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CISG CASE PRESENTATION

China 24 April 2008 Zhejiang High People's Court [Appellate Court] (Zhejiang Henghao Garment Co. Ltd. v. Trio Selection Inc.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080424c1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20080424 (24 April 2008)

JURISDICTION: People's Republic of China

TRIBUNAL: Zhejiang High People's Court [Appellate Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Zhejiang Henghao Garment Co. Ltd. v. Trio Selection Inc.

CASE HISTORY: 1st instance Intermediate People's Court of Hanghou 2007 [reversed]

SELLER'S COUNTRY: People's Republic of China (plaintiff)

BUYER'S COUNTRY: Canada (defendant)

GOODS INVOLVED: Garments


Classification of issues present

APPLICATION OF CISG: Yes. The court stated:

"In the first instance, the parties selected Chinese law as the law applicable to this dispute. Therefore, Chinese law applies to this case. Moreover, Canada is a Contracting State of the United Nations Convention on Contracts for the International Sale of Goods (CISG). Hence, the CISG applies to the present dispute as well."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 18 ; 29 [Also cited: Articles 53 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

18A2 [Criteria for acceptance of offer: acts of performance];

29A [Modification or termination of contract by agreement: parties by agreement may modify or terminate the contract]

Descriptors: Acceptance of offer ; Estoppel ; Modification of contract

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Click here for Chinese text of case; see also CISG-China No. [HPC/28] <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=120>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Zhejiang High People's Court

Zhejiang Henghao Garment Co. Ltd.
v.
Trio Selection Inc.

24 April 2008

Translation [*] by Jing Li [**]

Appellant (the original Plaintiff, hereinafter the "[Seller]"), Zhejiang Henghao Garment Co. Ltd. [of the People's Republic of China] refused to accept the Civil Judgment by the Intermediate People's Court of Hangzhou, Zhejiang's (2007) Hang Min San Chu Zi No. 270 on the dispute arising out of the sales contract with the Appellee (the original Defendant, hereinafter the "[Buyer]"), Trio Selection Inc. [of Canada], and appealed to this Court. On 4 March 2008, this Court accepted the case and a collegial bench was formed according to the relevant law. A public court session was held on 8 April 2008. All parties and their respective representatives were present at the court session. This case is now closed.

RULING OF THE COURT OF FIRST INSTANCE

The Court of First Instance ascertained the following facts:

      On 19 April 2007, the [Buyer] sent an order in Chinese via its Hangzhou Representative Office to the [Seller] ordering 1,936 garments with particular requirements of color, size, proportioning, quality control (quality inspection), payment, place of shipment, warehouse entry date (3 July) (hereinafter, the "Order"). Mingxia Zheng, the person in charge of the [Buyer]'s Hangzhou Representative Office handwrote the unit price of US $3.35 on this order. After receiving the Order, the [Seller] commenced the manufacturing according to the established practice between the parties and accomplished the production of 1,697 garments. However, the [Buyer] failed to take delivery of the goods. Therefore, the [Seller] filed a lawsuit with the Court of First Instance on 5 September 2007, requesting the Court of First Instance to order the [Buyer] to take delivery of the 1,697 garments and to pay the contract price in the amount of US $5,681.60 (RMB 46,589.12).

The Court of First Instance ascertained that the [Seller] was established on 23 December 2004 and its legal representative was Mingxia Zheng; from 2003 to June 2007, Mingxia Zheng was the person in charge of the [Buyer]'s Hangzhou Representative Office.

The Court of First Instance found that:

      The present dispute involves an international sales contract. With regard to jurisdiction, Article 243 of the Civil Procedure Law of the People's Republic of China (hereinafter, "Chinese Civil Procedure Law") provides that:

"A lawsuit brought against a defendant who has no domicile in the People's Republic of China concerning a contract dispute à if à the defendant has its representative agency, branch, or business agent within the territory of the People's Republic of China, may be under the jurisdiction of the People's Court located in the place where à the representative agency, branch or business is located."

The [Buyer] had a representative office in Hangzhou, Zhejiang, within the territory of the People's Republic of China. Therefore, the Court of First Instance has jurisdiction over the dispute.

With regard to the law applicable to the dispute, the parties chose Chinese law. Therefore, the Court of First Instance applied Chinese law to the case. The issue in dispute was whether the Contract was subject to continuous performance. In the present dispute, the [Buyer] sent an order via its Hangzhou Representative Office to the [Seller] ordering the goods at issue. After receiving the Order, the [Seller] indicated assent to the Order by commencing manufacturing the goods. Hence, a contract was concluded between the parties (hereinafter, the "Contract"), and the content of the Contract was identical to the content of the offer, i.e., the Order. However, the [Buyer] alleged that it did not authorize Mingxia Zheng to handwrite the unit price of US $3.35 in the Order, and thus, the Order sent by the [Buyer] should not include the price. The Court of First Instance found that the [Seller] confirmed that it knew of the fact that Mingxia Zheng handwrote the unit price on the Order. However, as the person in charge of the Representative Office of the [Buyer], Mingxia Zheng was not authorized by the [Buyer] beforehand, nor did the [Buyer] ratify such authorization afterwards. The [Seller] had no reason to believe that the [Buyer] intended to include the unit price of US $3.35 as the offer. It was the position of the [Buyer] that, therefore, the parties did not agree on a contract price in the contract.

The Court of First Instance held that the intention expressed by the parties in the Contract was genuine, and it was not against any mandatory provisions stipulated in the law and regulations. The Court of First Instance found that the Contract was valid and the parties were bound to perform their respective obligations under it. For the [Seller], its main contractual obligation was to deliver the goods under the Contract within the contractual period. However, the [Seller] failed to provide evidence proving that it notified the [Buyer] to examine or to take delivery of the goods before 3 July 2007, i.e., the contractual date of delivery. Although the [Seller] provided in court an examination report issued by Xuanyong He of the [Buyer]'s Hangzhou Representative Office (hereinafter, the "Examination Report"), this examination report was not sealed with the [Buyer]'s official chop. Moreover, Xuanyong He was neither the contractual quality inspector nor the quality inspector assigned by the [Buyer]. Therefore, the Court of First Instance could not verify that the [Seller] notified the [Buyer] to examine and take delivery of the goods in a reasonable manner on the date of delivery. At the same time, the [Seller] could only deliver 1,697 garments, which was less than the contractual 1,936 garments. The [Seller] did not perform its obligations under the Contract. In the present case, the [Buyer] claimed that the [Seller] delayed in performing its main obligations, which led to frustration of the Contract. The Court of First Instance supported this claim according to the law.

To sum up, under Article 60 of the Contract Law of the People's Republic of China (hereinafter, "Chinese Contract Law"), Article 64 of the Chinese Civil Procedure Law, and Article 2 of Some Provisions of the Supreme People's Court on Evidence in Civil Procedures, the Court of First Instance handed down the original ruling on 13 December 2007: to dismiss the [Seller]'s motion. The [Seller] was held responsible for the litigation fee of RMB 965.

POSITION OF THE PARTIES ON APPEAL

[Seller]'s position

The [Seller] refused to accept the judgment by the Court of First Instance, and appealed to this Court.

      The [Seller] claimed that the Court of First Instance was in error ascertaining the facts and applying the law, and the judgment was based on insufficient evidence.

      The [Seller] claimed that in late June 2007, the [Seller] notified the [Buyer] to examine the goods. The [Buyer] then sent its quality inspector Xuanyong He to examine the goods, after which he issued an Examination Report stating that the 1,697 pieces of garments were fit for the contract. The [Seller] had reason to believe that as the person in charge of the [Buyer]'s Hangzhou Representative Office, Mingxia Zheng had the [Buyer]'s authorization to decide on the unit price of the goods at issue. Mingxia Zheng's conduct constituted agency by estoppel. The examination carried out by Xuanyong He constituted an agency by estoppel as well. Therefore, the [Seller] was responsible for the legal consequences arising out of its employee's conduct. Consequently, the [Seller] requested this Court to overrule the original judgment; instead, to support the [Seller]'s claims and to require the [Buyer] to pay for the litigation fees for both instances.

[Buyer]'s position

In response, the [Buyer] alleged that

      The [Seller] did not notify the [Buyer] to examine the goods on the date of delivery agreed by the parties in the Contract. The [Buyer] did not assign its employee to examine the goods, either. Xuanyong He examined the goods without authorization by the [Buyer], and this incident was handled internally by the [Buyer]. In addition, the goods delivered by the [Seller] were not in conformity with the quantity required by the Contract. The [Buyer]'s Hangzhou Representative Office was merely a liaison office for the [Buyer]. It did not have authority to directly engage in business activities. Without the [Buyer]'s authorization or ratification, Mingxia Zheng, as the person in charge of the [Buyer]'s Hangzhou Representative Office, had no authority to represent the [Buyer] to promise the contract price. Moreover, Mingxia Zheng was the legal representative of the [Seller]. If she could represent the [Buyer] to offer the contract price, she then was offering the contract price to herself. In conclusion, the Court of First Instance clearly ascertained the facts and correctly applied the laws. The [Buyer] requested this Court to dismiss the appeal and sustain the original judgment.

Supplementary evidence submitted by the [Seller] on appeal

The [Seller] submitted the following supplementary evidence in support of its position:

1. Testimony presented by Xuanyong He, proving that he examined the goods at the [Seller]'s site after being appointed by the [Buyer]'s Representative Office.

2. Three copies of Examination Reports.

3. One copy of Labor Contract.

4. One copy of Agreement to Terminate the Labor Contract.

Items 2-4 were submitted to prove that Xuanyong He was a quality inspector at the [Buyer]'s Hangzhou Representative Office.

5. One copy of Notice to Examination, proving that the [Seller] had notified the [Buyer] to examine the goods on the date of delivery as agreed by the parties in the Contract.

6. A sales contract between the [Buyer] and Jinhua Tianfo Knitting & Textile Co. Ltd.

7. A sales contract between the [Buyer] and Minghua Corporation.

Items 6-7 were submitted to prove that in these contracts between the [Buyer] and other companies, Mingxia Zheng handwrote the unit price of the goods in those contracts as well.

8. One copy of Labor Contract, proving that Shuihua Yan was an employee of the [Buyer]'s Hangzhou Representative Office.

9. One copy of Proof, establishing the fact that Shuihua Yan and the [Buyer]'s Hangzhou Representative Office terminated their employee-employer relationship on 10 October 2007.

In addition, the [Seller] requested this Court to admit Xuanyong He as a witness. Xuanyong He stated at court that he worked at the [Buyer]'s Hangzhou Representative Office from 13 July 2007 to 31 December 2007 as a quality inspector. On 31 July 2007, he was appointed by the [Buyer]'s Hangzhou Representative Office to examine the goods at issue at the [Seller]'s site. Thereafter, he issued the Examination Report. The Examination Report was sent back to the [Buyer] for filing after Xuanyong He signing it. The [Buyer] did not affix its seal on this report.

In response, the [Buyer] stated:

      Item 1: The [Buyer] objected to this evidence. The [Buyer] said that it had never appointed Xuanyong He to examine the goods;

      Items 2, 6, 7: These items of evidence were duplicated copies. The [Buyer] requested the [Seller] to submit original copies for cross-checking. Without the original copies, the [Buyer] could not verify these exhibits;

      Items 3, 4, 8, 9: The [Buyer] did not object to these exhibits;

      Item 5: This was a duplicated copy. Moreover, the [Buyer] did not receive this notice.

Supplementary evidence submitted by the [Buyer] on appeal

The [Buyer] submitted the following supplementary evidence in support of its position:

1. One copy of an Agreement proving that Bing'er Wang and the [Buyer]'s Hangzhou Representative Office terminated their employee-employer relationship on 31 July 2007.

2. One copy of a document stating how the [Buyer]'s Hangzhou Representative Office handled the incident with Xuanyong He, proving that the [Buyer] was not aware of the fact that Xuanyong He examined the goods.

3. One copy of proof concerning the termination of the Labor Contract with Shuihua Yan, proving that Shuihua Yan's Labor Contract was terminated on 30 September 2007.

In response, the [Seller] stated:

      Items 1, 3: The [Seller] did not object to these exhibits;

      Item 2: The [Seller] verified that this duplicated copy was identical to the original copy. However, the [Seller] objected to the authenticity of its content.

REASONING OF THE APPELLATE COURT

After cross-examination by the parties, this Court verifies the evidence as follows:

      Items 3, 4, 8, 9 of the [Seller]: Since the [Buyer] did not raise objections, this Court verifies these items of evidence.

      Items 1, 3 of the [Buyer]: Since the [Seller] did not raise objections, this Court verifies these items of evidence.

      Items 2, 5, 6, 7 of the [Seller]: These exhibits are duplicated copies. The [Seller] failed to submit the original copies for cross-checking. Moreover, the [Seller] failed to submit supportive evidence to prove that the notice was sent to the [Buyer]. Therefore, this Court does not verify these exhibits.

      Item 1 of the [Seller]: Xuanyong He attended the court session as a witness. Moreover, Items 3 and 4 indicated that from 13 July 2007 to 31 December 2007, Xuanyong He worked at the [Buyer]'s Hangzhou Representative Office as a quality inspector. Along with the fact that the contractual quality inspector Bing'er Wang already left the [Buyer] on 31 July 2007, the appointment of Xuanyong He as the quality inspector was reasonable. Although the [Buyer] objected to the authenticity of Xuanyong He's testimony, the [Buyer] failed to submit opposing evidence. Therefore, this Court verified this evidence.

      Item 2 of the [Buyer]: Xuanyong He stated that he had never received this document after inquiry by this Court. Since the [Buyer] failed to submit evidence proving that this document was sent to Xuanyong He, this document cannot prove that the [Buyer]'s Hangzhou Representative Office has dealt with the incident concerning Xuanyong He.

According to the valid evidence submitted by the parties in both instances and their statements, this Court ascertains the following facts:

      The [Seller] was established on 23 December 2004. Its legal representative was Mingxia Zheng. On 19 April 2007, the [Buyer] sent an order in Chinese via its Hangzhou Representative Office to the [Seller] purchasing 1,936 garments. In addition, the Order stipulated the color, size, proportioning, quality control (quality inspector: Bing'er Wang), payment, place of shipment, and warehouse entry date (3 July). Mingxia Zheng, the person in charge of the [Buyer]'s Hangzhou Representative Office, handwrote on the Order the unit price for the garments, i.e., US $3.35. After receiving the Order, the [Seller] commenced manufacturing the goods in accordance with the practice established between the parties. The actual number of garments produced was 1,697. On 31 July 2007, the labor contract between Bing'er Wang and the [Buyer]'s Hangzhou Representative Office was terminated. On the same day, Xuanyong He, then the quality inspector of the [Buyer]'s Hangzhou Representative Office arrived at the [Seller]'s site to examine the garments and issued the Examination Report. The date of dispatch indicated in the Examination Report was 2 August 2007.

      The scope of business of the [Buyer]'s Hangzhou Representative Office is to provide liaison and consulting services for the [Buyer]'s processing trade business. Moreover, Mingxia Zheng left the [Buyer]'s Hangzhou Representative Office in July 2007.

This Court finds that

      [1] The present suit involves a dispute over an international sales contract. Article 241 of the Chinese Civil Procedure Law [Translator's note: The Chinese Civil Procedure Law was revised in 2007. The Article 243 referred to by the Court of First Instance was identical with the Article 241 referred to by the Appellate Court.] provides that:

"A lawsuit brought against a defendant who has no domicile in the People's Republic of China concerning a contract dispute à if à the defendant has its representative agency, branch, or business agent within the territory of People's Republic of China, may be under the jurisdiction of the People's Court located in the place where à the representative agency, branch or business is located."

The [Buyer] had a representative office in Hangzhou, Zhejiang. Therefore, the Court of First Instance had jurisdiction over this case. In the first instance, the parties selected Chinese law as the law applicable to this dispute. Therefore, Chinese law applies to this case. Moreover, Canada is a Contracting State of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, the "CISG"). Hence, the CISG applies to the present dispute as well.

      [2] The intention expressed by the parties in the Contract is genuine, and the content therein is not against any mandatory provisions provided by law or regulations. Thus, the Contract is valid. The parties are obligated to perform their obligations under the Contract. The [Seller] was required to deliver all of the goods in a timely manner. In the present case, the [Seller] failed to deliver 1,936 garments before 3 July 2007. Therefore, the verification of Xuanyong He's conduct of examining the goods is the key to the case. This Court finds that it was clear that Xuanyong He was a quality inspector at the [Buyer]'s Hangzhou Representative Office. It was an act of official duty for him to be appointed to examine the goods at the [Seller]'s site. The Examination Report should be considered as the new agreement between the [Buyer] and the [Seller] on the issues of delivery date and quantity. This Court supports the [Seller]'s claim on appeal that the Court of First Instance erred in verifying the delivery date and quantity. The [Seller] had fully performed its obligations according to the new agreement. On the other hand, the [Buyer] failed to pay for the contract price, and is obligated to continue to perform its obligations under the Contract. With regard to the unit price, this Court finds that a complete contract shall include price terms. Mingxia Zheng was then the person in charge at the [Buyer]'s Hangzhou Representative Office when she handwrote the unit price on the Order. Although the [Buyer] alleged that Mingxia Zheng was not authorized to decide on the unit price, the [Buyer] did not object to the unit price indicated in the Order. After Mingxia Zheng left the Representative Office, the [Buyer] continued to send the quality inspector for examination. This indicates that the unit price written by Mingxia Zheng was ratified by the [Buyer]. Therefore, this Court supports the [Seller]'s claim on appeal that Mingxia Zheng represented the [Buyer] to decide on the unit price. In conclusion, the [Buyer] is responsible to pay at the unit price specified in the Order.

RULING OF THE APPELLATE COURT

To sum up, the [Seller]'s claim on appeal requesting the [Buyer] to continue performing the contract is established. This Court supports this claim. The Court of First Instance handed down the original judgment based on unclear facts and inappropriate application of the laws. This judgment should be corrected. In conclusion, according to Items 2 and 3 of the first paragraph of Article 153, Chinese Civil Procedure Law, Articles 60 and 107 of the Chinese Contract Law, and Articles 53 and 62 of the CISG, this Court:

(1)   Overrules the original judgment;
(2)   Requires the [Buyer] to take delivery of the 1,697 garments at the [Seller]'s site within 10 days after this judgment comes into effect;
(3)   Requires the [Buyer] to make payment of the contract price in the amount of US $5,681.60 within 10 days after this judgment comes into effect.

Under Article 232 of the Chinese Civil Procedure Law, if the [Buyer] fails to perform its obligation in respect to payment of money within the time limit specified above, it is responsible for multiple interest on the debt for the period of deferred performance.

The litigation fees for the two instances were RMB 965 each and the application fee for the pre-trial custody of property is RMB 486, totaling RMB 2,416. The [Buyer] is responsible for this payment.

This is the final judgment.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Appellant (the original Plaintiff) Zhejiang Henghao Garment Co. Ltd., is referred to as [Seller] and Appellee (the original Defendant), Trio Selection Inc. is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Jing Li, LL.M., University of Texas at Austin, School of Law; Master of Law, Sun Yat-Sen University School of Law, China; LL.B., Sun Yat-Sen University School of Law, China; Associate, Institute of International Commercial Law, Pace University School of Law.

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