| Deficiency
of a contract refers to a case that a contract should prescribe some
matters but has no such prescription.
Causes of such
phenomena mainly includes following three:
1.Parties of a contract do not have negotiation concerning unessential
factors;
2.Although they
have negotiated on such unessential factors, parties have not reach
agreement on it and thus agreed on settling it in the future;
3.Some clauses
of a contract are invalid due to their breaching compulsory provisions
or public interests.
It is not often
the case that deficiency of a contract shall be complemented. Only
when such clauses are unessential can they be complemented. A contract
shall be invalid when it lacks essential clauses.
Clauses prescribed
by Article 12 of the Contract Law of the PRC are different from
those prescribed by Article 12 of the Economic Law of the PRC. They
are demonstration clauses or suggestive clauses. It is often the
case that a contract will be effective when it lacks of some clauses
prescribed by Article 12 of the Contract Law. However, ¡°name or
title and domicile of parties¡± and ¡°subject-matter of contract¡±
prescribed by this Article are essential clauses. A contract will
be invalid without them.
When clauses
lacked are unessential factors, they shall be complemented. Firstly,
provisions prescribed by Article 61 of the Contract Law, that is
complementing through negotiation of both parties shall be applied.
Nevertheless, negotiation is not normal since complement of deficiencies
of a contract will give benefit to one party and damage to the other.
When parties
cannot reach agreement, those deficient clauses shall be complemented
according to relevant provisions of the contract (Article 61 of
the Contract Law). It is a fundamental requirement of gives a holistic
interpretation of the contract. Reasons of complement deficient
clauses through holistic interpretation principle are as following,
1.After negotiation and recognition of both parties, clauses of
a contract shall be treated equally as a whole;
2.Since language
used to express and convey contracting intent of both parties is
organized in the whole content of the contract, but not separate
verbal arrangement without any connection, deficient clauses can
be found out in such organized arrangement.
When deficient
clauses cannot be complemented by holistic interpretation, it shall
be complemented by business custom (Article 61 of the Contract Law).
Business custom here refers to method of work, means or regulations
that have been popularly recognized, accepted and abided by in some
area, trade or some kind of economic circulation relationship. Secondly,
such business custom shall be legal. Those breaching compulsory
provisions are invalid and thus cannot be used to complement deficient
clauses. Thirdly, both parties shall know such business custom.
When one party only knows it, it shall not be applicable. When both
parties know it, it shall have priority over arbitrary norm. Fourthly,
both parties shall not expressly exclude such business custom.
According provisions
of the Contract Law, when deficient clauses cannot be complemented
through above methods, it shall be complemented according to provision
of Article 62 as following,
1.When a contract lacks of quality control clause, it shall be complemented
according to national standard and trade standard. Then, when it
still has no such standards, it shall be complemented according
to usual standard or specific standard in conformity with purpose
of the contract.
2.When a contract
lacks of clauses concerning price or reward, it shall be complemented
according to market price of place of performance of the contract
when it was being concluded. Moreover, it shall be complemented
according to price fixed or directed by the Government when it is
legally required.
3.When a contract
lacks of clauses concerning performing place, it can be complemented
differently in different situations. As to delivery of money, performing
place shall be location of accepting party. As to delivery of real
estate, performing place shall be lotus of the real estate. Performing
place shall be location of obligor is the performing place in other
circumstances. However, there is a special provision in contract
of sale. When subject matter is in need of conveyance, vendor shall
deliver it to the first carrier. When it shall not be conveyed and
both parties know location of the subject matter when concluding
contract, this location shall be place of delivery. On the contrary,
place of business of the vendor when concluding the contract shall
be the place of delivery (Article 141 of the Contract Law).
4.When a contract
lacks of clauses concerning deadline for performance, it shall be
the expiration of readiness time pointed by any party.
5.When a contract
lacks of clauses concerning means of performance, it shall be complemented
according to purpose of the contract.
6.When a contract
lacks of clauses concerning which party shall bear performing cost,
obligor shall shoulder it.
In some circumstances,
deficiency of a contract yet cannot be complemented according to
above rules. For example, Party A and Party B signed a contract
of sale with simple clauses as following; ¡° Party sold an old color
TV to Party B and ensured it had image and sound. Its purchase price
is 150 RMB.¡± When examining this TV, Party B found that it had absolutely
lost functions ensured by Party A and claimed rights to Party A.
Then, there was a dispute occurring. Obviously, this contract lacks
clauses concerning remedies. It cannot be complemented according
to provisions of Article 61 and Article 62 of the Contract Law and
thus shall look for other provisions.
Then, Article
111 and Article 148 can be used as basis for complement to ascertain
that Party A shall repair, return the TV or reduce purchase price.
Remedies prescribed in Article 111 have no enforced applying order.
Observant party can make free choice, which certainly shall be reasonable.
When Party A has capability to repair the TV, Party B¡¯s choosing
repair, retur (cancellation of contract) or even reducing purchasing
price will be reasonable. However, it is illegal when Party B claims
for repair while Party A does not have such capability.
In individual
cases, it will not accord with benefits of parties and lead to appropriate
legal result when complementing deficiency of a contract according
to arbitrary norm. Then, it shall be complemented by complementary
contract interpretation. Complementary interpretation refers to
interpretation of objective content of a contract fill up deficiency
of the contract. What¡¯s being interpreted is entirety of the contract
concluded by parties. In other words, complementary interpretation
is not seek for original idea of parties (actual intention), but
hypothetical intention of parties, which is reasonable intention
or accepted clauses of a contract in normal business of both parties.
Hypothetical intention of parties, which is a normative criterion
being recognized according to good faith doctrine and business tradition,
takes value judgment and benefit evaluation of parties towards the
contract as its focus of attention for realizing fair and efficiency.
In practice, judges or arbitrator complement deficiency of a contract
according to above rules and methods and concrete details of the
case.
It is certain
that different people will have different judgment towards fair,
which makes, in individual cases, fair judgment made by judge or
arbitrator is different from that of both parties. Compared with
clauses complemented according to fairness ideas of parties, those
complemented according to fairness ideas of judges are possibly
less efficient because parties are usually economic men whose most
important object is to earn profit as much as they can. It will
give consideration both fair and efficiency when they dealing in
accordance with fairness ideas. However, both judge and arbitrator
are legal men, but not necessarily economic men. Then, it is possible
that clauses complemented by them cannot bring best economic efficiency.
It shall be paid attention when complementing deficiency of a contract.
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