Capítulo 3 Obedecer La Voz De Dios
C. JUEGO EN MANOS DE SATANÁS
Interpretation of a contract becomes necessary when the parties dispute over certain word, expression, term or clause of the contract, and the dispute occurs where the parties have different understanding as to the actual mean- ing of the word, expression, term or clause. In general, the interpretation is to help find out the true meaning of the word, expression, term or clause that is in dispute. And the interpretation may also be extended to certain conduct or event that may affect the contract.
11 According to the Annex 4, Products subject to state pricing include tobacco, edible salt, nat-
ural gas, and pharmaceuticals as well as public utilities (gas, water and electricity); Products subject to government guidance pricing are grain, vegetable oil, processed oil, fertilizer (Urea), silkworm cocoons, and cotton (not carded or combed); Services subject to govern- ment pricing include postal and telecommunication services charges, entrance fee for tour sites, and education services charges; Services subject to government guidance pricing are transportation services charges, professional services charges, charges for commission agents’ services, charges for settlement, clearing and transmission services of banks, selling price and renting fee of residential apartments, and health related services. See id., Annex 4.
2.1. Contract Interpretation Approaches
In China, there is no unified definition of the contract interpretation. The sim- plest definition deems the interpretation of a contract as “the analysis and explanation made to the meaning of the contract and related documents”.12
An awkward one describes the contract interpretation as “the work to ascer- tain the real meaning of the terms of contract and look into the effective inten- tion of the parties through all interpretation rules and means in order to resolve disputes”.13
A more difficult question concerning the contract interpretation is how the interpretation should be made. The difficulty lies with the existence of differ- ent approaches and standards employed in the interpretation. Among Chinese scholars, they are debating on what would be the practical mechanism for contract interpretation. The debates are centered on (a) who could make the interpretation, (b) what should be interpreted, (c) what purpose the interpre- tation should serve, and (d) under what rule the interpretation should be made. There are two approaches with regard to who could make the interpretation. One is called “restrictive” approach, which limits contract interpretation to the one made by certain authorities. Under the “restrictive” approach, the con- tract interpretation may only be made by the court or arbitration body before which the contract dispute is brought. Scholars who advocate the “restrictive “approach take the position that the contract interpretation in the civil law sense only refers to the interpretation conducted by the court or arbitration body.14They further argue that the contract interpretation becomes an issue
only when the dispute over the contract term arises between the parties, and because the parties differ in their understanding on the disputed term it is nec- essary to have a “referee” (court or arbitration body) to interpret.15
The other approach views the contract interpretation in a much broad sense and is therefore commonly marked as “broad” approach. As opposed to the “restrictive” approach, the “broad” approach argues that the contract interpre- tation could be made by the parties and others, including judge, arbitrator, agent ad litem, witness, notary public as well as appraiser, depending on cir- cumstances under which the interpretation is needed. In addition, according
12 See Wang Liming and Cui Jianyuan, A new Commentary on Contract Law – General
Provisions (reversed edition), 471–474 (China University of Political Science and Law
Press, 2000).
13 See Li Guoguang, Explanation and Application of the Contract Law, 518 (Xinghua Press,
1999).
14 See Liang Huixing, Rules of Contract Interpretation, 539 (Law Press, 1997). 15 See Jiang Ping, supra note 2 at p 102.
to the “broad” approach, certain organization such as consumer protection society may also be qualified to interpret certain terms of contract.16Despite
its broad sense, however, the “broad” approach agrees that other than those made by the court or arbitration body, all contract interpretations would have no legally binding effect though they are important in helping better under- stand the terms of the contract.
What should be interpreted is the question that goes to the contents or objects of the interpretation. In general, scholars in China seemingly agree that the interpretation is to construe the terms in dispute, and it therefore shall focus on the literal meaning of the term. However, according to many Chinese con- tract scholars, in order to made the interpretation more meaningful or in other words, closer to the meaning of the terms to be interpreted, several other mat- ters essential to the interpretation should also be included, because in many cases the literal meaning, standing alone, might not be sufficient. One such mat- ter is the purpose of the contract. The reason is that when the parties enter into a contract, they both may have the intended goal for the contract. Therefore, the interpretation shall be made in consistence with the intended goal.
Another matter is the contract itself. Since any term of a contract is part of the contract, thus to interpret a contract term it is important to take the con- tract as a whole and look into the substantiality of the term to the contract and the relationship between the term and other terms. In this context, therefore, the interpretation shall be made in light of the whole contract. Also a matter important to the interpretation has to do with commercial usages or customs. In real business settings, the commercial usages or customs possess com- monly accepted meaning and are widely observed in the given business trans- actions or dealings. Thus, the usages or customs have great supplementary value to the contract interpretation, specially when the term to be interpreted appeals very vague.17 In this sense, the commercial usages or customs are
often deemed as “blank fillers” that would help define the contractual terms in question.
The purpose that the contract interpretation should serve concerns the ulti- mate goal or objective of interpretation. Although on its face the interpreta- tion is to reveal the meaning of the term, it is debatable whether the revealing is aimed at ascertaining the actual meaning of the term or digging out the
16 See Wang Liming, Studies on Contract Law, supra note 1 at pp. 412–413.
17 See generally Jiang Ping, supra note 2 at pp. 102–103; Wang Liming, supra note 1 at
pp. 420–428; Li Guoguang, supra note 13 at pp. 518–526; Wang Liming and Chu Jianyuan,
supra note 12 at pp. 478–485; and Cui Yunning, General View on Contract Law, 34–38
meaning that the parties have intended. It is also arguable whether the inter- pretation is limited to the meaning of the term or it has to deal with the validity of the contract. Some scholars argue that by inquiring the real meaning of the term according to the intention of the parties, the interpretation is purposed to (a) make the uncertain contents of the contract reasonably certain, (b) provide supplements to the incomplete contents of the contract, and (c) solve the con- flicts among the terms.18
Other scholars contend that the direct purpose of interpretation is to prop- erly determine the rights and obligations of the parties so that the dispute between them could reasonably be solved. Therefore, they argue, the purpose of contract interpretation is not only to ascertain the contents of the contract but also to make a determination on whether the contract has been concluded and whether the contract so concluded is valid.19For example, according to
some scholars, the contract interpretation is premised on the conclusion of the contract, and thus the preliminary question concerning the contract interpre- tation is whether the contact has been concluded, and if not clear, an interpre- tation shall be made on the issue of the conclusion first.20
2.2. Contract Interpretation Rules
In regard to the rule of contract interpretation, there are three theories that are widely discussed in China. The first theory is called “objective expression”. Focused on the apparent intention of the parties, the “objective expression” the- ory is concerned with how the parties’ intention could be expressed objec- tively. Under this theory, the contract interpretation shall be made on an objective standard, that is, when interpreting a contract term or clause, one should look at what the term or clause in question appears to mean. The underlying idea is that the agreement is not merely a mental state of the par- ties but rather it is an overt act of them. Therefore, in order to the determine the intention of the parties, the inquiry shall not be limited to what the parties may actually have in mind, more weight shall be given to how the parties rea- sonably act to have their intention expressed.21
18 See Cui Yunning, id at pp. 32–33.
19 See Wang Liming, supra note 1 at pp. 407–409.
20 A typical example used by Professor Wang to illustrate his point is as follows: A sent B a
fax for certain product, and B then immediately delivered the product to A. A refused to accept the product and a dispute arose between A and B. Then to solve the dispute, it must fist look into the contents of the fax to make an interpretation on whether the fax constituted an offer or was simply an invitation for offer. See Wang Liming, id at p. 407.
At the other end of the spectrum is the theory of “subjective intention”. In contrast with the “objective expression” theory, the “subjective intention” views the actual intention of the parties as being decisive to the interpretation of contract. Under the “subjective intention” theory, to determine the mean- ing of a contract term or clause, what really matters is not what the intention of the parties would reasonably appear to be, but is what the parties have actu- ally intended. As a result, if the meaning of the term or clause that the parties have intended to give is found to be different from the literal sense of the lan- guage used or from the common understanding of a reasonable person, the parties’ intention controls.22
The third theory is the eclectic theory, which is actually the mix of both “objective expression” and “subjective intention.” This theory is eclectic because it does not take the extreme of either “objective expression” or “subjec- tive intention.” On the contrary, it tries to narrow down the difference between the two opposite theories and combine them together to make a comprehensive approach. Under the eclectic theory, the contract interpretation shall fist try to ascertain the true intention of the parties because of the paramount significance of the parties’ intention to the contract. If however, the parties’ true intention could not be determined or there is a lack of common intention of the parties, the interpretation shall be made with recourse to the common understanding of reasonable persons under the same or similar situation.23
2.3. Contract Interpretation under the Contract Law
The Contract Law provisions that govern the contract interpretation seem to be the product of the compromise of the above debates. On the one hand, the Contract Law attempts to take the majority position, and on the other hand, it is intended to avoid some controversial issues. Under Article 125 of the Contract Law, with regard to disputes between the parties to a contract aris- ing from the understanding of any term or clause of the contract, the true meaning of such term or clause shall be determined according to the words and expressions of the contract, the contents of relevant clauses of the con- tract, the purpose of the contract, the transaction usages and the principle of good faith.24
For some reason, the Contract Law does not define the contract interpreta- tion. But from Article 125, it can be inferred that the contract interpretation is the process of ascertaining the “true meaning” of the contractual term or
22 See Wang Liming and Cui Jianyuan, supra note 12 at pp. 474–478. 23 See Wang Liming, supra note 1 at pp. 419–420
clause in question. And in order to determine the “true meaning”, the inter- pretation shall be made in accordance with the words and expressions used, relevant clauses, contract purpose, usages as well as in good faith. As far as the interpretation rule is concerned, the Contract Law does not follow either “objective expression” or “subjective intention”. But many Chinese scholars believe that the Contract Law in fact is in favor of the rule that combines both the objective expression and the subjective intention.25
In addition, the Contract Law contains no reference as to who may make contract interpretation. A prevailing understanding is that the Contract Law does not exclude the parties from interpreting the contract.26To put differ-
ently, the Contract Law does not rest the contract interpretation with the hands of court or arbitration body only. Consequently, a wide variety of relevant par- ties (including the parties to a contract) may interpret the contract. But the difference exists in terms of the legal effect of such interpretation, and for the interpretation to be legally binding it has to be made by the court or the arbitration body.
Under the Article 125, the contract interpretation shall begin with the words and expressions used in the contract. Thus the “plain meaning” of the words and expressions seems to be the threshold of the interpretation because no further efforts would be needed if the meaning of the words and expres- sions could be determined on its face. When the meaning of the words or expression may not be easily ascertained, the meaning should first be deter- mined by looking at other relevant clauses in the contract. If the ambiguity still exists, the interpretation should be made with resort to the purpose of the contract, the transaction usages and the good faith.
What should be noted is that Article 125 makes the principle of good faith an interpretation determinant. Although it seems too abstract to understand how the good faith principle would help ascertain the meaning of a contract term or clause, most contract scholars in China argue that the good faith prin- ciple, though left undefined in the Contract Law, plays a significant role in the contract interpretation and must be observed. It is generally understood in China that the good faith is the supreme rule of contract and as applied to the con- tract interpretation it requires the interpretation to be made according to com- monly accepted business ethics in order to ensure the fair dealing. In this
25 For example, according to Li Guoguang, the contract interpretation under the Contract Law
shall start with the literal meaning of the words and expressions, and then determine the true meaning by examining the parties’ intention as expressed with a reference to the parties’ actual thinking. See Li Guoguang, supra note 13 at p. 521.
connection, the application of good faith in contract interpretation is actually the application of the notion of fairness as well as the business and public ethics.
For example, on March 14, 2004, in order to observe the “International Consumers Right Day”,27Beijing Association of Consumers Protection, on
the basis of complaints it received from customers in the year 2003, published a list of 10 major unfaith and unethical business conducts that are regarded as clear violation of good faith principle. This list from one aspect represents how the good faith is understood in the general public of China. The 10 major unfaith and unethical business conducts include (1) use of advertisement or other means to provide false information about products or services to mislead consumers; (2) illegal production and sale of unqualified products; (3) use of the advantage of monopoly or exclusive business position to force consumers to buy its products or services; (4) use of unfair standard contract or terms to increase consumers’ obligations and reduce business operator’s liability; (5) use of deceived means by malicious collaboration among business opera- tors to allure consumers to buy; (6) intentional omission of product and serv- ice information that should be expressly stated; (7) use of inferior materials or cutting down of the work for products or services; (8) intentional breach of the agreement with, or promise to, consumers; (9) intentional concealment of the specification, certificate or other related information of the products or services in order to evade legal obligations; and (10) revelation of consumers’ personal information without authorization for purposes of making profits.28
However, when the contract interpretation is made in consistence with busi- ness and public ethics under the principle of good faith, the contents ascertained as such may not necessarily be the same as the parties have actually intended. It is then argued that in order to make the contract interpretation more meaning- ful the good faith shall be the last resort to be used for the interpretation. That is to say that if the true intention of the parties could be ascertained by other means of interpretation, the other means shall first be employed. In this regard, the good faith principle is actually to function as the “filler” to fill in the holes that may appear in the contract interpretation. To speak generally, the good faith may be used as a “catch-all” means to deal with the interpretation of contract.29
27 In 1983, the Organization of International Consumers Union made the March 15 an
International Consumers Right Day.
28 See Jin Hua Shi Bao (Beijing Times), March 15, 2004 at p. A12.
29 In the United States, a distinction is made between contact interpretation and contract con-
struction. The interpretation is to ascertain the meaning of the parties while construction relates the legal effect of words used. According to Professor John Calamari, the construc- tion placed upon an agreement will not necessarily coincide the meaning of the parties. See Calamari & Perillo, The Law of Contracts (5th ed, 1998) 614–615.
It should be emphasized that under the Contract Law the purpose of con- tract is not only an important factor for contract interpretation, but also a pri- mary basis for the interpretation concerning the different language versions of a contract. The second paragraph of Article 125 provides that where two or more languages are used in the text of a contract and it is agreed that both ver- sions are equally authentic, it shall be presumed that the terms and expres- sions in different versions have the same meaning. It is further provided that in case where the terms and expressions in different versions are inconsistent, they shall be interpreted on the basis of the purpose of the contract.
2.4. Supplementary Agreement for Uncertain or Missing Terms
Distinctively, in addition to Article 125 that deals with contract interpretation, Articles 61 and 62 of the Contract Law also contain provisions that apply for the determination of the terms of a contract. Under the Contract Law, how- ever, Articles 61 and 62 may apply only when some specific terms of the con-