun, Essentials of tort of Rights and Interests, Chinese Journal of Law Vol. 4, 2010. 30 See Dan B. Dobbs, Law of Remedies: Damages-Equity-Resitution, p. 23.

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yet obtained the status of a right. Since the protection of the rights and interests in certain cases needs to be weighed individually depending on specific circumstances, the protected rights and interests do not have identical stable protected status as rights. This reduces the possibility of abstractly discussing the protected status of the interest at issue before completing the bipolar balance of tort judgments. Only after certain interests achieve stable protection through the custom formed by the judicial judgment can such interests become “interests that have the same stable protection as rights.” Therefore, scholars believe that since many civil rights are recognized as a right by law after being protected by tort law, tort law also has the function of creating rights.31 However, the process of “creating rights” in tort law is not only different from the way in which a contract creates contractual rights through the realization of autonomy of private law, but also different from the way in which contract law, property law or personality rights law directly creates or confirms rights. It is only the indirect result of the relief for rights and interests rather than the intentional result of any person or organization. In this sense, it is still misleading to think that tort law has the function of creating rights and interests. Although both contract law and tort law have the function of relief for rights and interests, the contract can protect all rights and interests protected by tort law. As long as the parties can reach a valid contract, such protective purpose can be achieved from the view of typical normative function, which means the contract can have a broader scope of protection than tort law and a stronger or weaker protection (not in violation of Jus Cogens). However, precisely because of the limitations of a “valid contract”, tort law can provide the basic legal rules that relief for rights and interests required, in the absence of a contract, especially when they are damaged by wrongful act or special risk. In this sense, the legal relief provided by tort law is the most basic protection norms for protected rights and interests in the face of wrongful act or special damaged risk, and can be regarded as the general norms of the relief. While other legal relief norms are only to amend or supplement it. When there is no such amendment, the relief for rights and interests depends only on balance between the protected rights and interests and the liable acts. When the same harmful act causes damage to a protected interest, different norms of evaluation of the liable acts cannot lead to different relief outcomes. That is to say, whether it is based on the relief rules of the contract law or the tort law, the relief effect should be consistent in the case of the same liable acts and the same protected rights caused by it. This constitutes an abstract principle of remedy of interests and rights. Of course, this abstract principle does not mean that the relief rules of contract law and the tort law are necessarily the same in all respects. Since some of the rights and interests protected by the relief for breach of contract are created by the parties based on autonomy of private law, the content and scope of this part of the rights and interests will be affected by the parties’ agreement. On the contrary, when it comes to tort relief, the agreement of the parties does not determine the scope of the protected rights and interests (except when the third party breaches the contractual claim), but at most serves as a factual factor in the tort judgment to influence the determination of the liable acts (i.e., the acts that 31

Wang Liming, Research on Tort Law (Vol. 1), China Renmin University Press, 2004, p. 89.

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breaches the duty) together with other factors. In addition, in terms of the forms of relief, especially the determination of damagess, the revocation and rescission of contract, and the enforcement of actual performance, the relief for breach of contract and tort relief are different. It follows that the contract law and tort law are different fields of law, because contract law has the function of creating rights and interests and tort law doesn’t, rather than their differences in the function of the relief for rights and interests. In this regard, the following assertions are persuasive: Although the contract-tort distinction cannot be treated rigidly, the contract (law) and the tort (law) will and should be treated as different rules in all possible cases.32

1.2 Characteristics of the Relief for Rights and Interests in the Intermediate Field Since tort law does not have the function of creating rights and interests, the intermediate field between contract law and tort law are conceptually related only to the relief for rights and interests, and only refer to the legal field between typical liability for breach of contract and tortious liability. As the two pillars of the civil liability system, liability for breach of contract and tortious liability are generally considered to have the following opposite relationship: The liability for breach of contract is the liability for the loss of the expectation interests of the other party due to the breach of the obligation to perform for the specific person, and the tortious liability is the liability for the loss of the inherent interests of others due to violation of the general duty of care for the unspecified person. Experience in comparative law has long shown that this understanding describes the characteristics of the core areas of contract and tort law at best. It neither fits the overall situation of modern contract and tort law, nor applies to their intermediate field. As far as the relief for breach of contract is concerned, the understanding that, it is limited to compensation for expectation interests, is wrong. In fact, the interest forms of the relief liability for breach of contract liability are very extensive. In addition to expectation interests, they also include reliance interests, restitution interests, and inherent (or complete) interests or a mixture of them.33 It is worth noting that even in terms of the way in which expectation interests are protected, the law may be logically inconsistent based on special policy considerations. For example, according to Chinese Contract Law, even for a donation where actual performance can be claimed (Article 188), the donor is not liable for the guaranty of defective objects (Article 191, paragraph 1, sentence 1) and for the compensation for destruction or loss of the gifted property that is not caused by intention or gross negligence (Article 32

See Reinhard Zimmermann, The Law of Obligation: Roman Foundations of the Civilian Tradition, Oxford University Press, 1996, p. 13. 33 See Chapter 1, Sect. 1 of this book, “3 (2) Diversity of Interests Protected by Contracts”.

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189).34 Obviously, the mitigation of liability of the donor limits the scope and extent to which the donee realizes the expectation interests. In addition, in the case of contract termination due to breach of contract, the current judicial practice in China denies the nature of relevant reliefs in relief for breach of contract and adopts the practice of reliance interest compensation in terms of damages. Although it is not appropriate for legal interpretation and interest measurement, it does reflect a deviation from the doctrine of expectation interests compensation for breach of contract.35 The diversity of interests protected by liability for breach of contract determines the diversity of contractual obligations: The obligation to perform is mainly related to the realization of the expectation interests, and also protects the inherent interests; The protective duty is only related to the protection of the inherent interests, and has nothing to do with the expectation interests. With the diversity of protected interests and obligations, the relief for breach of contract cannot have a uniform imputation standard or constitution of liability. The protective duty and the obligation to perform cannot be treated as one, and it is also difficult to adopt a uniform legal structure for different protective duties.36 Similarly, tort law also cannot adopt a single mode of legal regulation because of its extremely broad scope of protection. There are differences in the characteristics of different protected interests, and protection criteria for them should naturally be different. For example, personality rights such as life, body, health, and freedom should be the most widely protected because of their highest value; Absolute property rights such as real rights and intellectual property rights should be widely protected because of their clear social openness and effect of attribution confirmation. On the contrary, claims and pure economic interests that are not open to the society should have stricter protection conditions because they are more likely to conflict with others’ freedom to act. Based on this understanding, personality rights and property rights that are absolutely protected can usually be protected only by negligence, while the protection for interests like pure economic interests and claims must be specifically regulated by law or triggered by intentional harm. When the protected rights face damage from highly dangerous activities of others, the modern tort law will adopt strict liability or no-fault liability instead of the elements of fault. Similar to the case of contractual liability and tortious liability, the intermediate field also has a variety of protected interests and obligation forms, and they cannot be treated simply according to a typical characteristic of the contract or tort. 34

See Article 191, Paragraph 1, Sentence 1 and Article 189 of the Contract Law of the People’s Republic of China. 35 See “Dispute Case of Housing Sales Contract between Guangxi Guiguan Electric Power Co., Ltd. and Guangxi Yongchen Real Estate Development Co., Ltd.” (Gazette of the Supreme People’s Court, No.5, 2010). For the theoretical discussion of this case, please refer to Lu Qing, The Effect of Contract Termination and Liability for Breach of Contract: A Review from the Perspective of Claim Basis, Northern Law, No.6, 2012; Zhou Jianghong, Discrimination between Contract Termination and Liability for Liquidated Damages: An Analysis of the Dispute Case of Housing Sales between Guiguan Electric Power and Yongchen Real Estate, Journal of East China University of Political Science and Law, No.3, 2011. 36 See Chapter 3, Sect. 1, “4 (1) Determination of the Criteria for Attribution”.

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For the pre-contractual stage, the contract principle is surely applicable as long as the parties have agreed on the sharing of the damages. In this way, the really difficult problem of the pre-contractual liability only occurs when the parties have not agreed on the relevant damage. At this stage, implementing the principle of freedom of contract means that the contracting party is not liable for the other party’s contractual commitment, nor for the frustration of the other party’s expectations. This means that a contracting party will not be liable unless his or her wrongful act has caused damage to the other party. The conducts like malicious negotiations, fraud, coercion, taking advantage of others’ precarious position, improper influence, and mistakes violate the principle of good faith and satisfy the liability elements for wrongful act. So they should assume corresponding legal liabilities. The liability element of “contrary to good faith” is roughly equivalent to the illegality and fault elements of tortious liability in terms of its normative function, but is different from the liability for breach of contract in that it should in principle judge whether the parties breach the principle of good faith. On the contrary, when the contractual relationship has developed well, especially when the parties have reached agreement on the main terms or even all the terms of the contract, the contract will not be valid if one party maliciously blocks the existence of effective statutory conditions. But as long as the contract in force can create expectation interests, there is no convincing reason to deny the right of the other party in this case to claim for expectation interests damages.37 At this time, the actor’s refusal to perform the duty to cooperate to make the contract perfect is not credible, but it only leads to the other party’s “contractual expectation frustration”. It does not lead to the contracting fees or forgone opportunities. So, the contractual compensation in this case is similar to a contract rather than a tort: reliance replaces the consensus as the basis for determining obligations! In terms of the stage of the performance of contract, the breach of contract may cause damage to the inherent interests which are out of the performance interests. If this happens, the imputation standard should in principle be consistent with the tort rather than the contract unless the interest is the subject of the obligation to perform. In most cases, such breaches often produce concurrence between the liability for breach of contract and tortious liability. The normative meaning of the concurrence problem should be based on the fact that the same harmful act will have a different normative effect because of different normative nature. If the different normative natures are the same in the normative results, the normative choice will not be practically significant. There are different provisions on the normative effects of liability for breach of contract and tortious liability in the existing law in China, and the law adopts the theory of concurrence of claims in the issue of concurrent liability. The problem is that the actual effect of the legislative model deviates from the institutional purpose 37

See Chapter 2, Sect. 3, “2 (1) Scope of Damages” in this book. It should be emphasized that this agreement itself must be flawless. For example, there should be no flaw in the expression of will and the content should not be illegal. Otherwise, the parties can only assume the liability for the damages caused by wrongful act or even not bear the liability at all, and there will be no problem that be equivalent to compensation for the damages of expectation interests. In other words, only partially invalid or ineffective acts can meet the requirements of compensation for damge of expectation interests.

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of maximumly protecting the obligee’s rights, causing normative conflicts within the legal system. It will also cause problems in terms of the litigation jurisdiction and the enforcement of arbitration agreements, leading to judicial practice’s deviation from this model.38 In the case of concurrence, the liability for breach of contract is more involved in the situation where one party’s Integritätsinteresse is damaged by the other party’s breach of the protective duty. And it is different from the typical liability for breach of contract which mainly occurs when the expectation interests are damaged by the breach of the obligation to perform. At this time, rigidly distinguishing the liability for breach of contract and the tortious liability in a logic way will inevitably lead to obstacles. Therefore, there will be situations similar to the pre-contractual liability in handling the concurrence problem. In other words, the regulation rules of the core area of the contract law or the tort law or the combination of the two can be adopted when necessary. After the performance of the contract, there is still the issue of post-contract effectiveness or post-contract obligations.39 Article 92 in Chinese Contract Law clearly affirms the existence of post-contract obligations. But there is no unified understanding of its connotation and extension.40 As the expanded form of contractual obligations, the function of post-contract obligations is to “claim for the restitution of the effect of performance, or assist the counterpart in dealing with the affairs after the termination of the contract.”41 Such an obligation may occur either by agreement, or directly by the regulation of law, or by the recognition of the judge in good faith. Post-contract obligations are mostly obligations that need to claim for performance,42 such as agreeing on the non-competition obligations after the termination of the contractual relationships, providing after-sales maintenance or technical consulting services, allowing the former lessee to hang the relocation notice appropriately, and providing resume certificates for former employees, etc. This kind of obligation is similar in nature to the subordinated obligation to perform in the contract. The purpose is either to supplement the typical obligation to perform or to avoid the reduction of contractual interests realized by the typical obligation to perform. In addition, post-contract obligations may also involve the maintenance of Integritätsinteresse 38

See Chapter 3, Sect. 2, “3 (2) Examination of Judicial Cases” in this book. On the contrary, the so-called post-contract obligations include two situations: the first one is whether some obligation to perform exists; the second one is whether the protective duty in the contract exist after the termination of the contract. In fact, the former misunderstands the subordinated obligation to perform. As long as the obligation still exists, the contractual relationship will not be eliminated. So the post-contractual obligation is unimaginable. The latter one involves the problem of protective duty. As a legal debt relationship, it does not depend on the contract. It should be judged by whether the enhanced reliance relationship that is the basis of liability exists. And so it is not related to the validity of the post-contract. Therefore, the post-contract effectiveness or post-contract obligation has no independent significance. Siehe Christian von Bar, „Nachwirkende“ Vertragspflichten, AcP 179 (1979), S. 274. 40 Qiu Xuemei, The Reconstruction of the Civil Liability System, Law Press China, 2009, pp. 158– 159. 41 See Wang Zejian, Civil Law Researches: Principles of Obligation Law, Peking University Press, 2009, p. 35. 42 Ibid., p.36. 39

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related to the contract, such as keeping the business secrets or personal privacy that are known during the conclusion or performance of the contract, and informing the post-operation precautions. Such obligations have the same function in nature as the protective duty in the contract. Therefore, the post-contract obligations should be treated in an integrated way with similar obligations in the contract.43 In general, the closeness of the relationship between the parties will impact the relief for rights and interests. The closer the relationship, the higher the risk of damage from mutual contact and the greater the need for legal protection. Therefore, the closeness of the relationship is usually positively related to the degree of protection of the rights and interests, even if the relationship does not have the effect of creating rights and interests. For example, when the bankruptcy administrator causes economic loss to others due to management negligence, the liability he or she assumes is similar to the liability for breach of contract; A similar situation exists between expert witnesses and litigants.44 However, the closer relationship may not absolutely strengthen the obligation because there may be opposite situations. In a gratuitous contract, the obligation of protection of the liable party may be mitigated according to law.45 Similarly, the liability of the actor of courtesy will also be mitigated because of the gratuitousness and altruism of the courtesy relationship.46 This shows that the close relationship between the parties and the relationship’s specific characteristics will impact the relief for rights and interests. Accordingly, it is clear that the legal structure of contract law and tort law are complex because of their wide range of protection for rights and interests. So it is futile to find uniformity between the two laws. And not only is tort law plural (torts), but contract law is also increasingly taking on a similar plural character (at least for the rules of contract reliefs). The intermediate field of contract law and tort law is also complex because it cannot adopt a single contract law or tort law regulation mode for their “intermediateness”.

1.3 Summary Contract law and tort law should be treated as different rules because of their different normative objectives. However, this kind of normative difference is more manifested in the contract’s function of creating rights and interests and special function of protecting rights and interests, which means the realization of creation and protection 43

See Hou Guoyue, Research on Incidental Obligations of Contract, Law Press, 2007, p. 71; Han Shiyuan, Chinese Obstacles to Performance Law, in Han Shiyuan, “Japan” Shimori Ding, editor-in-chief: Research on Obstacles to Performance Law, Law Press, 2006, p. 4. 44 See Helmut Koziol, Basic Questions of Tort Law, p. 103. From a Comparative Perspective, translated by Fiona Salter Townshend, Jan Sramek Vrlag 2012, pp. 99–100. 45 See Article 191, Paragraph 2, Article 374, Article 406, Paragraph 1, Sentence 2 of Contract Law of the People’s Republic of China. 46 See Chapter 4, Sect. 2 of this book “3 (3): the mitigation of the compensation liability of the actor of courtesy”.

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of rights and interests by the autonomy of private law. Once leaving this field and involving the field of relief for rights and interests damaged by wrongful act or special risk, the contract law and tort law are similar. The intermediate field between the two laws is the best area to observe this similar relationship. It should be noted that the intermediate field between contract law and tort law is not an object of legal regulation with definite scope, but a general description of some legal phenomena between core regulation fields of the two laws. Therefore, even if an intermediate field has been regulated by one of the contract law or tort law in the positive law (for example, the pre-contractual liability is included in the contract law or the tort law), it can also be theoretically treated as the intermediate field. The reason is that the problems to be raised and solved by the concept of “intermediate field” theoretically is: How can the corresponding legal rules be set when the regulation rules for the core areas between contract law and tort law cannot meet the requirements of the relief for rights and interests in the marginal field? Experience has shown that in the legal regulation in the intermediate field, sometimes legal rules in a certain core area may be fully applied, and more often, legal rules in different fields will be applied in combination.47 In this way, legal regulation in the intermediate field cannot be resolved separately, but rather be constructed in the context of the relationship between contract and tort.

2 Theoretical Attempts to Systematize the Legal Regulation in the Intermediate Field Since the twentieth century, in order to cope with the increasing protection needs, the scope of application of contract law or tort law has shown an expansion trend in various countries’ legal systems. This kind of expansion is not only shown as the increase in the number of normative objects, but also as the inclusion of certain objects that differ from the intended regulation objects of the two laws. So the phenomena classified into a certain legal field in the positive law cannot be regarded as homogeneous.48 Thus, more and more heterogeneous rules appear in contract law or tort law, and the inherent consistency of the ruling body is gradually being destroyed. It should be acknowledged that the categorization of system in the positive law may not be worthy of approval. The disputes over the attribution of the contractual protective duty in German theory and the transfer of the liability basis of the medical injury disputes from contract to tort in French law confirm this view, thus triggering the requirements of re-systematizing existing rules. In this sense, the problems raised by the intermediate field are universal, and various systematic theoretical and practical attempts are unfolded.

47 48

See Helmut Koziol, Basic Questions of Tort Law, p. 103. From a Comparative Perspective, p. 97. See Chapter 1, Sect. 2, The Expansion of Contract Law and Tort Law.

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2.1 Proposal of “Third Way” and Criticism of It Although the liability law structure of the contract-tort dichotomy is widely accepted worldwide, there is neither a uniform standard for determining the scope of protection in specific situations nor a unified understanding of this distinction function. Therefore, the function and meaning of the structure can only be understood under specific institutional backgrounds.49 In general, the more rigid the structure of contract law and tort law, the more appropriate to transfer normative fields (e.g., from tort law to contract law or vice versa) or to create new fields of liability to meet normative needs. For example, there is a restrictive structure of tort law in the German Civil Code to protect the security of transactions and to minimize the compensation for pure economic loss. In tort law, it is possible to meet the needs of rights and interests protection through Rechtsfortbildung, and the expansion of the application scope of security obligation of communication and protective regulations. But it is actually illegal. Thus, it is easy to understand that the liability scope is expanded by means of contract law.50 In contrast, the French tort law has great flexibility because its legislative model involves general clauses. It is very convenient to introduce new rights and interests into the tort law for relief. And there are no special restrictions on the interests protected by the contract. So the meaning of the intermediate field is not obvious. Similarly, because of the flexible judicial system, the distinction between contract and tort in Anglo-American law is not obvious in substantive law. Therefore, the path to addressing problems in the intermediate field, taken by German Civil Law which pursues a high degree of systematization, is worth special attention. The following discussion is mainly based on the experience of German law, but its significance is not limited to German law. (1) Expansion of the Area of Liability In the original structure of the German Civil Code, the contractual liability was based on a valid contract, with the main objective of providing relief for expectation interests. While the basic structure of the tort law was established by the three minor general provisions of Articles 823, Paragraph 1 and 2 and Article 826 of the Civil Code. The tort law, especially showed a limit to purely economic interests. This kind of conservative legislation was quickly found problematic after the German Civil Code was issued. The liability for culpa in contrahendo and the theory of positive forderungsverletzung were first developed. a. Contractual Liability The problem of culpa in contrahendo has become a major issue in legal practice and theory since the Roman law. Only the expression and theory of culpa in contrahendo proposed by Jhering have laid the foundation for the theory of contractual liability 49

Martin Immenhauser, Das Dogma von Vertrag und Delikt: zur Entstehungs- und Wirkungsgeschichte der zwetgeteilte Haftungsordnung, Böhlau Verlag Köln Weimar Wien 2006, S. 46. 50 A.a.O., S. 41.

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and pointed out the direction of its development.51 Jhering limits culpa in contrahendo to a certain stage of the contracting relationship (i.e., after the acceptance of offer) and to certain types (incompetence of the subject, incompetence of the object, and inaccuracy of intention), and has not yet proposed a general theory of culpa in contrahendo liability.52 However, its theoretical structure is similar to the following general rules: Before the contract is established, the contracting parties have entered into a specific debt relationship that can generate rights and obligations under certain conditions, and one party should be liable for damages caused by his or her fault to the opposite party.53 The original legislator of the German Civil Code recognized the difficulty of finding a proper position for contractual liability in the liability system of the Civil Code. Thus, the Code only regulates some special cases, leaving the task of leading specific liability from the general theory of contractual liability to doctrine and judicial practice.54 Subsequently, the general potential of the culpa in contrahendo theory was continuously developed through judicial precedents and doctrine, forming a large case group. And finally the German Civil Code was codified through the 2002 law of obligations reform (Article 311, Paragraph 2). The motivation for introducing contractual liability theory in German judicial practice was mainly to overcome the weakness of the tort law, so that cases involving physical and property rights damage that clearly apply tort law can be treated as contractual liability cases. Tort law in this respect is mainly considered to have the following two “weaknesses”. One is the exemption rules from the assistance of the affairs stipulated in Article 831 of the Civil Code, and the other is the stipulation of a shorter limitation of action (three years) in Article 852. With the adoption of the theory of security obligation of communication in German judiciary, the first “weakness” was actually eliminated (which is still controversial); After the law of obligations reform in German, the time of prescription of the right to claim for a tort compensation and to claim for compensation for the non-performance of obligation has been unified, and so the second “weakness” does not exist. In this way, the legitimacy of the contractual liability cases has been questioned and it is considered that the cases should be re-regulated by tort law through its revision.55 The less controversial view is that the real value of contractual liability lies in overcoming the third “weakness”, which is the tort law’s inadequate protection of pure economic loss.56 Under the tort law structure in the German Civil Code, pure economic loss are 51

See Qi Xiaokun, A Comparative Study of New and Old Debt Laws in Germany: Change of Concept and Improvement of Legislative Technology, Law Press China, 2006, pp. 45–46. 52 See Zhang Jinhai, Reposition of Rudolph von Jhering’s Culpa in Contrahendo, Political Science and Law Vol.6, 2010, p. 99. 53 See Hans Dölle, on Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), Peking University Press, 2009, p. 7. 54 See Qi Xiaokun, A Comparative Study of Germany’s New and Old Debt Laws: Changes in Concept and Improvement of Legislative Technology, p. 45. 55 Vgl. Münchener Kommentar zum BGB, § 311, Rn.60. 56 Theoretically, tortious liability still has the fourth “weakness” that the burden of proof of fault is difficult (see Qi Xiaokun: Comparative Study of New and Old Debt Laws in Germany: Change of Ideas and Improvement of Legislative Technology, p. 50). However, in the case of violation of

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mainly relieved by the violation of protective regulations in Article 823, Paragraph 2, and the deliberate violation of the regulations of bonos mores in Article 826. The “trade rights” derived from “other rights” regulated in Article 823, Paragraph 1 can also trigger a relief. In the case of damages in contracting, there are damaged situations covered by the Civil Code (such as articles 122 and 179 and former Articles 307 and 309). For the uncovered damaged situations such as those caused by the absence of a valid formal contract (especially interruption of contracting without cause), or by the conclusion of an unfavorable contract, relief cannot be obtained through tort law, and new relief method must be developed. When leading contractual liability to contract law, the difference between contractual liability and tortious liability is established theoretically by the particularity of contractual relationship. Jhering has explained the idea that: “tort law should only apply to the conflicts and friction between parties who do not frequently contact in social; if the parties, by virtue of their social contact, are in a specific life relationship and have a specific duty of care to each other, the law should make that life relationship legal and make the parties mutually liable for a specific debt. In the event of a breach of this debt... what is breached is the specific claim of the specific party. Therefore, issues concerning the user’s behavior, the burden of proof, the time of prescription and the standard of liability should apply the principles of the contract law.”57 This legal relationship arising from social contact is theoretically called a Sonderverbingdung. According to later doctrine, this relationship is based on reliance. As long as there is a relationship that is sufficient to create special reliance between particular parties, the person who creates the reliance is liable for damage to the person who took advantage of the reliance, which is not limited to the contractual relationship. In this way, not only are the scope of application of the contractual relationship and the contractual liability expanded, but there can also be special relationships sufficient to cause liability in the contract’s preparation stage. Expect those who have or intend to become parties to the contract. the subject of liability also includes the third party (such as the commission broker, agent, and other negotiating assistant) who is involved in the contracting party but does not intend to be a party to the contract. Special reliance is caused by a third party’s “special familiarity with the profession, special reliability and ability to influence the realization of the contract”,58 or his or her guarantees “to the state of the legal transaction or the prospect of performance of contract”, “the truthfulness and integrity of the expression of intent” or “the important matters or information relating to the establishment of the contract”. And the third party always has a significant influence on the decision of the contracting parties.59 security obligations of communication, fault has the nature of presumption. So this “weakness” does not exist in fact. 57 See Hans Dölle, on Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), pp. 7–8. 58 Dieter Medicus, Schuldrecht I: Allgemeiner Teil, translated by Du Jinglin and Lu Chen, Law Press, 2004, p. 105. 59 Xu Defeng, Contracts and Vertrauenshaftung with Protective Effects on the Parties, in Yi Jiming, ed., Private Law Review Vol.4.2, Peking University Press, 2004, pp. 283–284.

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Therefore, the German contracting liability theory has adopted the reliance-based special relationship theory. Under the principle of good faith stipulated in Article 242 of the Civil Code, it replaces the elements of illegality required by the tort law with the technical means of breach of good faith. Therefore, this theory opens up a wide scope to the relief for pure economic loss through contractual liability. b. Positive forderungsverletzung Unlike contractual liabilities, positive forderungsverletzung was initiated as a contractual issue with the aim of filling the gaps regarding the types of leistungsstoerungen in the German Civil Code. In contrast to the impossibility and delay of the performance under the German Civil Code, the positive forderungsverletzung involves the problem that the performance is not in accordance with the contract and damages the obligee’s interests instead of the problem of failure to perform or delay of performance. Therefore, positive forderungsverletzung is generally recognized as the third type of leistungsstoerungen.60 It may cause damages to both the performance interests and the obligee’s Integritätsinteresse other than performance interests (such as physical or proprietary infringement). The theory of civil law in China generally considers the positive forderungsverletzung that causes damage to the Integritätsinteresse outside of performance interests as “injuring performance”. This book adopts the same idea.61 Injuring performance involves the overlap of contractual liability and tortious liability, so the following discussion is limited to this problem. The type of obligation involved in an injuring performance is the protective duty in contracts or other obligation relationships. Such obligations may have arisen at the beginning of the contract negotiations and exist after the contract has been effectively concluded; It may also be related only to the performance itself, and does not exist after the establishment of contract. There are different theoretical views on whether these two situations should be treated as one. Some scholars represented by Canaris believe that the protective duty exists independently from the validity of the contract and the position of a “unified protective duty relationship” should be adopted. However, according to the German theory, the protective duty in the contract should be based on a valid contract, so that it is different from the protective duty in other situations.62 We have already introduced this issue in detail and will not repeat again.63 What needs to be mentioned here is another question: How can the liability for breach of the protective duty be treated as the liability different from the tortious liability and the liability for non-performance of the obligation (or contractual liability)? If the protective duty existed before the conclusion of contract exist after it, the basis for its creation should be consistent with the case of contractual liability. In 60

See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 312. See Wang Liming, Theory of Liability for Breach (revised), China University of Political Science and Law Press, 2003, p. 206; Han Shiyuan, The Law of Contract, Law Press China, 2011, p. 424. 62 See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p, 314. 63 See Chapter 3, Sect. 1, “II (3) protective duty and Special Binding Relationship between the Parties”. 61

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other words, it is a Sonderverbingdung based on reliance and will not be different whether the contract is validly concluded. Therefore, it is a protective duty irrelated to the contract (or performance of contract).64 For the protective duty related to performance, a valid contract is a prerequisite for it. The contractual relationship is also a kind of reliance relationship.65 So as long as the reliance relationship or Sonderverbingdung formed by social contact is separated from the parties’ relationship before the tortious conducts and fact, and the obligation of the former relationship is regarded as the special obligation in law of obligations instead of the general obligation of conduct in tort law, the liability for breach of this obligation is different from the tortious liability. Before the German law of obligations reform, the positive forderungsverletzung played its role exactly in this way. It means to apply the provisions on the incompetence and delay of the performance by analogy, thus establish the status of the non-performance of obligation of injuring performance. The German law of obligations reform eventually stipulated the practice as a regulation in positive law, which is well known and does not need more explanations. It is noteworthy that theoretically, when constitutive elements of liability for tort are satisfied, injuring performance often constitutes concurrence between liability for non-performance of the obligation (or contractual liability) and tortious liability. The two liabilities do not affect each other in principle. If concurrence of liabilities is admitted without limit, the structure for interests regulation established by contract law may be damaged by choice of tortious liability. For example, the plaintiff purchased a spray to prevent diseases of fruit trees from the defendant. However, after spraying, those threes still became ill due to drug-resistance of strains. The court confirmed the infringement of the ownership due to producer’s protective duty to the consumer’s Integritätsinteresse.66 In this case, the expectation to effectiveness and safety of the product in the transaction became the basis of the tortious liability, which is precisely related to the quality assurance liability in contract law. Especially in the aforementioned case, the product per se did not have the defect to cause potential loss which was caused by the drug-resistance of strains. Therefore, if it is regarded as tortious liability, the contract law will not be applied.67 In such cases, the relationship between the parties involved in the damage other than the type of damage has a decisive influence on the determination of liability. Ignoring such relationship may result in improper results. And this undoubtedly makes the relationship of the parties involved in the damage more important and strengthen the legitimacy of treatment mode of liability for the non-performance of obligation (or contractual liability). 64

The opposite view is that, according to whether there is a valid contract, there may be a distinction of the protective duty in the contract and the protective duty in other situations (such as contractual relationships or other contact relationships). Karl Larenz, Lehrbuch des Schuldrechts, Bd. 1, 13 Aufl., München 1982, S. 214. 65 See Wang Zejian, Theory and Case Study of Civil Law (Vol. 5), Peking University Press, 2009, p. 60. 66 Maximilian Fuchs, Deliktsrecht, Qi Xiaokun Trans, Law Press China, 2006, p. 34. 67 Ibid., p. 35.

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Once again, when a relif involves inherent interest or Integritätsinteresse, the difference between liability for the non-performance of obligation (or contractual liability) and tortious liability is closely related to the relationship between the parties before the damage occurs. c. Contract with Additional Protection for the Third Party As a characteristic German law system, contract with additional protection to the third party means that the contractual obligor has the same obligation of care or protection to the third party who has a special relationship with the obligee, which is like the obligee. This system was first designed to avoid the application of the regulation about exemption of the employer’s liability in Article 831 of the German Civil Code. But it was increasingly used to avoid strict restrictions on the compensation for pure economic loss in Articles 823 Paragraph 2 and Article 826 of the German Civil Code.68 In order to make sure the uniqueness of the system, it is necessary to distinguish it from liability for breach of contract and tortious liability, which is still achieved through the division of the relationship between the obligor and the third party. According to Professor Larenz, though the obligor does not assume the obligation to perform to the third party, he has certain obligation of conduct or protective duty. Thus the debt relationship without the original obligations to perform (Schuldverhältnis ohne primäre Leistungspflicht) can be determined.69 Because of this debt relationship, the basis of the third party’s right to claim is different from that of tort. Not only does not Article 831 of the Civil Code apply, but the rules of the tort law concerning the restriction of pure economic loss are also avoided. The obligor’s protective duty to the third party is usually not agreed by the parties (although it may be agreed by parties in specific circumstances), and is not supplemented by supplemental contractual interpretations. Instead, it is determined in accordance with the principle of good faith in Article 242 of the Civil Code. The third party’s right to claim should be based on the contract between the parties, and should be treated in the same way as the parties in principle.70 Since the right to claim of the third party is attached to the contract between others, such attachment must have a legitimate basis. With the continuous expansion of the application of the “contract with additional protection to the third party”, courts are constantly changing the reasons for argumentation: from the special relationship between the third party and the obligor (the standard of “happiness and pain”), to the third party’s “near performance”, and the third party’s special “reliance” to the obligor.71 The third party is affected by the obligor’s performance and is not the party to accept the performance. Therefore, the relationship between the obligor and the third party is based on the contact of “performance”, regardless of whether 68

Vgl. Walter Bayer, Der Vertrag zugunsten Dritter: Neuere Dogmengeschichte—Anwendungsbereich—Dogmatische Strukturen (1995), S. 189. 69 Siehe Karl Larenz, Lehrbuch des Schuldrechts, Bd. 1, 13 Aufl., München 1982, S. 210. 70 A.a.O., S. 213. 71 Xu Defeng, Contracts and Vertrauenshaftung with Protective Effects on the Parties, in Yi Jiming, ed., Private Law Review Vol. 4.2, Peking University Press, 2004, p. 285.

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obligation to perform is valid. In other words, even if the performance is made due to misunderstandings based on an invalid contract, the third party victimized by the performance still has the right to claim for compensation for the non-performance of obligation from the obligor if other conditions are the same. If so, the real basis for the obligor’s duty of protection and care for the third party is not the contract between the other parties but the special status of the third party’s “near performance”, or the Sonderverbingdung between the obligor and the third party on a basis of the principle of good faith. This analysis is also consistent with the following explanation in the German theory: Schuldverhältnis ohne primäre Leistungspflicht may also occur due to the conclusion of contract or trading contacts. Similar to the contract with additional protection to the third party, such a relationship can also have a protective effect on the third party as long as the conditions for the inclusion of third party into the legal obligation are satisfied.72 In this way, the protection to the third party is unified in the legal obligation between the obligor and the third party based on the principle of good faith, and has no necessary connection with (at most is the factual basis of) the obligation relationship between the obligor and the obligee. “The protection of the third person” has the same meaning as “the protection of obligation relationship”, thus the phrase “third party” becomes meaningless. It is strange that, similar to the protective duty, the prevailing theory in German before the revision of the law of obligations still advocated the distinction between the contract with additional protection to the third party and the other legal obligation that can protect the third party.73 German law of obligations reform made a compromise: the first sentence of Article 311, Paragraph 3 stipulates that the parties to the contract can establish a legal obligation relationship that takes the duties of protection and care as the content with the third party outside the contract. The second sentence especially instantiates other obligation relationships that can protect the third parties outside the contract. But it makes no corresponding distinction between constitutive elements of liability, which means the legislator’s open attitude to this question. At this point, we can find that in order to circumvent the deficiencies of the tort law, the German judiciary expands the scope of liability by expanding the application of the law of obligations (or contract law). This not only creates a need for internal integration of the law of obligations (or contract law), but also strengthens the theoretical need for reflection on the relationship between the contract law and tort law. (2) Proposal of “the Third Way” As we can see, the forms of liability of culpa in contrahendo, injuring performance and contract with additional protection to the third party have some common characteristics. They all require a special fiduciary relationship between the protected person and the liable person based on the principle of good faith. The liability arising from such a fiduciary relationship is different from the liability for breach of contract whose basis is the agreement, and content is obligation to perform. It is also different from the 72 73

A.a.O., S. 214. A.a.O.

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tortious liability for the special relationship of the parties established without contact before the damage occurs. Therefore, this kind of liability is of the characteristics of the third type of liability, and is called “the Third Way” by Canaris. Under the circumstance mentioned above, unless through the disapproving way of legal friction, it is hard to incorporate the liability for the protected person into the protection in the contract according to the theory of legal transaction. Therefore, it is necessary to find another basis for this liability. The original solution is that the special liability mentioned above arises from close relationships beyond casual contact, which will enhance the obligation effect.74 This made preparations for the later proposal of “the theory of social contact”. According to the “the theory of social contact”, since one party may specially intervene other people’s legal interests when he or she enters the domain of rights controlled by others, the increasing risk of loss needs to adopt a special imputation standard beyond the tort law.75 Only when the relationship between the parties is close enough will it be a consideration for determining such special liabilities. So, it is necessary to distinguish the social contact relationship as the basis of liability from the social contact relationship unrelated to liability and to tell apart the obligations arising from social contacts and the duty of care of tort law. As for the first distinction, there are some standards, such as “tight contact”, “enhanced contact” and “direct contact”, etc., which is not satisfactory as the lack of practical guidance.76 As for the second distinction, it believes that before the occurrence of damage, there are already some legal Sonderverbingdung, namely the relationship of contract, contract preparation or other legal obligation relationships between the actor and the aggrieved party. However, since the Sonderverbingdung does not determine the closeness of social contact and the possibility of intervention arising from this relationship, the basis of liability remains uncertain.77 In other words, if the reasons and boundaries of the liability cannot be explained, the limitation of liability established by tort law to avoid excessive restrictions on freedom of conduct cannot be guaranteed. Therefore, based on the “theory of unified protective duty”, Canaris proposed the theory of Vertrauenshaftung which is intended to overcome the shortcomings of the previous theory in the determination of liability, and tries to lay a foundation for the overlapping liability between the liability for breach of contract and the tortious liability.78 However, Canaris’s theory still considers the widely supported “social contact theory” in German private law theory as the substantive criterion for the abovementioned liabilities. But at the same time, it integrates considerations that have been 74

Vgl. Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, AcP 183 (1983), S. 411. 75 A.a.O., S. 412. 76 A.a.O., S. 413. 77 A.a.O., S. 414. 78 Later developed theory of Vertrauenshaftung of Canaris is beyond the category of “negative reliance protection”, and it treats “positive reliance protection” in the field of rights acquisition as an issue of “liability”. In this sense, Vertrauenshaftung is a legal doctrine that complements autonomy of private law, rather than a type of overlapping liability between the liability for breach of contract and tortious liability.

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discussed more in different theories. And it uses the idea of reliance to integrally address the problem of the positive forderungsverletzung (limited to the injuring performance concerning protective duty), culpa in contrahendo, urgent liability (especially the liability for property management activities (Sachwaltertätigkeit) and for consulting). A unified non-performance liability of debt that violates protective duty is established.79 According to Canaris, the contractual obligations that are paid attention to by the founders of the German Civil Code are basically limited to the primary obligation (Hauptpflichten) or the obligation to perform (Leistungspflichten). Although later theories confirmed some loopholes in the affiliated obligation (Nebenpflichten), especially the protective duty which is the opposition of obligation to perform, it is still a mainstream that such obligation depends on the pre-contractual relationships or contractual relationships. Protective duty in the pre-contract stage will be converted into contract-based protective duty.80 According to the developed theory of “Schuldverhältnis ohne primäre Leistungspflicht”, the protective duty can also occur in the absence of the obligation to perform. So the aforementioned basic transformation is not easy to understand and will lead to the situation that protective duty cannot be established when contract is invalid or terminated. In this way, the parties can only seek relief under the tort law, and the role of the protective duty in bridging the inadequacy of the tort law will be weakened, resulting in unfair results. Therefore, it is of need to determine the unified basis of the protective duty. For this purpose, based on the consensus about the contractual liabilities in German private law theory, Canaris summarized three basic characteristics of protective duty in pre-contractual stage: Firstly, the protective duty is independent of the obligation to perform; Secondly, the legal basis of the protective duty is not the intent of the party or its interpretation or supplement but the reliance ideas; Thirdly, the protective duty is independent of the establishment of contract and will not be affected by the invalidity of the contract.81 Similarly, the protective duty in contract does not occur with the establishment of a contract, but often occurs at the stage of contract performance (such as when providing goods or services). Therefore, contractual relationship and pre-contractual relationship are both the superficial foundations of protective duty. The protective duty actually originates from the possibility of one party’s intervention in the other people’s legal interests and the factual relationship of the parties’ contact, which is also a Sonderverbingdung based on special reliance.82 In addition, as the claims for damages of culpa in contrahendo, the claims for breach of the protective duty in the contract is limited to compensation for Vertrauensinteresse or “protection interests” rather than the interests of performance.83 It is the same to 79

Vgl. Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, S. 419. 80 Vgl. Claus-Wilhelm Canaris, Anspruche wegen „positive Vertragsverletzung“ und„Schutzwirkung für Dritte “ bei nichtigen Verträgen, JZ 1965, S. 475. 81 A.a.O., S. 476. 82 A.a.O. 83 A.a.O., S. 477.

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“contract with additional protection to the third party”. Since all contracts are in a fiduciary relationship, and this reliance provides the basis for the protective duty, the protective duty in contract is not limited to a certain type of contract. And as long as the performance provided cases the same risk of damage to the third party and the parties to the contract, or increases the possibility of intervention to legal interest of the third party, a “fiduciary relationship” that have the protective duty can be established between the third party and the obligor.84 According to this, Canaris believes that the protective duties at different development stages of the contract are exactly the same, and should be addressed uniformly in terms of academic expression and positive law. In other words, the protective duty is rooted in the factual fiduciary relationship or protection relationship, and it is strengthened with close contact of transactions. It has a statutory nature for its independence of the parties’ intents, and its legal effect is based on the idea of reliance and its positive law status is based on the principle of good faith in Article 242 of the Civil Code.85 Although controversial, the basic ideas of the “theory of unified protective duty” were finally reflected in the German positive law through the German law of obligations reform. According to the provisions of Article 311, Paragraphs 2 and 3 of the current German Civil Code, the contractual relationships and the contact relationships in similar transactions can also have the protective duty stipulated in Article 241, Paragraph 2, and such obligation relationship can also occur to the person who should not be the party in the contract. In this way, the protective duty in the precontractual obligations, contractual and post-contract relationships are unified under the legal obligation which (statutorily) does not have the original performance. (3) Criticism of “the Third Way” It is not difficult to find that the most prominent feature of the “theory of unified protective duty” is that it tries to resolve the uncertainties in the determination of related liabilities via the tool of “reliance”. However, since its proposal, the theory has received much criticism related to this feature. Firstly, it is doubtful whether “reliance” can be used as the basis for Vertrauenshaftung. For the theory of Vertrauenshaftung, the substantive standard is the “Inanspruchnahme und Gewährung von Vertrauen”. But who “requires” reliance and who “gives (or provides)” reliance? How can we “require” or “provide” reliance? Without definite answers to these questions, this standard cannot guide the determination of liability, and it seems that theories did not reach an agreement on them.86 Considering the juxtaposition of “requirement” and “giving”, a reasonable explanation is that the requirement of the reliance standard can only be satisfied if reliance is required by one party and is given by the opposite party. From the perspective of the party requiring reliance, what is important is not whether it expresses an intention 84

A.a.O., S. 478. A.a.O., S. 479. 86 Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, S. 419. 85

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to require the opposite party’s reliance but the normative significance of his or her behavior that will arouse or strengthen the opposite party’s reliance,87 or the behavior that can cause ostensible facts sufficient enough to incur the opposite party’s reliance. In addition, “requirement of reliance” also needs further specific judgment criteria, such as the party requiring reliance has to make certain expression or promise in advance. However, in the case of liability for damage arising from the provision of an erroneous advisory opinion, the “requirement of reliance” as opposed to the reliance of the party receiving the advisory opinion can only come from the occupational characteristics or special professional skills of the party providing the advisory opinion. Such occupational characteristics or professional skills, as the factors that “incur” reliance, are not so much related to specific consulting behaviors, but rather an institutional expectation. It can even be seen that the liability system “requires” the opposite party to give reliance to such “kind” of behavior. For example, the regulations on professional liability actually increase people’s reliance on the profession by strengthening professional liability. It is not just because people give reliance on this profession so that the reliance leads to professional liability! From the perspective of the party giving reliance, after the basic facts that give rise to the reliance are determined, does the aggrieved party have the right to claim because of actual reliance or the factual or normative element that determines liability, so that there is no need to distinguish between cause and result? If it is because of the former one, the liability may be based on some kind of factual basis of social psychology. It is hard to make accurate judgment on it and it will be used as the negative factor of liability at most to exclude the establishment of Vertrauenshaftung. Therefore, the standard most likely to be adopted is still normative. It only requires that the ostensible facts be sufficient to incur the opposite party’s rational reliance and the party has implemented corresponding disposition. In this way, the question of requiring reliance or giving reliance is actually whether the imputable act of one party logically caused damage to the other. “Legally deserved” reliance or “legitimate expectation” is another expression of this standard. As a result, such liability standard has once again fallen into the dilemma of uncertainty because the expressions of “legally deserved” and “legitimate” are uncertain concepts that need to be specified. And they are not different from the application of imputability and the principles of good faith, and need to be judged on various specific cases. So there is no single criterion of determination.88 Even if the specific operation problems of the reliance standard are ignored, from the perspective of its non-ability to provide direct guidance to the determination of liability, Vertrauenshaftung is at best a description of the liability that has been determined. It does not have the function of forming liabilities. Secondly, it is doubtful whether the Vertrauenshaftung can become the third type of liability that is independent of contractual liability and tortious liability. As the basis for the uniqueness of Vertrauenshaftung, the theory of fiduciary liability is 87 See Zhu Guangxin, Reliability Research: Taking Contract Conclusion as the Analysis Object, Law Press, (2007), p. 144. 88 Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, S. 420.

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attached to the “Sonderverbingdung”, and the reliance that is the basis of liability needs to be determined in this relationship. In order to avoid the interference caused by the too broad concept of reliance, Canaris believes that the Vertrauenshaftung can be established only when ideas of reliance protection can play a fundamental role rather than an auxiliary role in the formation of the liability.89 However, the standard of reliance “playing a fundamental role in the formation of liability” cannot effectively distinguish the Vertrauenshaftung from the contractual liability and tortious liability. From the perspective of the relationship between Vertrauenshaftung and contract liability, since “reliance” is a common element of the two liabilities, the strength of reliance in the contract may even exceed other obligation relationships. So reliance cannot be used as a criterion to distinguish between contractual liability and Vertrauenshaftung. Theoretically, it is believed that reliance is the substantive basis of contractual liability, that is, “the breach of promise is an infringement on the person who expects the performance of the promise to change his or her status”.90 Even to those who insist on the “theory of unified protective duty”, contract is a “Sonderverbingdung” based on reliance.91 Therefore, we should either treat contractual liability as a type of Vertrauenshaftung as well, or exclude Vertrauenshaftung when establishing contractual liability, thus making Vertrauenshaftung a supplementary type of liability. Proponents of Vertrauenshaftung have adopted the latter approach. According to Canaris, Vertrauenshaftung is a legal system that supplements selfrestraint based on legal transaction and supplements the protection loophole in the autonomy of private law.92 Similarly, as the proponent of the concept of “protective duty”, Stoll also believes that there is no position for Vertrauenshaftung in cases where the obligation to perform can be determined by legal transaction.93 It shows that as long as there is no “protection loophole”, Vertrauenshaftung is unnecessary even if there is real reliance. However, the “theory of unified protective duty” holds that protective duty has nothing to do with the validity of contract. From negotiation, and even after the performance, protective duty in the process of negotiation, establishment and performance of the contract or after them has the same attributions and can have the same legal effect produced by the same constitutive requirements of liability. If it is to be consistent with this assertion, the Vertrauenshaftung can only exclude the situation where the protection is the purpose of performance, such as safekeeping contracts and the security guard services contracts, etc. But why is this kind of protective duty, which is the purpose of the contract, different from the 89

Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S. 2. See Lon L. Fuller, Consideration and form, 41 Colum. L. Rev. (1941), p. 811. It is important to note that Fuller specifically states that reliance, which is the basis of contractual liability, are not related to the reliance interest which is the criterion for damages. This is because liability of compensation according to the former one can be based on either the reliance interest or the value of the promised performance that is the expectation interest. Ibid. 91 Marina Frost, „Vorvertragliche“ und „vertragliche“ protective duty, Duncker & Humbolt/Berlin 1981, S. 209. 92 Vgl. Claus-Wilhelm Canaris, Die Vertrauenshaftung im deutschen Privatrecht, S. 440. 93 Vgl. Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, S. 425. 90

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protective duty attached to the primary performance obligation (such as the security obligation in the carriage contract) in nature? The “theory of unified protective duty” did not make it clear. Taking the consulting contract as an example, the consulting intention will be different in nature according to the validity of contract when there is wrong consulting opinion at the same time. Because in both cases, the social contact that causes damage needs to be extended to the time when the damage occurs. The existence of reliance is the necessary condition for the damage to occur, so the same standard should be adopted to determine the liability.94 From this point of view, Vertrauenshaftung is not a type of independent liability as opposed to contractual liability. In terms of the relationship between Vertrauenshaftung and tottious liability, the “Sonderverbingdung” is also not an effective criterion for distinguishing between two types of liability. Since all torts inevitably require a de facto contact relationship between the actor and the aggrieved party, the key is to distinguish the contact relationship that establishes the Vertrauenshaftung from the one that is necessary for the establishment of tortious liability. The method used by supporters of reliance is still the “reliance” standard. However, since reliance can also play a role in the area of tortious liability, it is not easy to distinguish such reliance from other types of reliance. For example, when the green light is on, people at the crossroad believe that it is safe to cross at that time. This kind of reliance is not for a specific person, so it is a “blindes Vertrauen” which even won’t be a factor in determining whether the liability is established or not. According to the “social contact theory”, if a person with poor eyesight crosses the road under the guidance of others, a higher standard of judgment on reliance is needed. However, no one will admit that special liability other than tortious liability will be established in this case, and the aggrieved party’s reliance factors are also irrelevant.95 According to Stoll, a special Vertrauenshaftung different from the liability for a tort can be established only when the reliance of the promised recipient is required by a unilateral performance of promise.96 It is reminiscent of the situation where “target setting” affects the Sonderverbingdung during the establishment of the contract.97 In other words, Vertrauenshaftung is more related to legal transactions rather than the tortious liability that regulates unlawful acts. Because unlawfulness is the focus of tortious liability while the abuse of reliance is only one of the factors determining the wrongfulness of the tortious conducts from the perspective of the theory of Vertrauenshaftung. And reliance will not “play a fundamental role” in the formation of liability. In this way, as in the case of contractual liability, Vertrauenshaftung becomes a complementary liability. As long as the tortious liability is established, there will not be Vertrauenshaftung. Since the principle of reliance can also be extended to the area of tortious liability outside law of

94

A.a.O. S. 422. A.a.O. 96 A.a.O., S. 423. 97 See Chapter 2, Sect. 1, “1. 3 Pre-contractual relation is Statutory Obligation Relationship”. 95

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obligations,98 the tortious liability can be interpreted as a kind of Vertrauenshaftung in the broadest sense. And so Vertrauenshaftung has lost its status as an independent type of liability.99 Therefore, reliance is actually a general integration element of contractual liability, tortious liability and other liabilities. Early at the end of the nineteenth century, French scholar Emmanuel Lévy used the concept of “legitimate reliance” to explain the entire law of obligations system.100 It is not hard to explain it: in contract law, obligees rely on the performance of obligors; in tort law, pedestrians and motorcycle riders believe that cars will stop when red lights turn on, and people believe that their parents will take care of their children and employers will keep their employees in check; in the grey area like the pre-contractual stage, the parties can also rely on the statements, promises and documents at that stage.101 If so, the role played by reliance in the three types of liability is actually the same. It is not the reliance but the acts that should be imputed can determine the liability. Reliance is only a link in the casual chain of the damage caused by the acts. For the theory of Vertrauenshaftung, there are only two options logically: one is to recognize reliance as a constitutive requirement of both contractual and tortious liability and abandon the distinction between them, the other is to abandon the recognition of reliance which is an omnipresent element as a criterion of liability and thus abandon the idea of forming Vertrauenshaftung! Obviously, neither of these two ideas is enough to establish the status of Vertrauenshaftung as a third type of liability independent of contractual and tortious liability. Nevertheless, “the Third Way” restricts the number of obligees through the specialization of special relationships. To a certain extent, the unbearable improper restrictions on freedom of movement caused by the expansion of liability areas outside of the tort law can be avoided.102 In addition, it can abandon the fiction of affiliated obligation or protective duty, without a difficult choice between contractual liability and tortious liability. Instead, it can determine the liability directly by the effect of the conduct or the imputation basis, thus breaking the rigid limitation of the dichotomy liability system of contract-tort. 98

For example, Professor Christian Von Bar believes that the principle of reliance is similar in the liability for violation of traffic safety obligations and the liability of culpa in contrahendo. A man who stumbles over a manhole covering on a sidewalk believes that there will be no such obstacle; The person engaging in the contracting will also consider the integrity of the contracting counterpart because of the increased risks of damage of his or her inherent legal interests or property. Christian v. Bar, Verkehrspflichten: richterliche Gefahrsteuerungsgebote im deutschen Deliktsrecht, Köln, Berlin, Bonn, Münchn: Heymann, 1980, S. 118. 99 Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, S. 425. 100 See Oliver Moréteau, Revisiting the Grey Zone Between Contract and Tort: The Role of Estoppel and Reliance in Mapping Out the Law of Obligation, in Helmut Koziol, Barbara C. Steininger ed., Tort and Insurance Law Yearbook: European Tort Law 2004, Springer Wien New York (2005), p. 75. 101 Ibid. 102 Eduard Picker, Positive Forderungsverletzung und culpa in contrahendo: zur Problematik der Haftung „Zwischen“ Vertrag und Delikt, 183 (1983), S. 505.

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2.2 Attempt of Normative Integration and Extension of Its Significance Unlike the “Third Way” which focuses on achieving the systematic goal of the liabilities other than contract liability and tortious liability, the theoretical attempt of normative integration focuses on the intersection of contractual liability and tortious liability. And it is a systematic problem reflected by the concurrence of liabilities. (1) Traditional Liability Concurrence Model and Criticism on It There are mainly three traditional liability concurrence models: the theory of Gesetzeskonkurrenz, the theory of Anspruchskonkurrenz and the theory of Anspruchsnormenkonkurrenz.103 They are briefly described as follows: a. Gesetzeskonkurrenz and Criticism of It As the first theory established in criminal law, Gesetzeskonkurrenz means that when the same fact meets the requirements of several legal norms, there is a hierarchical relationship between the norms and only one of them can be applied. As a theory of civil law that deals with the concurrence of liabilities, Gesetzeskonkurrenz holds that the non-performance of obligation is a special form of tort. Therefore, when the same fact meets the constitutive elements of liability for the non-performance of obligation and tortious liability, the norm of liability for the non-performance of obligation has a special legal status and should be applied in priority to the norm of tortious liability.104 Because the theory only recognizes an applicable liability norm and a right to claim determined by it, it is a non-concurrence liability model.105 The core of the Gesetzeskonkurrenz model is to confirm the hierarchical relationship between the norms of contractual liability and tortious liability. The reason is that tort law and contract law have different functions. The former one regulates the damage caused in general interpersonal communication, and the latter regulates the damage caused in interpersonal communication combined with contracts. Therefore, the norms of contractual liability are jus singulare relative to the norms of tortious liability.106 However, in order to cope with the situation in which the norm of tortious liability in positive law may be more favorable to the aggrieved parties, the concurrence of liabilities (compromised theory of Gesetzeskonkurrenz) should be admitted theoretically as an exception in cases involving the tort of personal rights and the intention or gross negligence of the breach of contract.107 103

See chapter 3, Sect. 2, “1. Normative Significance of the Concurrence of Liability for Breach of Contract and Tortious Liability”. 104 Wang Zejian, Concurrence of Liability for Breach of Contract and Liability for Tort, Research on Civil Law Theory and Case Law (Vol. 1), Peking University Press, 2009, p. 210. 105 It is referred as “the concurrence of normative exclusion” by Professor Larenz. See Karl Larenz, Allgemeiner Teil des Deutschen Bürgerlichen Rechts, Wang Xiaoye, Shao Jiandong, Cheng Jianying, Xu Guojian $ Xie Huaishi Trans, Law Press China, 2003, p. 349. 106 See Lin Yingzhi, Theory of Concurrence of Claims: Focusing on Japanese Law, Master Thesis 2002, Institute of Law, Chiang Kai-shek University, Taiwan, p. 20. 107 Ibid.

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There are two main criticisms on the theory of Gesetzeskonkurrenz. Firstly, the relationship between the norms of liability for the non-performance of obligation (or contractual liability) and the norms of tortious liability is not a relationship between the special law and general law. The contractual claims are not the object protected by tort law. Even if they exceptionally are, there will not be a relationship between general law and special law because tort law adopts an enumerated model (such as the German model) for the general tort types.108 Secondly, its theoretical logic is not consistent since the theory of Gesetzeskonkurrenz admits the existence of exceptions.109 It should be noted that the proponents or opponents of the model of Gesetzeskonkurrenz must have a certain supporting for their arguments. For the proponents, they need to adhere to two prerequisites: on the one hand, contractual liability and tortious liability are considered to be two separate legal fields due to different functions; on the other hand, the general duty of care in tort law is specified because of the contractual relationships. Or in other words, contractual obligations have replaced the obligations in tort law. As a result, only contractual obligations instead of the general duty of care in tort law are needed. We will see that other models of concurrence are actually related to whether to recognize these two prerequisites, and are unrelated to which legislative mode is adopted in tort law. What we need is to demonstrate that the contractual obligations in the case of concurrence can replace the general duty of care (or obligation of conducts) in tort law. And there is no need to prove that “all” breaches of contract necessarily constitute tort. The propositions that socalled contractual claims are not protected by tort law and different types of tort exist equally are not enough to deny the theory of Gesetzeskonkurrenz.110 In addition, the view that tortious liability should be recognized as an exception because the circumstance that tortious liability is more conducive to protecting the aggrieved party in the positive law is only a concession made by the theory in response to the need of reality, which will not detract from the effect of the theory of Gesetzeskonkurrenz. After all, there is no requirement in law that the relief for rights and interests should benefit the aggrieved party from the perspective of legislation. If the provisions that are not favorable to the aggrieved party are proper, their effect should not be denied for they are not conducive to the relief for rights and interests. On the contrary, if there are deficiencies in the properness of the adverse provisions, it must be corrected 108

Siehe Rolf Dietz, Anspruchskonkurrenz bei Vertragsverletzung ung Delikt, Bonn u. Köln, 1934, S. 88. 109 See Wang Zejian, The Concurrence of Liability for Breach of Contract and Liability for Tort, Research on Civil Law Theories and Cases (Vol. 1), p. 217. 110 Adopting the French legislation of general tort model would logically result in all breaches constituting torts, while adopting the legislation of German mode of the enumerated types would constitute torts only in exceptional cases (mainly involving Integritätsinteresse). Therefore, the legislative model only affects the breadth of the overlapping situation, but does not negate the existence of the situation. In fact, the reason that French legislation adopts the model of Gesetzeskonkurrenz (or non-concurrence) is not because its tort law adopts general clause mode, but mainly because its special concept of action excludes the issue of concurrence. Siehe Apostolos Georgiades, Die Anspruchskonkurrenz im Zivilrecht und Zivilprozeßrecht, München 1967, S. 35 ff.

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through the amendments of law. Before the amendment of the law, the shift in the area of liability of the person applying the law is only an expedient measure. Even if it is proper from the perspective of the result, it cannot be used to negate the amendment! For example, in cases where the interference of personal rights and interests caused by the breach of contract results in serious mental damage, the disadvantage to the aggrieved party of the non-performance of the obligation is only because the legislation stipulates that mental damage compensation is limited to tortious liability. Once this limitation is lifted, the aforementioned disadvantage will not exist when mental damage compensation can apply both to the liability for non-performance of obligations and the tortious liability. The changes in the German law of obligations reform are the evidences to it.111 When the breach of a contract causes damages to the third party, even if the law explicitly grants the third party an independent right to claim, the model of concurrence adopted does not matter because it is not enough to confirm the nature of contract claim of such claim. Therefore, the real obstacle faced by Gesetzeskonkurrenz model is that it believes that the normative functions of contract law and tort law are completely separate, which is inconsistent with the actual situation of contract law and tort law in modern countries. The two laws always have overlapped normative functions which has the tendency to expand with the recognition of the contract protective duty.112 The view recognizing contractual obligations as a substitute for the tortious obligations shows that contract law has the same function of protecting (or relieving) rights and interests as tort law. The premise that contractual relationship plays a unique role in damages sharing lies in that such damages must be within the framework of danger distribution predetermined in the contract. However, except situations in which the protection is the purpose of the contract (such as a security guard services contract) or is covered by purpose of the contract (such as a carriage contract), other situations in which a breach of contract involving inherent interest or Integritätsinteresse damage are generally not within the framework. In this case, norms of contractual liability will not exclude the norms of tortious liability, so different norms of liability may be applied simultaneously. b. Anspruchskonkurrenz and Criticism on It The concurrence of claims (Anspruchskonkurrenz) model believes that when the same fact simultaneously meets the constitutive elements of the basis of multiple rights to claim, these rights with the same content of performance should be established simultaneously. According to different relationships between the multiple rights to claim, there are the theory of free Anspruchsnormenkonkurrenz and the theory of Einwirkende Anspruchskonkurrenz. Relevant literature is very detailed,113 so we won’t explain it here. 111

See Article 253 of German Civil Code. The non-material damage in this article is only limited by the type of damage and legal provisions, and has nothing to do with the basis of the right to claim. 112 See Chapter 1, Sect. 2, “The expansion of Contract Law and Tort Law”. 113 See Wang Jianze, The Concurrence of Liability for Breach of Contract and Liability for Tort, Research on Civil Law Theories and Cases (Vol. 1), Peking University Press, 2009, pp. 210–212.

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The basis for establishing the Anspruchskonkurrenz model lies in the belief that contractual obligations and general duty of care in tort law are two completely different legal obligations. The former is the obligation to a person arising from the contract, while the latter is an absolute obligation with statutory nature. Although the content of the former overlaps with that of the latter, the latter does exist. Therefore, the norms of liability for the breach of contract and the norms for tortious liability based on the above obligations are independent of each other.114 For example, when the imputable conducts of lessee A causes damage to the leased property owned by the lessor B, there will only be a right to claim for the damagess of contract according to the theory of Gesetzeskonkurrenz; on the contrary, if the leased property is not owned by lessor B but by the third person C, there will be a right to claim for the damagess of contract from B to A and a right to claim for compensation for tort from C to A. The difference between the two rights lies not only in the difference of the subjects but also in their consistency with the two different rights or legal relationships. In this way, the identity of the rights to claim is not derived from the commonality of specific events, nor from the identity of the obligee and the obligor. It is mainly from the identity of the Entstehungsgrund. If the last element is missing, the rights to claim discussed above must be treated as two. In the previous example, ownership is only the Berechnungsfaktor under the contract (, while it is the Grund des Anspruchs for determining the liabilities of damagess under the tort.115 Therefore, if the leased property is owned by the lessor B, he or she can enjoy both the right to claim for compensation for breach of contract under their contract and the claim for compensation for tort of rights under his or her ownership. Apart from logical reasons, the original intention of the theory of Anspruchskonkurrenz is to provide the best relief for the aggrieved parties. Since the legal effects of different rights to claim are different, recognizing the multiple rights can avoid the problem of insufficient relief that may arise from a single claim in specific situations. However, one right to claim is not always “better” than another under specific cases. For example, liability of the non-performance of obligation may be better than tortious liability in the burden of proof, but worse than tort claims in the scope of claim subjects and compensation. Therefore, the result of Anspruchskonkurrenz may be “choosing the lesser of two evils”, and the aggrieved party cannot obtain the maximum benefit from the two norms of right to claim. The reason is the adherence to absolute opposition of the relevant norms of right to claim under the model of Anspruchskonkurrenz (which is actually consistent with the theory of Gesetzeskonkurrenz). As a result, the actual effect of specific right to claim can only be weighted from the whole norms of the concurrent rights. Although the relevant facts meet all the requirements of the two rights to claim, there is still not a best relief effect. And although this approach can maintain the dichotomy between contract and tort to the greatest extent, it may also improperly weaken the relief available to the aggrieved party because of the ignorance to the functional presupposition of the dichotomy. The most typical case is that, with the expansion of protective duty 114 115

Siehe Rolf Dietz, Anspruchskonkurrenz bei Vertragsverletzung ung Delikt, S. 125. A.a.O., S. 129.

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of contract, the liability for the non-performance of obligation and tortious liability should have been consistent in the relief effect of Integritätsinteresse. But if we still maintain the normative logic of the contract law whose center is the obligation to perform and insist on the rule of foreseeability and the rule of limitation to damage types, liability for the non-performance of obligation cannot be consistent with the inherent requirement of the expansion of obligation and so the problem of insufficient relief to the aggrieved party will occur. In addition, adhering the view that the bases for the right to claim are absolute opposite may also lead to the failure of the purpose stipulated by law or agreed by the parties due to the aggrieved party’s freely exercise of option. In view of these problems, two solutions are proposed in theory. One is that the Anspruchskonkurrenz are based on the premise of the identity of the content and purpose of the claim for performancee. “If the scope of one party’s claim is wider than the other people’s, the unsatisfied part may still exist. Therefore, the right to claim for solatium for tort should be granted even after the right is satisfied in the contract.”116 This view is inconsistent with the design of the system of Anspruchskonkurrenz and is contrary to the idea of solving disputes once. In actual effect, it is similar to the theory of concurrence of norms of claims. Another view is to weaken the proposition that the bases of multiple rights to claim are completely independent, and recognize their influence to each other under specific situations. For example, provisions of the limitation of liability in contract law (such as the provision in contract law that the obligor is only liable for intention or gross negligence) or provisions of shortterm prescription also apply to tortious liability. When it comes to the damage of physical right or the right to health, the broader scope of compensation provisions in tort law (such as provisions of compensation for solatium or mental damage) also applies to contractual liability. There is something wrong with this view. For the theory of Anspruchskonkurrenz, norms of every right to claim are independent. In some exceptional cases, the application of some norms of contract law (such as provisions of liability mitigation) or provisions of tort law (such as the damage of physical right and the right to health) are allowed. However, it is inconsistent with the purpose of the single right to claim and of applying the norm that is favourable to the obligee.117 In certain circumstances, if someone recognizes that the two rights to claim are restricted by each other, in fact, he or she abandons the proposition that multiple rights to claim exist independently. c. Anspruchsnormenkonkurrenz and Criticism on It According to the Anspruchsnormenkonkurrenz model, when the same fact meets the two elements of non-performance of obligation and tortious conduct, there will be only one unified right to claim but multiple basis of the right. If the obligations involved in the two bases of the right are the same, the general obligation of tort law 116

See Shi Shangkuan, The General Theory of Obligation Law, China University of Political Science and Law Press, 2000, p. 230. 117 Siehe Peter Arens, Zur Anspruchskonkurrenzbei mehreren Haftungsgründen, AcP 170 (1970), S. 395.

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is strengthened and specified rather than doubled due to contractual obligations. So there is only one obligation and a unified right to claim.118 In the case of concurrence that admits the existence of a single obligation, the theory of Anspruchsnormenkonkurrenz is similar to the theory of Gesetzeskonkurrenz. But the nature of the obligations under the Anspruchsnormenkonkurrenz has the dual attributes of contractual obligations and the duty of care in tort law which makes it different from the latter. In terms of recognizing that the liability for nonperformance of the obligation to be established on the basis of intention or gross negligence also applies to tortious liability and applying the uniform short-time prescription in exceptional cases, the theory of Anspruchsnormenkonkurrenz undoubtedly maintains the consistency with the theory of the multiple influence of the rights to claim. The most distinctive theory of this model is to apply the most favorable provisions of compensation for obligees in the scope of liability.119 Generally speaking, this model still insists on the problem of concurrence under the distinction between contract and tort. But in terms of the unified application of special norms, it discards the distinction of the normative attributes of the rights to claim and adopts a unified norms of the rights to claim. Since the theory of Anspruchsnormenkonkurrenz considers that the general obligation of tort law is strengthened or specified because of contractual obligations, and acknowledges that provisions of the mitigation of duty of care in contract should be uniformly applied, contractual obligation can change (strengthen or weaken, not only strengthen) the general duty of care in tort law. In this case, why it does not logically recognize the single contractual obligation as the theory of Gesetzeskonkurrenzdoes can only be explained based on substantive considerations: The recognition of tort claims involving the concurrence is beneficial to obligees! Such substantive considerations are obviously on the basis of insisting on the formal logical reasoning of positive law, so it is not completely substantive! In addition, according to the model of Anspruchsnormenkonkurrenz, a unified right to claim can be established only if all the abstract requirements of norms of the right to claim in each concurrence are satisfied. If the constitutive elements of a right to claim are absent, only other rights to claim whose elements are satisfied rather than a unified right to claim can be established.120 Therefore, if the actor only violates the general duty of care when there is a provision for the mitigation of duty of care in the contractual liability, the right to claim in contract should not be established at the beginning. Naturally, there will not be a unified right to claim and only be a single tort claim. When it comes to the scope of compensation, Larenz argues that a unified right to claim can only be established when the scope of compensation of the right to claim of contract and tort overlaps.121 It will inevitably cause an effect, which is similar to the aggregation of the rights to 118

See Wang Zejian, The Concurrence of Liability for Breach of Contract and Liability for Tort, in Research on Civil Law Theories and Cases (Vol. 1), p. 212. 119 See ibid., pp. 213–214. 120 Siehe Apostolos Georgiades, Die Anspruchskonkurrenz im Zivilrecht und Zivilprozeßrecht, S. 173. 121 A.a.O., S. 175.

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claim, to the unpaid part. It will also complicate the application of the norms. This consequence is obviously unsatisfactory. Therefore, the opposite view argues that since the constitutive elements of bases of each right to claim have been satisfied, it is more appropriate for obligees to claim all consequences of the rights unless the norms of relevant restrictions on liability should be applied uniformly.122 In this way, the theory of Anspruchsnormenkonkurrenz actually abandons the normative standpoint that contract law and tort law are independent and opposite, and requires the consideration of relevant liability norms from a unified system standpoint.

2.3 Theoretical Attempt of Full Normative Integration Theory The full normative integration theory is a systematic theory of concurrence proposed by the Japanese scholar Shinomiya Kazuo in his book Theory of Concurrent Claims.123 This theory is the development form of the theory of Anspruchsnormenkonkurrenz. It further promotes the normative integration of the latter, which mainly focuses on legal effects, to the level of constitutive requirements, so as to develop a full normative integration of the right to claim in addition to Gesetzeskonkurrenz. The theory starts with the function of the rights to claim. In addition to the inherent change in property rights and interests (such as the right to claim for maintenance), the right to claim can also arise from damaged rights and interests. It either aims to realize the content of the right (such as the right to claim for real rights), or toregulate benefits when the content of the rights cannot be realized (such as the right to claim for non-performance of obligation, tort and unjust enrichment, etc.). Therefore, the right to claim is the legal technology that uses the intention of the obligee as the medium to result in the change of rights and interests.124 The constitutive requirements and legal effects of norms of the right to claim have the function of connecting the facts with corresponding legal regulations. When a factual relationship meets the requirements of the right to claim, the legal effect (specific claim) occurs between the parties. Specific right to claim includes pure performance (rights without attributes) and specific attributes (rights with attributes, such as that are not allowed to be offset due to intentional tort). Generally speaking, a specific right to claim is a right without attributes which does not need to take into account the basis of justification.125 This kind of right to claim provides the basis for normative integration. 122

A.a.O., S. 176. Shinomiya Kazuo, Theory of Concurrent Claims, 1978. See Lin Yingzhi, Theory of Concurrence of Claims: Focusing on Japanese Law, Master Thesis 2002, Institute of Law, Chiang Kai-shek University, Taiwan, 2002. 124 See Lin Yingzhi, Theory of Concurrence of Claims: Focusing on Japanese Law, Master Thesis 2002, Institute of Law, Chiang Kai-shek University, Taiwan, pp. 37–38. 125 See ibid., pp. 38–39. 123

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The theory holds that the essence of the problem of Anspruchsnormenkonkurrenz lies in how to determine the singular and plural of the rights to claim when the same fact meets multiple norms of the rights.126 The theory of Gesetzeskonkurrenz excludes specific norms because of the precedence among norms, thus only establishing a singular right to claim in contract; the theory of Anspruchskonkurrenz does not recognize the precedence, and considers that there is one right to claim when the fact meets the requirements of one right regulated in the positive law, so there will be multiple rights to claim in the concurrence. However, from the study of the three situations in which the specific right to claim becomes the subject matter of the punishment by law, the interruption of prescription, and the performing litigation, there is a requirement for simplification of the rights to claim. It means that the same performance between the same parties due to the same factual relationship should be treated as a single unit. The norms of the unified right to claim must correspond to the right. As a result, there is a need for the integration of the norms of the right to claim, and the framework of the existing norms should be broken as much as possible in order to form a unified norm. This cannot happen unless multiple norms of the right to claim cannot be unified due to different or dissimilar essential purposes (such as bills rights and causal obligee’s right).127 This theory proposes the general theories of full normative integration on the basis of evaluating various models of concurrence. The integration of requirements is required to meet the demand of identity of factual relationship. Moreover, it not only needs to meet the requirements of the norms of the right to claim involved in the concurrence but should also conform to the unity of the requirements of the right to claim formed after the integration of norms. The situations in which requirements can be integrated are limited to where the requirements of each norms have the relationship of identity, containment (the requirements of one norm are included in the requirements of another norm, and vice versa), and overlapping (the requirements of each norm have commonalities and differences), etc. While in the case of the exclusive and opposite relationship, it is not suitable for integration. The situation of containment relationship always leads to special integration of norms like Gesetzeskonkurrenz. In the situation of overlapping relationship, there is a possibility of integration only when the norms do not exclude each other (otherwise, it should be treated in accordance with the method of Gesetzeskonkurrenz). In other words, the integration of requirements is achieved by mechanical accumulation of common and different requirements.128 As for the integration of legal effect, it can also be carried out according to the integration of requirements.129 Accordingly, in the case of the concurrence of liability for breach of contract and tortious liability, the norms should be integrated since the purpose of their norms are similar in the nature. Within the scope of the disposition of legal interest permitted by the autonomy of private law, the danger distribution conducted by the parties’ 126

Ibid., p.40. See ibid., pp. 41–50. 128 See ibid., pp. 60–70. 129 Ibid., p. 51. 127

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intention and the presumption should be given priority. It means that the norms of contractual liability should be applied in priority, and the model involved is the Gesetzeskonkurrenz. The foregoing principle is not applicable when there is other damage beyond the danger distribution preset by the norms of contractual liability such as the damage caused by the violation of the security obligation that is not based on the agreement. And it needs a full normative integration. Specifically, in the integration of the constitutive requirements, whether it is the internally related behavior that causes damage with the development and implementation of the obligation relationship (such as damage to the leased property due to improper use by the lessee) or an escape behavior that is not related to the performance of the obligation relationship (such as the behavior that causes damage due to intentional harming or deviation from the parties’ usual anticipation), it is integrated in the same way. In other words, the norms of contractual liability are applied in the aspects of breach of duty, causation, negligence and the scope of damage of legal interest, while the norms of tortious liability are applied in the aspects of wrongfulness and liability capacity. In the unity of the effects of the norms, the norms of contractual liability are applied in principle to the internally related behaviors, and the norms of tort are applied in principle to escape behaviors. The norms that mitigate the liability of obligors in the danger distribution of contractual liability are especially not applied.130 It can be seen that only in terms of the concurrence between the liability for breach of contract and the tortious liability, the full normative integration is limited to situations beyond the scope of the danger distribution predetermined in contract. For the harmful acts within the scope of the danger distribution of the contract (the situation where protection is the purpose of the contract), the model of Gesetzeskonkurrenz should still be applied.

2.4 The Significance and Expansion of Normative Integration Since it is impossible for the law to make individual provisions for all facts of life to be regulated, which are regulated by various laws and norms from different perspectives, thus it is possible for the same life fact to be regulated in whole or in part by multiple legal norms. If the legal effect of different norms is different from each other, it will inevitably lead to normative conflicts. From the standpoint of the legal order, it is necessary to integrate norms. When we choose the processing mode of concurrent liability, the biggest misunderstanding is counterposing various processing modes and dealing with all concurrence problems in a single mode. In fact, various processing modes are more suitable to deal with these problems due to their inherent rationality. From the perspective of the application of law, the fact that, the norms of contractual liability and the norms of tortious liability are regarded as different normative systems, is a prerequisite for 130

See ibid., pp. 91–92.

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the problems of concurrence. If the specific legal system does not arrange such a liability system, the problem of concurrence will lose its significance. At the same time, various norms have their preset regulation range. Only within such regulation range, the choice of the legislator reflected in the specific norm is important. For example, the general duty of tort law is usually abstracted as a duty of omission: “Do no harm to others”. This abstract duty can only be concreted when specific facts of life are related to the rights and interests of others. In the process of concretization, as the autonomy of private law allows the parties to dispose of their own rights and interests (except when there are restrictions on legal regulation, such as the disallowance of the exclusion of liabilities in the tort of personal rights and interests or intentional tort) and changes the content of the obligations of others. Thus, the contract agreement is decisive for the norm of the relationship between specific parties and it is reasonable to choose the mode of concurrence according to whether the fact of damage is in the frame of distribution of danger predetermined by the contract. In this connection, the mode of Gesetzeskonkurrenz should be affirmed. It is worth noting that to determine whether the relevant facts of damage are within the framework of danger distribution predetermined by the contract, we cannot simply rely on the fact that there is a contractual relationship between the parties, because with the expansion of contractual obligations, the scope of the “contract” is greater than “the scope of the danger distribution predetermined by the parties”, and the most typical example is the recognition that protective duty of contract is not related to performance. Generally speaking, only matters related to the common purpose of the parties or the purpose of the unilateral transaction that has been recognized by the opposite party and accepted as the content of risk allocation are the predetermined matters of danger distribution, and the factors such as the nature and price of the transaction and so on should be considered and determined by contractual interpretation. Matters of danger distribution that have been specifically stipulated by the law should be treated in the same way as matters of danger distribution predetermined by the parties. For example, the provisions of the contract law that, the obligor is only liable for intentional or gross negligence or that obligation without negligence should also be included, are all special provisions on danger distribution. For damage beyond danger distribution predetermined in the contract, including them in the contractual liability aims to transfer liabilities. At that time, the claim is regulated by the model of Anspruchsnormenkonkurrenz or the model of full normative integration. Whether it is from the perspective of physical effect or the procedure, they are all worthy of approval. However, in order to pursue the effect of “one norm of claim corresponds to one claim”, the model of full normative integration advocates that the unified norm of claim should be abstracted from the concurrent norms of contractual liability and tortious liability, and there is a suspicion of overtheorizing Since concurrence must simultaneously meet the constitutive requirements of contractual liability and tortious liability, and the requirements to meet the uniform constitutive requirements abstracted from the two. As far as the application of law is concerned, it is redundant and is not as simple as Anspruchsnormenkonkurrenz. The model of Anspruchskonkurrenz focuses too much on the implementation of the logic of distinction in the normative field, and it leads to either the rigidity

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of the contract law—tort law’s due to their absolute independence, or the failure to achieve logical consistency due to mutual influence, which is not a reasonable choice. It should be noted that the above conclusion is more based on the observation of abstract logical application of law. If the legal effect of a specific norm is not satisfactory, the results of processing according to the aforementioned ideas may not be satisfactory. This is particularly reflected in the case of tort of the same rights and interests. According to the contract law, legislation provides a wider range of compensation for tortious liability than contractual liability, such as not allowing aggrieved parties to claim compensation for mental damage. In this case, if the relevant damages are within the range of danger distribution stipulated in contract, it is inappropriate to deal with the aggrieved party’s remedy according to contractual liability. Such a situation can be avoided by the model of Anspruchskonkurrenz or Anspruchsnormenkonkurrenz. Once again, in terms of applying law, an abstract discussion on the concurrence model is not enough to achieve proper results. But it also reflects that the enlightenment of the discussion on the model of the concurrence of liabilities should be expanded. Various modes of concurrence of liabilities are proposed as a theory of legal application. The legislation on the concurrence of liabilities (such as Article 122 of Chinese Contract Law) also reflects this view because it is only characteristic of rules of judgement. Only if the legal consequences provided by the relevant liability rules are proper, may the corresponding consequences of legal application be proper or acceptable. With the expansion of the respective regulation areas of contract law and tort law, the relevant norms of liability may be expanded to apply to matters beyond their intended scope of regulation. At this time, if it is still hoped to implement the established normative effects, the results will not be satisfactory. This is mainly reflected in the protective function of contract law for Integritätsinteresse. As a transaction law, contract law mainly plays the role of creating rights. When a contract is also used to protect Integritätsinteresse, its intermediate field with tort law and the resulting problem of liability integration is not within the preset scope of contract law. The theory of the mutual influence of claims is based on the influence of tort law norms on contractual liability, which responds to this reality. The model of concurrent norms of claims and the theory of full normative integration actually “accumulate” the legal effects caused by concurrence, thus avoiding the shortcomings of the norms of contractual liability. In this sense, the issues raised by the model of concurrence have gone beyond the application of law, creating a space for systematic thinking from the perspective of legislation. From the perspective of legislation, the discussion on the mode of concurrence comes up with at least the following questions: Is the specific form of the overlapping function of contract law and tort law suitable for responding within the existing framework of the two laws, or is it necessary to respond to the phenomenon of integration of liabilities from the level of the legal system? It is worth noting that contract law and tort law should be considered different only in their respective core areas. As for the intermediate field between them, it is not suitable to be clearly classified as completely opposite. In areas of incompatibility, contractual liability or

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tortious liability can only be fully or partially applicable in certain areas.131 In this regard, more attention should be paid to the consistency of different normative areas or the integration of norms of liability.

2.5 Path Choice of the Systemization of the Intermediate Field The re-systematization of existing rules characterizes the theoretical attempt to systematize the legal regulation of the intermediate field——whether it is ordinary legislation or judges law——which is different from the initial creation of related rules of liability and will inevitably be subjected to the existing system. The limitation of the choice of the existing system will determine the possible scope of re-systematization, which is a reality that must be taken into consideration in theory construction. (1) Separation of “Assumption of Liability” and “Basis of Liability” From the perspective of the normative constitution of the liability law, the establishment of liability and assumption of liability (or the legal effect of liability) are two interrelated but independent components. Although the assumption of liability is premised on the satisfaction of constituent elements of liability, the satisfaction of constituent elements of liability merely manifested that the claimant has a certain right of remedies (or abstract claims) for the liable person. The specific methods and content of legal remedies (such as the choice of the claim for prohibition, restitution and compensation, and the specific items and scope of compensation) are regulated by the rules of the assumption of liability.132 Traditionally, the different basis of claims usually correspond to the single (or primary) form of liability. For example, the basic form of claim for non-performance of obligation and tort claims is damages; the content of claim for restitution of unjust enrichment is the restitution or the possession of original items; the goal of the claim for real right is to remove the obstacles in the enjoyment or exercise of real right. As a result, it may be misunderstood that the basis of liability determines the content of liability, so people tend to ignore the differences between the constitution of liability and the assumption of liability in the content of norms. With the diversification of remedies, one basis of liability can use multiple forms of liability, and one form of liability can also be used for multiple bases of liability. In this way, we need to reconsider the awareness that the basis of liability determines the content of liability. According to the constitutive logic of traditional liability law, when there is an unlawful act or damage to rights and interests, the first problem to be solved is whether the aggrieved party enjoys the right of remedies for the infringing party, which is a 131

See Helmut Koziol, Basic Questions of Tort Law, p. 103. From a Comparative Perspective, p. 102. 132 See Dan B. Dobbs, Law of Remedies (2nd ed.), Vol. 1, West Publishing Co., 1993, p. 25.

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problem for the establishment of liability. However, even if the constituent elements of liability are met, the right of remedies can be confirmed, but the specific content of liability cannot be determined. For example, if A took a picture when he leaned against B’s beautiful car and showed the picture to others, can B demand that A stop showing the picture or even to destroy the picture because his car was photographed? Since the provisions of ownership do not grant B the exclusive use of the appearance of his items, A did not obstruct the enjoyment and exercise of B’s ownership of his car, and B does not have the claim, and B had no claim against A. Conversely, if A enters B’s courtyard without permission to take that picture, his act damages upon the ownership of B’s house (or land use right) (but B’s ownership of his car was not damaged). In such a case, B enjoys the claim for protection according to real right law or tort law. If A only “trespassed on” B’s courtyard and did not cause any damage, B can only demand A remove obstacles (that is, leave his courtyard), and he cannot demand A compensate for losses. Similar situations also exist in the cases of the breach of contract. Where there is a breach of contract, whether the non-breaching can claim actual performance or substitute performance of damages or terminate the contract, the non-breaching party should consider other relevant factors other than the general constituent elements of liability for breaches. Therefore, the basis of liability cannot determine the specific methods or content of remedies. In addition, the basis of liability cannot determine the scope of liability. As damages is the most common and important form of liability, we will take it as an example to illustrate. According to the traditional point of view, the basis of liability will affect the content and scope of damages For example, liquidated damages do not include mental distress and should be subject to the rules of foreseeability so that it is different from compensation for tort.133 This restriction is mainly to maintain the equality of contract transactions and to avoid breaking the balance of interests reached by the parties through the contract because damages are beyond the foreseeable scope.134 Since the foreseeability is related to the maintaining the balance of transactions, it can only limit the damages related to performance and cannot limit the damages caused by the violation of protective duty that is not related to performance. Therefore, the limitation of liquidated damages is not based on the noncompliance but the transaction nature of contracts. If the purpose or nature of contracts includes the protection of non-property interests such as pleasure, comfort, respect, or safety, we cannot believe that damages (or consolation) for non-property interests would conflict with the rules of foreseeability; besides, damage to rights and interests that are not included in the purpose or nature of contracts are only accidentally associated with contracts, and they are not suitable to be dealt with under the transaction-based standard of contractual liability. The scope of related compensation can only be determined by the general principles of rights and interests protection (namely, the principle of compensation for tort), and it will not be affected by whether the parties 133

See Chapter 3, Sect. 2 bis (4) and Sect. 1 (1) of this chapter. Therefore, scholars suggest that whether the damage is disproportionate to the contract price as a limitation rule of compensation. See James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, Zhang Jiayong Trans, Law Press China, 2007, p. 654.

134

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had foreseen the influence when entering into a contract. As a result, due to the expansion of the scope of contract protection, the unified liability basis cannot be applied to the unified compensation standard, and the damages need to be divided according to the types of damaged rights.135 However, it highlights that the damaged rights determine the scope of damages, special laws and policies, and practical constraints, and the basis of liability will not limit it.136 In addition, even the same breach of contract does not necessarily cause the same damages, and the degree of damages is not a constitutive element for liability (the exception is that too minor damage will not be protected by law), which further demonstrates that the basis of liability and the content or scope of liability are not directly related. Since the basis of liability cannot determine the form, content or scope of liability, the constitution of liability and assumption of liability should be dealt with separately as different normative issues in legislation and theories.137 (2) Significance of the Distinction Between Types of Liability Basis From the experience of comparative law, contractual liability and tortious liability are often used as two different bases of liability, which are more or less regulated by different rules.138 As we have repeatedly emphasized, such a situation may be more based on specific institutional or theoretical presuppositions than the nature of things. For example, when discussing the imputation principles for breach of contract, scholars claim that due to the widespread presence of conflicts of rights, tortious liability between strangers who have not contacted in advance cannot only be based on damages but also needs to have imputability or elements of fault; on the contrary, liability for breach of contract is transformed from contractual obligations, which is essentially an agreement between the parties and is not stipulated by law. Therefore, the liability for breach of contract is the implementation of the parties’ will and agreement, which should be stricter.139 This view has a clear theoretical presupposition, and questioning its authenticity or validity will weaken its persuasiveness.140 It comes up with another way of thinking about the difference between the liability for breach of contract and tortious liability, namely, the difference in the nature of obligations.

135

See Ken Oliphant, ed., Aggregation and Divisibility of Damage, Zhou Xuefeng & Wang Yuhua Trans, China Legal Publishing House, 2012, p. 594. 136 See Dan B. Dobbs, Law of Remedies, p. 28. 137 In theory, scholars treat the issue of liability constitution as substantive law and the issue of assumption of liability as law of remedies or remedial issues. See Dan B. Dobbs, Law of Remedies, p. 25. 138 See Christian von Bar, Ulrich Drobnig, eds. Gemeineuropäisches Deliktsrecht, Wu Yue, Wang Hong, Li Zhaoyu & Shi Pengpeng Trans, Law Press China, 2007. p. 40. 139 Liang Huixing, From Fault Liability to Strict Liability, published on Liang Huixing, editor-inchief, Civil and Commercial Law Review (Vol. 8), Law Press, 1997, pp. 6–7. 140 Yi Jun, Thought on Imputation Principle for Damages for Breach of Contract in Chinese Contract Law, in Wang Hongliang, Zhang Shuanggen, Tian Shiyong & Zhu Qingyu ed., Archiv für Chinesisch-deutsches Privatrecht, Peking University Press, 2012, p. 15.

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As can be seen, both liability for breach of contract and tortious liability is essentially liability for damages due to breach of duty.141 However, it needs to be cautious to take both liabilities as precisely the same type. In theory, it is generally believed that contract obligation involves the violation of contractual obligations and specific social security obligations, while tortious liability involves the violation of general social security obligations that no one can harm others.142 The shortcoming of this opinion is that although it points out the general characteristics of obligations in tortious liability, it can neither help understand the relevant judgment of constituent elements of liability nor provide a basis for distinguishing the types of liability. According to Legal Jurisdiction Theory (Rechtszuständigkeitslehre), although claimsare generally believed to have the only relative effect, they also have exclusivity or absolute effect in the sense that rights are attributed to the subjects.143 Since claimsalso have the exclusive effect (corresponding to general security obligations), why can they only be protected under the rules of liability for breach of contract? Why can it only receive exception protection of tort law under stringent conditions? In addition, the breach of obligations involved in tortious liability is always based on the facts of the specific case. That is to say, the abstract concept of obligation must be concretized. As a result, it is difficult to tell how this process differs from the determination of ancillary contractual obligations in accordance with the principle of good faith. As for the establishment of liability, the infringement (or damage) on rights and interests, a trigger of liability, only demonstrates the legitimacy of receiving remedies from the perspective of the aggrieved party, while the breach of obligations connects a specific aggrieved party with specific inflictor and points out the legitimacy of giving liability from the perspective of inflictor. From the relationship between protected rights and interests and the counterparty’s duty to act, the content of the duty to act can be determined by protected rights and interests, and relevant obligations can determine the content of protected rights and interests. In this way, the relevant duty to act has a normative value independent of protected rights and interests. In addition, the clearer the content of obligations, the less likely it is that the application of liability imposes improper restrictions on the perpetrator’s freedom of conduct. As for contractual obligations, it can not only create rights and interests but also change statutory obligations arising from the attribution of rights and interests. Due to the private nature of civil rights and interests, the law allows the parties to change their attribution by agreements and restrict the freedom only to the minimum limit, such as not allowing the advance exemption of liability for intentional or gross negligence or liability for personal injury. In this way, contracts become a positive basis for determining liability (when the contract creates new legal obligations or 141

See Christian von Bar & Ulrich Drognig ed., The Interaction of Contract Law and Tort and Property Law in Europe, p. 40. 142 See Wang Shihu, Research on Concurrence of Contract Obligation and Tortious Liability, Modern Law, No.4, 2002, p. 110. 143 Vgl. Felix Zulliger, Eingriffe Dritter in Forderungsrechte: Zu ein Beitrag zur Lehre von subjectiven Recht (Zurich, 1988), S. 74. Zu ein Beitrag zur Lehre von subjectiven Recht (Zurich, 1988), S. 74.

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strengthens general legal obligations) and a reason for exempting liability (when contracts weaken general legal obligations). In this sense, contractual liability is usually given priority to tortious liability,144 and so do the norms of contractual liability.145 The theory of Contract Law of the People’s Republic of China pays more attention to the imputation principles of liability for breach of contract. However, it does not pay enough attention to the importance of contractual obligations. As can be seen, the actual difference between strict liability and fault liability is not entirely clear.146 The similarities of their effects may depend more on the nature of the obligation of results or obligation of means.147 The obligor may either bear the obligation of results to ensure the realization of the purpose of obligatory right, or only bear the obligation of means to perform the acts necessary to achieve the purpose of the obligatory right. According to the terms in the Principles of International Commercial Contracts, the former is an obligation to obtain specific results, and the latter is the duty of best efforts. For the obligation of results, even if the obligor exerts his best efforts, as long as the specific results do not occur, he should still bear the liability for non-performance. It is natural to refer to such liability as strict liability. Conversely, with regard to obligation de üoyen (obligation of means), as long as the obligor has made his “best efforts,” he is not liable even if the expected results do not occur. It is impossible to determine the fact of the breach of obligations without determining the specific content of the “duty to make best efforts” according to the specific circumstances of the obligation relationship. When we separate the obligation of means into two parts: the content of obligation and the performance standard of obligation, we need to distinguish between the breach of obligations and imputability. Therefore, the liability for breach of the obligation of means is regarded as fault liability. However, it is difficult to see how the separation of the content of obligations can help determine liability and what practical significance it has to classify it as strict liability or fault liability based on whether it is divided. In fact, as long as the liability for breach of contracts is consistent with the content of obligations agreed upon in the contract, the balance of the determination of liability 144

See Wang Jianze, Civil Law Thinking: Basic Theoretical System of Claims, Peking University Press, 2009, p. 59. 145 It should be noted that law not only is guided by logic, but also seeks proper outcome. If it is expected to produce substantive and appropriate results, firstly, it must satisfy the condition that “contractual obligation itself is tied to the purpose or nature of contract”. Only in this way can the contract be considered to have the effect of changing the structure of statutory obligations; secondly, the legal effect determined by the norms of contract obligation is practically acceptable. If positive law makes unacceptable arrangements on the legal consequences of contract obligation and tortious liability (i.e., the same rights and interests have different remedy effects), in order to pursue the appropriateness of the results, it may require anti-logic operations (such as the case of concurrence of liability, a compromise between the Gesetzeskonkurrenz (statute concurrence) or competing claims theory is adopted). 146 See Han Shiyuan, The Law of Contract (Vol. 3), Law Press China, 2011, pp. 592–593. 147 Statutory obligations can also be divided into obligation de résultat and obligation de üoyen. Although most of statutory obligations are obligation de üoyen, obligation de résultat do exist. For example, Article 302 of The Contract Law of China stipulates the carrier’s liability for passenger casualties.

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can be successfully achieved. Based on the principle of freedom of contract, there is little space for legal intervention in the content of contracts (usually limited to the effect of contracts), and the identification of contractual obligations becomes the key to the constitution of liability for breach of contract. The obligations involved in a breach of contract are usually agreed in advance by the parties (contractual obligation) or stipulated by law (legal obligations). Only ancillary obligations need to be determined based on the development of the contractual relationship.148 For this reason, the trade-off for the constitution of liability for breach of contract is limited. The rules for the liability for breach of contract are much simpler than the rules for the performance of the contract and even the rules for tortious liability. In contrast, the structure of tortious liability is more complicated. Except for the danger liability that focuses on the remedy of rights and interests, general tortious liability must focus on the balance between rights and interests protection and freedom of conduct. The tools to achieve such balance are the elements of wrongfulness or accountability (fault). It is said that “wrongfulness” played a decisive role in determining tortious liability in European laws.149 However, whether wrongfulness has a normative function and whether wrongfulness should be regarded as an independent element of liability are not the same. It involves the understanding of wrongfulness and the relationship between wrongfulness and fault elements. Scholars point out that the purpose of wrongfulness is to “avoid the spread of uncontrolled and uncontrollable liability” or “to limit liability to a reasonable scope.” Since the elements of “wrongfulness” are considered to be satisfied when it comes to personal injury or property damages, the cases that pose a problem are those involving “pure economic loss.“150 It can also be confirmed from the experience of German law. The wrongfulness in Article 823, Paragraphs 1 and Paragraph 2 of the German Civil Code is directly determined based on “infringement of rights” and “violation of protective laws,” which makes liability control of wrongfulness limited to intentional violation stipulated in Article 826.151 It shows that only when the protected rights and interests play the role of guidance of act can the normative function of restricting liability through wrongfulness be appropriately played. Therefore, our discussion backs to the determination of the duty to act. As for the constitution of tortious liability, only when the objective and behavioral perspectives of remedies of rights and interests are dynamically unified can it be better consistent with the balanced structure of private law remedies. Thus, the more precise the 148

See Wang Zejian, Civil Law Researches: Principles of Obligation Law, Peking University Press, 2009, p. 3. 149 See Helmul Koziol, ed., Unification of Tort Law: Wrongfulness, Zhang Jiayong Trans, Law Press China, 2009. p. 170. 150 Ibid., p. 155. 151 However, actual situations may be more complex. Due to the expansion of legal interests stipulated in the first paragraph of Article 823 of the German Civil Code, the goal intended by the legislator to limit liability through wrongfulness has failed to a certain extent, which is especially reflected in the tortious liability related to the “framework right”. See Xue Jun, Unveiling General Personality Rights: Discussing System Consciousness in Comparative Law Studies, Journal of Comparative Law Vol. 5, 2008, pp. 29–30.

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boundaries of protected rights and interests, the clearer the content of obligations related to acts and the greater the certainty of the judgment of constituent elements of liability; on the contrary, the more blurred the boundaries of protected rights and interests, the more necessary for the content of obligations related to the acts to be determined by way of interests trade-off, and thus the certainty of the judgment of constituent elements of liability decreases accordingly.152 In view of this, scholars believe that pure economic loss should be ruled out in the case of imputation for nonnegligence liability.153 Even so, the issue of rights and interest protection with blurred boundaries still exists, and the required task of balancing interests can be assigned to both legislators and judgers. Due to the significant differences in the characteristics of rights and interests protected by tort law, although the abstract legislative mode has strong adaptability for its flexibility, the burden of judicial balance caused by it is even heavier. That is why French law, under its oversimplified general rules of Tort Law (Articles 1382 & 1383), had to establish more detailed operating rules through judicial adjudication.154 Although the German Civil Code makes a more apparent distinction on general provisions, it also stipulates more specific types of specific tortious acts. In addition to the Civil Code, many specific regulations laws such as Atomic Energy Law, Aviation Law, Railway Law, Law on Road Traffic Safety, and Law against Unfair Competition also contain numerous special norms for tortious liability.155 The legislative provisions of various specific or particular types of tortious acts provide more specific imputation standards for determining tortious liability (especially the standard of conduct) and reduce the uncertainty of judicial balance. At the same time, the increase of types of specific tort has also caused the expansion of modern tort law, making it difficult to properly place them under the traditional system of law of obligations, so it is necessary to make it independent. Tortious liability is different from the liability for breach of contract because it does not lie in the difference of imputation principles but because it has more complex structures in the balance of liability constitution. The division of basis of liability is only based on the trade-off between different tasks, which is manifested as a legislative, technical feature and cannot be used as the basis for differences in substantive effects. (3) Principle of Assumption of Liability Unlike the establishment of liability, which relies on an abstract balance, the assumption of liability needs to be oriented towards a specific purpose of remedies. The way of prohibition or compensation can protect the related civil rights and interests. Therefore, when the damage of rights and interests needs to be remedied by giving civil liability, the content and protection of protected rights should determine the content 152

See Chapter 1, Sect. 1, (3) “Duty of Care in Tort Law”. See Ge Yunsong, Civil Rights and Interests Protected by Tort Law, China Law, No.3, 2010. 154 See Luo Jirzhen Trans, Code Civil 2, Law Press China, 2005, p. 1073, notes of arts. 1383 & 1383. 155 Of course, these special norms do not all involve the particularity of liability constitution, and may only involve the special issue of liability assumption, such as the provisions for punitive compensation. 153

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of civil liability; that is, the principle of “consistence of remedies and rights” should be observed. The principle of “consistence of remedies and rights” means that only those who are liable for the realization of protected rights and interests should bear the civil liability (except for “vicarious liability”156 ). Therefore, according to the principle of privity of claims, only specific obligors bear the obligation of performance and the civil liability for non-performance. Conversely, as for absolute rights and interests, since the person other than the obligee does not bear the positive obligation to promote the realization of right, only the person who has performed the injurious act is the liability subject. Exceptionally, the subject that has an obligation to prevent the damage of rights and interests of others due to specific facts (including contracts) will also be liable for failing to take measures to prevent the absolute rights and interests of others from being damaged. In general, civil remedies can avoid vast liabilities by emphasizing the specificity of the subject of obligation targeted by protected rights and interests. The significance of emphasizing the legal remedies on the “special relationship” between the inflictor and the aggrieved party in the intermediate field is precisely significant. Secondly, it also indicates that as long as the protected rights and interests are similarly damaged, the remedies received should be the same regardless of the basis of liability. For example, the lessor should be liable for damage to the leased property due to improper use, whether for breaches of contract or tortious acts. Similarly, the carrier should be liable when he causes personal injury to the passenger due to negligence, whether based on the breach of contract or tort. In other words, if the law limits the liability of the perpetrator based on a particular policy consideration (For example, in the case of personal injury caused by the breach of tourism contract, no compensation should be made for mental distress), and it is believed that such policy objective can be effectively circumvented by selecting different bases of liability (such as tortious liability), so the aforementioned considerations in legal policy are bound to fall flat.157 In judicial practice, we can often find judicial judgments contrary to it. However, it may be a substantive and proper conclusion reached with the strict adherence to the formal logic, which is not difficult to find from the discussion of the theoretical mode of concurrent liability.158 156

In theory, the liability of guardians and employers are typical “vicarious liability”. However, employer liability can also be understood as the employer’s own liability for the misconduct of his employees (See Paula Giliker, Vicarious Liability in Tort: A Comparative Perspective, Cambridge University Press (2010), p. 13), or direct liability based on “organizational risk” (cf. Zhu Yan, General Theory of Tort Law, Legal Press, 2011, p. 439). Similarly, if a guardian performs his liability of guardianship, his tortious liability can be mitigated (Article 32, Paragraph 1, Clause 2, of the Tort Law of China), which can be called mixed vicarious liability (i.e. the combination of vicarious liability and his own liability). 157 See Art 21 of Article of Provisions on Issues Concerning the Application of Law in the Trial of Travel Disputes by the People’s Supreme Court. The provisons only refuse to claim for mental distress based on breach of contract, but do not deny the possibility of claiming for infringement. It is unclear whether it is based on the logical distinction between contract and tort or it is aimed to support the development of tourism. 158 Please refer to Sects. 2 (1) and (2).

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Exceptions may also arise where the remedies are inconsistent with the rights. It is mainly based on the following reasons: One is the consideration of particular laws and policies. For example, to deter certain types of breaches or tortious acts, the law allows liability for punitive compensation to be imposed on the person responsible so that the aggrieved party can earn more than he lost. Another example is the punitive compensation imposed on malicious insurers in American law and on the operators of fraudulent sales in Chinese law are the same cases. Due to the existing problem of punitive compensation, some theories advocate replacing it with preventive compensation for the damage that takes enrichment deprivation as the basic form.159 However, suppose enrichment deprivation is based on the protected rights and interests, such as enrichment obtained from using other people’s items. In this case, there is a correspondence between enrichment and damages, and compensation for losses is still complementary at that time. Conversely, in the case of profits gained by reselling or taking advantage of the rights of others, the profits may also exceed the usual transaction price. At that time, the performance of the infringing party will be significantly higher than the performance in legal act enrichment deprivation, so this liability is characteristic of punishment. The second is practical considerations, such as limiting the court’s practice and professional ability, judges and evidence.160 When the damages are difficult to quantify, the court may refuse to provide remedies for specific damages in some cases, such as in the case of “wrongful life,” where courts may refuse to award damages because it is difficult to determine the causation in the scope of liability.161 However, since the damage exists, the court does not refuse to remedy it but determines a certain amount of damages according to specific circumstances. For non-property damages such as mental distress, the court will adopt such a method. In order to limit the discretion of compensation, the law sometimes stipulates the maximum limit, such as the provisions of Chinese law on compensation for intellectual property infringement.162 Another related situation is to adopt the method of standard compensation, that is, regardless of the individual situation of the aggrieved party and making compensation to the aggrieved party’s rights and interests under the standards determined in advance by the law, such as the compensation for death and disability in Chinese law.163 As such, the inconsistency between remedies and rights does not necessarily indicate a problem with the decision of remedies. The inconsistency may need to be corrected only when the aforementioned reasons cannot justify the inconsistency. 159

See Gerhard Wagner, Neue perspektiven im schadesersatzrecht: kommerzialisrung, strafschadensersatz, kollektivschaden, Wang Chengfang Trans, China Legal Publishing House, 2012, p. 136. 160 See Dan B. Dobbs, Law of Remedies, p. 30. 161 See Dan B. Dobbs, Law of Remedies, p. 29. 162 Zhang Jiayong & Li Xia, On the Determination of the Amount of Infringement Damage Compensation: Based on the Investigation of Unfair Competition Infringement Cases, ECUPL Journal Vol. 3, 2013. 163 See arts. 25&29 of Explanation on Issues Concerning the Application of Law in the Trial of Personal Damage Compensation Cases by the people’s court.

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(4) Legal Structure of Norms of Liability in the Intermediate Field Since the establishment of liability has similar or even unified constitutive logic, for the regulation of law in the intermediate field, the issue of establishment of liability will not be a matter of attribution or categorization of causes and facts, but the issue of determining the liability constitution according to the standards of imputation. In the absence of directly applicable regulation norms (that is, the facts of the dispute are in the fuzzy field), since the facts of dispute do not have the typical characteristics of normative presuppositions of contractual liability and tortious liability, the intention is to incorporate them into the existing types of norms through the determination of facts, which is impractical and proper. From the perspective of law application, the more specific the establishment of liability rules set by legislators, the greater the possibility of the emergence of the intermediate field, and the stronger the need to fill legal loopholes through judgement. The more abstract the rules for liability, the less likely it is that the intermediate field will emerge, but the weaker the legislative directives for specific cases and the heavier the task for judicial balancing. For this reason, the liability rules set by legislators can only be some detailed or absent instructions about the balanced structure of the liability constitution, and such instructions cannot always replace the specific trade-offs of judicial adjudications. In other words, from the typical tort to the typical breach of contract, the relationship between the parties has gradually developed. The closer the relationship is, the more likely it is for each other to interfere with other parties’ rights and interests, and the more necessary it is to give a higher duty of care. The more prominent the characteristics of the inflictor’s pursuit of his interest in this risk of damages, the more the assumption of his obligations meets the interactive elements of risk giving,164 and the more reasonable the giving of liability is. However, the judgment of the establishment of liability must consider the types of protected rights and interests, the specific performance of the inflictor’s act (positive direct harm, adverse indirect harm, or harm due to omission), and the degree of faults. If the legislator has given specific instructions on the facts of the pending facts of dispute (For example, the Contract Law has set specific provisions on contractual liabilities), how to re-incorporate such norms into the existing normative system is only related to the systematic formal value, which is hardly meaningful for legal practice.165 When the same fact is regulated by multiple norms of liability (that is, the facts of the dispute in an overlapping field), the establishment of liability must be determined based on multiple norms of liability. Regardless of whether it is the position of the non-concurrent liability or the position of the concurrence of liabilities adopted in law application, they all follow the same logic that the “basis of liability 164

The meaning of the concept in tort law is that a aggrieved party may claim compensation for an asymmetric risk of damage. See James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, pp. 337–338. The concept here means that the inflictor should take liability for the breach of the compensated obligation. 165 The purpose of incorporating the “judge law” formed in the judicial process or the norms of liability in special laws outside civil code into the civil code is to realize the task of “re-systemization” without changing the basic structure of norms of liability.

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determines assumption of liability.” We have noticed that such logic is problematic. Since assumption of liability should be based on the principle of “consistence of remedies and rights,” it is not the basis of liability but the assumption of liability, the core of Liability Law. In this way, where the norms of contractual liability and tortious liability can be applied, and their elements are different relative to the goal of remedies, there should only be a unified judgment of liability constitution, which is not different from that of the fuzzy field. In this sense, the concurrence of norms of liability does not exist, and the real problem is how to extract the unified elements for the establishment of liability from the existing norms of liability to make it consistent with the characteristics of the relationship between the parties.166 At that time, the norms of tortious liability should not be considered as a minimum protection norm but a standard norm for accidental damages sharing determined from the perspective of the ownership of rights and interests. Based on the closeness between the inflictor and the aggrieved party, the corresponding changes in contract norms have the value of changing (strengthening or weakening) the effect of norms of tortious liability norms within limits allowed by the autonomy of private law. In this way, compared with the norms of tortious liability, the norms of contract obligation have the nature of special law. With the expansion of the scope of modern contract law, tort law and contract law have changed their existing logic, and their connection is unclear. If the theory of normative integration is not regarded as a theory of legal applicability but a theory of legal interpretation, it would be able to reveal the aforementioned essence of normative concurrence. In this way, the fuzzy field and the overlapping field follow the same principle of liability constitution. Thus the intermediate field has the enlightenment significance of re-clarifying the constitutive logic of the norms of liability blurred by the separation of the liability bases. It undermined the core status of the basis of liability in Liability Law and replaced it with the normative value of assumption of liability that corresponds to the goal of interests and rights remedies.

2.6 Summary Although different legal systems may give similar or even the same results when faced with the same problem, the types of laws adopted to explain the results may still differ. Within the same legal system, if the relevant rules are flexible enough, the adoption of one type of law or another to deal with damage may not be significantly different in terms of standards of liability (for example, breaches involving instrumental obligation are treated as a tort in France, and in Germany, the protection of the Integritätsinteresse is included in contractual liability). Therefore, the fundamental problem may not be the solution itself but the type of law that proves the legitimacy

166

See Helmut Koziol, Basic Questions of Tort Law, p. 103. From a Comparative Perspective, p. 103.

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of this solution, which is essentially a taxonomic problem.167 Since each type of law has a specific normative presupposition, to introduce legal phenomena beyond it into existing types of law, it is necessary to change the conceptual meaning of the relevant types of law and bring the need for rule revision amendments. Otherwise, new types must be constructed outside of existing types of norms, which is what “the Third Way” theory does. However, due to the failure to establish an adequate distinction between the “third way” and the existing types of law, relative theoretical attempts are hardly successful. In contrast, the discussion of the concurrence of liabilities reveals the need for the unification of norms of liability and the re-examination of the distinction between the basic types of liability. Although the dichotomy between contract and tort is a widely recognized legal classification and has some differences in legal regulations, it does not mean that they must be treated as opposing legal phenomena in all aspects, and the trend of liability integration is undeniable. As the normative goal of liability law, remedy of interests and rights should follow the principle of “consistence of remedy and rights” and be subject to the need for a balance of the liability. In this way, the remedy of rights and interests caused by the same factual relationship should be judged according to the unified standard of liability constitution and should not be given different remedy effects according to different liability bases by intercepting some characteristics of the unified facts. If this is the case, the systematization of legal regulation in the intermediate field is beyond its domain and involves the resystematization of the entire liability law.

3 System Effect of Modes of Regulation in the Overlapping Field Since the legal regulation in the overlapping field of contract law and tort law should not be limited to its problems, it is necessary and possible to think about its system effect from the perspective of the overall construction of liability law. In this way, comparative law experience will provide helpful enlightenment, and the legislative concept based on the background of Chinese law will also be discussed.

3.1 Experience of Liability Integration in Comparative Law Contemporary legal theory has shown that although contract and tort are different legal fields, their liabilities should be regulated according to the same rules to prevent 167

See Oliver Moréteau, Revisiting the Grey Zone Between Contract and Tort: The Role of Estoppel and Reliance in Mapping Out the Law of Obligation, in Helmut Koziol, Barbara C. Steininger ed., Tort and Insurance Law Yearbook: European Tort Law 2004, Springer Wien New York (2005), p. 66.

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unfair consequences caused by different liability rules. Therefore, the idea of unifying different liability domains is worthy of affirmation.168 From the perspective of the provisions of civil codes, it is evident that some countries have made efforts for unification even though they did not take precisely the same specific approach. For example, the Austrian Civil Code provides unified rules for liability constitution for tort and damage caused by the breach of contract (Article 1295 of the Austrian Civil Code, and the same below). In particular, it stipulates that all rights and interests that have been infringed should be restored to the original state, and monetary compensation should be made when they cannot be restored (article 1323). Therefore, the compensation content should be the same when the body or property is infringed, whether in breach of contract or tort (Articles 1325–1332a).169 Although the Civil Code of Quebec stipulates the cause of imputation of liability for extra-contractual liability and contractual liability, respectively, it is still unified in effect, that is, the liable person should be liable for the physical, spiritual, or material damage of the other party, and the liability for breach of contract commitment should be preferentially applied to the contractual liability rules (Article 1457 and 1458 of the Civil Code of Quebec). Although there is no unified rule for damage compensation in the Argentine Civil Code, it still tends to be unified in the effect of contractual liability and tortious liability. If it is stipulated that the person responsible, whether in tort or breach of contract, should be liable for the direct consequences of his free act, as well as the indirect consequences that they had foreseen or could have foreseen if they had paid due attention to the circumstances of the act (Articles 903 and 904 of the Argentine Civil Code, and the same below), only those consequences that are too far away or their acts have no sufficient causation can be excluded (Article 906). In addition, when compensation is made according to the contractual liability, compensation for mental distress can be awarded according to the nature of the act giving rise to the liability and various specific circumstances in the event (Article 522) to be consistent with tortious liability (Article 1078). Some important international conventions, such as Article 24 of the Convention for the Unification of Certain Rules Relating to International Carriage by Air (Warsaw Convention) in 1929, stipulates that proceeding concerning civil liability shall be initiated under the unified rules of the Convention; Athens Convention Relating to the Carriage of Passengers and Their Luggage by Sea, 2002 determines liability under specific factual forms and applies unified limitation of liability, which also dispels the necessity of the distinction between contract and tort. This unified trend is particularly evident in the amendment of the law of obligations in some countries. Here is a brief review of the amendment of the law of obligations in Germany, Switzerland, France, Japan, and other countries to illustrate: (1) Modernization of Germany’s Law of Obligations 168

See Saul Litvinoff, Contract, delict, morals, and law, 45 Loyola Law Review (1999), p.48. The new Dutch Civil Code also sets the rule of “legal obligation of damages” in the general rules of law of obligations, which uniformly applies to compensation for breach of contract and compensation for infringement of rights.

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Germany is one of the few countries with the Law of Obligations amendment results. However, from the perspective of the integration of contractual liability and tortious liability, the changes shown in the modernization of German law of obligations are pretty limited, and the existing practice is still retained, that is, the distinction between liability in the non-performance of obligation and tortious liability is still strictly observed in liability constitution. German Civil Code has already closed the distance between tortious liability and contract obligation by setting general provisions of the law of obligations. For example, the following general provisions on liability for damages in Article 249 of the Civil Code belong to the common norms of compensation liability in contract and tort. However, some of them are superficial. For example, the original Article 253 provides that non-property damages can be compensated in money when it is stipulated by law and is not limited by the basis of liability. However, only Article 847 stipulates that acts that infringe upon the body, health, freedom and women’s sexual liberty can be compensated for mental distress based on the infringement. Hence, the original Article 253 is only meaningful for tortious liability. Therefore, modern law of obligations must make such provisions a real common norm. To this end, the legislator simplified the original Article 847 and moved it to Article 253 as its second paragraph, thereby maintaining an effective connection with Article 241, paragraph 2, of the new law concerning the Protective duty. In addition, although the German Civil Code before the modernization of the law of obligations did not distinguish between a contract claim and a statutory claim in terms of the beginning and the duration of limitation, the common periods of time required for a limitation of 3 years was calculated from the establishment of the claim or the breach of the obligation of omission (original Article 198), while the tort claim was eliminated three years after the aggrieved party knew the facts of the damage or the compensation obligor (original Article 852). There are still differences between the two liabilities. Through the amendment of the Law of Obligations, except for the special provisions, the common periods of time required for the Limitation of 3 years and the subjective calculation is adopted uniformly (Article 199, Paragraph 1).170 In this way, the statute of limitation originally only applicable to tortious liability became a general statute of limitation. The difference between contractual liability and tortious liability in limitation was eliminated.171 In terms of liability constitution, the new law of obligations, on the one hand, formally incorporated the protective duty confirmed by case law into the obligation relationship law through Article 241, Paragraph 2; on the other hand, it made no regulation in the construction of tort law and did not reflect the theory of security obligation of communication and normative purpose developed by judicial practice and jurisprudence to expand the scope of application of tort law in the new law 170

However, claims for damage to life, body, health or liberty are subject to a limitation period of 30 years, counting from the time of the act, breach of duty or other damage (Art. 199, Para. 2). 171 It is worth noting that the new law allows parties to enter into a limitation agreement to extend or shorten the period of limitation up to 30 years, in the condition of without violating prohibitions (Art. 202). Although such an agreement is more likely to take place where there is a contractual relationship between the parties, there is no reason to believe that it applies only to contractual liability.

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of obligations. Although it can avoid significant regulations to the current law of obligations system, it is not a pity for the German civil law theory that pursues systematization! Determining the relationship between the legal obligations without the original obligation to pay helps limit the liability to a certain extent and avoid breaking the established balance of the tort law. However, from the perspective of the liability law, the significance is minimal because the new type of liability for non-performance of obligation is generally aimed at overcoming the shortcomings of tort law. It is worth noting that “breach of obligations (Pflichtverletzung),” as a legal concept governing various forms of breach of obligations, abstracts the factual elements of damages and makes it difficult to distinguish the breach of obligation as a fact from the fault judgment as of the basis of liability attribution, further closing the liability for non-performance of obligation and the general liability for tort in the liability constitution. Although legislators pointed out in ratio legis, “breach of obligations” only refers to the content of the obligation in the obligation relationship, which is not objectively satisfied and does not involve the issue of liability imputation.172 However, since protective duty in the obligation relationship is determined for imputation, especially for the protective duty that has nothing to do with performance, it is difficult to distinguish the breach of this obligation from the breach of security obligation of communication in tort law. The dispute about the attribute distinction of protective duty in German theory indirectly demonstrates this problem. If so, just a tiny step forward, the new Law of Obligations of Germany may take the general liability standard adopted in the Austrian Civil Code. Of course, as scholars believed, the practical significance of too abstract norms of liability should not be overestimated. In the mode of abstract norm, the determination of specific liability may still need to be handled in different situations.173 For example, the fault of nonperformance of obligation should be presumed, while the fault of tort is not. Without changing the basic construction of German tort law and the distinction between liability in the non-performance of obligation and tortious liability is still the basic tenet of tort law, it is unrealistic to expect the two to be consistent in the constitution of liability. Although there is some commonness between liability for non-performance of obligation and liability for tort in the liability constitution, their distinction is still maintained in legislation. In terms of assumption of liability or legal effect, the common norms of the German law of obligations in the contract and tortious liability reflect the consistency of the two kinds of liability in the aspect of liability for damages. (2) Amendment of Switzerland’s Law of Obligations There are no common provisions on claim right for damages in The Swiss Federal Code of Obligations, nor the general provisions of liability law like the Austrian 172

See Qi Xiaokun, A Comparative Study of New and Old Law of Obligationss in Germany: Change of Concept and Improvement of Legislative Technology, Law Press China, 2006, p.117. 173 See Helmut Koziol, Basic Questions of Tort Law, p. 103. From a Comparative Perspective, Fiona Salter Townshend Trans, Jan Sramek Vrlag 2012, p. 94.

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Civil Code. However, through the general and applicable provisions of Article 99, paragraph 3 of the Obligation Code, the tortious liability norms also affect the breach of contract, so the two types of liability still show a similar trend in the liability.174 At the same time, due to the influence of German law, Swiss jurisprudence and legal precedent also reflect the situation of transferring some problems initially handled by tort law to contract law, such as contracting fault, “active breach of contract,” auxiliary contract for protecting the right of the party and “fiduciary duty” of similar contracts.175 Just as we can see, the transfer of liability domain has the significance of blurring the distinction of the basis of liability, showing the characteristics of liability integration to a certain extent. In the revised draft of the Swiss law of obligations, part of the above situations has been changed. Under the obligation of the unlawful act, the draft includes the general rules of liability law; that is, it stipulates that “anyone should be liable for the damage caused by him as long as the damage should be attributed to him according to law,” thus changing the current situation of reference application. However, such regulation is only different from the previous practice in some aspects, mainly in that it unifies the general provisions on damage and causality and provisions on the performance of compensation and limitation of liability through specific enumeration.176 For example, the damage includes property damage and non-property damages to avoid the connection between non-property damages and specific claim basis; pure economic loss is also a kind of damage, which is to unify the concept of damage in contract law and tort law. In terms of causation, Article 15 provides: “Only when there is causation of legal significance between the imputable act and the damage, the liability of compensation can be assumed. “The theory of equivalent causation is applied to the contractual liability and tortious liability.177 In addition, the presumption of fault is still applied in the contract for the proof of fault. The limitation of liability provisions, such as those involving death or physical injury, are clearly defined as invalid.178 However, on the premise of unifying liability for damages of contract and tort, the draft has two reservations: one is related to the non-performance of obligation or delayed performance of obligation; the other is related to the special provisions set for the rights and interests of the aggrieved party in the specific contractual relationship.179 The first one can be understood that the drafters believe that although there is overlap between the two liabilities, their special normative content is still maintained. Because of the difference between the liability for non-performance of obligation and 174

Such quasi-provisions can also be found in other civil codes, such as article 1790, Paragraph 2, of the Ethiopian Civil Code, which provides that non-contractual liability applies only to contractual liability. 175 Vgl. Peter Gauch, Die Vereinheitlichung der Delikts-und Vertragshaftung, Zeitschrift für schweizerisches Recht 116 (1997), S. 318. 176 A.a.O., S. 334. 177 The term of Kausalzusammenhang was changed into Ursachenzusammenhang. 178 A.a.O., S. 325ff. 179 A.a.O., S. 320f.

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the tort liability, the draft still recognizes the concurrence of liability when it meets different basic requirements for liability for the same cause of damage.180 It shows that the integration of liability is only a partial integration of the content of liability but not a complete integration. In addition to its value in the case of concurrence of liability, in the case of death due to breach of contract, the damages in the contract also includes the third party’s support damages (versorgerschaden); in the case of no protection of the third party’s effect in the contract, it has practical value as a favorable liability provision in statutory types of contract. However, the draft only focuses on the statute law, and the mandatory provisions in anonymous contracts formed by judges are ignored, which may destroy legal stability. Therefore, scholars believe that the legitimacy of excluding such provisions should be determined according to the specific circumstances.181 It can be seen that although the revised draft of Switzerland’s Law of Obligations tries to unify the constitution of contractual liability and tortious liability, it mainly focuses on the unification of legal effect. Moreover, its scope is still only partially unified. The liability for non-performance of obligation and tortious liability as the basis of different liabilities and the effect differences are still maintained. (3) Reform of French Law of Obligations As early as the 1970s, the French academic community raised the call to reform the law of obligations. However, it was not until the beginning of this century that the Proposals for Reform of the Law of Obligations and the Law of Limitation were written (Initiated by professor Pierre Catala, it is referred to as the “Catala Draft.” It is the earliest draft for reforming French law of obligations. It is comprehensive in content, of the most significant impact, and the most controversial, deserving special attention.182 “Catala Draft” involves all contents of the third part of the original Civil Code. Sub-title I is Contracts and Obligations Created by Agreement in General, including General Provisions, The Essential Conditions for the Validity of Contracts, The Effects of Contracts, Modalities of Obligations, Extinction of Obligations, Transactions Relating to Rights Under Obligations, and Proof of Obligations. Sub-title II is Quasi-contracts, including Management of Another Person’s Affairs, Non-debt Settlement, and Unjust Enrichment. Sub-title III is Civil Liability, including Introductory Provisions, The Conditions of Liability, The Effects of Liability, and The Principal Special Regimes of Liability or Compensation. Sub-title XX is Limitation and Possession, including General Provisions, Possession and The Grounds on which Limitation is Impeded. The Grounds on which the Running of Limitation is 180

“Where a person is liable for the same damage on different bases of liability, the judge applies the provision that best compensates the aggrieved party, unless the law expressly provides that it should be applied exclusively.” 181 A.a.O., S. 324. 182 In addition to the “Catala Draft”, there are the Reform for Contract Law led by Professor Francois Tehei, and the official draft of the French Ministry of Justice, the Reform of Contract Law. For the proposals of the drafts of French Law of Obligations reform, please see Qin Liwei, Controversy Over the Reform of Contract System in French Civil Code, Global Law Review Vol. 2, 2011, p. 88.

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Interrupted or Suspended, and The Periods of Time Required for Limitation.183 It can be seen that the overall structure of the “Catala Draft” still follows the original arrangement of the Civil Code. The regulation is mainly manifested in two aspects: first, the original “The Effect of Obligations” is changed to “the Effect of Contracts,” with contract obligations as the normative core of obligation relationship; the second is to concentrate the provisions on the consequences of breach of obligations and tortious liability, forming a distinctive sub-title of “civil liability.” The second is to concentrate the provisions on the consequences of breach of obligations and tortious liability, forming a distinctive sub-title of “civil liability.” As for the establishment of liability, “Catala Draft” takes the injury caused by an illegal or abnormal act as the general basis for the establishment of civil liability (Article 1340, Paragraph 1), and formally recognizes the concept of contractual liability (Article 1340, Paragraph 2) and the principle of prohibiting the accumulation of contractual liability and tortious liability, and adds the exception provisions involving personal injury compensation (Article 1341).184 When the failing directly injures a third party to perform his contractual obligations, he may also claim compensation by the contract but “shall be subjected to the same conditions and restrictions as the obligor when claiming compensation for the damage he suffered” (Article 1342). The common norms of contractual liability and tortious liability are “compensable damage,” “causality,” and “defense”: as far as “compensable damage” is concerned, whether it is a property interest, personal interest, or public interest, the loss of any determined legitimate rights and interests are compensable (Article 1343). Losses to be ascertained in the future, costs to mitigate or prevent the consequences of the damage, and losses of opportunities are also compensable. In terms of “causation,” it mainly stipulates joint and several liability under “replaced or potential causation.” In terms of “defense,” it recognizes the concept of external cause of force majeure and excludes the compensation claim when the aggrieved party intends to do so (Article 1350); in terms of the fault of the aggrieved party, the exemption effect is excluded when the aggrieved party cannot understand (Article 1351-1). Only serious fault can produce part of the defense effect when the aggrieved party suffers a personal injury (Article 1351). Regarding the effect of liability, “Catala Draft” adopted a wholly unified approach. Damages should be made in the way of reparation in-kind or monetary compensation, both of which can be used simultaneously without sequential limitation (Article 1368). When the damage may be more severe, recurring, or delaying, at the request of the aggrieved party, the court may order the adoption of any measures appropriate to avoid such a result, including the cessation of controversial injurious acts when 183

For specific provisions and relevant analysis of Catala Draft, please see Pierre Catala, Proposals for Reform of the Law of Obligations and the Law of Limitation, translated by john Cartwright and Simon Whittaker, Oxford, UK 2007. 184 “In the event of non-performance of contractual obligations, neither the obligor nor the obligee shall avoid the application of legal provisions for special regulation of contractual liabilities by choosing a more favorable way of extra-contractual liability.” However, in the event of a failure to perform obligation which causes personal injury, the other party to the contract may choose the rule most favorable to him in order to obtain compensation for the damage.

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necessary (Article1369-1, Paragraph1), thus affirming the position of defense claim as a general remedy. To those who intentionally commit the fault and obviously for profit, the court may award punitive compensation and part of the money of punitive compensation to the public finance (Article 1371). In determining the amount of the loss, the court “needs to take into account all circumstances that may affect the components of the losses, their values, and their reasonably foreseeable future development” (Article 1372) and the aggrieved party’s obligation to mitigate (Article 1373), and “assess separately the items of loss for which compensation is sought” (Article 1374). In addition, “Catala Draft” confirms the rules formed by judicial adjudication, which stipulates that most liable parties should bear the joint and several liability for the same damage and apportion internally according to the severity of the fault (Article 1378). However, the apportion should not be claimed from the relatives of the uninsured aggrieved party to avoid the direct or indirect depriving the aggrieved party of the damages that should have been obtained because he lives with his relatives (Article 1378-1). “Catala Draft” has special provisions for personal injury, property damage, and delay damage. Compensation for personal injury includes property loss such as economic, business, or professional loss, as well as investigation costs and non-economic loss such as mental pain and loss of special pursuit or pleasure, and it requires the court to indicate the compensation for each economic or personal loss (Article 1379). When the property is ruined or damaged, the aggrieved party has the right to claim compensation that can replace the property or restore it to the state when the damage did not occur, and there is no derogation. However, when the cost of repairs exceeds the cost of replacement, the aggrieved party can only claim compensation for the cost of replacement (Article 1380). In addition, compensation may also be claimed for loss of depreciation resulting from the repair of property and indirect damages resulting from the deprivation of access to the property (Article1380-2). The aggrieved party does not need to prove the existence of the actual loss to claim for compensation for the loss suffered by the delayed performance of the obligation and may claim for damages over the delay interest according to the actual situation (Article 1381). “Catala Draft” applies the agreement of limitation or exclusion of compensation to contractual liability and extra-contract liability in a unified way (Article 1382). However, the compensation liability involving personal injury, intention or dishonesty or gross negligence, and non-performance of main obligations of the contract should not be limited or excluded (Articles 1382-1 and 1382-2). When it involves contractual liability, the person who is adversely affected by the compensation agreement should be able to know the existence of such an agreement when the contract is established (Article 1382-3). When it involves extra-contractual liability, the person who claims the effect of such an agreement must prove that the aggrieved party explicitly accepts such an agreement, otherwise, the agreement is invalid (Article 1382-4). In addition, the “Catala Draft” treats predetermined compensation equally with penalty provisions and gives the court the power of mitigation (Article 1383). In terms of limitation of actions, the limitation of ten years should be applied to contractual liability and non-contractual liability in a unified way, starting from the occurrence or aggravation of the damage (Article 1384) and allowing the

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parties to shorten or extend the limitation of actions by agreement but not less than one year or more than ten years (Article 2235). As Geneviève Viney pointed out in his Sub-title “Civil Liability,” the research group did not attempt to innovate but tried to formally express the rules formed by Case Law to clarify the ambiguities of the provisions of the current civil code.185 In terms of the constitution of contractual liability and tortious liability, except for the general provisions that illegal or abnormal acts constitute the general basis of civil liability and need to meet the causation requirements, “Catala Draft” hardly involves more contents of imputation. The two types of liability still depend on more specific provisions to the same extent (“Catala Draft” set up more specific rules for the establishment of extra-contractual liability and contractual liabilities, respectively). In terms of the effect of liability, the “Catala Draft” efforts in the integration of liability are remarkable. It keeps the consistency of the two types of liability and pays attention to the practicality or operability in the design of rules, which is of leading significance to generalized defensive remedy. The experience of the amendment of French Law of Obligations demonstrates that the integration of the liability constitution is extremely difficult, and its practical significance is limited. (4) Summary From comparative law experience, on the premise of insisting on the distinction between contractual liability and tortious liability, both can be legislated separately to form relatively complete rules of the establishment of liability and assumption of liability, respectively (DCFR adopts this mode of legislation). However, both contractual liability and tortious liability have the same normative content. Whether in terms of the establishment of liability or assumption of liability, such as the compensable damage, causation, and defense, regarding the determination of personal injury and property damage in the aspect of assumption of liability, separate legislation may lead to the overlapped norms or incomplete norms. In order to avoid the overlap of norms, this mode of legislation must resort to the method of quasi norms, usually the quasi-tortious liability norms of contract liability (such as the Swiss Federal Code of Obligations and the Ethiopian Civil Code). On the contrary, the common norms of the two types of liability can also be specially stipulated (such as the common provisions on damages of the German Civil Code). Although the quasi mode is the same as the common norm mode in practical effect, the quasi mode needs to be coordinated with other directly applicable norms, so it is not as convenient as the direct application of the common norm in the application of the law. For sure, the convenience is conditional. Suppose the common norms are too abstract (such as the provisions on the establishment of liability in the Austrian Civil Code). In this case, they cannot be applied without specific operations, which limits the practical value of the common norms. Therefore, what really matters in legislation is not whether or not to abstract general common norms but how to improve the practicability or 185

For example, although there is a theoretical view in France that denies the particularity of liability for breach of contract and advocates that it is directly included in liability for tort, this view is not supported because it is contrary to the views of judicial practice and the majority of theories. See Pierre Catala, Proposals for Reform of the Law of Obligations and the Law of Limitation, p. 175.

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operability of common norms. From the perspective of legislation theory, the question raised by liability integration is not whether to reflect the unity or consistency of contractual liability and tortious liability in legislation but how to present the unity or consistency in operable norms.

3.2 “Consequence Mode” of Liability Integration Based on the distinction between contract and tort, the corresponding liability system is constructed according to the structural logic of determining the consequences of liability from the causes of liability. Although the traditional civil legislation in various countries has different practices, it belongs to this mode which can be called the “cause mode”. Althoug it is consistent with the causal deduction process, the actual operation of liability norm is more complex. The civil liability system is usually driven by the need to remedy interests and rights. It can be said that there is no room for civil liability without the need to remedy interests and rights. Since the exact cause of liability may cause different consequences of infringement, or the exact consequences of infringement may be accompanied by different causes of liability, it is in line with the thinking characteristics of legal remedy to discuss the remedy conditions or liability constitution from the perspective of the infringement consequence rather than the abstract liability causes. If so, the construction of the civil liability system cannot start from the abstract classification of liability causes, but in terms of the necessity of remedy (associated with specific remedy forms), it can be called “consequence mode.” The “consequence mode” will significantly change the logic of the distinction between contractual liability and tortious liability, which deserves special attention in theory. (1) Problems Caused by Diversification of Tortious Liability Forms The traditional tortious liability is mainly liability for damages. The single form of tortious liability has apparent advantages in system construction: The constituent requirements of tortious liability are also the applicable condition of tortious liability of damages. After confirming the constitution of liability, the assumption of liability only needs to deal with the content and scope of compensation. However, this situation has changed with the diversification of forms of tortious liability. In addition to liability for damages, modern tort law also recognizes various other forms of liabilities, such as cessation of infringement, removal of obstacles, elimination of danger, and restitution of property. The latter form of liability has different normative objectives from the damages, and the application of unified requirements of liability with liability for damages may cause problems. This problem has long been a concern in comparative law and has also become a problem faced by the existing law in China. The General Principles of Civil Law in China have established a unified system of civil liability and recognized various forms of civil liability. However, whether these forms of civil liability are applicable according to the unified constitutive requirements has not been discussed until the establishment of Real Right Law, especially

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Tort Law.186 Chinese Tort Law has finally inherited the mode of the General Principles of Civil Law and recognized various forms of tortious liability. The above issues have been transferred from the discussion of legislation to the discussion of law interpretation.187 In order to avoid the problems caused by the diversification of tortious liability, one of the possible solutions is to deny the nature of tortious liability in the form of cessation of infringement, removal of obstacles, restitution of property and so on.188 For example, the claim to cease infringement and remove obstacles does not meet the illegality requirements of tort law. For example, if a person places a harmful object on the land of the land use right holder who knows nothing about it, and thus causes obstacles to the land use right holder of the neighboring land. The right holder does not meet the requirements of “illegal infringement” in the illegality of act or consequence. However, he should still have an obligation to remove obstacles due to the result of the obstacle.189 This kind of defensive or preventive civil liability is often applicable when the damage has not occurred, so it should not be regarded as a form of tortious liability. Similarly, the liability of restitution of property should not be based on the premise of damage. It should be the content of the claim of unjust enrichment or restitution of real rights, and should also be excluded from tortious liability. Although the above-mentioned views are reasonable in a sense, they belong to the way to solve problems by definition. They fail to grasp the relationship between the preventive and restorative civil liability and tortious damage compensation liability in structure and meaning, so their persuasiveness is limited. From the perspective of Comparative Law, the preventive tortious liability and the liability of restitution of property (hereinafter referred to as tortious liability for non-damage compensation190 ) have already become an integral part of tort law, and the trend of diversification of tortious liability is undeniable.191 Therefore, we must consider the reality of such legislation and seek solutions to the problems. It should be noted that there are different development modes of tortious liability for non-damage compensation under different tort laws. For example, France has developed an independent defense claim system by virtue its flexible concept of

186

Relevant literature about disputes can be found in Wang Yi, On Methods of Bearing Tortious Liability, Journal of Renmin University of China Vol. 3, 2009. 187 See Cui Jianyuan, On the Relationship Between Imputation Principle and Tortious Liability, China Legal Science Vol. 2, 2010. Wang Hongliang, On the Claim Right to Defense in Tort Law, Northern Legal Science Vol. 4, 2010. Ye Mingyi, Challenge of Preventive Tortious Liability to Traditional Tort Law, Science of Law Vol. 2, 2013. 188 Cui Jianyuan, Claim of Absolute Right or Tortious Liability, Law Science Vol. 11, 2002. Cao Xianfeng, The Nature of Tortious Liability, Contemporary Law Review Vol. 4, 2007. Zhou Youjun, Rethinking About the Form of Tortious Liability in China, Law Science Magazine Vol. 2, 2009. Type Analysis of Tortious Liability, Social Sciences in Guangdong Vol. 1, 2011. 189 See Dieter Schwab, Introduction to Civil Law, Zheng Chong Trans, Law Press, 2006, p. 270. 190 See Liu Jia’an, Type Analysis of Tortious Liability, p. 240. 191 See Christian von Bar, Deliktsrecht, Qi Xiaokun Trans, Law Press China, 2001[3], p. 4.

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“damages” in tort law, while Britain and the United States have developed a preventive right protection system in tort law by “Injunction” in equity law.192 Different from that, German legal theory and practice expand the scope of application of the provisions of Article 12 and 1004 of the Civil Code: “for any kind of infringement of rights and interests protected by tort law, both the actual infringement and the impending infringement are allowed to give the claim to exclude consequence and the claim to cease infringement.”193 Based on the logic of right-obligation-liability, Chinese legislation directly stipulates various forms of tortious liability, such as the damages, cessation of infringement, removal of obstacles, elimination of danger, and restitution of property shows the characteristics of Chinese Tort Law. The problem caused by the diversification of the forms of tortious liability is whether the various forms of tortious liability should apply the unified constitutive requirements. From the experience of comparative law, the above-mentioned forms of tortious liability for non-damage compensation are usually not necessary to meet the requirements of damage and fault and thus form a sharp contrast with the tortious liability of damage compensation.194 Chinese general theory also holds that tortious liability of non-damage compensation does not need to meet the fault requirements.195 That is to say, whether the claim of stopping infringement or removing obstacles is regarded as “the claim of erga omnes right” or as a special form of tort claim, the common view is that damage and fault are not the necessary constituent requirements of the claim. In this way, a liable act or fact in tort law has at least three consequences that are cessation of tort (against the ongoing tortious act), removal of obstacles, or elimination of danger (for the tort that causes obstacles or has the risk of causing the obstacles or damage, collectively referred to as defense claim), restitution of property (for the infringer’s beneficial tort, referred to as a claim for restitution) and damages (the act causing damage is called the claim for damages). These three consequences may exist simultaneously or separately. Due to the different application conditions of different forms of liability, it will result in the situation that the constituent requirements of the same tort need to be determined respectively because of the different results of the same tort. There is a split of constitutive requirements within the same tort fact, and the logic of the legal application to judge whether the liability is established or not according to the general constitutive requirements of tortious liability is broken. When the law is applied, it is necessary first to find out the 192

See Wang Hongliang, On Defensive Claims in Tort Law, Northern Legal Science Vol. 4, 2010, pp. 50–51. 193 See Dieter Schwab, Introduction to Civil Law, Zheng Chong Trans, Law Press, 2006, pp. 266 & 268. 194 See Dieter Schwab, Einführung in das Zivilrecht, pp. 272–275; Wang Hongliang, On Defensive Claims in Tort Law, pp. 49–51.Ye Mingyi, On the Regulation of Prevention Liability for Tort to Traditional Tort Law, pp. 121–122. 195 See Cui Jianyuan, On the Relationship between Imputing Principles and Types of Tortious Liability, China Legal Science Vol. 2, 2010. Wang Liming, Research on Tort Law (Vol. 1), China Renming University Press, 2010. Wei Zhenying, Research on Tort Law (Vol. 1), China Renming University Press, 2010, p. 624. Wei Zhenying, The Relationship between Tortious Liability, Imputation Cause and Imputation Principle, China Legal Science Vol. 2, 2011.

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“forms of liability” claimed by the obligee and then decide whether it is established according to the constitutive requirements or applicable conditions of the relevant form of liability.196 In order to avoid the complexity of the internal relationship of tortious liability, a few scholars claim to borrow the more inclusive concept of “ damages” in German law (that is, reparation in kind and value compensation) to make various forms of tortious liability apply to the unified constitutive requirements. The lack of protection caused by this is solved by the concurrence of tort claim and claim for real rights.197 The disadvantage of this solution is that as there is no other claim for real rights similar to the claim of erga omnes right in the existing law, if the tortious liability of non-damage compensation in the Tort Law is treated as fault liability or danger liability, the other rights or interests protected by the tort law beyond real rights cannot be protected in the same way as real rights. However, this kind of protection is the direct cause of German law’s theory and practice to expand the scope of application of the claim for real rights and develop the general defense claim.198 It is also the substantive reason for Chinese Civil Law theory to establish the claim of erga omnes right or the tortious liability of non-damage compensation without damage or fault. On the other hand, if we admit that tortious liability of non-damage compensation is not based on damage and fault, how to deal with the relationship between the claim for real rights and the tortious liability of non-damage compensation will become a problem. Since tortious liability for non-damage compensation and claim for real rights have no effective distinction in the applicable conditions, it can be said that tortious liability for non-damage compensation already includes all the normative functions of the claim for real rights, which will cause the normative value of the claim for real rights to be completely swallowed up by the tort law! By interpreting the protection provisions of the real rights law as the leading norm and changing the claim for real rights into the claim for tortious liability, the tort law is applied to determine its effect, which is exactly what some scholars would like to see.199 As such, the impact of admitting tortious liability for non-damage compensation may be more extensive. It has the normative function of the claim for real rights and part of the normative function of the liability for breach of contract. In the case of breach of the protective duty in the contract, it may also be necessary to apply the forms of liability such as cessation of torts and removal of obstacles. As a result, with the recognition of a tortious liability for non-damage compensation, the protective function of tortious liability has been dramatically improved, which can play a unified role in the protection of various types of civil rights and interests to avoid the difficulties faced by traditional civil law in the protection of relative

196

See Liu Jia’an, Type Analysis of Tortious Liability, p. 240. See Li Chengliang, Damages and Civil Liability, Chinese Journal of Law Vol. 3, 2009, p. 146. 198 See Baur & Stürner, Sachnenrecht (Vol. 1), Zhang Shuanggen Trans, Law Press China, 2004, p. 228. 199 See Wei Zhenying, The Relationship between Tortious Liability, Imputation Cause and Imputation Principle, China Legal Science Vol. 2, 2011, p. 34. 197

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rights and civil interests due to the single way of tort remedy.200 However, we should also notice that the internal tortious liability will lose its unity due to the different constitutive requirements or applicable conditions between tortious liability for nondamage compensation and compensation liability for damages. Therefore, the system structure centered on the form of liability will replace the system structure based on the classification of the types of liability cause, and the construction logic of the traditional tort law will be changed as a whole! (2) Theoretical Construction of Functional Civil Liability The remedy form of infringement on rights and interests is one of the basic problems that the remedy law needs to solve.201 The remedy form of infringement on rights and interests is one of the basic problems that the remedy law needs to solve. Article 134 of the General Principles of Civil Law in China stipulates ten forms of liability, while Article 15 of Tort Law takes eight of them as the forms of tortious liability, and Article 107 of Contract Law also stipulates the forms of liability such as continuing to perform duty and taking remedial measures, which shows the tendency to set up the forms of tortious liability and breach of contract respectively in Chinese legislation. It is rare for comparative law to stipulate the form of liability so carefully in legislation. Although the division of liability forms is conducive to the effect of the judgment guidelines, it will increase the difficulty of division because of the staggered application of various liability forms. For example, the boundary between cessation of infringement and elimination of danger, reparation in kind and restitution of property is not very clear. From the perspective of judicial practice, “cessation of infringement” and “cessation of tort” have the same meaning.202 If so, as long as the consequences of tort are not eliminated, there will always be a need to cease the tort, which eventually leads to the broad scope of cessation of tort to include the elimination of danger, reparation in kind, restitution of property and other forms of liability.203 In order to avoid such a result, cessation of infringement should be interpreted as the cessation of the ongoing tortious acts or activities, that is, preventing the tortious act or activities that have already caused the consequences of infringement on rights and interests from continuing or recurring, but not including the cessation 200

See Wang Yi, Principles and Research Methods of Civil Law, Law Press China, 2009, pp. 197– 198. 201 Strictly speaking, the narrow sense of legal remedies is to observe the effect of rights and interests remedies from the perspective of the obligee, while the legal liability is to observe it from the perspective of the person responsible. For example, contract validity or rights attribution or content law disputes, demanding confirmation of contract validity or rights, taking remedial measures after breach of contract, suspending one’s performance, and terminating the contract are all legal remedies instead of legal liabilities. This distinction is of little practical significance, and the other party’s refusal to perform or dissolution of the contract can also be regarded as the limitation or deprivation of the rights of the breaching party, which is similar to the effect of liability. This book makes no distinguish between them. 202 See Ye Mingyi, On the Challenge of Preventive Liability for Tort to Traditional Tort Law, Science of Law Vol. 2, 2013, p. 123. 203 Some scholars, for example, have argued that cessation of tort involves the restitution of infringed object. See Sun Yaming, ed., On the General Principles of Civil Law, Law Press China, 1991, p. 245.

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of the acts that may cause the risk of tort (remedy through the form of “elimination of danger”) or eliminating the tort status (through the method of “damages” and other forms of liability). In fact, most of the other forms of liability stipulated in Article 134 of the General Principles of Civil Law in China also need to be subject to similar restrictions. For example, “reparation in-kind” does not mean the due state of reparation of the infringed rights and interests, which is usually regarded as the form of damages in comparative law,204 but refers to that the person responsible should restore the property to its original state at his own expense.205 For example, the repair of damaged property does not include “elimination of nuisance,” which is mainly aimed at removing the nuisance source, and the “elimination of influence and restoration of reputation,” which is specifically aimed at the tort of personal right, especially the right of reputation; “damages” only refers to monetary compensation, including the claim of the person liable for compensating the cost after the aggrieved party has recovered the original cost; “restitution of property” refers to the restitution of the original property or its variation or substitute (restitution at an estimated price); “repair, remake, and replacement” are the liabilities for defects, which is a special form of continuous performance with the same purpose as “actual performance”; “payment of indemnity” is a special form of “damages,” that is, the liability form of the pre-agreed amount of damages or calculation methods in case of breach of contract. According to the principle of “consistence of remedy and rights,” it should be considered that all legal measures necessary for the remedy of rights and interests can be recognized in principle. Therefore, the specific enumeration of liability forms may not cover all the remedy measures needed in practice (such as the measure of price reduction cannot be directly classified as the aforementioned liability forms). More importantly, the division of liability forms does not highlight the similarity of different forms of liability in function. In view of this, in addition to the specific forms of liability stipulated in the legislation, theoretically, we can also take a more abstract classification of liability forms according to the different needs of remedy of rights and interests. From the perspective of judicial adjudication, we can divide the relevant remedy measures into the following four types of function206 : the first one is declaratory remedies, that is, to make authoritative confirmation of the rights of the parties. Declaratory remedies can prevent the possible dispute or infringement on rights and interests to a certain extent through the declaration of rights and interests. In Real Rights Law, if the parties dispute over the ownership or content of the property, the property owner can claim the confirmation of real right (Article 33 of the Real Rights Law of China). In Contract Law, if there is a dispute over the validity of the contract, the parties can claim the confirmation of invalidity or cancellation of the contract (such as Article 26, Paragraph 2 of Labor Contract Law and Article 52, 204

See Li Chengliang, Damages and Civil Liability, Chinese Journal of Law Vol. 3, 2009, p. 146. See Sun Yaming, ed., On the General Principles of Civil Law, Law Press China, 1991, p. 245. 206 The classification of remedies adopted here is similar to that of Professor Dobbs, but the specific content is still different. See Dan B. Dobbs, Law of Remedies, pp. 3–9. 205

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paragraph 2 of Contract Law); if the parties have any objection on the termination of the contract, they can request the court or arbitration institution to confirm the validity of the termination of the contract (Article 96, Paragraph 1, Sentence 3 of Contract Law).207 In addition to the cases stipulated by law, the judicial practice also allows the parties to file confirmation action in other similar cases, such as confirming the effect of the contract, the action of confirming intellectual property rights, etc. Second, preventive remedies are to stop relevant acts when there is a risk of tort or damage to rights and interests.208 In principle, the traditional tort law assumes that the infringement on rights and interests has occurred as the premise. The problem is that since some detriments are irreversible, once the consequences of the infringement on rights and interests occur, its impact may not be eliminated through the assumption of liability after its occurrence, such as physical disability or ecological damage.209 Therefore, it is unacceptable if the law only gives the subject of right the claim for compensation but does not allow it to stop the impending damage.210 Existing law regards the cessation of infringement and elimination of danger as the form of preventive civil liability, which can exactly meet this demand. In a broad sense, the revocation and rescission of the contract, and the legal fiction (or achievement) of the contract (or condition) also belong to it. Third, restitutionary remedies, that is, the infringed rights and interests, should be restored to the state when the fact of tort did not occur. Restitutionary remedies focus on the actual damage to the specific rights and interests of the aggrieved party to maintain the Integritätsinteresse of the aggrieved party.211 The following situations all belong to restitutionary remedies: restitution when the property is occupied, repair when the property is damaged, various treatments when the health is damaged, necessary esthetic restoration when the face is disfigured, apology when the personality is insulted, eliminating the influence, restoration of reputation, or to restitution the benefit gained when the property of others is used, continued performance when the obligation is not performed or not properly performed. Fourth, compensatory remedies are to pay a certain amount of money to the aggrieved party to compensate for their losses. In nature, it is a compulsory transaction of the rights and interests of the aggrieved party, which is the most important form of legal remedy in traditional tort law. 207

In addition to the action of confirmation in private law, when a specific administrative act infringes upon the rights and interests of private law, it can also be revoked by means of administrative reconsideration or administrative proceeding. 208 In any case, the term “prevention” here should not be equated with the theoretical function of prevention or deterrence of civil liability, which has a broader meaning, including the application of liability for an act that has resulted in an tort of rights to prevent similar tort in the future. In short, the preventive remedies are aimed at the specific tort of rights and interests, while the preventive function of civil liability is aimed at the abstract tort or damages in the future. 209 See Ye mingyi, On the Challenge of Preventive Liability for Tort to Traditional Tort Law, p. 124. 210 See Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 2), Jiao Meihua Trans, Law Press China, 2005, p. 159. 211 Lange/hagen, Wandlungen des Schadensersatzrechts, Heidelberg 1987, S. 65ff. Cited from Li Chengliang, Damages and Civil Liability, p. 140.

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The above four types of remedies may overlap. For example, declaratory remedies may intersect with restitutionary remedies, such as revoking the contract or declaring the contract avoided. From the perspective of the aggrieved party, it has the effect of restoring the due state of the aggrieved party’s rights and interests. If the effect is declared by the authority of the judicial body (for example, the parties have disputes about its effect), it is also manifested as declaratory remedies. Similarly, restitutionary remedies may also intersect with preventive remedies and compensatory remedies, such as the liability of removal of obstacles and the liability of restitution of enrichment deprivation.212 Due to the existence of intersection, the above classification may have more theoretical significance and cannot give full play to its practical value. In particular, real right for confirmation related to declaratory remedies aims to protect the rights of courts and other authorities, which is a procedural claim rather than a substantiated claim,213 so it should not be regarded as the normative content of the civil liability system. Therefore, from the construction of the civil liability system, we can also divide civil liability into three basic types: defensive liability, liability of restitution, and liability for damages. a. Defensive Liability Defensive liability refers to canceling or reducing the risk of tort or damage to the protected rights and interests or removing the liability form of the source of obstacles enjoyed or exercised against the protected rights and interests, which is embodied in cessation of infringement, elimination of danger and removal of the obstacles (or damage).214 Cessation of infringement and elimination of danger is preventive. The former stipulates liability from the perspective of the act, while the latter stipulates liability from the perspective of risk of damage, aiming at the risk of tort or damage to rights and interests rather than actual tort or damage.215 Therefore, the conflict between the protection of rights and interests and the freedom of conduct caused by it is much more violent than the situation of actual tort or damage, which must be strictly restricted.216 Different from that, removal of obstacles is not aimed at the tort 212

It should be noted that not all cases of “enrichment exceeding damage” have such duality. Since intangible damage may not be included in the assessment of “damage”, the situation where the enrichment exceeds the damage will occur. If the existence of intangible damage is taken into account, the foregoing conclusion may not be incorrect. 213 See Wang Hongliang, Function and Theoretical Basis of Claims on Real Rights, Peking University Press, 2011. p. 17. 214 Chinese Real Rights Law refers as “removal of damage”, while the General Principles of Civil Caw and Tort Law refers as “removal of obstacles”. The two terms have different usage but their interpretation should be the same. Since “removal of obstacles” is more general in the existing law, this book only uses the term “removal of obstacles” and the content of which includes “removal of damage” in the Real Rights Law. 215 “Cessation of infringement” may apply where the infringement or the result of the damage has occurred, as long as the injurious acts or activity is continuing. Even so, “cessation of infringement” still refers to a future violation or damage that has not yet occurred. 216 In this regard, scholars have put forward some restrictions on the application of preventive liability for tort, such as the possibility of realizing danger and the seriousness of potential damage,

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or damage in the future but at the tortious act or activities that cause interference to the control of rights and interests in addition to appropriation or detention, such as occupying other people’s parking space, entering other people’s courtyard, wrong registration of registration rights, etc. The liabilities, such as preventive liability and removal of obstacles, require the person responsible for performing “the obligation of omission that respects and does not prevent others from being protected by law.” Therefore, all rights with the nature of dominion have the same claim as the real claim in theory, such as the claim of preservation of personality, the claim of preservation of intellectual property rights and the recognition of the claim for real rights of the registered leaseholder in Japan’s practice.217 In terms of function, the “actual performance” in contract law is similar to the “claim of omission” in real rights law, whose purpose is to realize the protected rights and interests in their original way, and only the content of the latter usually requires the person responsible for implementing positive act.218 Therefore, the “actual performance” in the liability for breach of contract can also be regarded as a special defensive liability. According to the general theory, defensive liability is not necessary for the actor to have a fault, but there are different views on whether to meet the requirements of illegality.219 Since the existence of protected rights and interests is the logical premise of the remedy of rights and interests, the defensive liability must be based on an unlawful attack (or nuisance) or the risk of infringement (or nuisance) in the sense of result, which is the requirement of wrongfulness. In addition, as the defensive liability applies to all civil rights and interests protected by the tort law, it is not limited to the erga omnes right. For other protected rights and interests outside the erga omnes right (such as the infringement of pure economic interest and spiritual personality interests), the implementation of the defensive liability needs a broader measure of interests, and its basic way is to judge the unlawfulness in the sense of illegal acts. No matter what kind of judgment of wrongfulness is adopted, the obligee must prove the fact that the protected rights and interests are infringed (or obstructed) or are in danger of being infringed (or obstructed) (i.e., the fact of liability cause), so the requirement of wrongfulness is still a positive requirement of fact. In addition, the “obligation to tolerate” to exclude liability has the significance of determining the scope of protection. The defense of “not beyond tolerance” of the respondent is aimed at the claim of the wrongfulness of the claimant. Therefore, the applicable conditions of defensive liability can be summarized as follows: (1) the rights or interests protected by law are infringed, or there is a real risk of infringement, and such state will continue to exist220 ;(2) The respondent is the person who causes infringement or the risk of and the certainty and equivalence of causation. See Ye mingyi, On the Regulation of Prevention Liability for Tort to Traditional Tort Law, pp. 126–127. 217 See Xie Zaiquan, Real Rights on Civil Law, China University of Political Science and Law Press, 1999, p. 40. 218 See Christian Von Bar, Gemeineuropäisches Deliktsrecht (Vol. 2), p. 159. 219 Supporters such as Wang Hongliang, On Defensive Claims in Tort Law. Negators such as Ye Mingyi, On the Regulation of Prevention Liability for Tort to Traditional Tort Law. 220 “Damages” here has a broader meaning, including the narrow sense of violation (simply entering into other’s filed of rights), damages, nuisances or the risk of nuisances or damage, etc.

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infringement, or the infringement, or the risk of infringement is under its control; (3) defenses: if infringement or the risk of infringement does not go beyond tolerance, the respondent should not be liable. b. Liability of Restitution That is to say, the restitution of the usurped interests should belong to the obligee, which is embodied in the restitution of the original items and their by-products or substitutes, the derivative rights and interests of the protected rights and interests or their values, etc. In short, the liability of restitution includes two basic forms: one is the restitution of the original form of rights and interests, the typical form of which is the restitution of the original property; the other is the restitution of the value form of rights and interests. The normative basis of the liability of restitution of the original items in the law of China is not only the claim for the restitution of the original items in Real Rights Law (Article 34, Paragraph 1 and Article 245 of Real Rights Law), but also the claim for the restitution of the original items in contract law (for example, the restitution of the original items in contracts such as the restitution of the original goods in the case of invalidity or termination of the contract, lease, custody, storage, etc.). Irrespective of its legal basis, its purpose is to respond to the obligee’s direct control over the subject matter. Although the claim for restitution of real right and the claim for restitution of possession are different in function, they are not different in constitutive requirements, that is, they should meet the requirements of violation221 : (1) the claimant is the possessor or prior possessor of the original object; (2) the respondent is the current possessor (direct or indirect possessor); (3) defenses: the current possessor who has the right of possessing should not be liable for restitution obligation. Similar to the restitution of the original items is the restitution of rights, such as the restitution of real rights (such as ownership or equity) acquired without legal reasons. This kind of situation is common under the legislation of the principle of negotiorum gestio in the change of rights, such as the buyer’s obligation to restitution of the ownership in accordance with the provisions of unjust enrichment when the sales contract is not established or invalid in German law.222 Since Chinese Real Rights Law does not adopt the principle of negotiorum gestio in German law, if the legal act of transferring real right is not established or invalid, the effect of real right transfer will not occur. In this way, if the transferred right has been registered, the transferee should assist in registering change or cancellation. This assistance obligation has the dual nature of defensive liability (the claim for removal of obstacle in real rights law) and liability of restitution.223 However, it should be noted that what should be “registered” are interests rather than rights. On the contrary, in the case of a rescission 221

See Wang Hongliang, Function and Theoretical Basis of Claims on Real Rights, p. 56. See Dieter Medicus, Allgemeiner Teil des BGB, Shao Jiandong Trans, Law Press China, 2000, p. 178. 223 Theoretically, the claim for unjust enrichment and the claim for removal of obstacle in real rights law should be concurrent at this time. See Wang Zejian, Civil Law Researches: Principles of Obligation Law, Peking University Press, 2009, p. 221. 222

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of the contract, there are different understandings in theory as to whether the changes of rights should be understood in the same way.224 It is necessary for deep research on whether the change of real right should be dealt with in the same way when it comes to the reasons of the change of real right. Suppose we believe that the rescission of the contract does not have the effect of immediate restoration of real right, and the real right should be restored in accordance with the provisions of real right change in the legal act. In this case, the liability of ownership restitution will occur at this time.225 The restitution of value belongs to the form of liability in the law of obligations, such as the value of the restitution objects and the economic benefits obtained by using other people’s objects or rights. The restitution of value also belongs to the compulsory transaction of protected rights and interests, which is similar to the liability for damages. However, the liability of value restitution is based on the profits of the person responsible, while liability for damages is based on the damage suffered by the obligee. Therefore, they are still different in function. Since the restitution interests are the interests that should belong to the obligee, they should be treated in the same way as the restitution of the original items in value judgment, without the requirements of damage and fault. Therefore, its constitutive requirements can be summarized as follows: (1) the claimant enjoys the rights or interests protected by law; (2) the respondent obtains the interests (economic interests or other interests that can be measured by money) based on the protected interests; (3) defenses: if the respondent does not obtain interests based on the protected rights or interests, or if there are legitimate reasons for obtaining interests, the respondent should not be liable for restitution.226 In the case of breach of contract, “performance-based damages” (the third restatement of Article 38 of the American law of restitution)227 or “Ersatz der vergeblichen Aufwendungen” (Article 284 of the German Civil Code) also have the obvious characteristics of restitutionary remedies, which is similar to the liability of restitution of value. What is different is that in the above situations, the breaching party does not necessarily obtain the corresponding benefits. However, like all the cases of compensation for Vertrauensinteresse, it still belongs to liability for damages rather than a liability of restitution in essence. The “compensation at an estimated price” stipulated in the first sentence of Article 58 of Chinese contract law is different from it, which is based on the premise that “the property acquired by the contract cannot or does not need to be restituted.” Hence, the characteristics of the person liable for 224

The Law of Contract (3rd ed.), Law Press China, 2011, p. 531. Ibid., p. 532. 226 In comparative law, the reasons for restitution defense are more complex and limited to the topic, which will not be discussed in detailed here. For relevant analysis pleased referred to (U.S.) James Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment, Zhang Jiayong Trans, Law Press China, 2007, p. 708. See Peter Boxall, Unjust Enrichment, Liu Qiao Trans, Tsinghua University Press, 2012, p. 237, part 5 “defenses”. 227 Performance-based damages (Schadensersatz statt der Leistung) is different from substitute performance damages (Schadensersatz statt der Leistung). The former is based on the obligee’s performance or payment, while the latter is based on the obligor’s performance or payment. 225

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usurping the interests required by the restitution of liability are satisfied. Therefore, it is actually “restitution of value” even though it is called “compensation.” It is worth noting that the civil liability featured by deprivation of enrichment, for example, if the tortfeasor obtains enrichment for breach of contract or tort, the obligee has the right to demand that the amount of compensation be determined according to the enrichment obtained by the liable person.228 Such enrichment that should be deprived may be based on the protected rights and interests of the obligee (such as using others’ patents to obtain enrichment), or it may not be related to the protected rights and interests of the obligee (such as willful breach of contract to obtain extra profits). In the former case, the nature of liability should be liability of restitution, which is regarded as an alternative way of damages due to the overlapping of liability principles; in the latter case, its nature is neither liability of restitution nor liability for damages, but a special private law sanction with preventive function. c. Liability for Damages It refers to the civil liability to compensate the obligee for the damage (or loss) by money. The existence of damage is the core of Liability for damages. Therefore, Liability for damages is different from defensive liability and liability of restitution, whose purpose is neither to prevent or exclude the tort or hindrance so as to complete the obligee’s control over the protected rights and interests nor to restitute the interests that should belong to the obligee but to make up for the damage suffered by the aggrieved party. The liability for damages has always been the focus of the norms in tort law and the core of the theoretical study of civil liability. It can be said that the modern legislation of liability for breach of contract and liability for tort basically focuses on the establishment and commitment rules of liability for damages. Compared with the former two types of liability, the liability for damages has a more complex structure. It needs to consider the types and nature of obligations (result guarantee obligation or obligation of means), the types and nature of protected interests (absolute interest or relative interest or pure remedy interest, property interest or personal interest), and the forms of harmful behavior (intentional injury or damage caused by fault) and the risk of harmful behavior. Since the liability for damages focuses on the remedy of the damage suffered by the aggrieved party, it should aim at restoring the due state when the damage did not occur. For this purpose, there are two forms of liability: reparation in kind and value compensation. However, based on special policy considerations, the law may not compensate for some damages, such as general cases of breach of contract or tort without compensation for the reasonable attorney fee paid by the aggrieved party; or it may not determine the amount of compensation according to the standardized 228

Chinese existing law only has tortious liability provisions featured by enrichment deprivation. For example, there are no similar provisions in the second paragraph of Article 20 of the Chinese Tort Law, the second paragraph of the first paragraph of Article 20, paragraph 1, and the first sentence of Article 63 of the Trademark Law, the Article 49, Paragraph 1 of the Copyright Law and the first sentence of Article 65, Paragraph 1 of the Patent Law, For comparative law, please see James Eldeman, Gain-Based Damages: Contract, Tort, Equity and Intellectual Property, Oxford and Portland 2002.

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compensation method for the actual damages (such as disability compensation or death compensation, interest determination of monetary obligation). In this way, the damages may deviate from the damage suffered by the aggrieved party. It should be noted that as a form of compensatory liability, liability for damages usually has the characteristics of a compulsory transaction. However, this understanding does not apply to liability for damages in all cases. For example, in the case of compensation for mental distress, since the personality rights and interests cannot be traded, compensation for mental distress should not be regarded as compensatory but to be regarded as restorative from the perspective of its function of mental comfort.229 In addition, although punitive damages contains the word damages in its name, it is also not compensatory because its purpose is to warn similar acts in the future through punishment. The above three types of liability can be applied separately or in combination as long as they do not conflict with each other in the effect of the remedy. However, the availability in individual cases depends on specific circumstances. For example, for infringing acts that have occurred but have been stopped, it is not applicable to the liability of cessation of infringement; even if the injurious acts still exist, but since the act that causes the infringement is allowed, such as production activities involving environmental pollution or high risk, the defensive liability may also be limited, thus the obligee can only claim damages. Therefore, the types of functional civil liability further weaken the basic position of the distinction between breach of contract and tort in tort law and provides a more specific idea for the construction of the liability system centered on the form of liability. (3) Justification of the “Consequence Mode” The reason for adopting the “consequence mode” is that remedy of interests and rights is result-oriented; that is, there is a need for remedy of interests and rights only in the event of rights and interests infringement or damage (including the actual risk of infringement or damage), and the result of infringement or damage is the “first driving force” to launch the liability mechanism. Moreover, the type of rights and interests infringed are different, and the level or intensity of protection they receive differs. The conditions of protection such as wrongfulness and even the requirements of imputation standards are also different; since the types of damage are different, such as the difference between property damage and personal injury, the possibility of remedy is also different. Therefore, if the breach of duty does not result in rights and interests infringement or damage, there will be no issues concerning the remedy of interests and rights; even if the breach of duty causes rights and interests infringement or damage, based on the aforementioned reasons, for the other independent infringement or damage suffered by the aggrieved party, it may also be necessary to meet different remedy requirements.230 This situation is 229

Scholars have pointed out that the spiritual consolation in German law has four functions: compensation, comfort (Genugtuungsfunktion), symbolic redemption and maintenance of dignity. See Dieter Schwab, Introduction to Civil Law, Zheng Chong Trans, Law Press, 2006, pp. 259–260. 230 See Ken Oliphant, ed., Aggregation and Divisibility of Damage, pp. 17–19.

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not determined or at least not entirely determined by whether the cause of damage is a breach of contract or tort but is more subject to the type of protected interest and the type of infringement or damage suffered, which is exactly what the theory of the distinction between contract and tort often ignores. However, there are two possible questions about the consequences mode: First, the tort or the consequence of damage caused by the same damage event may be divided into different parts, and the aggrieved party’s repeated remedy claim will conflict with the proceeding concept of pursuing one-time settlement of dispute (res judicata). The second is that it may still need to be reversed to the specific type of obligation violated to judge the constitution of liability in the consequence mode. This may be the case for liability for damages, which is not different from the cause mode.231 That is to say, even if the rights and interests protected by contract and tort are the same, it does not mean that the protection scope of the contract and tort in a specific situation has a unified determination standard and has a consistent function.232 If it is only a matter of merging and segmentation of the consequences of damage, the first question will not cause difficulties for the justification of the consequence mode. It is because whether the obligee needs to file a single lawsuit for all the consequences of the same incident, or can he file multiple lawsuits for different torts or damage consequences, such as separate claims for property damage and mental distress, or a single claim for property damage being divided, etc., there is no unified understanding and practice concerning the cumulative application of different legal principles, such as the principle of res judicata and whether multiple lawsuits are allowed for the same event.233 For example, the common law adopts the so-called principle of “transactional unity”, that is, to combine different losses arising from the same tort or to merge damages arising from different but closely related events. In some civil law countries, such as Austria, Germany, Poland, Italy, and France, the law allows the aggrieved party to sue again for the same incident or damage under certain conditions.234 The judicial practice in China is similar to the latter, except it is not allowed to prosecute mental distress and other damage separately.235 It can be seen that whether it is permissible to sue separately for different damages caused by the same event is not directly related to which liability mode is adopted. Suppose it is necessary to determine the corresponding constitutive requirements of liability according to the consequences of different torts or damage in the same proceeding. Will it make the application of the law more complicated? After all, 231

See Helmut Koziol, Basic Questions of Tort Law, p. 103. From a Comparative Perspective, p. 103. 232 Martin Immenhauser, Das Dogma von Vertrag und Delikt:zur Entstehungs- und Wirkungsgeschichte der zwetgeteilte Haftungsordnung, Böhlau Verlag Köln Weimar Wien 2006, S. 46. 233 See Ken Oliphant, Aggregation and Divisibility of Damage, p. 671. 234 See Ken Oliphant, ed., Aggregation and Divisibility of Damage, Springer-Verlag/Wien (2009), p. 534. 235 See the people’s court, The interpretation of issues concerning determination of the tortious liability for mental distress (Judicial interpretation No.7), article 6.

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in judicial practice, judges usually use unified constitutive requirements of liability for a single damage incident and will not use different constituent requirements for different consequences of tort or damage. However, suppose our analysis of the type of functional liability is correct (which is essentially the same as the claim that classification of different forms of liability determines imputation standard stipulated by the current tort law). In this case, we can find that the unity of the judgment of liability establishment is superficial. When damage has already occurred and can be imputed, due to non-compensation liability for damages without the requirement of accountability, non-compensation liability for damages is different from liability for damages in terms of the result of the damage (i.e., whether consequences of damages are required), but it is consistent in the judgment of causation and wrongfulness. Therefore, the establishment requirements of liability for damages have the effect of “integrating” other constituent requirements of the non-compensation liability for damages. The fact of defense will not be reflected in the judgment of the liability constitution due to its negativity, thus giving rise to the appearance that non-compensation liability for damages and liability for damages have the unified constitutive requirements. Since this unity only appears when both the liability for damages and non-compensation liability for damages are applied simultaneously, once the constituent requirements of the liability for damages are not met, the difference between the two will be immediately revealed. According to authority, non-compensation liability for damages should not be determined according to the imputation standard for compensation liability for damages.236 In this way, even if the consequence mode is adopted, the application of the law will not be more complicated than the current approach adopted. The second question concerns how to understand the construction mode of the civil liability system, which is a more fundamental challenge to the consequence mode. First, it should be clear that the difference between consequence mode and cause mode is not whether to consider the cause of damage in the establishment of liability (it is a requirement that must be considered in all liability constructions) but whether it is based on the breach of contract and the cause of damage. It must be realized that caused mode is reasonable only because the aforementioned determination of the cause of damage can determine the establishment of liability and assumption of liability. As we have already seen, the determination of cause of damage cannot satisfy that premise. The cause of damage determining compensation liability for damages means that any damage caused by the same act should be protected to the same degree. In other words, it is entirely consistent with imputation standards and limitation of liability. However, this understanding is incorrect. When it comes to imputation standards, the absolute legal interest and pure economic loss are protected to different degrees, and the scope of protection of real rights and personal rights is also different, which is almost a rule recognized by most countries; Even if it is under 236

See Cui Jianyuan, On the Relationship between Imputing Principles and Types of Tortious Liability, China Legal Science Vol. 2, 2010. Wang Liming, Research on Tort Law (Vol. 1), China Renming University Press, 2010. Wei Zhenying, Research on Tort Law (Vol. 1), China Renming University Press, 2010, p. 624. Wei Zhenying, The Relationship between Tortious Liability, Imputation Cause and Imputation Principle, China Legal Science Vol. 2, 2011.

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the legislation that recognizes the foreseeability rules of contract, it can only limit the scope of compensation for acquirable benefit but cannot simultaneously limit the losses caused by the violation of protective duty. When applying contributory negligence, if different types of damage and the degree of causation with contributory negligence are not the same, there is no reason to believe they should have the same proportion of the effect of liability mitigation.237 It can be seen that, even within compensation liability for damages, the establishment of liability and the scope of liability cannot be achieved through a qualitative approach to the cause of damage. In fact, in the case of damage due to breach of promissory obligation or statutory obligation, the question of whether the obligation is a promissory obligation or statutory obligation, contractual obligation or a duty of care in tort law is not as meaningful to the establishment of liability as imagined, they are more based on the formal logic cited by the legal basis. From a substantive point of view, whether the content of the relative obligations related to the protected rights and interests is specific and clear is more decisive for the determination of liability: the more specific and clear the relative obligations, the stronger the accountability of the breach of obligations. At the same time, due to the prevalence of conflicts of interest, unless the obligor undertakes the result guarantee obligation in accordance with the agreement or legal provisions, he is only liable for the tort or damage caused by the violation of the necessary standards of conduct (except for danger liability). In this way, under the premise of satisfying the fact that the liability is established, the judgment of wrongfulness and/or accountability is the same for all damages. After eliminating the distinction between breach of contract and tort as the cause of damage, the overlapping field of contract law and tort law has also been eliminated.

3.3 Legislative Choice from the Perspective of Liability Integration Therefore, the real obstacle faced by the consequence mode may not be whether it can be proved in theory but rather to fundamentally change the system cost problem caused by the standard structure formed and applied for a long time. As the famous Swiss scholar Professor Gauch said, because the overall update of the existing system will lead to legal uncertainty and misunderstanding, the overall update is only appropriate if the benefits are significant.238 Although this view is proposed in response to the revision of the Swiss law of obligations, it has general enlightenment. If only the existing system can be adjusted individually to achieve the goal, there is no need to change the existing system fundamentally. However, judging from the current status of Chinese civil legal system, the problem facing China is that legislation and legal practice are not completely connected, rather than the problem of simply reforming 237

See Ken Oliphant, ed., Aggregation and Divisibility of Damage, p. 593. Vgl. Peter Gauch, Die Vereinheitlichung der Delikts-und Vertragshaftung, Zeitschrift für schweizerisches Recht 116 (1997), S. 340.

238

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the existing institution. In terms of legislation, through establishing the “civil liability” system in Chapter VI of the General Principles of Civil Law, China has adopted the consequence mode of the civil liability system. Unfortunately, the theoretical significance and practical value of this system have not received enough attention. On the contrary, this system was broken when formulating the Real Rights Law. The Real Rights Law inherited the mode of the claim for real rights of German law, which also raised the issue of the relationship between the protection of real rights and the civil liability system. Tort Law tries to restitute the tradition established by the General Principles of Civil Law and establish multiple tortious liabilities. This restitution may not be seen as a deliberate innovation by legislators but should be regarded as preserving the tradition established in the General Principles of Civil Law. In theory, the unity of civil liability is a topic generally ignored. The dichotomy between breach of contract liability and tortious liability is always regarded as the basis for establishing the entire civil liability system.239 Chinese judicial practice is consistent with the mainstream theories.240 The problem facing Chinese civil legislation and theory are not whether to break the established stable legal tradition but how to systematize the different existing norms of liability. It needs to be mentioned that it is beyond the purpose of this book to make a comprehensive analysis and review of this ambitious subject. The following is a summary response to the above questions in light of the implications presented by the discussion on the regulation of laws in the intermediate field. (1) Distinction between General Law of Obligations and Civil Liability Law An obligation relationship is a special combination between a person who does or does not do a specific act (performance).241 The obligation relationship includes contracts, tortious act, negotiorum gestio, unjust enrichment, contracting faults, and other causes. The various obligation causes differ in guiding principles, social functions, and constituent requirements and what combines them to have inherent unity are their same legal effects.242 That is to say, the obligation relationship is a legal relationship constructed purely from the legal effect by extracting the causes of obligations. Among them, the obligee’s right is to assign a certain performance to the obligee so that he can request and receive the obligor’s performance, and obligation is a duty that should perform. Therefore, obligee’s right is the purpose of establishing obligations, while the obligation is a means of realizing obligee’s right.

239

These positions are reflected in the draft proposal for civil code by professors Liang Huixing, Wang Liming and Xu Guodong. Although the three proposed drafts of scholars hold different positions on whether the tort law is a part of obligations law, they all stipulate the liability for breach of contract and the liability for tort as different objects. 240 This is typically reflected in the fact that the issue of compensation for personal injury and mental distress are treated as a tort, especially the issue of compensation for mental distress as an exclusive content of tortious liability (Judicial Interpretation [2010] No. 13, Art. 21). 241 See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, pp. 4–5. 242 See Wang Zejian, Civil Law Researches: Principles of Obligation Law, Peking University Press, 2009, p. 3.

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Civil liability is a compulsory means to prevent the infringement of rights and interests or the realization of rights and interests. According to authority, civil liability is a means of compulsory realization of civil obligations, a guarantee to perform obligations.243 However, civil liability may arise from a failure to perform obligations and from damage caused without fault. Therefore, civil liability is not necessary to breach obligations but only based on protected rights and interests. In addition, civil liability in modern law has evolved from the liability of a person to pure property liability, and the person responsible only needs to bear the liability with his property (except for the liability of making an apology). The relationship between obligations and liabilities has always been different in theory.244 Since Roman law and the legal observation follow Roman law tradition, they do not distinguish between obligations and liabilities. The difference between obligations and liabilities can be found in ancient Germanic law.245 According to this concept, obligations are “rechtliches Sollen” and do not include “rechtliches Müssen”, so whether to perform the obligations or not is at the obligor’s discretion. Liability means when the obligor doesn’t perform, or not fully perform, compulsory acquisition (Zugriffsmacht) by obligees should be obeyed. Therefore, the obligation relationship is binding only when the liability relationship is attached. Thus, the concept is that liabilities are the guarantee of obligations.246 However, if the performance of obligation depends entirely on the obligor’s free decision, what is the rechtliches Sollen of obligations? If the rechtliches Müssen needs to be based on rechtliches Sollen, why shouldn’t it be regarded as the content of rechtliches Sollen? In view of this, obligations must be combined with liabilities to avoid losing their essence, and obligation without liability is no longer a real obligation.247 However, equitable liability and no-negligence liability in tort law, liability for restitution of the original items and removal of obstacles or prevention of obstacles in real rights law, compensation liability in the neighboring relationship, etc., are not necessary for violation of obligations. In the case of separation between obligation and subject of liability, the third party who takes the guarantee liability of the property is not the subject of liability, so the previous situations are all free of obligations, but they are liable. The civil law theory often ignores these situations. The reason is that when 243

Ibid., p. 22. Lin Chenger, General Review of Obligations on Civil Law: Systematic Interpretation, p. 220. In legal documents, however, the concept of “liability” has a more diverse meaning. Professor Zhang Gu had concluded five meaning of the concept of “liability” in the civil legislation of China, namely, guardian’s supervisory obligations, attribution of agency’s legal effect, legal sanctions or legal protection, liability for damages, and obligation obligated to the state for the wealth. Zhang Gu, Normative analysis of several basic concepts in civil law, in Long Weiqiu & Wang Wenyu ed., Frontiers of Civil and Commercial Law in China: Tradition and Modernization Civil and Commercial Law, China Legal Publishing House, 2013. From the author’s point of view, the fourth and fifth meaning of liability are actually the specific forms of the third type of meaning, which are mainly legal protection measures for the remedies of rights and interests. 244 See Qiu Xuemei, The Reconstruction of the Civil Liability System, pp. 19–35. 245 See Lin Cheng’er, General Review of Obligations on Civil Law: Systematic Interpretation, p. 216. 246 Ibid. 247 Ibid., p. 222.

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scholars mainly discuss the relationship between liability and obligation, they do not consider that liability is not only related to obligations but more about rights allocation. Regarding the essence of rights, the general theory is the “theory of legal force”. The obligee has the power to be supported and guaranteed by law in respect of specific interests.248 The “legal force” of right is not the force of the obligee to directly enforce the obligor but the effect of requesting public assistance to remedy the impediment of the realization of the right, which is reflected in the civil law in the form of civil liability. In light of this, liability is the medium that connects the protected rights and interests and right of action. Since absolute rights and interests are only opposed to the general legal obligation to respect and do not impede or infringe, such obligations are not necessary for a special combination of specific people, so they are not obligations.249 Violation of the aforementioned obligations also creates civil liability; as a result, instead of calling liability a guarantee of an obligation, it is better to say that liability is a guarantee of realization of rights and interests. Legally, no matter whether the person responsible violates a specific obligation (debt) or a general legal obligation, there is no specific liability relationship between the obligee and the person responsible. The liability relationship must be expressed as a special combination between specific persons. In other words, although liability is not necessary for violation of a specific obligation, the content of liability must be manifested as a specific obligation. Thus liability relationship and obligation relationship is connected. The civil law tradition treats the liability relationship as an obligation relationship, which is not groundless.250 As a result, the relationship between rights, obligations and liabilities does not evolve in the order of rights-obligationsliabilities. However, there are two combinations: rights-obligations-liabilities and rights-liabilities. Due to its high abstraction, the concept of obligations discards the 248

See Liang Huixing, General Introduction to Civil Law (4th ed.), Law Press China, 2011, p. 70. See Dieter Medicus, Schuldrecht I: Allgemeiner Teil, p. 5. 250 In order to demonstrate the independence of tort law, some scholars of civil law in China argue that tortious liability is liability rather than obligations without sufficient reasons. For example, Professor Wang Liming explains the difference between liability and obligation from four aspects: Firstly, most liabilities beyond damages are not obligations. Secondly, there is a difference between mandatory liability and arbitrariness of obligations. Thirdly, the general rules of obligations cannot be fully applied to tortious liability. Fourthly, the moral damages and punitive damages cannot be explained by obligation relationships. See Wang Liming, Research on Tort Law (Vol. 1), China Renming University Press, 2010, pp. 22–23. The enumeration of these differences is questionable. There is no basis for limiting obligations to property performance. Obligations only refer to the obligation for or not for a specific act no matter whether it has property content or not. It is true that liability is mandatory, but it is improper to say that obligations is arbitrary. Certain liability rules (such as offset) do not apply to tortious liability, and liability for personal injury cannot be excluded in advance. It is not because the liability is not a liability but that the liability is for a special protection purpose or protection policy. Although mental distress compensation, punitive compensation and general damage compensation are different in function and liability mechanism, but their effects are still consistent, that is, it is the legal relationship between specific person paying certain money. 249

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difference in the causes of obligations so that it can include obligations (original obligation) that occur during the normal realization of rights and interests, and liabilities (subordinate obligation) that occur due to obstacles to the realization of rights and interests, so that liability relationship also becomes obligation relationship.251 However, if “liability” is also an obligation, the rules of liability in the nonperformance of obligation may apply to the situation of “non-performance of tortious liability” or “non-performance of liability in the non-performance of obligation”, the cycle of which will be endless. Such a situation may indeed happen. For example, when the breaching party fails to perform the obligation, the original obligation will be converted into subordinate obligation and generate additional subordinate obligation such as delayed interest and damage compensation. When the property is damaged, the perpetrator should not only compensate the market price of the subject matter when it is damaged but should also pay the corresponding delayed interests from that time; when the person responsible fails to perform obligations within the time set by the court or arbitral award, he should pay the overdue payment. Under these circumstances, the relevant newly-generated subordinate obligation must be regarded as the form of “liability of non-performance of tortious liability” or “liability of non-performance of liability in the non-performance of obligation”. The theoretical discussion of liability usually assumes that the relevant dispute has already entered the proceeding procedures (or arbitration), and only the court (or arbitration institution) needs to make a one-time award on the liability. In addition, there is no delay performance of obligation after the award, so the derivative relationship cannot be shown. Indeed, due to the involvement of courts or arbitration institutions and the execution of related awards, the aforementioned situation of “cycle” will not happen. However, to achieve the opposite relationship or corresponding relationship between tortious liability and liability in the non-performance of obligation, it is not enough to limit the obligation of liability in the non-performance of obligation to the original obligation. In this way, the rules about the liability in the non-performance of obligations are no longer general rules in the law of obligations but special rules only related to the original obligation. As we can see, this limitation is not necessary for jurisprudence or just contextualized, which is not sufficient to deny the generality of the rules of non-performance of obligation. It can be seen that the unified concept of “obligation” only applies to the alleged legal implications, namely the request relationship between specific subjects. When the cause of the effect of the obligation is involved, its unity no longer exists. Judging from the setting of the obligations law 251

The term “primary obligations” refers to the obligations that are not dependent on or derived from other obligations, including contractual obligations and obligations arising from unreasonable management. The term “secondary obligations” refers to the obligations arising from the violation of original obligations (the original obligations and general legal obligations), such as contractual liability, liability for breach of contract, liability for restitution of unjust enrichment and tortious liability for damages. It should be noted that not all “secondary obligations” are necessarily derived from “original obligations”. For example, the tortious liability does not take the breach of the original obligations as an establishment requirement of liability. Moreover, it is not the case that all the consequences of violating the “original obligations” are reflected as “secondary obligations”, such as termination of contract or invalidation of rights and so on.

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system of representative civil codes (such as in Germany, France, Switzerland, Italy, Spain, Portugal, Russia, Japan, Argentina, Brazil, Ethiopia, Quebec, etc.), regardless of whether there is “general rules of law of obligations” or “general provisions of obligation”, only those rules that are not based on a specific obligations, such as the content or effect of the relevant of obligation (including the type of obligation, the majority of obligors or obligees, and the change and transfer of obligation, etc.), performance of obligation and rules of elimination, constitute the general rules of the law of obligations; rules related to specific obligandi causa, such as the occurrence of obligations (for instance, different types of obligations based on juridical act or legal provisions) and other rules (such as deposits, liquidated damages, and the cancellation of obligations for the prohibition of intentional infringement, etc.) are all special rules. It can be seen that it is not enough to unify different obligations without abstracting the causes of obligations. Similarly, the concept of “liability” also has two different normative uses: one is “liability” in the sense of the cause of specific consequences, including liability of non-performance of obligations, liability in tort, and liability of restitution of unjust enrichment. The request for a particular person is “liability” in the sense of a specific behavioral relationship, and “obligation for damages”, and “obligation of restitution” are used in this way. One is “liability” in the cause of specific consequences, including liability of non-performance of obligations, liability in tort, and liability of restitution of unjust enrichment. Only the liability in the first sense is the normative core of the civil liability system, which is of the same causes of obligations as the obligations of contract and obligation of negotiorum gestio. They only tend to be unified in terms of legal effect. It demonstrates that the distinction between liability and obligation is not that liability cannot be represented as obligations in consequence252 (instead, liability can be represented as obligations in the second sense), but that they belong to different legal categories. Liability addresses the potential enforcement of guarantee of rights and performance of obligations, while obligation addresses the nature of the legal relationship between the parties (whether it is a request relationship or a domination relationship).253 It should also be noted that even in terms of legal consequences alone, civil liability also contains a broader range of normative content than obligations. The various adverse consequences imposed on the person responsible due to infringement of rights and interests should be called liability, which can be manifested that the person responsible simply bears the adverse consequences without carrying out relevant acts (such as the contract being declared invalid or revoked or rescinded or invalid acquisition of rights, etc.) and can also be expressed as a legal obligation to act or not to act (such as ceasing infringement or dangerous activities, removing sources of obstacles, or paying compensation, etc.). Even if the person responsible is required to act or is not to act (theoretically, the liability is usually limited to this), this kind of liability relationship does not necessarily have the nature of obligation relative to 252

See Wang Liming, Breach of Contract (Revised edition), pp. 15–17. Xue Jun, On the Structural Design of Chinese Law of Obligations of Civil Code in the Future, Studies in Law and Business Vol. 2, 2001, p. 54.

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the obligee’s right, such as defensive civil liability related to the absolute protection of rights and interests. Therefore, although some civil liabilities are expressed as obligations, not all civil liabilities are expressed as obligations, so civil liability cannot be equated with obligations. In other words, civil liability and obligations are only attachment relationships rather than inclusive relationships. Traditional civil law limits civil liability to liability for damages to deal with civil liability the way as obligations. Once it is recognized that civil liability has more normative content than the damages, in theory, it is necessary to face the need to separate civil liability from obligation. In summary, obligation and liability have different regulatory purposes and follow different legal principles. In establishing the system, a distinction should be made between the general law of obligations and civil liability law, the latter of which belongs to the special law of obligations only because the effect of liability also appears as obligation. (2) Contract Obligation Norms Separated from Contract Law The basic function of a contract is creating and protecting rights and interests. On the one hand, it is necessary to create new rights and interests (obligee’s right or real right). On the other hand, it can also protect existing rights and interests (that is, to clarify or change the general legal obligations into special obligations in the contract). This protective function of the contract is based on the parties’ agreement and is not due to the attribution effect of the existing rights and interests. The protection interests arising from contracts are still new rights and interests, so they are different from the legal protective duty to remedy interests and rights.254 The expression of contractual rights and interests is abstracted as the right to request the obligor to act or not to act in traditional law. For this reason, the claim for performancee reflects the nature of the obligation relationship and has a priority in the application of obligee’s rights (credit rights—obligations formation).255 This understanding equates the way of realizing the obligee’s right with the obligee’s right itself. Because of this, the opposite view holds that the contractual obligee’s right is “a position that the obligee can expect to obtain a certain interests from the obligor”. Therefore, other forms of remedy, such as the claim for performancee and claim for 254

This understanding of the function of “contract” applies more to property relationship contracts (mainly debt contracts) than to agreements that do not have a direct property content or identity law. See Xu Zhongyuan, The Concept of Contract and Retention and Abolition of the General Rules of Chinese Law of Obligations, Tsinghua University Law Journal Vol. 1, 2010, p. 151. However, from the perspective of the basic normative content of contract systems in various countries, it is mainly limited to property relationship contracts. The discussion of contracts in this book is also limited by it. 255 Although before the amendment of German obligation law, the right to performance was not usually regarded as a remedy for performance obstacles in theory, under the premise that performance could not be regarded as damages, the mandatory actual performance must take precedence over damages. Whether the actual performance is regarded as a remedy measure is just a matter of understanding. Under the framework of New Germany’s Law of Obligations, it is no doubt that the actual performance is only a relief method for performance obstacles. See Lu Zhan, The Right to Performance and its Boundary, Journal of Comparative Law Vol. 4, 2007, p. 100.

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damage compensation, are in the same position and can be freely chosen by obligees. Only when the obligee’s interests can be realized through performance and the obligor is willing to perform the obligee cannot refuse to perform (contract formation).256 It can be noted that the difference between the two theories of contract relationship is more reflected in legal remedies. In short, credit rights—obligations formation focuses on realising the contractual obligee’s right (claim for performancee), while the contractual formation focuses on the purpose of the contractual obligee’s right (obligation rights and interests). It should be acknowledged that although the performance of obligations usually means the realization of obligee’s rights, the absolute integration of the realization of obligee’s rights and the performance of obligations does neglect the independence of obligee’s purpose to obligees, and weakens the flexibility of remedy system of obligee’s rights. For example, suppose the subject matter of a sales contract is easily replaced in the market. In this case, converting the obligee’s right into a certain financial benefit can satisfy the obligee’s contracting purpose without forcing the obligor’s actual performance who violates the contract. The theory of contract formation greatly improves the property right of obligee’s rights by reducing the special normative value of the claim for performancee of obligee’s rights and emphasizing the attribution of obligee’s rights, which is more abstract than credit rights—obligations formation. However, problems still exist with abstracting the obligee’s rights as pure benefits obtainment. The parties to the contract usually only conclude a contract with the other party when they trust that the other party will perform as agreed. Unless the interests of the obligee’s rights can be easily converted into property interests and such interests are accessible for the court to judge, it is reasonable and feasible to replace the actual performance with the damages.257 Since this situation does not always exist, the claim for performancee still has undeniable practical value for the obligee’s right. It is exactly why some countries still regard it as a measure of breach of contract relief, although they have different attitudes towards actual mandatory performance. Even in the common law that emphasises the remedy of damages, punitive compensation or enrichment deprivation for certain acts of a malicious breach of contract are intended to achieve equivalence to actual performance.258 The theory of contract formation believes that in the case where the purpose of the contract can be achieved through performance, the obligee should not refuse the performance of the obligor and claim damages for substitute performance, which highlights the normative significance of obligation performance from the perspective of the obligor. Therefore, credit rights—obligations formation and contract formation should not be regarded as two completely opposite theories, and it may be more appropriate to regard the latter as a certain modified position of the former. 256

See Xie Gen, Reconstruction of Chinese Contract Binding Theory, Chinese Journal of Law Vol. 2, 2011, pp. 74, 76–77. 257 See Steven Shavell, Foundations of Economic Analysis of Law, Zhao Haiyi, Shi Ce & Ning Jingbo Trans, China Renming University Press, 2013, p. 284. 258 See Thomas Galligan Jr., Contortions Along the Boundary of Contracts and Torts, 69 Tulane Law Review (1994), p. 465. James Edelman, Gain Contract, Tort, Equity and Intellectual Property, pp.83–86.

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Accordingly, the contractual obligee’s right contains two related but different levels: the first is the specific interests obtained by the contractual obligor following the contract; the second is the obligations undertaken by the contractual obligors following the contract. The former reflects the purpose of the obligee’s right, as the obligee has the right to demand the obligors’ actual performance or damage compensation and accept of performance. The latter reflects and limits the content of the obligee’s right, that is, the obligor only has the obligation of facilitating the realization of the purpose of obligee’s rights within the scope of its obligations under the contract. Usually, the obligor only needs to perform the acts that should be performed according to the contract and do not need to guarantee the realization of the purpose of the obligee’s rights (obligation of means) unless the contract has allocated the risk of the realization of obligee’s rights to the obligor (obligation of result). That is to say, only within the scope of obligations undertaken by the obligor the obligee’s rights are a special constraint for the obligor. The difference between obligee’s rights and real rights only lies in this way of realizing obligee’s rights. Therefore, in terms of norms, it is only from the perspective of obligations that the obligee’s rights (or combining obligations to stipulate obligee’s rights) are in line with the normative features of the obligee’s rights. Conclusion of contracts, contractual interpretation and obligation types, modification and transfer of contracts, performance and elimination of contracts, and even breach of contract relief revolve around the concept of obligations, which make obligations become the core concept of the law of obligations. It should be noted that the nature of obligations set up based on contracts is primary obligations, the first obligation, whose normative structure is opposed to the newly established obligee’s rights, and it is different from secondary obligations, the way of remedy of interests and rights. Primary obligations will give rise to the problem of performance, but they may not develop into secondary obligations. Primary obligations only instruct the obligor how to avoid unlawful acts, but it does not tell him the consequences of illegal acts. Even after the breach of the obligation, primary obligations may not be affected. This is the basis for enforcing the actual performance of primary obligations without reference to or including the consequences of breach.259 As secondary obligations were generated due to violations of primary obligations, their way of assuming civil liability directly corresponds to (primary) obligee’s right instead of primary obligations. The establishment of primary obligations implements the concept of autonomy of private law while the occurrence of secondary obligations belongs to rechtliches Müssen, both of which follow different principles of formation. Therefore, it is necessary and possible to separately stipulate the rules of rights and interests establishment and the rules of interests and rights remedy of nonperformance obligations (whether statutory obligations or promissory obligations) in contract law. That is to say, the contract law should be purified into the special

259

See Stephen A. Smith, Unjust Enrichment: Nearer to Tort than Contract, in Robert Chambers/Charles Mitchell/James Penner eds., Philosophical Foundations of the Law of Unjust Enrichment, Oxford University Press 2009.

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law of obligations created by the obligee’s right (or primary obligations),260 and the norms of contract liability should be moved into the civil liability law as the norms of remedy of rights and interests. The positioning of the contract law as a special law of obligations is not only because that contract is the basis for the generation of obligations but also because the contract is a way to create rights and interests through the parties’ autonomy, which belongs to the basic rules for determining the order of rights allocation. Taking the contract law as a special law of obligations equips the contract law with the functional presupposition of the tool of rights and interests creation. It implements the distinction between the creation of rights and interests and the remedy of interests and rights. Their functional distinction becomes the basis for constructing the new contract law system. As for its scope, contract liability includes liability for contract conclusion, contract rescission and breach of contract. In a broad sense, contractual liability includes cessation of infringement, the liability of restitution, liability for damages, and compulsory contractual liability,261 while in theory, contractual liability is usually limited to liability for damages. Even if the contractual relationship can be regarded as an “obligation relationship without original obligations of performances”, since it has no “original obligations of performance”, its purpose is only to provide a remedy basis for undue damage in the contracting rather than to create rights and interests. Therefore, the previous understanding of the contractual relationship does not change the nature of “liability” of contractual liability. In the case of contractual liability involving compensation for expectation interests, it is different from the damages for breach of contract based on causing liability. However, there is no difference in the principle of formation of the same liability.262 Although the rescission of the contract eliminates the effect of the contract’s primary obligations, it does not cancel the benefits obtained by the obligee due to the contract. Therefore, when the contract is cancelled due to breach of contract, the breaching party should still bear the performance interests (or expectation interests) of liability for damages

260

In terms of function, the contract can be reduced to the basis of the occurrence of obligation. Just like the practice of most countries, the contract law is a special law of obligation. However, contracts can also be greatly changed into the general basis for the formation of human relations, just as what the German Civil Law supposed. In this case, contract law is not debt relationship law, but it should be regarded as the legal system of the consensual creation of legal relationships between individuals. Sibylle Hofer, Vor §145. Vertrag, im Kommentar zum BGB, Band I, Allgemeiner Teil §§1–240, Mathias Schmoeckel Redaktion, Mohr Siebeck 2003, S. 819ff. This book adopted the legal practices of many countries, but the relevant conclusions still apply to the broader functional orientation of contracts. 261 See chapter 2, Sect. 3, “Form of Liability”. 262 Contracting expectation interests compensation mainly relates to a situation where a contract that has already been established cannot take effect due to reasons attributable to one party. In this case, the liability requirement for contracting liability is not so much as to point to "damage", but it has the effect of creating expectation interests of the counterparty through concealed legal formulation technology based on legal policy reasons, which can be found in Judicial interpretation [2009] No.5 Article 8.

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under the general rules of liability for breach of contract.263 Liability for breach of contract is conditional on non-performance of contractual obligations and is intended to remedy violations of rights and interests arising from breach of contract. The relief for the rights and interests for breach of contract include the expectation interests (or performance interests) created by the contract and the inherent or Integritätsinteresse related to the performance of the contract. It can be seen that when it comes to contractual liability, the focus is always on the protected rights and interests that have been infringed due to the causes of liability, and it is in contrast with primary obligations relationship which aims at the creation of rights and interests. Judging from the normative content of contract laws in various countries, the basic content of contract law is constituted by the conclusion of the contract, the content or validity of the contract, the performance of the contract, the interpretation of the contract, the changes of contract and the rules of extermination. They are all related with the rules for occurrence, performance and elimination of obligations, while the rules for contract liability (including the liability for breach, contractual liability and liquidation liability after contract cancellation) are included in the normative system of contract law. Compared with the aforementioned rules, their proportion is much smaller (less than 20% in Chinese contract law, PICC, PECL, and a lower proportion in other legislation), and the degree of association with other rules is much lower.264 Rules of contractual liability included in contract law are not because of the nature of their “contract” liability but because they are related to “contract”. In view of this, norms of contract liability should be separated from the contract law so that they can be taken as the norms of the civil liability system together with the norms of tortious liability and the contract law can be purified into a normative body for regulating the voluntary creation of civil rights. (3) Conversion of Tortious Liability Norms to General Civil Norms of Liability Although this term may be too broad, tort law has always been regarded as legal rules to regulate the liability outside the contract.265 In fact, tort law does not have a scope of application that has been determined from the outset. The use of tortious liability to refer to extra-contractual liability may just be a matter of convenience in terms. It is intended to emphasize that such liability is not necessary if the parties have a prior 263

See Wang Liming, Contract Law Research (Vol. 2), China Renming University Press, 2011, p. 326. Cui Jian yuan, ed., Contract Law (5th ed.), Law Press China, 2010, p. 263. Han Shiyuan, The Law of Contract (3rd ed.), Law Press China, 2011, p. 540. Zhu Guangxin, General Principles of Contract Law (2nd ed.), pp. 530–531. Lu Qing, Rescission of Contracts and Liability for Breach of Contracts: A Review from the Perspective of Claim of Rights, Northern Legal Science Vol. 6, 2012, p. 84. 264 It is worth noting that the more legislation that regulates the contract as an independent field, the more comprehensive the normative content contained in the contract law; The more legislation that places the contract law in association with other legal systems, the more limited the content of the “contract law” is. International legal documents related to contract law (such as PICC and PECL) belong to the former; Civil law countries belong to the latter. Of course, this conclusion is mainly observed from the perspective of “General Provisions of Contract Law”. 265 See Christian von Bar, Gemeineuropäisches Deliktsrecht (Vol. 1), Zhang Baoxin Trans, Law Press China, 2004, p. 3.

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connection.266 However, suppose the fact that there is a contract between the parties does not have the effect of excluding tortious liability, such as in the case of personal injury caused by breach of contract obligations. In this case, the court usually tends to determine liability based on tort law. Then, we should try to understand why this connection is meaningless to tortious liability by examining its special significance for contractual liability. Why isn’t there liability for breach of contract without a valid contract? This can only be understood from the perspective of rights and interests created in the contract because the object of remedy for breach of contract liability is the rights and interests created in the contract. If the rights and interests protected by the liability for breach are not the rights and interests created by the contract just like in the case of breach of protective duty of contract, then the validity of the contract is meaningless for the determination of civil liability, which can be proved through the explanation of the “theory of unified protective duty”.267 The rights and interests created by the contract are either expectation interests or protection interests. As long as the interests are related to the purpose of the contract, it can be the objects of remedy for breach of contract. In this sense, a valid contract has the same normative significance as all legal rules recognising absolute rights and interests (personality rights, real rights, intellectual property rights, etc.). Similarly, unauthorized management of other people’s affairs does not constitute an infringement on rights and interests. On the contrary, the lawful spontaneous agency usually exists when the owner is unable (be absent or incapable) rather than unwilling to enter into a contract with the administrator for affairs administration. Therefore, the lawful spontaneous agency can be treated similarly to the contract in effect, creating a right and obligation relationship between the manager and the owner.268 However, discomfort negotiorum gestiois is just like invalid contracts, which will not have the effect of creating rights and interests but will lead to liability due to involvement in the affairs of others. It means that once out of the rights and interests creation field, the problems caused by the transaction management behavior are only related to the remedy of interests and rights. In contrast, although unjust enrichment is treated as a quasi-contract in the same way as negotiorum gestio in traditional civil law, the restitution of unjust enrichment aims to correct the reservation of unjust enrichment. The real problem is not whether the acquisition of enrichment should be blamed on the obligor of restitution, and restitution obligation of unjust enrichment does not involve the issue of liability in the non-performance of obligation. Therefore, unjust enrichment is more related to the remedy of interests and rights rather than the creation of rights and interests, which is closer to the tort rather than contract as for norms.269 It can be seen that the pre-existing relationship of the parties is introduced into the constitution of liability for breach of contract only because it is related to the remedy of rights and 266

Ibid., p. 1. See section II of this chapter, “I. (ii) Proposal of the ‘Third Way’”. 268 See S.J. Stoljar, Negotiorum gestio, J.C.B. Mohr (Paul’ Siebeck), Tübingen, and Martinus Nijhoff Publishers 1984, p. 16. 269 See Stephen A. Smith, Unjust Enrichment: Nearer to Tort than Contract, p. 181. 267

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interests of the liability for breach of contract. Compared with liability for breach of contract, the particularity of liability for breach lies in that the object of remedy is the obligee’s right created by the contract, while the particularity of the obligee’s right is that it is relative to the obligors’ rights, that is, the person who has accepted the obligations in accordance with the contract is required to promote or even guarantee the realization of obligation rights and interests. However, as an integral part of the order of rights allocation, obligee’s rights demand others’ respect and do not hinder their realization, just like absolute rights and interests. This general legal requirement is different from the claim against a specific obligor, especially in that it does not guarantee the realization of the rights and interests.270 In addition, although it is a general obligation, it always plays a normative role when aimed at the specific person who is violating the rights and interests.271 This universal negative obligation is the normative basis of tortious liability. “In principle, anyone, at any time, in violation of any obligation, or by any means infringes the rights or interests of others, may establish tortious liability”, thus tort law becoming the “common law” of civil liability.272 As Peter Kane believed, the basic structure of tort law is composed of three basic elements: protected rights and interests, sanctioned behaviors and remedy measures. However, such a structure is also suitable for explaining liability for breach of contract and other civil liabilities, thus making it the general structure of civil liability.273 The difference between various types of liabilities not lies in different principles of structure but in the specific way the aforementioned structure elements are embodied in different events. As for the liability for breach of contract, since the obligee’s rights correspond to the obligations, and the obligor has accepted the obligations through the contract, the breach of obligations is imputable. The distinction between result obligation and instrumental obligation is of great significance because it will contribute to determining the content of contracts.274 Such an analytical framework does not apply to tortious liability. From the perspective of general tortious liability, the determination of liability depends on the determination of standards of conduct related to protected rights and interests. The standards of conduct do not reflect the content of the protected rights and interests but merely blame the damage on the perpetrator’s condition. The determination of standards of conduct requires consideration of various factors, such as nature and value of the protected interest, danger of the activity, professional knowledge expected by the actor, predictability of damage, 270

It is said that the most striking feature of contract law is the recognition of strict liability for omission, which general tort law never imposes. See Peter Cane, The anatomy of Tort Law, p.208. In fact, this difference should also be understood from the perspective of protected rights: in addition to the general obligation law, the tort law cannot force the non-designated person to bear the obligation to guarantee the realization of others’ rights. 271 Jacques Ghestin & Gilles Goubeaux, Traité De Droit Civil Introduction Générale, Chen Peng, Zhang Lijuan, Shi Jiayou, Yang Yanni & Xie Hanqi Trans, Law Press China, 2004, p. 179. 272 See Chen Zhongwu, Protected Interests of Contractual and Tortious Liability, Peking University Press, 2013, p. 203. 273 See Peter Cane, The Anatomy of Tort Law, pp. 204–205. 274 See Xie Gen, Reconstruction of Chinese Contract Binding Theory, p. 77.

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the intimacy or the special trust relationship between the parties, and availability and cost of preventive measures or other alternatives.275 The general behavioral obligations and standards of conduct are intended to provide instructions for judgement. Only the specific behavioral obligations determined by the actual situation of the case and specific legal policy (regardless of its content) are important,276 which is different from the situation in which the obligation itself is the behavior requirement of the actor. The necessity of concretization of behavior standards will definitely lead to the uncertainty of judgment results, but it is the common feature of all general norms, for which limited legal norms can only limit the judge’s discretion. In this sense, the provisions of various types of specific infringements have the dual meaning of power authorization and restriction. Compared with other liability rules, the legislation of the contingency provisions of constitution rules of tortious liability is more diverse and extensive, which is its significance. The wider the discretion granted by the legislation, the stronger the need for legal certainty for judges to limit themselves; the narrower the discretion granted by the legislation, the greater the possibility that the judges can break through the legislative restrictions to meet practical needs. Scholars believe that although Article 1382 of the French Civil Code establishes an abstract and generalized tort norm, after the development of judicial practice, it is constantly absorbing the interpretation of the limited mode of German tort law to make regulations.277 Although the limited mode of German tort law increases the certainty of the application of tort law, the transfer from the field of tort law to contract law and the expansion of the scope of tort law through “general security obligation of communication” and the “theory of normative purpose” also indicate the objective reality that the limitation liability field has been broken through. However, the limited liability norm will not impede the determination of liability unless it is understood as the specific operation form of the general liability norm. Like other liability laws, tort law needs to be developed into a general liability norm.278 Judging from the comparative law experience, the expressions of the general provisions of “big” tortious liability are similar to that of the general liability norms. A typical expression of the former is Article 6-1: 101 of the Draft Common Frame of Reference, which stipulates that anyone who has suffered legally-related damages should have the right to claim compensation from the person responsible for his fault 275

See Article 4:102 of Principles of European Tort Law. See Ernest Weinrib, The Disintegration of Duty, in M. Stuart Maddem eds., Exploring Tort Law, Cambridge University Press 2005, p. 145. 277 See Xie Xiaoxiong, Development of Tort Law: Theoretical Transplantation and Experience Reference: Taking the Influence of German Law on French Law as an Example, Northern Legal Science Vol. 6, 2011, p. 147. 278 The extra-contractual liability is a loose unity of liability for fault liability (Verschuldenshaftung), liability for defects (Fehlerhaftung), danger liability (Gefahdungshaftung), sacrifice liability (Aufopferungshaftung), equitable liability (Billigkeitshftung) and other liabilities lacking a basis for imputation (such as reasoning liability/Kausalhaftung), and each of them has a different basis for liability or policy considerations. Vgl. Erwin Deutsch, Allgemeines Haftungsrecht, 2 Aufl., 1996, S.4ff. It is hard to see how such a diverse coalition of liabilities can achieve its unity if not on a more general basis. Once this abstraction is complete, it cannot exclude “contractual liability”. 276

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or other causes as well as from those responsible in other circumstances expressly provided for by law.279 A typical expression of the latter is Articles 1457 and 1458 of the Civil Code of Quebec, which stipulates that anyone who violates the necessary code of conduct or fails to perform the contract commitment and causes damage to others shall be liable for compensation.280 This normative proximity is actually easy to explain. On the one hand, breach of contract and general tort are both “breach of obligations” that lead to infringement of rights and interests in a broad sense; on the other hand, the liability for breach is based on breach of “contractual undertakings”, and the liabilities not based on breach of obligation belongs to the necessary extracontract liability that is clearly stipulated by law. As a result, the auxiliary normative function of the general liability norm exists only in the case of general tortious liability. Since traditional civil law theories often do not distinguish between the imputation causes of liability for breach of contract and tortious liability, if the causes of general tortious liability only emphasize the imputation causes (intention, negligence or other causes) and damage, then there is no way to distinguish breach of contract from general tort.281 In the French mode, the preference of contractual liability over tortious liability also shows that the general terms of tortious liability are more general than those of civil liability. Article 2 Paragraph 1 of Chinese Tort Law only stipulates the common features of tortious liability from the perspective of the tort of civil rights. Although Article 6 Paragraph 1 adds the elements of fault, it is only the concretization of general tort norms without fundamentally changing its generality.282 Therefore, once the normative significance of Article 2 Paragraph 2 of Tort Law is recognized, it is difficult to deny the attribute of the existing general provisions of the Liability Law.283 279

Similar expressions can be found in Article 2027 of Ethiopian Civil Code. Any person shall not bear contractual liability for damage caused by his fault, or for damage caused by activities or things in his possession for which he is legally liable, or for damage caused by a third party for which he is liable. 280 Article 1340 of the Catala draft for the reform of French law of obligations is similar to it: Where any wrongful or abnormal act causes damage to another person, the person reponsible shall be liable for compensation. Similarly, if the failure to perform its contractual obligations causes damage to the obligee, the obligor shall be liable. 281 See Xie Gen, Reconstruction of Chinese Contract Binding Theory, p. 75. 282 According to the current Tort Law in China, the first paragraph of Article 2 belongs to the general clause of “big”, while the first paragraph of Article 6 belongs to the general clause of “small”, which is called by scholars as “the general clause of tortious liability of collocation of big and small”. See Yang Lixin, Analysis About General Articles of Tort Liabilities in China Tort Law, Law Science Magazine Vol. 3, 2010. 283 Professor Yang Lixin analyzed the basic functions of Article 2, Paragraph 1 of Tort Law in six aspects: Firstly, when determining the scope of tortious liability, any tort of civil rights and interests should bear tortious liability. Secondly, the determination of the scope of protection of Tort Law. Thirdly, any tort act that conforms to the principle of fault liability, the principle of presumption of fault and the principle of no-fault liability should bear the liability for damages. Fourthly, for tortious act that has no fault elements but conform to the provisions of Article 15 of Tort Law that assumes other forms of civil liability, these forms of tortious liability shall be assumed. Fifthly, in the case that neither party is at fault for causing damage to one party, the parties shall apply equitable liability for losses and determine their respective liabilities. The sixth is to reserve the

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The integration of the civil liability law is manifested in the constitution of liability and even more in the unification of the effect of liability. According to the requirement of separation of liability basis and assumption of liability, once the constituent requirements of liability are satisfied, legal remedy is no longer related to liability basis but only depends on the tort of protected rights and interests and specific legal policies.284 Since the objects protected by contract and tort are consistent, the relevant rules for determining the scope of liability should also be consistent. When a breach of protective duty of contract (whether agreed or statutory) causes damage to the obligee’s inherent interests (or Integritätsinteresse), it isn’t easy to provide persuasive reasons to prove that the remedy received by the aggrieved party should differ in the result simply because of the choice of different types of proceeding.285 Similarly, although the contract creates the expectation interests of the contract, there is no reason to believe that when a third party infringes on a contractual obligee’s right, the liability of the third party for the infringement of the obligee’s rights should be different from the corresponding range of obligations undertaken by the obligor. The main difference between liability for breach of contract and liability in tort may be that, based on respect for the autonomy of private law, the law allows the parties to make arrangements in advance for the sharing of future accidental damage within limits allowed by the law. Only in this sense the rules for liability for breach of contracts such as liquidated damages and deposits will become special liability rules. Nevertheless, even so, this difference should not be exaggerated. Exemption clauses can also be applied to tortious liability. The parties can resolve disputes through settlement agreements after the infringement, all of which also indicate the value of the contract as an instrument rather than the difference between the liability for breach of contract and the liability in tort. Therefore, it is difficult to deny the uniformity of the effect of liability whether or not the legislation configures a general liability norm or explicitly stipulates that a norm of one type of liability should be applied to another type of liability.286 It should be noted that the establishment of general norms of liability does not change the existing system settings. The first reason is that the existing norms of liability, such as breach of contract liability and tortious liability, are still recognized as specific operational forms of general norms of liability, but the particularity of liability for breach of contract should be limited to the protection the rights and legal application for special tortious liability which happens in the future and is not anticipated at present. See Yang Lixin, General Provisions of Tortious Liability, Law Science Magazine Vol. 3, 2010, p. 12. Were it not for the limitation of “liability shall be borne in accordance with this Act”, the foregoing analysis, through appropriately amended, would fully apply to the functional interpretation of the general norms of liability. 284 See Sect. 2 of this chapter “iii. (I) Separation of ‘Liability Basis’ and ‘Assumption of Liability’”. 285 See Sect. 2 of Chapter 3, “The Distinction between Liability for Breach of Contract and Liability for Tort in Context of China’ Law”. 286 The former is to set up unified rules for compensation, such as the practices in Germany, Portugal, Italy, Austria, the Netherlands, Russia and Ethiopia. The latter is typically shown in Article 99 (3) of the Swiss Federal Code of Obligations: Provisions concerning the scope of liability for unlawful acts may also be applicable to acts violating contracts.

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interests created by the contract (or “contractual undertakings”). In addition, various specific norms of liability are no longer as dispositional as under the “cause mode”, that is, when we face the same protected rights and interests and attributable acts, there are no differences in the results because of the normative determination of the pending facts. In this way, even if the items regulated by the specific norms of liability are the exact (“factual overlaps”), multiple simultaneously applicable norms of liability will only cause real concurrence within the scope of overlapping consequences so that the results of full normative integration theory and normative integration theory is the same. The second reason is that the specific liability norm and the general liability norm belong to the relationship between the special and general laws. Only when there is no specific liability norm applicable can the judge identify the liability according to the general liability norm to ensure that the general liability norm truly integrates different specific norms of liability and supplementing specific norms of liability.

3.4 Summary Scholars believe that the rules for liability for breach of contract and liability in tort were originally designed to facilitate the understanding and application of law, but under the influence of the procedural way of legal thinking, they are performing a “dispositive” function, that is, the same or similar legal facts will cause different proceeding results due to the classification of proceeding.287 The difference in results disrupts the coherence of the value of the legal system and deviates from the original intention of the civil liability system by hindering the remedy of legitimate rights and interests. Today, in an era when legal thinking is becoming more and more substantial, the construction of rules needs to be more flexible, and limitations based on the classification of concepts are questioned. The establishment of the general provisions of civil liability in legislation and the judicial practice which breaks through limited norms of liability to meet the needs of protection are answering the call of the substantive demands of the law. The existence of the intermediate field of contract law and tort law stems from the alienation of the function of distinction of liability types, which will also lose its basis of existence when the significance of this type of distinction is reduced or adjusted, and will bring the legal need to construct a general liability law. The launch of the new civil code and the law of obligations reform movement in recent years have witnessed the generalization of the liability law as a trend. Under the trend of flexibility and integration of liability norms, although the “cause mode” for determining liability consequences based on liability causes is still preserved, its importance has changed, and the value of the “consequence mode” based on remedy is emphasized. For the “consequence mode”, the distinction between types of liabilities serves to concretize the protected rights and attributable acts, thus becoming a truly 287

See Peter Cane, The Anatomy of Tort Law, p. 222.

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“interpretive” legal category, while the flexible general norms of liability have the value of integrating and supplementing to the lack of specific norms of liability. The recognition of general norms of liability does not negate the fair value of specific norms of liability but only reverts their alienized function setting. The General Principles of Civil Law in China has already laid the foundation for the generalization of civil liability but unexpectedly encountered double betrayal of theory and practice, which resulted in the dilemma between normative conflict and system coordination. In order to change this deviation, building a unified civil liability system centering on the consequences of liability will be a feasible way to continue the tradition of General Principles of the Civil Law!

4 Summary of the Chapter The core problem of legal regulation of the intermediate field between contract law and tort law is the remedy of rights and interests, which makes it far away from the contract that aims at the creation of rights and interests and is close to the tort that aims at the remedy of rights and interests. Although contract and tort have their basic functions, it is quite different from expecting a certain system to play a certain function and realise that function is completely dependent on that system. Almost no legal system can fully realise a social goal alone, and the fact that contract law and tort law share the same function in the remedy of rights and interests makes them present a complementary or even substitutive relationship. The interpretation of instrumentalism is only a practical orientation and should not equate the tool with the purpose of its service. However, judging from the actual operation of the private law system, once the existing tools of interpretation have the effect of disposal, there will be overlapping fields between different normative tools. The intermediate field is the institutional manifestation of this overlapping phenomenon. Therefore, the legal regulation in the intermediate field has the following two systematic effects on private law: The first is the impact on the intermediate field itself. The intermediate field has the characteristic of fuzzy attributes and does not have the typical characteristic of the existing legal type. This kind of fuzzy attribute is reflected in the inability to classify it according to existing classification standards and the disturbance of the new classification standards to the construction of existing types. Whether the theory of “fiduciary liability” based on trust or the theory of “protection liability” based on the object of protection, has been criticized because the classification standards they used cannot be implemented smoothly. However, the intermediate field also has the characteristics of a certain type of integration. It has some characteristics of the existing legal types simultaneously but does not have all their characteristics. In addition, the degree of integration will vary with specific situations, so it is difficult to be a stable legal phenomenon. This kind of instability requires that the relevant legal regulations are more substantive than traditional regulation methods, that is, the regulation results should be consistent with the actual situation of the case. In terms

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of substantive treatment, the positioning characteristics of the results of relief for the rights and interests are of special importance, and the combination of protected rights and interests and the attributable acts is important in the specific situation, regardless of whether the relationship should be characterized as contractual relationship or tort relationship. The substantiation of this combination of the specific situation determines the general structural form of the remedy of rights and interests and eliminates the necessity of the existence of the intermediate field. The second is the impact on the theory of law of obligations or the civil liability system. Different from the traditional understanding, the civil liability law is not a natural part of the law of obligations but has a overlapping relationship with it in the effect of liability. The abstractness of the concept of obligations enables it to include broader normative contents. However, due to the functional differences between the original obligations of performance, the protective duty and the secondary performance obligation, the law of obligations is more suitable to be a part of the order of rights allocation in terms of institutional functions. As a result, contract law has become the core content of the law of obligations. The distinction between the creation of rights and interests and the remedy of rights and interests means that in traditional theory, the contract liability norms considered as part of the contract law should be separated from the contract law. Together with other norms of relief for the rights and interests, such as liability for tort, they constitute an integral part of the civil liability law. Tort Law has established the general structure of the civil liability law because it contains the general normative elements of the liability law. At the same time, tortious liability has lost its uniqueness due to its diversified normative principles, so it has the institutional demand to evolve into the general norms of liability. In terms of the composition of the content of the civil liability system, it is necessary to distinguish between the norms of liability establishment and the norms of assumption of liability (or the norms of the legal effect of liability). Although the establishment of liability has its general normative elements, the abstract requirements of liability are not conducive to the practical needs of the rule of law, which should be specified in combination with specific normative situations. As a result, the judgment of the establishment of civil liability is under the integration of general norms of liability, and specific tasks need to be allocated between the legislation and the judiciary. Therefore, the traditional norms for contractual liability, liability for breach of contract and tortious liability have acquired the status of special norms of liability. It is clear that these special norms of liability are only concrete forms of the general norms of liability. They should be implemented under the guidance of the general norms of liability and should not be the closed type of limiting the remedy function of general norms of liability. Similarly, the special provisions on civil liability norms in various civil special laws also need to be applied. In this way, the overlapping of specific liability types on normative objects won’t be normatively problematic. In this regard, the normative concurrence theory and the full normative integration theory proposed for the concurrence of liability in the field of contract and tort have included the normative significance of breaking through the dispositive function in the field of liability, but they have not been clearly illustrated in theory.

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From the perspective of the comparative law, the normative integration of civil liability is more concentrated on the uniformity of the effect of liability, which is consistent with the positioning characteristics of the result of civil liability. For the remedy of rights and interests, once the constitutive requirements of liability are met, the effect of liability will be separated from the basis of liability and have its own independent constitutive principle. Under certain circumstances, this principle is expressed as the principle of “consistency between remedy and protected rights and interests”. Regardless of the basis of the remedy, as long as the protected rights and interests are the same as tort, the same remedy effect is required in principle. Due to the consistency of the protection objects between contractual liability and tortious liability, the integration of the effect of liability is consistent with the trend of the two kinds of liabilities in the world. In this sense, in order to meet the logical and practical requirements of relief for the rights and interests, the traditional theory should reflect on the effect of the distinction between contract and tort. In accordance with the logic of right-obligation-liability, the General Principles of Civil Law in China have established a distinctive civil liability system, which regulates the liability for breach of contract and the liability for tort uniformly. However, in the subsequent legislation of Contract Law and Real Rights Law, such uniformity is gradually ignored, resulting in the double deviation of theory and practice from the legislation. However, the broad scope of protection of contract law makes it consistent with tort law in terms of the protective object, causing the seemingly narrow form of liability for breach of contract to expand with the quasi-application or even direct application of the norms of liability in tort (such as making an apology and the elimination of the influence of liability for breach of contract). The approach of liability for breach of contract and liability in trot has become a fact. Tort law tries to continue the tradition of the General Principles of Civil Law in China and stipulates a wide range of general provisions and forms of liability in trot, which further results in the intersection of the liability in trot and the real rights protection norms established by the Real Rights Law. It is difficult to carry out the theoretical inference and institutional practice based on the assumption of abstract logic because of this multi-faceted normative situation. It may be the most promising way to restitute to the General Principles of Civil Law tradition in China. According to this tradition, the substantive rather than formal institutional structure will be valued. The type distinction based on the formal legal thinking should be given the function of interpretation rather than disposal. Therefore, the construction of the unified civil liability system proposed by the discussion of the legal regulation in the intermediate field has not changed the basic structure of the existing systems of contract and tort law but only changed the way of understanding and applying these systems.

Conclusion

The intermediate field is the “grey area” between contract law and tort law. In theory, the relationship between contract and tort law is usually discussed from the distinction between contract and tort. Therefore, this book starts with the general standards of the theoretical distinction between contract and tort and discusses the actual effect of the distinction of these standards. We find that it is only in the remedy of rights and interests that contract and tort are connected. In this respect, the logic of the distinction between contract and tort tends to become invalid. The distinction between contract and tort is not equal to that between liability for breach of contract and liability in tort, nor is it equal to that between contract law and tort law. The supposed equivalence is the cause of theoretical confusion. From the discussion on the expansion of contract and tort law, we again find that the two laws gradually deviate from their original functional presuppositions. The phenomenon of expansion and transfer in the field of relief for the rights and interests also indicates that the intermediate field only exists in the field of relief for the rights and interests. Based on this understanding, we can develop the theoretical map of legal regulation in the intermediate field.

Causes and Characteristics of Intermediate Field Between Contract Law and Tort Law As two different fields of legal regulation, contract and tort law are preset with their own independent domains. For example, a contract is a tool for voluntary creation of rights and interests, while contract law is a set of norms for creating and implementing such rights and interests. Tort is the fact that causes the injury of rights and interests, and tort law is the norm for sharing accidental damage. The standard for distinguishing between contract and tort, based on the nature of relevant legal obligations, the type of protected object and the form of protected interests, is only valid under the premise of the foregoing presupposition. However, the instrumentality of the contract enables it to protect the Integritätsinteresse. Even with the strictest definition, it excludes a contract with protective purposes from the field of contract © Huazhong University of Science and Technology Press 2023 J. Zhang, Modes of Regulation in the Intermediate Field Between Contract Law and Tort Law, https://doi.org/10.1007/978-981-19-9107-3

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law. In addition, due to the complexity of the contents of the contractual relationship, the protection effect can be introduced into the contract based on the consent of the parties. It can be recognized through legal provisions and the principle of good faith. Once the protection effect of contracts is recognized, contract law will inevitably share the remedy function of rights and interests of tort law, causing the two laws to influence each other in the legal principles (“principled overlaps”) and providing a prerequisite for the formation of the intermediate field. However, only when there is a lack of legal norms that can be directly applied to the facts of life that require legal regulation due to the normative structure of positive law (shortage of norms), or when two legal norms regulate the same facts of life at the same time, and their regulation effects are different (normative concurrence), will we need the special regulation in the intermediate field. Therefore, the concrete scope and form of the intermediate field will be subject to the specific structure of positive law and cannot be determined abstractly. When there is a shortage of norms (“the fuzzy field”), the core issue is the design and application of substantive norms, but the requirements for the consistency of the value of the legal system may also be expressed in the way of legal formalism. Categorization issues will be raised (such as disputes over the nature of pre-contractual liability and protective duty of contract). Since this kind of overlapping domain has a fuzzy attribute, categorization issues can only be a wrong hypothesis, which is not helpful to legal practices. When normative concurrence occurs (“the overlapping field”), contract and tort law will be regarded as independent and opposite rules according to legal formalism. This is mainly reflected in the theory of Gesetzeskonkurrenz and the theory of Concurrent of Claims. The theory of concurrent norms of claims and complete normative integration theory focuses on the consistency of the objectives of different norms of liability to better conform to the substantive needs of relief for the rights and interests. However, contract law and tort law have a more complex relationship. Overlap of articles of laws, concurrent claims and concurrent norms of claims can meet the demand of relief for the rights and interests under limited conditions, and the handling of liability concurrence is not limited to the setting of a single regulation mode. In a word, the overlapping of the normative functions of contract law and tort law is the institutional reason for the formation of the intermediate field, the basic form of which is “the fuzzy field” and “the overlapping field,” and the normative form of which is factual overlaps and principled overlaps.

Normative Goal and Regulation Mode of Intermediate Field The intermediate field has the normative demand of relief for the rights and interests, which is based on its theoretical logic and Chinese positive law. According to the form of association with valid contracts, the intermediate field can be divided into three typical fields: pre-contractual stage, stage of performance contract and courtesy relationships. Pre-contractual stage has the attribute of the

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intermediate field in the sense of being opposite to the Zielvertrag. In terms of relief for the rights and interests, the liability basis of the pre-contractual stage is more diverse than the common understanding in theory. The existing liability basis (such as breach of contract, tort, unjust enrichment, etc.) can provide the legal basis for the relief for the rights and interests at this stage. For the narrow sense of contractual liability with damages as the content, the standard for “contrary to good faith” stipulated in Article 42, Item 3 of the existing Contract Law of China has the significance of absorbing fault and wrongfulness elements, thus becoming the general imputation standard of contractual liability. The determination of pre-contractual obligation is based on the determination of liability, and the judgment of breach of obligation is consistent with the judgment of imputation. Contractual liability is subject to the dynamic development of the contractual relationship, and it also shows diversified characteristics in the form of protected interests. Not only Vertrauensinteresse (including opportunity interests), but also expectation interests to be the protected objects of contractual liability. The intermediate field at the stage of performance contract shows the characteristics of more norm interleaving between contract law and tort law. protective duty of contract has the attribute of contractual obligation, which determines or changes the content of the duty of care in tort law, thus providing the basis for the preferential application of the norms of contract liability and the application of the effect of tortious liability. The concurrence of liability is a typical result of the factual overlaps. The single settlement mode is difficult to adapt to the more complex relationship between contract law and tort law. When it comes to the protection to the third party of the contract, the contract for the benefit of the third party, based on its unique instrument value, can provide the third party with a more convenient or superior protection effect beyond the tort law. However, the importance of the parties’ intention to include a third party in the scope of contract protection should be emphasized. Where such intention obviously lacks, remedies should be provided through tort law. Although courtesy relationships can play a similar role to contract as the legitimate reason for the beneficiary to obtain rights and interests, the particularity of legal regulation of courtesy relationships is more manifested in the legal remedy caused by courtesy performance. Although we should consider the influence of the relationship between the parties on the relevant standard of conduct in the judgment of liability constitution and pay attention to the mitigation effect of the courtesy factors in the assumption of liability, we should not regard it as substantially different from tortious liability. It can be seen that the intermediate field, which aims at the remedy of rights and interests, is distinguished from the norms for the creation of rights and interests in terms of its normative nature. All the existing theoretical conceptions about the intermediate field are its manifestation. Treating the intermediate field as a third field different from contract and tort and developing a third type of liability accordingly is conducive to restoring the function preset of contract law and tort law. Nevertheless, it is difficult for normative types to form an effective distinction, which is contrary to the characteristics of types integration inherent in the intermediate field. Therefore, they are not successful. On the contrary, by separating the liability basis from liability

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assumption, the liability is established based on more general constituent requirements in combination with the specific situation, while, in terms of the assumption of liability, the liability effect is determined grounded on the principle of “consistency between remedy and protected rights and interests”,which is a feasible way to solve the regulative problems in the intermediate field.

System Effect of Regulation Mode in the Intermediate Field Since the legal regulation in the intermediate field reflects the general characteristics of relief for the rights and interests, it provides a new perspective for the reflection on the relationship between obligation and liability and the construction of the civil liability system. Contracts are mainly represented as a tool for the creation of rights and interests. In this sense, contract law and personal right law, real rights law and intellectual property law are all subordinate to the order of the ownership of civil rights and interests. In view of its abstractness, the concept of obligation can include some forms of liability (such as liability for damage), and thus the effect of liability is the normative object of the law of obligations. Liability, however, is opposite not only to obligations but also to protected interests and rights. Liability is the guarantee of all protected interests and rights. Although the breach of duty is the general cause of civil liability, it is not the necessary condition of non-civil liability. Civil liability does not necessarily follow the evolution logic of right-obligation-liability but can also be manifested as the special combination form of right-liability. Accordingly, under the logic of the distinction between the creation of rights and interests and the relief for the rights and interests, civil liability law should be separated from the general law of obligations and become an independent field of private law. The norms of liability in contract law should also be independent of contract law and become the normative content of the civil liability law together with other norms of liability. The unified civil liability law is based on the integration of liabilities, resulting from the similarities of the structure characteristics of different norms of liability. The protected rights and interests and behavioral elements contained in the tortious liability norms reflect the general structure of relief for the rights and interests, and thus the general provisions of tortious liability can be developed into general norms of liability. At the same time, general norms of liability need to be concretized in different normative situations. As the legislative forms of such concretization, norms for liability for breach of contract, tortious liability, contractual liability, the liability of restitution and claim for real rights have the status of special norms of liability. However, different from traditional understanding, these special norms of liability no longer have a dispositive function. Effects of the different remedy cannot be set for the same damaged rights and interests, but only for the establishment of liability to perform interpretive function, thereby avoiding the conflict of normative effects caused by factual overlaps, and leaving room for general liability norms to solve the

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shortage of special liability norms. while it disintegrates the dispositive function of the basic classification of liability, the integration of civil liability is dispelling the necessity of the existence of the intermediate field.

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