Determining rights and obligations in contract law

Llinks Law Offices

Peiming Yang and Eve Zhang

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The principal purpose of establishing a contract is for the parties to agree on their rights and obligations. Disputes frequently arise in practice as to the parties' understanding of whether a contractual term enshrines a party's right or obligation.

Two case studies

A and B signed a real estate exclusive sales contract, where A commissioned B as a general agent, for the sale of real estate of malls developed by A. Article 4 of the contract, titled “measure of sales warrant” stipulated that “B shall achieve the sales target within the determined sales period. If B fails to achieve the sales target within the determined sales period, B shall purchase the designated property from A within seven days after the end of the sales period as compensation for failing to meet the sales target, and B shall pay the amount in full.” A subsequently released a notice of discharge, pursuant to B's alleged breach of another obligation under the contract. Half a year later, A removed B's sales personnel from the sales sites. B denied the alleged breach and requested that the court order A to sell all remaining unsold stores to B at the price which compensates B for the failure to meet the sales target, arguing that A made it impossible for B to sell.

C and D signed a plant leasing contract, where D agreed to rent a plant owned by C. Article 3 of the contract stated “term of lease: from April 1 2010 to March 31 2013.” Following expiration of the contract, D has the right to renew the lease for three years as necessary. The annual rental is Rmb X Yuan/m2 floorage. The option to renew was to be requested at least a month prior to the expiry of the tenancy. On February 17 2013, D exercised the option to renew, pursuant to Article 3. C argued that the renewal was not part of the contract, and should be mutually agreed upon by the parties. After C refused D's attempt at renewal, D requested that court order C to continue to perform the plant leasing contract, in accordance with Article 3.