On the legislative perfection of the compensation system of trust interest damage in China

Abstract:Based on the legal basis of good faith and the purpose of maintaining the security of transactions, China's Contract Law establishes the damage compensation system of the liability for contracting negligence. However, on this issue of liability, there is still a lack of specific operational legal provisions, there is a big controversy in the theoretical circle, and the standards of specific operations in judicial practice are also very different. The essence of the liability for contracting negligence is the liability for the benefit of trust in the process of contracting. In order to give full play to the function of the system, this paper summarizes the defects and shortcomings of the current system in the light of the current legislative provisions of our country, and puts forward some suggestions to improve the system of compensation for damages of trust interests in our country, with a view to the re-construction and perfection of the contract liability system in our country.

Key words:Contractual negligence liability reliance interest damages.

1. the concept of trust interest

Contractual negligence liability is an independent form of civil liability that exists side by side with liability for breach of contract and tort liability and belongs to supplementary application. It refers to the liability for damages in the course of the conclusion of a contract when one party violates its obligations under the principle of good faith and the law, resulting in damage to the trust interests of the other party. The object of the breach of the contract is the trust interest.

The system of contracting negligence is aimed at protecting the interests of reliance between the contracting parties, so what is the interest of reliance? The interest of reliance was first proposed by the American jurist Fuller and his student Padiu. Fuller has done a great deal of research on the shortcomings of the then-US contractual law's strict principle of jorism on damages (I. e., "either full compensation expects benefits or no liability"). Through the study of the purpose of damages, he found the basis behind the contractual liability-trust interest, and proposed that if the plaintiff changed his situation or missed the opportunity to enter into other contracts based on the trust of the defendant's promise, then the plaintiff should be compensated for the damage suffered by relying on the defendant's promise. This theory breaks through the strict joreism and creates a precedent for the protection of trust interests in common law countries. It is very difficult to define the concept of reliance interest accurately.^[1]

There are different views on the concept of reliance interest in academic circles. In summary, it can be divided into two categories: "loss theory" and "benefit theory. The "loss theory" understands the trust interest as a contractual "loss". The main points of view are: the trust interest, refers to the parties believe that the legal act is valid, and because of a fact, the legal act (especially the contract) is not established or invalid and the loss, also known as the damage of negative interests.^[2]Trust interest refers to the non-benefit suffered by others due to the establishment and validity of the trust contract, but due to the result of the invalidity and invalidity of the contract.^[3]The "interest theory" understands the trust interest as a contractual "interest", the main point of view is: the trust interest refers to the conclusion of the contract parties as a result of relying on the promise of the other party.^[4]The interest of reliance refers to the right of the contracting party to the right not to be infringed by the present interest and to the good faith expectation of the future available interest, which is enjoyed by the contracting party in the course of contracting.^[5]The two theories define the concept of reliance interest from different angles.

The author agrees with the view of "interest. Because the view of "loss theory" has the following defects: first, it has logical defects, and the relationship between interest and loss is opposite, which violates the formula of definition = genus difference; secondly, it limits the existence of the loss of trust interest to the two situations of failure and invalidity of the contract, but it is not known that the loss of trust interest also exists in the case of the effective establishment of the contract. Finally, the loss of reliance interest is based on reasonable reliance on the actor's contractual conduct, not on reliance on the establishment and validity of the contract. In addition, some scholars have created the concept of "trust relationship" to explain the trust interest, and believe that the trust relationship is the environment in which the trust interest exists, and the trust interest is the specific after the inherent interest enters the trust relationship.^[6]The author believes that it is not without reason.

2. the defects of our country's provisions on the compensation system for the interests of trust.

(I) the provisions of China's current legislation on the system of compensation for damages to the interests of trust.

In China, the General Principles of Civil Law and the Contract Law provide for damages for the interests of reliance. Article 61, paragraph 1, of the General Principles of the Civil Law states: "After a civil act has been recognized as invalid or revoked, the property acquired by the party as a result of the act shall be returned to the party that suffered the loss. The party at fault shall compensate the other party for the losses suffered as a result, and if both parties are at fault, they shall each bear the corresponding liability." Article 66 provides that in the case of an unauthorized agent, if the agent refuses to ratify, the contract shall be converted from validity to invalidity, and the unauthorized agent shall bear the liability for the contract's negligence. Article 42 of the "Contract Law" stipulates: "If a party has one of the following circumstances in the process of concluding a contract and causes losses to the other party, he shall be liable for damages: (1) Under the pretext of concluding a contract, maliciously negotiate; (II) deliberately conceal and conclude Important facts related to the contract or provide false information; (III) other acts that violate the principle of good faith." Article 58 states: "After a contract is invalidated or revoked, the property acquired as a result of the contract shall be returned; if it cannot be returned or is not necessary to return it, it shall be compensated at a discount. The party at fault shall compensate the other party for the losses suffered as a result, and if both parties are at fault, they shall each bear the corresponding losses." Article 97 stipulates: "After the termination of the contract, if it has not been performed, the performance shall be terminated; if it has been performed, according to the performance and the nature of the contract, the parties may request restoration, take other remedial measures, and have the right to claim compensation for losses."

Deficiencies in the provisions of the current (II) legislation on the compensation for damages to the interests of reliance

First, there are no clear and specific provisions on the scope of damages for reliance interests and their calculation methods. From the provisions of our country on the compensation system for damages of reliance interests, it is not difficult to find that the legislation only makes general provisions on the compensation of reliance interests, such as "compensation for losses" and "liability for damages", which is quite vague. And there is no clear stipulation on what exactly is included in the scope of damages for reliance interests.

Second, there is no provision for the limitation period for the right to claim damages for trust interests. As an independent claim, how to determine the period of limitation of action? Is it necessary to stipulate the period of limitation of action?

Third, the limitations of legal provisions in terms of language expression make the understanding of legal provisions ambiguous. When there is a mixed fault only the contract is not established, invalid or revoked, "should each bear the corresponding loss", is each bear the loss caused by itself, or according to the proportion of fault to bear the loss?

Fourth, there is no provision for the corresponding applicable rules for damages for reliance interests. The liability for breach of contract is limited by the "rule of predictability", so does the rule apply to damages for reliance interests?

In addition, whether the system of reliance interest damages is now stipulated in the Contract Law is appropriate? These are all questions worth thinking about.

The legislative proposal 3. perfecting the compensation system of trust interest damage in our country.

The principle of good faith is the legal basis for the emergence of the system of damages for the benefit of reliance, and the maintenance of transaction security and transaction order is its purpose. Its function is very similar to the system of good faith acquisition in civil law. In order to conclude the contract, the contracting parties begin to implement social contact or transactional contact, that is, the two parties have formed a relationship of actual contact and consultation. And this contact is the parties to form a special contact, and so that the two sides formed a special relationship of trust. Based on the principle of good faith, the contracting parties must fulfill certain obligations to ensure the establishment and validity of the contract. When the contract is not formed, invalid or revoked due to the process of one party, it is indeed necessary to compensate and make clear and specific provisions in order to maintain the security and order of the transaction and to protect the loss of the trust interests of the party without fault. According to the shortcomings of the current legal provisions, the paper puts forward some suggestions for perfection, with a view to the re-construction and perfection of the contract liability system in our country.

(I) legislation should clarify the scope of compensation for damages to the interests of reliance.

The loss of trust interests includes both the reduction of the direct property of the relying person as a result of the other party's contracting negligence, such as the payment of various expenses, etc., and the benefit that the property of the relying person should increase but not increase, such as the loss of some due opportunity due to the validity of the contract of reliance. In a nutshell, it mainly includes the damage and lost benefits.

1. Damage suffered

The damage suffered is referred to in doctrine as positive damage, which refers to the loss of the victim's existing property, for example, the medical expenses incurred in the treatment of a physical injury, and the value of the impairment caused by the collision of a truck.^[7]It should be noted that the damage caused by the non-establishment, invalidity or revocation of legal acts, in addition to property damage, has non-property damage. And can compensation be claimed for non-property damage?

As we all know, for the purpose of encouraging transactions and promoting wealth creation, the Contract Law stipulates that the liability for breach of contract is limited by the "rule of predictability", and that the parties may not claim compensation for moral damages when they sue for breach of contract. The traditional view is that reliance interests do not include property interests. However, the author believes that based on the existence of trust interests in the environment of trust relationship, the principle of good faith puts forward higher requirements for both parties, and the loss of non-property interests caused by violation of obligations such as notice, assistance, and confidentiality should be compensated. This can often provide more comprehensive relief to the parties in practice.

2. Lost benefits

The loss of benefits, known in doctrine as negative damage, refers to the existing property should be increased without increasing the loss suffered, for example, due to physical injury can not work caused by reduced wages, truck hit can not operate and reduced income.^[8]Mainly refers to the loss caused by the loss of the opportunity to enter into another contract with a third party.

There are different views in the academic circles on whether this indirect loss should be compensated. Professor Wang Zejian believes that compensation should be paid. Some scholars believe that the loss of trust interest is limited to direct loss. The direct loss here refers to various expenses incurred due to the establishment and entry into force of the trust contract, specifically including: first, various reasonable expenses incurred for contacting the other party, visiting the site and inspecting the subject matter due to the trust of the other party's invitation and valid offer; Second, reasonable costs incurred in preparing for the conclusion of the contract by relying on the other party. Third, the interest lost on the expenditure of the above-mentioned expenses.^[9]Other scholars believe that the principle of full compensation should be applied, including direct and indirect losses.

The author believes that indirect losses should be compensated, but how the loss caused by the loss of contracting opportunities should be calculated needs to be further clarified. "When the trust interest is constituted by the loss of the opportunity to conclude similar contracts with others, there is a tendency for the trust interest and the expectation interest to be close to each other", and there is even a phenomenon of "complete consistency between the trust interest and the expectation interest.^[10]Therefore, compensation for indirect losses should adhere to a more stringent standard, otherwise it will erase the difference between liability for breach of contract and liability for contracting negligence, contrary to the original intention of the legislator to treat these two kinds of liability differently.

Compensation for loss of the opportunity to contract with a third party should be based on the measure that the opportunity to contract with a third party must exist and that the opportunity has indeed been lost as a result of the conduct of the obligation to contract.

(II) Limitation of Action on the Right to Claim for Damages to Trust Interests

The debt of trust interest damages is juxtaposed with the debt arising from breach of contract, infringement, unjust enrichment and management without cause, and should be one of the basis for the occurrence of the debt. The General Principles of Civil Law provide for the ordinary statute of limitations and the short-term statute of limitations, so how should the statute of limitations period for claims for trust interest compensation be determined? Mr. Wang Zejian put forward in the fifth volume of "Civil Law Theory and Case Study" that "the statute of limitations for the right to claim damages for trust interests arising from the failure or invalidity of legal acts shall be determined according to the statute of limitations for the performance of the right to claim damages when each legal act is effectively established, and the law shall also apply to the right to claim damages for trust interests if there is a short-term statute of limitations for the performance of limitations." This practice of determining the period of limitation of action has reference significance.

(III) to resolve the ambiguity of the law through other means such as judicial interpretation

This legal technical problem can be solved by means of legal interpretation. Because judicial interpretation is within the scope of the text of the law, it is the proper meaning of the law, so the judicial interpretation has retroactive effect, in order to enhance the operability of the law. It is very necessary to formulate corresponding judicial interpretations and summarize some representative judicial precedents and theories to guide specific judicial practice.

Clarify the rules applicable to damages for reliance on (IV) by reference to the rules applicable to damages for expectation of interest

The liability for damages for breach of contract is limited by the "predictability rule", the "profit and loss offset rule" and the "mitigation rule. So, do these rules apply to reliance interest damages?

1. The rule of foresight may apply to damages for reliance on interests

Article 113 of the Contract Law provides that damages shall not exceed the loss that the breaching party foresaw or should have foreseen at the time of the conclusion of the contract and may be caused by the breach of the contract. For the sake of promoting the development of trading activities and ensuring the normal conduct of trading activities, the indemnification obligor is liable for damages only for the loss of trust interests that may be caused by his violation of the principle of good faith, which can be foreseen at the time of the consultation.

2. The rule of profit and loss offset may be applied to damages for reliance on interests.

The rule of profit and loss offset means that when the right holder of compensation receives an interest for the same reason as the damage occurred, the benefit should be removed from the damage suffered to determine the scope of the damage, which is the basic rule of the damage compensation system. In the damage compensation of trust interest, the benefit of the compensation right holder because of the violation of the principle of good faith of the compensation obligor should be deducted from the damage suffered, with a view to achieving justice.

3. Reliance interest damages may apply the rules of mitigation of losses.

Mitigation of loss is a legal obligation, the legal basis of which is mainly the principle of good faith in civil law, which means that after one party defaults and causes losses, the other party should take reasonable measures in a timely manner to prevent the expansion of the loss, otherwise, it should be responsible for the expansion of the loss. When the compensation obligor causes the loss of the other party's trust interests due to the violation of the principle of good faith, the party shall take reasonable measures in a timely manner to prevent the expansion of the loss, otherwise, it shall be responsible for the loss of the enlarged part.

The positioning of the (V) trust interest damage compensation system.

As one of the reasons for the occurrence of debt, the system of compensation for damages for trust interests is different from the compensation for damages for tort and damages for breach of contract. Damages for the benefit of reliance in the liability for contracting negligence occur at the contracting stage and the contract has not yet been established. The Contract Law provides for the conclusion of contracts in Chapter II of the General Provisions, and some scholars have suggested that the system of damages for trust interests is an independent system that should be provided for in the General Provisions of the Law of Debt.

The author believes that this approach is completely unnecessary. The reason is that: firstly, although the liability for contracting negligence is a kind of liability of debt, it occurs in the process of contract conclusion when the parties contact and negotiate for the conclusion of the contract, and it is closely related to the conclusion of the contract. If it is stipulated in the general part of the debt in the Civil Code, it will artificially reduce its nature of "liability occurring in the process of contract conclusion, to sever its link with the contract being concluded.^[11]Secondly, the concept of contractual liability should be understood in both broad and narrow terms. Contractual liability in the narrow sense refers only to liability for breach of contract, while contractual liability in the broad sense, which can also be called liability in contract law, refers to liability that occurs in the course of the conclusion of the contract, including liability for contractual negligence and liability for breach of contract.

In short, positioning the liability system for contracting negligence in contract law can not only ensure the integrity and stability of the law, but also reflect the nature of an independent liability that "occurs in the course of the conclusion of the contract. (5016 words)

References

[1][US] L. L. Fuller, "Trust Interests in Contract Damages", translated by Han Shiyuan, edited by Liang Comet, "Civil and Commercial Law Series" (Volume 6), Law Press, 1997 edition, pp. 410-461.

[2] Wang Zejian, "Civil Law Theory and Case Study", China University of Political Science and Law Press, 2005 edition, pp. 181-182.

[3] Wang Liming, "Liability for Breach of Contract", China University of Political Science and Law Press, 1996 edition, p. 601.

[4] Yang Lixin, "A Study of the General Principles of Debt Law", Renmin University of China Press, 2006 edition, p. 60.

[5] Ye Jianfeng, "A Study of the System of Contracting Negligence", in Liang Huixing, ed., "A Series of Civil and Commercial Law" (Vol. 19), Law Press, 2001 edition, p. 554.

[6] Yu Lili, "On the Legal Relationship of Reliance", Law Review (Bimonthly), No. 5, 2006.

[7] Wang Liming, "Essentials of Contract Law and Case Analysis (General Provisions)", Renmin University of China Press, 2001 edition, pp. 78-79.

[8] [US] L.L. Fuller, William R. Padiyou, Jr., "The Interests of Reliance in Contract Damages", translated by Han Shiyuan, in Liang Huixing: "A Series of Civil and Commercial Law" (Volume 7), Law Press, 1997 edition, p. 437.

[9] Wang Peiren, "A Study of Liability for Contracting Negligence", People's Court Press, 2004 edition, p. 108.

[10] Li Sheng, "An Analysis of the Concept of Reliance Interest", in Contemporary Law, No. 1, 2002.

[11] Han Shengnan, "Trust Interests and Expectation Interests in Compensation for Breach of Contract", Legal System and Society, No. 3, 2008.

(This article won the third prize of Jinan excellent lawyer paper in 2010)