How to determine the performance mode related to startup and investment payment？

[Original] Text/Xi Yan

In the film and television investment contract, the order of investment payment and startup is not clear, and the parties have disputes about it. The performance order of a bilateral contract directly affects the exercise of the parties’ legal right of defense. The order of performance is a matter of performance mode. If the agreement on the way of performance is unclear, it should be determined according to the legal provisions or trading habits. If it is still uncertain, it should be determined in a way that is conducive to achieving the purpose of the contract.

appoint

On August 30, 2021, Party A and Party B signed the Agreement on Joint Investment and Production of TV Series, which mainly stipulated: 1. Party A is the project master of TV Series, fully responsible for organizing the production, publicity and distribution of the drama, and Party B invests in the drama in the form of venture capital. 2. The total budget of the play is RMB 250 million. 3. The starting time of the play is expected to be September 20th, 2021. 4. Party B contributes capital in cash, with an investment amount of 50 million yuan only, and enjoys 20% of the total income of this project. 5. Payment time of funds: (1) Within 15 working days after the signing of this agreement, Party B will pay 20 million yuan; (2) Five natural days before the play starts, Party B pays 20 million yuan; (3) Party B shall pay 10 million yuan within 30 natural days from the date when the play is turned on. 6. As the executive producer of the drama, Party A is fully responsible for the production progress of the drama, and plans to start the drama no later than September 20, 2016.

fulfil

After the contract was signed, Party B did not pay the investment. On September 27th, 2021, Party A sent a reminder letter to Party B, urging Party B to pay the investment amount of 20 million yuan. B didn’t pay after signing the dunning letter, and A didn’t turn it on. Party A thinks that Party B’s failure to pay the investment funds as agreed constitutes a breach of contract, and claims that Party B shall bear the liability for breach of contract.

dispute

Party B claims that Party A should start the machine first, and then pay the first investment, and Party B has the right to refuse its payment request if Party A fails to perform the startup obligation. B’s exercise of the right of defense before performance does not constitute a breach of contract. Party A thinks that Party B should fulfill its capital contribution obligation first, and its startup obligation comes later.

question

How to determine the order of performance of A’s startup obligation and B’s investment payment obligation?

comment on and analyze

As for the payment method of B’s funds, the contract stipulates that B’s funds will be paid in three installments, the first payment will be made within 15 working days after the signing of the agreement, that is, before September 20, 2021, the second payment will be made five days before the startup, and the third payment will be made within 30 days after the startup. The payment of the second and third funds is conditional on the startup. For the start-up, the contract stipulates that A plans to start the play no later than September 20, 2021. There are two expressions of "plan" and "no later than" in the aforementioned agreement. There are two explanations for its meaning: starting the machine before September 20, 2021 is a definite obligation, and Party A should complete the startup task before this time, and starting the machine before September 20, 2021 is only a tentative plan, not a definite obligation. For the explanation of its meaning, this paper tends to the latter. The reasons are as follows:

First of all, from the perspective of contract interpretation, if there is an interpretation of private party’s expression of will, the meaning of the expression of will should be determined according to the words used, the nature and purpose of the relevant clauses, habits and the principle of good faith. Article 3 of the contract stipulates that the starting time of this drama is expected to be September 20, 2021. The startup time agreed in this article is the estimated time. According to Articles 3 and 6 of the contract, September 20, 2021 is the estimated startup time.

Secondly, from the point of view of contract loophole filling, the sequence of startup and investment payment obligation involves the issue of performance mode. Article 510 of the Civil Code stipulates that after the contract comes into effect, if the parties have not agreed or clearly agreed on the quality, price or remuneration, place of performance, etc., they may supplement it by agreement; If a supplementary agreement cannot be reached, it shall be determined in accordance with the relevant provisions of the contract or trading habits. Article 511 stipulates that if the parties’ agreement on the contents of the relevant contract is unclear and cannot be determined according to the provisions of Article 510 of the Civil Code, the following provisions shall apply: if the method of performance is unclear, it shall be performed in a way conducive to achieving the purpose of the contract. According to the contract, the analysis is as follows: (1) If it is a definite time to start the machine on September 20, 2021, according to the contract, the first fund of Party A should be paid before September 20, 2021, the second fund should be paid before September 15, 2021, which is obviously illogical and not true. (B) The significance of fulfilling the obligation to pay the investment funds is to provide production funds for the play. When the contract was signed, the drama didn’t start shooting. The purpose of A’s investment in B was to raise funds for the drama, and the purpose of B’s investment was to provide shooting funds for the drama, complete the shooting and production of the TV series, and obtain income through distribution. Judging from the signing time of the contract and the agreement on the start-up time, the purpose of B’s investment fund is the shooting and production of the play, and the investment fund is actually the production fee. Usually, the venture capitalist pays part of the investment money first,It is in line with the investment practice and the contractual purpose of all investors to turn on the computer after the party who performs the production task. Therefore, it is more reasonable to plan the startup time on September 20, 2021. (3) The signing of the contract is a fact that the parties can decide, but the starting of the TV series is an uncontrollable fact. Whether the TV series can be started is restricted by many factors, such as the availability of funds, the signing of the main creator, the participation of actors, etc., and there is some uncertainty, which belongs to the category of conditions. It can be expected and foreseen but cannot be determined. Even if the agreed time is fixed, the parties should judge in advance that it cannot be achieved. Based on the foregoing analysis, the contract involved in the case stipulates that Party B shall pay the first investment before September 20, 2021, and determine the starting time after receiving the payment, and Party B shall pay the second investment five days before starting.

To sum up, Party B’s first investment payment obligation comes first, and Party A’s startup obligation comes last. The order of the two obligations can be determined. B’s claim about exercising the right of defense of prior performance lacks factual basis and cannot be established. Its failure to fulfill its payment obligation as agreed constitutes a breach of contract.

The method of performance is the specific method that the debtor should take to perform his debts. The mode of performance is generally determined by the nature and content of the contract. When the mode of performance cannot be determined, it should be performed in a way that is conducive to achieving the purpose of the contract. The purpose of the contract should be determined according to the original purpose of the debt corresponding to the debt and the interests expected by the creditor through the debt.

Reference case:

Beijing Intellectual Property Court (2018) No.560 Civil Judgment of J.73 Minzhong