The obligation to tender conforming subject matters in Chinese law

On the other hand, when there is no explicit agreement and no accurate content can be interpreted from the contract, obligations as to the quality of the subject matter must be determined in light of supplementary standards provided by the law. The similar system is called implied warranty in U.S. law.^① According to the Paraphrase on Chinese Contract Law, CCL Article 154 aims at:

“solving the problem of determining quality requirements for subject matters if there is no explicit agreement on quality in the contract… In continental law systems, it is solved by warranty against defects, while in Anglo-American law it is addressed by implied

warranty.….The CISG explicitly stipulates the seller’s obligation on quality, which is similar with implied warranty system in Anglo-American law…This article (CCL Art. 154) is based on the reasonable content of those two systems, in particular referring to the implied warranty in Anglo-American law…” (Hu, 1999, pp. 233-235).

Although there was a mistake in the paraphrase concerning implied warranty, as this system exists only in U.S. law, but not in U.K. law, it has indeed pointed out that CCL Article 154 was created in light of related rules in those legal systems, especially the implied warranty in U.S. law. It should be admitted that, the approach of implied warranties is very close to the approach provided in CCL Article 64, in respect that both are supplementary standards provided by the law and both mainly refer to the objective standards, such as industrial standard.

3.2.2.2 The determination of the content of conformity obligation

CCL Articles 153, 154, 61, and 62 lay down a series of rules on the determination of the quality requirement. Firstly, quality should be determined according to the requirements of the contractual agreement, as well as the quality instructions or sample provided by the seller.

Secondly, in the absence of explicit agreement on quality, the supplementary agreement concluded by contracting parties should be referred to (CCL Art. 61 sentence (1)). Thirdly, in case the contracting parties cannot reach a supplementary agreement, the quality requirement should be determined according to the related contractual provisions and usage of transaction

① As to the recent development of implied warranty, see Lord (2005).

(CCL Art. 61 sentence (2)). Finally, if the quality requirement cannot be determined by applying the above-mentioned standards, the national standard or industrial standard shall apply; in the absence of national and industrial standards, ordinary standard or special standard required by the purpose of the contract shall apply (CCL Art. 62 item (2)). Despite the need for clarification on some points, it is fair to say that the CCL system prioritizes the intention of the contracting parties, while establishing objective standards as a secondary reference. This approach conforms with the idea reflected in the CISG. Professor Mo (1999) compares the CCL and the CISG, and summarizes as following the substantial common factors between them:

(a) both require the seller to deliver goods conforming with the contractual agreement; (b) both require the goods to be delivered in accordance with the special instructions provided by the seller; (c) both require the goods to meet the ordinary purpose or expected purpose of the same kind; and (d) both require the goods to be contained or packed in a way that can preserve and protect the goods (pp. 235-236).

Nevertheless, there are still several issues that should be addressed when applying those rules. The first problem is that when there is a dispute on the quality requirement, there is a potential conflict of application of rules, because the rules on determining the content of the contract provided in CCL Article 61 and the rules on interpreting the contract provided in CCL Article 125 can both govern the issue. According to CCL Article 125(1), the intention of the parties to the contract should be interpreted according to the literal content, the context and the purpose of contract, and in accordance with the usage of transaction and the principle of good faith. According to CCL Article 61, however, if a term, such as quality requirement, has not been expressed or was stated inexplicitly, unless supplementary agreement has been reached, the contents should be determined in accordance with the context of the contract or usage of transaction. Thus, the relationship between these two articles is unclear. CCL Article 125 provides for all sorts of interpretative methods for interpreting the mutual intention in a

contract, while CCL Article 61 provides for a few methods to determine the content of contract.

There are, in some measure, overlapping and conflicting requirements, which need to be clarified.

In my opinion, the determination of contractual content according to CCL Article 61 applies differently in the following two cases.

If the dispute is about ambiguous quality requirement in contractual provisions, CCL Article 61 provides means for determining the exact meaning in the absence of an explicit agreement. In such a case, except if the contracting parties reached a supplementary agreement, the determination of the contents of the contract are still part of the interpretation of the

contract. The interpretation should be in light of the standards provided in CCL Article 125, i.e.

literal content, system, the purpose of contract and usage of transaction, because it is

unnecessary and even unreasonable to deprive of the application of these methods, especially the purpose of contract provided in CCL Article 125, as CCL Article 61 does by omission.

If the dispute is about whether there is any agreement on quality in the contract, the first step that should be taken is examining whether there are provisions contained requirement on quality. Advertisement or oral description during the process of bargain may usually be the focus of interpretation. If it is concluded that there is no agreement on quality, the first sentence of CCL Article 61 may apply, and supplementary agreements may be concluded by the

contracting parties; if such agreement cannot be finalized or reached, the second sentence of CCL Article 61 applies, and the judge should fill the gap in light of relevant provisions and usage of transaction. If it fails, then the judge should move on to CCL Article 62, to apply supplementary standards. Anyway, in such a case, CCL Article 61 applies as a gap-filler, which should be triggered after the interpretation of the contract.

The second problem follows with the second case above, on the existence of an agreement on quality in the contract. When CCL Article 61 plays a role as gap filler, since Article 62 cannot be applied until Article 61 fails to solve this problem, accordingly, the purpose of contract cannot be employed under CCL Article 61, then how could the judge fill the gap while he cannot pursue the guidance of contractual purpose? Obviously, the legislator has not put enough priority on the purpose of contract. Putting the purpose of contract behind usage of transaction, national standard, and industrial standard (CCL Art. 61, Art. 62 item (1)) is questionable. The so-called “supplementing the agreement with relevant provision” to a large extent means supplementing the agreement in light of the purpose of the contract that has been reflected in relevant provisions, for relevant provisions cannot fill the gap on its own. Anyway, the purpose of a contract is an element that should be considered from the beginning of gap filling, and other standards need to be considered in light of it.