In the litigation of construction dispute, it is common that the contractor applies the court to increase or reduce the contractual payment according to the principle of circumstances change prescribed in Article 227-2 of the Civil Code. In judicial practice, the courts recognized that such kind of litigation is a lawsuit of formation. After the formation judgment for increasing the contractual payment has become final and irrevocable, the right of claim for increased amount of the contractual payment has become exercisable. The Supreme Court rules that the extinctive prescription of such right of claim under Article 227-2 of the Civil Code shall be the same as that of the right of claim arising from the contract. If the right of claim arising from the contract is a right of claim for “remuneration of undertaker”, the extinctive prescription of the right of claim for increased amount of the contractual payment is also two-years. As a consequence, the two-year extinctive prescription of such right starts from the moment when the judgment of formation lawsuit has become final and irrevocable.

The issue is whether there is a peremption for the right of formation under Article 227-2 of the Civil Code? It is disputable due to no explicit provision in the Civil Code. In the past, the courts ruled that there is no peremption for the right of formation under Article 227-2 of the Civil Code because there is no explicit provision. Recently, the Supreme Court in its 104-Tai-Shan-Zi No. 1911 Judgment rules that the peremption for the right of formation under Article 227-2 of the Civil Code shall be determined by the nature of contract in consideration of the relevant provisions regarding the exercise of right prescribed in the Civil Code. Since the right arising from the contract of hire of work shall be exercised promptly according to the legislative intent of Civil Code, the Supreme Court rules that the peremption for the right of formation under Article 227-2 of the Civil Code shall be two-years, applying by analogy the short extinctive prescription of claim for “remuneration of undertaker” under Article 127 of the Civil Code.

The Supreme Court in its 106-Tai-Shan-Zi No. 4 Judgment further rules that the peremption for the right of formation under Article 227-2 of the Civil Code shall start from the moment when such right is completely established in view of that the exercise of such right is conditional on the requirement that there is change of circumstances which is not predictable then after the constitution of the contract, and if the performance of the original obligation arising therefrom will become obviously unfair. The Supreme Court further elaborates that the facts in the case shall be taken into consideration when the court decides when the right of formation is completely established. In judicial practice, nonetheless, the opinions in the judgments of courts diverge on the question when the right of formation is completely established. One opinion is that the two-year peremption for such right of formation under Article 227-2 of the Civil Code shall start from the expiration of the two-years extinctive prescription for the right of claim of “remuneration of undertaker” but another opinion is that the two-years peremption for such right of formation shall start from the acceptance of construction work. The third opinion is that it shall start from when the right of formation is completely established based on the facts of such case.

When the construction contractor intends to apply the court to increase the contractual payment according to Article 227-2 of the Civil Code, it shall notice the limitation of two-year peremption for such right of formation and file the application with the court within two years after the acceptance of work in order to prevent the loss of right.