Huang signed a lease contract with Company A on October 9, 2004, leasing 950 square meters on the fourth floor of Company A's shopping mall to operate a children's playground. However, the setting up of the children's playground on the fourth floor of the shopping mall was not approved in advance by the public security and fire department, so the public security and fire department issued a "Notice of Order to Make Corrections within a Time Limit" to the shopping center on February 9, 2004, and on February 25, 2004 Hyuga Children's Paradise issued a "Notice of Order to Stop Use", ordering it to stop setting up a children's playground on the fourth floor of the shopping mall. Under this circumstance, Company A believed that it was difficult to continue to perform the lease contract. In order to avoid increasing the losses of both parties, it requested to terminate the contract performance, but Huang disagreed. A company proposed to re-sign a contract with Huang. After operating on the second floor, Huang still disagreed. On May 23, 2005, Huang sued Company A and its shopping mall to the Qingdao Intermediate People's Court on the grounds that the lease contract was legal and valid and Company A's behavior constituted a breach of contract, requiring Company A and its shopping center to pay a huge liquidated damages of more than 7 million yuan. , and pay other expenses and compensate for losses. After the case was heard by the court of first instance, both parties were dissatisfied and appealed.
Focus of Dispute
The court of first instance found that the lease contract was invalid and rejected Company A and its shopping center’s claim that they should pay liquidated damages. However, it was determined that the fault liability of the contract lies with Company A, and Company A was judged to be liable for compensation of 350,000 yuan, and Company A's counterclaim was rejected.
Company A was dissatisfied with the judgment that the contract was invalid and the counterclaim was dismissed, and appealed; Huang also appealed the judgment.
Both parties conducted mediation. During the mediation process, the lawyers argued hard based on facts and law, and finally made Huang compromise. A settlement was reached. Huang paid 654.38 million yuan in compensation to Company A, and both parties withdrew their appeal.
This case involves legal issues such as contract invalidity, liability for breach of contract, and liability for fault. The focus of this case focuses on the following issues:
(1) Whether the contract is valid
Article 52 of the "Contract Law" stipulates that one of the following circumstances exists. Invalid contract: 1. One party concludes the contract by means of fraud or coercion, harming national interests; 2. Malicious collusion, harming the interests of the country, the collective or a third party; 3. Covering up illegal purposes in legal forms; 4. Harming the public* * *Interests; 5. Violate the mandatory provisions of laws and administrative regulations.
In this case, Company A and Huang signed a contract with Huang on June 9, 2004 at 165438 to operate children's entertainment on the fourth floor of the shopping mall, which violated the People's Republic of China * * and the national standard " According to the provisions of the "Fire Protection Code for the Design of High-rise Civil Buildings", the "Fire Protection Law" and the "Urban Lease Management Measures", the contract should be invalid. The main building height of the shopping center is 25.85 meters. According to the Chinese People's National Standard "Fire Protection Design Code for High-rise Civil Buildings" 1.0.3.2, public buildings with a building height exceeding 24 meters are high-rise buildings. Article 4.1.6 stipulates that nurseries, kindergartens, entertainment halls and other places for children's activities should not be located in high-rise buildings. When it must be located in a high-rise building, it should be located on the first or second or third floor of the building, with separate entrances and exits. The subject matter of the lease contract in this case is "the fourth floor of a high-rise building". According to national standards, it is prohibited to set up children's entertainment venues. However, Huang rented a high-rise building to set up children's entertainment facilities on the fourth floor, which violated the national mandatory standard "Fire Protection Design Code for High-rise Civil Buildings" and was not allowed to be put into use according to the "Fire Protection Law". In addition, according to the "Urban House Leasing Management Measures", houses that do not comply with relevant regulations of the public security, environmental protection, health and other competent departments shall not be rented out. Moreover, the installation of children's entertainment facilities on the fourth floor of a high-rise building in this case has seriously violated the personal safety rights of an unspecified majority of children and their parents, and harmed the interests of the public. To sum up, the lease contract in this case to set up a children’s entertainment venue on the fourth floor of a high-rise building is illegal and should be invalid according to law. If the contract is invalid, the rights and obligations stipulated in the contract will be invalid, and the breach of contract clause will not apply.
In this regard, Huang believed that the contract he signed with Company A was not a lease contract, but a cooperative operation contract.
According to the operating contract, Company A should "provide relevant operating and management conditions, be responsible for handling and approving the procedures of industrial and commercial, taxation, cultural and other administrative departments, and handle problems during the operating process." Because Company A failed to go to the public security and fire department to handle the procedures as stipulated in the contract, a dispute arose and Huang was charged.
In the end, the court of first instance adopted the lawyer’s opinion and determined that the contract was invalid and rejected Huang’s request for payment of liquidated damages.
(2) Who bears the fault liability if the contract is invalid?
If the contract is invalid and causes losses to the other party, the party at fault shall bear the responsibility and compensate for the losses. In this case, Company A failed to fulfill its corresponding review obligations and should bear certain liability for faults, but the main fault responsible for the invalidation of the contract was Huang. Company A's shopping mall mainly operates department stores and is unclear about the rules and regulations of the children's entertainment industry. Huang is an operator of children's entertainment and should know the rules and regulations of the industry. Moreover, operators of children's entertainment in leased venues should declare to the local public security fire department before opening their businesses in accordance with the law, and can only use and open their businesses after passing the fire safety inspection. "Regulations on the Management of Fire Safety in Public Entertainment Places": "The operators are responsible for the fire safety of public entertainment places." In this case, Huang is the operator of a children's entertainment venue that leases Company A's premises. Huang ignored fire safety regulations, signed a contract to set up a children's entertainment venue on the fourth floor of a high-rise building, used it and opened it without inspection, and should bear primary responsibility for the invalidation of the contract. Therefore, Huang has no right to claim compensation from Company A.
In this regard, Huang believes that the Yantai Zhifu District Public Security Fire Brigade sent Company A a "Notice of Order to Make Corrections within a Time Limit" on June 5, 2004 and February 9, requiring the changed design and The renovation plan was submitted to our brigade for review, but Company A failed to submit the changed design and renovation plan within the prescribed time limit, resulting in the fire brigade failing to meet the standards on June 5, 2004. As a result, the contract never materialized. In addition, for the operators mentioned in the "Regulations on the Management of Fire Safety in Public Entertainment Places": "The operators are responsible for the fire safety of public entertainment places." Huang proposed that Company A should provide invoices to the outside world and pay rent to Company A. The real The operator should be Company A.
In this case, although the customer was not the direct operator of the children's entertainment venue, he was also at fault as the lessor of the venue. Faced with the other party's request for high liquidated damages, what we do is not to obey the other party's ideas and find reasons why we did not breach the contract but the other party breached the contract in order to reduce the amount of liquidated damages. Instead, we find another way to find out the fundamental reasons from the contract. Reasons that benefit customers. In this case, we detained our client as the operator of a children’s entertainment venue and violated the mandatory provisions of laws and administrative regulations by signing a lease contract with the client. The contract was invalid from the beginning. Not only did we not bear the high liquidated damages demanded by the other party, but we asked the other party to compensate our client for the losses caused by fault liability, which turned out to be a victory.
The key issue in this case is the violation of mandatory provisions of laws and administrative regulations, resulting in the invalidity of the contract. The standard for judging the invalidity of a contract must first be the laws enacted by the National People's Congress and its Standing Committee and the administrative regulations formulated by the State Council. Only laws and administrative regulations can be used to judge the invalidity of a contract. When declaring a contract invalid, the judge can only cite the provisions of laws and administrative regulations in the judgment, but cannot directly cite regulations, including local regulations, as the basis for judging the invalidity of the contract. Does this mean that under any circumstances, local laws and administrative regulations cannot be used as the basis for ruling that a contract is invalid? Not even a reference? We believe that if local regulations are to be cited in the judgment as the basis for determining the invalidity of the contract, the following situations or conditions should be met: First, it is necessary to consider whether these local regulations exist in the superior law, that is, if these local regulations exist in the superior law, Local regulations are formulated based on higher-level laws and are specific supplements to higher-level laws. In this case, we believe that the judge can cite them as the basis for judging the invalidity of the contract. For example, when a higher-level law regulates a certain issue, it is very abstract in principle, but these local regulations concretize it and make detailed supplements.
In this case, local regulations can be cited; secondly, if the superior law authorizes a certain place or department to interpret the law, and the local regulations are interpreted in full accordance with the authorization, we believe that in this case, it can also be cited Local regulations serve as the basis for judging the invalidity of the contract; the third situation is that if these local regulations are formulated to safeguard the interests of the country and society, especially the interests of society, and laws and administrative regulations are not contrary to a certain issue stipulations or no stipulations, then from the perspective of safeguarding public interests and combined with the provisions of local laws and regulations, it should be said that there is certain rationality and basis for judging the invalidity of a contract.
Invalid contracts account for a certain proportion of contract disputes, so how should we deal with invalid contracts when they occur?
1. Return the property. After the contract is confirmed to be invalid, the property acquired by the party under the contract shall be returned to the other party. Because an invalid contract is invalid from the beginning, returning the property means restoring the property relationship between the parties to the state before the contract was signed. In other words, whoever owns the property should have it returned to him. If the subject matter has been consumed, damaged, lost, or has been legally acquired by a bona fide third party and cannot be returned, compensation may be made by compensating for economic losses.
Second, compensate for losses. After the contract is confirmed to be invalid, the party at fault shall compensate the other party for the economic losses suffered thereby. If both parties are at fault, they should bear corresponding responsibilities. Respecting each other's responsibilities means bearing the losses caused by their respective faults, that is, both parties bear their share of the economic losses according to their primary and secondary responsibilities, rather than each bearing the losses or sharing the losses equally.
Third, recover property. For invalid contracts that violate national interests and social public interests, if both parties are intentional, the property that both parties have obtained or agreed to obtain should be returned to the state. If only one party is intentional, the intentional party shall return the property obtained from the other party to the other party; the property obtained by the unintentional party from the other party or agreed to be obtained shall belong to the state. At the same time, when recovering the property of the intentional party, attention should be paid to protecting the legitimate interests of the unintentional party, which means that the legal property of the unintentional party cannot be recovered.
Case Result
This case involves the identification of operators. What is an operator? Operators refer to citizens, legal persons or other economic organizations that provide consumers with goods or services produced and sold by the operator. The other party is engaged in production and business activities for profit-making purposes and corresponds to consumers. The key to judging an operator is whether the goods or services they provide are produced or sold for profit. In this case, Company A does not actually provide goods or services, and cannot prove that it is the operator of a children's playground by providing invoices or collecting rent. Huang is an operator who provides children's playground services and should be responsible for the fire safety of children's playgrounds.
However, this court did not accept the first-instance judgment that Huang should bear the main fault liability for the invalid contract. This court was dissatisfied and appealed. Huang also appealed the ruling that the contract was invalid. During the appeal mediation process, our lawyers argued based on the facts and law. In the end, the other party compromised, the two parties reached a settlement, paid us 654.38 million yuan in compensation, and both parties withdrew the appeal.
Comments and Analysis
This case was initially triggered by the other party claiming that the customer paid a high liquidated damages of more than 7 million yuan. In the end, the other party compensated the customer 654.38 million yuan, which was considered a turnaround. It has avoided losses for customers and recovered considerable profits at the same time, and has been highly praised by customers. This case also triggered discussions on invalid contracts that violate mandatory laws and regulations. It not only brought benefits to customers, but also sounded the alarm, reminding companies to pay attention to avoid signing invalid contracts due to ignoring mandatory laws and regulations.