Summary of the case:

 

At the end of 2009, Village Enterprise A signed a "Shop Lease Contract" with Company B, stipulating that Company B would lease 8000m2 for a 15 year lease term. Paragraph 3 of Article 12 of the "Shop Lease Contract" stipulates that if the lessee fails to pay the rent in advance for more than 15 days as agreed, the lessor may, without any supervision, terminate this contract by notifying the lessee in writing, and the date of delivery of the notice to the lessee shall be the date of termination of the contract.

 

At the beginning of 2010, Company B signed a "Lease Contract" with Supermarket C, and Company B subleased 7000 m2 to Supermarket C for a lease term of 10 years.

 

The three parties performed well in the first six years of the lease term, but by the fourth quarter of 2016, due to the sudden excessive delay in rent payment by Supermarket C, Company B was short of cash flow and unable to pay the rent on time. When Company B actively raised funds to pay the rent to Village Enterprise A, Village Enterprise A suddenly changed its trading habit of collecting rent by cheque in the previous six years and refused the cheque. In desperation, Company B inquired around and learned about the bank account number of Village Enterprise A, and paid the rent in full by transfer. At this time, it was 18 days late from the rent due date. Therefore, Village Enterprise A notified Company B in writing to terminate the "Shop Lease Contract" on the grounds that it met the agreed termination conditions, but later requested Company B to pay the rent for the first quarter of 2017 by way of notice, and then Company B paid the rent in full and on time.

 

Later, due to company B's disagreement to terminate, village enterprise A sued company B in August 2017 to confirm that the lease relationship between the two parties was terminated on the notice date and to pay liquidated damages, late fees, water and electricity fees, etc., thus opening the prelude to a 5-year lawsuit between the two parties.

 

Main thrust of the 12 trial decisions:

 

On September 30, 2019, the Fengtai Court ruled in the first instance that if the plaintiff fails to take back the house and continue to perform the contract with the defendant after issuing the notice of termination, it should be deemed that the plaintiff has changed the content of the "Termination Letter" by its own actions, and the defendant's trust in the continued performance of the lease contract between the two parties should be protected. Therefore, it is judged that both parties continue to perform the lease contract.

 

After the first instance decision was made, Village Enterprise A appealed. In December 2019, the Beijing Second Intermediate Court issued a judgment rejecting the appeal and upholding the original judgment. The court of second instance held that although the contract stipulates that the lessee did not pay the rent as agreed, the lessor has the right to terminate the contract, it should also be noted that when the conditions for termination agreed in the contract are met, and the observant party requests termination of the contract on this basis, it should review whether the breach of contract by the breaching party is significantly minor and whether it affects the realization of the observant party's contractual purpose. Determine whether the contract should be terminated based on the principle of good faith.

 

After a retrial, he was ordered to successfully retrieve over 30 million rent related funds for the client:

 

After the second instance judgment was made, Company B thought everything was finally over, but unexpectedly, Village Enterprise A still refused to accept it and applied to the Beijing High Court for a retrial. In December 2020, the Beijing High Court issued a review ruling, and Company B had to enter a "combat state" again. However, the review by the High Court means that it is highly likely to change the judgment. Once the judgment is changed, all previous efforts will be wasted, not only will the due rent not be recovered, but also the manpower and financial resources consumed in recent years will be wasted.

 

In this case, the author was ordered to make a last ditch effort in the face of a crisis, and proposed defense opinions mainly from the following aspects:

 

(1) Sort out all rent payment records from the lease inception date to the fourth quarter of 2016, and summarize and summarize the rent payment habits of both parties before disputes arise;

 

(2) According to Article 47 of the "Notice of the Supreme People's Court on Printing and Distributing the Minutes of the National Court Civil and Commercial Trial Work Conference" on the conditions for rescission of the agreement, analyze the reasons for the breach of contract by Company B, the extent of the breach, and whether it affects the realization of the purpose of the contract item by item;

 

(3) An analysis is made of the fact that village enterprise A sent a letter to company B requesting payment of the next stage of rent after submitting a cancellation letter. Even if village enterprise A proposed to collect the rent in order to offset the previously owed amount, it still focuses on the defense from multiple perspectives such as the situation where the cancellation right is extinguished, the principle of good faith, and the protection of trust interests.

 

(4) Conduct case search and make case search reports to provide case support for judges' judgments.

 

(5) Due to the fact that Village Enterprise A signed a lease contract with Supermarket C shortly after proposing to terminate the contract, the author, based on a detailed review of the first and second instance files and the submission of new evidence, itemized the "criminal evidence" of collusion between Village Enterprise A and Supermarket C, including a detailed presentation to the High Court of the comparison of the lease amount after the lease relationship has changed from three parties to two parties. This precisely confirms the ultimate goal of "collusion" between village enterprise A and supermarket C.

 

(6) Given that Village Enterprise A and Supermarket C have in fact formed a leasing relationship for nearly 5 years, the author proposes solutions from the social effects perspective to allay the judges' concerns at the end of his defense opinion.

 

Finally, the court heard the author's defense opinions and made a judgment rejecting the retrial request and maintaining the second instance. It was with this retrial judgment that the client successfully recovered over 30 million rent related payments in the dispute with Supermarket C, which did not betray the trust of the client.

 

Several situations that may not necessarily lead to the termination of the contract even if the agreed termination conditions are met:

 

Contract dissolution includes negotiated dissolution, agreed dissolution, and statutory dissolution. Regarding the termination of the agreement, Article 93 of the original Contract Law and Article 562 of the current Civil Code stipulate that the parties may agree on the reasons for one party to terminate the contract. "When the cause for termination of a contract occurs, the person with the right to terminate the contract may terminate the contract.".

 

So, when the reasons for rescission stipulated in the contract are fulfilled, is the contract bound to be rescinded? Actually, it's not. Currently, there are several main situations that may lead to the contract not being directly terminated:

 

1、 The degree of default is significantly minor and does not affect the realization of the contract purpose.

 

According to Article 47 of the "Notice of the Supreme People's Court on Printing and Distributing the Minutes of the National Court Civil and Commercial Trial Work Conference": "Agreed Termination Conditions" When the termination conditions agreed upon in the contract are fulfilled, and the observant party requests termination of the contract on this basis, the people's court shall review whether the breach of contract by the breaching party is significantly minor, and whether it affects the realization of the observant party's contract purpose, and determine whether the contract should be terminated based on the principle of good faith. The degree of breach of contract by the breaching party is significantly minor and does not affect the realization of the contractual purpose of the observant party. If the observant party requests to terminate the contract, the people's court will not support it; On the contrary, they will be supported according to law.

 

The main purpose of this article is to interpret the agreed termination conditions in accordance with the principle of good faith, and appropriately limit the exercise of the right to terminate the contract. The principle of good faith is a basic principle of civil and commercial law. After the agreed conditions for rescission are reached, the court cannot mechanically determine whether to rescind the contract, but should comprehensively judge whether to affect the realization of the contract purpose based on the fault degree, breach behavior pattern, and consequences of the breaching party.

 

2、 "After the conditions for rescission have been fulfilled, if the observant party explicitly or implicitly waives the rescission right through its own actions, the rescission right shall be extinguished.".

 

First of all, as a right of formation, the right of cancellation can refer to the provisions of the same right of formation, Article 152 of the Civil Code: In any of the following circumstances, the right of cancellation shall be extinguished... (3) The parties expressly indicate or indicate by their own actions that they have waived the right of cancellation after knowing the cause of cancellation. Therefore, if the party entitled to terminate the contract continues to require the other party to perform the contract after sending a notice of termination, it shall be deemed to have waived the right to know and terminate by its own conduct, and the right to terminate shall immediately be extinguished. Secondly, the principle of good faith is the basic principle of civil activities. Article 7 of the Civil Code states that civil subjects engaged in civil activities should follow the principle of good faith, uphold honesty, and abide by commitments. "One party accepts the fact that the other party has breached the contract, chooses to continue to perform the contract, and then reneges on the contract to request cancellation, which clearly violates the principle of good faith.". Thirdly, the application of the "estoppel" principle gives the person with the right to terminate the contract the right to choose to continue to perform or terminate the contract, but the legal consequences of the two choices are quite different. The legal consequences of termination are the termination of the contract, and the legal consequences of continued performance are the continuation of the contractual relationship, so only one can be chosen, not both. If the person with the right to terminate chooses to continue to perform the contract, it means giving up the right to terminate; Finally, the protection of reliance interests. After a party's right to terminate is achieved, requiring the other party to continue performing the contract will create trust in the other party, which means that the party with the right to terminate will no longer exercise its right to terminate. The law should protect the stability of the transaction. Therefore, if the person with the right to terminate chooses to continue to perform the contract after the conditions for termination have been fulfilled, his right to terminate will be extinguished.

 

The interpretation of Article 564 in the "Interpretation of Civil Code Contracts" edited by Huang Wei, Director of the Civil Law Office of the Legal Work Committee of the Standing Committee of the National People's Congress, "The reasons for the termination of the right of rescission include, in addition to the expiration of the exercise period, the parties' explicit expression or waiver of the right of rescission through their own actions after they know the reason for rescission. Whether the person with the right of rescission explicitly expresses or waives the right of rescission through their own actions, they all belong to a disposition of their own rights, which is permitted by law on the basis of the principle of voluntariness. If there is sufficient evidence to prove that the person with the right of rescission knows that they have the right of rescission, but still requests for the right of rescission "If either party continues to perform the contract or accepts the rent prepaid by the lessee for the next year, it may be deemed to have waived the right to terminate by its own act.".

 

3、 Although the contract is automatically terminated when the conditions are met, the other party is not notified when the conditions are met.

 

In the recent "Civil Trial Practice Questions and Answers" organized by the First Civil Court of the Supreme Court, No. 018: When the parties agree to meet certain conditions in the contract, the contract will be automatically terminated. When the conditions are met, can we determine that the contract has been terminated without notifying the other party?

 

Answer: Contract dissolution is one of the important ways to terminate contractual rights and obligations, and it is a fundamental change in the effectiveness of the contract. Among the methods of contract dissolution prescribed by law, the parties agree to terminate the contract through consultation, and the person with the right to terminate exercises the right to terminate the contract. The dissolution of a contract requires the parties to express their respective intentions, with the intention of enabling the parties to have a clear understanding of whether there has been a fundamental change in the validity of the contract. Whether to exercise the right to terminate a contract, as well as the facts and reasons for exercising the right to terminate a contract, depends on the autonomy of the parties.

 

Article 565 of the Civil Code: If one party claims to terminate the contract according to law, it shall notify the other party. The contract shall be terminated when the notice reaches the other party; "If the notice specifies that the debtor fails to perform within a certain period of time, the contract will be automatically terminated. If the debtor fails to perform within that period, the contract will be terminated upon the expiration of the period specified in the notice.". "If the other party disagrees with the termination of the contract, either party may request the people's court or an arbitration institution to confirm the validity of the termination.". The intention is to emphasize that when a party exercises the agreed or statutory right to terminate a contract, it should send a notice to the other party and make a clear intention. Although this article does not cover situations where the conditions for automatic termination are agreed upon, in order to facilitate the clarity and clarity of changes in the contractual relationship between the two parties, if the parties agree in the contract that the contract will be automatically terminated when the conditions are met, it is not appropriate to consider that the conditions have been met, the contract may be terminated without notice.

 

To sum up, civil subjects should treat each contract clause with caution when concluding a contract, and should adhere to the principle of good faith and strictly abide by the spirit of the contract in the process of performing the contract. When meeting the conditions for termination of the contract, it should not be taken for granted that the contract has been terminated, but should comprehensively consider the degree of breach by the breaching party, whether it affects the realization of the contract purpose, the consequences of breach, and so on.

 

(This article is translated by software translator for reference only.)